Trust Meltdown - Hayek Institute

Most time is lost
by not thinking out.
Alfred Herrhausen
1930-1989
Trust Meltdown
The Financial Industry Needs
a Fundamental Restart
Edited by
Roland Schatz & Matthias Vollbracht
“President Barack Obama stepped up his campaign
against Wall Street ‘We have to get this done,’
Obama said at the White House. ‘If these folks want
a fight, it‘s a figh I‘m ready to have.’“
Barack Oboma quoted in AP Jan 21 2010
– the day after the elections in Massachusetts
| 3

4 |
Copyright © 2010 INNOVATIO Ltd.
ISBN: 978-3-906501-20-8

Foreword
by Kofi Annan, UN Secretary-General (1997-2006)
As this publication shows, trust and
confidence in leaders, whether in
business, the public sector or politicians,
have been severely shaken.
Almost two years after the global
economic crisis first broke, we are still
seeing the social and political fallout
through rising unemployment and
economic insecurity, public anger,
protest and civil disorder. There are
many who rightly see the crisis as
the consequence of failure to put
economic policies at the service of
the common good. As Adam Smith
wrote over 250 years ago in his
Theory of Moral Sentiments, universal
values far beyond the profit
motive – including humanity, justice,
generosity and public spiritedness
– must provide the framework for
markets to work effectively. Now, he
might argue, is the perfect moment
to ensure that such core values are
finally hardwired into public policy
and international relations. In a highly
interconnected world beset with
shared problems, we cannot afford
to get this wrong. And if we get it
right, then we might finally have
learned the lessons that Smith was
trying to teach us.
| 5

Content
Introduction 8
1. Analysis: Reasons and Consequences
of the Trust Meltdown
1.1. Only Few Options Left for the Banking Industry
to Regain Trust 12
By Roland Schatz
1.2. The Loss of Trust and Personalisation 29
By Matthias Vollbracht
1.3. Dick Fuld, the Man Who Brought the World
to its Knees 43
By Andrew Gowers
1.4. Is Media in Need of a Reality Check? 52
Global Media Coverage on the Banking
and Economic crisis
By Wadim Schreiner
2. Business Reporting 2.0: XBRL
2.1. The Trust Meltdown 68
By Alfed R. Berkeley III and Phillip Moyer
2.2. Transparency and Verification from a
Regulator’s Perspective: 72
Using XBRL to Restore Trust in Finance
and Government
By Paul Wilkinson
2.3. Enhancing Capital Markets Transparency and Trust 90
By Liv Apneseth Watson
6 |

3. Best Practice
3.1. We Need to Watch Risk, Not Size 101
By Emilio Botin
3.2. Sustainable Investment 109
By Joachim Faber
3.3 Lessons from the Microfinance Sector:
Building Trust Through Information 116
By Scott Gaul
4. Supervision Needs Controlling
4.1. Learning From the Crisis 125
By Mark B. Fuller & Joseph B. Fuller
4.2.Peer review will need to be Peer pressure 129
By Robert B. Zoellick
5. Communication: The Finance Sector
Needs a New Media Strategy
5.1. The End of Financial Market Communication
Dominance 141
By Richard Gaul
5.2. Let’s Have a Dream: Media Becoming Triggers! 145
Interview with Michel Ogrizek
6. Trust and Credulity, Sin and Suspicion: Must the crisis
of trust lead to a society of suspicion? 149
By Alistair Macdonald-Radcliff
Contributors 158
| 7

Introduction
Introduction
by Roland Schatz & Matthias Vollbracht
In 2002, Augustinus Graf Henckel-
Donnersmarck, a member of the Premonstratensian
order and corporate
consultant, invited us to take part in
coaching the executives of a major
international bank. At first we did
not know why communication skills
were so much needed as his usual
focus was quite different: namely
strategic planning and implementation.
But after only a few sessions the
puzzle was solved for us as it became
clear that the willingness of bankers
to talk to each other was spectacularly
limited. We proposed additional
levels of dialogue beyond the usual
consultation in later phases of our
work in order to enable real feedback.
Such ideas were always rejected
with the shaking of heads as was any
suggestion of further developing
communication in a continuing and
managed way with potential customers,
employees and all other stakeholders
of importance to the bank.
The experience of seeing the sheer
effort it took from Augustinus to
spur on these normally responsive
and responsible people to grapple
with these fundamental issues made
a deep impression on us, as did also
the way that the senior office bearers
quickly withdrew from facing the
image of themselves that came back
to them in the process. The company
ended up being taken over shortly
after the collaboration with Augusti-
8 |
nus ended and afterwards we often
thought that it would have been very
useful to publish these cautionary
experiences as a case study using
anonymised data. But in the end we
did not do so in part from the hope
that this was an isolated case which
the economic system had in the end
corrected through the ultimate takeover
of the company.
Since that time however, anyone
following closely the ways in which
The Wall Street Journal, The Financial
Times or Il Sole 24 Ore report on
companies will have noted that in
fact the role of the specialist media in
determining the reputation of entire
industries has grown less and less. Instead
it is now the news programmes
of Al Arabia, BBC, CBS and the SABC
that are fulfilling this role.
Charting this through the recent
financial meltdown is particularly
informative. For one brief moment
the finance industry appeared to
wake up and acknowledge that there
was important life on Main Street
beyond the office towers of Wall
Street upon which Wall Street has extraordinary
influence and consequent
obligations. But, whereas Main Street
became repeatedly aware of this
dependence, before September 2008
it was only fleetingly acknowledged
within the financial industry at the
highest level.

Thus, by the time of the first partial
repayment of the tax monies given
through the “bailout” was made,
Wall Street appeared to behave as
if the status quo had again been
simply restored. This tendency was
reinforced perhaps by the fact that
by Spring 2009 the „credit providers”
of Autumn 2008 were themselves in
need. Thus the old power structures
appeared superficially to have been
restored and the Fuggers, as it were,
merely sent their greetings. But, in
contrast to the bankers of the middle
ages, the finance industry of the
present day had by that point done
such damage to the outside world as
to comprise an historic, one-off event
that may fittingly be compared to
the psycholigical impact of the earthquake
in Haiti. Such was the real
world impact on the unemployed,
former home owners and mediumsized
businesses.
Thus Main Street, even now, fourteen
months after the Lehman
collapse is in fact as little restored as
the streets of Port-au-Prince, and the
real world impact continues to grow
and spread. Parents, who could not
replace the money saved for years
for their children’s studies have, since
the financial meltdown, still made
no plan B and have few resources
through which to develop one.
It is the contrast between the two
sets of perceptions on the part
respectively of Wall Street and Main
Street which has set the stage for the
current bonus scandal. On one hand,
bankers see things as back to normal
with spectacular profits returning,
while on the other hand, in the
world beyond Wall Street, things
continue to get worse. Thus, on a
daily basis ordinary people read in
their media in Africa, Asia, Australia
and Europe that Wall Street is not
only talking about bonuses, but in
the process of paying them out in the
billions for 2009. In some cases it is
considering doing so even though it
was not able to achieve a profit, as
the case of UBS shows us, while the
unchanged and generous accounting
guidelines prevailing at Citibank are
being used to the same end.
It is at such a time as this that the
unique legacy and memory of Alfred
Herrhausen, the long-time CEO of
Deutsche Bank merits recovery and
recollection. Dr. Herrhausen was
murdered on 30.11.1989. He was a
long standing friend of Augustinus
and shared his religiously informed
moral vision and concerns. Time and
time again he pointed out to his own
company, as well as the entire industry,
the special responsibility which
bankers have. The contacts he had
with Augustinus led him as the CEO
of the then most important banking
institution in Europe to address the
challenge of explaining and justifying
his actions in an inter-disciplinary and
inter-generational dialogue others
| 9

Introduction
would do well to follow now. His
reverence for Karl Popper made him
cherish facts and allowed him to see
connections which others declined to
perceive. Herrhausen’s championing
of the need to free developing countries
from their burden of debt in the
interests of the wider world community
was not the only result of his
breadth of thought and gained him
friends far beyond the usual confines
of the financial industry.
When, directly after the murder of
Herrhausen, his formal successor, Hilmar
Kopper, gave his first interview,
it went out under the heading “Why
do I need Popper when my name is
Kopper”. Such a title certainly did
little to suggest that holistic thinking
beyond the bounds of ordinary
categories and which reflected wider
responsibilities would continue to
prosper in Frankfurt or beyond. Noone
can say whether Deutsche Bank
would have been deflected from
the narrow focus and dominance
of “making money out of money“
ethos under Herrhausen, but it would
at least have been typical of him to
force reflection on the implications
of such tendencies. This was not least
due to his proximity to the Ruhr area
as well as his close association with
Augustinus, who sometimes provided
him with more contact with Main
Street than he might have chosen
himself. He would certainly have
withdrawn from his position rather
10 |
than ever accept the comparison of
his employees’ work with that of a
casino – which at that time no one
would in any case have ever made.
The murder of Dr. Alfred Herrhausen
is still unexplained to this day
and happened exactly twenty years
ago. All of which gives us reason
to pose the kinds of question he
asked: can the banks really live with
their (in)action? Can banks really
want what is currently taking place
when they think through the consequences?
It is an horrific feat for an industry
that has trust at the foundation of
its business that in 2009 only 4% still
placed their trust in those responsible
in Wall Street. The long-term
analysis of reputations undertaken
in the first chapter of the work that
follows shows two further grave
findings. First, long before the
Lehman crash and the sub-prime
crisis positive reports were no longer
appearing in the opinion-leader
media around the globe regarding
the actions of the finance industry.
This shows that the collapse in trust
was already underway long before
its almost total collapse in the face of
the recent financial crisis. Secondly, in
the year after the finance meltdown,
the image has not improved it has
only worsened, so there is much to
be done and addressing this is very
urgent. Headlines such as “The bank

we love to hate” do not appear now
in left wing publications but rather in
the Financial Times. “Banksters” is a
term now used in the Boulevard and
reminds even the illiterate of the old
comparison of Berthold Brecht. The
consequences of a loss of trust are
financial deductions in the billions as,
for instance, UBS had to continue to
admit even in 2009.
There are several avenues for escaping
the present downward spiral.
One option is for all the participants
to re-orient themselves back in
accord with the old ground rules embodied
by such a respected figure as
Dr Herrhausen who indeed served as
a benchmark for the finance world‘s
conduct. If doing that directly is too
much, then at least those who did
not participate in the misconduct
must draw attention to their best
practice concepts and offer alternatives.
These must be implemented and
the message that this is happening
must be communicated successfully
to the wider public. In the absence of
such reforms, fundamental alternatives
to existing financial institutions
will arise, after all, who now still
types on an Olivetti typewriter?
Ten years ago there was no Google.
Already in Africa, people no longer
manage their cash flow in a bank but
rather through their telephone, for
security reasons… The one thing that
should above all else be clear is that
the status quo is not an option.
The two further chapters that then
follow on from the detailed diagnosis
of the loss of trust in the industry and
their responsible heads, deal respectively
with the regaining of trust
by providing transparent data and
figures and, after that it is demonstrated,
by using the examples of Bank
Santander, Allianz Global Investors as
well as Micro Finance that alternatives
are possible. These two chapters
are followed by a chapter starting
to explore the new measures set by
the G20 and others, and the extent
to which the financial meltdown was
indeed unique. As transparency is the
best control, a chapter follows presenting
two proposals as to how the
communication activities of all participants
can be sustainably changed.
In memory of Augustinus and Alfred
Herrhausen, the book ends with a
text concerned with the specifically
moral dimensions of the present crisis
and the need to secure improved
compliance through trust grounded
positively by personal commitment to
the moral rather than an ultimately
vain quest merely to expose error.
We hope that these texts will help
all those who do not want to be
satisfied with the status quo and
the mentality that cries merely “The
show must go on”. Our wonderful
team of authors is responsible for the
ideas, but as always any errors are
our responsibility.
| 11

1. Analysis:
Reasons and Consequences of the Trust Meltdown
1.1.
Only Few Options Left for the Banking
Industry to Regain Trust
By Roland Schatz
March 2010 will mark the anniversary
of the attack on Sir Fred Goodwin,
the former CEO of the Royal Bank
of Scotland (RBS). December 2009 a
bank had to be evacuated in Frankfurt
because of a bomb threat. One
week ahead of the World Economic
Forum 2010 in Davos, President
Obama has publicly threatened Wall
Street saying “If these folks want a
fight, it is a fight that I am ready to
have” a turn of phrase that did not
help to reduce the tension on either
side. These different episodes are
enough to give pause and for executives
to ask themselves „What will I
tell my children when they look me
in the eyes and ask me if we could
become the next target?”
Ten months after the attack on Mr.
Goodwin, bank executives and their
boards of directors need to be convincing
to the public in regard to the
following:
- Have we in 2009 been communicating
our financial position accurately
to our clients and stakeholders?
- Have the apologies for our negligence
been brought out clearly
enough so that customers not only
hear them but are also able to
understand them?
- Have transparent measures been
implemented so that the mistakes
are not repeated?
12 |
- Have new policies been put in
place to strengthen risk management
policies?
Thus far, unfortunately instead of
answering these questions consumer
have witnessed the banks increasing
their fees for checking and saving
accounts as well as transactions and
other services. Home owners in the
U.S. who lost their four walls, were
reading more and more statements
in the newspapers made by their old
contractual partners that it was their
own fault if they took out loans that
they were unable to pay back. From
an objective point of view, this may
often have been correct observation
- but in the context of 2009 its effect
was not only cynical, but it exposed
the advisory incompetence of bank
employees who had checked and
countersigned these same contracts.
As a final image shredder there have
been countless headlines about bankers’
bonuses in the news. While some
banks have started to make money
again, in the case of UBS they occasioned
further public outrage when
they announced that they planned
to distribute CHF 4 billion to their
managers even though the company
remained in deficit.
At the same time, Goldman Sachs
(GS), CEO Mr. Blankfein was quoted
all over the world that the financial

meltdown could be compared to a
hurricane, a phenomenon of nature
and not man thus obviously rejecting
responsibility for contributing to the
financial meltdown. One could not
help but be surprised at reading such
details of the hearing before law
makers in Washington DC only weeks
after the FT had titled this bank “The
bank we love to hate most” – which
should have been
a final wake up
call not only to
Broad Street 55.
Cartoons are a
late indicator
of reputational
damage and
the Frankfurter
Allgemeine
Zeitung (FAZ)
tried to help
letting banking
executives understand
what
their current
position and
reputation is.
People still remember the bank crisis
from twenty years ago in which the
government in Washington, as part
of the rescue action (USD 300 billion
were needed back then) dismissed
the top management without notice
and bonuses as a sign of taking
responsibility. Today when Joe Average
reads the headlines that Wall
Street Bankers are receiving millions
of dollars in bonuses and getting
promotions while they still sit on the
sideline with mortgages they cannot
pay and lost jobs, and thinking
about Washington using their tax
dollars to bail the banks out less that
14 months ago there is no wonder
it has caused the uproar and deep
distrust throughout society. Even
after acknowledging that Goldman
Sachs payed
their taxpayer’s
loan back at a
higher interest
rate than
required it was
not sufficient
to re-establish
public trust.
Every citizen on
every continent
whose public
swimming pool
is closed for
lack of funds in
the municipal
coffers, whose
children can no longer visit the local
libraries, whose schools had to close
partially or totally for lack of funds
will judge their politicians in the
coming elections on their actions
to make sure that the Wall Street
bankers are held responsible for the
damage caused and set policies in
place to avoid another market crash
triggered by greed.
“I don‘t want you playing with the banking
directors’ kids”
FAZ, 19.01.2010
| 13

Analysis
Since the time when people first populated
the planet they have looked
for scapegoats during times of crisis.
The most suitable scapegoats have
often been a minority population.
And if this minority has reputation
issues then the finance industry and
politicians cannot continue with their
„same as usual!“ attitude in 2010,
not least because politicians‘ reputations
have developed in diametrical
opposition to the media reputations
of the bankers since the financial
meltdown, as the data of the ongoing
reputation tracker illustrates .
To demonstrate, that this is no longer
“just” a reputation issue one should
be aware of three concrete actions
aimed by mainstreet at reducing the
power of Wall Street:
10%
0%
-10%
-20%
-30%
-40%
-50%
Q1/02 Q3/03 Q1/05 Q3/06 Q1/08
Q4/02 Q2/04 Q4/05 Q2/07 Q4/08
1) Moveyourmoney.org created by
Huffington Post. This is one of those
typical initiatives that allows the
market place to act while not having
to wait for legislation. The appeal
during the 2009 Christmas period to
all who still let the large banks administer
their money has been taken
up by media worldwide and is easy
to implement. Similarly to the Shell
boycott following the Brent Spar
affair, it costs the knowledgeable
customer little to draw their money
from Citibank and to transfer it to a
bank with a local reference and local
control.
2) Customers started turning away
from the financial system already
10 years ago: entire territories in
Europe’s regions abandoned the euro
Chart 1.1. Rating of Political and Economic Protagonists 01/02 – 12/08
Basis: 49,555 news reports on economic topics in German TV 2002 - 2008
14 |
Political Protagonists
Economic Protagonists

and created their own regional currencies.
In the beginning when the
die hards were derided across the old
continent, “global” concepts were
developed which will achieve a massive
acceleration after the financial
meltdown. At the early stage these
concepts largely followed the antiglobalisation
ideology and therefore
only featured limited, but considerable,
volumes. In the meanwhile, the
regional currencies had long made
the connection to the existing currencies
and became a relevant alternative
both for the middle-class and the
wealthy.
3) Up until recently, micro-financing
was regarded as irrelevant by most
major banking institutions. Today
with more than 2,000 different Micro
finance operations in place banking
executives have come to the realisation
that 10 million low risk 50 dollar
loans were, on the whole, more
sustainable than a 500 million loan
gone wrong. At the same time as
microfinance has been considered a
financial instrument only for poorest,
media is now reporting that microfinance
concept has found its market
in Spain and several of other mature
markets.
The trends above are samples of
money moving away from large
global financial player to local more
trusted transparent and accountable
institutions with a regional reference
or personally liable shareholders.
This trend is more likely to continue
as long as trust is not restored on
Wall Street.
Meanwhile executives of the “too
big to fail” banking institutions have
created the impression to the general
public that their next bonus negotiations
are more important to them
than making sure their customers
and stakeholders understand how
the finance sector must change to
prohibit another melt down. To add
more fuel to the fire, headlines news
accused several of the banks and
their audit firms of wilfully misrepresented
their financial position to investors.
Massive class-action lawsuits
have been reported against for example,
Royal Bank of Canada and the
accounting firm KPMG for the more
than $132 million lost by Canadian investors
in the collapse of hedge-fund
operator Norshield Financial Group is
just one of many lawsuits eroding the
trust of the market place.
CPA firms are facing massive lawsuits
running into the billions because
they gave assurances and positive
opinions on the levels of disclosure
of the largest sub-prime credit
providers despite notifications of
irregularities and missing vouchers
from regional accountants. In the
press one can read rumours that the
accounting industry is even asking
Washington for delays in court deci-
| 15

Analysis
sions because otherwise the entire
industry could collapse. Will these
companies too try to argue they too
should be just “too big to fail?”
Month after month the Americans
had to face a hitherto unknown
unemployment rate of 10% and
entrepreneurs are told that there is
not enough money in the bank to
continue their loan request and there
are not enough new loans available
to provide for business expansion.
Meanwhile everybody continues to
read in the headlines that the banks
appear to have sufficient funds to
distribute bonuses to the tune of
billions. At least some Ivy League
universities and institutions such has
Harvard Business School (HBS) have
in the last year apologized publicly
for their role in fostering short term
thinking in their curriculum.
However, for people who saved for
their children’s studies and entrusted
their money to the professionals at
Lehman month after month just to
be tersely told one day that this company
is not counted as one of those
„too big to fail“ by the other competitors,
the reference to the small
print on the back of the contract or
an apology from Harvard is of no
consolation.
Their disappointment and anger
towards the supposedly “super-educated
professionals” would at the
most be reduced if the clever people
16 |
would apologise in a way that is visible
and audible to them and other
aggrieved parties without any ifs and
buts – in a way similar to the scholars
like Nitin Nohria from HBS.
Michel Ogrizek, a former communications
director of a prominent investment
bank, refers to the problem
that many groups of professions
are represented on the boards of
banks, just not those who understand
communication and the feelings of
people. The advice, to “not overdo it
with the apologies” must have come
from the extensively-staffed legal
departments which, as always in such
cases, refer and will always refer in
the future, to the risk of the damage
claims derived from the apologies.
But who poses the question
as to how much business has in the
meantime been lost by the financial
institution because the apology was
not perceptible to the customer? The
expertise in business administration
science, often criticised for making
many mistakes, can, at least on this
topic, refer to extensive results in
the area of opportunity-cost-calculation.
The fate of the UBS share price,
and still more the billions withdrawn
by its customers after the Autumn
of 2008, should give bank CEOs
and their board directors cause for
thought and cause for special care in
making their next round of staff appointments
to the relevant posts.

Chart 1.2. shows how the negative
reports on the banks in general did
not improve but became increasingly
devastating in year 1 after the financial
meltdown
The reason why, in surveys, Wall
Street bankers “enjoy” only 4%
esteem in all respondents, why school
children hardly state “banker” as a
basic profession and why politicians
from all countries will trim any room
for play that financial institutions
have with legislation is however not
only found in the lack of awareness
of blame and admission of guilt.
There is the further reason that faith
in the strategic competence of managers
had already long been in doubt
10%
0%
2003/1
2004/1
2005/1 2007/1 2009/1
2006/1 2008/1
within opinion-leading media, as is
substantiated by the data from Germany
in chart 1.3 on the next page.
At the G20 summit in September of
2009 the executives of the global
financial institutions could not bring
themselves to a clear globally agreed
commitment on common guidelines
for minimum liquidity and bonus
structures. Following the G20, almost
every financial house seemed once
again to look for the lightest regulation
and to propose similar conduct
to that of its competitors and when
they were not prepared to comply,
they sought to mothball again and
completely any actions in matters
of control and sustainable manage-
Chart 1.2. Evaluation of individual banks vs. industry, 01/2003 – 09/2009
Average rating in German media
20%
-10%
-20%
-30%
-40%
-50%
-60%
Basis: 41,879 reports about bank, bank managers and the banking industry in 21/29 media
Indiv idual bank
Indiv idual bankers
Banks in general/
banking industry
| 17

Analysis
ment. What has only very seldom
succeeded since the earliest phase of
human existence appears to be what
bank executives and their boards of
directors want to apply to attempt:
namely pointing the finger of blame
at others and then doing nothing
themselves.
The times in which some banks such
as Citibank believed they could prevent
unpopular reporting by closing
its own press office, or UBS which in
its time thought it could eliminate
unpopular reporting in media by
having its employees buy up all the
editions of offending papers from
the kiosks in Zurich, may be a thing
of the past – but the way in which
managers in the finance industry
take so little care to ensure that their
0%
-5%
-10%
-15%
-20%
-25%
own press department don‘t “sanitise”
the clippings, does not imply
that there is a real interest in the
facts: In the meantime, it is not only
the WSJ or FT that are closely watching
every (in)action taken by a Wall
Street manager but EVERY newspaper,
magazine, radio station and TV
camera – not to mention the online
activists. In 2009, the year in which
the top management of banks stated
that the situation would slowly calm
down, Main Street’s judgement of
Wall Street is comparable to the
reputation of the tobacco industry:
the trust has been eroded and only
addicts still ask for the product.
The invitations to the White House,
Downing Street, the Federal Chancellery
and all other government
Chart 1.3. Evaluation of companies with regard to strategic and M&A issues,
German TV and print media 1999 – 2009
Balance of +/- ratings
5%
-30%
1999 2001 2003 2005 2007 2009
2000 2002 2004 2006 2008
Basis: 352,492 reports about companies, managers and industries in ARD Tagesschau/Tagesthmen, ZDF Heute/Heute
Journal, RTL Aktuell, BILD*, Spiegel, Focus (* some issues missing)
18 |

Chart 1.4. Evaluation of tobacco and banking companies
in international TV news, 07/2007 – 06/2009
30,1%
Tobacco
46,6%
23,3%
39,9%
leaders’ houses were completely
misinterpreted by Wall Street: just
because governments have finally
got themselves into liquidity difficulties,
thereby becoming consumers of
bonds (i.e. customers), by handing
out taxpayers‘ funds to rescue the
banking industry does not in any way
mean that the customer is in fact
satisfied or even grateful.
Seldom have more contracts been
signed with a clenched fist in the
pocket than they were in 2009. The
President of Iceland by refusing to
sign the legislation needed for repaying
the monies due in international
compensation for its failed banks
on the one hand positioned himself
Banks
negative no clear rating positive
11,9%
Basis: 113,766 reports about companies, industries and managers in 28 international TV news shows
48,2%
beyond any market logic, but on
the other hand, he saw his re-election
assured, and, with his conduct,
stimulated the parties to act similarly
in future. President Obama’s legislative
initiative of January 2010 in a
way follows this example and other
governments may to likewise. If the
banks in England feel a sense of security
due to their market dominance,
they would be advised to not sleep
too deeply. Neither Gordon Brown
nor James Cameron can afford, from
a political point of view, to take no
action against the financial institutions
and will therefore look for
alternative penalties such as levying
tax on executive bonuses. Should Mr.
Brown or Mr. Cameron not clearly
| 19

Analysis
communicate the smaller parties will
achieve unexpected successes at the
polls.
At the same time the crisis has had
some positive side-effects. What had,
up until now only been discussed at
conferences by experts now finally
surfaced to attention of the broader
public: due to the previously inadequate
accounting regulations only
30% of the value of a company is
reflected on a balance sheet. In other
words: 70% of the performance is assessable
by personal contact with the
respective company alone. But those
companies which retrenched their
customer consultants for cost reasons,
as did the banks, and thought they
could replace them with a cheap software
programme for evaluating cred-
10%
0%
itworthiness, reduced his own ability
to make judgements to exactly this
30% figure which has been reflected
in the balance sheets until now. This
does not have to lead only to misjudgements
when assessing private
or even company loans. Consequently,
asset managers and floor traders
hardly have any better information
access upon which their decisions are
made beyond this 30%. Thus, it is becoming
known to the general public
that the entire business of trading
in shares has all too often in the
end, been based on a very narrow
data-base. No sick patient would let
his doctor prepare a diagnosis on a
comparably thin basis. Yet the banks‘
CEOs and others involved have not
sought to distance themselves from
this substantial systems error and
Chart 1.5. Image of companies/industries US TV News/Magazines,
01/2002 – 02/2009
20%
-10%
-20%
-30%
-40%
Enron
Lehman
-50%
Banking
-60%
Accounting
2002 2003 2004 2005 2006 2007 2008 2009
Basis: Time, Newsweek, ABC, CBS, NBC evening news, 36,012 reports
20 |

neither did their board of directors
press for an improvement. Only after
the decision by the SEC in December
2009, to make transparent communication
via Extensible Business Reporting
Language (XBRL) legally binding,
was the first step to bind disclosure
by management really active.
Chart 1.5. clarifies the way that accounting
profession has been met
with suspicion in the media ever since
the Enron crisis.
The banks are not in the frontline in
order to publicly proceed against the
auditor who incorrectly gives assurance
that the financial statements
are presented according to generally
accepted accounting principles.
Credit Suisse executives and their
board of directors hit the headlines
when they had to recall their own
balance sheets within 7 days in their
2007 annual report. The state owned
and controlled German Landesbanks
are yet another example of an institution
fundamentally undermining
every basic principle of trust. In 2009
the banks adjusted their own need
for financing requirements upwards
by several billion within a few days,
thus risking making themselves a
public laughing stock with the credit
provider and the general population.
The economic impact of such a restatement
of their annual report, will
remain long in the memory of the
broader public. Almost every news-
paper reader is himself a borrower
and can well remember his meetings
with his bank’s so-called customer
consultants: upward adjustments are
as well-liked as the submission of incorrect
figures. Whoever thinks that
people will forget this appears to
have skipped the psychology lectures
or, even worse, saw it as irrelevant in
the context of his economics studies.
But aside from these fundamental
and personal obstacles between Wall
Street and Main Street, the finance
industry will not regain trust until
they start evaluating themselves and
others at the company’s real economic
value or be willing to face the risk
and liability imposed by ministered
and regulatory authorities of inaccuracy.
The previous references to the uncertainties
of the stock trading are
however now only applicable when
the person acting in that capacity
can prove that they have taken all
the required aspects into account in
the sale. The public will no longer
accept this once they are aware that
the banks may well only take 30% of
all the relevant factors and their own
self interest into account for their
investment decisions.
Some banks have also been caught
reportedly giving “sweetheart loans“
to those who should be protecting
the public from fraud and mismanagement
by the banking institutions
| 21

Analysis
according to the Wall Street Journal,
Connecticut Senator Chris Dodd and
Chairman of the Senate Banking
Committee received preferential
treatment from Countrywide.
A further aspect reminds us daily
that the banks have not yet wanted
to learn from other mistakes: just
before the main TV newscast in Germany,
for instance, an advert appears
for Deutsche Bank persuading people
to transfer their personal assets to
the bank – at an interest rate of
3.2% (before the financial meltdown
this was still 5.1%). The same audience
which is being lured during the
advertisement with this percentage
then hears in the newscast that the
CEO of the same bank is however not
satisfied with an interest rate of 25%
Chart 1.6. Long-term trends: Salience of accounting issues
in international TV news, 2001 – 2008
Share of all reports (%)
0,25%
0,2%
0,15%
0,1%
0,05%
UK
Germany
US
0%
07-12/2001 2003 2005 2007
2002 2004 2006 2008
Basis: 283,698 reports about companies in 62 international media
22 |
for his own house. Anything else is
not acceptable as it is not „industry
standard“. No-one needs any further
reporting here to be tempted in a fit
of rage, immediately to close one‘s
account with the “blue bank”. Supervisory
bodies will be hard-pressed to
explain to anyone that they do not
know about this advert and at the
same time did not listen to their CEO
at the relevant events such as the
balance sheet press conference or the
Annual General Meeting.
The experience of some at the start
of the new year, of not having access
to their own money by credit card,
due to software errors was a further
brick in the wall which, block by
block, gets ever higher and which
is becoming an ever more menac-
Barclays
Ernst & Young
Goldman Sachs
Credit Suisse
Deutsche Bank
Citi
Fannie Mae
AIG
Societe Generale
Merrill Lynch
negative
positive
-100% -75% -50% -25% 0% 25%
Share of all reports (%)

Chart 1.7. Rating of AIG in U.S. Media 2002-2005
240
100%
220
Number of reports
200
180
80%
Spitzer
160
140
60%
SARS
120
Criticism:
Financial reporting
100
80
practices
40%
60
40
Awareness threshold
20%
positive
no clear
20
rating
0
1 5 9 1 5 9 1 5 9 1
0%
1 5 9 1 5 9 1 5 9 1
negative
3 7 11 3 7 11 3 7 11 3 3 7 11 3 7 11 3 7 11 3
2002 2003 2004 2005 2002 2003 2004 2005
Basis: 886 reports in NYT, WSJ, USA Today, WP, Time, Newsweek, ABC, CBS, NBC evening news
ing barrier between the financial
industry and the rest of society. On
the 20t h anniversary of the fall of the
Berlin wall, many studies were published
concerning the construction
and conquest of the “anti-capitalist
barrier”. Whereas in the beginning
too little information flow relating to
each side allowed the maintenance
of such defences, the second half of
the 80s could not contain the web of
deceit anymore thanks in particular
to television. A continuous flow of information
in both directions is, after
all, the basis for trust.
The chart on the communication
activities of AIG demonstrates one
of the reasons why the institution
could, in the end, only be protected
from collapse using USD 170 billion of
taxpayer‘s money. Those responsible
at AIG operated according to the old
principle: “Every day we’re not mentioned
in the media is a good day”
– correspondingly poor therefore was
the knowledge of just how valid their
business model actually was.
This behavioural pattern was not
only to be observed by the insurers,
but also by the banks. UBS in particular
started at exactly the time when
its customers needed more information
but did not want to take the
responsibility for the communication.
The number of interviews and guest
contributions in which the executives
| 23

