Is the future of Goldman Sachs in two sets of hands: its own, and those of the market? No, the future of the firm is actually in three sets of hands!
Here's the background: yesterday, something like $2bn were wiped off the market value of the firm after Greg Smith, one of its own Executive Directors, described the firm's culture as having become 'toxic' (in his very public resignation from the firm, in his open letter published in the New York Times a few days ago, where he claimed that the company now cares more about its own profit than about what is good for its clients as it did earlier).
Smith's accusation of that decline in the firm's moral fibre parallels the decline in most other financial services firms. That may explain why its shares plunged only 3.4 per cent in New York trading yesterday.
So does the future of the firm depend on two sets of hands (its own and those of the market), because the firm can choose to reform itself (probably unlikely given that the damage is only 3.4% and could lessen over time) and the market which clearly has a role to play (it could penalise the company even more if it is seen not to reform)?
Well, whether the market actually does so will be an important indicator of whether the disease is in fact as widespread as I suggest (the market is not going to do much more if there are no firms that have a better corporate culture; portfolio theory-based financial allocation means that a certain proportion of every portfolio is going to be invested in the financial services sector anyway - and, if every firm has similar moral toxicity, that gives portfolio allocators little choice).
That is why the future really lies in the third sets of hands: legislators and regulators. What can legislators and regulators do? They can try and get at the systemic roots of a public and financial services culture which is now anti-commercial and anti-human.
That is what legislation such as Dodd-Frank is about, however clumsy it may be.
However, regulators are still trying to negotiate their way between the requirements of such laws (and common agreement about the sorts of things that are necessary) and intense lobbying by the industry, in additon to its public bleating about how much it is going to cost and how it is going to slow down growth.
Is it going to be costly? Yes. But there is a certain cost to being in any sort of business, and if the costs hits the whole industry uniformly, then it is not going to be a factor changing the fortunes of the industry as a whole or of individual firms within the industry.
Is such legislation growing to slow down growth? Marginally, yes. But the legislation and regulation is equally, or to much more than that extent, going to put the economy on a more stable basis and actually even out corporate earnings by putting them on a much smoother path.
It really boils down to this: the financial services industry would rather that we have the equivalent of the wild swings in the weather that we have seen over the last few weeks in Switzerland. By contrast, those of us in favour of commonsense would rather have more stable and predictable weather conditions.
If the overall environment is conducive because of a more stable environment, financial services firms will be much more likely to be able to modify their culture to suit. On the other hand, if the overall environment is not conducive because of wild swings in economic and financial conditions, then it is not only Goldman Sachs that will continue to have a toxic culture but all financial services companies, because "toxicity" is a precondition for success in the existing environment.
Sphere: Related Content
Thursday, March 15, 2012
More "pay for NON-performance" or employing the right kind of people?
It is quite striking that almost all new hiring at Board-level continues to be for higher and higher sign-on bonuses and for bigger and bigger salaries, even BEFORE the person has proved herself or himself in her or her new job!
The British call this the "fat cat" syndrome.
This morning I had reason to recall the research done by Professors Margit Osterloh and Bruno S. Frey (both of the University of Zurich's INSTITUTE FOR EMPIRICAL RESEARCH IN ECONOMICS) which said:
"Corporate scandals are reflected in excessive top management compensation and fraudulent accounts. These scandals cause an enormous amount of damage, not only to the companies affected, but also to the market economy as a whole. As a solution, conventional wisdom suggests more monitoring and sanctioning of management. We argue that these efforts will create a governance structure for crooks. Instead of solving the problem, they make it worse. Selfish extrinsic motivation is reinforced. We suggest measures which clash with conventional wisdom: selecting employees with pro-social intrinsic preferences, de-emphasizing variable pay for performance and strengthening the participation and self-governance of employees. These
measures help to increase intrinsically motivated corporate virtue and honesty"
(published in: Ganna Grandori (Ed.) (2004). Corporate Governance and Firm Organization, Oxford; 191-211).
Apart from their own work in that chapter, here is just one piece of research quoted by them: "it is ...difficult to document that the increase in stock-based incentives has led CEOs to work harder, smarter, and more in the interest of shareholders.” (Murphy, K.J. 1999. Executive Compensation. In Ashenfelter, O., & Card, D. (Eds.), Handbook of Labour Economics: 2485-2563. Amsterdam: Elsevier) Sphere: Related Content
The British call this the "fat cat" syndrome.
