Regulation

Andrew Hill

It was “values” day in many McKinsey offices on Friday – the annual occasion when staff take a break from client work to reflect on the principles underpinning the management consultancy. Rarely can they have had before them a case study as timely and as dramatic as that of their former head, Rajat Gupta, who was convicted that day of conspiracy and three counts of securities fraud related to trading in Goldman Sachs’ stock by Raj Rajaratnam’s Galleon hedge fund.

At “the Firm”, the impact of Gupta’s decline and fall is still felt deeply. As I wrote last year in my analysis of how McKinsey was handling the scandal, “what shocks staff and alumni is that Rajat Gupta should stand accused of precisely [the] sins of self-enrichment and self-aggrandisement” that its legendary former chief Marvin Bower abhorred.

One former partner told me on Friday that “the most aggrieved groups are alumni and senior partners who knew Rajat Gupta and continue to be somewhat baffled by what led him to do this”. Another ex-McKinseyite, Roger Parry, now chairman of UK pollster YouGov, admitted to feeling “a little bit devalued and diminished” by the scandal.

But my sense is that while the trial brought punishment and humiliation for Gupta (who will appeal against the verdict), it did not add much to McKinsey’s embarrassment. The firm will not comment but no doubt it hopes the trial has drawn a line under the affair. Read more

Andrew Hill

Rupert Murdoch

Rupert Murdoch

It will be a shame if bitter and partisan debate over whether Rupert Murdoch is “a fit person to exercise the stewardship of a major international company” obscures the more important conclusion of the UK parliament’s culture, media and sport committee on phone-hacking: that he and his son James were wilfully blind to what was going on.

Whether BSkyB, controlled by the Murdoch-owned News Corp, is a “fit and proper” owner of a broadcasting licence is a question for Ofcom, the regulator, which has now entered an “evidence-gathering” phase of its probe.

But as even the dissenting members of the committee said on Tuesday, if the “fit person” line had been omitted from the report, they would have voted unanimously to back it, including the charge that the Murdochs oversaw a culture of wilful blindness. Read more

Andrew Hill

The greenest job applicants know that to make any sort of impression on their prospective employer they must at least know something about the company where they wish to work and the position for which they’re pitching. That lesson appears to have been lost, however, on many of the experienced hands seeking to join the boards of Britain’s financial companies.

Hector Sants – outgoing chief executive of Britain’s Financial Services Authority – used his valedictory speech on Tuesday to underline how would-be directors are failing even the most basic examination of their credentials for high office. Read more

Andrew Hill

The problem with conventional wisdom is that academics will insist on testing whether it is truly wise.

So the popular assumption that Lehman Brothers would not have collapsed if it had been Lehman Sisters (to quote, among others, European commissioner Viviane Reding and former UK minister Harriet Harman) seems to take a knock from a new discussion paper published by Germany’s Bundesbank. It concludes:

Board changes that result in a higher proportion of female executives also lead to a more risky conduct of business.

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Andrew Hill

It’s awkward enough having to hand back one leaving present from colleagues, let alone two. So I think we can all agree that, this time, Hector Sants will stick with his decision to resign as the UK’s chief financial regulator.

Mr Sants will step down as chief executive of the Financial Services Authority in June. The first time he announced his resignation – in February 2010 – he was persuaded to reverse the decision four months later by the incoming Conservative government. He agreed to preside over the transition to a new Bank of England-led regulatory regime (plans for which he’d opposed, as did I), in the expectation of becoming deputy governor. But things have changed.

In 2010, I wrote that Mr Sants had chosen the three worst years in history to run a regulator, taking over as chief executive just before the run on Northern Rock in 2007 and presiding over the watchdog in a year in which the rest of the UK banking system came close to outright collapse. I also wrote that his premature departure would destabilise the FSA. The first judgment still stands. The second – not so much. Read more

By James Mackintosh, investment editor

Arise, Mr Fred Goodwin. The banker who single-handedly brought down the British banking system has had his knighthood stripped away, and no one is sorry. Politicians, the public and the press are united in supporting the move against the former chief executive of Royal Bank of Scotland.

