It's OK, Judge Rakoff

I was disappointed to see that Judge Rakoff's rejection of an SEC settlement was rejected by a higher court.  As indicated in an earlier posting (see "Fine and Dandy," January 25, 2014), I'm increasingly appalled that huge fines have become just another cost of doing business - and I've since learned that the fines are deductible for tax purposes, at least to a significant extent.  (Shouldn't that be part of tax reform, assuming we ever get there?)  I'm not commenting on the specifics of the case in question - I really don't have the facts - but it seems to me that a fine is meaningless (particularly if it's deductible) when there's zero moral or ethical opprobrium associated with it.  An admission of guilt, or at least some responsibility, won't change the world, but perhaps it might make a company's senior management think twice.  And that would be particularly true in the seemingly endless number of cases (e.g., GM) in which the wrongdoing is compounded by a cover-up.

So, Judge Rakoff, while I highly doubt that my vote of support matters much, I salute you and your common sense.  Of course, the odd thing about common sense is that it is so uncommon.

Lamm's LIterary Lyceum

This hasn't been a great year for reading.  Most of the stuff I've read has been more or less mediocre.  However, I very much enjoyed "The Invention of Wings" by Susan Monk Kidd.  It's based on a true story about two sisters from Charleston, SC, who became ardent abolitionists and proto-feminists.  It's very well written and engrossing, and not at all the chick-lit work that I feared it might be.

Prima La Musica (or Lammusica)

Some great new piano recordings:  First, a fantastic new rendering of Prokofiev's Piano Concerto No. 3 by Nikolai Lugansky, demonstrating that he's becoming a great pianists.  The recording also has the Grieg Piano Concerto - not as good, but still very good indeed.  Second, a brilliant new recording of Tchaikovsky's Piano Concertos 1 and 2 with Denis Matsuev and the Mariinsky Orchestra under the direction of Valery Gergiev; just terrific.  And some old(er) recordings that I finally got and/or got around to listening to: A recording of Verdi's Macbeth with the late Shirley Verrett, who is spectacular; Piero Cappuccilli is Macbeth and he's wonderful as well.  And a no-longer-available recording of a live performance of Berlioz's masterpiece, Les Troyens, recorded at the Met with James Levine presiding over a great orchestra, a blow-your-mind chorus, and a seriously phenomenal cast, including Ben Heppner, the late great Lorraine Hunt Lieberson as Dido and Deborah Voigt as Cassandra - La Voigt is not one of my favorites, but this may be her best recording ever.

Just Do the Right Thing!

I've been thinking about the recent kerfuffle (one of my favorite words) regarding the GM recall, and it hasn't led to a happy place.  Specifically, I wonder why, time and time and time again, companies fail to do the right thing.  Bear in mind that I'm not criticizing Mary Barra, GM's new CEO - at least not yet - because she seems to have acknowledged that there is a big fat ugly problem here and seems to be trying to do something about it.

But regardless of Ms. Barra's ultimate blameworthiness, the lack thereof or plain old naiveté, the mess does make me wonder what it is about GM - and so many other companies - that prevents them from doing the right thing by acknowledging a problem and doing something about it early on, when it could be remedied or at least thoroughly investigated.  Phrased otherwise, why is the cover-up always worse than the "crime"?  What kind of mind-set pervades so many levels at GM and so many other companies that makes them decide to ignore something that is responsible for the death of a human being?  

Of course, this mind-set is not limited to big companies.  Think about Penn State a few years ago, when it became clear that its management repeatedly failed to do anything about allegations of sexual abuse and also kept the allegations from the board - even after it became clear that the authorities were investigating the matter?  Did they really think that they could keep it a secret forever?  And to what end?

The same questions pervade other areas as well, such as equal pay for women, board diversity and so on.  Why do companies seem to keep saying - much like a toddler - "no, no, no" until finally Uncle Sam or Big Brother or whomever says "Yes - and you'll do it MY way!"  

We spend lots of time navigating our ways through highly technical laws and rules about a variety of subjects, but evidently we don't do nearly enough thinking about fairly simple and straightforward matters of right and wrong.  It seems to me that this is the same mind-set that leads companies to repeatedly violate all sorts of laws and regulations because the only penalty is a fine, which is paid by the shareholders and which, in many cases, is tax deductible!

