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Why did Goldman Sachs executive Smith resign?
*"environment now is...toxic and destructive"
*interests of client sidelined by firms pursuit of money.
-Culture was always a vital part of GSs success: teamwork, integrity, humility, but it was replaced by focus on just making money.
-Saw decline in firms moral fiber serious threat to firms long term survival
What went wrong??
-firms view of leadership changed from focus of ideas, setting and example and doing the right thing to making enough money for the firm without being an murderer.
Rare public Goldman Sachs resignation
*managers callously talk ab ripping off clients calling them muppets
-no humility, eroding integrity, not illegal conduct but wrong products for clients every day.
*senior management doesnt understand basic truth "if clients dont trust you they will eventually stop doing business with you"
*call to board of directors
-make client the focal point again
-weed out the morally bankrupt ppl
-get the culture right again
**remarkable resignation without confidentiality agreement.
Debate on whats wrong at to investment banks
*marketplace morality is not about being nice:
-free market capitalism requires alignment of sellers and buyers interests
-when trust evaporates so do businesses
-as corporations, banks now focus on next quarter, not long term relationship
*greed prevents good:
-1986 Ivan Boesky spoke at Berkeley: "greed is healthy"
-Greed, far from being good, undermines moral behavior
-wealthier ppl believe greed is moral and this attitude gives rise to unethical behavior
-wealth creates a me-first attitude with ideology of unbridled self interest
Debate on whats wrong at top investment banks
*saving the street from itself:
-problem isnt excessive greed. if took greed out of wall street all thatd be left is the pavement
-the problem is endemic abuse of power and trust
-watering down regulations led to "junk bond and insider trading scandals, the dot-com scams along with enron and other companies led to the crash of 2008.
-large portion of america convinced economic game is rigged
-capitalism depends on trust. without trust ppl avoid even sensible economic risks
debate on whats wrong at top investment banks --> how would changing back to partnership model help with investment bank problems?
-no ill advised risk
-partners were cautious because their money was at risk
-potentially responsible for partners criminal conduct as well
-moral and ethical behavior on Wall Street = fiduciary duty
-managers look at short term profit maximization by taking on risk
*solution- require all wall street firms to be partnerships but also need to align wall street incentives with firms clients, owners, and US taxpayers.
WorldCom fraud and impact on employees and investors
-indicted in 04 for securities fraud, conspiracy and causing false filings with SEC
-CFO Sullivan star witness at trial
*ebbers intimidated me to commit fraud so worldcom could meet wall street expectations
*ebbers said he didnt know anything
-after 6 week trial jury convicted on all counts and got 25 yrs in federal prison
-worldcom fraud ultimately pegged at 11B, company settled with SEC for 500M
HealthSouth's Scrushy - escaped justice til he bribed Gov. Siegelman
-85 count indictment and charges against CEO under SOX and sought 278$ M in asset forfeitures
-claimed Scrushy received nearly 300M in compensation due to fraud and conspiracy
-parade of CFOs blamed Scrushy, he denied everything.
-Scrushys trial prep was interesting:
*hosted Christian TV show with wife
*supported 40 day prayer rally
*joined predominantly African American Church (birmingham 70% black, and 11 of 18 jurors black)
>>after 7 weeks of deliberation, Scrushy acquitted of all counts
^^how he escaped justice
Scrushy: escaped justice until...
-during trail Scrushy accused of 30 new counts including bribery of Gov. Siegelman to get a seat on a health care board.
-both were convicted, Scrushy got little over 6 years.
Chainsaw Al- Dunlap
-capitalism notion of creative destruction
-role of venture captial companies
-why dunlap coined one of the worst CEOs in history
-corporate turnaround specialist Dunlap personified "profit at any price"
-turnarounds inevitably fired employees and cut investments in order to maximize share prince
-writer said dont hate him bc hes a brutal heartless arrogant bastard, but hate him bc hes destructive --> dunlap did not practice creative descruction
Chainsaw Al at Sunbeam
-SEC sued Al and Andersen co. for massive fraud at Sunbeam; they overstated losses to seem like Al mastermind a great turnaround.
-->channel stuffing and other irregularities found
-90s, "financial engineering" was a positive description of a CFOs expertise. not anymore
-SEC charges settled for 500,000$ and ban from serving as a officer or director of any public company
-shareholder class action suit settled for $15M
-sunbeam bankrupt, shares worthless, employees fired.
*author called dunlap boarderline psychopath
Chainsaw Al- venture capital companies role like Mitt Romney
-Romney led Bain capital wasprivate equity firm
-object was to invest money for maximum return
-acted as venture capitalist for new companies
-Bain a "vulture capitalist"?
*wall street journal claims Bain made huge gain resulting in 22% of firms going bankrupt
*small effect on jobs, positive acceleration of "creative destruction" going on in economy
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