There’ s a quotation by Stan O’Neal that I’ve looked for occasionally and failed to find. John Cassidy found it for me (How Markets Fail, p. 274; original source is The New York Times). It was an internal memo from O’Neal describing the company’s second-quarter 2007 results (which were good, at least on paper). Here are some quotations from memo in the Times article:
“More than anything else, the quarter reflected the benefits of a simple but critical fact: we go about managing risk and market activity every day at this company. It’s what our clients pay us to do, and as you all know, we’re pretty good at it.”
“Over the last six months, we have worked successfully to position ourselves for a more difficult market for C.D.O.’s and been proactively executing market strategies to significantly reduce our risk exposure.”
Greg Zuckerman, in The Greatest Trade Ever, has this from O’Neal in 2005 (p. 173): “We’ve got the right people in place as well as good risk management and controls.” (No original source–the entire book has only forty-three end notes, at least in the pre-publication copy that Simon got.)
Since then, we’ve all had our fun at O’Neal’s expense (and he’s had his $161 million golden parachute, although presumably it ended up being worth considerably less) and moved on. Most likely he simply had no idea what was going on; the other possible explanations are worse.
But that first quotation has always bothered me, because it reflects a problem that goes far beyond Wall Street, and something I always found particularly distasteful about Corporate America: CEOs, and business people in general, saying things they want to be true, without bothering to find out if it actually is true.
Do all people behave this way? (“Heck of a job you’re doing, Brownie.”) Maybe, but not all people are CEOs that have investors and employees listening to their every word. Everyone who writes for a top newspaper or for a subset of the top magazines (The New Yorker, The Atlantic, etc.) has every word he or she writes fact-checked. The fact-checkers literally go word by word and cross them out when they are confident they are accurate. There’s no way a good fact-checker would have allowed O’Neal to say “successfully” without proving it. If he had had to prove it, he would have known it was a lie. As it was, he was able to get away with it, probably without even having to think about whether he was living in a fantasy or not. (And, of course, O’Neal almost certainly didn’t write the memo to begin with.)
The result is that smart people know to ignore everything a company executive says in public that is not backed up by facts in the public domain, and everyone else gets bamboozled. And if you don’t put up the confident, cheerful face on CNBC, you’ll get slammed because all the other people on CNBC do. So we end up with this charade of everyone spouting the talking points fed to them by their PR people (I was in marketing at Internet boom company; I’ve written those talking points) without even knowing if they are true, which means they can never be held responsible (since any misrepresentation they make isn’t “willful”).
Is there a solution? I wish business executives would show a little more interest in reality, but that isn’t going to happen by itself. Maybe there should be a different legal standard for certain types of speech by corporate officers, so they can be held responsible on some level for making inaccurate statements, even if they don’t know they are inaccurate. That would inspire greater respect for the truth. But mainly this is just a pet peeve of mine that isn’t going to change.
By James Kwak