Analysis
Chart 1.8. UBS share of voice in UK, US and German media, 2002-2008
60%
50%
40%
30%
20%
10%
0%
2002 2003 2004 2005 2006 2007 2008
Basis: 28,476 reports on UBS in42 international media
could have generated trust in their
own company (i.e. share of voice)
continuously declined at just the time
when mutual discussion would have
been increasingly important, as can
be seen in chart 1.8.
This dip in the phase in which not
only customers but also the rest of society,
whose approval for the authorisation
of the tax billions was and is
essential for the continued existence
of the financial institution, should
have been serviced by urgent, honest
information. Failure to provide this
is the actual reason why the industry
cannot rely on or expect now a cheap
“Absolvo te”. Cowardice is not one
of the virtues that Aristotle had listed
24 |
Minimum share of voice
including research quotes
Minimum share of voice
excluding research quotes
Share of v oice
for the development of a State. They
would then be expendable for the
res publica.
This silence went hand in hand with
a decline in the perception of the
banks as experts. Already, before the
UBS, Bear Stearns or Lehman crises,
the public would increasingly hear
the word: “recession”. Even if most
of them are not able to precisely
define what is comprised, they were
at least aware that no positive hopes
were to be associated with it. Chart
1.9 shows the deflationary extent
to which the term was used – long
before any country in the final quarter
of 2008 was defined as being in
recession in respect of this definition:

The experts in the finance industry
in 2010 are now faced with the twin
questions: Why did they not provide
the continuous information regarding
their own situation which the
market and the customers so urgently
needed in order that they could form
their own judgement and, if necessary,
allow them to select alternatives
in good time? Houses which were
not so enmeshed in the sub-prime
or the various other “making money
out of money” campaigns seem to
have found this more possible. And
at the same time, the people would
have been grateful if the highly paid
analysts would have given them
precise information; it seems that
their horror scenarios offered for
sale were only intended to get the
governments to approve the bailout
Chart 1.9. The “R-Word Index” 09/2007 – 12/2008
7000
6000
5000
4000
3000
2000
1000
0
Stories mentioning the word "recession"
scenarios quicker which actually corresponded
to the data of the world
economy.
People react according to the information
offered to them – accordingly
it can come as no surprise to anyone
that the Germans, in 2009, losing
their leading role as the export world
champion would place less and less
trust, not only in the banks, but now
in the entire system: the approval
rates for democracy in general and
for the social market economy sank
further by more than 20% in 2009. In
view of this information offering this
comes as no surprise (see chart 1.10
on the next page).
The example of Allianz or Commerzbank
demonstrates that this does not
11/13/2008:
“30-nation
OECD area
appeared to
have entered
recession”
9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
2007 2008
Basis: Factiva database query for Dow Jones and Reuters Newswires
| 25

Analysis
have to be system-immanent: When,
more than 12 years ago, the Holocaust
class-action suits by Ed Fagan
dominated the headlines of media
around the globe, the executives at
Allianz did not hide behind their relatively
secure legal positions. Instead,
they not only remained available to
journalists day after day, but they
opened their archives for qualified
researchers so that they could first
understand the mistakes made then,
and secondly, draw appropriate conclusions
for the 21st century. Similarly
open was the communication by the
people of Munich concerning the joys
and sorrows that their relationship
with the Dresdner Bank had bestowed
on them. For Allianz, openly
speaking about their own mistakes
is not a sign of weakness but part of
20%
15%
10%
5%
0%
2001 2003 2005 2007 2009
2002 2004 2006 2008
60%
40%
20%
the usual dealings with stakeholders.
The communication activities of
Commerzbank are similar – although
everyone can understand that the
Frankfurters will not have to pay entertainment
taxes for 2008 and 2009.
But as long as these examples are
more the exception than the rule,
the fundamental doubt in the social
contribution of financial institutions
will remain. This is all the more so
as long as they don‘t, sooner rather
than later, eliminate three main
blocks from the wall between them
and the rest of the societies which
they should serve:
1. Whoever believes that they can,
alone, offer a market something
trustworthy with 800,000 “products”
and 500,000 certificates in Germany
Chart 1.10. Political values in German TV news: The economic system,
salience and evaluation 2001-2009
30%
Share of all reports
100%
25%
on values (%)
80%
Basis: 6,134 reports in ARD and ZDF news
26 |
0%
2001 2003 2005 2007 2009
2002 2004 2006 2008
positive
no clear
rating
negative

without having these inspected by
an independent authority will time
and again come up against the same
problems.
2. Whoever thinks that they can,
without a compelling reason, commit
the offence of client betrayal in order
to optimise premium proceeds in the
short term underestimates the potential
of communication by the victims
3. Whoever continues to communicate
externally that no qualified
person is prepared to come to work
to fulfil his duties for less than USD
500,000 in annual income, slaps 90%
of all serving professors, doctors,
delegates, small and medium-sized
businesses, teachers, priests, etc in
the face. Most of their own employees
as well as journalists are expressly
included.
| 27

Analysis
1.2. The Loss of Trust and Personalisation
By Matthias Vollbracht
Media in recent years has increasingly
focused their corporate reporting on
CEO’s, and the image of top bankers
has correspondingly played a major
role in the overall reputation of the
industry. Even though the ratio of
CEO to company reporting has not
yet reached 4:1 as has long been the
case in political reporting, the proportion
of coverage of managers as
against their corporations specifically
has, in recent years increased to more
than 30%. The chairperson of the
Board thus increasingly represents
the company, not only in the legal
sense, but also in terms of public perception.
Therefore, he is also ascribed
an ever greater direct responsibility
in media reports and what happens
within the company is ever more personalised
– to the point that single
key words („God‘s work“) and even
gestures of the CEO can characterise
the image of an entire company.
For journalists, personalisation is
often easier than painstakingly
researching the details of individual
concrete responsibilities and reporting
structures within the company.
For CEOs this means that non-communication,
as was the case in earlier
times, no longer has the same meaning
as merely not being mentioned
in public. Instead, there is a clearly
recognisable tendency to make the
chief executive responsible for what
happens in terms of the reporting
28 |
– including the detail. Personalisation
in reporting on the financial
crisis is on the one hand a catalyst for
scandalising events, but on the other
hand it is also a key to finding the
solution to the problem, to rebuild
trust. Nevertheless, personalisation
does not work in favour of the CEO
automatically – to the contrary.
The trend towards personalisation
and to a critical handling of the
elite, including and especially the
top management of companies, is
an international trend, as research
by Media Tenor and the corresponding
surveys by Pew and Gallup in
numerous markets have shown. Trust
in the top management of business
had already suffered a hit before the
outbreak of the financial crisis and
their reputation was damaged. A significant
part of this diminished trust
was caused by the failure to solve the
problems causing the collapse of the
New Economy.
What role does personalisation now
play with respect to the financial
crisis? Much research into the causes
for the financial crisis has yet to be
completed, but the experts are already
agreed on one trigger and one
consequence: namely the absence of
trust. It puts pressure on the relationships
between the banks to this day
to the extent that they hoard the
government rescue package funds

and it also puts pressure on the
relationships of customers with the
financial world – one indicator of
which is the exorbitant gold price.
What is the connection between
the financial crisis and the absence
of trust? At the heart of it, is the
perception that many actors in the
world of finance, in particular in the
banks, have in recent years lost their
sense of being responsible trustees
of the assets entrusted to them. They
are felt instead to have treated the
money as if it was their own – without
any accountability.
The causes for the breakdown of
trust include:
- Greed awakened by making unrealistic
promises
80%
60%
40%
20%
0%
A crisis for which no-one takes responsibility
is a huge burden on the future.
Frank Wiebe, Handelsblatt 7.4.2009
2002 2003 2004 2005 2006 2007
- Promises not kept
- Non-disclosure of risks
- Taking no responsibility for mistakes
made and a lack of any effort
to rectify matters
- No transparent communication
of lessons learnt from the crisis
or strengthening of orientation
towards serving as a trustee
In interpersonal relationships this
would be understood as culpable
action by the other and the key to
regaining trust would be understanding,
remorse, restitution and
behavioural change. If reconciliation
is unsuccessful, increased distance
would be the natural consequence
in addition to lasting damage to the
image of the party triggering the
conflict because the victim usually
Chart 2.1. Personalisation in reporting on DAX 30 companies,
2002-2007 (ratio of actors in %)
100%
Basis: 286.180 stories on DAX companies and managers in 21 German and international media,
Source: Vollbracht & Brettschneider 2009
company
other board members
CEO
| 29

Analysis
Chart 2.2. Evaluation of CEOs in reporting on DAX 30 companies,
2002-2007 (share of positive evaluations - share of negative evaluations in %)
2%
0%
-2%
-4%
-6%
-8%
Balance of +/- rating (per cent)
-10%
2002 2003 2004 2005 2006 2007
Basis: 286.180 stories on DAX companies and managers in 21 German and international media,
Source: Vollbracht & Brettschneider 2009
communicates the bad experience
more broadly, be such communication
solicited or unsolicited. But,
what does it look like if the relationships
are more abstract as they are,
for instance, between customers and
companies? And what role does communication
play in it?
And what role does the top management
of banks play in regard to the
financial crisis? Customers usually do
not conclude a contract directly with
a CEO but with a company. And a
CEO cannot be held directly and personally
liable for the mistakes made
by individual employees, such as
providing incorrect advice, when the
number of staff is in the thousands.
30 |
How has top management in corporate
finance, especially the banks,
conducted itself in recent years? The
last bank crisis was not that long
ago. The collapse of the so-called
New Economy bubble brought many
banks into existential difficulties.
In 2002, the leading U.S. media reported
an excess of just on 40% negative
reports on the banking sector
fuelled by contributions regarding
financial difficulties, fraud, accounting
errors and incompetence. Already
with values of -10% over a period of
more than two months it is evident
that the public is no longer getting
the decisive positive information it
requires to regain trust. But, the CEO

is perceived as taking responsibility
for the full picture in public. Reporting
in the wake of the sub-prime
and then the financial and economic
crisis once again clearly exceeded
the negative picture of 2002, as the
graph above shows.
Trust killer #1: Wrong or incomplete
information
The banks could have seen from the
2002 crisis that transparency and trust
are crucial in conducting business
and in communications, and that the
banks are able to develop the best
reputation in the eyes of the public if
their work contributes to a well-func-
2003-2007 2008 2009
tioning real economy and increased
prosperity through supporting
growth in the various countries of
their operations. Instead of shifting
these core tasks of the banks to the
fore and transparently providing
information regarding their transactions,
the top management of banks
in recent years permitted themselves
to be reduced in media reporting to
stories about salaries, bonuses and
the mistakes made during the internet
bubble. A further opportunity
to change course could have been
provided by the findings of the New
York state attorney Elliot Spitzer.
Spitzer took on, with great media
Chart 2.3. It didn’t start with Lehman, but that made it worse…,
Balance of +/- rating of the Banking industry (per cent)
0%
-10%
-20%
-30%
-40%
-50%
-60%
Basis: 14.562 stories on the banking industry in German, UK and U.S. TV evening news 1/2003 – 9/2009
U.S.
UK
Germany
The long-term analysis shows that the loss of trust in the banking industry did
not start with Lehman. The trust meltdown started after the collapse of the
“New Economy”. But in the aftermath of the Lehman-collapse, rating has declined
to levels not seen before.
| 31

Analysis
impact, the alleged or actual misconduct
by banks, insurance companies
and funds and forced them through a
campaign of expensive comparisons.
This made clear the extent to which
success in business depends on public
acceptance. Moreover, in many companies
there is actually a minimum
level of acceptance that needs to be
achieved with the public, in addition
to the mere legal approval for
conducting business, if they are to be
able to conduct business successfully.
This so-called “licence to operate”
is ultimately decisive for whether a
company can do what it is permitted
to do successfully. So far however this
fact has become part of the business
strategies of too few companies.
What is the media reporting like now
on the bank’s CEOs in the current
crisis? As mentioned above, building
trust in personal relationships after
huge mistakes have been made is
only possible once such mistakes have
also been admitted to as being such.
However, in the view of leading journalists
admissions of mistakes are still
the exception rather than the rule.
Instead, journalists and insiders, such
as the former communications head
of Lehman Brothers, Andrew Gowers,
bear witness to the loss of reality on
the executive floor.
A much-loved and oft repeated
sentence from the mouths of bank
officials in recent years has been
32 |
that Lehman’s bankruptcy came as
a surprise and could not have been
foreseen. Until Lehman‘s collapse,
the problems in the finance industry
were above all about the increasing
risk connected to sub-prime
shares, because shares in American
real estate were of dubious value.
Did the crisis really come as a surprise?
The U.S. Wall Street Journal
already reported on September 17 th ,
2005 a study according to which the
value of mortgage-backed securities
depended in particular on whether
the economy would continue to
grow. On November 12 th of the same
year, the paper reported on falling
demand for real estate and increasing
interest receivables; on November
16 th , 2005, a report on dubious business
practices was filed stating that
the granting of credit for residential
property was made too easy and that
the risks were growing.
The risks in the market were thus
known and yet the individual exposure
of each finance house, in a
range of cases, was kept quiet or the
risks were not appropriately presented.
There are numerous reports
on how the public, as well as shareholders,
were systematically wrongly
informed by the banks and their
CEOs of the risks the banks faced.
Particularly enlightening were the
revelations of the last chief communicator
of Lehman Brothers, the former
Editor-in-Chief of the Financial Times,

Andrew Gowers. In the German
newspaper, Die Welt, on December
20 th , 2008 in a review of the meltdown
in the finance industry, he
reported on the day Lehman went
bankrupt and the events preceding
it. According to the article, the bank
engaged in deception, especially
after the collapse of Bear Stearns in
April 2008 and waged an outright
war against critics such as fund manager
David Einhorn who had criticised
Lehman’s balance sheet disclosures.
The report portrays Lehman’s
top management at the end as being
ever more doggedly involved in
internal power struggles and increasingly
out of touch with reality. Until
the morning of the 15 th of September,
financial markets and customers were
reassured that the bank had sufficient
liquidity. Paradoxically, CEO
Richard Fuld had himself, already in
January 2007, at the World Economic
Forum told his guests at lunch that
he was concerned that “this could
be the year in which the markets
explode”. The risks were known
– even at Lehman Brothers. But
instead of interpreting the signs on
the wall as a signal to change course
and distancing oneself from the risks
in good time and building up trust,
the actual drama of the situation
was concealed and attempts were
made to silence the critics. Against
this backdrop, statements by leading
bankers proclaiming that Lehman’s
collapse had “surprised” them only
resulted in a further loss of competence
in the eyes of the media and
the public.
There are more examples to hand
of misleading information emanating
from the top as the cases of
UBS, the major Swiss bank, or even
Credit Suisse demonstrate. The Swiss
newspaper, Neue Zürcher Zeitung
(NZZ), ascribed to the UBS an „information
policy that was characterised
less by transparency and was more
markedly conservative, sometimes
confusing“ (1.10.2007) and asks
how it could come to the surprising
recognition of a write-off of CHF 4
billion primarily on sub-prime bonds
and why the problems in investment
banking were not already transparently
reported on in July 2007. The
information policy of the banks
must, above all, be seen against the
backdrop of the already early debate
around the problems banks were
having with sub-prime shares. The
lack of transparency at UBS resulted
in a lasting negative image, as it also
did for other banks, even after the
top management had been changed
and operative measures for containing
the crisis had been undertaken,
as happened in the case of UBS.
Former CEO, Peter Wuffli, damaged
the reputation of the bank severely
through this.
Credit Suisse only just managed to
emerge from the financial crisis with
| 33

Analysis
a positive media image. But it duped
both its investors and the public in
February 2008. Based on the annual
results of 12.2.2008, the Neue Züricher
Zeitung still praised the „amazingly
crisis-proof Credit Suisse; comparatively
few write-offs of impaired
sub-prime positions”; the bank took
another stab only one week later and
publicised another CHF 1.1 billion in
write-offs. “The end of an illusion”
for the NZZ (20.2.2008).
Trust killer #2 Lack of insight and
excuses
Insight is the pre-requisite for
change. In face of the hundreds of
billions of euros given as support
packages, EUR 100 billion for the German
Hypo Real Estate and the USD
180 billion investment by the Ameri-
Chart 2.4. No signs of a rebound
Media rating of UBS, 01/2005-04/2009
100%
80%
60%
40%
20%
0%
1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4
2005 2006 2007 2008 2009
Basis: 16.305 reports on UBS in 50 international media
34 |
can government to stave off the
collapse of the American insurer, AIG,
the public, citizens, customers and
politicians saw the finance industry as
severely battered. Against this backdrop,
after the collapse of Lehman
and the crisis in the banking industry,
which dragged the real economy
down with it, the public expected the
top bankers to also show some insight
in public and to admit to having
made mistakes. The consequences of
the Lehman bankruptcy not only ravaged
the savings of numerous small
investors. The collapse of trust in the
financial sector, within just a few
weeks, led to the wipe-out of the
large order books of 2007/2008 and
to idle times in businesses, short time
work and numerous insolvencies.
positiv e
no clear rating
negativ e

But, instead of taking the responsibility
for this event before the public
and expressing their empathy with
the victims, many banking heads
chose to not speak to journalists at all
any more, partly also on the advice of
their in-house lawyers who wanted
to avoid being sued for damages, a
practice widely prevalent in the U.S.
In this respect, the route taken by
Commerzbank head Martin Blessing,
CEO of the second largest German
bank, on 18 October 2008 in BILD,
the German tabloid magazine with
the largest readership, is an exception.
Blessing admitted in an interview
there that: “The entire banking
industry has an enormous responsibility
for the crisis – including myself as
the head of the second largest bank
in Germany. It is a terrible thing that
the people in our country need to
worry about their money. We, as an
industry, have certainly not covered
ourselves in glory. We will have to do
this better in the future.” Klaus-Peter
Müller, in charge of the Supervisory
Board, was also similarly quoted: “I
have made some mistakes”.
But Müller and Blessing are exceptions,
as journalists have come to
know with regret repeatedly in
the past 18 months. Frank Wiebe,
Editor of the Handelsblatt, wrote
on 7.4.2009: “Bankers must admit
their mistakes if they want to regain
trust“ and “A crisis for which noone
takes responsibility is a huge
burden on the future”. From where
should this trust come so that the
disaster will not be repeated when
no-one is willing to be answerable
and say that they are up against a
wall? What is actually observed is
precisely this: no-one wants to take
the responsibility. Scores of banking
CEOs, such as the CEO of Deutsche
Bank Josef Ackermann did not go
that far. Many banking CEOs would
rather say that the financial crisis had
passed over them like an unavoidable
natural force; the former UBS
president Marcel Ospel for instance
talked about a “storm“, “upheavals”
and “turbulences” (Tagesanzeiger,
December 31 st , 2008). And only a few
went so far as to immediately pack
their bags when the responsibility
was publicly declared, like Groupe
Caisse d‘Epargne CEO Milhaud (WSJ
20.10.2008). The New York Times
writes about the hearing of four
Wall Street CEOs before the Financial
Crisis Inquiry Commission: “Summoned
to Capitol Hill to explain
their companies’ roles in the worst
economic downturn since the Depression,
leaders of four big Wall Street
banks offered a largely clinical take
on the financial crisis on Wednesday,
pointing to lapses in risk management
and government regulation but
offering little sense of the turmoil’s
human toll.” When Blankfein, CEO
of Goldman Sachs, made the connection
between aspects of the financial
crisis and a hurricane and Acts of God
| 35

Analysis
during the hearing, Phil Angelides,
a Democrat and former California
finance minister interjected: “Acts of
God, we’ll exempt. These were acts
of men and women.” (13.10.2010).
In a personalised media world, trust
can only be regained when CEOs take
the responsibility. As they, in any
case, already have this responsibility
contractually, it would be a step
towards the expected honesty if this
assumption of responsibility would
also take place in the communication.
Many if not all assumptions
of responsibility would have to end
with a withdrawal but, with it, the
requirement for a credible new beginning
would be created. And even
if a leader would withdraw due to
the assumed responsibility, it would
generate the required respect for the
next appointment.
A sidenote: The example of the former
Lehman Brothers CEO, Richard
Fuld, makes another aspect of insight
necessary which represents the prerequisite
for credible leadership.
Fuld could no longer pull the strings
of the increasingly brutal power
struggles in the bank together. According
to insiders like Andrew Gowers
this was also the result of his own
leadership style and internal communication
in the bank which was
characterised by military rigour and
reportedly a contempt for people. So,
in his hour of need, he was without
36 |
the much-needed loyalty of his management
team.
Trust killer #3: Socio-political realities
not taken into account
Hand in hand with personalisation is
the fact that reporting of the image
itself has increased, and that, far
more frequently in the media now,
compared to the 90’s, not only positive
and negative facts pertaining to
companies were reported on but also
what third parties such as analysts,
competitors or journalists had at the
same time provided in explanation,
as to whether these facts would have
a beneficial or detrimental effect on
the company’s reputation.
The issue here is that, in certain
companies for instance a certain
salary gap between the CEO and
his gatekeepers is socially tolerable,
that certain economic targets such as
returns percentages are regarded as
sensible or greedy and that certain
demonstrations of economic power
and prestige would find recognition
in one environment, but be rejected
in another environment. The
non-observance of the written and
unwritten laws of this socio-political
reality can lead to companies quickly
becoming embroiled in a real scandal
which could endanger their financial
existence. Examples of inappropriate
conduct abounded during the banking
crisis: complaints about bonuses
from the dismissed Boards of bank-

upt banks or insurance companies
are included just as much as, in the
German context, the 25 percent return
target setting by Deutsche Bank
CEO, Josef Ackermann.
The effects of such breaks with taboos
have a major impact on image.
This is evidenced by the U.S. reports
on the bonus demands made by AIG
managers. Between November 2008
and January 2009, 84 contributions
in The Wall Street Journal alone
reported on President Obama in
connection with AIG and bonuses.
The political factor made the topic
of management bonuses attractive
even for journalists from TV stations
and tabloids around the globe. The
consequence of that is that the management
of banks are not presented
as the solution but as the problem.
Analyses of German, British and U.S.
media regarding the banking industry
shows that management is ranked
no. 2 in negative topics since the
collapse of Lehman Brothers. Politicians,
who, just as the central banks,
are also not without blame, make the
managers of the banks a welcome
target at which national rage can be
directed.
But, it is not only the bonus payments,
it is also the reports of the salary
increases, the lifestyle – especially
of investment bankers – and the
reports of a lack of a solid base which
have eroded the trust in the top
bankers. Goldman Sachs, which latterly
came increasingly into the vision
field of capitalism’s critics, is again
an example to be mentioned here. In
the Michael Moor Film “Capitalism:
A Love Story”. CEO Lloyd Blankfein
is featured with his quotation saying
that the banks do “God‘s work“ (Sunday
Times 8.11.2009), which caused a
range of reactions from the shaking
of heads to angry attacks, although
he had apparently only wanted to
point out that the banks must, by
means of functioning money and
financial markets, ensure that the
markets function, develop prices and
strive for the maximum interest rate
level for capital where it will create
wealth. Very similar in meaning, but
with a different tone, Adam Smith
spoke of the “invisible hand”.
The public, much scared by the crisis,
is eager to also misunderstand such
quotes, just as the “peanuts” quotation
when the then Board spokesperson
of Deutsche Bank, Hilmar Klopper,
at a press conference wanted to
shrug off 50 million unpaid artisan
invoices as a result of the bankruptcy
of Schneider, the property tycoon.
Whereas DM 50 million (today some
EUR 25 million) as a write-off will
probably not cause sleepless nights
for the Board from the viewpoint of
the largest German bank, that will be
still decide the fate of hundreds of
small businesses.
| 37

Analysis
Chart 2.5. Management framed as problem, not as solution,
number of negative stories on banks, 09/2008-09/2009
Business Results/Finance
Management
Politics/Regulation
Strategy/M&S
Image / PR / Scandals
Stock
HR
Products
Pricing/Marketing
Wages
Basis: 139,495 stories on banks in German, UK and US print and TV media
When in the autumn of 2008, parliaments
and governments were creating
legislation in record time in order
to support the financial system and
prevent a global “meltdown”, the
public was convinced, in the face of
the dramatic risk reporting in the media,
that the banks would be deeply
grateful for such expensive rescue
lifelines. Instead, at least according
to media reports, several top bankers
reacted with arrogance rather than
gratitude thereby ensuring that both
politicians and the general population
became incensed.
As the recession triggered by the
financial crisis and government
rescue measures ripped large holes
in national budgets, expectations by
38 |
0 200 400 600 800 1000 1200 1400 1600
the public of the banks and bankers
increased further during the course
of 2009. This is demonstrated in the
discussion on the taxation of large
bonuses as well as the partly overdone
vilification of politicians surrounding
the alleged credit crunch.
The criticism may be unjustified in
some areas. The problem is nevertheless
that the many reports of black
sheep in the media give the impression
that ethical conduct by banks
and responsible bankers are the
exception and not the rule.
This impression could however also
have come about because many
bankers have in recent years not
dared, for instance, to take part in
talk shows and to fight for their

point of viewor clarify areas where
the populace has mixed up the facts.
In addition, questions must be raised
as to whether careless references to
the “Great Depression”, and correspondingly
dramatic visuals in the
media, did not exacerbate the risk of
a meltdown in the financial system
and whether the recession has, by
virtue of curbed spending and investing,
not perhaps taken the depth
that has hitherto been presented.
The term “systems relevance” has, for
the bankers, in any case made access
to State funds far easier compared to
other sectors and is also a reason why
the population is currently looking at
bankers‘ salaries with a particularly
critical eye.
The status quo
The negative reporting on the crisis
in the financial sector and those responsible
has resulted in the situation
that the bank managers have in the
meantime been made socio-politically
liable not only for the mistakes
of the sector but, due to the many
eloquent speeches, also for every
other evil in the world. This can be
seen in management reporting in the
influential, opinion-leading British
daily and weekly newspapers as well
as television news if one for once
disregards the financial and specialist
press: RBS received not only double
the attention as compared with other
banks on matters pertaining to its
top management, but the leading
daily newspapers, weekly media and
television, with it in excess of 32%
negative evaluations, a truly damning
judgement. HBOS was criticised
even more sharply (-49.7%). The
many years of research by Media Tenor
indicate that the loss in trust had
already sets in as soon as there is an
excess of 5% negative news reports
and that, at 30 percent and more, the
selection of news is so negative that
it usually causes a long-lasting loss in
trust. Long-lasting means that negative
attitudes to the person or the
company are still recorded in surveys
up to 12 months later.
Surveys indicate that trust in the
Wall Street bankers is in the meanwhile
at 4%. Media Tenor analysts
have shown in the last 15 years that
after a trust crisis, once the negative
reporting ceases and the problem is
presented as solved, or once it disappears
from view, it takes at least 9
months before trust may again be
generated. In the face of the low
points in the media image of banks
mentioned at the outset, it can be
assumed that 9 months will not be
enough in this instance. But how can
any CEO communication again present
a contribution to building trust?
Ways out of the crisis
Incorrect handling versus defective
communication
Two aspects must be kept in mind
when it comes to restoring trust,
| 39

Analysis
even with the help of good communication.
As mentioned above, it is
crucial to understand what the causes
were for the loss in trust: incorrect
handling and defective communication
or a mix of the two. Incorrect
handling includes, for example, the
loss of entrusted customer assets
through bad investment decisions,
managing employees with the
wrong incentives or the cutting of
credit lines based on a herd mentality
and not on individual risk profiles.
Misconduct also includes improper
handling of customer data.
Defective communication includes
refusing to provide information to
journalists and the public regarding
the extent to which the industry
problems affect them or in the clas-
Chart 2.6. Manager rating UK broadsheets & TV,
1-10/2009
RBS
Lloy ds TSB
Barclay s
HBOS
HSBC
Citi
Bank of America
Goldman Sachs
JP Morgan
Lehman Brothers
-60%
-40%
-20%
Basis 33,832 stories on banks in UK broad sheets and TV news (14 media)
40 |
sification of the relevance of certain
events such as the Lehman Brothers
bankruptcy. Defective communication
includes the communication
of wrong topics at the wrong time.
Defective communication includes
inability to correctly read the political
and social sensitivities and to include
them properly in one‘s own communications.
Admit mistakes and introduce
changes
But above all as the basis for regaining
trust, it must be communicated
that mistakes made are also described
as such. In-house lawyers can
give helpful advice regarding this
in individual cases such as how to
prevent the class action complaints
industry from gaining inappropri-
0% 20% 40%
negativ e
positiv e

ate financial benefits from such
relevant and necessary admissions of
mistakes and failures. But, primarily,
the requirement for building trust
in people and institutions is that
misconduct must be described as such
and responsibility must be taken.
Without the admission of mistakes,
a change in course, particularly if is
often still justified with irrelevant
arguments, is no change in the eyes
of journalists and the public but mere
window dressing.
The significance of a change in course
is thus not to be underestimated. The
first stocktaking of the causes of the
crisis indicate that even the aggressive
sales practices of the banks, as a
consequence of excessive growth and
return expectations, have ensured
that customers have in many cases
not received what they wanted and
needed but what helped the bank
employees achieve their sales targets
so that they could receive their bonuses.
It will not be possible for trust
to be built up with the same practices
in place. Many journalists used the
internet as a cheap and effective
source of research in which they
would seize on a single case – entirely
prominent – and then provided an
option for leaving comments on the
website of the medium. In the last
eighteen months it could often be
seen that former or current employees
vented their thoughts equally
freely as if they were wronged cus-
tomers. With this material, collected
free of charge, the journalist would
include it in his report to substantiate
his thesis. Due to the high level
of authenticity of the contributions
they are highly damaging to the issue
of trust. The fact that 100 responses
on the internet still does not represent
a statistically significant group
when several millions of customers
are serviced, falls by the wayside. In
such cases, communication also serves
as a channel for feedback into the
company to provide the impetus for
changes without which its reputation
cannot be regained.
Participation in public discourse
An additional contribution to regaining
trust can be the participation
in public discourse for solving the
problems of the company such as
taking part in talk shows but also
in instruments such as blogs run by
the company. The regular participation
of bankers, as well as other top
management from business, would
be important not only to be able to
effectively present the company’s
own arguments to the public. It
would above all be important so that
departments can receive unfiltered
feedback from the world outside of
the company on its own plans and
actions.
Recognise the public as a market
One necessary requirement is that
leaders must see communication
| 41

Analysis
as more than a one-off affair. Just
as the conquering of new markets
and the gaining of market share is
inseparably bound up with setbacks
and re-starts, so the market of public
opinion and public trust is not won
over with just a few selective campaigns,
but rather only when the
inertia of mass communication and
the sum of the known news factors
are in principle taken into account
in the communication. In addition,
it is necessary to recognise that acceptance
in society, is different from
acceptance within the company and
is not achieved by power but by
conviction.
A further contribution to trust-building
communication is discussing
future plans and targets which are
worth striving for in the view of the
public and the customer and which
do not only address short term
ownership interests or mere “marketing-speak”.
In the case of the CEO
communication strategy must also
be include discussions on the general
ideas and reflections on the meaning
of actions and the purpose of
the business and to be understood as
responsible for it to the public.
Take communication seriously
A last note on building trust: In many
Anglo-Saxon companies especially,
communication is not yet well-anchored
at the rank of Board members.
But if successful communication
42 |
in an increasingly critical public environment
can first create and lay the
foundations for successful business
actions, then communication will belong
directly on the executive floors
just as much a sales and finance
(please also read the interview with
Michel Ogrizek).

