Published CommPRO.biz 2013.10.11

Reputation – A Road to Profitability

 

In the run up to its 2013 COMMIT!Forum this week (2013.10.8-9), CR Magazine released the results of a piece of research it commissioned on the effect corporate responsibility and reputation have on recruiting. They had a pollster ask people if reputation would impact their thinking before they took a job. These days you wouldn’t think it would be a big deal. Surprise! 69% said they would pass up a job offer from a smarmy company. This was true of those who have a job and those who are unemployed.

When asked what it would take to get them to take a job with a less than top rate company, the answer was a huge raise, at least 50%, more and in some cases they would not move unless their pay was doubled. On the other hand, 84% would move to a more reputable company if offered as little as 1% to 10% more pay. It seems pretty clear that a quality workforce is easier to hire and less costly for reputable companies. And your best people are at risk if your reputation is shaky.

More than their workforce is at risk for financial organizations with a less than stellar reputation, according to the 2013 Makovsky Wall Street Reputation Study. Communications firm Makovsky commissioned this study to measure the impact of reputation on financial companys’ revenues. We know this segment enjoyed a robust recovery thanks to the bailouts and zero interest FED loans. Their smarmy reputation is costing them revenue, however.

The researchers contacted communications professionals in the sector and asked a range of questions about revenues and what their companies are doing to deal with customers’ negative views. On average, revenues are down 9%, a hefty price to pay. Lost revenues total hundreds of millions. Six in ten companies believe it will take five more years to catch up to where their reputations were before the crash. Only one in four say their firm has already reached that level; obviously that may include wishful thinkers.

Study after study show that firms working to do the right thing see a positive impact on their bottom line. The CR Magazine study shows that most people are focused on working for companies with a reputation for doing the right thing. The Makovsky Reputation Study shows that even Wall Street firms can profit by doing the right thing. Makes you wonder why people like Jamie Dimon at Chase and Lloyd Blankfein at Goldman Sachs keep pushing a culture of profits before any thought about doing the right thing.

Too many business leaders confuse compliance with ethics. Blankfein is a lawyer, trained to see the edge of the law as defining right and wrong; that’s compliance, not ethics. Doing the right thing has nothing to do with compliance. Compliance is what you can get away with, not the right thing. Reputation is about the right thing. Research shows if you strive to do the right thing, profit takes care of itself.

 It Doesn’t Change The Facts

Published today in CommPro.biz http://www.commpro.biz/news/tuesday-october-30-2012/ 

 

Remember last March when a Goldman Sachs executive very publicly resigned with a scathing OP-ED in the New York Times? Well, last week (2012.10.23) Greg Smith released a book fleshing out his description of Goldman’s decay over the twelve years of his impressive career from the heady time when he made the cut and became an intern. Prior to the book’s release, Goldman fired back. They deny that they play any of the smarmy games that Smith claims are routine.

The investment banking firm paints Smith as a disgruntled employee who left not out of disgust with a deteriorating culture, but because he was refused an increase in his annual bonus from a half-million to a million dollars. Smith doesn’t deny that request, but suggests that instead of select items, Goldman should release his entire personnel file. He says it will show twelve years of rave reviews.

While smearing Greg Smith may blunt his criticism, the fact is, Goldman has paid out more than a half-billion dollars to make charges of the very kind Smith hangs his arguments on, go away. Goldman CEO Lloyd Blankfein told the Times of London, that he is “just a banker doing God’s work.” Comedian Stephen Colbert noted that “Blankfein had not indicated which god. Perhaps Shiva, Lord of Destruction.”

Blankfein has hired a lawyer with a history of defending high profile corporate crooks; not what those working in God’s vineyards normally do. On the face of it Greg Smith has an impressive track record. During his twelve years at Goldman he rose from intern to a high ranking position in their London office. He was chosen as one of ten out of more than 30,000 Goldman employees to appear in their college recruiting video. He was certainly a key player.

A Congressional investigation detailed that Goldman routinely sold packages of crappy investment vehicles to their customers (AKA “Muppets”) all the while betting that they would fail. Testifying before a Congressional Committee, CEO Blankfein denied knowledge of these practices. However, the Committee trotted out internal documents putting his denial in “Pants on Fire” territory.

So it comes down to this. Greg Smith’s motivation for leaving may or may not have been pristine. However, his motivation does not make his claims untrue. Goldman Sachs is not a nice outfit. They are not doing God’s work. They grind out huge profits moving money around. In Goldman’s case not a role that contributes to the well-being of society.

Understand, many investment banks play an important role. They provide bucks to keep major organizations in business and serve as advisors to businesses and to institutional investors. Problem is Goldman Sachs and some other bottom feeders play both sides of the street. The game that regulators during the Great Depression decided was a really bad idea. The laws set up back then to protect against the activities Greg Smith sees as toxic were swept away in the 1980’s and 90’s, leading to the recession we are struggling to overcome. Bad idea? You bet! Once a bad idea, always a bad idea.