As I said, my ruminations haven't led me to a happy place.

Lamm's Literary Lyceum

I recommend "Days of Fire" by Peter Baker.  It's a fascinating look at the W administrations and the changing role of Darth Vader - I mean Dick Cheney.  I fault the author's implicit defense of W throughout, but it's still a very well done book and a very good read.  For somewhat lighter fare, try "An Officer and a Spy" by Robert Harris; it's a well done fictional re-telling of the Dreyfus affair.

Prima La Musica (or Lammusica)

Two great recordings of the Brahms piano concertos - an older one by Nelson Freire and a great, muscular new one by Stephen Hough, who's rapidly becoming my favorite pianist.  And I finally got around to listening to the Solti/Nilsson recording of Strauss's Elektra again (it's about the 25th time).  All I can say is WOW.

I Didn't Mean What I Said (a Tale of Human Capital)

There have been quite a few pieces in the media of late about the importance of apologizing in our culture.  Many of these pieces have rightly pointed out that the apologies are often phony - or at best insincere - and that the tears shed as part of these apologies are often crocodile tears.  We certainly see this phenomenon in the publicity that surrounds trials ("he showed no remorse" or "he apologized but it seemed phony"), and also in business, when business leaders apologize for their companies' sins but seem to keep repeating them ad nauseam (literally).

Most recently, this phenomenon could be observed in the kerfuffle surrounding statements made by AOL's CEO in announcing cutbacks to one of the company's benefit plans.  After singling out the cases of two seriously ill babies as a justification for the cutback, he was roundly criticized; if pitchforks and torches were still fashionable, you might have seen crowds marching up to AOL's headquarters with both in hand.  However, the media now carry the pitchforks and torches, and they went after him with a vengeance.

Of course, he immediately apologized.  Beyond that, the cutbacks in question were reversed to show the company's good faith and the sincerity behind the apology.  But really, how did this gaffe happen in the first place?  I've worked for quite a few companies in my time, and statements like that almost never emerge spontaneously from the CEO's mouth; rather, they are scripted and edited and reviewed and revised by teams of PR folks, lawyers and so on.  Did they all miss the point? That's possible, but it seems unlikely.

Rather, I wonder if the statements accurately reflected the mindset of the executives who reviewed them.  How many companies repeatedly say things like "our greatest asset is our loyal/brilliant/dedicated/etc. workforce, etc., etc.", only to lay many of them off or dismiss their concerns when they are inconsistent with the executives' prerogatives?  What's wrong with our business culture and capital markets when, particularly in the current dismal economic environment, companies' stock prices rise when there are layoffs?  And are executives (and their needs) so myopic that they can't realize the implications of what they're saying?  I'm reminded of a CEO who spoke at a town meeting about cutbacks and the importance of doing more with less; when asked why the executives didn't seem to be sharing this particular pain, his response was something like "if you're asking why I came here via helicopter, it's really a much more efficient use of my time."  Can you say "let 'em eat cake" in MBA-speak?

Lamm's Literary Lyceum

I recommend Bill Bryson's One Summer. It's a thoroughly enjoyable romp through the summer of 1927 - which was the summer of  Charles Lindbergh and Babe Ruth, among others.

Prima La Musica (or Lammusica)

For the opera fans among us, the new recording of Otello, with Riccardo Muti conducting the Chicago Symphony, is one cast member short of perfect; unfortunately, the cast member in question sings Iago, so it's a pretty serious flaw.  However, all other portions of the recording are brilliant and worth a listen.

Two other recordings that I've loved of late are the new recording of Das Rheingold, conducted by Valery Gergiev, with the amazing and brilliant René Pape as Wotan, and an older recording of the Brahms Piano Concertos, with Nelson Freire and the Gewandhaus Orchestra conducted by Riccardo Chailly - a great recording and  much better than the more recent one with Hélène Grimaud.

Fine and Dandy

The late Illinois Senator, gravel-throated Everett Dirksen, is usually thought to be the source of the quote "a billion here, a billion there, and pretty soon you're talking about real money."  It's not clear that he said it, but he might do so today were he to focus on the astronomical sums being paid out in fines by company after company after company.