1.3. Dick Fuld, the Man Who Brought the World
to its Knees
By Andrew Gowers
The temperature in the room seemed
to drop several degrees as the boss’s
voice came on the speaker phone.
“I don’t think we’re going bust this
afternoon,” he said, “but I can’t
be 100% sure about that. A lot of
strange things are happening . . .”
The four of us gathered in Lehman
Brothers’ offices at Canary Wharf
looked at each other, our eyes
widening. We had just spent the day
bashing the phones in a frantic effort
to reassure journalists, investors,
bankers, anyone who would listen.
That was our job as members of
Lehman’s communications team.
The bank was fine, we kept saying.
It was brimming with cash. Sure, the
share price had dropped 48% in New
York, but that was a panic reaction to
another investment bank’s collapse
and nothing to do with us. What’s
more, the US authorities had indicated
they would not allow another
institution to fail.
Yet here was one of Lehman’s top
people admitting privately that
even he could not be certain that a
sudden, precipitous and contagious
loss of market confidence would
not sweep his firm, its 26,000-plus
employees and its 158-year-old name
into oblivion.
It was only then that it fully dawned
on me just how scarily unpredictable
my world had become.
The date was March 17, 2008, the day
after Lehman’s smaller rival, Bear
Stearns, had collapsed into the arms
of one of the world’s largest banks,
the mighty JP Morgan Chase, in a
shotgun marriage that all but wiped
out shareholders and cost thousands
of highly paid traders their jobs.
On Wall Street blind panic had
ensued and its focus was Lehman
Brothers.
The market has a phrase for this sort
of event: the death spiral. Creditors
and trading partners take fright at
a falling share price and threaten to
cut off credit lines. Alarm is magnified
by modern, instant communications.
Fear feeds on itself and
prophecies of doom become selffulfilling.
Our freewheeling, globally
integrated financial markets turn out
to be built on sand.
The group of us sitting in Canary
Wharf could see the scenario with
terrifying clarity that day. The
market, cruel and unforgiving, was
asking whether Lehman, now the
smallest and most vulnerable of the
so-called “bulge bracket” of elite
global investment banks, was next.
| 43

Analysis
It was. On September 15, Lehman
Brothers Holdings filed in New York
for chapter 11 bankruptcy protection.
An institution with total assets of
$639 billion – more than the gross
domestic product of Argentina and
roughly 10 times the size of Enron
when it filed for bankruptcy protection
in December 2001 – had gone up
in smoke.
This was the largest corporate
bankruptcy the world had ever seen.
A firm that as recently as February
had been worth $42 billion was now
worth nothing. We know what happened
next. Stock markets plunged
and a run on funds and financial
institutions brought the global financial
system close to collapse. Within
days, governments around the world
pumped hundreds of billions of dollars
into keeping banks and other
companies afloat – and the world
economy lurched into its worst recession
in more than 70 years.
“It is difficult to exaggerate the severity
or importance of these events,”
said Mervyn King, the governor of
the Bank of England, a few weeks
later. “Not since the beginning of
the first world war has our banking
system been so close to collapse.”
And we now know we will be living
with the consequences for many
years to come. As one of the world’s
leading investors, Mohamed El-
44 |
Erian, puts it: “The manner in which
Lehman Brothers failed disrupted
the smooth functioning of market
economies. As a result, virtually every
indicator of economic and financial
relationships exhibits characteristics
of cardiac arrest. The situation will
get worse before it gets better.”
How did it come to this? How could
an institution as proud and dynamic
as Lehman plunge within months
from an outward appearance of
success to failure on such a colossal
scale? And how could the collapse of
one financial institution – the smallest
of the Wall Street investment
banks – bring the world so close to
financial Armageddon?
More broadly, how come the collapse
took many of the most sophisticated
and powerful financial operators in
the world so completely by surprise?
Why did no one in authority apparently
see the global consequences of
Lehman’s failure clearly enough to
want to avert it? Could it have been
averted or should it have been?
Quite apart from their global significance,
these questions are of more
than casual interest to me and to the
thousands of other people who used
to work at Lehman Brothers. I am still
owed a sum I was promised on leaving
the bank in September. I will be
lucky to see more than a fraction of it
– and that only in several years’ time,

once the administrators have finished
picking through the wreckage.
LET’S be clear: my part in this seismic
story was small. I joined Lehman
Brothers in London as head of
corporate communications in June
2006 after a long career in financial
journalism.
The firm seemed a confident and
attractive place as it surfed a wave
of easy money. Asset markets were
booming; fat profits from slicing and
dicing loans – including, crucially, US
mortgage loans – and from proprietary
trading were being funnelled
into building a truly global investment
banking empire. Executives
were impatient to take what they regarded
as their rightful place alongside
Goldman Sachs in the vanguard
of this modern growth industry.
As I quickly discovered, nobody personified
this vaulting ambition more
clearly than Dick Fuld, the almost
unbearably intense man who had
been chairman and chief executive of
Lehman since 1993.
In that time – and against considerable
odds, including the near failure
of the firm in 1998 and the loss of its
headquarters in the 9/11 attacks on
Manhattan – he had built Lehman
Brothers into one of the powerhouses
of Wall Street, its annual profits
rising year after year from $113m in
1994 to a record $4.2 billion in 2007.
Its stock price had multiplied 20-fold.
Fuld had made a lot of people fabulously
rich – shareholders, employees
and of course himself. In the eight
best years he had taken home a cool
$300m – funding five residences,
his wife Kathy’s passionate interest
in modern art and a host of philanthropic
activities.
To say he was surrounded with a cult
of personality would be an understatement.
He was the textbook
example of the “command-and-control
CEO”. More than that, to many
employees and to the outside world,
he was Lehman Brothers – his character
inextricably intertwined with the
firm’s.
Fuld inspired great loyalty and, on
occasion, great fear. Those closest to
him slaved like courtiers to a medieval
monarch, second-guessing his
moods and predilections, fretting
over minute details of his schedule
down to the flower arrangements
and insulating him from trouble
– from almost anything he might not
want to hear.
His ferocity could be intimidating,
his eyebrows beetling tight over his
hard eyes, his brutally angular brow
appearing to contort in rage. He
would regularly upbraid colleagues
for minor wardrobe malfunctions – in
| 45

Analysis
Dick’s book, that tended to mean
anything other than a dark suit and
a white shirt or, in my case, a beard.
“Are you off to the country club?” he
would grunt dismissively at a senior
executive committee member who
looked just a tad too casual.
Even when in a relatively upbeat
mood he seemed to take pleasure
in violent imagery. Lehman was “at
war” in the market, he would say.
Every day was a battle, employees
were troops. At an investment banking
conference in London last spring,
I saw him astonish several hundred
of his managing directors with a
blood-curdling threat aimed at investors
who were selling Lehman shares
short – depressing the price.
“When I find a short-seller, I want to
tear his heart out and eat it before
his eyes while he’s still alive,” the
chairman declared. Histrionics, maybe
– but with a purpose. Fuld had used
this aggression to consolidate his
reputation as the most successful
chief executive in the banking business
and one of the most respected
corporate leaders in America. But
the style also contained the seeds of
disaster. It meant that nobody would
or could challenge the boss if his
judgment erred or if things started to
go wrong.
In good times that did not seem to
matter too much. Lehman’s financial
46 |
record spoke for itself: 55 quarters of
unbroken profit, a share price performance
second to none in the industry,
a dexterity and fleetness of foot
that enabled it to scale up rapidly in
new markets. But it also bred a fatal
complacency.
So when the US mortgage market
tanked and the first signs of a credit
crunch arrived in July and August
2007, Lehman executives bragged
to internal audiences that they were
much better placed to weather the
storm than, say Bear Stearns, the first
competitor to hit real trouble.
When rivals Merrill Lynch, Citigroup
and Morgan Stanley wrote off billions
and billions in losses on mortgages
and corporate loans in their
quarterly results, Fuld and his executives
congratulated themselves on
Lehman’s clever hedging strategies
that limited the damage.
Even when Lehman’s own quarterly
numbers started to take a real hit,
the warning signs were drowned out
with celebratory reminders that 2007
had been a record year for profits
and with sage assurances about the
absolute soundness of the bank’s risk
management.
What none of the Fuld team appreciated
was that by the beginning of
2008 the world had changed – for
Lehman Brothers and for everybody.

The unravelling of the US mortgage
boom and the contagion of fear this
had unleashed in global markets
were shaking their business model
and their entire raison d’être to the
core. THE curious thing was that at
some level Dick Fuld knew that trouble
was brewing well before the crisis
broke. I witnessed him give a fascinating
talk about risk at a private
lunch with newspaper editors nearly
two years ago. With a precision that
seems almost uncanny, he virtually
prophesied the looming crash.
It was January 2007 and we were in
the Swiss mountain resort of Davos
where the world’s elite gathers every
year for its annual gab-fest, the
World Economic Forum. That year’s
Davos was an even more raucous
party than usual, with the financial
markets surging towards their peak
and the Masters of the Universe
toasting their own power.
Fuld, however, was not in a celebratory
mood. He was worried, he told
his lunch guests with soft-spoken
force, worried that “this could be the
year when the markets crack”.
Trouble might come from the US
housing market, he said, from the
excesses of leveraged finance, or
from spiralling oil prices, or a combination
of all three. Lehman, true to
its tradition of strong risk management
and fleet-footed investment
decisions, had become more cautious
and “taken a bit of money off the
table”. The editors went away visibly
impressed at the apparent prescience
and prudence of Wall Street’s senior
statesman.
There was only one problem with this
performance. It bore scant resemblance
to the reality of how Lehman
Brothers was actually being run,
or had been run for several years,
despite the tendency in Lehman’s
largely admiring press coverage to
portray Fuld as a hands-on manager
with a strong eye for detail and an
obsession with risk management.
In truth Fuld had become insulated
from the day-to-day realities of the
firm and had increasingly delegated
operational authority to his number
two, a long-standing associate
named Joe Gregory.
If Dick was the king, Joe was Cardinal
Richelieu. A gregarious sort with
a taste for flamboyant displays of
wealth – he famously used to fly to
work from his out-of-town estate by
helicopter and sometimes flew back
by seaplane – he was also a ruthless
enforcer for the boss. His job was not
to encourage debate or intellectual
curiosity in subordinates but to bend
the bank to Dick Fuld’s will.
If something went wrong, you could
be sure that Gregory would be on
| 47

Analysis
the telephone in a towering rage.
Even very senior executives would
dread getting one of those calls. They
would describe the experience as
analogous to being provided with “a
new asshole” and called him Darth
Vader behind their hands.
Problematically, Joe Gregory was
not a detail man or a risk manager.
On the contrary, as Fuld was musing
to outsiders about his worries
concerning risk, Gregory was doing
the precise opposite: actively urging
divisional managers to place even
more aggressive bets in surging asset
markets such as the mortgage business
and commercial real estate.
Standing in his way by showing aversion
to risk could be fatal to your
career. Divisional chiefs who urged
caution or tried to rein back on risky
bets were swiftly ousted. From the
middle of 2007 the leadership of
Lehman’s all-important fixed income
division became a revolving door,
partly as a result of Gregory’s obsession
with pushing the envelope. The
goal, he would tell subordinates, was
to be “number one in the industry by
2012”, no matter what the cost.
And Fuld himself was not consistent.
In June 2007, barely four months
after his Davos peroration on risk, I
joined him in another background
discussion with journalists, this time
to coincide with Lehman’s business
48 |
launch in Dubai. His tune could not
have been more different.
Think of the hundreds of billions of
dollars in oil riches gushing into the
Middle East, he said. Add the further
hundreds of billions in sovereign
wealth funds in emerging nations.
Multiply all that by the plentiful
liquidity and leverage available on
financial markets and you had an
almost limitless pool for investment
banks like Lehman to swim and
prosper in.
At roughly that moment, Lehman
was placing some of the riskiest bets
it had ever made in the commercial
property business. It led a consortium
bidding $15 billion for America’s
biggest apartment company at the
absolute top of the market – a deal
signed off by the entire executive
committee but subsequently described
to me by one of the firm’s
executives as “the worst investment
Lehman ever made”.
Only a few weeks later, world markets
started to experience the phenomenon
known as the credit crunch
and those investments – illiquid, all
but unsaleable – became a millstone
dragging Lehman Brothers inexorably
towards bankruptcy.
So much for risk management. The
Lehman culture had become dangerously
complacent and insulated from

the outside world. While Fuld talked
to clients with legendary assiduity,
neither he nor Gregory spent much
time talking (still less listening) to
investors.
Even within the firm, Fuld’s visits to
the trading floor were rare events.
So he was shut off from independent
sources of information, from challenging
questions and from up-todate
views from the front line of
Lehman’s daily battle in the markets.
He was fed instead with the carefully
filtered facts that his inner circle
thought he wanted to hear.
Furthermore, the top team was far
from united. Here was another point
not visible to the outside eye. Lehman
liked to propagate the myth that
it was “one firm” devotedly working
as a team across geographical borders
and departmental boundaries
to satisfy its clients’ needs. In reality
it was as riven with rivalries and
competing egos as a gathering of
mafia clans. Many suspected that Joe
Gregory liked to keep it that way.
One faultline was more troublesome
than the rest: the tension between
headquarters in New York and
Lehman’s European hub in London.
In part it was a debate about where
in the world the firm should place
its bets. Russia? Saudi Arabia? Fuld
and Gregory tended to hang back,
with Jeremy Isaacs, chief executive
for Europe and Asia, pressing on the
accelerator.
The rows about whether to go to
Moscow were epic and not always
very sophisticated. When I asked Fuld
at the height of the argument in
2006 what he thought of the Russian
market, his brow darkened and he
muttered: “Biggest f****** crime
syndicate in the world.” Months
later, regardless, Lehman opened for
business there.
Underlying it all was a classic power
struggle, mirroring the rivalry
between New York and London as
financial centres. Just as London had
alarmed New York by overtaking
it by some measures, so Lehman’s
London team, now responsible for
half Lehman’s revenues, sought commensurate
recognition and power. As
Isaacs became ever more influential
in the firm and placed more of his
top lieutenants on the global executive
committee, the muttering from
New York-based rivals became louder
and more dangerous.
Everyone knew that the battle to succeed
Fuld, whenever he decided to
step down, had the potential to be a
bloodbath. From his London stronghold,
Isaacs reckoned that he had
a real shot at the job. In New York,
another powerful and ambitious
banker was determined to stop him.
His name was Bart McDade, a man
| 49

Analysis
with a good operating track record
but more limited domestic horizons.
Both were to play a central role in
the events leading to Lehman’s collapse.
Here was a corporate governance
structure almost preprogrammed to
fail: an overmighty CEO, a top lieutenant
eager to please and hungry
for risk, an executive team not noted
for healthy debate and a power
struggle between two key players.
Furthermore, the board of directors
was packed with nonexecutives of a
certain age and woefully lacking in
banking expertise. IT is small wonder
that Lehman was so ill-equipped to
recognise and adjust to the changes
in the environment that were dramatically
signalled by the collapse of
Bear Stearns in March this year.
With hindsight, that was the point
at which Fuld and his executive team
should have realised the game was
up.
What the market was saying – and
said again repeatedly in the ensuing
countdown to disaster – was that
Lehman was overloaded with dodgy
assets that it could not sell and underendowed
with capital to support
its huge balance sheet.
In short, the business was beginning
to look like a rickety house built on a
perilously thin foundation and unless
50 |
it took action, to shift “toxic” assets
and to raise more capital, confidence
in the firm and its management
would slide away.
Management’s response was both
half-hearted and confused. True, it
started out on something resembling
a fire sale of distressed assets in a
push to shrink the balance sheet
and reduce “leverage” – the scale of
borrowing. But Fuld and his fellow
executives rattled the market by
insisting that they did not need more
capital, even as they raised some.
To make matters worse, they mounted
an increasingly shrill campaign
against their critics. One particular
hedge fund manager, David Einhorn
of Greenlight Capital, had been critical
of Lehman’s financial disclosures,
thus suggesting to some observers
that the bank might have something
to hide. Einhorn became an obsession
for Fuld and his closest hench-men,
who speculated openly about hiring
investigators to tail him or search his
rubbish bins.
You could say it was a case of shooting
the messenger. It was certainly a
distraction from the primary business
of putting Lehman to rights. But it
was typical of the mixture of defiance
and paranoia – “us against the
world” – with which Fuld drove the
firm. I lost count of the number of
times I had to listen to senior execu-

tives explaining that there was no
point in engaging with the press
because the press actively wanted
Lehman to fail.
Fuld never tired of telling people
that Lehman was built to triumph in
adversity. That was his understanding
of its history and his way of motivating
the 26,000 employees at his
command. But it also led him and
his closest associates latterly to say
things that, while obviously sincere
and reflecting genuinely held beliefs,
had no connection whatsoever with
business reality.
This delusion – compounded by the
powerful and destructive forces of
ambition within the bank – was propelling
Lehman towards catastrophe.
The death spiral beckoned.
First published in Sunday Times on
December 14, 2008.
| 51

Analysis
1.4. Is Media in Need of a Reality Check?
Global Media Coverage on the Banking
and Economic crisis
By Wadim Schreiner
After some tough two years, it seems
the world is starting to breathe a
sigh of relief. All signs are pointing
upwards. Perhaps not everywhere,
but at least the freefall seems to have
stopped. Time now to look at some
of the issues in perspective. While
experts, governments and businesses
are deliberating the causes of the
crisis and working on new models
to avoid the ‘mistakes’ of the past,
it is clear: things will unlikely be the
same again. While it is doubtful that
existing powers will collapse, it is
apparent that the so-called Western
world in particular has to realise that
the future will now be determined by
others, particularly in Asia. The latest
Monitor Group report on Asia 1 states
that although ‘we should not expect
Asia to be the world’s economic
locomotive’ and that ‘Asia alone […]
is incapable of pulling the rest of the
world out of recession’ it will influence
the global economies of the
future by remaining competitive and
entrepreneurial, improving productivity
and developing innovation. ‘
Future productivity will be based on
a more diverse set of competitive
advances, such as strategic foresight
and insight; product, service, process
and business model innovations;
customer intimacy and understanding;
capability to internationalize
52 |
and to understand foreign markets;
and world-class human assets’ (Asia
Report). Scientists are almost united
in the view that some of the classical
industries of Asia, from manufacturing
to services will enter the new
post-crisis financial world with macroeconomic
competitive advantages
largely unscathed, and, according to
the Monitor report, perhaps even
improved. Export champion will be
China – no more Germany. The most
popular car in the United States will
be and remain Toyota – not GM. And
we all will be aware that if the U.S.
sneezes, the rest of the world will
no longer automatically catch a cold
– but perhaps also just sneeze.
What went wrong is a question that
will be debated by business, scholars
and experts for the next couple of
years. Equally debated will be the
question of whose fault it all was.
Particularly interesting here is the
dynamic between the media and
business. Did media exaggerate the
crisis and hence fuel some of the
consequences? Did media fail in
their watchdog role by not warning
its viewers/readers of ‘what was to
come’? Or is it the fault of the banks
in particular which did not correct
the misrepresentations of the media
on the gravity of the situation, or

We as business journalists have the obligation to be much,
much tougher in the questions we ask
Will Hutton, former editor of the Observer, November 2008
forgot to point to different business
conditions in the non-Western part of
the world? It seems that media have
not only been completely surprised
by the crisis but that the industry did
little to contextualise it. In the words
of Daniel Bogler, the Managing
Director of the Financial Times: “It is
in the nature of newspapers to write
the most dramatic headline, the most
dramatic copy and have the most
dramatic picture, so you have impact
on your readers…this irresponsibility
is kind of bred into the industry. You
have to be very careful, you have to
take a step back. A picture of someone
with their head in their hands in
front of a trading screen, is that the
right picture?“ 2
The reality: global meltdown or
selective information?
For North America and most of Europe
the economic figures currently
available are indicating that the
crisis has hit themhard indeed. But
outside of these traditional markets?
In Asia, the reaction is mixed. ‚The
rich people in Europe, the buyers
in America will not buy expensive
clothes produced in Europe anymore
but the cheaper goods produced in
Cambodia and Vietnam,‘ Cambodian
Prime Minister Sun Hen stated
during a regional summit in Hanoi
in November 2008. 3 In Africa, Kuseni
Dlamini, the former CEO of mining
company Anglo American and current
CEO of Old Mutual South Africa
was quoted in the media as saying
that ‘now there is a great era of opportunity
for Africa to rise and shine
in the global scheme of things and
be met as an economic giant’. John
Simon, the former U.S. ambassador
to the African Union even considers
Africa ‘the new frontier in the global
economy’. And even in the United
States some see a silver lining: until
the economic downturn, California
was not set to meet its greenhouse
emission targets. These seem to now
be on track, because lower consumer
demand translated into lower energy
use, caused by less road trips, less
flying and increased use of public
transport.
Of course this does not imply that
the recession has been good to
some economies and that there
were no scars. As the Monitor report
on Asia remarks: Asia in particular
has remained ‘coupled’ rather than
‘decoupled’ to the major industrial
nations. Although both opponents
and supporters of the “coupling/decoupling
theory” have reasons to
justify their positions, it does seem
that while emerging and developing
economies for the last ten years have
enjoyed much higher GDP growths
than those of advanced economies,
the actual trends showed similar
patterns (see chart 4.1.). According
to the IMC World Economic Output
report 2008, the expected GDP for
major advanced economies for 2009
| 53

Analysis
was expected to be -1.6%. Newly
industrialized Asian economies (such
as China and India) would see a 3.9%
change. Africa would see an increase
of 4% in 2009 from the actual result
of 1.9% in 2008. So would Russia
(1.5%) and Eastern Europe (1.8). Most
of Western Europe and the United
States expect negative growth in
GDP. IMF data are also not indicating
a case of a delayed impact on
some of the developing economies
with GDP remaining positive in 2010
predictions. Is this a perhaps a case
where a decrease in growth (but still
growth) is communicated (and channelled
further through the media)
as a disaster? The IMF predicts that
in Africa in particular, the effects
will be visible, yet perhaps not as
catastrophic as in Western Europe.
Chart 4.1. GDP Growth Trend Rates
Because of their financial links with
other regions in the world, South Africa,
Nigeria, Ghana and Kenya seem
to have been first hit. According
to the IMF, past research indicates
that ‘(a) 1 percentage point slowdown
in global growth has led to an
estimated 0.5% point slowdown in
sub-Saharan African countries’. The
organisation reckons that the impact
might this time be harder – yet their
outlook data remain optimistic. Some
scientists seem to disagree with the
IMF, stating that ‘the correlation
between African GDP and World GDP
since 1980 is 0.5, but between 2000
and 2007, it was only 0.2’. 4 Te Velde
further argues that this has been due
to ‘significant structural changes (and
a move into services that were able
to withstand competition much bet-
Source: The Monitor Group, Asia Report 2009, page 19, adapted from Wälti, The Myth of Decoupling, based on data
from the World Economic Outlook Update, IMF, 6 November 2008.
54 |

ter) as well as the rise of China. Even
the impact on the banking sector
after the 2008 crisis has been limited,
largely due to Africa’s low level of
financial integration. Compared to
developed countries, Africa’s external
financial remain low, as is the
stock market capitalisation (2.09%
of world capitalisation according
to the African Development Bank).
Furthermore, African banking assets
represent only 0.87% of global banking
assets, compared to 58.15% for
the 15 countries of the Euro zone and
15.09% for the United States. Africa’s
globalisation ratio is comparable to
that of Latin America, yet far behind
that of Asia and particularly Japan.
Other than banks, Africa’s financial
systems are weak if not completely
non-existent. Although many banks
are foreign owned and hence potentially
exposed to their parent’s North
American exposures, these impacts
are very little, since the assets are
mostly insignificant compared to
that of other regions. The crisis did
however take a toll on those countries
that were highly dependent on
natural resource, particularly copper,
oil and diamonds (Botswana’s GDP
showed a -10.5% prediction for 2009
according to the IMF Outlook data).
IMF research confirms particularly
vulnerable positions for countries
such as Burundi, Guinea-Bissau and
Liberia who are dependent either on
a strong oil price or for FDI’s, which
have declined significantly. The Afri-
can Development Bank, while generally
optimistic about Africa ‘weathering
the post-crisis’, has identified a
number of sectors that are particularly
exposed to the global impact:
tourism (Kenya announcing a 30%
decline in tourist arrivals), mining as
well as textiles. In a 2009 paper, the
International Policy Centre for Inclusive
Growth identifies three mechanisms
that will determine the outlook
for Africa: remittances, capital flows
and trade. 5 A document describing
the impact on LDC (Least Developing
Countries) economies, compiled by
the University of London, comes to
the conclusion that ‘the initial impact
on the LDCs […] was less pronounced’
but also comes to the conclusion that
the sharp reduction in world trade,
declined foreign direct investments
and a slowdown in migrant workers
remittance flows will put some
pressure on these countries, unless
they are targeted with the correct
monetary initiatives. With FDI significantly
declining, and trade patterns
changing, the researchers argue that
many African countries need to have
a relook at their monetary policies to
avoid a larger-than-average impact in
the next couple of years.
This assessment is not unique for
Africa. Researchers seem to be united
in their assessments of other ‘developmental’
markets. Prasad & Reddy
agree that the Indian economy is
being affected by the spillover ef-
| 55

Analysis
fects of the global financial crisis;
they state that ‘great savings habits
among people, strong fundamentals,
a strong conservative and regulatory
regime have saved the Indian economy
from going out of gear’. Importantly,
they say ‘the most important
lesson that we must learn from the
crisis is that we must be self-reliant.
Although the WTO propagates free
trade, we must adopt protectionist
measures in certain sectors of the
economy so that recession in any
part of the globe does not affect our
country’. 6
In South America, despite poverty
having risen slightly for the first time
since 2002, researchers are equally
optimistic. According to Martin
Hopenheyn, of the Social Development
Director of Economic Commission
for Latin America and the
Caribbean, ‘the impact was much
less severe than what we have seen
in the past, it was more serious than
people thought it would be at first,
when we believed we were safe, and
we thought it was just a problem
of the (industrialised) North’. 7 This
assumption is supported by various
economic papers in 2009, all – while
recognising that the crisis indeed had
an impact – come to the conclusion
that the right interventions from
governments had a cushioning effect
on most countries.
If data are telling us that it was not
so bad after all – why then the per-
56 |
ceived global meltdown? Is it perhaps
because we don’t really know
much about ‘the rest of the world’
or because we equate the rest of the
world with negativity to the extent
that good news is no longer really
trustworthy?
Financial Crisis: A media failure?
We need to ask ourselves what we
are equating with continents such
as Africa. Brutal dictators? Famines
and starvation? Corrupt governments
and societies unable to fight against
diseases?
And what about Asia outside of
China and India? The military regime
of Burma, drug smuggling in the
Golden Triangle of Thailand, Laos
and Burma? The Tsunami? Militant
Muslims in Indonesia?
In Latin America? Natural catastrophes,
unstable regimes, leftist
regimes, perhaps a few good football
players?
Media Tenor’s research indicates
that Latin America, Central America,
Africa and South East Asia (excluding
China and India) rarely receive coverage
in media that are not situated in
these regions. On U.S. television, less
than 7% of non-U.S. coverage dealt
with Africa; South America a mere
1.5%. Seven percent might be surprisingly
high, but the most dominating
issue on Africa in the midst of the

financial crisis: Somali pirates. Coverage
on business and economy in Africa:
too little to quantify. On German
television, less than 5% of non-European
coverage focused on Africa; less
than 2% on Latin America. Coverage
on Asia excluding India and China
has been similarly low. Despite the
facts for 2009 already emerging in
economic data in 2008 on Asia, Western
media largely ignored the impact
of the financial crisis on Asia. Further
research by Media Tenor shows that
business and the economy accounted
for just 10.4% of all Western media
coverage of the region – 50% less
than the proportional coverage on
the same issue across the rest of the
world. 8 Since the effects of the global
crisis hit domestic interests in the
Western world deeper and deeper,
14,5%
the already sparse coverage on Asia
diminished even further. Although
Western media expressed positive
opinions about government interventions
in Asia aimed at stimulating fiscal
systems, it barely made an impact
in the media in terms of positive
coverage (see charts 2.2.-2.4.). When
news of an improvementin the Asian
economy made its way to Europe,
it was greeted with surprise – but,
admittedly, at the same time with a
renewed focus. After all, there seems
to have been some ‘silver lining’
out there in the sea of uncertainty.
Despite attempts by economists to
analyse whethereconomies outside
of the Western world were indeed
‘coupling’ or ‘decoupling’ from the
industrialised nations, Western media
never bought into the notion that
Chart 4.2. Topic structure of international TV news, 01-07/2009
East Asia
All countries
9,2% 10,6% 13,8% 16,2%
13,7% 5,7%
41,7%
10,4%
28,8%
15,5%
20,0%
Domestic policy Terrorism/Security Foreign Affairs/War
Business Accidents/Crime/Human Interest other topics
Basis: 8,156 / 69,784 stories in 35 international TV news
| 57

Analysis
perhaps these economies could represent
new key players in the financial
world that is being reshaped in
the aftermath of the economic crisis.
Have they perhaps also exaggerated
the extent of the crisis? Danny
Schechter, an investigative journalist
and former editor of mediachannel.
org identifies two areas where, in his
view, media failed in respect of the
banking crisis: little or no examination
of ‘the new breed of exotic and
financial products, such as CDOs’and
secondly that particularly in the U.S.,
‘media ignored the warnings from
community housing organisations
of the predatory lending practises in
some of America’s poorest communities’.
9 Schechter gives a number of
reasons for the first point: that media
have been too close to Wall Street
0%
1
and that ‘business men are seen as
heroes’ who are all part of the ‘cult
of the masters of the universe’. He
argues that there is a kind of ‘cultural
embedding, as financial journalists
cover business, they become part
of the scene, they identify with the
players, go to the parties, they are
increasingly in a world of fewer and
fewer people that is cut off from the
mainstream […]life.’ Schechter also
notes the close relationship between
advertising and dependency on
business in that regard as a further
reason why media dropped its
‘watchdog’ role.
Perhaps time now for a bit of a fact
check – did media news in any way
help to understand the economic
facts at hand? Or did the notion ‘only
Chart 4.3. Asia in economic coverage, international TV news, 01/2007-07/2009
20%
15%
10%
5%
Share of all foreign news stories
3
1
3
1
2
4
2
4
2
2007 2008 2009
Basis: 16,068 reports about foreign economies in 35 (until 12/2008: 30) international TV news
58 |
3

Chart 4.4. Visibility of Asian countries, international TV news, 01/2007-07/2009
70%
60%
50%
40%
30%
20%
10%
0%
1 2 3 4 1 2 3 4 1 2 3
2007 2008 2009
China Japan India Indonesia South Korea Malaysia
Basis: 16,068 reports about foreign economies in 35 (until 12/2008: 30) international TV news
bad news is good news’ and ‘never
let facts get in the way of a good
story’ determine the content?
For starters, the first indicators of a
recession were published only in November
2008. However, media began
to refer to a recession much earlier. A
query on Factiva for Dow Jones and
Reuters newswire coverage shows
that as early as December 2007, the
number of references in news media
increased from around 1,000 stories
referring to this term to over 4,000
in January 2008. This is likely linked
to the initial reporting around the
banking crisis and more to the fear
of a recession, than actual references
to a recession. Nevertheless, the term
‘recession’ only returned to ‘normal’
pre-banking crisis levels of around
800 news stories by May 2008, sharply
increasing to a new high of over
6,000 news stories in October 2008,
merely one month before the official
data were made available. Did this
constitute a case of news mirroring
or a shaping of actual reality?
In another example, Media Tenor
analysed coverage on STOXX 50 companies
and managers in 28 international
television news over the period
July 2007 and June 2009 (6,698 news
reports): In reality, 86% of these
companies declared a profit (even if a
decline from previous years) and only
14% an actual loss. But only two of
the top 20 most reported-on companies
enjoyed a positive coverage in
| 59

