The Commodity Futures Trading Commission recently filed a complaint against Jon Corzine, CEO of the now bankrupt MF Global Holdings Ltd. He is charged with directing one of his midlevel managers, Edith O’Brien, to transfer millions of dollars of assets from customer accounts to cover a bank overdraft that threatened to sink the firm. If Corzine—formerly the head of Goldman Sachs, a U.S. senator, and the governor of New Jersey—acted as the commission claims, he clearly broke the law, and that is now up to the courts to decide. But even before that decision, enough is clear from the undisputed facts of the case to identify a trifecta of bad business practices that are, unfortunately, all too common in companies today: bad ethics, bad management, and bad leadership.
Corzine’s lawyer has claimed that when Corzine approached his subordinate with a request to find US$175 million, he didn’t expect her to “violate the golden rule” of protecting customer assets. Corzine’s actions here are reminiscent of his days at Goldman Sachs, where his partners proudly created Wall Street’s strictest “culture of compliance.” That sounded great, and indeed, those compliance practices kept GS executives out of the courts over two decades during which their less vigilant competitors embarrassed themselves. Yet at the same time, GS lacks an ethical culture. Partners are prized when they find ingenious ways to legally cut corners in order to earn profits.
I am not naive: I understand that businesspeople often cut corners. But the problem with a culture of compliance is that it encourages nonproductive and risky behaviors—and eventually leads to someone stepping over the line. In contrast, organizations with ethical cultures are spared the inefficiencies of creative compliance and the inevitable comeuppance that occurs when the very nature of rules and regulations makes it impossible to clearly identify the line between what actions are acceptable and which are not. Put positively, there is a business advantage to having a culture in which people are fully engaged in (and rewarded for) doing the right things, as opposed to one in which people are looking for ways not to get caught doing the wrong ones.
Corzine demonstrated questionable management when he reached out to an employee who was not his direct report. Admittedly, there is a delicate balance involved here. On the one hand, organization charts lead to rigor mortis, and thus it is good when those at the top make themselves available to all their people—and even better when they consistently listen to them. On the other hand, organizations require a level of discipline. That’s why effective organizations clearly delineate decision rights—that is, agreements about who can make what decisions and who is entitled to be involved in what deliberations. Without such understandings, there can be no accountability. I suspect that Corzine went out of channels at MF Global because he reckoned those he excluded from the process were likely to raise objections.
Finally, Corzine’s performance as a leader left something to be desired. As they say in the Marines, the first duty of an officer is to protect his troops. But it appears that Corzine put a vulnerable employee at risk. Lower-level employees don’t question the boss if they want to keep their jobs (they may even be a bit chuffed when the guy at the top calls them directly). Realistically, Edith O’Brien’s options were 1) obey, 2) resign, or 3) become a whistle-blower. Like most people in most organizations, she chose the first.
Although it is not uncommon to find less experienced executives making one or another of these three errors, Corzine’s trifecta provides an object lesson for the rest of us, on what not to do—in terms of both your actions and your motivation. As the New York Times’ James Stewart suggests, nagging memories of his less-than-stellar performances on Capitol Hill and in Trenton appear to have driven Corzine to attempt to rekindle his Wall Street glory days by way of a near-impossible transformation of inconsequential MF Global into the next Goldman Sachs. As is so often the case, the exercise of executive ego comes before a fall.