Rules Not to Live By

Stephen Baum

February 8, 2008

The morning of the SuperBowl, I read an article describing NFL Commissioner Goodell’s rationalization for destroying the videotapes and notes from his investigation into the videotaping of the Jets’ signals by the Patriots. I sent my viewpoint to Huffington Post (which posted it -- you can find it if you can find “all bloggers” and Stephen H Baum within all bloggers).

Goodell reinforced an ethical standard articulated by Phil Simms, former QB of the Giants:


  1. -There is no specific rule against it
  2. - Everybody does it
  3. -It doesn’t have much benefit anyway

This standard fails the test of “Would your grandmother be proud of what you did if she read it in your home town newspaper.” And Goodell actually went further, insisting that “transparency” has no role or value in investigations by the league.

The reason my post about the Patriots is going to be evergreen has just become evident. Journalists are already trying to explain (and in some cases rationalize as an addiction) the reckless risk-taking at Societe Generale by a rogue trader as if the higher ups know nothing about it. As if there were not an unwritten rule that senior management will look the other way when traders go beyond official risk limits as long as they are profitable. And as if there aren’t other traders we will hear about later who were known to be over the line with the C-suite failing its fiduciary obligations to shareholders and its promises to investors and clients. At Merrill Lynch, risk management policies were, at best, ignored and those who spoke out or resisted the push further away from the “efficient frontier (where risks and rewards are relatively well matched) were sent packing. The front-end fees and other profits were just so high that greed obscured judgment.

And now we have Wachovia. I certainly would not trust Wachovia who was accused of allowing fraudulent telemarketers to use the bank’s accounts to steal millions of dollars from unsuspecting victims. Wachovia denied the allegations. Now we find out they had known about the allegations for a long time and had solicited business from companies it knew had been accused of telemarketing crimes. Wachovia “...made a lot of money from them.” And it is no surprise to anyone, least of all professional bankers, that the telemarketing industry includes companies who resort to not only unsavory tactics but fraud.

“These types of crimes are possible only because banks tolerate them,” said Patrick L. Meehan, U.S. Attorney in Philadelphia. Precisely. And if the bank boards and their CEOs do not quickly move to instill and enforce a greater fiduciary responsibility to customers and shareholders, you can be there will be new regulation which is usually accompanied by unintended consequences. The CEOs in my Vistage International peer advisory group have been cringing at the excesses. A small percentage of the top 1000 companies behave this way, but it gives all CEOs a bad name and perpetuates the perception that they are all selfish, dishonest characters driven by greed alone. Greed is good. Uncheked greed not so much.

Stephen Baum © 2008.
You can view his website at

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