Analysis
Chart 4.5. STOXX 50 winners international TV news, 7/2007-6/2009
Profit
86,0%
Loss
14,0%
the media (BASF and ENI). In other
words, companies continued to make
profits, even if less than in previous
years, but it did not make the headlines.
Instead, profits turned to negative
news by highlighting percentage
declines, and loss making companies
received higher than average
coverage (see chart 4.5.). Even more
dramatic is a look at U.S. television
news. 11,662 reports about the U.S.
economy on ABC, CBS, NBC and Fox
news from January 2007 to July 2009
showed little correlation between
the actual state of the economy (e.g.
in terms of GDP changes) and coverage
on the economy. As early as April
2007, reporting on the U.S. economy
in own media with a negative focus
outweighed a positive focus with a
ratio of 6:1 – all of this while GDP
figures showed positive growth. The
Daimler
Volkswagen
Deutsche Bank
Deutsche Telekom
Siemens
Renault
ArcelorMittal
Nokia
Société Générale
RWE
Total
Allianz
BNP Paribas
Santander
Repsol
BASF
Intesa Sanpaolo
Telefónica
BBVA
ENI
Top 20
Groups
0% 10% 20% 30% 40% 50% 60% 70%
Share of all reports (%)
Basis: 6,698 reports about STOXX 50 companies and managers in 28 international TV news shows
60 |
first actual negative growth figures
in April 2008 did not influence
the trend of coverage: it remained
negative. So were the first signs of
recovery in January 2009 until July
2009. Negative coverage dominated
positive coverage by a ratio of 5:1
(see chart 4.6.). In Germany, coverage
on business and the economy also did
not mirror actual data. While media
indeed reflected negatively on the
drop of the DAX between 2003 and
2008 following the burst of the IT
bubble, coverage remained negative
despite the DAX values reaching a
new high in 2007. In other words: reality
depicted a strong economy, but
media continued to proclaim doom
and gloom. This selective provision
of information can also be seen in
media’s focus on particular industries:
prior to August 2008, international

television news had focused more or
less equally on six different industries
(banking, automotive, aviation,
retail, media and utilities), coverage
after August 2008 suddenly had only
two stories: banks, financial organisations
and cars (a combined 40% of all
industry coverage). Data from these
industries indeed showed that these
industries were hit the hardest, but
the overwhelming focus on the bad
news of these two sectors contributed
towards an overall negative
outlook for all industries and business
in general (see figure 2.7.). In the
United States, amongst television’s
top 20 most reported-on companies
only four were not financial institutions
or from the automotive sector.
Across the globe, the top 20 companies
accounted for almost two-thirds
40%
20%
0%
-20%
-40%
-60%
-80%
-100%
Media: Share of all reports (%)
of total coverage, with small enterprises
or family businesses receiving
virtually no coverage. In developing
countries in particular, small enterprises
are attributed to being the
catalysts of the economy, yet their
opinions, thoughts and positions during
the crisis remained virtually unnoticed
by the media. Real data from
the IW Economic Institute showed
that some industries, particularly the
chemical industry, even hired more
people during the recession, but this
never became a story.
It would be wrong to place the blame
for the global downturn in the hands
of the media alone – but with the
many obvious discrepancies between
real data and media coverage, the
issues of news selection, stereotyp-
Chart 4.6. The US economy in TV news / GDP, 01/2007-07/2009
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7
2007 2008 2009
negative stories positive stories US GDP change
Basis: 11,662 reports about the US economy in ABC, CBS, NBC and Fox news
GDP: Change
4%
2%
0%
-2%
-4%
-6%
-8%
| 61

Analysis
ing and stagnant news flow channels
have to be evaluated in the future.
News flow and traditional reporting
structures.
Since World War II, international
news flow (the way news information
travels around the world) has
been one of the main topics examined
and debated in international
communication. As early as 1953, the
International Press Institute described
the imbalance in news exchanges
between the developed and the
developing nations. Since that time,
the inequality within news flow has
dominated the literature on international
news. Many scholars see this
problem as caused by the unevenness
between developed and developing
countries. Traditional (and mostly
Western) beliefs state that a world
news system exists today because the
peoples of the Western democracies
wanted and needed world news, and
the great independent newspapers
and news agencies in particular have
co-operated and competed to satisfy
those wants and needs. The old
charges of ‘news bias’, were indeed
based on a global news gathering
structure that was influenced by the
global flow of economic and political
power. Reporters were stationed
in New York, Tokyo, and Brussels
because that was where power primarily
lay. Even to this day not much
coverage is given to such countries
like Bangladesh in Asia or the Cameroon
in Africa, because of the fact
that they are poor and powerless
and only minor regional players in
Chart 4.7. Structure of business coverage in international TV news,
7/2007-6/2009: Companies
General Motors
Chrysler
Italy
60,7%
AIG
Ford
Switzerland 45,1%
Citi
Fannie Mae
Bank of America
Germany 37,4%
Freddie Mac
US Airways
UK 35,7%
Toyota
Merrill Lynch
South Africa 34%
AMR
Goldman Sachs
USA 33,7%
JP Morgan
Bear Stearns
Wal Mart
France 31,5%
Berkshire Hathaway
Delta Airlines
Spain 30,6%
Countrywide Financial
Lehman Brothers
Arab TV 17,7%
0%1%2%3%4%5%6%7%
0% 10% 20%30%40%50%60%70%
Share of all reports
Basis: 16,068 reports about foreign economies in 35 (until 12/2008: 30) international TV news
62 |

a global news map dominated by a
handful of ‘superpowers’. Acclaimed
media researcher Robert Stevenson
also identifies another force: the values
invoked by key gatekeepers. The
decision as to which news item makes
it onto the world’s news agenda is
determined by countless gatekeeping
measures of more or less a uniform
set of values. Stevenson concludes
that both forces lead to one common
conclusion: the media map is ethnocentric
and narrow because it emphasises
neighbouring countries and
those with whom Western countries
have close economic, political and
cultural ties. Non-Western scholars
such as Robert Ankomah have added
three main reasons for determining
the reasons for selective news reporting
in Western countries: a perceived
closeness between governments and
journalists, often following governments’
position on other countries or
leaders (Ankomah mentions here the
support of Saddam Hussein during
the Iraq-Iran war turning to anti-Hussein
when the U.S. position on Iraq
changed) and thirdly the particular
closeness between advertising and
editorial coverage, similarly to Danny
Schechter’s comments in 2008.
Additionally, researchers remark that
Western media, despite increased
news flow, a greater opening of
trade markets and more information
and news becoming available from
developing countries remain stereo-
typed and negative in their reporting
on those regions. Coverage on Africa,
for instance, received only slightly
different treatment by journalists in
2009 than it did 20 years ago.
• International media perceive Africa
as a continent of instability, crime
and poverty,
• Achievements, albeit elections or
democratic processes are benchmarked
from a Western perception,
including Western accounting
and governance practices. Cultural
differences between Africa and
the Western world have often not
been taken into account,
• Media tend to focus on events
rather than a continuous analysis
of progress. Although some
researchers have witnessed a slight
increase in ‘developmental’ news,
it is still marginal compared to the
overall coverage,
• Coverage tends to be without
depth and focuses on a few protagonists:
governments, major
politicians and politics in general.
Similar data can be witnessed in the
data collected by Media Tenor on
international business coverage in
2009: 72% of all sources quoted on
international business in global TV
are business sources, followed by
government and political parties.
Those most affected by the crisis,
such as NGO’s, the public or unions,
have less than 2% of a voice on international
television (see figure 8).
| 63

Analysis
As long as global news flow remains
dominated by the same news agencies,
the picture of doom and gloom
will continue beyond the post-financial
crisis. A few things however have
changed, and are giving hope: the
start of Arab news channel Al Jazeera
(and later followed by others such as
Al Arabiya) clearly show that news
services can be different, and don’t
need to follow traditional Western
patterns. While most Western
television news between 2007 and
2009 focused on customer relations,
retrenchments and the impact of
globalisation, Arab television news
(and also South African television)
displayed an exceptionally high focus
on investment coverage. In other
words, while the rest of the World
is being told that investments don’t
take place and that the world is a difficult
place, Arab and South African
news are telling their audience a different
story (see chart 4.9). Similarly,
an analysis of coverage on China in
South African media versus Western
media interrogated whether China’s
involvement in Africa should be seen
(metaphorically speaking) as either
that of the “ominous dragon” ready
to recolonise Africa, or that of the
“flying goose” bringing economic
development and aid to a struggling
continent. 10 The results indicate that
Western media continue to portray
China as exploiting Africa, whereas
South African media increasingly
portray China as an economic partner
64 |
in Africa. The research also comes to
the conclusion that South Africans
are starting to deviate from the
traditional Western way of reporting
and instead seem to access non-traditional
media or new media sources
to arrive at an opinion – a healthy
development in a news environment
that, for decades, had been following
the trend of Western media.
Where to from here and why did no
one stop media from making these
mistakes?
If a research institute publishes the
latest data, or a polling institute
publishes new results from questionnaires,
and the media are ‘getting
the numbers wrong’ one would
expect these organisations to call
the respective journalists and editors
to ensure that the misquote is
corrected. After all, there is nothing
worse when YOUR facts are quoted
wrongly. Someone will uncover the
mistakes and your credibility will be
under threat. Will your clients ever
trust you again? How can you continue
speaking about the quality of
your work and the accuracy of your
predictions? Clients, governments, or
perhaps business have used your data
to inform their strategies – and now
it is all wrong, just because of the
media.
So why the silence from the banking
and the automotive industries?
If your earnings show a drop, but

Chart 4.8. Source structure of business coverage in international TV news,
7/2007-6/2009
Journalist
Business
Government/Authorities
Parliaments/Parties
Unions
NGOs
3,29%
1,09%
1%
0,7%
23,71%
68,38%
Society 0,63%
USA
Academics
other/several
0,6%
0,38%
France
Government/Authorities
Parliaments/Parties
Unions
NGOs
EU 0,17%
Spain
Society
Academics
International org. 0,04%
Switzerland
other/several
EU
0% 20% 40% 60% 80%
0% 5% 10% 15%
Share of all reports (%)
you are still making a profit, what
message are you likely to communicate?
Option 1: despite the economic
downturn, we are still making profit.
Option 2: with the economic downturn,
our earnings have declined.
Both are perhaps technically correct,
but option 1 shows confidence, shows
leadership in hard times, shows that
the right business decisions were
made. Option 2 is unlikely to get analysts
and shareholders excited. But it
is option 2 that has dominated coverage
over the past few months – with
no objections from those concerned.
Was the idea of a ‘general downturn’
perhaps convenient for introducing
other negative stories, or even for
executing business decisions that
Germany
South Africa
Arab TV
UK
Italy
Basis: 113,766 reports about companies, industries and managers in 28 international TV news shows
would have been very unpopular in
‘good times’, such as retrenchments?
Or was it just opportune to cover up
wrong investment decisions by management
and decision makers under
the guise of a ‘global downturn’,
and thereby wash one’s hands of
something? Any government would
be up in arms if media were indeed
incorrectly stating national policy
figures, knowing full well just how
important media coverage is in terms
of voter sentiment. After all, media
are a key market, just like a business
environment – or perhaps even more
powerful than that.
The World Economic Forum has commissioned
a poll – released on the
| 65

Analysis
eve of the post-financial crisis year
meeting in January 2010. A poll that
focused on the question of values.
‘Over two-thirds of people believe
the current economic crisis is also a
crisis of ethics and values’. Here are
key findings from the poll 11 :
• The poll results point to a trust
deficit regarding values in the
business world. Only one-quarter
of respondents believe that large,
multinational businesses apply a
values-driven approach to their sectors,
while over 40% believe that
small and medium-sized businesses
apply such an approach
• Almost two-thirds of respondents
believe that people do not apply
the same values in their professional
lives as they do in their private
lives
Finance/results
Strategy/M&A
Products
Image/PR/scandals
Politics/regulation
Stock
HR
Management
own research
Pricing
Society/CSR
other
Production
Salaries/unions
Investments
Customer relations
Environmental policy
Globalisation
R&D
Market position
Company culture
Reporting
Ratings
History
South Africa
France
Spain
Arab TV
Switzerland
USA
Germany
Italy
UK
0% 5% 10% 15%
Share of all reports (%)
• When asked to identify the values
most important for the global political
and economic system, almost
40% chose honesty, integrity and
transparency; 24% chose the rights,
dignity and views of others; 20%
chose the impact of actions on the
well-being of others and 17% chose
preserving the environment.
Most organisations are well aware
of the power of the media: they use
them every day to push their messages
across to the various stakeholders
and target audiences. They cry foul
if their positive social responsibility
commitments do not receive absolute
awe and amazement from the
journalists. They are upset when the
ground-breaking new product does
not receive the desired review. They
Chart 4.9. Topic structure of business coverage in international TV news,
7/2007-6/2009
Reporting
Investments
Globalisation
Customer relations
R&D
0% 1% 2% 3% 4% 5% 6% 7%
Basis: 113,766 reports about companies, industries and managers in 28 international TV news shows
66 |

jubilate if the CEO received another
front page story about strategic
vision and ‘thought leadership’.
Particularly if the competing CEO did
not. But, if the financial results are
interpreted incorrectly, or the overall
economic situation as reported on
in the media differs from their own
assessments – there is silence. Coincidence?
Unlikely – and certainly a
bad choice of judgement. The result
is that trust in companies, particularly
in banks is eroded. It will take a
long time to rebuild this trust but it
will provide the time necessary to reevaluate
the mechanisms companies
will have to develop to assess media
coverage and the impact on stakeholders.
How am I portrayed? How
is the industry portrayed? How is the
economy portrayed? Is it correct?
Negative news might sell for media.
But it does not help to sell products
and services.
1. Asia through the crisis. Perspectives on
emerging economies in the global economic
recovery. September 2009: The
Monitor Group.
2. Reshaping the Financial Times’ newsroom
for the credit crisis. Inter-view
with Managing Editor, Daniel Bogler.
http://www.editorsweblog.org/analysis/2008/10/reshaping_the_financial_
times_newsroom_f.php . Downloaded
17 January, 2010.
3. http://www.cambodia.org/blogs/editorials/labels/Prime%20Minister%20Hun%2
0Sen.html
4. Te Velde, Dirk Willem: The global financial
crisis and developing countries.
Which countries are at risk and what
can be done?. Overseas Development
Institute, Background Note, October
2008. www.odi.org.uk/resources/download/2462.pdf.
Accessed15 January, 2010.
5. Griffith-Jones, S & Ocampo, JA. The
Financial Crisis and it’s impact on developing
countries. International Policy
Centre for Inclusive Growth, Brazil.
www.undg-policynet.org/ext/...crisis/
UNDP_-_The_Financial_C.pdf Downloaded
15 January, 2010.
6. Prasad A & Reddy CP: Global Financial
Crisis and Its Impact on India. http://
www.krepublishers.com/02-Journals/
JSS/JSS-21-0-000-09-Web/JSS-21-1-
000-09-Abst-PDF/JSS-21-1-001-09-963-
%20Prasad-A/JSS-21-1-001-09-963-
%20Prasad-A-Tt.pdf
7. http://ipsnews.net/news.
asp?idnews=49332
8. See pages 13 and 14 in the Asia Report
2009 by the Monitor Group
9. www.editorsweblog.org/analysis/2008/11/financial_crisis_a_media_failure.php,
accessed 12 January, 2010.
10. De Beer A & Schreiner W: Of ‚ominous
dragons‘ and ‚flying geese‘: South African
media coverage of China in Africa.
Paper read at the 2009 AEJMC Conference
in Boston, MA.
11. http://www.weforum.org/faith
| 67

2. Business Reporting 2.0: XBRL
2.1. The Trust Meltdown
By Alfed R. Berkeley III and Phillip Moyer
The Trust Meltdown is palpable
in the United States and Europe.
Ordinary people in everyday conversations
believe that their lives have
been made harder and riskier by a
handful of powerful people who violated
trust that society had placed in
them. In their minds, they are victims.
There is no shortage of villains.
There is also significant cynicism
about the cures that would be vindicators
propose. As is happens, the
majority of citizens are pragmatic
and full of common sense. They are
suspicious of the “witch trials” initiated
by politicians and trumpeted
by the media. They see through
and resent the smug arrogance of
public policies that assume the public
needs to be sheltered from harsh
truths. Fear and panic come from the
unknown. Good public policy makes
much more known. The path to confidence
lies in transparency.
We have ample precedent. The
Crash of 1929 and the Depression
was redressed in the short term by
massive stimulus and in the long term
by transparency. What do WE mean,
and how do we know?
We are most familiar with the United
States. Just as America’s financial
68 |
industry is in distress now, it was in
distress in the 1930’s. Then as now,
there was significant call for regulation.
But the differences between
then and now are striking. Now
we are calling for regulation that
is ever more prescriptive about the
operations of the financial services
industry: what credit card fees can
be charged what cannot. Now we
are selectively taxing one group of
producers and subsidizing others:
taxing borrowing and bonuses in the
financial services industry and not in
others.
By contrast, the wise policies of the
1930’s were rooted in the idea that
transparency is a key part of the answer.
The interests vested in opacity
screamed and wailed.
The legislative output of the 1930’s
was remarkable:
The Banking Act of 1933 (Glass–
Steagall) separated deposit taking
from proprietary trading and
established the Federal Deposit
Insurance Corporation.
The Securities Act of 1933 mandated
that public companies tell their
investors something about the
company’s financial health.

The Securities and Exchange Act of
1934 obligated broker dealers and
exchanges to act as honest agents
for their customers and established
the Securities and Exchange Commission
to enforce the Act.
The Trust Indenture Act gave
dispersed retail bond holders a
Trustee representing their collective
interests, a counterbalance to
the power o f the issuer.
The Investment Company Act gave
investment managers fiduciary
obligations.
The Maloney Amendment to the
Securities and Exchange Act created
an obligation for the brokerage
industry to regulate itself, in
addition to the regulation provided
by the Securities and Exchange
Commission.
There are others; the point is that
they pretty effectively addressed
the root problems of how risks were
packaged (Glass --Steagall), how
risks were to be revealed (disclosure
requirements) and how conflicts of
interest were to be managed (fiduciary
obligations trump self-interest).
These principles were applied with
great success for some 70 years to the
equities and bonds that had been at
the root of the Crash of 1929 and the
Depression of the 1930’s. The well
thought out reforms of the 1930’s
delivered literally decades of stability
and still permitted both product and
technology innovation.
With the exception of packaging
risk (Glass Steagall), all of the 1930’s
legislation has been strengthened
over the years. Risks were re-bundled
when Glass Steagall was reversed.
Ironically, Glass Steagall was so
effective for so long in preventing
systemic failures, human memories
are so short and human beings are so
greedy that we failed to remember
why the law was passed originally.
Notice that current crash was not
driven by equities or 1930’s style
debt. The new securities at the root
of the current crash did not exist in
the 1930’s. The new securities packaged
risk in new ways. Most of all,
the new securities were not transparent
in any dimension: they did not
disclose either financial health or risk.
Furthermore, the issuers of these new
securities flouted the principal-agent
problem.
The new securities fell between the
jurisdictional cracks of regulatory
authority: some were built on securities
and business models that were
expressly exempted from SEC jurisdiction;
some were ambiguous. Is a credit
default swap insurance, a commercial
contract or a security? Issues you
would like to decide on facts quickly
became a matter of definition. When
the definitions were ambiguous, the
| 69

Business Reporting 2.0: XBRL
interested parties moved to mitigating
circumstances and on to standing.
Standing is all about who regulates
such securities? Where is Federalism?
The states regulate insurance. The
clear classifications of the 1930’s are
no longer.
So where are the solutions?
The sub-prime mortgage business imploded
because it was not transparent,
because the risk was packaged in
ways that mixed low risk assets with
high risk liabilities, because principal
concerns overpowered agency obligations
, and because jurisdictional
holes removed the threat of a cop on
the beat . Only a few high priests of
finance knew what those securities
contained and whether they were
likely to be repaid. They had the information
to price the securities and
they hoarded it.
Proposed regulatory changes are
likely to address the issues of regulatory
jurisdiction. The cracks between
regulatory agencies are likely to be
filled. Paul Volker’s proposal to re-instate
Glass Steagall may well repackage
risks and address the principal
versus agency issues.
The transparency issues have hardly
been mentioned, and probably will
not be until the jurisdictional issues
are resolved. Nonetheless, they
deserve to be discussed. They are the
70 |
most powerful potion in the prescription.
The press has not picked up on
the importance of transparency. It is
not a sexy topic. It takes years to take
effect. Powerful interests are against
it. Powerful interests are against it
because transparency so powerfully
shifts the balance of power in the
marketplace.
The SEC is quietly moving on dramatically
increasing transparency for
all issues filed with the Commission.
The SEC is updating its public access
system with new technology that
will make all filings machine readable.
It is difficult to overstate the
importance of this change. Machine
readable SEC filings by issuers will democratize
access to financial information
in fundamental ways.
The basic work to make financial
statements, including footnotes,
machine readable has already been
done and the obligation for issues to
submit in machine readable formats
is phasing in.
The basic work to make securitized
residential mortgage-backed securities
machine readable has also been
done, including the initial prospectus
and the monthly remittance information.
Preliminary work has been done
on credit card-backed securities and
automobile loan-backed securities.
No US regulator has mandated machine
readable transparency yet, and

there is considerable resistance from
the securitization industry.
In summary, there is much to be
done and the wheels of reform are
grinding slowly. There is a chance
that the current reforms can deliver
decades of stability and still permit
innovation. It was transparency that
allowed the reforms of the 1930’s to
adjust to innovation in securities and
trading. We need transparency to
make the present round of reforms
work and yet change, to “bend without
breaking.”
| 71

Business Reporting 2.0: XBRL
2.2. Transparency and Verification from a
Regulator’s Perspective: Using XBRL
to Restore Trust in Finance and Government
By Paul Wilkinson
72 |
An Introductory Proverb
It was sometimes difficult to tell if
President Reagan’s favorite proverb
while working to win the Cold War
– “doveryai, no proveryai” or “trust,
but verify” – made Soviet General
Secretary Mikhail Gorbachev grimace
or smile.
“You repeat it at every meeting,” the
General Secretary said to laughter
at the signing of a nuclear treaty in
1987.
“I like it,” the President replied. 1
The proverb is said to have been
favored by Soviet KGB founder Felix
Dzerzhinsky, who, like President
Reagan, did not hesitate to commit
resources to technology in order to
accomplish state ends. In Dzerzhinsky’s
case that included surveillance
technology; in the President’s case, it
included the Strategic Defense Initiative,
a transparent project to undermine
the Mutual Assured Destruction
doctrine and reduce the risk of
nuclear catastrophe.
While subject to a range of judgment,
the cost of the recent financial
crises and the cost of the Cold War
have both been estimated at roughly
$10 trillion. Those costs, and the

As finance and other regulated industries adopt
increasingly technological business processes, regulators
must adopt technology to keep pace. Those with
supervisory and enforcement powers must use eXtensible
Business Reporting Language to serve the public trust.
fact that G20 government deficits
are now at their highest levels since
WWII, make analogies between the
financial crisis and the money cost
of war apt. In war, as in financial
regulation, strategy, intelligence,
and technology are critical. Neither
soldier nor regulator can cover every
potential point of invasion. And
neither soldier nor regulator can
emerge victorious when outgunned
and outsmarted. Only an effective
combination of technology and
transparency can reduce the risk of
modern economic catastrophe. Trust
and verification, along with strong
deterrence, are vital to the promise
of peace and prosperity alike.
A Pair of Rules and a Set of Priorities
When we arrived at the U.S. Securities
and Exchange Commission in
August 2005, the priorities included
continuing to phase in the Sarbanes-
Oxley Act (SOX) enacted in the wake
of Enron, WorldCom, and the dot
com bubble; resolving a religious war
between accountants and entrepreneurs
over stock option accounting;
addressing Congressional concerns
with respect to public company disclosures
including topics like collaboration
with the Communist government
in China; dealing with a $50
million SEC budget shortfall; improving
the resiliency of capital markets
in case of another terrorist attack
or disaster; filling a large number
of senior staff positions; and dozens
of other high profile and emerging
issues.
In 2004 and early 2005, the Commission
unanimously approved two new
largely non-controversial rules. The
first rule – the “CSE Rule,” with CSE
standing for Consolidated Supervised
Entity – created a voluntary program
to monitor investment bank capital
(because the Commission lacked
authority to create a mandatory program).
The second rule – “Reg. AB,”
with “AB” standing for asset-backed
– formalized about two decades of
precedent related to asset-backed
securities disclosure standards. New
business, and demands stemming
from recent controversial rulemakings,
did not merely suppress the new
Commission’s appetite to revisit these
two seemingly innocuous capital and
ABS rules. Adoption of the rules simply
took them off the menu.
The SEC saw voluntary CSE regulation
as inadequate, and therefore sought
mandatory authority to increase
securities firms’ capital requirements,
but Congress failed to act. The SEC
itself might have set higher targets in
the CSE Rule voluntary program, but
would have found doing so controversial
because it would have put U.S.
entities at a competitive disadvantage
to foreign entities, which were
using standards equivalent to the
voluntary standards that the Commission
adopted.
| 73

Business Reporting 2.0: XBRL
Final Report of the Advisory Committee on Improvements to Financial
Reporting to the SEC
As it becomes increasingly easy to
move capital around the world, global
regulatory arbitrage is an everincreasing
risk in substantive regulation.
One advantage of regulation
requiring more disclosure, relative to
regulation that sets substantive limits
on certain business activity (voluntary
or mandatory) is that disclosure
regulation can help jurisdictions that
adopt it become more, not less competitive.
The number of warheads
is less important than the ability to
verify and trust the final count.
74 |
August 1, 2008
We see a number of potential benefits of interactive data for reporting
companies and investors relating to financial and non-financial information.
First, interactive data tagging could benefit reporting companies by permitting
improved communications with analysts and investors. Released corporate
data could be instantaneously and immediately usable by analysts in
their models without the need for them to wait for third party aggregators
or staff to input the data into their own format. There would be a reduction
in search costs. Further, such reduced search costs could potentially increase
coverage of companies, especially mid-size and smaller companies, by
sell-side and buy-side analysts, and at both major brokerage and independent
research firms. Interactive data-tagging also would likely improve the
quality of data and the ability of a company to control the presentation of
its financial information. The elimination or reduction of the manual input
would likely reduce error rates in reporting and inputting of corporate data
by aggregators. 2
Better information results in better
markets. Therefore, investors typically
prefer markets with stronger
information ecosystems – the U.S.
market for public company securities,
the world’s strongest capital market,
being Exhibit 1. Giving companies
flexibility to arrange their finances
as they see fit – as long as all material
information is fully and accurately
disclosed according to industry
standard accounting policies – has
repeatedly proven more successful
than command and control. Using
effective disclosure technology may
diminish profits for particular firms as

economic rents are competed out of
a particular market, but unlike parochial
limitations that help incumbent
firms protect their franchises and
create barriers to entry for potential
competitors, disclosure regulation
helps the customers of regulated entities
get closer to the balance of risk
and reward that they ultimately wish
to achieve – and helps these customers
do so at lower prices.
In less regulated markets, such as
music and travel sales, iTunes and Expedia-style
information systems give
consumers remarkably more choice
and lower prices. In the financial
sector, partly because of the high
degree of substantive regulation outside
the basic public company securities
market, Internet-based “creative
destruction” has yet to move far
beyond electronic retail brokerage
on Wall Street and online banking
on Main Street. However, a well-designed
regulatory disclosure system
holds the promise of extending the
benefits of choice and competition to
investing, borrowing, lending, hedging,
insuring, and other financial
sector activity.
In interviews for senior SEC positions,
we regularly asked candidates
about emerging threats to the capital
markets. None identified activity
in light of the CSE Rule or Reg. AB
as a concern. For that matter, none
anticipated a crisis anything like
September 2008. (Critics of implicit
government guarantees to Fannie
Mae and Freddie Mac were probably
most Cassandra-like.) The degree to
which this ignorance of so many of
the nation’s most reputable financial
experts was due to inadequately accessible
information about how companies
were operating under the CSE
Final Report of the Advisory Committee on Improvements to Financial
Reporting to the SEC
August 1, 2008
Second, interactive data has the potential to improve the integration of
company operating and reporting data. Using interactive data, operating
data can be accessed in the internal enterprise applications where it is regularly
stored, and thus will be used for financial reporting purposes without
the necessity of downloading to paper or manual search. The same electronically
accessible data can be used for other purposes beyond those of
financial statements, including tax, industrial filings, audit, benchmarking,
performance reporting, internal management, and sustainability. 3
| 75

Business Reporting 2.0: XBRL
Rule and Reg. AB is uncertain. What
is certain is that a healthy dose of
forward-looking technology requirements
would have improved both
rules and mitigated the financial
crisis. Despite work under Chairman
William Donaldson to adopt modern
technology to improve capital market
disclosure, the SEC’s rulemaking
apparatus had yet to provide for its
implementation.
Three Crises; Two Styles
Morale is vital to victory in war and
economic growth alike. Churchill
never trembled in public as bombs
fell on London. Reagan was steady
despite Black Monday, Oct. 19, 1987,
the largest one-day market collapse
in history. The former called upon
76 |
the fiber of Londoners; the latter
proclaimed publicly that the real
economy, unlike the global stock exchange
scoreboard, was working just
fine. People trusted President Reagan
not to inject fear and uncertainty
into markets by changing the rules
midstream. Churchill and Reagan
succeeded for the simple reason that
they earned people’s trust with clear
communication.
Wartime morale, prosperous capital
markets, and successful banking are
all about trust. The leader of the U.S.
Securities and Exchange Commission’s
21 st Century Disclosure Initiative, 4 Bill
Lutz, often reminded us that clear
communication builds trust, trust
builds confidence, and money follows
Final Report of the Advisory Committee on Improvements to Financial
Reporting to the SEC
August 1, 2008
[I]nteractive data-tagged financial statements can provide a number of benefits
to investors, including both retail investors and the “model builder/research
analyst.”
Investors can benefit from, among other things, a reduced cost of locating
and inputting data into analytical frameworks, elimination of manual
input thereby reducing the likelihood of input error by an investor or data
aggregator, reduced investor dependence on proprietary and inconsistent
data sources, increased likelihood of more investors utilizing primary data
sources, and reduced cost of and improved company comparisons.
The interactive data-tagged financial statements should enable investors
and experienced analysts at research organizations to spend more time analyzing
data than data gathering. 5

confidence. In September 2008, we
saw a catastrophic failure in the supply
chain for trust.
Late night visits by morose U.S. administration
officials to Capitol Hill
for closed meetings with Congressional
leaders and video of somber
looking authorities walking in and
out of those meetings broadcast to
the world live via satellite triggered
fear, not confidence. The threshold
to trigger mass hysteria among
Congress was low, since few Members
understood the opaque instruments
that triggered the crisis. The
metaphor of a cabinet secretary on
his knee in front of the legislative
branch crowded out thoughtful public
deliberation about how better informed
markets might help stabilize
prices and expedite recovery, as they
did in the years after U.S. Generally
Accepted Accounting Principles were
fully implemented and in the months
after Black Monday. Communications
based on fear rather than substance
destroyed trust and confidence.
When strong leadership based on
unwavering faith in the power of
transparent markets such as that
which President Reagan showed in
October 1987 goes missing, other
means of clear communication are
essential. Today’s challenge, in the
wake of the most severe breakdown
in trust in the financial industry since
the Great Depression, is to rebuild a
path from clear communication to
trust to productive investment.
How eXtensible Business Reporting
Language Users Received Special
Communications and Beat the SEC
and the Market
In August 2005, the most controversial
ongoing concern at the SEC was
the implementation of SOX financial
reporting internal control requirements,
with an objective of ensuring
that better internal communications
would strengthen trust in a company’s
external disclosures. Large companies
found it costly to create and
enforce manual controls that satisfied
their auditors, who understandably
imposed high standards in light
of extraordinary potential personal
liability among firm partners. Small
companies, whose compliance was
being phased in, feared SOX costs
would put them at a competitive
disadvantage to their larger brethren,
while perceived systemic risks
included the failure of any one of
the four remaining large accounting
firms.
We believed technology could make
better internal controls more cost-effective
for companies and safer for
auditors from a liability perspective.
However, we were also concerned
that promoting a specific technology
as a way to help achieve cost-effective
SOX compliance might taint that
technology with SOX-like controversy
| 77