This morning I had reason to recall the research done by Professors Margit Osterloh and Bruno S. Frey (both of the University of Zurich's INSTITUTE FOR EMPIRICAL RESEARCH IN ECONOMICS) which said:
"Corporate scandals are reflected in excessive top management compensation and fraudulent accounts. These scandals cause an enormous amount of damage, not only to the companies affected, but also to the market economy as a whole. As a solution, conventional wisdom suggests more monitoring and sanctioning of management. We argue that these efforts will create a governance structure for crooks. Instead of solving the problem, they make it worse. Selfish extrinsic motivation is reinforced. We suggest measures which clash with conventional wisdom: selecting employees with pro-social intrinsic preferences, de-emphasizing variable pay for performance and strengthening the participation and self-governance of employees. These
measures help to increase intrinsically motivated corporate virtue and honesty"
(published in: Ganna Grandori (Ed.) (2004). Corporate Governance and Firm Organization, Oxford; 191-211).
Apart from their own work in that chapter, here is just one piece of research quoted by them: "it is ...difficult to document that the increase in stock-based incentives has led CEOs to work harder, smarter, and more in the interest of shareholders.” (Murphy, K.J. 1999. Executive Compensation. In Ashenfelter, O., & Card, D. (Eds.), Handbook of Labour Economics: 2485-2563. Amsterdam: Elsevier) Sphere: Related Content
Monday, March 05, 2012
Response to my tweets about the situaiton in Libza
On Saturday, I twittered about the situation in Libya, drawing attention to a story that highlights not only the war on Muslims in Libya by Islamists, but also the desecration of war graves by Islamists in Libya, and the incredible ignorance of so-called "experts" in the UK, the USA and I suppose the West generally.
For the story, click http://www.lapidomedia.com/libya-war-graves-horror-benghazi
In response to my Tweets, the following response came in to me from Bradley Olson: "US / UK colonialism hand in glove with Wahhabi folks is working rather well in Saudi, I expect they hope they can do a similar thing in the wake of the "Arab Spring"". Sphere: Related Content
For the story, click http://www.lapidomedia.com/libya-war-graves-horror-benghazi
In response to my Tweets, the following response came in to me from Bradley Olson: "US / UK colonialism hand in glove with Wahhabi folks is working rather well in Saudi, I expect they hope they can do a similar thing in the wake of the "Arab Spring"". Sphere: Related Content
Friday, March 02, 2012
Switzerland may become the first country in the world to have only white money
Every country has a certain amount of black money, however small or large.
Under new rules proposed by Switzerland’s Finance Minister Eveline Widmer-Schlumphttp://www.blogger.com/img/blank.giff, Switzerland could become the first country in the world to have only white money.
Swiss banks would be required not only to obtain a declaration from their foreign clients confirming that their assets held in Switzerland are correctly taxed, but Swiss banks would also be required to investigate cases of suspected tax evasion, or cases involving, for example, cash payments from an unknown origin.
How this will fully work in practice remains to be seen, but it has actually been increasingly the case anyway (see http://www.wolfsberg-principles.com)
Interestingly, this is so little known outside the world of banks that Wikipedia doesn't even have an entry on it.
For example, the concept of "politically exposed persons" (PEPs) was invented in Switzerland and popularised because Switzerland took it to other parts of the world, so that PEPs now find it increasingly difficult to park their money abroad.
The Swiss Finance Minister's proposals have been debated widely in the country and, so far as I can see, there is no opposition to them at all, though some people are concerned that Switzerland should not move unilaterally too fast. Of course, if Switzerland moves slowly and waits to have global consensus, that will still mean that Switzerland will have led the way, but it is better for it to move fast and become the first country to have such legislation for all clients.
There is a similar model already in operation in Liechtenstein, but that applies only to British clients.
Why is there so much support for the proposals from the Swiss banking community? Because Switzerland still has more of a moral sense from its Protestant heritage, and because the Swiss are convinced that, in a genuinely level playing field, they can outperform competition from other countries in terms of banking and financial skills, so that foreigners will continue to park at least a part of their assets here.
