PwC suggests MF Global was a risk culture run amok

[truetype]

https://www.ft.com/content/00de719a-086f-11e7-97d1-5e720a26771b

PwC suggests MF Global was a risk culture run amok
As creditors blame accounting firm, it points to collapsed broker’s leadership

[.. ]

During cross-examination of the former chief executive on Monday, Mr Cusick noted that an eleventh-hour rescue deal by Interactive Brokers, a rival brokerage, was abandoned after MF Global found shortfalls of cash in its customers’ accounts. “The sale died at that point when the accounts could not be reconciled?” he asked. “It did not go through,” said Mr Corzine. Some former employees of MF Global, too, say that accounting was not to blame for its demise. One former analyst who had worked at several Wall Street companies before joining, described a rough and tumble operation that appeared to have very primitive controls. “MF was an accident waiting to happen,” he said. “No systems, no risk control frameworks, no IT; zilch, really. The structures I grew up with . . . were simply not there at all.”

[.. ]

 

[JackRab]

Damn right it was a leadership problem. That's what happens when you put a investment banker at the head of a brokerage firm after a stint of being a politician.

You would totally lose sight of normality when working up the ranks at GS and then getting into US politics...

 

[southall]

No skin in the game.
How much of Corzines own net worth money was related to MF Global?

 

[Sig]

No skin in the game.
How much of Corzines own net worth money was related to MF Global?

Corzine lived in a world where his reputation and the powers that brought him was worth far more to him than money. He had all that skin in the game and lost a lot of it. He wouldn't have done anything differently if 75% of his net worth was tied into MF Global.

 

[TraDaToR]

Sig, what makes you believe this? I am sure he has been completely beaten down in terms of self esteem because he lost all his power, credibility... but this kind of people would have never put 75% of their net worth in anything. We are not talking industrial leaders of the 20th century, Corzine's game was fame and power but "milk the cow"( or at least don't risk any personal wealth ) no matter what the result is.

 

[Sig]

Sig, what makes you believe this? I am sure he has been completely beaten down in terms of self esteem because he lost all his power, credibility... but this kind of people would have never put 75% of their net worth in anything. We are not talking industrial leaders of the 20th century, Corzine's game was fame and power but "milk the cow"( or at least don't risk any personal wealth ) no matter what the result is.

You may find this interesting http://www.foxbusiness.com/markets/2011/11/08/corzines-wealth-is-eroding-with-his-reputation.html

No-one who has taken a basic finance course and has even a tenuous grasp on statistics and portfolio theory puts a substantial amount of their wealth and future earnings potential in one place if they can help it. That's just stupid, as even the analysts at Enron found out who kept all their wealth tied up in Enron stock/options while depending on the company for their paycheck as well. So if you mean smart people when you say "this kind of people", then sure. And, as the article I linked to indicates, he didn't walk away from this debacle with anything intact including his wealth. But I guarantee the loss of reputation, influence, and power hurt this guy worse than any loss of wealth ever could (that's what I mean when I say "this kind of people").

 

[truetype]

even a tenuous grasp on statistics and portfolio theory puts a substantial amount of their wealth and future earnings potential in one place if they can help it. That's just stupid

Tell that to Bill Gates, Mark Zuckerberg, Jeff Bezos, Larry Page, Sergey Brin, Larry Ellison...

 

[Sig]

Tell that to Bill Gates, Mark Zuckerberg, Jeff Bezos, Larry Page, Sergey Brin, Larry Ellison...

First I very specifically said "if they can help it". I'm an entrepreneur and I happily own 100% of my company which also provides my salary. I gain significant benefits from control of the company, and even greater benefits from owing my fiduciary duty only to myself, that I, after careful consideration, believe outweigh the benefits of diversification. Several of the individuals you mention have a controlling interest in their company, which is a very different thing than just "skin in the game", that's an important distinction you might not get if you haven't experienced both concepts. You might notice another thing that all the names you listed have in common and Jon Corzine does not. Figure it out yet?


They all started the company that is responsible for the majority of their wealth. When all your wealth all comes from the company you started, you're in a very different diversification situation than a GS investment banker who's brought in as CEO of a mature company. Again, you may not grasp that subtlety if you haven't been in either situation, but it has a lot bigger negative connotation to the market when a founder divests themselves of a big chunk of their shares than when an already wealthy new CEO doesn't buy 1/4 of the company he is brought in to lead. It's a competitive marketplace for good CEOs, and if you required them to sink most of their wealth into your company in addition to coming and working there, knowing that the average tenure of a CEO is only a few years, you'd get bottom of the barrel CEOs.

To paraphrase a great leader (at least in his own mind), "who knew this compensation and ownership thing was so complicated".

 

[truetype]

I very specifically said "if they can help it"

It's a free country, and all the individuals I mentioned understand how to block-sell their shares, if they want to.

 

[Sig]

It's a free country, and all the individuals I mentioned understand how to block-sell their shares, if they want to.

Again, the world's a subtle place and this clearly isn't something you've experienced, but take my word for it, there's a significant benefit to holding a controlling interest that may very well outweigh the benefit of diversity and there is a significant negative impact to a company when the owner block-sell's a big chunk of their shares, which they must disclose. You may not think either of those things should be true, but that's reality my friend.

BTW, big boys and girls don't just do things because "it's a free country" and they can, rebels without a clue do that kind of thing. Big boys and girls realize there are consequences to their actions and weigh those consequences carefully before taking action.