For the most part, it's not necessary to name names; you know who you are (to quote another great source, Billy Crystal/Fernando).  But I'm truly dazzled, and not in a good way, by the never-ending stream of ginormous fines that so many of our premier companies are paying out.

Now I have no doubt that some of these fines are being paid in order to get rid of cases that the government has inappropriately brought but that won't go away otherwise.  I get that, and I certainly understand that it's hard to get Uncle Sam to drop a case that has generated huge expenditures of time, human resources and money, regardless of whether the case has merit.  On the other hand, the number and magnitude of these fines suggests that there's something going on.

More importantly, I'm greatly troubled by the notion that large fines are just another cost of doing business and that violations of law don't really carry any stigma because it happens to everyone.  That surely can't be a good thing.  I'm also troubled by the fact that the people responsible for the actions that generate the fines remain utterly unaccountable.  (OK, I know that corporations are people in the eyes of the law, but in this case the law really is an ass.)  And I'm really troubled by the fact that the shareholders, not those responsible for doing the dastardly deeds, are the ones who pay.  

A few years ago, when U.S. Judge Jed Rakoff decided not to approve a settlement for some of these reasons, he was called an outlier and worse.  I agreed with him then, and I'm pleased to see that his views are gaining some traction.  And some companies' tin ears (and other anatomical parts) may give further support to his position; just this week, a company that has paid out multiple billions in fines last year gave its CEO a big, fat increase in compensation.  Maybe it will turn out that the company has a justification for this, but on a quick basis it seems just plain wrong.  If this kind of thing keeps going on, sooner or later people and maybe even our legislatures and courts will put a stop to it.  

Lamm's LIterary Lyceum

Lawyers everywhere should run out and read "The Partner Track" by Helen Wan.  It's a novel about an Asian-American female lawyer who's about to make partner at a white shoe New York law firm.  It's lots of fun; even though the law firm in question is fictional, many of the firms referenced in the book are not, and those of us whose work has brought us in touch with that world will recognize - and laugh at - many of the clichéd phrases used in these firms.  However, the book has a darker side that speaks to the continuing prejudices against women and minorities that lingers after the fun read is over.  

And one slight appendix to my list of my favorite books of 2013:  In discussing the worst books of the year, I failed to mention my candidate for that title on the fiction side.  It was "Big Brother" by Lionel Shriver.  She's done some great stuff, but this book was preachy and stupid and offensive.  I'm profoundly unhappy to have bought and read it; that's about $25 and several hours that I'll never get back.

Whither the PCAOB and Other Thoughts for the New Year

Mea culpa - again.  I've been busy and have put off posting anything for far too long.  I'm not sure it makes much difference - I don't know that I have any followers, much less followers who are clamoring for more frequent postings.  However, if I'm doing this, I should do it.  

OK, there you have a New Year's Resolution.  That and losing more weight.  And reading books before I buy more.  And lots of other things that I probably won't do.

On to the meat of this posting....

Whither the PCAOB?

Perhaps a better title would be "Why the PCAOB?"  I've grown increasingly puzzled by the PCAOB's behavior and actions in recent years, and I continue to wonder what it thinks its mission is and whether it even has a mission.  Some recent examples:

• In 2011, the PCAOB proposed massive new disclosures, including a proposed "Auditor's Discussion and Analysis."  It backed off these proposals following strong pushback, but it recently proposed an expansion of the auditor's report to include "Critical Audit Matters" and identification (by name) of the auditor engagement partner.
• The PCAOB made a strong push for mandatory auditor rotation, despite the lack of any evidence that (a) something was broken that needed to be fixed or (b) auditor rotation would fix anything.  This push met with stronger resistance, but now that the EU has resurrected a form of mandatory rotation (where is a stake through the heart when you need one?) you can almost bet that the PCAOB will try to bring the issue back from the dead on this side of the pond.
• Jim Doty, PCAOB Chair, has made so many negative comments about the auditing profession that many of my auditor friends have asked why he hates them so much.

