Wall Street: Who's sorry now?
by Heidi Moore
TheDeal.com
Updated 10:05 AM EST, Aug-6-2002
When Sandy Weill, the iconic chairman of Citigroup Inc., issued an apology on July 25 to the bank's 270,000 employees for Citi's role in financing Enron Corp., the one-page letter sent shock waves through the ranks of Wall Street dealmakers.
That was because Weill, along with Morgan Stanley chief Philip Purcell, was viewed as one of the last holdouts against the wave of apologizing that has overtaken Wall Street CEOs this year as banks are dragged into one scandal after another.
The recent spate of mea culpas has come not only from Weill, but also David Komansky at Merrill Lynch & Co.; John Mack at Credit Suisse First Boston; William Harrison at J.P. Morgan Chase & Co.; and even, much more obliquely, Henry "Hank" Paulson at Goldman, Sachs & Co.
The apologies are all the more remarkable since public repentance is not typically part of the Wall Street culture, where executives are more likely to see themselves as surefooted Masters of the Universe than stumbling Mr. Magoos. So what has changed? Quite simply, CEOs are outnumbered as regulators, lawmakers, politicians, shareholders and the media all pile on to every investigation.
"Close on the tail of all these Wall Street corporate leaders is the FBI, the House, the Senate, the SEC and the DOJ," said one top public relations executive, who asked not to be named. "You've got a big posse out there, and the best way to shake the image of being an outlaw is to do the right thing and apologize."
Public apologies also tend to be incredibly effective with regulators, said Edward Fleischman, senior counsel with Linklaters in New York and a former commissioner of the Securities and Exchange Commission.
"It's helpful," Fleischman said. "[An apology] shows a manifestation of good faith and willingness to take the pain in order to show the regulators and the world that essentially it was a one-off and won't be allowed to happen again."
Also, there is often considerable pressure on CEOs to do something to protect their companies' stocks amid questions of wrongdoing. For instance, Citi and J.P. Morgan issued their statements of repentance after July 24, when a Congressional subcommittee grilled their executives. The Congressional inquiries caused the banks' share prices to fall around 16% each in one day, with Citi's plunging to a four-year low.
Harrison's comment in a conference call the next day might have destroyed a CEO in an earlier era, but instead it saved J.P. Morgan's shares. "There is no question mistakes have been made," Harrison said in the conference call. "In a few cases, perhaps fraud has been committed. Let's punish the guilty...and establish oversight." Morgan's stock rose 16% on the remarks.
Merrill was tied up in an investigation — and subsequent $100 million fine — by New York State Attorney General Eliot Spitzer into the bank's equity research practices when Komansky uttered his apology. Mack was repentant when his firm was facing down the National Association of Securities Dealers and the SEC in an investigation of the bank's allocation of shares in hot initial public offerings during the tech boom.
Paulson, alone, was not facing regulatory pressure when he spoke out about corporate governance in a speech before the National Press Club. The talk, which chastised corporate America but not Wall Street itself, earned Paulson kudos from the New York Times.
Paulson aside, most apologies follow a similar formula: The CEO acknowledges wrongdoing by certain individuals — never the company as a whole — and outlines a series of steps to fix it.
Still, many of the apologies don't go far enough, said Hollis Rafkin-Sax, who heads public and investor relations firm Edelman Financial Worldwide Inc. "What's amazing is that there has been such a lack of accountability and responsibility," Rafkin-Sax said. "I haven't seen any heads of companies acknowledge widespread problems."
That's largely because they want to avoid the impression that the problem is "systemic," Fleischman said, since that could get them in hot water with regulators. CEOs intentionally keep their apologies fairly vague in order to avoid legal liability for their words, he added. "The object of the game for advisers to CEOs of [investment banks] is to make an apology sound honest and persuasive, but not to give away the store," Fleischman said.
Rafkin-Sax said the first rule is that an apology can only come from the top: "There's a real opportunity for forward-thinking CEOs to get out front and assume a statesmanlike role." The upshot is that Wall Street looks like a pretty sorry place these days — literally.
Still, an apology can damage in the short term, said James Kim, a strategist with branding company Interbrand: "If you're apologizing for something, your brand's already been hurt," Kim said.
Therefore, few CEOs apologize unless they're on their way out or their way in. At Merrill, Komansky had already given up much control to Stanley O'Neal when he apologized; Mack was just walking into a mess at CSFB.
It is a measure of Wall Street's trouble that Weill and Harrison, neither of whom have named successors, are willing to put their own — and their companies' — reputations on the line. Still, it's important to keep things in perspective, Fleischman said: "I sure don't think these CEOs are angels," he said, "But I don't think they're devils, either." |