Chickens Roost

We sure are glad we haven’t been holding our breath waiting for those who drove our economy off the cliff to be called into account. While there is still not a lot of action on that front, various folks are finally going after the bad guys. Federal and some state prosecutors -notably the New York State Attorney General- are on the move. And the shoes are beginning to fall in the civil courts.

The American Civil Liberties Union (ACLU) filed a suit last week (2012.10.15) against Morgan Stanley.  The investment bank loaned billions to New Century, an outfit that specialized in sub-prime loans. Morgan Stanley pushed New Century to generate more and more of those high risk loans, then packaged them up and sold them -at astronomically high margins- to pension funds and other “suckers” as they were referred to. These toxic loan packages, along with similar packages peddled by other investment banks, went sour and were the major factor in the collapse of the world economy. An exercise in ethical ignorance.

What made the New Century loans particularly smarmy were the mortgage company’s targets. Poor folks, mostly black, who were not sophisticated enough to understand what they were signing up for. According to published reports the ACLU’s class action suit on behalf of these folks is based on “claims that Morgan Stanley violated the Fair Housing Act and the Equal Credit Opportunity Act.”

This suit joins a host of others by investors and government entities aimed at finally bringing to task the banks whose reckless behavior has caused incredible pain all around the world. In addition to the Morgan Stanley suit, Wells Fargo is facing an action claiming that their reckless lending practices ended up dumping bad loans on the taxpayers’ backs by sticking a government insurance program with the tab. Bear Stearns & Company, now a part of JP Morgan Chase, fell into the sights of the Justice Department earlier this month for reckless housing boom activities. One-by-one the guys who rolled the dice and hollered for help from the taxpayers when they came up snake eyes, have the law knocking on their door.

But where are the individuals, the executives who pushed to keep the bucks flowing from their subprime mortgage scams? Where are the big shots who took hundreds of millions in bonuses while the taxpayers suffered from the recession triggered by their reckless actions? People like Lloyd Blankfein, Goldman Sachs’ CEO who had his people betting against their own customers in a heads-we-win, tails-you-lose game that only Goldman Sachs could win. Unbelievable!

The same “Pants on Fire” Blankfein who mocked a Congressional Committee by denying knowledge of activities at Goldman Sachs when internal communications from the bank show clearly that he was in the loop. How come Blankfein has not been charged with lying to Congress, a felony? After all, we went after a baseball player for lying with little or no evidence, why not a banker with solid evidence?

Just in Time for Christmas

As day after day of misery goes by in the lives of the little folks crushed by the financial crisis, one question lies in the back of their minds. Who did this to us? Who’s looking for them and when will they be punished? We have known the answer to the first question for some time. The Wall Street investment banks’ sophisticated (read Crappy) investment packages whipped up a perfect storm.

They sold this Crap (their term not ours) to people who should have known better based largely on stellar ratings from the agencies charged with vetting these investments. The ratings agencies were pushed by their customers (big banks)  and did not look – as hard as they should – at the packages.

And it turns out that the bailout bucks we knew about (TARP) were nothing when compared to the zero interest loans the Federal Reserve was handing out to keep the banks afloat, trillions in secret loans. Bloomberg Markets Magazine blew the lid off this program. It was ten times the size of TARP.  By far the biggest hunk of these bucks (63% of the daily average) went to the same gang that got us into this mess – six humongous banks.

How did these half-dozen too-big-to-fail banks position themselves to come out of any crisis they might create covered in gold? Over a couple of decades they conned Congress into repealing the laws designed to prevent things like the 2008 crash. They even got “The Fools on the Hill” (AKA the Congress) to exempt banks from State Lottery laws. Who helped this along?  Clinton’s Secretary of the Treasury, Robert Rubin, fresh from 26 years and the top job at Goldman Sachs.

When the house of cards collapsed, who came up with the plan to save the banks? Bush Secretary of the Treasury Hank Paulson, fresh from the top job at Goldman Sachs, led the charge to save his comrades.  It gets even better; in 2006 Goldman Sachs was able to foresee that the crap was really crappy and likely to crash. Did they sound the alarm? Of course not, that might have interfered with their efforts to sell crap to their customers. Instead they bet it would crash and reaped a huge profit.

What ties this all together? Two of the key players, Rubin and Paulson, both came from Goldman at just the right moment to get rid of the pesky banking laws. So in addition to the efforts of all the banking lobbyists, you might say it was an “Inside Job.”

However, our wait to make those responsible pay may be nearly over. The SEC has charged six former Fanny Mae and Freddy Mac executives. More important, New York State Attorney General Eric Schneiderman and other State AGs are looking at criminal and civil charges. It would be nice to see a few of the arrogant bankers on their way to jail?  When you think about it, what they did was harmful than Bernie Madoff’’s scams. “Pants-on-Fire” Goldman CEO, Lloyd Blankfein has another view; bankers, he says, are “doing God’s work.”

“Round One,” The Banks vs. The Rest of Us

“Round One,” The Banks vs. The Rest of Us

Within a month Federal District Judge Jed Rakoff has launched what may be the beginning of the end for rapacious behavior on the part of our banking sector. Earlier this month he refused once again to rubberstamp an under-the-table deal the Security and Exchange Commission (SEC) made with a “Too Big To Fail” Bank, this time Citi. Unlike earlier deals that came before him, he is apparently not going to agree to any settlement without all the gory details being revealed.