In fact, there is plenty of evidence that many people were earlier not putting their money into Switzerland at all, because of the popular suspicion that there was still huge amounts of black money here. Of course, there were always people who have declared their money and paid their taxes who put their money in Switzerland, but with the decline of suspicion regarding Switzerland, many more such people are feeling encouraged to put their money in Switzerland .
Why would they do that? Because commonsense tells you that it is not wise to have all your eggs in one basket. So white money will continue to flow into Switzerland on the best possible and only sustainable basis: portfolio diversification, currency diversification, political stability, and sheer quality of expertise and service.
In fact, many Swiss banks feel that much more money will flow into Switzerland once it becomes clear that all the money here really is white.
Meanwhile, the US is now (or soon will be) the largest holder of black money in the world. Who is going to force the US into cleaning itself up? Sphere: Related Content
Under new rules proposed by Switzerland’s Finance Minister Eveline Widmer-Schlumphttp://www.blogger.com/img/blank.giff, Switzerland could become the first country in the world to have only white money.
Swiss banks would be required not only to obtain a declaration from their foreign clients confirming that their assets held in Switzerland are correctly taxed, but Swiss banks would also be required to investigate cases of suspected tax evasion, or cases involving, for example, cash payments from an unknown origin.
How this will fully work in practice remains to be seen, but it has actually been increasingly the case anyway (see http://www.wolfsberg-principles.com)
Interestingly, this is so little known outside the world of banks that Wikipedia doesn't even have an entry on it.
For example, the concept of "politically exposed persons" (PEPs) was invented in Switzerland and popularised because Switzerland took it to other parts of the world, so that PEPs now find it increasingly difficult to park their money abroad.
The Swiss Finance Minister's proposals have been debated widely in the country and, so far as I can see, there is no opposition to them at all, though some people are concerned that Switzerland should not move unilaterally too fast. Of course, if Switzerland moves slowly and waits to have global consensus, that will still mean that Switzerland will have led the way, but it is better for it to move fast and become the first country to have such legislation for all clients.
There is a similar model already in operation in Liechtenstein, but that applies only to British clients.
Why is there so much support for the proposals from the Swiss banking community? Because Switzerland still has more of a moral sense from its Protestant heritage, and because the Swiss are convinced that, in a genuinely level playing field, they can outperform competition from other countries in terms of banking and financial skills, so that foreigners will continue to park at least a part of their assets here.
In fact, there is plenty of evidence that many people were earlier not putting their money into Switzerland at all, because of the popular suspicion that there was still huge amounts of black money here. Of course, there were always people who have declared their money and paid their taxes who put their money in Switzerland, but with the decline of suspicion regarding Switzerland, many more such people are feeling encouraged to put their money in Switzerland .
Why would they do that? Because commonsense tells you that it is not wise to have all your eggs in one basket. So white money will continue to flow into Switzerland on the best possible and only sustainable basis: portfolio diversification, currency diversification, political stability, and sheer quality of expertise and service.
In fact, many Swiss banks feel that much more money will flow into Switzerland once it becomes clear that all the money here really is white.
Meanwhile, the US is now (or soon will be) the largest holder of black money in the world. Who is going to force the US into cleaning itself up? Sphere: Related Content
Wednesday, February 29, 2012
Research findings - on research!
Readers of this blog will be aware of my skepticism regarding "science", "research", and so on
Therefore I could be expected to be pleased to read the results of RESEARCH (!) that "proves" that research is not always reliable: http://pss.sagepub.com/content/22/11/1359
However, as this is a piece of research, how do we know whether these researchers too have not deluded themselves?! :) Sphere: Related Content
Therefore I could be expected to be pleased to read the results of RESEARCH (!) that "proves" that research is not always reliable: http://pss.sagepub.com/content/22/11/1359
However, as this is a piece of research, how do we know whether these researchers too have not deluded themselves?! :) Sphere: Related Content
Ambassador Dr. Benoît Girardin's book: Ethics in Politics Why it matters more than ever and how it can make a difference
Ambassador Dr. Benoît Girardin's book: ETHICS IN POLITICS: WHY IT MATTERS MORE THAN EVER AND HOW IT CAN MAKE A DIFFERENCE is the latest publication in the Focus series from Globethics.net, the global network on ethics, which is based in Geneva.
