International Practices Public Affairs Services Writing
After writing this column on the Treasury Department for HughHewitt.com, I was invited to appear on Fox Business to discuss the future of the bond market.
On August 25, the Securities and Exchange Commission, in a partisan three-to-two vote, approved its long-awaited access-to-the-proxy rule. The rule will allow any shareholder or group of shareholders representing three percent of outstanding shares and having held them for three years to nominate directors in board elections.
As a practical matter, this means that labor unions as well as major environmental organizations and other political activists will soon be organizing to win seats. At stake will be whether boards reflect the interests of shareholders as a whole or those political interests. Many corporate managements will feel compelled to run the equivalent of internal political campaigns in order to protect the integrity of their boards.
Last November I co-authored an article on this topic in The Wall Street Journal. You can find it here.
It is no news now, but on Tuesday last week, President Obama delivered the least effective Oval Office address since Jimmy Carter’s “malaise” speech. Why?
It wasn’t just the awkward use of his hands, the hackneyed and inappropriate wartime metaphors, the equally banal “if we could land a man on the moon” drivel. All that was bad enough, but more devastating was the gulf between obvious fact and the speech’s fiction. Read
In 1909, as the federal government was first moving towards regulation of the financial industry, J.P. Morgan is said to have told friends, “The time is coming when all business will have to be done in glass pockets.” Goldman Sachs is about to find that, for the financial world today, glass pockets are no longer good enough.
The SEC’s civil suit against Goldman charges that, through a partner company, the investment bankers packaged particularly troubled mortgages into collateralized debt obligations, the now notorious CDOs. After Goldman sold the allegedly designed-to-fail instruments, the partner shorted them. Goldman collected fees for assembling and marketing the package (later offset, the firm contends, by larger losses). The partner reportedly netted a billion dollars on its short positions.
The Wall Street Journal front page story characterized the SEC’s charges as the biggest Wall Street-Washington confrontation since the Michael Milken-Drexel case at the end of the 1980s. The Journal might have added that Milken’s was the most prominent of a larger package of investigations targeting the investment community. Despite a parade of so-called perp-walks, when financiers were led into custody as cameras clicked, almost none of those actions produced convictions. The Milken case led to a fine and prison time but remains controversial to this day. Many, myself included, believe justice was miscarried.
The public perception point here is that major financial players face a formidable communications obstacle when they become the targets of such sweeping legal actions. Most attorneys — both prosecutors and their own defense attorneys — and journalists don’t actually understand what investment bankers and securities traders do. The complexity of modern finance bewilders them. And they are predisposed to assume that complexity equals opacity and opacity equals fraud of one stripe or another.
As I write, the weekend after the SEC’s charges hit the papers, I am not offering a judgment on the case against Goldman, though the purchasers of the CDO were among the most experienced and sophisticated players in the financial world. If any buyers were capable of being intelligently beware, it was they. But I am saying that Goldman must learn to explain its business with unprecedented clarity, otherwise, the legal, political, and journalistic worlds will judge the company guilty and exact huge penalties long before any trial.
Morgan’s term “glass pockets” suggested passive transparency. Pull back the fabric; let in the light. Goldman will need actively to project the light outward, making the complex both simple and comprehensible. For an institution unaccustomed to talking to non-experts, the task is sure to prove formidable.
EconTalk (at www.econtalk.org) is among the most popular and respected podcasts on the web. Voted Best Podcast in the 2008 Weblog Awards, it is hosted by Russ Roberts, Professor of Economics and the J. Fish and Lillian F. Smith Distinguished Scholar at the Mercatus Center at George Mason University.
Posted weekly, the program usually features Roberts interviewing a distinguished economic thinker. On February 8th, Roberts broke from this format to discuss his own thinking about why trade is good. Drawing on Adam Smith and David Ricardo, 18th and 19th century respectively giants of economic thought, he explored how trade increases personal productivity by a factor of a hundred and more. As he summed up, “Self-sufficiency [in a person, a tribe, or a country] equals poverty.” Read
Have you seen those new Toyota ads? The ones in which the company apologizes for letting quality slip. These are very unusual for a corporation facing product liability suits — and they are exactly the right thing to do.
Typically companies in Toyota’s position clam up. Statements are defensive and evasive. Maintaining such a posture during the long life of a litigation will leave a company’s reputation in badly compromise.
Yet public opinion studies have shown that companies that publicly speak to their problems — that defend themselves but also acknowledge faults and both pledge and work to fix them — build the trust of customers, suppliers, and potential jurors.
Toyota was slow to grasp its problem and engaged in denial for too long. But now it has put corporate reputation first. It is right to do so. And it likely to do better in court as a result.
Tonight (Sunday, January 29th), as the opening act in the Grammys, Stefani Germanotta, also known as “Lady Gaga”, will sit at the piano with Reginald Kenneth Dwight, also known as Elton John. They will sing a duet. Corporate communicators facing public affairs challenges could learn a thing or two from this appearance.
As I write, Mr. Obama has just finished delivering his first State of the Union Address. We can debate the policies later, but for style, I felt he missed a key grace note of leadership. Over and over he used the word “I”. But the essential word of leadership is “we”. Nothing is about me. Everything is about us, the people, whom I, the leader, serve.