Business Reporting 2.0: XBRL
Final SEC Rule Mandating XBRL Public Company Disclosure
and delay its implementation. In the
end, while the 2008 Advisory Committee
on Improvements to Financial
Reporting mentioned audit as an
application for eXtensible Business
Reporting Language, the final rule
did not stress XBRL’s potential to
improve auditing. Since companies
were responsible for ensuring that
data in their interactive data filings
was equivalent to information on
their traditional financial statements,
and that information could be easily
checked by anyone with Internet
access, the Commission viewed an additional
audit as superfluous.
78 |
December 2008
Also, to the extent investors currently are required to pay for access to annual
or quarterly report disclosure that has been extracted and reformatted
into an interactive data format by third-party sources, the availability of interactive
data in Commission filings will allow investors to avoid additional
costs associated with third party sources.
We believe that requiring issuers to file their financial statements using interactive
data format will enable investors, analysts, and the Commission
staff to capture and analyze that information more quickly and at less cost
than is possible using the same financial information provided in a static format.
Any investor with a computer and an internet connection will have the
ability to acquire and download interactive financial data that have generally
been available only to large institutional users. The new interactive data
requirements will not change disclosure requirements under the federal securities
laws and regulations, but will add a requirement to include financial
statements in a new interactive data format as an exhibit. 6
Nevertheless, common sense and
experience lead to the conclusion
that it is much less expensive to
verify that computer programs are
running according to design than it
is to monitor the hearts and minds
of all who might, in the absence of
technology controls, intentionally or
negligently inject material errors into
the financial reporting supply chain.
Moreover, the message that one’s
profession might be shrunk via automation
may not be warmly received.
So we charged ahead with XBRL for
U.S. GAAP for all of the reasons articulated
by the Advisory Committee
on Improvements to Financial Report-

ing and in the Final Rule itself. (See
accompanying text boxes.) Similarly,
we proceeded with XBRL as an early
demonstration of a way to improve
executive compensation disclosure 7
and as a mandatory standard for
mutual fund and credit rating agency
disclosure.
Neither SOX nor XBRL, of course,
applied to asset-backed securities
disclosure, since the securities
were issued as separate instruments
through special purpose vehicles
rather than public companies. The
public companies that traded ABS
generally complied with SOX insofar
as implementing internal controls
over their U.S. GAAP reporting. It is
a commonplace that few anticipated
the financial crisis, but some investors
saw beyond mere SOX compliance.
These investors paid to convert ABS
data from its unstructured ASCII and
Final SEC Rule Mandating XBRL Public Company Disclosure
December 2008
The new rules are intended not only to make financial information easier
for investors to analyze, but also to assist in automating regulatory filings
and business information processing. Interactive data has the potential to
increase the speed, accuracy and usability of financial disclosure, and eventually
reduce costs.
Interactive data can create new ways for investors, analysts, and others to
retrieve and use financial information in documents filed with us. For example,
users of financial information will be able to download it directly
into spreadsheets, analyze it using commercial off-the-shelf software, or use
it within investment models in other software formats. Through interactive
data, what is currently static, text-based information can be dynamically
searched and analyzed, facilitating the comparison of financial and business
performance across companies, reporting periods, and industries.
Interactive data also provide a significant opportunity to automate regulatory
filings and business information processing, with the potential to increase
the speed, accuracy, and usability of financial disclosure. Such automation
could eventually reduce costs. A company that uses a standardized
interactive data format at earlier stages of its reporting cycle could reduce
the need for repetitive data entry and, therefore, the likelihood of human
error. In this way, interactive data may improve the quality of information
while reducing its cost. 8
| 79

Business Reporting 2.0: XBRL
HTML format available under Reg.
AB into structured formats that could
be analyzed in spreadsheets. 9
As the SEC simultaneously developed
other uses for XBRL, EDGAR Online,
Inc., a leading U.S. financial software
firm, used XBRL to analyze residential
mortgage-backed securities (RMBS)
for clients well before the crisis
became acute. In spring 2007, Wired
magazine reports, 10 two hedge
funds asked EDGAR Online, which
had experience parsing documentbased
GAAP disclosures for public
companies, to do the same for RMBS.
Because RMBS disclosures to the SEC
were made in ASCII and HTML, not a
business-specific standard, the company
had to assign “four engineers
to categorize and standardize the…
contents―creating a Rosetta stone
that could translate the 600 unique,
inconsistent fields into 100 uniform
categories.”
According to Wired, after the engineers
delivered the results of their
findings, the hedge funds “saw…a
nationwide crisis in the making
– as adjustable-rate mortgage rates
ballooned, countless home-owners
would default on their loans, rendering
the securities built on them
worthless.”
Transparency – for those who paid
for it in this case – completely
changed the financial battlefield. The
80 |
message to those who paid for the
information was clear: Short mortgage-backed
securities and anything
that depends on them.
The sophisticated investors who paid
to structure RMBS data in XBRL obviously
had better information about
their investments than the putatively
“sophisticated” investors who only
had old-fashioned ASCII and HTML to
help them with their due diligence.
Like modern warfare that increasingly
depends on the surveillance and
speed of satellites, faster and better
knowledge of the RMBS changed the
terms of competition in the markets.
Goldman Sachs Group CEO Lloyd
Blankfein defended his firm in his
January 13, 2010, testimony to the
Financial Crisis Inquiry Commission
(FCIC) on the basis that it only sold
RMBS derivatives to “sophisticated”
investors. The fact that many of these
so-called sophisticated investors were
unable to use the disclosures required
by the SEC under Reg. AB speaks for
itself. Mr. Blankfein may wish today
that the sophisticated investors with
whom he did business had better
information, though Goldman Sachs
and other participants might not
have found the market for RMBS and
their derivatives nearly as profitable.
On January 13, Mr. Blankfein found
himself defending his firm for
hedging its asset-backed securities
derivatives – what critics have called

Toward Greater Transparency: Modernizing the Securities and Exchange
Commission’s Disclosure System, SEC Staff Report
betting against some of its clients.
Similar conflict of interest challenges
exist in public company markets,
but industry standard GAAP format
disclosures help manage that risk effectively
by leveling the information
playing field. The FCIC will explore
why simple securities based on large
pools of future flows of funds from
individual borrowers – considerably
simpler to value than the debt
or equity securities issued by public
companies – led so many to accept
so much hidden risk. The FCIC should
determine why complex instruments
designed to manage that risk failed,
and why disclosure might have been
poor in the first place, leading to
January 2009
The Commission’s current approach to XBRL has been to develop ways
to translate disclosure documents on the current paper forms into XBRLformatted
files. A further step is required. The Commission should adopt
a modernized disclosure system, designed specifically for interactive data,
which will realize the full power of data tagging, identify ways to consolidate
and simplify the current disclosure regime, and make better use of
modern technologies.
As we describe in the next section, the Commission should consider creating
and implementing a modernized disclosure system. The system, organized
around a data warehouse, could be flexible to incorporate multiple methods
of submitting and disseminating information. This modernized disclosure
system would make information more accessible and easier to use, thus serving
and protecting investors. 11
the development of more complex
instruments to manage unnecessarily
hidden risk.
The SEC found in January 2005 that
it was not practical to draft detailed
disclosure guides for each type of
asset-backed instrument that may
be securitized. That was before the
Commission understood the meaning
of eXtensible, which makes it easy to
customize disclosure for genuinely
unique facts about particular securities
while still tagging the information
to make it as useful as possible
to investors. With the experience of
developing and updating the U.S.
GAAP and other XBRL reporting
| 81

Business Reporting 2.0: XBRL
systems, the technology is ready. Five
years later, in January 2010, it is not
only practical – it is essential to use
XBRL to guide disclosure for assetbacked
securities.
Data Discipline
Successful conversations require
that speaker and listener be on the
same page. With solid empirical
data, computer programs can run a
“check sum” to validate meaning.
The English language, regrettably,
does not have the same check-sum
ability to fully align speaker or writer
and listener or reader. In studying
to join the local church in California
after leaving the SEC, I found
that the local Methodists, unlike my
former Lutheran church, tend to use
the word “discipline.” My concept of
the word was “punishment,” which I
told the pastor did not seem particularly
welcoming. He explained that
82 |
Methodists mean it as regulation or
accountability, not punishment.
A theological taxonomy must wait,
but as more capital moves around
the globe more quickly, it is more
important than ever that investors in
different markets be able to understand
what securities issuers in other
markets mean by particular disclosures.
Fortunately, XBRL taxonomies
can be translated into multiple
languages, more carefully and costeffectively
than individual financial
statements. Like a language itself,
these taxonomies can be widely
shared. The International Financial
Reporting Standards taxonomy has
been translated into languages from
Albanian to Ukrainian. Even where
regulated entity and regulator and
investor all speak the same language,
tying particular data to a particular
data tag can enforce more disci-
Toward Greater Transparency: Modernizing the Securities and Exchange
Commission’s Disclosure System, SEC Staff Report
January 2009
The Commission should design and implement a modernized disclosure system
in which interactive data replaces plain-text disclosure documents.
Under the Commission’s current document-based disclosure system, electronic
documents patterned on paper forms are the primary means of submission,
storage, and dissemination of disclosure information. These electronic
documents contain disclosure information in a plain-text format. The
Commission should design and implement a modernized disclosure system
in which interactive data replaces documents. 12

pline than various interpretations
– and misinterpretations – of printed
words.
In the financial crisis, binary data
about particular events contributed
to the atmosphere of fear and
breathless panic among some commentators.
The psychological impact
of the potential bankruptcy of securities
firms – commonly called investment
“banks” despite their status as
non-depository financial institutions
– along with the concept of “breaking
the buck” are two examples of
how sudden changes can be more
unsettling than gradual transitions.
This is particularly true when those
sudden changes are perceived (or
mis-perceived) to be so dramatic
that they could cause ATM’s to “stop
working.”
The five consolidated supervised
entities under the CSE rule were not
“banks” in the eyes of the public. For
most people, banks are where they
go to make FDIC-insured deposits and
facilitate day-to-day money transactions.
The liquidity crisis among
“investment banks” did not threaten
those deposits. Only the results of a
much larger crisis foisted on a public
panicked by the story that some of
the world’s largest “banks” were failing
could do that. Perhaps in lowering
the barriers between different
types of financial institution activity,
Gramm-Leach-Bliley might have
added a truth-in-labeling provision,
reserving the word “bank” for the
offering of insured deposits and the
word “investment” for instruments
presenting additional risk.
Some leaders and media responsibly
referred to the consolidated supervised
entities as “securities firms” – a
more accurate description of their
line of business, which was typically
securities activity to facilitate the
investment of money in common
enterprises for profit derived from
the efforts of others. Even “securities
firm” falls short, however, since it
failed to distinguish between the retail
brokerage arms of the CSE’s and
the much larger “bank holding companies”
that owned the brokerage
arms. In this case, clearer communication
about what people might expect
from different types of financial
activity – such as simple definitions
of financial services and their respective
risks – would have changed the
dynamics of the unfolding crisis.
In the case of large money market
funds potentially “breaking the
buck,” the psychological impact
stems from the use of “buck” as
a proxy for safety. The buck is the
proxy because facts beyond valuation
are less transparent to investors,
particularly the market, book, and
historical values of underlying assets
in which money market creators
invest funds. An XBRL taxonomy
| 83

Business Reporting 2.0: XBRL
covering a wide-ranging schedule
of investments already exists. Were
there the will and the leadership,
money market funds could deploy it
for the benefit of investors in a matter
of weeks and it could be quickly
enhanced to facilitate the disclosure
of any fact regulators see as useful to
investors. The facts are there; what
is needed is a way to open the silo
doors and count the warheads.
The application of technology to
particular words forces speakers and
writers to be more precise. The work
of creating an XBRL taxonomy for
a particular regulatory purpose can
give words more meaning and eliminate
the need for other words, resulting
in more disciplined reporting
and more usable disclosure. XBRL’s
application to financial regulation
can contribute to clear communication,
confidence, and trust.
Instead of recreating the Glass-Steagall
barriers that stood until Gramm-
Leach-Bliley – perhaps as difficult as
putting Humpty Dumpty back together
again – XBRL taxonomies that
support robust regulatory discrimination
among financial business segments
and activities might be used to
recreate systemic protection without
dumping baby and bathwater
together. Creating and implementing
adequate disclosure taxonomies can
protect financial services customers
and taxpayers alike.
84 |
Sunlight has long been held to be the
best disinfectant in financial markets,
and XBRL shines more light than any
previous technology. By opening
the doors to the silos, it expands the
scope of analysis for professionals
while also allowing all participants
in a market equal access to both
facts and greater understanding. By
reducing or eliminating the need
to rekey and normalize data, it lets
analysts and investors evaluate more
investments or spend more time
on the companies they cover. And
it facilitates faster transmission of
news, good and bad alike, from the
transaction level to the reporting
level. Full transparency is the fastest
path to strengthened trust, and XBRL
not only shines sunlight on current
markets but opens the possibility to
new markets.
As long as information-era markets
operate on an agricultural-era
schedule – with exchanges open only
as long as the sun is in the local sky
– there will be opening and closing
volatility. XBRL could help make
24-hour markets more accessible to
more investors, not just investors
large enough to trade off-exchange,
by allowing for the automated
gradual daily or hourly or weekly
release of data, instead of constraining
investors to the market-moving
quarterly guidance and earnings
releases, which favor those who have
sufficient resources to act quickly.

Changing the water temperature
slowly over time allows time for
orderly entry and exit from the pool;
instantly boiling or freezing the water
every three months does not.
Data Contagion
In the heat of the crisis, one argument
for market intervention was
that large financial institutions were
“too interconnected to fail” – that
failure would become a contagious
pandemic. Regardless of whether
they failed or received extraordinary
federal help, there were sufficient
connections to reduce market prices
not just for real estate but for productive
business assets in the form
of equity. XBRL cannot solve the
challenge of detecting correlated
valuations by itself, but to the extent
it smoothes the flow of information
about particular assets, it can contribute
to prices that more reasonably
reflect long-term value. Making the
connections between facts relevant
to multiple financial instruments
more obvious yields context for each
instrument.
As the full dimensions of the housing
and financial crisis became known
in fall 2008, the SEC worked quickly
to find ways to use XBRL’s capabilities
to help. XBRL US, a non-profit
consortium, assembled an XBRL taxonomy
that could do for the entire
residential mortgage-backed securities
market what the EDGAR Online
taxonomy had done for its clients:
Present mortgage-backed securities
information in clear, unbiased, and
complete form. We presented the
information to SEC staff, Treasury
Department, and Federal Reserve officials,
but in the rush toward market
intervention, it failed to garner the
attention it merited.
Among the concerns were that
technology-based transparency
would distract attention from work
to encourage mortgage holders to
renegotiate mortgages with borrowers.
Traditional regulators appeared
to find it challenging to understand
how a working RMBS tracking system
could create price stability in the
RMBS market. Some might have
been concerned that full transparency
would result in prices stabilizing
at unattractive levels, but as basic
economics makes clear, markets and
price only stabilize when information
asymmetry is removed. We barely
touched on the potential of XBRL to
let borrowers know exactly who held
rights to their streams of payments
and who had bet that there was a
particular probability they would
default – information that could only
reduce the tilt of the lender-borrower
playing field and make it easier to
resolve defaults.
Another form of contagion XBRL can
prevent is the contagion of plain old
typing errors, or errors from parsing
| 85

Business Reporting 2.0: XBRL
Comment to the U.S. Securities and Exchange Commission
on File No. S7-23-09, Extension of Filing Accommodation for Static Pool
Information in Filing With Respect to Asset-Backed Securities,
EDGAR Online, Inc.
ASCII and HTML financial statements.
Even the best third-party service
can’t present a company’s financial
statements as well as the company
86 |
December 9, 2009
The complete collapse of the Mortgage Backed Securities market, the subsequent
TARP bailout, and the lack of buyers of government owned MBS
and the frozen credit market clearly demonstrate that investors are unable
to access adequate information to model the cash flows and risks in these
assets. The economic events of these past 24 months provide empirical proof
that the current patchwork of issuers’ web sites and self-defined reporting
standards simply do not work.
ABSs issuers creating their own data and report formats, and posting on their
own web site – without any centralized validation process from any regulatory
authority – have created a veritable Tower of Babel for this market.
Investors are left sorting out incompatible data labels, reporting formats,
reporting schedules, file formats, and blank or erroneous data. Investors are
confounded, regulators and auditors are unable to spot risks, and ultimately
the market is opaque due to this systemic lack of data reporting standards.
Technology exists that can make ABSs reporting transparent, easy, and inexpensive
for issuers and investors such as eXtensible Business Reporting Language
(XBRL)[, which] is an international open financial data reporting format
already adopted by the SEC and by the FDIC as well as numerous other
worldwide regulatory bodies. XBRL.US, a non-profit consortium, has already
produced a 1,000-element data specification for asset backed securities that
can be implemented by the SEC. It will cost issuers only a few hundred dollars
per document and servicers a few hundred dollars per servicing report
to produce. The size of such a data file using this specification will be smaller
than a single 3 minute song on an Apple I-Pod. 13
itself. Data intermediaries produce
hearsay. Once created, errors can
flow through third party systems
undetected. Even issuers themselves

make simple errors in their document-based
disclosure. Before its
successful completion, more than one
participant in the SEC’s XBRL Voluntary
Filing Program found that the
process of using XBRL revealed errors
in their official SEC filings that had
gone undetected.
Structured disclosure means that
regulators will receive more trustworthy
information and that information
becomes easier to verify before a
scheme runs out of control. Among
the most important findings of the
SEC Inspector General’s report on the
Madoff Ponzi scheme was that the
SEC failed to verify Madoff’s purported
trades with a clearinghouse. The
SEC’s stated reason was that it would
have been difficult to analyze the
data. That is one of XBRL’s assets: it
allows computers to iterate verification
models far more quickly than
humans working with documents or
unstructured or poorly structured
data could hope to accomplish in
their wildest dreams. There is no
reason XBRL could not be used to reconcile
investor brokerage statements
(aggregated to reflect fungible bulk)
with clearinghouse records, changing
the Cold War between regulators and
regulated into an automated quality
control exercise. Trust but verify.
Perhaps most important, XBRL can
give investors and other financial
sector customers new and more ef-
fective tools to improve how they
regulate the market. After all, the
most powerful form of market regulation
is the price regulation that results
when well-informed and willing
buyers and sellers disagree on values
of particular rights with respect to
goods, services, and securities. The
more information held by both sides,
the more likely they will bargain
to a sustainable price. Arbitraging
price creates markets; arbitraging
trust does not. Making industry
standard structured disclosure about
any security available to the entire
market can help promote stability. Its
absence in the case of RMBS created
schisms over the value of certain
securities, making price agreement
impossible, freezing the markets, and
destroying liquidity. Each of these
outcomes was ultimately a proxy for
the absence of trust.
Conclusion
XBRL offers investors better, faster,
and cheaper access to information
while it offers regulators opportunities
to facilitate trust, improve verification,
and use a combination of
market incentives and legal hammers
to deter attack. The world of business
reporting is likely to change as much
in the next 15 years as the worlds of
interpersonal communications and
social media have changed in the
past 15 years. From letters and long
distance phone calls, to e-mail and
free nationwide calling, to Facebook
| 87

Business Reporting 2.0: XBRL
and HD teleconferencing from the TV
in your den, people are communicating
with each other in new and ever
more robust ways.
How business reports to its owners
and investors, however, has failed
to keep pace with the potential of
technology. As technology becomes
easier to use – and it always does
– accounting and auditing professionals
will be empowered to create
more value at lower cost. Software
will drive down the cost of analyzing
business facts, further reducing cost
and increasing demand for quality
information. Shareholders, who will
be increasingly empowered by technology,
will demand that management
catch up and keep up – or they
will simply invest elsewhere. As the
Internet moves beyond documentbased
Web pages to a wide array of
data-based user interfaces, regulators
will either keep up or be left behind.
By leading XBRL adoption, regulators
help themselves keep up.
The value of business reporting
depends upon a combination of the
quality of the standard, the quality
of information reported using
the standard, and the quality of the
application of the standard to the
information. Even today, standards
make forensic accounting cost-effective
for large investors and the
SEC itself. Hedge funds use them to
find short selling opportunities and
88 |
pierce bubbles sooner. XBRL can
improve the market for investment
analysis for all investors by creating
a sea change in the cost structure for
analysis.
As a global standard, XBRL will continue
to make it easier for individuals
and entities to fully and more
safely participate in global capital
markets. The printing press was a
tool to liberate billions; the great
XBRL data press can do still more
to empower people to collaborate,
verify, act thoughtfully, and prosper.
Regulators, by setting clear standards
for the use of XBRL, can bring all of
the benefits of trust to more people
around the world sooner.
1. http://www.reagan.utexas.edu/archives/
speeches/1987/120887c.htm
2. http://www.sec.gov/about/offices/oca/
acifr/acifr-finalreport.pdf
3. ibid.
4. http://www.sec.gov/spotlight/disclosureinitiative/report.pdf
5. http://www.sec.gov/about/offices/oca/
acifr/acifr-finalreport.pdf
6. http://www.sec.gov/rules/final/2009/33-
9002.pdf
7. The tool that disclosed executive
compensation for the senior officials of
about 500 companies allowed investors
to use XBRL data in two of the
traditional compensation disclosure
tables required by the SEC, making
controversy over stock option valuation
obsolete by letting investors use either
method with the click of a mouse.
XBRL should soon make mandating the
creation of particular tables obsolete,

as any data reported in tabular format
becomes much more useful when it is
data tagged and can be easily arranged
according to user preferences instead of
preparer preferences.
8. http://www.sec.gov/rules/final/2009/33-
9002.pdf
9. Depending on the complexity of the
information and the purpose of its
use, spreadsheets may or may not be
the most useful means of preparing,
analyzing, and using XBRL data. XBRL
is interface neutral, highly usable in
spreadsheets, databases, and other
data-centric user interfaces.
10. http://www.wired.com/techbiz/it/magazine/17-03/wp_reboot
11. http://www.sec.gov/spotlight/disclosureinitiative/report.pdf
12. ibid.
13. http://www.scribd.com/doc/23942961/
Edgar-Online-re-ABS-Modernize-Disclosure-Cut-Costs-Achieve-Transparency-
Restart-Securitization
| 89

Business Reporting 2.0: XBRL
2.3. Enhancing Capital Markets Transparency
and Trust
By Liv Apneseth Watson
The idea that regulatory-required
disclosure can reduce risks and foster
transparence is not something new
to public policy. As early as the 1930s,
reacting to the market meltdown
of the great depression, President
Franklin D. Roosevelt championed
the approval of the United States
Securities and Exchange (SEC) Acts,
which required companies that sold
securities to the public to reveal
earnings, obligations, and other data
to foster transparence to investors.
Over time, those disclosure requirements
formed the basis for public
confidence in the nation‘s securities
markets.
Back then before copy machines,
fax machines, and computers had
been invented. People traveled to
Washington, D.C., to public reference
rooms to gather information
they wanted to use for analysis or
other purpose and then called key
stakeholders about the event from
SEC-provided payphones. In those
days, you had to have pocket full of
quarters if you went digging into
SEC filings. Now, in the wake of yet
another market meltdown, government,
regulators, industry groups
and investors are once again taking
a closer look at how disclosure works
in practice.
90 |
The Internet and electronic communication
has ensured that information
is more freely available than ever
before and that the time it takes to
deliver that information has sharply
decreased. The key question is now:
How reusable is that information?
Even when you know exactly what
you are looking for and roughly
where to find it, extracting information
from financial and business
reports today generally involves a
largely human error prone manual
effort that is often very frustrating
and time-consuming. The biggest
problem is that the format and media
on which financial and business reported
disclosures are authored and
shared varies widely between paper,
html, pdf, and other human readable
forms or proprietary electronic
formats tied to a specific software
application. Each publishing format
has its limitations.
To resolve the problem of providing
reusable access to timely, relevant,
discoverable and accurate financial
and business information a marketdriven
open-standard consortium has
evolved and developed an information
standard called XBRL short
for eXtensible Business Reporting
Language. This international consortium
powerfully connects members
representing the entire business

Source: XBRL International, Inc
XBRL a universal language of business information
transforming the approach to disclosure
Figure 1: The Financial and Business Reporting Supply Chain
reporting supply chain (see Figure
1 above) in the development of a
standards-based solution for financial
and business information that is
universally open, industry-driven, and
internationally endorsed.
XBRL International is comprised
of local jurisdictions which focus
on the progress development and
coordination of XBRL in their region
and direct members in regions that
jurisdictions have yet to be formed.
Members of XBRL International
include approximately 600 leading
companies, associations, government
and other industry agencies involved
in providing or using business information.
XBRL Components
There are two main components to
XBRL: the XBRL Specification and
the XBRL Taxonomies, including the
underlying linkbases.
1: XBRL Specification
The XBRL technical Specification
provides the fundamental definition
of how XBRL actually works.
The Specification allows software
vendors, programmers and end users
who adopt it as a specification
to enhance the creation, exchange,
and comparison of financial reporting
information. The documentation
of the Specification is published by
XBRL International and is available at
http://www.xbrl.org/Specifications/.
| 91

Business Reporting 2.0: XBRL
2: XBRL Taxonomies
The key to understanding the
benefits of XBRL lays in the notion
of “taxonomies” and it is probably
time for all executives to add „XBRL
Taxonomies“ to their professional
vocabulary.
XBRL taxonomies are basically dictionaries
of business terms and links
to their corresponding linkbases. Not
only does the information become
instantly searchable and retrievable,
but it can also be immediately loaded
into spreadsheets and any number of
software applications for analysis.
“[T]he data is trapped in an iceberg
of paper in these current systems,
and if we could just tag that data it
would be instantly available. That
iceberg would melt, that data would
be freely available, and it would be
accurate, it would be complete, it
would be timely, it would be relevant,
and it would be comparable.”
Alfred Berkeley, former President
Nasdaq, CEO Pipeline Trading, New
York
Figure 2, shows a sample of an original
data item with tagged and linked
explanatory labels that enhance the
user‘s understanding of a data element.
• Label Linkbase: This is a list of common
business reporting term that
Figure 2: Standardized Linked Meta Data Labels Indentify the Meaning and
Validation of Every Disclosure
92 |

is used in general purpose financial
and business reporting statements.
• Presentation Linkbase: This allows
the user to click on a link and see
the information in different views
and different languages.
• Reference Linkbase: This allows for
data items to be linked directly to
items in authoritative literature
such as US GAAP standards or other
authoritative literature.
• Formula Linkbase: This allows one
to set triggers that could give early
warning signals for accounts that
are in trouble with one click of the
mouse. A common way to communicate
and exchange these formulas
among stakeholder
• Context Linkbase: This gives the
XBRL tagged item more information
about the data item, such as
it is a budget number in US dollars
for fiscal year 2008.
• Calculation Linkbase: This explains
from what calculation the number
derives, for example ensuring that
Cash equals Currency plus deposits.
• Other Linkbases: This allows the
author’s of financial and business
reporting data to add or link additional
attributes to a data item.
Companies can provide additional
data definitions, authoritative liter-
Brief description of Sample XBRL
projects worldwide
(in alphabetical order)
Belgium
Since January 2008, XBRL has been
mandatory for all filings of annual
accounts to the National Bank of
Belgium and the project has been
extended to the annual accounts
of the not-for profit sector. The
CBSO (Central Balance Sheet
Office - CBSO) receives currently
more than 90% of all the annual
accounts filed in XBRL format.
Canada
The Canadian Securities Administrators
Voluntary XBRL filing
program is now in effect, XBRL
Canada is working on a taxonomy
that conforms to IFRS.
Chile
Starting 2009 those companies
which are the most actively traded
on the Securities Market will be
required to file their annual financial
statement according to the
international standards. The SVS
XBRL Team has extended the IFRS
taxonomy according its requirements
and the companies would
be filing their returns based on
this taxonomy. The SVS XBRL project
is one of the first XBRL projects
in South America.
| 93

Business Reporting 2.0: XBRL
China
The China Securities Regulatory
Commission has been looking
forward towards adoption of XBRL
for information disclosure of listed
companies since 2002 and has
been joined by the Shanghai Stock
Exchange for the implementation
of XBRL as a reporting standard.
As of April 30, 2009, all the 864
companies listed on the Shanghai
Stock Exchange (SSE) have submitted
their XBRL instances simultaneously
during the disclosure of
the periodical reports of 2008 for
the first time, and included the
aforesaid XBRL instances as part of
the mandatory disclosure.
Denmark
The Danish Commerce and Companies
Agency (DCCD) has been
receiving annual accounts from
companies in XBRL since 2005. A
complete XBRL solution for the
Danish class B annual reports has
been running since the beginning
of 2008. The XBRL Taxonomy in
Denmark has been developed by
the DCCA in co-operation with
both industry and experts.
Germany
Around 425,000 corporations are
filing their annual statements with
the German Bundesanzeiger in
XBRL format since 2007 using the
latest German GAAP taxonomy i.e.
94 |
ature references and more thereby
dramatically increasing the probability
that the user of the financial
data will be able to understand
management’s intent and enhance
comparability.
Building Trust with Enhanced Interactive
Disclosure
One thing investors and regulatory
agencies should be able to count
on is that audited financial statements
reported to public repositories
at least add up, but a recent study
undertaken by IRIS Business Services
shows that this is not necessary the
case. In this study by using XBRL it
was discovered that 209 listed Indian
companies had discrepancies in their
reports and that the numbers did not
add up.
This was discovered by converting
over 1,400 listed Indian companies’
primary financial statement
into XBRL using the benefits of the
calculation linkbase as part of the
XBRL International specification that
explains from what calculation the
number derives. It does not really
matter that most of discrepancies
were not material. The very fact that
there are discrepancies is a serious
enough matter.
The errors were discovered in the
course of creating India’s first-ever
corporate fundamentals database in
XBRL. The project used the taxonomy

approved recently by the Institute
of Chartered Accountants as a first
step toward full-fledged adoption
of XBRL in India. It might be unfair
to simply blame the auditors, as
it is the responsibility of company
managements to get it right, but the
fact that this information has gone
undiscovered for years should raise
the questions, how accurate is the
information reported by companies
to the marketplace.
This “Trust Meltdown Report” comes
at the time when the Indian capital
marketplace is already being questioned
about its regulatory oversight.
Just recently a leading Indian outsourcing
company Satyam Computer
Services publicly announced that it
had significantly inflated its earnings
and assets for years, consequently
throwing the whole local capital market
into turmoil. Many observers are
now asking whether similar problems
might lie buried elsewhere.
The challenges associated with accurate,
timely financial reporting are
apparent from the number of other
accounting scandals uncovered during
the past few years. These scandals
have been widely reported and the
estimated cost has grown into the
billions of dollars (Economist, 2003).
Restatements of financial results by
public companies soared in 2005 as
auditors were forced to drill deeper
into corporate accounts, in part be-
HGB Taxonomy. The third version
of C&I taxonomy is updated and
GAAP Taxonomy for financial institutions
was finalized and included
into the package.
India
The Securities Exchange Board of
India (SEBI) has mandated the top
100 companies listed on the two
major exchanges viz. the Bombay
Stock Exchange and the National
Stock Exchange, to file their disclosures
through XBRL-based Corpfiling.
In addition to the mandated
100 companies, over 500 companies
are filing voluntarily their
financial in XBRL.
The Reserve Bank of India, India’s
central bank, has launched XBRL
based reporting solution for
capital adequacy returns. All the
scheduled commercial banks which
fall under the purview of Basel
II use this platform. Returns for
fortnightly liquidity position and
the annual financial statements
are in pipeline
The Institute of Chartered Accounts
of India has developed
taxonomy for India based on
Indian GAAP. The taxonomy for
Commercial and Industrial sector is
completed and ready for acknowledgement
from XII. The taxonomies
for Banking and Non-Banking
companies are under development
| 95

Business Reporting 2.0: XBRL
Ireland
The Central Statistics Office (CSO)
Ireland has started a pilot to assess
use of XBRL in one of its quarterly
industry surveys. The pilot involved
the creation of XBRL documents of
one of the CSO forms - the Quarterly
Accounts Inquiry to Industry.
The survey covers enterprises with
20 or more persons engaged in the
Mining, Manufacturing and Energy
sectors and reports on changes
in stocks, acquisitions and sales
of capital assets during a quarter.
Seven respondent companies participated
in the pilot and successfully
submitted data electronically
using the XBRL solution.
Japan
Japan also is one the early adopters
of XBRL and had started
voluntary XBRL reporting program
for financial services institutions
gradually expending the range
of reports since 2005. The Financial
Services Agency (FSA) has
implemented a new system which
requires around 5,000 listed companies
and 3,000 mutual funds to
submit their financial information
in the XBRL format.
Korea
As of 2007, all publicly held companies
file financial statements
using XBRL on the electronic filing
system of the Korea Financial su-
96 |
cause of a sharper focus on requirements
laid out by the US Sarbanes-
Oxley Act (Reilly, 2006).
This brings the attention to that a
non-technological solution can go
only so far. This is why the underlying
design of the XBRL technology specification
might be the magic wand to
bring accurate and timely results because
it integrates technologies with
the basic accounting framework.
Using underlying linkbases, XBRL allows
every item defined in a financial
statement to carry multiple attributes,
including the interrelationship
with other elements. This simple, yet
powerful concept of linkbases allows
every accounting element to be
validated before being submitted to
a regulator. Clearly the way financial
and business reporting data is prepared,
communicated and analyzed
today is fundamentally changing.
XBRL is not about the technology. It
is about communicating your financial
and business reporting information,
accurately, effectively and
in real time, to the electronic marketplace.
Give the capital markets
better financial information that
is easier to consume, is more reliable,
and is delivered faster, and the
capital market will respond favorably
with more exposure and lower costs
of capital.