The launch event is on Thursday 8 March at the Ecumenical Centre, Salle 2/3
150 Route de Ferney, Grand-Saconnex, Geneva from 12:30-13:30 (with Snacks: 14:00)
Moderated by Prof. Dr. Christoph Stückelberger, Executive Director and Founder of Globethics.net, the launch event features speeches also by Ambassador Walter Fust, President of the Board of the Globethics.net Foundation (who will Present the Declaration for Ethics in Politics) and Dr Colum de Sales Murphy, President of the Geneva School of Diplomacy and International Relation (who will comment on the book and the declaration, as well as the challenges of “ethics in politics” in the training and development programmes for diplomats).
The author of the book, Ambassador Benoit Girardin, worked for many years at the Swiss Ministry for Foreign Affairs (for example, as Ambassador in Madagascar and Delegate of Development Cooperation in Romania, Pakistan, and Cameroon). He is a lecturer in ethics, political philosophy and international relations at the Geneva School of Diplomacy and International Relations.
Ambassador Walter Fust was Ambassador, served in many high level functions for the Swiss Government, and was for a long time the Director General of the Swiss Agency for Development and Cooperation.
Dr. Colum de Sales Murphy, served in the field of peace negotiations for the United Nations and the European Union and in several wars, among others in Bosnia. He founded the Geneva School of Diplomacy in 2003.
The invitation to the launch event says, among other things>
"The book and the declaration are an affirmation: Yes, ethics in politics is possible – and it pays off. It is not a naïve dream. The declaration includes “Principles of using power” and “Cardinal ethical values in politics”. The declaration and the book adopt a pragmatic approach, testing whether and how value-orientation can make a difference in politics. The book singles out four ethical values as fundamental: limitation of power, effectiveness, accountability and justice. It develops a global and inter-cultural perspective and presents practical cases, with criteria for dealing with dilemmas, based on (real life) experiences.
In a globalised, interdependent world of pluralistic societies, ethics in politics becomes a global ethics in politics which reflects the commitment of Globethics.net". Sphere: Related Content
The launch event is on Thursday 8 March at the Ecumenical Centre, Salle 2/3
150 Route de Ferney, Grand-Saconnex, Geneva from 12:30-13:30 (with Snacks: 14:00)
Moderated by Prof. Dr. Christoph Stückelberger, Executive Director and Founder of Globethics.net, the launch event features speeches also by Ambassador Walter Fust, President of the Board of the Globethics.net Foundation (who will Present the Declaration for Ethics in Politics) and Dr Colum de Sales Murphy, President of the Geneva School of Diplomacy and International Relation (who will comment on the book and the declaration, as well as the challenges of “ethics in politics” in the training and development programmes for diplomats).
The author of the book, Ambassador Benoit Girardin, worked for many years at the Swiss Ministry for Foreign Affairs (for example, as Ambassador in Madagascar and Delegate of Development Cooperation in Romania, Pakistan, and Cameroon). He is a lecturer in ethics, political philosophy and international relations at the Geneva School of Diplomacy and International Relations.
Ambassador Walter Fust was Ambassador, served in many high level functions for the Swiss Government, and was for a long time the Director General of the Swiss Agency for Development and Cooperation.
Dr. Colum de Sales Murphy, served in the field of peace negotiations for the United Nations and the European Union and in several wars, among others in Bosnia. He founded the Geneva School of Diplomacy in 2003.
The invitation to the launch event says, among other things>
"The book and the declaration are an affirmation: Yes, ethics in politics is possible – and it pays off. It is not a naïve dream. The declaration includes “Principles of using power” and “Cardinal ethical values in politics”. The declaration and the book adopt a pragmatic approach, testing whether and how value-orientation can make a difference in politics. The book singles out four ethical values as fundamental: limitation of power, effectiveness, accountability and justice. It develops a global and inter-cultural perspective and presents practical cases, with criteria for dealing with dilemmas, based on (real life) experiences.
In a globalised, interdependent world of pluralistic societies, ethics in politics becomes a global ethics in politics which reflects the commitment of Globethics.net". Sphere: Related Content
Saturday, February 25, 2012
Millenarianism versus Lutheranism and Calvinism (and the parallel with Vedanta in the case of India)
At an academic conference the other day, it struck me that the fascination with Millenarianism in academic work is a way of focusing on the quirky and the extreme in order to avoid confronting in theoretical work the massive and indeed fundamentally transformative impact of Lutheranism and Calvinism.
