Why Some Firms Thrive While Others Fail: Governance and Management Lessons from the Crisis

By Thomas H. Stanton | Go to book overview

PREFACE

The Relentless Pattern

On Monday, October 31, 2011, after this manuscript had gone to the publisher, a financial firm called MF Global went into bankruptcy. As the dust settled, investigators found over $1 billion of customer funds unaccounted for. MF Global’s CEO Jon Corzine, a former United States senator and former governor of New Jersey, told Congress that he had had no idea the money was missing.1 At this writing the mystery of the missing funds remains unsolved.

MF Global illustrates many of the themes of this book. According to news accounts, Corzine was a powerful CEO. He led MF Global in making bets on European sovereign debt. When the company risk officer objected, the risk officer was removed; the risk officer’s successor was expressly instructed not to analyze risk of the company’s European debt exposure. Senior executives also expressed misgivings about the firm’s growing bet on European sovereign debt, but to no avail.2

When board members suggested that Corzine might limit MF Global’s investments in European bonds, Corzine reportedly said that “if you want a smaller or different position [regarding European debt], maybe you don’t have the right guy here,” and offered to step down. Corzine later told a congressional committee that this was not a threat. And the board, despite knowledge of the company’s high leverage and growing concentration of risk, did not prevent the bet from continuing.3

Where were the regulators? At this writing, multiple regulators are still sorting out their responsibilities. Corzine personally lobbied one regulator, the Commodity Futures Trading Commission, not to strengthen customer protections by requiring segregated accounts for customer money. The New York Times reported:

Just three months [before its insolvency], Mr. Corzine’s firm assured
regulators that the proposed rule could cripple the futures brokerage
industry by hurting their profitability. In a letter, MF Global told
regulators that they were trying to “fix something that is not broken,”
adding that the firm was not aware of any brokerage firm like itself that
was unable to “provide to their customers upon request any segregated
funds.”

-vii-

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