Sense on Cents

Volumes can and will be written about the pitfalls and problems our economy has encountered leading up to our current economic crisis. Regrettably, there are never enough volumes written about those individuals who swim ‘against the tide’ and promote the principles of truth and integrity which are sorely lacking in our country today.

Against this backdrop, I always enjoy reading the commentary of Bloomberg’s Jonathan Weil who digs through the books and records of a wide array of corporations to expose accounting smoke and mirrors. This morning, Mr. Weil profiles 5 individuals who deserve real praise. I reference Weil’s work not only to bring greater adulation to these individuals but also to bring greater attention to the corporations and industries with which they are connected. Weil writes Five People Who Stayed Clean in Banking’s Bilge:

In the year that has passed since Lehman Brothers Holdings Inc. collapsed, there haven’t been many good guys to emerge from the wreckage of the financial crisis. Look hard enough, though, and you will find a few.

It’s a challenge, no doubt. So many people at the highest levels of government and industry blew it, including almost every top banking and securities regulator in Washington. Yet those failings are not what this column is about.

Rather, it’s to introduce you to some of the people I’ve come across over the past year who stuck to their core values in the face of enormous pressure to abandon them.

1. Dick Evans, chief executive officer, Cullen/Frost Bankers Inc. He said no to the government’s bailout money.

Cullen/Frost was profitable and had plenty of capital. Evans and his team concluded that the true cost of the government’s funds was higher than advertised. They thought taking the money would dilute their shareholders’ stake. Throughout the whole mess, the company has reported profits every quarter.

2. Joseph St. Denis, former vice president of accounting policy, AIG Financial Products.

American International Group Inc. hired this former Securities and Exchange Commission accountant in June 2006 to help clean up its financial-reporting systems. Within a year, St. Denis said he had found serious errors. Soon after, the head of AIG Financial Products, Joseph Cassano, began excluding him from discussions about the “super senior” credit-default swaps that ultimately sank the company. Cassano also demoted him. St. Denis did the right thing: He quit, at great personal cost.

3. Charles Bowsher, former chairman of the Federal Home Loan Bank System’s Office of Finance.

Bowsher resigned in March, less than two years into the job and just one week before the government-chartered system’s 12 regional banks were due to file their combined annual report. The reason: As an audit-committee member, he wasn’t comfortable signing off on their financial statements.

Specifically, he was bothered by the accounting standards and processes the banks were using to value their mortgage- backed securities. He also wasn’t about to risk his reputation. Bowsher, 78, was comptroller general of the U.S. from 1981 to 1996, during which time he was among the first to warn the public about the brewing S&L crisis and the need for regulation of derivatives dealers. The shame is that more corporate directors don’t have the guts to do what he did.

4. & 5. Tom Linsmeier and Marc Siegel, members of the Financial Accounting Standards Board.

Last April, the FASB caved to pressure by Congress and changed its rules so that banks and insurance companies could exclude huge unrealized losses on mortgage-backed securities from their earnings and regulatory capital. The decision promises to stain the board’s reputation as an independent standard-setting body for years to come.

The ruling wasn’t unanimous, however. Linsmeier, a former accounting professor at Michigan State University, and Siegel, a longtime forensic accountant, voted against the change. (The measure passed by a 3-2 vote.)

In a joint dissent, they wrote that “investors generally have opined that their preference is for the fair value of financial instruments to be reflected in net income.” Delaying recognition of losses, they said, may result in “a negative effect on investor confidence.” Linsmeier and Siegel emerged with their reputations enhanced.

While government pundits, market analysts, and high profile economists will posture and rationalize about a wide array of programs and policies  implemented throughout this crisis, there is no substitute for prioritizing reputation and integrity. In fact, I would maintain that those individuals and corporations that prioritize these intangibles will be the real long term winners. America needs more men like the 5 referenced above . . . it also needs more journalists like Jonathan Weil willing to embrace similar characteristics.

LD

Related Sense on Cents Commentary:
Freddie Mac, Fannie Mae Deja Vu? (May 28, 2009)
The Greatest Risk (December 21, 2008)

This entry was posted on Thursday, September 10th, 2009 at 11:38 AM and is filed under General, Reputation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.