Social Analytics – The Benefits of
Standardization of related context,
presentation, formulas,
and relationships
Standardizing business information,
its context and presentation concepts
are foundational to automating
the exchange of relevant disclosures
between companies and their
stakeholder constituents. As outlined
above, XBRL also enables the
standardization of related formulas
which can be combined into complex
calculations and even analytical
models. The standardization of the
critical information concepts (context,
presentation, formulas, and relationships)
enables third party users
to more effectively access, analyze,
manipulate, share and collaborate.
Current analysis processes are adversely
impacted by physical location
of the information within spreadsheets.
A formula that represents a
simple analytical concept, say ‘Return
on Assets’, would be articulated
based upon the physical location of
the relevant data (e.g. (B2/F2) where
B2 is the cell location of Net Income
and F2 is the cell location for Total
Assets).This physical orientation of
information hinders development,
sharing, reuse and management of
formulas (macros) across spreadsheets,
applications and analysts.
The current physical orientation of
information within spreadsheets
also limits the analyst’s ability to cost
pervisory Commission. The system
allows viewers to see and analyze
a company’s financial statements
in English.
Macedonia
Mr. Fatmir Besimi, head of the
Ministry of Economy in Macedonia
has initiated a study headed
up by a local firm RE-AKTIV DOO
for a nationwide implementation
of the XBRL standard and is
expected to go live in 2010 with
a goal to reduce compliance cost
of companies as well as attract
foreign investment.
Netherlands
Since 2005, one of the largest
XBRL projects was started by
Netherland government with the
aim of decreasing the regulatory
reporting burden on the entities
by 25%. The taxonomy project
covers three major reporting areas
– taxation, annual accounts and
economic statistics. Since Jan 2007,
all the Dutch corporations were
able to submit their data in XBRL
format.
Singapore
The Accounting and Corporate
Regulatory Authority of Singapore
is mandating the filing of
statutory reports in XBRL. Since
November 2007, Singapore-incorporated
companies are required to
| 97

Business Reporting 2.0: XBRL
file their Annual Returns including
financial information XBRL format.
Baring certain types of exempted
companies, all listed and non-listed
companies will be filing in XBRL.
South Africa
The Johannesburg Stock Exchange
developed as a pilot, an XBRL
based filing platform. JSE commissioned
Deloitte SA & IRIS Business
Services (IRIS) for building the
platform. Seven companies, and
the JSE, along with XBRL SA came
together to sponsor this project.
This pilot is also the earliest adaptation
of IFRS 2008 taxonomy.
Spain
The Spanish Stock Exchange has
begun to use XBRL for receiving
and distributing public financial
reports from more than 3,000
listed companies. The Bank of
Spain, central bank, is receiving
regulatory data in XBRL from more
than 400 banks covering more
than 90 % of the Spanish financial
sector. The Bank of Spain has also
developed a Financial Information
Exchange System to support XBRL
reporting by credit institutions.
United Kingdom
Companies House has already
received more than 200,000 accounts
from small companies in
XBRL using an extension to the UK
98 |
effectively share and/or collaborate
with other analysts.
XBRL enables analysts to build
formulas (macros), based upon the
standardized vocabularies. The XBRL
enabled ‘Return on Assets’ formula
will look more like a logical sentence
(eg ‘netincome/totalassets’). In an
XBRL enabled spreadsheet, the software
provides a view of the company
information and executes the analytical
formula based upon the logically
defined information of ‘netincome’
and ‘totalassets’. As a result, analysts
have an enhanced analytical processing
environment in which they can
construct formulas based upon public
taxonomies from both the public-sector
companies and even those unique
taxonomy extensions developed by
the individual analyst.
As with the barcode, standardized
information structures enable greater
levels of automation within business
processes. Some analysts are already
using XBRL to reduce costs and improve
effectiveness of their internal
analytical processes, either through
intermediary offerings or internally
developed applications and products.
Other analysts are applying semantically
based artificial intelligence
agents to make subjective assessments
on narrative disclosures that
are structured in the XBRL format.

Just as html enabled the social networking
collaboration via sites like
Facebook, Wikipedia, and MySpace;
XBRL is enabling social analytics via
EDGAR-Online‘s I-Metrics platform,
Morgan Stanley‘s Modelware, IRIS
Business Service iFile compliance
platform, and PricewaterhouseCoopers
Interactive Data Platform. These
XBRL enabled analytical platforms
provide analysts with a library of
highly reusable analytical models and
formulas and a collaborative method
of sharing new ideas and insights
with other analysts within their organizations
and/or groups.
The enhancement of capital market
transparency is not only relevant
for company disclosures; it is also
relevant for the formulas and models
used to analyze the company disclosures.
Social analytics is a new
level of market transparency that
promotes better communication between
companies and their investors
and collaboration between investors.
These new capabilities work to
enhance the analytical capabilities
of both companies and their stakeholders
and thereby foster trust in
company disclosures.
The bottom line is, if a company is
not on radar screen of the investors,
chances are that the prices would
fall and cost of capital rise. If a stock
exchange’s data system is not easy
accessible to investors, they may drop
GAAP taxonomy. United Kingdom
HRMC Draft Regulations to require
online XBRL Corporation Tax filings
have now been issued and
are open for comment until 31 July
2009. Companies will be required
to file online the Corporation Tax
returns and payments from 2011
in XBRL format. The rules apply to
period ending on April 1, 2010 and
later.
United States
The Securities Exchange Commission
has played a vital role in
accelerating adoption of XBRL in
the US. Voluntary filing program
for XBRLised returns has been
initiated by the exchange in early
years and is moving towards mandatory
filing in a phased manner.
In December 2008, SEC has made
it mandatory for companies above
USD $ 5 Billion as global float, to
file their returns from June 2009
quarter onwards in XBRL format
and around 500 companies are
expected to file XBRLised returns
and over the next couple of years
all companies will be phased in for
a 100 percent compliance. The SEC
is also mandating that all mutual
funds start reporting in XBRL in
2010.
The Federal Financial Institutions
Examination Council in US has
achieved major success with the
use XBRL for regulatory bank
| 99

Business Reporting 2.0: XBRL
reporting. The FFIEC implemented
XBRL-based solution in 2005 for
the filing of call reports which
was used by more than 8000
financial institutions. The results
were phenomenal and showed an
increase from 66% to 95% in data
cleanliness, from 70% to 100% in
accuracy, from weeks to hours in
timeliness, and a 15% rise in the
productivity of analysts.
State Nevada State entered into a
pilot with IRIS Business Services to
use XBRL for debt collection. The
agencies would be using spreadsheets
to send their data to the
state and XBRL would be running
beneath. IRIS together with Nevada
State Controller Kim Wallin
have published a white paper on
State Business Portal which talks
about the need to streamline the
transactions and inter-agency interactions
and the role of XBRL in
building such integrated information
exchange platforms.
100 |
off the radar screens of the investors.
Today’s focus on improving business
reporting and bolstering confidence
in financial capital markets demands
technology that enables rapid and
accurate reporting and analysis of
corporate financial information.
Any capital markets that want to
fulfill its mission of protect investors,
maintain fair, orderly, and efficient
markets, and facilitate capital formation
should adopt XBRL as part of
their filing requirements to boost
investor’s confidence.
The list of benefits could go on. For
now, suffice it to say that executives
have an economic fiduciary responsibility
to learn more about XBRL
and how this powerful information
standard can be used to improve efficiency
of data sharing of financial
and business reporting information.
References
Economist . ( 2003 ) Still counting the cost.
October 2003 .
Reilly , D . ( 2006 ) Sarbanes – Oxley
changes take root. Wall Street Journal, 3
March 2006.

3. Best Practice
3.1. We Need to Watch Risk, Not Size
By Emilio Botin
On September 15 th , contrary to all
expectations, Lehman Brothers, one
of the oldest firms in the sector, collapsed.
The shock wave continued to reverberate
for months and toppled many
other firms throughout the world.
At that time I said that the crisis had
not originated solely in the US or
subprime mortgages; these were factors
that triggered the crisis but did
not cause it.
I pointed out that excesses and a
loss of bearings in an extraordinarily
favourable environment had played a
significant role, leading the banking
industry to forget the basics, which
are:
• The need to know customers very
well.
• Prudence to guard against inappropriate
levels of debt, out of proportion
with the risk in funding them.
• The appropriate valuation of all
risks taken on.
• And the existence of economic and
financial cycles.
Fourteen months after the fall of
Lehman Brothers we can state that
the forceful, swift and coordinated
response of the authorities prevented
the system as a whole from collapsing
and provided a safety net.
The leadership of Governments and
Central Banks throughout the world
has fostered a return of confidence.
Businesses and families are receiving
clear signs of firm commitment from
governments and institutions to seek
the most appropriate solutions and
prevent the recurrence of episodes
such as those experienced in this
crisis.
The effort at the international level
allows today, for the first time since
the crisis set in, room for a certain
degree of optimism.
Central banks and governments:
• have lowered interest rates,
• have injected liquidity in extraordinary
amounts and conditions,
• have promoted ambitious fiscal
plans,
• have helped to re-establish the solvency
of financial institutions, and
• have facilitated corporate transactions
for institutions that were not
viable.
As a result of these measures:
• The major economies are showing
signs of recovery. In particular,
certain emerging countries are
| 101

Best Practice
performing very well and will play
a very significant role in the future.
• Equities markets have returned to
the levels registered prior to the
collapse of Lehman Brothers and
credit spreads have reduced significantly.
• And the financial system as a whole
is operating smoothly although
there is still some way to go.
Now that we have come through the
most critical stages of the crisis, it is
time to look further and think about
the challenges to be tackled.
We have before us a golden opportunity
to lay the foundations of the
future financial system.
The international authorities, led by
the G-20, are playing a decisive role
in designing a supervisory and regulatory
framework that will guarantee
a financial system characterised both
nationally and internationally by:
• its capacity to foster and stimulate
economic growth
• its strength,
• its efficiency
• its transparency
• the absence of distortions in competition
• and as a source of stability and
competitiveness for the economy.
These are the factors that I feel are
fundamental to achieving these
objectives:
102 |
• the need to strike a balance between
supervision and regulation,
• the correct definition of capital and
liquidity requirements,
• the treatment of systemic risk.
Balance between supervision and
regulation
We should not ignore the fact that
the banking systems that have best
withstood the crisis are precisely
those where there is closer banking
supervision and greater foresight.
Therefore, to avoid future crises, the
solutions regime must focus on both
supervisory and regulatory issues.
As pointed out by the De Larosière
Report, incorporated by the European
Commission in its proposals, two
aspects must be reinforced:
• local or national supervision
• and the spread of best international
practices.
Monitoring banks through daily
supervision and in-depth knowledge
is key to ensuring the correct application
of regulation.
National supervision must be:
• Rigorous and strict
• Intrusive and close
• With inspectors physically present
in major head offices
• Local in terms of knowledge of financial
practices and the economic
realities of the country, and

• With the foresight to redress situations
that could lead to serious
risks.
Furthermore, good national supervision
must be aligned with the best
international practices.
In the case of the European Union,
if we want supervision to be effective
and binding for the different
national supervisors, supervisory decisions
must be consistent among the
various supervisors.
I consider as appropriate the European
Commission’s proposal to create:
• on the one hand, a European Systemic
Risk Board to detect risks in
the financial system and anticipate
them whilst at the same time issuing
recommendations and warnings,
• and on the other hand, a European
System of Financial Supervisors
made up of Colleges of Supervisors
and three European Supervisory
Authorities, representing
o Banks,
o Insurers,
o and Securities Brokers.
This European System of Financial
Supervisors should take on a series of
new responsibilities, of which I would
like to highlight four:
1. Developing technical proposals, in
accordance with the principles of
better regulation.
2. Resolving discrepancies among
national supervisors.
3. Helping to guarantee the consistent
application of the rules.
4. And coordinating emergencies.
The advances taking place in Europe
must, in turn, be coordinated with
those of other countries. Both the US
and UK are taking important steps.
The role being performed by the
Financial Stability Board is central to
this task.
Only by striking the right balance
between appropriate regulation and
strict, harmonised supervision at a
national and international level will
we be able to design the foundations
of the new international financial
system.
Capital and Liquidity
Therefore, as part of this reflection
process we must pay particularly
close attention to the regulation of
capital.
One of the most important lessons to
be learned from this crisis is that we
must not underestimate risk. But we
should similarly not tip the scales too
far the other way and indiscriminately
establish greater capital requirements
that will undoubtedly affect
the cost of lending and access to
credit.
| 103

Best Practice
I do agree with the idea that “more
risk means more capital” and that
greater capital requirements should
be made, for example, in trading
activities or re-securitisations.
I also feel it is important that we
continue to move towards aligning
definitions and capital ratios. In this
respect, the work being carried out
by the Basle Committee in response
to the decisions adopted by the G-20
is very positive.
Another lesson to be learned from
this crisis is the importance of liquidity,
which has been the cause of
major difficulties for many financial
institutions.
For years we lived in a world of
excess liquidity and in all probability
did not pay it the attention it warranted.
But today, liquidity is once again a
priority.
And once again, the problem is not
necessarily resolved through greater
regulation. Here, the role of the
supervisor is also key.
The reason is clear: liquidity levels
must respond to the structure of the
balance sheet and the business model
of each bank. Who knows these aspects
of the bank better than its own
supervisor?
104 |
In my opinion, it is important that
the definition of liquidity should not
be governed by purely quantitative
criteria.
It should also encompass a sufficiently
broad base of assets. If banks concentrate
their liquidity positions in a
limited number of assets, we would
trigger the opposite effect: that is,
we would neutralise their character
as liquid assets and create distortions
in the market.
In short, the financial system of the
future must be grounded in effective
supervision and appropriate regulation
that does not cause an indiscriminate
tightening of requirements that
would be counterproductive.
The authorities must take into account
the added impact of implementing
all the measures on the
table which could, in the opinion of
some international experts, be very
negative.
The third aspect we have to tackle is
systemic risk and the size of banks
Systemic risk has played a significant
role in the crisis and logically a significant
portion of current institutional
efforts is focused on establishing
riteria to limit this risk in the future.
However, at the initial stages the
debate was oversimplified by the
focus on size as the decisive element

of systemic risk. But Size is not the
problem.
Studies and recent experience indicate
that, when analyzing systemic
risk, special attention should be
placed on:
• The interconnection of institutions
• The complexity of financial products
and groups
• Deficient risk management
• Excessive leverage
• The concentration of short-term
maturities
• Failings in corporate governance,
and finally,
• Inappropriate business models.
Moreover, the joint Guidance that
the Financial Stability Board, the
International Monetary Fund and the
Bank of International Settlements
have recently published to assess
the Systemic Importance of Financial
Institutions, stresses that, while
quantitative approaches can provide
useful inputs to the assessment, they
cannot substitute for the authorities’
intimate knowledge of the institutions
under their scope.
In any case, limiting or penalising
the size of banks through greater
regulatory capital requirements will
not solve the problem. It could even
have adverse consequences, such as
creating an unlevel playing field and
harming financial flows towards the
real economy.
Furthermore, large international
banks are necessary:
• They increase access to and the
appropriate distribution of funds in
the economy. They lower the cost
of financial transactions and offer a
wider range of services to consumers.
• They play a fundamental role in offering
financial services to multinational
companies.
• Size allows for diversification in
terms of markets, and therefore,
reduces the global risk of the bank.
• The international expansion of major
banks in emerging countries has
contributed to the development of
their financial systems.
• Size could indeed be key during a
crisis: only the large well-managed
banks have been able to bail out
struggling banks, helping to reduce
systemic risk in the current crisis.
What we must monitor, and restrict if
necessary, is excess risk; not size for
the sake of size.
There are banks such as Banco
Santander, which is large but which
has a simple structure and business
model. Therefore, size should not be
confused with complexity or risk.
In this respect, the international
business expansion model applied
is particularly important. At Banco
Santander, we believe there are clear
advantages to a model of affiliates
| 105

Best Practice
that are independent in terms of
capital and liquidity.
This structure allows for:
• The conduct of business through
a fully domestic bank subject to
national regulation and monitored
by the local supervisor,
• The confidence and advantages of
a local bank for customers, and
• A system of firewalls between the
group’s units that neutralises contagion
among them and halts the
expansion of systemic risk.
The affiliates’ structure is compatible
with the European vision of an
integrated financial market.
In Banco Santander, we have an
increasingly integrated “back office”
that creates synergies in areas such as
technology and operations, with unified
structures in basic areas such as
Risk, Audit and Sales Management.
This allows us to continuously improve
efficiency, productivity and
commercial competitiveness, hand in
hand with our affiliates’ structure.
Recently, the debate about being
“Too Big To Fail” has been focusing
precisely on the creation of a system
that would allow a large bank to fall
without provoking systemic risk. And
to achieve this objective, the corporate
structure of the bank is also
crucial.
106 |
It is also necessary to look in greater
depth at two very important factors:
• The drawing up of plans for the
orderly dismantling of banks, so
called “living wills” and
• The definition of legal frameworks
to intervene in banks in the event
of a crisis (resolution regimes).
The development of these two instruments
eliminates the moral hazard of
banks that are too important to fail.
As well as permitting the ‘ordered
dismantling of banks’, ‘living wills’
also:
• Require the bank to carry out an
in-depth examination of its reality
and its structure.
• And will provide the supervisor
with detailed information, which
must remain confidential.
These plans must accompanied by an
appropriately designed legal framework
to intervene in banks in the
event of a crisis. It must be appropriate
at a domestic level and also be in
line with international protocols for
cross-border banks.
I will highlight two characteristics
that I feel are essential for these
plans to achieve their objectives:
• they must respect the legal independence
of firms and preclude the
transfer of assets between units as
a compensatory mechanism.
It is precisely this structure –

through units that are autonomous
in terms of capital and liquidity
– that limits systemic risk.
It would make absolutely no sense
to break down the firewall and
trigger the domino effect we are
seeking to avoid.
• And in the case of transnational
banks, the resolution regime must
clearly and expressly establish the
distribution of burdens between
countries.
In accordance with this premise, a
correct diagnosis of systemic risk capable
of reducing it without entailing
undesired costs is central when it
comes to designing the financial
system of the future.
However, this endeavour should not
fall solely to the authorities leading
the change towards the New International
Financial System.
Financial institutions must also think
about what our role and contribution
should be. At Banco Santander we
are doing just that.
We have been monitoring this crisis
day by day.
We have analysed the most significant
events as well as details that are
apparently less important. All with a
fundamental aim:
detecting any weakness in our
business model that could make it
vulnerable in this or other crises.
And the conclusion we have reached
is that some of our defining features
have proved to be decisive factors in
tackling the difficult period we are
currently experiencing.
In other words, our retail banking
business model has been reinforced
and has proven to be much more
resilient than others.
I would like to highlight some of the
defining features of our model:
• A clear and transparent balance
sheet, with no toxic assets.
• A focus on retail banking that provides
greater stability and highly
recurrent profits.
• Geographical diversification in
around a dozen major markets that
allows us in turn to diversify risks
and balance the impact of the various
economies’ relative positions in
the cycle.
• An international structure based on
affiliates, subject to local supervision
and with full independence
in terms of capital and liquidity.
And…
• Strong corporate governance that
pays particularly close attention to
risks and takes a medium to long
term view of matters, always with
a view to creating sustainable value
for shareholders.
| 107

Best Practice
108 |
Conclusion
• Efficient supervision is a key element
to make the system secure
and solid. We must move towards
implementing and coordinating
practices that have proven to be
the most effective.
• Limiting systemic risk must be a
clear objective of the new international
financial framework. And
it should not necessarily be linked
to the size of banks. Living wills
and resolution regimes can make a
very positive contribution towards
reducing this risk.
• We need a financial system that
fulfils its role in the economy. An
efficient and competitive banking
industry is a fundamental tool,
enabling economic agents to move
towards sustained growth, with
improved productivity and greater
competitiveness.
We are currently facing a challenge
that we must tackle decisively and
with an open mind. The financial
community has made mistakes.
The best way to avoid them in the
future is to design a financial system
of which we can be proud. And this
responsibility falls to all involved:
authorities, banks, regulators and
supervisors.
We need a robust financial system
without cracks that instils confidence
in society and facilitates economic
recovery.

3.2. Sustainable Investment
By Joachim Faber
One might question how the issue
of sustainability has to be discussed
shortly after the world has almost
collapsed 14 months ago and people
are still struggling in their day to
day needs and their very short term
agenda.
First of all, I think we clearly need to
put this in the framework of what
happened in the last 18 months and
what has caused the crisis. I would
probably argue that it was the lack of
sustainable thinking and of sustainable
business behaviour which has
caused this financial crisis.
The roots of the problem lay in the
US housing market and a not sustainable
monetary policy. If you look at
the US housing market, you understand
that, through a well-meant
legislation of the Clinton administration,
the community housing act
built a foreseeable bubble. It was
wonderful for someone who wanted
to be re-elected after four years but
it was not that great for a sustainable
development of the industry. It
was also not great for a sustainable
development of affordable housing,
because everybody who got their
arms around a house, he/she thought
was affordable, is now about to lose
it.
Also, one of the roots of this crisis
was an unsustainable US monetary
policy in the earlier years of this
decade. The interest rate policy was
driven mainly by political objectives
to calm the nation after September
11th and make sure that, after the ’98
Russia and LTCM crisis, the economy
continued to flourish. I believe that
the European Central Bank has done
a much, much better job in this
regard.
Furthermore, there has been patchy
regulation and supervision that failed
to identify risks in due time. A higher
degree of international integrated
supervision would have helped in
detecting systemic risks. We also
have seen product innovation which
was far from having any connection
to sustainable client value creation.
Complex and in-transparent financial
products (due to the rapid evolution
of Information and financial markets
technology) and short-term incentive
systems were certainly the most
prominent failures of capital market
participants.
I know that this is heavily debated
but I am convinced that functioning
financial and capital markets are essential
for the recovery. Furthermore
global markets are a pre-requisite
| 109

Best Practice
for further economic growth in the
developed world a basis for the fight
against poverty and the continuous
development of the developing
world. The rules of capitalism, especially
the free flow of capital independent
of national borders, have
been blamed already ahead of the financial
meltdown – not to talk about
the last 18 months. But is it really the
case that properly functioning capital
markets drive short-term thinking?
Do they fundamentally contradict the
principle of sustainability – defined
as creating a business for the long
term?
I think on the contrary that the world
has changed fundamentally and a
fresh perspective is needed. By that I
mean:
• The German reunification, causing
Germany to have to import capital,
after having been a net exporter of
capital for many years.
• The creation and integration of a
European single market.
• The internet, which gives customers
unparalleled means by which
they can inform themselves and
compare companies’ offerings to a
previously unknown degree.
• There is a shared recognition that
our demographic changes are
demanding more funded pension
systems with capital market exposure
as their lifeblood
.
110 |
In my eyes, these root causes had
fundamentally changed not only
the political and economic agenda,
but also the way we should evaluate
capital markets long before the
financial meltdown. I would not
hesitate to call these economic drivers
an “agenda-setter” for the political
dialogue on capital markets. My
question is: have both, public perception
and the media commentary on
capital markets, adequately reflected
this change? Or are we witnessing a
discussion in which justified criticism
towards specific negative effects of
capital markets places a dark cloud
over the entire financial system?
At a macro-economic level, there is
no doubt whatsoever that the global
exchange of goods and
capital is a prerequisite for our economic
growth and thus for funding
our social systems in Western Europe.
The internal demand for goods and
services alone would not generate
sufficient and sustainable capital
investments and new jobs. Likewise,
the free flow of capital and a liberal
regulatory environment are important
for corporations. Nearly all large
German companies depend on a
global capital markets. In fact, more
than two-thirds (66%) of the value
that the DAX 30 companies generate
for their shareholders is generated
outside of Germany. As an example
it is noteworthy that, at Allianz, the
capital management of German life

insurance policies takes place way
outside our national borders – in
California, at a subsidiary of Allianz
Global Investors, PIMCO. The same
applies for companies exploring
cost benefits, financing their capital
needs, serving a global customer
base, or having shareholders outside
their home country; in other words,
all companies.
And this is not just driven by opportunities;
there is also the growing
threat of a takeover – friendly or
unfriendly – that forces companies to
find strategic partners, merge their
operations, or dispose of entities that
do not support their core business.
One example of this in Germany is
Linde. By merging with BOC, Linde
has become the global market leader
in its field, immunized itself against
a possible takeover by private equity
firms, and increased its attractiveness
to investors (who are increasingly
interested only in “top-three” businesses).
Not every company today is
ready to respond to this, however.
In the German corporate landscape,
there still are structural barriers, such
as owners who have to look after
political stakeholders. The encouraging
news is that these obstacles
are shrinking rather than growing.
Unfortunately, speculators – such as
proprietary traders, some private equity
players, and some hedge funds
– are interested only in quick gains,
which can harm investors and inhibit
sustainable developments and gains
for the majority of other market
participants. In addition, there are
speculators in the markets that buy
large companies simply to break
them up and sell the parts, which
results in laying-off thousands of
people. While this is unpleasant, of
course, sometimes business divestitures
are necessary to provide better
long-term results for the industry, the
market, and the consumers.
Nevertheless, though capital markets
can be volatile, they are, in fact, key
drivers – if not a prerequisite – for
sustainability. Simply by selling the
stock or by threatening to do so,
investors – namely the fund industry
– have the power to enforce necessary
changes in a company. As a large
investor, Allianz Global Investors
does this regularly in face-to-face
meetings with management. (By the
way, we prefer communicating in
face-to-face meetings rather than
“making noise” at Annual Shareholder
Meetings because the latter can
be quite harmful to the very stock
we are trying to support.) Long-term
investors often function as important
catalysts, triggering senior management
to engage in essential initiatives
and sustainable change. Change
does not always come naturally.
Sometimes change has to be forced
on the management – and capital
markets provide a very efficient, fair,
| 111

Best Practice
and transparent way of encouraging
change. Similarly, private equity investors
and hedge funds (the famous
“Locusts”) are often instrumental in
providing liquidity to the market and
helping struggling companies. Many
of the IPOs around the world would
not be possible – or would only happen
at undervalued prices – if hedge
funds did not buy large amounts of
IPO shares at public offerings. The
depth of today’s derivative markets
would not exist without hedge
funds. Thus, responsible hedge fund
managers can, by all means, help create
sustainable values in the market
place. The majority of private equity
firms create value for the economy,
employees, and society when they
buy almost-bankrupt companies and
restructure them.
Furthermore, private equity funds are
often instrumental in helping with
leadership succession in privatelyheld
companies; for example, German
“Mittelstand” companies that
are family owned, but whose heirs
choose not to inherit the business. I
firmly believe that, capital markets
are the only sustainable solution for
the most urgent societal problems
that we face today.
Primary among these is the need
to create a solution for our old age
pension problem. As we all know, the
state pension system and the corporate
pension systems are unable to
112 |
cope with the demographic development
in Germany. Think about the
fact, that two-thirds of all people
who ever reached 65 years of age
are alive today. And, given all of the
medical improvements we are lucky
enough to enjoy, the trend towards
an aging society is by no means over
yet.
Consequently, it is up to the individual
to take care of his or her
needs. Some see this as a threat; others
welcome this new dimension of
personal freedom that was withheld
from most people for so long. But
how can we make people responsible
for their old age pension when we
do not, at the same time, make the
capital markets’ mechanics and opportunities
available to them? There
are an estimated 1000-billion Euros
of pension assets in Germany. An
outperformance of a mere 10 basis
points would mean 1-billion Euros.
Just think how many thousands of
pensions we could finance with that
kind of money. Of course, opportunities
are paired with risks and, all too
often, fear. But risks only end in fear
when people have no means of finding
the right balance between opportunities
and risks. And this leads me
to my next request: we need better
education on economics.
Increasing Germans’ understanding
of capital markets is the only way to
alleviate fear of capital markets and

is a good way to avoid a good portion
of speculative traps and bubbles.
People say, Germans are great at
saving money (in savings accounts)
and at speculating with high-risk
capital market instruments, but they
are lousy at long-term investing. The
fact is, Germans do not save enough
money for their retirement and the
money they do save does not provide
the necessary returns (simply to
counter-balance inflation). Thus, we
are heading towards some serious
problems.
With an average inflation of two percent
over the past ten years and an
average return on cash and bank deposits
of between 0.5 percent and 2.2
percent, the 36 percent of personal
financial assets which are invested in
this financial instrument here in Germany
cannot feasibly contribute to
retirement provisions. In comparison,
in the US, only 16 percent of personal
financial assets are invested in such
low-yield financial instruments.
The asset classes that actually yield
the returns needed in Germany, such
as bonds, stocks, and mutual funds
– and in which Americans invest 51
percent of their Personal Financial
Assets – Germans do not trust. Only
33 percent of Germany’s PFAs are invested
in such instruments. The main
reasons often quoted in the press
are “a need for security,” “caution,”
and “risk adversity.” Well, in my
experience, it is perhaps a combination
of the three, but above all, the
main cause is a fundamental lack of
education. Most Germans simply do
not understand risks, returns, and
financial markets and therefore do
not invest in financial products. Thus
far, Germans have not had to worry
about their retirement, as there
were always government pensions.
With the loss of this security blanket,
however, Germans are suddenly
confronted with the reality of having
to take care of their own retirement
and they do not know what to do.
On top of this is another trend:
Germans tend to invest in the wrong
asset classes. Over time, we have seen
that Germans somehow manage to
invest into those asset classes that
are about to go down. This can be
observed in both stocks and bonds.
Research shows that it does not
matter whether one invests at the
market high or low since, over the
long run, returns are stable. But, if
investors move their money around
and continually invest in asset classes
at their peak, wait for the drop and
then take their money out, well, this
is a certain way to loose money.
Furthermore, if you think about
demographic changes and about
climate change, none of these issues
can be mastered without functioning
capital markets. Demographic
changes and the results on ageing
| 113

Best Practice
societies and the funding of the old
age pensions, which have to be paid
out, by larger and increasing older
generations is not feasible if it is not
based on a well founded mechanism
backed by papers generated by the
capital markets. You will also not be
able to see the world governments
affording all the investments you
need to mitigate climate change in
order to reduce CO2 reductions.
There are some estimates which
range from 500 to 900 billion US
dollars per year until 2050 and if you
look at world market capitalisation
of global trade flow, you realise that
is not manageable by governments
or the public sector alone. A declaration
of goodwill from countries like
China and the US in Copenhagen is
simply not enough. You need the
binding framework for the private
sector in order to start making the
necessary investments into renewable
energies, into those sectors that need
to be developed and which will be a
source for growth in the next couple
of years.
The G20 have already designed their
recommendations on how capital
markets need to change. This framework,
however, has been out there
for nine months and very little has
been translated into legislation. The
question should be what an individual
firm can do in order to help
sustainable development on one side
114 |
but on the other side of course to
stay within the frame of its mandate,
which is making money for shareholders.
I firmly believe that those
two things are not conflicting with
each other, but that only a company
which is following a sustainable
business model will, long-term, also
create value for shareholders. We are
pushing hard, that the governments
of the world are now really willing
to provide the framework which
would immediately sponsor a large
avalanche of private investments into
renewable energies.
To make sure that the financial sector
as well as capital markets are better
understood, we have now engaged,
in a financial literacy project which is
meant to educate and support education
around the world at schools for
the young generation in understanding
what it means to have functioning
or dysfunctioning capital markets.
Each country needs to invest in
capital markets education. It must be
made clear that properly functioning,
efficient capital markets are not at
odds with sustainability and, ultimately,
a lively market contributes
to a healthy society. People need to
understand how investing works and
how they can accumulate enough
money during their lifetime so secure
for their old age. Only through education
can people harvest the benefits
of capital markets and understand
the principle of sustainability.