This is somewhat parallel to the way in which an obsession with Vedanta comes in the way of adequate study of the other 5 branches of "modern orthodox" Hindu philosophy, let alone of Assertive, Dalitbahujan, Shakta, Vashnava, Vedic and other schools and spiritualities. Sphere: Related Content
This is somewhat parallel to the way in which an obsession with Vedanta comes in the way of adequate study of the other 5 branches of "modern orthodox" Hindu philosophy, let alone of Assertive, Dalitbahujan, Shakta, Vashnava, Vedic and other schools and spiritualities. Sphere: Related Content
Sunday, February 19, 2012
Visit to musical Estonia
I've just returned from a week of lectures and meetings in Tartu (at the University) and Tallinn.
This was my first-ever visit to the country, and was part of the programme for Heartbeat Tallinn (www.2012.ee).
Freezing weather right now but lovely people, and I can imagine that, once the entire country starts blooming in the Spring, it must be stunningly beautiful through to the Autumn.
I was prepared for the worst of Eastern European type food, specially for a vegetarin asuch as myself, but it surprisingly has excellent food, even for a vegetarian.
Nowadays, as my wife is able to join me on some of my excursions around the world, she enjoyed the oldest medieval town centre in the world, and the excellent handicrafts (I was able to join her briefly during a break from work on one afternoon).
Quality versus price probably the best in the world.
Certainly for everything to do with linen and wool, she says.
What were my lecture topics?:
- "The Current Global Crisis: Why Was Getting Here So Easy and Why Is Getting Out So Hard?"
- "Contemporary Changes and Timeless Values: The Challenges of Business Ethics in a Globalising World"
- "Why Businesses Don't Prosper: The Most Common Reasons"....
At the Economics Seminar, where I spoke on "Business Conduct: The Role of Traditions, Religions, Values and Ethics", it was most interesting to hear Hardo Pajula, the well-known SEB Economist on "The Effects of the Loss of Transcendence on the Contemporary State", and Professor Meego Remmel on "Integrity As A Complex Virtue".
For the ensuing panel discussion, chaired by Janek Mäggi, CEO of Powerhouse, we were joined by the Estonian political analyst, Ahto Lobjakas.
I was inspired by watching the 2006 film "The Singing Revolution" on how this tiny nation of 1.3 million people, without firing a single shot and without shedding a single drop of blood, became the first country to declare independence from the USSR, to be followed by mighty Russia and other countries, thus ending the USSR.
Why was this small group of people able to do all this?
Extraordinarily, because of the power of music to hold the country together through 50 years of Soviet "Russification" and earlier years of Nazi oppression.
I'll be happy to return to Estonia any time.
If you don't know the country, it is definitely worth a visit.
And, if you are planning to visit, try to time it during the high week of Heartbeat Tallinn, which will be July 24 to 29 this year. Sphere: Related Content
This was my first-ever visit to the country, and was part of the programme for Heartbeat Tallinn (www.2012.ee).
Freezing weather right now but lovely people, and I can imagine that, once the entire country starts blooming in the Spring, it must be stunningly beautiful through to the Autumn.
I was prepared for the worst of Eastern European type food, specially for a vegetarin asuch as myself, but it surprisingly has excellent food, even for a vegetarian.
Nowadays, as my wife is able to join me on some of my excursions around the world, she enjoyed the oldest medieval town centre in the world, and the excellent handicrafts (I was able to join her briefly during a break from work on one afternoon).
Quality versus price probably the best in the world.
Certainly for everything to do with linen and wool, she says.
What were my lecture topics?:
- "The Current Global Crisis: Why Was Getting Here So Easy and Why Is Getting Out So Hard?"
- "Contemporary Changes and Timeless Values: The Challenges of Business Ethics in a Globalising World"
- "Why Businesses Don't Prosper: The Most Common Reasons"....
At the Economics Seminar, where I spoke on "Business Conduct: The Role of Traditions, Religions, Values and Ethics", it was most interesting to hear Hardo Pajula, the well-known SEB Economist on "The Effects of the Loss of Transcendence on the Contemporary State", and Professor Meego Remmel on "Integrity As A Complex Virtue".