As you may recall from our 11.15.11 OP-ED, Citi has been charged with fraud. With selling their customers a bundle of crappy investment vehicles while at the same time betting against them. Of course the crappy stuff turned out to be crappy and when they failed, Citi’s customers took a hit somewhere north of $700 million bucks and Citi collected on their bet. Judge Rakoff questioned the settlement -$95 million- and the fact that only one individual was charged with criminal behavior. In an earlier case (Bank of America) Rakoff signed off when the SEC upped the penalty. Two other Federal Judges signed off on similar deals with Goldman Sachs and J.P. Morgan Securities, as many judges have over the years.

After mulling over the Citi deal for a couple weeks, Rakoff took a very different tack. This time he rejected the premise that Citi could walk away with a fine and a promise to never do it again. He wants all the gory details out on the table. A path that drew a snarky headline, “Rakoff Cements Status as Populist Firebrand”, on the American Lawyer Magazine website’s report on his ruling. Basically saying that his failure to play “go along to get along” would end any chance of promotion for the judge.  But isn’t that what ethics is all about, doing the right thing without regard for self interest?

An end may be at hand to the age of repeated SEC “Peanuts and a promise” deals for those who pull off massive ripoffs. As Steve Denning noted in a recent Forbes article, What Shall We Do With The Big, Bad Banks, “Over the last 15 years, some 19 large major financial institutions have been found by the SEC to have broken anti-fraud security laws at least 51 times—laws  that they agreed ‘never again to breach’. The group of offenders included Citigroup, Bank of America, JPMorgan Chase, UBS, Goldman Sachs, Wachovia, and AIG. In this period, the Securities and Exchange Commission has never once brought a contempt of court citation against any of the banks for repeated offences.”

The leaders of these behemoths, the Lloyd Blankfeins and Jamie Dimons and their minions who hide behind these “Don’t Ask, Don’t Tell” deals with the SEC, may be called to task if it turns out that they were aware of the double dealings underlying the SEC charges. An outcome sure to be cheered by the State Attorney Generals across the country that have been pursuing the culprits who triggered the financial collapse we are enduring; looking for someone to jail.

Wouldn’t that be nice? Three cheers for Judge Jed Rakoff.

Take Off The Kid Gloves

Take Off The Kid Gloves

The Securities & Exchange Commission (SEC) ended its fiscal year in September having filed a record number of cases (735), up almost 10% from their pace (677) last year. They collected nearly $3 billion in penalties both years. Meanwhile the annual Johnson Associates’ “Executive Compensation Study” shows an alarming drop in pay for the folks on Wall Street, as much as 20% - 30%. Alarming perhaps to the Wall Street types, but to those who are trying to make ends meet the Wall Street pay scale, that begins at a hundred grand and can escalate into seven or eight figures, still looks really good. 

Reuters reports that over the last two years the SEC has removed a management layer and restructured their enforcement division. And, they have created a new whistleblower bounty program alongside other incentives to encourage witnesses to cooperate. Given the two record years they have registered, it must be working.

Or is it? It appears that the SEC is still treading softly with the big banks and the individuals behind the misdeeds (AKA CEOs etc.).  A Federal District Judge, Jed Rakoff, doesn’t seem convinced that a proposed settlement with Citibank is tough enough on the bank. Citi is charged with fraud; selling customers crappy financial instruments at the same time the bank was betting they would fail. The very same double dealing that triggered the financial collapse we are enduring.

In a hearing last week Judge Rakoff questioned the SEC on the settlement: $95 million when the investors Citi ripped off lost $700 million. The judge has taken a similar position with several lowball settlements the SEC proposed in the past. Rakoff also questioned why only one individual in this case has been charged with wrongdoing.

We –along with many others, including State Attorney Generals across the country– have been wondering about the SEC slap-on-the-wrist penalty proclivity. A concern the Attorney Generals also direct toward the Justice Department; why has it not zealously prosecuted bankers who triggered the recession? We know who they are and what they did. Instead, after bailing them out we are forced to watch as they go back to the same risky stuff all over again, sure that we will bail them out again when it collapses. All the while taking home eight-figure bucks.

The banks’ reaction to the relatively mild restraints of the Dodd/Frank Act is to pile new fees on their customers. They have grown so accustomed to inflated profits from what are nothing more than risky gambling schemes that when a little of that revenue stream is cut off, they sock it to their customers instead of living lean. In the meantime we have to listen to Jamie Dimon, JPMorgan Chase “Whiner in Chief,” and Goldman Sachs CEO, Lloyd Blankfein (AKA The Artful Dodger) complain. They are so misunderstood and unappreciated after all they do for us, poor babies.

Alan Johnson, managing director of Johnson Associates, the firm that carried out the Wall Street wage study, put the ethical issue very succinctly, “Wall Street executives,” he said, “haven’t gotten the memo at all.”