There are already quite a number of
companies issuing separate sustainability
reports trying to increase the
interest in this area and their activities.
And as a comparable measure,
we, as investors, do look at the Dow
Jones sustainability index, a standardization
that allows us to compare
one company with the other. For us,
at Allianz, we also are an issuer i.e.
rated about our sustainability and we
do care quite a bit about it. We are
trying to come out in the financial
sector among the top three places. At
the moment, this sustainability index
is a rough benchmark but a pretty
helpful one.
In conclusion, capital markets have
throughout history been the driving
force behind growth, innovation
and human advancement. Functioning
capital markets and individual
sustainable business strategy will
prove to be the important drivers
for a prosperous future. I strongly
believe that the media agenda in the
coming years should include the topic
of re-establishing trust in sustainable
global capital markets.
| 115

Best Practice
3.3. Lessons from the Microfinance Sector:
Building Trust Through Information
By Scott Gaul
Imagine the following scenario: an
entire sector of financial institutions
lending solely to low-income individuals
without requiring the conventional
safeguards of collateral and
proper documentation. A superheated
investment climate pushes the
lending institutions to package these
loans into a set of increasingly sophisticated
financial instruments and
sell them to investors. Many of the
institutions are unregulated. Does
this sound familiar? It may sound like
a recipe for disaster. But this isn’t the
subprime lending market. It’s microfinance.
The parallels have not gone
unnoticed.
Microfinance institutions (MFIs) have
made a business of working with the
unbanked for decades, developing
new lending and saving strategies
tailored to the needs of the poor. As
the sector has garnered increasing
commercial interest, microfinance
practitioners have been working on
initiatives designed to address and
prevent the types of excess seen in
the subprime sector.
The novel aspects of microfinance
mean the sector has faced many challenges
building trust with a range
of stakeholders. As microfinance
116 |
institutions increasingly integrate
into global financial sectors, there is
no better time to explore past lessons
learned and to explore future
directions. Open data and robust
technology standards for information
exchange (XBRL in particular) are
critical to supporting healthy microfinance
sectors and improving the
quality and availability of financial
services for the poor. This article
will explore some ways in which the
microfinance sector has used information
to build and maintain trust
along many dimensions, and one
possible future direction for cementing
that trust.
Building trust in the idea
Microfinance differs from traditional
financial services 2 in that it has very
recently faced and continues to face
real existential challenges. Early
questions about the sustainability of
microfinance pushed practitioners
to build trust in the idea of microfinance.
How can financial services be
sustainably delivered to the poor?
Practitioners, development professionals,
policy-makers, investors, and
ultimately, clients, needed to be
convinced of Mohammad Yunus’ dictum
that ‘the poor always pay back.’
(And similarly, in the words of Stuart

Rutherford and others, ‘the poor can
save’.)
Open, public data from microfinance
institutions was critical to building
trust in these ideas. How high are
repayment rates, really? The proof
that ‘the poor always pay back’ relies
on disclosure by microfinance institutions
of sensitive information on
repayment rates, agreed-upon global
reporting standards and a robust
enough sample to make the argument
meaningful. Anecdotes and
fuzzy figures would not suffice. The
need to build trust from very early
on fortunately means that such data
continues to be easily available.
Financial reporting has been the
backbone of building this information
base. Since microfinance services
are delivered through financial institutions,
we have been able to make
leverage existing financial reporting
standards. However, microfinance
practitioners also want to track the
human component of financial services
– counting people, not just dollars.
If a bank makes a loan, to whom
are they making that loan? A man,
a woman, someone living below the
poverty line? Did the loan make their
life better or worse? This has led to
adjustments to traditional financial
reporting standards and the development
of new reporting frameworks
to meet the specific needs of the
microfinance sector. For example,
organizations such as SEEP and CGAP
promote reporting standards and disclosure
guidelines tailored to microfinance
context. 3
In addition, microfinance practitioners
needed ways to exchange best
practices, innovations and lessons
learned. The roots of microfinance
extend to multiple places around
the globe and there are now microfinance
institutions operating in
well over 100 countries. What works
in one place or at one time, may or
may not work in another. Key innovations
– solidarity group lending,
low-balance savings accounts – need
to be continually shared and refined.
Again, open exchange of information
has been a pillar supporting this
need.
To provide the information needed
to build trust in these ideas, microfinance
practitioners focused on
support for institutional information
disclosure and benchmarking. As part
of this initiative, the Microfinance
Information Exchange (MIX) was
formed as an independent nonprofit
organization to manage these
functions as a global public good
for the microfinance sector. MIX’s
early benchmarks used a sample of
standardized scrubbed data from a
small sample of leading institutions.
In 1999, for instance, 48 institutions
reported, with a median portfolio
at risk (PAR) over 90 days of 2.7%. 4
| 117

Best Practice
While not quite the poor always pay
back, these basic metrics helped to
build trust. Only a few years later,
the sample of participating institutions
has expanded more than
twenty-fold. But the numbers remain
similar in many instances – PAR > 90
days was 1.6% for the 2008 benchmarks,
5 which now cover over 1100
institutions.
Building trust in the market
Increasing capital flows is often seen
as another key pillar for the growth
and development of microfinance
institutions. To support these capital
flows, microfinance needed to
build trust in the capital markets
that microfinance ‘works’. And what
‘works’ for capital markets may be
quite different than what ‘works’ in
a development context. (It is worth
noting that investment is not needed
or permitted for all institutions,
especially those that can mobilize
adequate funding through savings.)
Microfinance institutions are the
locus for investment. Consequently,
capital markets needed to learn more
about the institutions themselves
and their operations. The microfinance
sector began to develop
parallel mechanisms to those used
in traditional capital markets for the
exchange of institutional information.
Several specialized microfinance
rating agencies – Planet Rating, Microrate,
M-Cril, Microfinanza – were
118 |
founded during the last decade, and
ratings initially subsidized through
a global Ratings Fund, with a fixed
expiration date in order to enable
a broad range of institutions to test
the services. 6 Initiatives such as the
CGAP Financial Transparency Awards
and MIX Market incentivized adherence
to best practices reporting
guidelines, disclosure of audited financial
statements and the use of ratings
and other external evaluations.
All of these initiatives helped to build
trust for investors and attract capital
by having microfinance institutions
learn to speak the language and use
the tools of financial markets.
Information that is appropriate
for many actors – for investment
evaluation, for networks looking to
advocate for their members and for
regulators. How can we speak to
the most actors with the least work?
Microfinance institutions are often
resource-constrained and reporting
requirements need to ‘do more with
less’. It is further critical that information
on microfinance can be used to
inform management decision-making.
Building smart standards – keeping
financial reporting guidelines
linked to IFRS, but augmenting these
carefully as needed.
From a volume perspective, the
ability of microfinance institutions
to build trust in the capital markets
would seem to have been successful.

As of 2008, there is over $15 billion
USD in borrowed funds outstanding
with microfinance institutions,
funding loan portfolios of $40 billion
USD. 7 Well over 200 funders – banks,
funds, peer-to-peer lenders – have
significant microfinance positions. Initiatives
like the United Nations’ 2005
‘Year of Microcredit’ helped to draw
further attention and capital to the
sector. Microfinance investors have
moved beyond direct lending to offer
structured investments, equity stakes
and currency hedging instruments.
Several microfinance institutions have
had IPOs on local and international
exchanges. The complexity of this can
be significant - microfinance CDOs
require coordination across dozens of
countries and legal environments to
marshal sufficient capital. 8
However, the growth of external
investment has been one of the most
controversial developments of the
past several years. In 2008, the Centre
for the Study of Financial Innovation’s
(CSFI) annual ‘Banana Skins’
report cited ‘too much funding and
refinancing risk’ as among the key
risks facing the global microfinance
sector. 9 One year later, ‘reputation
risk’ had also moved to the top of
the list. 10 Here again, it is useful to
compare the response of the microfinance
sector with the financial crisis
and subprime lending. How have
microfinance practitioners sought to
maintain trust with key stakeholders
in these times? It comes back to a familiar
theme – open, public data and
standards are critical components.
Building trust with policy makers
In addition to building trust in the
idea and trust in the capital markets,
microfinance also needed to engage
and convince policy makers. Microfinance
developments were often ‘bottom
up’ and did not arise from ‘top
down’ government initiatives. Many
microfinance providers are non-governmental
organizations and often
operate without clear legal frameworks
or restrictions on the types of
financial services they can provide.
Of course, this is not always the case:
state-owned retail financial service
providers remain among the largest
bloc of institutions in terms of global
outreach. 11
Nonetheless, an enabling policy
environment and clear legal framework
for microfinance institutions
are also necessities. In particular,
regulatory oversight permits secure
savings mobilization. Since many microfinance
providers have historically
been ‘credit-only’ (and often with
international investors), systemic risks
to local financial sectors have been
limited. 12 However, with the rise in
savings mobilization, microfinance
institutions present different risks
to financial sectors and low-income
households and need appropriate
regulation. Convincing policy mak-
| 119

Best Practice
ers that microfinance institutions are
stable, transparent and working in
line with international best practices
is again key to building this trust.
Maintaining trust and dealing with
crises
The process of building trust in microfinance
institutions has not been
without difficult periods. Two recent
sets of events stand out as examples
of how the microfinance sector has
addressed crises. In neither case have
the responses undone the effects
of the crisis, but both illustrate the
central role that transparency and
information exchange can have.
In 2007, Banco Compartamos, a leading
Mexican microfinance institution,
launched an intial public offering
(IPO) which was several times oversubscribed
and led to over 100 million
USD in profits. The distribution of
those profits and how Compartamos
managed to accumulate them in the
first place were the subject of months
of controversy. 13 At the center of
the debate were the interest rates
charged by Compartamos on some
of their loan products - rates which
ranged between 80% and 120%
annually (depending on the means
used to calculate them). The backlash
from the IPO directly led to a focus
on interest rates and investment
flows. Microfinance interest rates
have historically been high, generally
justified through higher operating
120 |
costs. 14 The industry’s response was
to address the clear need for more
transparency on this front. The creation
of MF Transparency 15 provides
the first clear, accurate information
on microfinance loan pricing. Several
initiatives, including by MIX, aim
to make information on investmen
flows more easily available.
The increased global focus on microfinance
following the IPO also coincided
with a rise in impact assessment
initiatives and social performance
measurement. The microfinance
sector has developed initiatives to
focus on consumer protection, ethical
principles for microfinance institutions,
transparency on interest rates,
and improved measurement of social
variables. 16 Each of these aims to
better track the human component
of financial services delivery, and in
most cases they leverage the underlying
financial reporting standards to
the extent possible.
The second test of trust in microfinance
is the financial sector crisis of
the past year. Historically, anecdotal
evidence has suggested that the lack
of integration of microfinance clients
and providers into the globalized
economy insulated microfinance institutions
from external shocks. While
hard evidence of microfinance’s
resilience to macroeconomic shocks
has been ambiguous, 17 it at least has
not shown that microfinance insti-

tutions are more vulnerable than
traditional financial institutions. In
large part, the microfinance sector
has been able to weather the current
crisis. There have been flare-ups in
some sectors – Pakistan and Nicaragua
have had repayment crises and
investment has slowed in others - but
global catastrophe has yet to strike. 18
A long-term focus on transparency
and open, voluntary exchange of information
has so far enabled MFIs to
win the trust of investors, regulators,
researchers, and other MFIs.
Information and transparency as the
backbone
Information has been at the core of
building trust with multiple actors.
Basic operational and performance
information – financial information
plus, if you will – was critical to building
trust in the idea of microfinance.
Deeper institutional data, with
agreed-upon standards and external
verification, was critical to building
trust in the capital markets. Microfinance
has responded to new challenges
by adapting and expanding
the types of information available.
Much of this has occurred with
microfinance as a ‘parallel’ to traditional
financial sectors, with limited
integration. Microfinance rating
agencies, regulators, credit bureaus,
etc. are similar to, but often distinct
from their ‘traditional’ financial sector
analogues. Microfinance institu-
tions may, for instance, be regulated
by a ‘Ministry of Social Policy’, while
banks and other financial intermediaries
are regulated by the ‘Ministry of
Finance’ or the central bank.
All of this is changing rapidly. The
number of institutions under regulatory
oversight increases annually.
The big rating agencies are moving
into the sector – Moody’s, Fitch and
Standard & Poor’s have all rated microfinance
companies or securities. 19
More and more commercial banks
are ‘downscaling’ to directly offer
retail microfinance services – often
competing with microfinance institutions.
Investment banks have begun
to open (and occasionally, then close)
microfinance units. The volume of international
investment capital flows
(and the concomitant risks) increases
each year. The ‘parallel’ universe of
microfinance is becoming more and
more an integral part of ‘traditional’
financial sectors.
The integration of microfinance into
traditional financial sectors presents
new information challenges. Microfinance
institutions will need to speak
the same language and use the same
vocabulary as global financial sectors
in order to be understood. We see
XBRL (eXtensible Business Reporting
Language) as the language of the
future for global financial reporting
and information exchange. We see
IFRS as the data model around which
global reporting will harmonize, the
| 121

Best Practice
dictionary to which XBRL can refer
when looking for financial concepts
and relationships. Consequently, to
better organize, collect, and present
microfinance data, we have looked
to XBRL as a solution, using the IFRS
standards and disclosure guidelines
as a basis.
Charlie Hoffman, the oft-cited ‘father
of XBRL’, wrote recently on his blog
about the future of financial reporting.
20 The future he sees includes a
few key components, including the
joint use of XBRL and IFRS:
• “The financial reporting meta data
used globally is IFRS and other
global standard meta data.
• The reporting format is XBRL. In
fact, maybe it is not even XBRL.
I frankly have no bias here other
than it needs to be structured and
computer readable...
• Computers do all sorts of helpful
things for the preparers of such
statements such as making sure the
numbers all add up and that the
required disclosures are there much
like a manual disclosure checklist is
used today…
• The report is interactive…
• More relevant information will be
reported…”
If one were to predict where these
innovations would come from, few
would likely settle on a loose cohort
of financial institutions scattered
around the globe working with
122 |
clients and services well outside the
focus of traditional financial institutions.
And yet, many of the pieces of
this ‘future’ are already in place for
the microfinance sector.
MIX uses XBRL as the primary means
of information capture for microfinance
institutions. The MIX Microfinance
Taxonomy builds a direct link
to IFRS, but incorporates the many
sector-specific concepts necessary
to capture the double bottom line
focus of many microfinance institutions.
We expect that one of the
main benefits of the use of XBRL will
be increased financial transparency
within the MFI community. As the
complexity and detail within MFI financial
statements increases, we will
be able to capture and share richer
information. In the long run, we
hope the taxonomy can also support
local regulators and international
networks seeking to use standardized
reporting as a basis for decision-making.
Information exchange has many challenges
for microfinance. Stakeholders
want a global view, but global reporting
is voluntary. There are many
variations in local standards within
and across countries. Institutions vary
widely in capacity and many have
concerns about negative repercussions
of transparency, especially
those operating without a clear legal
framework. There is no one-size-fitsall
model for microfinance. This is

one reason that extensible standards
are critical. Although there are certainly
more challenges ahead – so far,
XBRL has little name recognition or
actual examples of deployment within
the microfinance sector – these are
a set of problems that many others
are also working to solve.
Conclusion
Microfinance has had to continually
build trust with different stakeholders
from a limited resource
base. There have been occasional,
although localized, meltdowns. It is
a bit like operating in a permanent
crisis mode – existential threats are
a day-to-day focus for many microfinance
institutions. Transparency and
public information have helped to
counterbalance these risks. Microfinance
practitioners have spent a
lot of time learning from traditional
financial sector reporting standards
and building innovations to make
these standards go further to tell us
more about the institutions and the
impact of their services. Maybe now
it has come time for microfinance to
teach some lessons to the traditional
financial sector.
References:
1. Some of the material here was previously
posted to the Hitachi XBRL
blog at: http://hitachidatainteractive.
com/2009/06/18/xbrl-increases-transparency-of-microfinance-institutions/
2. Throughout this paper, we will try
to use the term ‘traditional financial
sectors’ to refer to that which is not
microfinance. This is not a perfect distinction
– credit unions and banks are
often microfinance providers and are
also quite ‘traditional’ – but hopefully it
will suffice for these purposes.
3. See: http://www.seepnetwork.org/Pages/Initiatives/FinancialReportingStandardInitiative.aspx
and http://www.cgap.
org/p/site/c/template.rc/1.9.2785/ for
examples.
4. http://www.themix.org/sites/default/
files/MIX_1999_07_MBB3.pdf, p. 40.
5. http://www.themix.org/sites/default/
files/MBB%2019%20-%20December%202009_0.pdf,
p. 62.
6. Given the role that rating agencies
played in the financial sector crisis, it
may be worth a separate assessment of
whether microfinance rating agencies
were able to avoid the same types of
issues. Some research on the impact of
ratings is here: Hartarska, Valentina,
2006. „Rating in Microfinance: Cross-
Country Evidence,“ 2006 Annual Meeting,
August 12-18, 2006, Queensland,
Australia 25506, International Association
of Agricultural Economists.
7. Source: MIX Market, borrowings and
loan portfolio values for 2008 fiscal
year. Deposits and equity fund the
remainder.
8. http://www.dwmarkets.com/investmentmanagement/structured-investments/
microfinance-securitization.html
9. Microfinance Banana Skins 2008: Risk
in a Booming Industry, Mar 2008,
Lascelles, D. Available at: http://www.
microfinancegateway.org/p/site/m//template.rc/1.9.25066
10. Microfinance Banana Skins 2009:
Confronting Crisis and Change, 2009,
Lascelles, D. & Mendelson, S. Available
at: http://www.microfinancegateway.
| 123

Best Practice
org/p/site/m//template.rc/1.9.35208
11. CGAP, unpublished research.
12. In addition, ‘socially responsible’ investors
may be disinclined to try to recover
capital. Throwing in the Towel: Lessons
from MFI Liquidations, 20 Sep 2009,
Rozas, D. Available at: http://www.
microfinancegateway.org/p/site/m//template.rc/1.9.38716
13. See: R. Rosenberg, “CGAP Reflections
on the Compartamos Initial Public Offering”.
June 2007., Available at: http://
www.microfinancegateway.org/p/site/
m//template.rc/1.9.29214
14. See: “Why do MFIs charge high interest
rates?”, available at: http://www.
cgap.org/p/site/c/template.rc/1.26.1309/;
Rosenberg, Gonzalez and Narain, “The
New Moneylenders: Are the Poor Being
Exploited by High Microcredit Interest
Rates?”, available at: http://www.cgap.
org/p/site/c/template.rc/1.9.9534/
15. See: http://www.mftransparency.org/
16. See (respectively): http://www.centerforfinancialinclusion.org/;
http://www.
cgap.org/p/site/c/template.rc/1.26.1881/;
http://www.mftransparency.org/; and
http://www.sptf.info/ or http://www.
themix.org/standards/social-performance
17. See Walter, Ingo and Krauss, Nicolas
A., Can Microfinance Reduce Portfolio
Volatility? (January 30, 2008).
Available at SSRN: http://ssrn.com/abstract=943786,
and Gonzalez, “Resilience
of Microfinance Institutions to
Macroeconomic Events.” Available at:
http://www.themix.org/publications/resilience-microfinance-institutions-macroeconomic-events
18. Reille, Kneiding and Martinez, “The
Impact of the Financial Crisis on
Microfinance Institutions and Their
Clients” Available at: http://www.cgap.
124 |
org/p/site/c/template.rc/1.9.34453/; also
MIX, Microbanking Bulletin vol. 19, Dec.
2009, http://www.themix.org/sites/default/files/MBB%2019%20-%20December%202009_0.pdf
19. See: http://microcapitalmonitor.com/
cblog/index.php?/archives/101-How-Important-is-Regulation-and-Supervisionof-Microfinance-to-Your-Investment-
Decision.html ; http://www.fitchratings.
com/web_content/presentations/2009/
stru_cred/microfinance_resilience_to_
%20the_crisis_teleconf_9jun09.pdf or
http://www2.standardandpoors.com/spf/
pdf/fixedincome/MicrofinanceMethodologyAssumptions.pdf
20. http://xbrl.squarespace.com/journal/2009/12/6/peeking-into-the-futureof-financial-reporting.html

4. Supervision:
Recovery Needs Controlling
4.1. Learning From the Crisis
By Mark B. Fuller & Joseph B. Fuller
Last year at this time, the topic on
everyone’s mind was the global
financial crisis: How bad would it be?
How long would it last? And, given
its severity, was this yet another
indictment of contemporary market
capitalism?
Now, a year later and around the
world, a host of stimulus plans and
other government interventions
appear to have had positive effect.
Some experts have pronounced the
recession over, and most people are
cautiously optimistic that the fragile
recovery under way will continue and
strengthen. Still, the meaning of the
crisis is being debated and there is
yet no consensus about appropriate
remedies to moderate the effects of
the next downturn, when it inevitably
comes.
Looking back on the experience, two
aspects of the crisis are especially
striking: its global scale and its severity.
This was the first truly worldwide
downturn, spreading rapidly from
the advanced economies to the
emerging markets. It hit especially
hard in North America and Europe
but it was felt everywhere, causing
deep distress in places as diverse as
California, Iceland, and Dubai.
The crisis proved so severe because
it was actually a coincidence and
compound of two problems, a deep
crisis in the financial markets layered
onto a cyclical downturn in the
underlying global economy. Amid all
the attention paid to the former, the
latter has been largely ignored. Yet a
global recession was coming due by
2008: it had been seven years since
the last one, in which troubles rooted
in the dot-com crash were prolonged
in the aftermath of the September 11,
2001 terrorist attacks. By 2007, there
were signs of an incipient recession
in the global economy: rising
energy prices, volatile asset prices,
overcapacity, worries about credit
to keep the expansion going. As the
credit crunch morphed into a fullblown
crisis in the financial markets,
this overstressed weaknesses in the
underlying economy and made the
contraction sharper and deeper than
seen in decades.
Popular explanations of the financial
markets crisis have tended to oversimplify
what happened, frequently
attributing it to greed and irresponsibility
on the part of those leading
major financial institutions in the advanced
economies. There is no doubt
that such attitudes and behaviors
contributed to our misfortune. Incen-
| 125

Supervision
tives and other policies and systems
in financial institutions are geared to
innovation and short-term profitability.
Too little thought has been given
to downside risk in the risk/reward
equation. Yet blaming a handful of
greedy individuals, however appealing
to populist inclinations, obscures
critical points that must be taken into
account if we are to draw practical
lessons from this unhappy experience.
First, as noted, is the difference between
the financial markets crisis and
a down-cycle in the modern global
economy as well as the relationship
between the two. We have lived
with downturns periodically, every
seven to ten years, since the middle
of the nineteenth century. There
is no reason to expect otherwise in
the future. The swinging pendulum
is endemic to business life. In the
interest of moderating the effects
of the next recession, public policy
should focus on the ways the financial
markets impact and interact with
the underlying economy and take
special care that crises forming in the
financial markets―which occur with
less frequency than recessions and
also betray their own clear warning
signs―do not coincide with downswings
of the cycle.
Third, if blame is to be allocated to
individuals atop financial institutions,
it must be shared with other
126 |
parties. In the private sector, as many
commentators have observed, the
ratings agencies are as culpable as
the banks. These agencies have an
explicit role to provide an independent
and reliable evaluation of the
risks inherent in financial instruments
and portfolios. In this, they failed utterly,
misleading both investors and
regulators.
Government was derelict in its duty
to regulate certain key financial markets
and activities. During the past
several decades, financial services
firms developed a dizzying array
of new, often complex investment
approaches, structures, and instruments
that government consciously
and deliberately chose not to regulate―hedge
funds, highly-leveraged
private equity deals, off-exchange
trading of derivatives, securitized
debt, credit default swaps, and the
like. To be fair, government’s challenge
reflects differential rates of
innovation in the private and public
sectors. Note the timeframe, however:
we’re talking about decades, not
something sudden or unexpected.
The regulators should have policed
innovation in the markets when they
had ample evidence and repeated
indications of concern. They didn’t.
Hyper-innovation, abetted by rapid
globalization, also strained governance
in the private sector. The
failure in financial institutions was

due as much to inadequate oversight
as to individual excess. Directors and
executive heads in the firms had little
ability to see what was happening,
even if they understood it―which
at houses like Lehman Brothers, few
apparently did. More worrisome,
in their rush to make profits and to
track progress quarter by quarter,
leadership in the firms seem to have
forgotten their moral purpose to
invest for sustainable returns and the
long-term financial health of economies
and societies.
Finally, the sheer scale of the crisis
reflects significant problems in governance
of the global financial system.
The interdependent nature of the
system means that it is vulnerable at
its weakest link. It will do little good
to have strong, effective governance
in some countries or regions if regulation
is weak or lacking elsewhere.
To date, there are few encouraging
signs that these points are being addressed.
In the advanced economies
and around the world, policymakers
seem more interested in curbing excesses
in the financial sector than in
revisiting and revamping the rules to
ensure the stability of the system and
better behavior among its key actors.
Targeting greedy individuals may be
popular but it doesn’t address the
fundamental challenges. Similarly,
when heads of state and finance
ministers congregate for economic
summits or meetings of multilateral
institutions, they often engage on
peripheral rather than core systems
issues. Looking ahead, if we do not
see significant changes in securities
regulation, if we do not see public officials
most responsible for ensuring
the integrity of the global financial
system addressing the real issues, and
if we do not see governance reform
in financial services firms, then we
should not be surprised by the next
crisis in the financial markets. It
won’t be long in coming.
Meanwhile, the incipient recovery
is testimony to the health of the
underlying global economy. Companies
succeeding in providing real
goods and services to customers and
consumers around the world are
fundamentally strong and competitive.
They’re heading in the right
direction. How quickly the economy
rebounds and whether the recovery
is sustained are questions whose
answers depend on many variables.
Among the most important is whether
companies and investors have
their trust in the financial markets
restored. On that score, there is not
yet much reason for optimism.
| 127

Supervision
4.2. Peer Review Will Need to be Peer Pressure
By Robert B. Zoellick
Great upheavals produce shock
waves that widen cracks in political,
economic, and security orders.
Sometimes the old orders break. Yet
it can be in the power of leaders and
peoples to shape the directions of
change.
Today, most people assume that
when Edmund Burke wrote his Reflections
on the Revolution in France
he was denouncing a revolution that
had already executed a King and
Queen, and launched the Terror. But
he published his work in 1790, before
the cobbled streets of Paris echoed
with the rumble of tumbrels and the
roar of crowds at the guillotine.
1789 was one of the great upheavals
in history. Although Burke offered
wise warnings, most of his contemporaries
expected France to tread an
“English path” towards constitutional
democracy.
The effects of momentous events can
reverberate over time. When asked
more than a century later about the
impact of the French Revolution,
China’s Premier Zhou Enlai allegedly
replied, “It’s too soon to say.”
Last year is the 20 th anniversary of
the peaceful revolution of 1989.
128 |
The upheavals across Europe of that
year, so different from 1789, brought
an end to the Cold War. They led
to the opening of the Berlin Wall,
the freedom of Central and Eastern
Europe, the unification of a democratic
Germany and the reunification
of Europe, the break-up of the Soviet
Union, and the return of Russia. To
many, these tumultuous events really
did feel like the “End of History,” as
my friend Frank Fukuyama famously
put it. Yet the European narrative
moved to new chapters with the widening
of what became the European
Union, the creation of a common
currency, and the enlargement of the
NATO Alliance.
While most eyes were focused on
Europe in that era, new histories
were being sketched around the
world: NAFTA offered a fundamental
reorientation of Mexico, including
toward democracy and potentially
deeper integration of North America;
APEC implied a new “open regionalism”
that could connect a rising East
Asia with the Americas bordering
the Pacific; and a coalition based
upon UN action reversed Iraq’s brutal
conquering of Kuwait, opening the
way for a Madrid Conference that
initiated negotiations between Israel
and the Arab states. These seeds of

change were planted by forwardlooking
leaders who saw the opportunities
amidst seismic shifts and
shifting trends.
My experience then –and since – has
reinforced my sense that events occur
within a continuum. As Burke
observed, there exists “a partnership
not only between those who are
living, but between those who are
living, those who are dead and those
who are to be born.”
Outcomes are not predetermined.
They depend on both events and
purposeful actions.
In 2010, we are living through another
upheaval that is changing our
world. What will be its implications
for the future?
Today’s upheaval did not occur from
nowhere. The seeds were planted
earlier.
The last 20 years have witnessed a
huge economic shift. The breakdown
of the planned economies in the
Soviet Union and Central and Eastern
Europe, the economic reforms in China
and India, and the export-driven
growth strategies of East Asia all contributed
to a world market economy
that vaulted from about 1 billion to
4 or 5 billion people. This shift offers
enormous opportunities. But it has
also shaken an international eco-
nomic system forged in the middle
of the 20th Century, with patched-up
changes in the decades since.
Some seeds of today’s troubles were
sown by the responses – or lack of
them – to the financial crises of the
late 1990s. After the Asian financial
crisis, developing countries determined
they never again wanted to be
exposed to the tempests of globalization.
Many “insured” themselves
through managing exchange rates
and building huge currency reserves.
Some of these changes contributed
to imbalances and tensions in the
global economy, but for years governments
muddled through amidst
generally good growth.
Central banks failed to address risks
building in the new economy. They
seemingly mastered product price
inflation in the 1980s, but most decided
that asset price bubbles were
difficult to identify and to restrain
with monetary policy. They argued
that damage to the “real economy”
of jobs, production, savings, and consumption
could be contained once
bubbles burst, through aggressive
easing of interest rates. They turned
out to be wrong.
Regulators and supervisors of financial
institutions were no longer
grounded in reality. Financial innovation
and competition vastly expanded
services – including to companies
| 129