For the ensuing panel discussion, chaired by Janek Mäggi, CEO of Powerhouse, we were joined by the Estonian political analyst, Ahto Lobjakas.
I was inspired by watching the 2006 film "The Singing Revolution" on how this tiny nation of 1.3 million people, without firing a single shot and without shedding a single drop of blood, became the first country to declare independence from the USSR, to be followed by mighty Russia and other countries, thus ending the USSR.
Why was this small group of people able to do all this?
Extraordinarily, because of the power of music to hold the country together through 50 years of Soviet "Russification" and earlier years of Nazi oppression.
I'll be happy to return to Estonia any time.
If you don't know the country, it is definitely worth a visit.
And, if you are planning to visit, try to time it during the high week of Heartbeat Tallinn, which will be July 24 to 29 this year. Sphere: Related Content
Saturday, February 04, 2012
Why did Russia and China veto the UN resolution against Syria's Bashar?
Russia and China have, as expected, vetoed the U.N. draft resolution backing the Arab plan calling on Syrian President Bashar al-Assad to resign.
Why have Russia and China done so? Because birds of a feather flock together -robbers, thieves and murderers have to support each other.
The Russiana nd Chinese regimes fear that if such a resolution goes from the UN re Syria today, it could come from the UN to Russia or China tomorrow.
Further, Russia and China calculate (correctly) that vetoing the UN resolution will make them closer friends with Syria while Bashar's regime lasts.
The question is how long the regime will last.
And the problem with such realpolitik-based decisions is that whenever the Bashar regime falls, Russia and China will find themselves the more firmly and completely out of Syria.
The US was apparently "disgusted" by the vetos. But what did it expect? Russia and China should never have been admitted to a body whose basic values and constitution they do not respect. Sphere: Related Content
Why have Russia and China done so? Because birds of a feather flock together -robbers, thieves and murderers have to support each other.
The Russiana nd Chinese regimes fear that if such a resolution goes from the UN re Syria today, it could come from the UN to Russia or China tomorrow.
Further, Russia and China calculate (correctly) that vetoing the UN resolution will make them closer friends with Syria while Bashar's regime lasts.
The question is how long the regime will last.
And the problem with such realpolitik-based decisions is that whenever the Bashar regime falls, Russia and China will find themselves the more firmly and completely out of Syria.
The US was apparently "disgusted" by the vetos. But what did it expect? Russia and China should never have been admitted to a body whose basic values and constitution they do not respect. Sphere: Related Content
Crunch time for Greece - and for the EU - and indeed the world economy
The current state of play is at: http://www.reuters.com/article/2012/02/04/us-eurozone-idUSTRE8130TF20120204
so the question is whether Greece will pass the needed legislation by the end of this month
somehow, I think they are going to continue prevaricating till the last minute
and then we will see whether they do get the legislation through
I think that then they will because they have to - the alternative (bankruptcy) will be even worse for them
However, I regret I don't know Greek culture well enough to be able to say whether they belong to that class of people who are prepared to disadvantage themselves in order to do harm to someone else.
If Greece does go into default at the end of this month, expect the Euro to go into a tailspin (so far as markets are concerned - the Euro will recover, but it will be considerably damaged and weakened), and expect a concomitant impact on the world economy.
If Greece does put the required reforms in place, then expect possible political and social upheaveal in Greece, but an uptick in the Eurozone as well as in the world economy. Sphere: Related Content
so the question is whether Greece will pass the needed legislation by the end of this month
somehow, I think they are going to continue prevaricating till the last minute
and then we will see whether they do get the legislation through
I think that then they will because they have to - the alternative (bankruptcy) will be even worse for them
However, I regret I don't know Greek culture well enough to be able to say whether they belong to that class of people who are prepared to disadvantage themselves in order to do harm to someone else.
If Greece does go into default at the end of this month, expect the Euro to go into a tailspin (so far as markets are concerned - the Euro will recover, but it will be considerably damaged and weakened), and expect a concomitant impact on the world economy.
If Greece does put the required reforms in place, then expect possible political and social upheaveal in Greece, but an uptick in the Eurozone as well as in the world economy. Sphere: Related Content
Subscribe to:
Posts (Atom)