And these are only a few.  Now I'm all for appropriate regulation, but it's not at all clear that any of the above or other proposals are needed.  I also think it's good that a regulator has a degree of skepticism about those he/she is supposed to regulate, but when is enough enough?  Why does the PCAOB feel that it needs to fix problems that can't be shown to exist - while at the same time failing to fix problems that everyone has been yipping about for years?  And why does the PCAOB keep saying that it's not trying to change the pass/fail audit model when everything it does points in the opposite direction?

Most recently, the proposal on "Critical Audit Matters" is designed to clarify the auditor's role, which is admittedly grossly misunderstood (see the reference to "yipping" above).  The problem is that the proposal doesn't help to clarify the role; it would only serve to add tons of disclosure without one jot of information about what the auditor does - and, more importantly, what it doesn't or can't do.

I attended a program a couple of months ago at which the PCAOB did it again.  Its representatives talked about research to create quantitative metrics to assess auditor quality.  The comments evoked strong negative comment from the attendees, who objected to the research on the ground that it would create a grading system for auditors.  The PCAOB representatives said that wasn't the intent, but admitted that others might use the research to do just that (can you say "Pontius Pilate"?).  And then, when the attendees asked what problem the PCAOB was trying to fix, its representatives said that if the research doesn't yield any useful results, it won't be pursued.  Right - we all know how often government agencies drop things after years of research and millions of dollars have been spent.

I go on too much.  However, my modest proposal is that the name of the PCAOB be changed to clarify its role.  How about "SISOP" - for Solutions In Search Of Problems?

Lamm's Literary Lyceum

It's time for my annual listing of the top 10 books I've read during the prior year - regardless of when they were published.  Here they are, in no particular order:

Fiction

Wash, by Margaret Wrinkle

Life After Life, by Kate Atkinson

The Son, by Phillip Meyer

True Believers, by Kurt Anderson

The Goldfinch, by Donna Tartt

I particularly recommend Wash - largely because the others all generated quite a bit of publicity and sales, whereas Wash seems to have gone largely unnoticed.  It's a gem.

Non-Fiction

The Billionaire's Apprentice, by Anita Raghavan

Mistrial, by Mark Geragos and Pat Harris

Bitter Brew, by William Knoedelseder

Five Days at Memorial, by Sheri Fink

Double Down, by Mark Halperin and John Heilemann

I must also call out the two worst books I read in 2013.  I haven't done this before, but these two books, allegedly non-fiction, were so sloppily written and so smarmy that I felt like showering after reading them.  In fact, I'm angry at myself, not only for buying them, but also for reading - and finishing - them.  They are Crazy Rich by Jerry Oppenheimer and The Prince of Paradise by William Glatt.  

Prima La Musica (or Lammusica)

And now for some thoughts about some wonderful recordings that I've listened to since my last posting, as follows:

Verdi Requiem: There are two recordings of note.  First, a brilliant, nearly perfect recording made at a 1980 concert; Zubin Mehta is phenomenal; Montserrat Caballé is truly heavenly; Bianca Berini brilliant; and Paul Plishka wonderful (one sour note excepted).  There's also a great new recording, conducted by Daniel Barenboim, with the SuperTenor Jonas Kaufmann and Anja Harteros, among others, but it's not as good as the Mehta.

The Verdi Album - Jonas Kaufmann:  I'm not sure there's anything this guy can't do.  I am not a big fan of recital albums, but Kaufmann brings life, character and meaning to every aria he sings; simply terrific.

Die Walküre: Another oldie but goodie, conducted by the incomparable Karl Böhm at Bayreuth, with James King and Birgit Nilsson in better voices than ever before or since, a warm and wonderful Theo Adam as Wotan, and a superb Leonie Rysanek as Sieglinde.  I hadn't listened to this recording in a long time, but listening to it again reminded me of just how brilliant it was.

Benjamin Grosvenor, Rhapsody in Blue:  This kid is merely in his early 20s, but he gives new and great meaning to the term "wunderkind."  His Ravel concerto is terrific; in fact, the Gershwin is the weakest track, but only because Grosvenor opted for the "jazz" version.

I post my reviews on Amazon, if you're interested.

Happy New Year, all!

Catching Up

Once again I've been delinquent; being on the road a lot and playing catch-up on my return has resulted in posts that are fewer and farther between.  My apologies!

