The Voice of New Rochelle: Who Do You Trust?

Those of a certain age will remember a short-lived TV game show by the name of Who Do you Trust? An early side note: the show was hosted by the late, great Johnny Carson, who went on to unparalleled success as the trusted star of The Tonight Show.

I am having trouble getting the title of his earlier gig out of my head since I read a piece on Slate.com that featured a survey of Americas “most and least reputable” companies. At the top of the list was Amazon, just a notch over Apple.  Slate.com reported that the least reputable included the big oil companies Exxon-Mobil and BP, as well as big financial services firms like Goldman Sachs, Bank of America, Citigroup AIG. (Full disclosure: I worked for the B of A-acquired Merrill Lynch for over 30 years, Citigroup for two, and performed consulting work for AIG.)

The oil business, because of its involvement with other countries, relationships with the leaders of those states, the impact of fossil fuels on the environment, the belief by many that these companies do not care about the planet, seemingly senseless and politically driven subsidies and, of course, massive profits off of a resource almost no one can do without, is probably doomed to be viewed with dubious eyes for as long as they will be around. 

Once, they represented industrial progress and the freedoms enhanced by that progress including the family car, easy travel and the ability to live in the affordable suburbs. I even remember another show business icon—Bob for Texaco Hope—being so indentified with the product that it was hard to separate the presumed wholesomeness of both. We trusted the companies as much as we trusted Hope. Exactly when and how things changed I will leave to others. But things have changed for sure.

As for the financial services business, I lived through the changes and have mixed feelings. Here, again, things have changed drastically. The Wall Street that I joined back in the late '60s and early '70s was a place where safety and security of a customer’s assets were a part of the product we sold.   

At Merrill Lynch, we really had it driven into us the ideal that “the customer’s interests must come first,” and that “no individual business unit can come before the interests of the company and its customers.” Call those of us who worked there old-fashioned, call us naïve; but we bought in and believed. What is more, we lived it.

We also had respect for and strongly enforced agency and internal regulations.  Back then, in addition to the Securities and Exchange Commission, the New York Stock Exchange was a formidable regulator. The thought that you might have broken a rule or might be audited by them stuck fear into the hearts of financial services workers. Internally, we often had more stringent rules then either the SEC or NYSE had. Better to be safe and extra careful than risk losing the trust of the public. We did not want to be in the newspapers. Moreover, to be quite frank, the rules governing how we managed securities positions, cash positions and balances, dividend payments, collections and the relationships of all of the above, were rigorous and a process to behold. The men and women whose jobs it was to oversee these processes were respected and deferred to. 

As for the change, you could see it coming. The firms that managed trading desks for their own accounts, which is to say that they participated in the very markets in which they were brokering for others, were making more money or demonstrated the capacity to do so, through simple factors of large scale and equal risk taking.   

They had massively more money than their counterparts who brokered for individual investors, and thus could make larger bets. They could do this without risk of losing their own money, but with the potential reward of untold riches should they succeed. Assisting the dynamics of the markets in which they traded, these business units became linked to a relatively small number of powerful wealthy clients such as countries, companies, universities, endowments and so forth. This business is and was known as the institutional business; sometimes self importantly called the Capital Markets business, as if individual clients were not investing in the capital markets.

It is true that rules of disclosure required that a client be told when the firm acting as his/her broker also trade the stock for its own account. There were other rules, as well. But the sheer potential of the profits to be made and the payouts to the people that ran these “institutional businesses” began to change the culture of—at least—the firm I worked for. The “capital markets” titans began to look down their noses at everyday clients and those that carried out their business. They liked risk, deplored regulations and mocked the core businesses with their millions of accounts, big operations processes and associated budgets, and absolutely adored to the point of obsession international markets where the rules were fast and loose. Indeed, those markets would be used as the example of competitors we could not play equal with as a justification to ease regulations and, through the repeal of Glass-Steagall allow firms to become too big to fail.

I could go on, but you get the gist. Eventually, the “capital markets” types chased out the “customer friendly,” firm-wide enterprise caring types. They even went on to characterize them in the press as soft and too caring of their employees. The old rules were replaced by platitudes, like “Concerned Citizenship,” as if the line alone made us nice.

Well, the customer’s interest stopped coming first. Small-in-size, big-in-dollar businesses did put their interests over the company’s, driven by big paydays and cults of personality. And, boy, did we ever wind up in the newspapers.  The great Charley Merrill must have spun in his grave. Even in death, he was our Johnny Carson or Bob Hope. He founded my old firm to be Wall Street to Main Street, and he was a paragon of trust.

I am sure this is a common tale in many businesses today. The good news is that it is the people that matter. The bad news is that for many otherwise good people, they have to check their integrity at the door.

Now nobody knows who to trust.