The pitchfork-wielding mob is wrong. Read more

Andrew Hill

Politicians would like to think that Stephen Hester’s decision to give up his bonus marks the start of a mass renunciation of “excessive pay” by private sector bosses. It is certainly time the UK corporate and political world moved on and refocused on what is really important: i.e. how to restore growth. But far from starting a trend, the Royal Bank of Scotland CEO’s case is unique. Here are three reasons why: Read more

For the world’s financial elite, now might be a good time to be on a Swiss mountainside, protected by a cordon of armed police, and able to take one’s mind off things by skiing and popping into a private bank.

The internet industry scored a tactical victory this week with Wednesday’s blackout of sites such as Wikipedia and Reddit, and the White House’s decision to oppose parts of two bills intended to curb the file-sharing of films and copyrighted material. “Piracy rules,” tweeted Rupert Murdoch angrily.

Andrew Hill

“Secretive hedge fund manager” is one of those adjectival pairings to rank with “flamboyant impresario” and “introverted computer programmer” as a journalistic cliché. So when I read the headline “Hedge funds lobby SEC over secrecy rule” in Monday’s FT, I naturally assumed the hedgies wanted the US regulator to erect even higher walls around them. Not so.

Colleague Sam Jones points out that at least part of the myth of secretive hedge funds is constructed on the regulatory legacy of rule 502(c) of Regulation D. This “arcane piece of Depression-era legislation… defines how the modern hedge fund industry operates”, outlawing general advertising and solicitation by funds but also making them paranoid about talking to any “unqualified outsiders”. The Managed Funds Association, the funds’ US lobby group, has written to the Securities and Exchange Commission seeking its elimination. Read more

Those asking themselves if they can trust Britain’s tabloid newspapers any more won’t have been reassured this week by Piers Morgan, the CNN chat show host, who appeared before an official inquiry into the News of the World phone hacking scandal to cast doubt on both his memory and his memoirs.

John Gapper

Whoever thought up Amazon’s latest idea for squeezing other retailers – offering money off to people who scanned prices in US stores with its smartphone app and then bought the goods on Amazon – deserves an award for bad timing.

Despite the criticism that rating agencies have endured in the past three years – much of it justified – someone at Standard & Poor’s retains a sense of humour.

Andrew Hill

When it comes to companies, the less murk, the better.

In the new edition of London Review of Books, author and journalist John Lanchester points out that three recent corporate “outrages” – the sale of UK lender Northern Rock to Virgin Money, the collapse of MF Global, and the Olympus scandal – share “a crucial similarity”:

An interested outside party, paying the closest of attention, and immersing herself in all the publicly available information, would have had no chance of knowing what was really going on.

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Andrew Hill

Fraud did not directly trigger Enron’s bankruptcy 10 years ago. The underlying criminal conspiracy was only fully revealed later. Enron’s failure was, initially, due to a classic collapse in counterparty confidence. It was a death spiral – starkly familiar to everyone who watched the 2008 implosion of Lehman Brothers – that ended on December 2 2001.

It is too easy to blame the energy trader’s demise only on bad people doing bad deeds and fail to learn the lessons. Plenty of watchdogs that should have barked in 2001, if not earlier – directors, auditors and regulators, of course, but also rating agencies, Wall Street research analysts, investors and, yes, the media – kept quiet. Read more

The US justice system is an unlovely affair of frantic litigation by too many lawyers in too many courts, with expensive and patchy results. But occasionally a judge wields his power for the public good.

Andrew Hill

I have a soft spot for US judge Jed Rakoff, who has just thrown a large legal wrench into the decades-old mechanism of redress between Wall Street banks, investors and the Securities and Exchange Commission.

I first came across him nearly 10 years ago when he presided over the extraordinarily complex litigation between JP Morgan and a bunch of insurers about offshore financing the bank had arranged for Enron. Witty, sharp, quoteworthy and unmistakeable – with his white beard, he looks like one of those wise judges who administer 23rd century justice in sci-fi movies – he is a journalist’s dream. Read more