John Olson, You Rock!!!

I was a speaker at Broc Romanek's governance and disclosure program in Washington in late September.  Aside from a great program and terrific fall weather in Washington, I had the opportunity to hear John Olson of Gibson Dunn deliver opening remarks.  If I could, I'd make everyone in the corporate governance community not only read them, but also commit them to memory - and to conscience.  You can find them here.

I don't agree with John on every single point.  For example, the aphrodesiac effect of the smell of jet fuel on executives, and the sense of entitlement so many of them have with regard to their perquisites, seems to be just as prevalent today as it was when John gave the "planes, trains and automobiles" speech he referred to last month.  However, his message is very important and needs to be kept in mind by anyone who purports to be advising boards and management alike.

There are many reasons why John Olson is considered to be an elder statesman of corporate governance, and you will see those reasons very clearly after reading his remarks.

Lamm's Literary Lyceum

No great reads since last time; I did read Five Days At Memorial, by Sheri Fink, concerning what happened at Memorial Hospital in New Orleans in the wake of Hurricane Katrina.  It's a devastating book and one worth reading, but I found it flawed in a number of respects.

Prima La Musica (or Lammusica)

I recently listened to a recording by the young (21 or 22) British pianist, Benjamin Grosvenor.  Wow - this kid puts the "wunder" in "wunderkind."  Some more great recordings are:

• Porgy and Bess: a re-release (and re-mastering) of an old recording conducted by Lorin Maazel.  It's terrific.
• Dvorak's New World Symphony: conducted by a superstar in the making, Andris Nelsons.  It's another wonderful recording.
• Berlioz's Nuits d'Été: Conducted by Robin Ticciati, another up and comer, and sung by a fabulous Scottish mezzo, Karen Cargill.  I saw her on the broadcast of the Met's production of Les Troyens, and she's wonderful.  

I post my reviews on Amazon if you're interested.

That's all for now.

A Real Life Fubar and Other Musings

The real life Fubar was noted in several commentaries on Twitter's confidential (yes, you read that right) S-1 filing with the SEC.  The Fubar is the JOBS Act itself; it's sort of amazing (though perhaps not) that the one time in recent years that our Congress acts in a bipartisan manner it comes up with a real mess.  I know that some feel otherwise, but for my money I refer to the write-up by Steven Davidoff (AKA "The Deal Professor") in The New York Times "DealBook" column; you can find that here.  I wish I could have said it better, but I don't think I could.  I believe it was Justice Brandeis who said that sunlight (i.e., disclosure) is the best disinfectant; the JOBS Act manages to pull off a rather amazing feat by keeping sunlight in the darkness.  And it galls me that Congress decided set the revenue bar for an "emerging growth company" at $1 billion per year.  I suppose that when you deal in trillions most every day, a billion does begin to seem like chump change.

Shareholder Value (But Not So Much)

Another great item in the press was a recent article by Steven Pearlstein on how shareholder value has damaged (and continues to damage) American business.  The only exception to the short-termism that many shareholder value advocates have generated is the long-term damage some of them have created (such as the recent JC Penney debacle brought to you by Bill Ackman).  I understand why some shareholders (and not just "activists") want to shake up boards and managements a bit - some shaking up never hurts - but the perception that shareholders know better than boards and should have the right to second-guess everything a board does risks, at least in my view, destroying the separation between ownership and management that has been a cornerstone of the American corporation.  There's an article that makes a similar point in Bloomberg.

More on Director Term Limits
I've posted some musings on this topic before.  I'm not really an advocate of term limits, and I'm really not an advocate of age limits.  Here's an article indicating that most companies shun term limits.  Interesting.  More interesting (at least to me) were some comments I heard at a great conference this week (it was the Fall Conference of the Southeastern Chapter of the Society of Corporate Secretaries and Governance Professionals in Atlanta).  Specifically, the directors on one panel - including one gentleman who looked like he might be approaching retirement age (but was clearly as sharp as they come) - indicated that they were fine with age limits.  We didn't have an opportunity to go into their rationales in detail, but I wonder if they include that age limits provide a rather simple mechanic to get rid of dead wood, and if some great board members have to leave "prematurely" it's worth it.