Supervision
and families often shunted aside in
the past –but the alluringly simple
design of “rational markets” theory
led regulators to take a holiday from
the realities of psychology, organizational
behavior, systemic risks,
and the complexities of markets and
humans.
As in the past, the actions we take
today shape future opportunities and
challenges.
In 1944, the delegates at Bretton
Woods seized a moment to shape a
new global arrangement. They spent
three weeks in New Hampshire developing
a system of rules, institutions,
and procedures for financial and
commercial relations in the world
economy.
That world has changed enormously
over the past 65 years – not least
with the transformations of 1989.
The current upheaval is changing the
landscape yet again.
Already, we can see potential shifts in
power and institutions and international
cooperation. In part, the shifts
will depend upon how the parties
adapt to new circumstances; in part,
upon the rapidity of the recovery; in
part, upon changes in who holds the
world’s capital, technology, and human
resources and what they do with
them; in part, upon how countries
cooperate –or do not. .
130 |
What are the perceptions and realities
of power after this crisis?
The current assumption is that the
post-crisis political economy will
reflect the rising influence of China,
probably of India, and of other large
emerging economies. Supposedly, the
United States, the epicenter of the
financial crisis, will see its economic
power and influence diminish.
There are good reasons for this
perception. China has responded
strongly to the crisis, both in terms
of stimulus and monetary policies,
and it seems to have a deep treasure
chest to back up its first moves. China
has enjoyed a rapid recovery, which
has assisted others, underscoring
China’s growing influence.
Indeed, today, China acts as a stabilizing
force in the global economy.
Together, China and India account
for 8.5 percent of world output. They
and other developing countries are
growing substantially more rapidly
than developed countries.
And yet…
China’s future is not yet determined.
Its rapid recovery in 2009 was fueled
by an expansion of credit of 26 percent
of GDP in the first eight months
of 2009. This flood is now easing,
and authorities are likely to limit it
further for fear of effects on asset
prices, asset quality, and eventually

general inflation. China still faces big
uncertainties in 2010.
China’s leaders recognize these risks,
including the continued dependence
of China and other emerging economies
on export-led growth. It will not
be easy for China to shift to increasing
reliance on domestic demand,
especially to greater consumption
that could help balance world
growth while contributing to China’s
goal of a more “ harmonious society.”
China’s protected service sector,
including financial services, limits
opportunities for entrepreneurs and
increases in productivity.
The United States, in turn, has been
hit hard by the crisis. But America has
a culture of resilience to set-backs,
adapting to new circumstances and
remaking itself.
The future for the United States will
depend on whether and how it will
address large deficits, recover without
inflation that could undermine
its credit and currency, and overhaul
its financial system to preserve
innovation while adding to safety
and soundness. The United States
also needs to help people adjust
to change, so that it can maintain
its greatest trump card: openness
to trade, investment, people, and
ideas. The geopoliticians will be on
the watch for signs that America’s
economic troubles are leading to a
weakening of U.S. confidence, energy
and resources to project its interests
globally in cooperation with others.
Japan is the first leading industrial
power to experience a political upheaval
in the wake of the crisis. The
election of the Democratic Party of
Japan could create a sustainable twoparty
democracy for the first time in
the country’s history.
Japan rose from the ashes of World
War II as a “trading state,” the model
for export-led growth. It is not clear
that the old export model of growth
will be sustainable in a more “balanced”
global economy that does not
rely so heavily on the U.S. consumer.
An aging Japan will have new consumption
needs. A global economy
with more poles of growth could
offer Japan new markets, especially
for its impressive capabilities to use
energy efficiently.
The world will be deeply interested
in the shape of a Japanese foreign
policy that can be sustained across
parties and that might assume new
responsibilities. Such a foreign policy
could build on Japan’s experiences
in development. Japan could deepen
cooperation with other Asia-Pacific
actors in ASEAN, Australia, China,
and Korea, while maintaining its
global role, especially through relations
with the United States. Development
opportunities in Africa,
| 131

Supervision
Latin America, Central Asia, and the
Middle East would also enable Japan
to “do well while doing good.”
The European Union may have been
slow to recognize that this economic
crisis was the first big test of the New
Europe made possible by the revolutions
of 1989. But it adapted relatively
quickly, and European institutions
may come out stronger for it.
Central and Eastern European
economies were hit especially hard
by the crisis. And their problems are
far from over. At least for European
Union members, however, the
support offered by the European
Commission, the European Bank for
Reconstruction and Development,
and the European Investment Bank
– with assistance from the World
Bank Group – has been critical. It appears
that the European banks that
invested in their Central and Eastern
European neighbors are staying with
them. The good strategic news is
that the European states, for all their
internal debates and negotiations,
have recognized their interdependence.
Under stress, this time, Europe
did not splinter.
The European Central Bank played a
decisive role under the able leadership
of its president, Jean-Claude
Trichet. The ECB walked a fine line
in supporting the European financial
system and even helping Europeans
132 |
outside the Eurozone, while assuring
the Euro’s credibility. As a result,
newer EU members outside the
Eurozone may well strive to gain its
security.
Yet, amidst tighter economic times,
the European Union must still face
insecurities. Its energy vulnerability
feeds worries, aggravating difficult
relations with its neighbors to the
east, especially Ukraine and Russia.
The Balkans still smolder, and
inattention to Bosnia could revive
apprehensions about the EU’s ability
to offer security, even on its own continent.
The EU and Turkey have yet
to cultivate a common view of their
shared future. As its demographics
age, Europe will also struggle with
the integration of immigrants.
South East Asia may also have been
given a boost by the crisis – depending
on how opportunities are seized.
The region lies at a geographic
crossroads between India and China,
two rising powers. ASEAN seems
to have recognized the moment,
and has taken actions to deepen its
integration even while reaching out
to others.
Given the sizeable weight of Indonesia
and the rising influence of Vietnam,
their sound performance amidst
economic turmoil has stood in sharp
contrast to a decade ago. But there
remain questions of adjustments and

political transitions in countries such
as Thailand and Malaysia. There is
also a question of whether others
will recognize the emerging ASEAN.
China and India seem to be doing
so – but will North America and the
European Union?
For others, the long-term impact of
the crisis may depend upon commodities,
especially oil prices, which,
in recent years, gave high returns.
When the oil price is at $100, these
countries are strong. When it is at
$30, most are in serious trouble. This
reliance on oil and commodities is a
precarious basis upon which to build
an economy in a world that is struggling
to reduce its reliance on fossil
fuels, and in which commodity prices
gyrate as investors move in and out
of an “asset class.” Will countries use
these returns wisely – to diversify
and build broader-based economic
development? These are the questions
for Russia, countries in the Gulf,
and some countries in Latin America
and Africa.
Understanding shifting power relations
is fundamental for shaping the
future – as the Bretton Woods’ delegates
appreciated. The political basis
for that system was forged through
a shared experience in failed responsibility
after World War I and a clear
assessment of power after World
War II. Change those power relations
– and the nature of the markets that
connect them – and the system looks
out of touch. Let’s examine a few
examples:
Will the U.S. dollar remain the predominant
reserve currency?
The Bretton Woods currency system
gave way in 1973 to floating rates,
with the dollar as the world’s main
reserve currency. For all the questions
about the dollar’s reliability as a reserve
currency, its value strengthened
during the crisis as it offered investors
a safe haven.
The United States is incredibly
fortunate that the dollar enjoys
this special status. When I work
with countries struggling to pay for
budgets or finance trade deficits,
I reflect on how Americans do not
spend a moment considering the
unique advantages of being able to
issue bonds and print money freely.
The histories of the Napoleonic wars
tell of great campaigns and battles,
but the ultimate victory of Britain
and its coalition depended on the dry
chapter about Pitt’s restoration of
Britain’s credit.
The United States would be mistaken
to take for granted the dollar’s place
as the world’s predominant reserve
currency. Looking forward, there will
increasingly be other options to the
dollar.
| 133

Supervision
Given the ECB’s recent performance,
there is every reason to believe that
the Euro’s acceptability could grow.
The influence of the Euro will depend
in part upon the competitiveness of
European Union countries in future
years, and the depth and liquidity of
its financial markets. Demographics
and growth prospects will also
matter. But Euro financing offers a
respectable alternative if the dollar
is weak.
Moreover, China is moving toward
gradual internationalization of its
currency. China is making it easier
for trading partners to do business
in Renminbi – for example, through
currency swaps. We are likely to
see this shift in the world of investment
as well: for the first time this
month, China issued sovereign bonds
in Renminbi to offshore investors.
China recently announced that
foreign companies will be able to list
their stocks in China, a step toward
making Shanghai an international
financial center. As a major importer
of commodities, one can imagine
new benchmark indices established
at Shanghai or other Chinese ports,
eventually in Renminbi.
Chinese leaders will be cautious. Most
want to retain the control that comes
from a closed capital account. Financial
and banking markets are likely
to continue to be subject to various
tools of intervention and control.
134 |
Yet I expect China will be inevitably
drawn outward. Over 10 to 20 years,
the Renminbi will evolve into a force
in financial markets.
Countries and markets may also
experiment with financings denominated
in Special Drawing Rights –or
SDRs― which reflect a portfolio of
major currencies.
Of course, the U.S. dollar is and will
remain a major currency. But the
Greenback’s fortunes will depend
heavily on U.S. choices. Will the
United States resolve its debt problems
without a resort to inflation?
Can America establish long-term
discipline over spending and its budget
deficit? Is the country restoring a
healthy financial sector capacity for
innovation, liquidity, and returns,
without producing the same risk of
big bubbles and institutional breakdown?
The dollar’s value will also
depend on the extent to which we
see the return of a dynamic, innovative
private sector economy.
Power relations are being questioned
within countries as well. Central
Banks have played a huge role in this
crisis.
Will democratic governments permit
independent central banks to assume
even more authority?
The U.S. Congress was surprised to
learn of the scope of the Federal

Reserve’s authority to create funds,
buy assets, devise global swap lines,
and make transactions outside the
usual process for expending public
monies.
The Congress has had an uneasy
relationship with banks and bankers
since Alexander Hamilton. It took
the United States until 1913 to set up
a central bank. The Federal Reserve
earned its hard-won independence
over years of effort.
So it should not be a surprise that
American democracy is hesitating
about authorizing the Fed to supervise
systemic banking risks as well as
operate monetary policy, adding to
its power.
In the United Kingdom there is a
debate about the roles of the Bank
of England and the Financial Services
Authority. Euro-zone countries
face the issue, too, with the added
complexity of multiple national
supervisory authorities. It is a topic
for rising developing countries with
increasingly developed banking and
financial markets as well.
Central banks performed impressively
once the full force of the crisis hit.
But there are reasonable questions
about how they handled the buildup,
including asset price inflation and
significant failures of supervision.
We have yet to see whether Cen-
tral Banks can handle the recovery
without letting inflation get out of
control.
Stanley Fischer, Israel’s central bank
governor and a former IMF deputy,
makes a case for combining the tools
of monetary policy and prudential
standards supervision in the central
bank, based on organizational effectiveness.
Others suggest that one
function will inevitably be treated as
a poor cousin, or that one authority
for both magnifies the risk of errors
without a second opinion. Some even
suggest a conflict of interest.
This debate will reflect different
political traditions and attitudes
towards banks and central banks. In
the United States, it will be difficult
to vest the independent and powerful
technocrats at the Federal Reserve
with more authority. My reading of
recent crisis management is that the
Treasury Department needed greater
authority to pull together a bevy of
different regulators. Moreover, the
Treasury is an Executive department,
and therefore Congress and the public
can more directly oversee how it
uses any added authority.
Another legacy of Bretton Woods is
our global trading system.
Is it keeping up with the demands of
the global economy? The answer is
an unequivocal “no.”
| 135

Supervision
Looking at the positive side, the
cataclysmic experiences of economic
isolationism of the 1930s have cautioned
most government not to risk
a sequel. So far, traditional trade
protectionism has been a low-grade
fever. But the temperature is rising.
The political economy of trade is
epitomized by the “bicycle theory”:
Given the local pulls of protectionist
producers in most countries, the only
way to counter their gravitational
force is by forging forward with a liberalizing
trade agenda. The potential
gains of opening markets can then
help mobilize interests that will counter
those clamoring for barriers.
Today the pedals are hardly moving
the Doha Round in the WTO. Moreover,
with an agenda framed almost
a decade ago, the Doha Round is fast
falling behind the new challenges.
We should get the Doha Round done
promptly – and then look ahead.
The Doha Round could cut, discipline,
and even eliminate some agricultural
subsidies that for years were left
outside the rules-based trading system.
It could modestly open markets
for manufacturing and agricultural
goods in developed and major developing
economies. It could “bind”
barriers of major developing countries
at much lower levels, increasing
the sense of mutual contributions
and limiting the risks of big jumps in
136 |
tariffs. The Doha Round could also
open service markets and cut developed
country tariff peaks that limit
basic manufacturing and value-added
production in poorer countries. The
Round could correct rules that have
been bent to limit trade too freely.
These are real gains and would demonstrate
the capability of developed
and major emerging economies to
compromise to achieve a mutual and
systemic interest.
Once Doha is achieved, we need
to move quickly to a new agenda.
Regional integration is part of globalization,
but we need rules that enable
countries to capture the benefits
of deeper and comprehensive liberalization
with others while encouraging
an open regionalism. The WTO
needs to support the climate change
agenda without recourse to new carbon
tariffs. We need counters against
the financial and subsidy protectionism
that arose out of the crisis. We
need lower barriers to South-South
trade. The services trade must be
expanded to match the opportunities
for development and growth. We
need more help for the poorest countries
that have been less able to seize
growth opportunities from trade.
The new agenda needs to build on
early efforts by WTO’s Director General,
Pascal Lamy, supported by the
World Bank Group, to link trade facilitation
to aid for trade. To capital-

ize on lower barriers to trade, poorer
countries need: regional integration
to build bigger markets and access
for land-locked countries; energy;
infrastructure; logistics systems; ready
access to trade finance; assistance
with standards; and streamlined
customs and border procedures. It
used to take two days for trucks to
clear the border between Kenya and
Uganda. Today, a one-stop border
post that the World Bank helped
establish has cut down the transfer
time to two hours or less.
The Bretton Woods system was
forged by 44 countries at a time that
power was concentrated in a small
number of states. The great waves of
decolonization were just stirring; the
few developing countries were seen
as objects, not subjects, of history.
That world is long passed. The new
realities of political economy demand
a different system.
What will be the role of developing
countries after the crisis?
The crisis has underscored the growing
importance of the large emerging
economies, especially China and
India, but others as well. In effect,
the world economy is being “rebalanced”
toward the relative shares of
some two hundred years ago, before
the industrial revolution, plus a new
North America.
The rising developing economies
should play a key role in the recovery.
Most forecasters expect demand
to be tepid, with a pullback by the
U.S. consumer. Many developing
countries could expand demand if
they can get access to financing.
They have fiscal space to borrow, but
cannot get the volumes they need at
reasonable prices without crowding
out their private sectors. Moreover,
the middle income countries are
home to 70 percent of the world’s
extreme poor. The World Bank Group
and the regional development banks
can assist.
Looking beyond, a more balanced
and inclusive growth model for the
world would benefit from multiple
poles of growth. With investments
in infrastructure, people, and private
businesses, countries in Latin America,
Asia, and the broader Middle East
could contribute to a “New Normal”
for the world economy.
Over time, Africa can also become a
pole of growth. The messages I hear
in most African countries are the
same: Africans want energy, infrastructure,
more productive agriculture,
a dynamic private sector, and
regionally integrated markets linked
to open trade. It is a message one
might have heard in a devastated
Europe 60 years ago.
| 137

Supervision
Prior to the crisis, the growth rates
of a number of African countries
were achieving impressive levels with
consistency. Coming out of the crisis,
there could be a new opportunity.
Some Chinese manufacturing firms,
with government support, are considering
shifting their basic production
to Africa. The World Bank Group is
working with China to explore the
development of new industrial zones
that match infrastructure, energy,
and training with these ventures.
China’s African prospects – which
include resource development and infrastructure
– are likely to be complemented
by others. Brazil is interested
in sharing its agricultural development
experience. India is building
railways. These are the early days of a
trend that will build.
The World Bank Group can offer
a counterweight to financial and
trade protectionism by supporting
this development globally: We have
launched a new Asset Management
Corporation, through IFC, our private
sector arm, to invest in banks, equity,
infrastructure, and debt restructuring.
We have a parallel effort to support
and invest in the development
of local currency bond markets. Longer
term investors –such as sovereign
and pension funds―now recognize
that developed markets pose risks,
too, and developing markets can offer
good growth prospects.
138 |
Conclusion
Coming out of this crisis, we have an
opportunity to reshape our policies,
architecture, and institutions. We
have an opportunity to craft a new
global system for a 21st Century of
“Responsible Globalization” – one
that would encourage balanced
global growth and financial stability,
embrace global efforts to counter
climate change, and advance opportunity
for the poorest. It means
expanding the benefits of open markets
and trade, investments, competition,
innovation, entrepreneurialism,
growth, information – and debates
on ideas. It must be a globalization
that is both inclusive and sustainable
– expanding opportunity with care
for the environment. Yet it won’t
happen by itself.
At the G-20 Summit in London in
April, leaders stared into an economic
abyss. The danger today is
not freefall, but complacency. As the
crisis wanes, it will be harder to press
countries to cooperate in “building
back better.” Peer review of a new
Framework for Strong, Sustainable
and Balanced Growth agreed at last
week’s G-20 Summit is a good start,
but it will require a new level of
international cooperation and coordination,
including a new willingness
to take the findings of global
monitoring seriously. Peer review will
need to be peer pressure.

Climate change poses as early test. A
key task at Copenhagen in December
was to create incentives for developing
countries to participate in low
carbon growth. The decision-makers
will need to frame an ongoing process
that cuts greenhouse gases while
encouraging technological change,
adaptation, and growth.
We need a system of international
political economy that reflects a new
multipolarity of growth. It needs to
integrate rising economic powers
as “responsible stakeholders” while
recognizing that these countries are
still home to hundreds of millions of
poor and face staggering challenges
of development. It needs to engage
the energies and support of developed
countries, whose publics feel
the heavy burdens of debt, competitive
anxieties, and feel that the new
powers must share responsibilities.
It needs to help offer a hand to
the poorest and weakest countries,
the 1.6 billion people who still live
without electricity, and the “Bottom
Billion” trapped in poverty because
of conflict and broken governance.
Global finance and currencies. The
trading system. Inclusive and sustainable
development. Climate change.
States struggling with fragility and
conflicts. And a host of other security
issues. Each topic is important on its
own. But each interconnects with the
others.
The countries of the world will never
deal effectively with this agenda
unless they cooperate. The economic
multilateralism of another age does
not reflect today’s realities. We need
to modernize Multilateralism and
Markets.
As agreed in Pittsburgh, the G-20
should become the premier forum
for international economic cooperation
among the advanced industrialized
countries and rising powers. But
it cannot be a stand-alone committee.
Nor can it ignore the voices of
the over 160 countries left outside.
The G-20 should operate as a “Steering
Group” across a network of countries
and international institutions. It
could recognize the interconnections
among issues and foster points of
mutual interest. This system cannot
be hierarchical, and it should not be
bureaucratic. If given a push, the topics
could be pursued through other
negotiating groups, international
regimes, or global and regional institutions.
The IMF, World Bank Group,
WTO, Financial Stability Board, and
UN bodies could alert countries to issues,
provide analyses, build cooperative
solutions, and help execute the
policies.
To be effective and strengthen their
legitimacy, the international institutions
must also evolve. Their voting
shares should reflect the weights
| 139

Supervision
140 |
and new responsibilities of emerging
powers, while assuring a voice for
the poor. They need the transparency
and agility to work within networks
of private businesses, foundations,
and civil societies, as well as with one
another.
The old international economic
order was struggling to keep up with
change before the crisis. Today’s
upheaval has revealed the stark gaps
and compelling needs. It is time we
caught up and moved ahead.
The question is whether leaders can
cooperate in steering the changes.
They will be drawn to the interests of
the national publics they represent,
as they should. Yet they also will be
challenged to recognize and build
common interests, not only case-bycase,
but through institutions reflecting
a “Responsible Globalization.”
Bretton Woods is being overhauled
before our eyes. This time, it will
take longer than three weeks in New
Hampshire. It will have more participants.
But it is just as necessary. The
next upheaval, whatever it may be,
is taking form now. Shape it or be
shaped by it.
With thanks to SAIC for the text.

5. Communication:
The Finance Sector Needs a New Media Strategy
5.1. The End of Financial Market Communication
Dominance
By Richard Gaul
The crisis in the world economy will
also bring to a close a chapter in business
communication: the chapter of
the dominance of financial market
communication. The focus on, and
often even reduction of, business
reporting to purely financial figures
has proven to have been a step in
the wrong direction. Business cannot
only be described by means of balance
sheet figures and percentage
calculations.
A company, or a national economy,
consists of much more than can be
described on a balance sheet – not
to mention by a market rate or a
gross national product ranking. The
overwhelming majority of employees
in industry and the service sector do
not only strive for increased revenues
or better share prices: they looked,
and still look, for much more in their
workplace – identity and values, selffulfilment
and success which cannot
be captured and summarised only in
figures.
In order to be able to change course
and steer in the right direction, there
must first of all be clarity regarding
the markers which for the last thirty
years have caused correspondents to
be ever further misled.
Firstly, there is the ever growing
number of stock exchange rules
and legislation developed from
honest and good intentions. The
overly close proximity of American
regulations for trading on the stock
exchanges in Europe (Germany for
instance includes in its legal texts a
Financial Market Development Act
(Finanzmarktförderungsgesetz) and
an Investor Protection Improvement
Act (Anlegerschutzverbesserungsgesetz))
gave the deceptive illusion
that, with an abundance of numbers,
even the truth of the position of a
company could be made public. The
US stock exchange supervisory body,
the SEC, did its bit and gave the public
the impression that all the listed
companies in the US were very precisely
audited. Compulsory quarterly
reports, which in some cases even
turned into outright quarterly financial
statements, forced companies to
painstakingly produce a plethora of
lists of long columns of figures every
quarter – thus also forcing management
to an ongoing preoccupation
with numbers rather than focussing
| 141

Communication
on setting strategic goals for their
company.
These quarterly reports were, in turn,
welcome material for hundreds of
analysts and journalists for producing
clever analyses of the state of a
company. However, with this almost
exclusive focus on these figures the
actual situation and position of the
company was lost sight of.
Some ten years ago the new market
gave cause for also inculcating this
faith in numbers in a wide spectrum
of the public: the mass media and
television also discovered the stock
markets as an arena for their reporting.
The criteria for judgements became
simpler by the day: a plus sign
became proof of success – a minus
sign documented failure.
This tremendous simplification,
however, unfortunately remains par
for the course in many media today
– add “still” for a sense of optimism:
business reporting on television still
takes place almost exclusively from
the trading floors; “Börse im Ersten“
(a German television programme
reporting on the stock market) is in
Germany often still the only news
format in which business is actually
reported on at all during prime time;
analysts are still often called to the
witness stand, without their own
research or even any own expertise,
again backing up their opinions with
142 |
numbers games; the moderators of
the morning news radio broadcasts
still call analysts from various banks
by phone, including the small-town
local Sparkasse, to discuss almost all
business-related topics – instead of
making their own judgements.
And even politics has largely given
itself over to these rules of the game:
expert discussions with “business“ are
only portrayed effectively in the media
if the largest possible number of
the largest publicly listed companies
participate with their top managers
– chairpersons of the Board have
from time to time become business
celebrities. And then, for instance,
rumours of some minister would be
discussed with the personnel directors
of blue chip companies. At the
same time, for instance in Germany,
the vast majority of employees are
not employed by these companies
– this hugely important role played
by German medium-sized companies
is only pointed to for other companies
– with far less media impact.
The ratings agencies then also gave
their blessings to these number
crunchers – these stamps of approval
feigned a neutrality and respectability
they never had before.
This fascination with figures reached
its high point with the worldwide
acceptance of the new accounting
regulations. In the good old days of
the German Commercial Code (HGB

– Handelsgesetzbuch) assets had to
be recognised on the balance sheet
at their acquisition cost. The rise or
fall of portfolio share prices was only
moderately reflected on the balance
sheets of, for instance, banks after a
considerable delay. With the conversion
to the international accounting
standards a few years ago (now: “International
Financial Reporting Standards
– IFRS“) these amounts must
now be stated at the closing rate.
This can, as has often happened in
the past, lead to enormous accounting
profits – and today this leads to
gigantic accounting losses.
This change in accounting regulations
– which, incidentally, was
politically desired – is also one of the
reasons for the markedly over-proportional
increase in the emoluments
of managers at listed public companies:
many Board members’ contracts
included clauses for the calculation
of bonuses based on the profits that
companies made. This was already
prevalent in the times of accounting
in accordance with the German
Commercial Code. Due to the new
accounting regulations these profits
also increased substantially in recent
years – and with it the so-called
management salaries. The profits of
Porsche, for example, which in the
prior financial year notched up more
than six billion euros in its portfolio
due to the valuation of Volkswagen
shares would, according to the old
HGB method of accounting, only
have reached – nevertheless a very
respectable – one billion; the annual
income of the six-person Porsche
Board would then have only been
a fraction of the then published 112
million euros.
Left out entirely was the reality of
the business and of the companies
due to the further reduction to share
prices by the already misleading
number crunching. The successes or
woes of a company, when evaluated
by public opinion, were almost
only decided by the valuation on the
stock exchange. Other criteria such
as sustainable product strategies,
high-performing staff complements,
competitive locations or bold investment
policies did not appear to play
any role in these judgements.
In the process it is of course undisputed
that the price of a particular
share would also be a criterion for
evaluating a company – but only as
ONE criterion and not the only one
and sometimes, maybe not even the
most important criterion in a particular
period.
But there are now more and more
signs indicating that a paradigm shift
in business reporting is imminent.
The debate around “new values”,
which, in very many cases, is actually
only about a return to the old values
and traditions, points the new way
ahead. Forward-looking business
| 143

Communication
144 |
leaders are taking part in this debate
and driving it forward.
The realities of business will therefore,
in the future, have a greater
chance of also being brought to a
broad spectrum of the public. An
understanding of business and companies
will then be able to develop,
although it will not silence the
criticisms of bad corporate decisionmaking.
But it will make it more
objective.
This process is only just starting now
– but the commentaries from the
trading floors on radio and on television
already now sometimes feel as
if they hail from another, long past
age.

5.2. Let’s Have a Dream: Media Becoming
Triggers!
Interview with Michel Ogrizek
1) As Risk-Expert: with which other
crisis would you compare the Trust
Meltdown for the finance sector?
Structurally, this crisis could be compared
to other ‚domino-effect crises‘.
The reference in this domain is the
Vietnam war. Ideological approach
combined with massive injection of
money and means do not dry up the
genuine source of such crises. This
is indeed like searching for a peace
deal, the only way to manage and
find an end to the present financial
crisis is political. Having said that, THE
question mark remains: will the global
decision makers be courageous
enough to assume their leadership
role? If not, the trust meltdown for
the finance sector will increase and
the public opinion will put the blame
on governments – they are taking the
risk not to be re-elected.
2) What have been the major mistakes?
The major mistake done by the
economists has been to believe that
‘making money with money’ represents
a progress for the development
of capitalism, because logically
responsive to the globalization. The
politicians have made the mistake
to accept two fundamental conse-
quences of the genetically modified
democratic system called ‚liberalism‘:
1. the confusion between ‚profit‘ and
‚value‘ when evaluating sustainable
growth of wealth on the market and
in society 2. the growing dissociation
between a real world rooted in tangible
economic assets and a virtual
world that over promotes, sells and
buys intangible assets – this gap has
been widen by the greed of key players
such as global investment banks
and by the lack of sound financial
knowledge amongst political leaders.
Furthermore, it has been accelerated
by internet communications.
You could compare all this process as
the stall of an aircraft, which always
occurs when the full engine power
can‘t compensate anymore a too fast
reach of a high altitude, worsen here
by two additional factors: dirts in the
fuel and traders as co-pilots.
3) Listening to some of the CEO’s in
charge they claim it was unpredictable.
Would you agree?
In the 20 th century, no expert – even
the best Kremlinologists – anticipated
the Perestroika and the fall of
the Berlin Wall! The problem with
experts is that they are often judges
and parties. Being part of the system
| 145

Communication
and living from it, they can’t afford
to think and act outside the box. Today,
who is in charge of solving the
financial crisis? The ‘usual suspects’…
4) You have served some time at an
investment bank: can you identify
communication patterns leading to
these mistakes?
The financial services’ culture is
founded on an apartheid system:
segregation between the bankers
who are controlling the business on
earth, and workers who belong to
the so-called ‘back office’ situated
underground. Ethical Compliance and
Corporate Communications are in
fact relegated to the back-office. This
means that internally, the top bankers
have always the last say. Most
of the leaders in the financial sector
have not yet fully understood they
can’t anymore make deals on the
market, without being accepted by
the society. They are taking a huge
risk: losing their ‘license to operate’.
5) How and where would you start
the changing process?
New regulations, fines and taxes will
not change profoundly the rules of
the game. We are facing more than
a mindset or a moral issue in Wall
Street or Broadgate, but a global cultural
disease. Here, don’t misunderstand
my remark. I am not stigmatizing
the Anglo-Saxon culture and I am
not saying this is indeed at the origin
of the financial crisis. No. Neverthe-
146 |
less, I strongly believe that only deep
epistemological ruptures will be able
to change the global financial game.
Some external forces are already in
action.
Let me sum up in a few words. Today,
„In God we trust“ is the tagline
on every US Dollar bills. According to
Max Weber, capitalism has been built
on Protestant values and networks. If
you consider the demographic evolution
in the USA, it is obvious that the
Hispanic population is growing at
fast rate and will reach a threshold of
political and business influence in less
than 20 years. Hispanic population is
mostly Catholic. This will generate a
lot of political changes on how public
and private finances should be used,
especially in the area of Health and
Social Assistance. At the same time,
World will become more global and
increasingly the USA and the Western
World will become the financial
and economic hostage of Mainland
China. In the Chinese society, Confucianism
is rising from its ashes with
the benediction of the Authorities.
Confucianism values offer new business
opportunities for the Financial
Sector, in particular in long term
and secured investments such as Life
Insurance and Private Equity for the
benefit of families and descendants.
More important, it will change the
way money is managed as a strategic
political weapon. What will be then
the margins of maneuver of Central

and Private Banks to negotiate? Nobody
knows at this stage – probably
little. On the other hand, there is a
strong cultural pattern of ‘gambling’
in China – this might induce new
uncertainties on stock markets.
6) What needs to be changed within
the relationship Board-Communication
Department?
Every leader will tell you that communications
are of paramount importance
in our World! And when you
look at Boards level, no communications
expert has a seat. Is this a question
of lack of knowledge in financial
matters? I guess ‘not’. Otherwise,
how to explain the presence of an
Admiral on the late Lehman Brothers’
board? Heads of Communications
should be permanent member of Executive
Committees and well-known
Communications Experts should join
the Boards – this will avoid a lot of
mistakes in communicating and a
lot of pitfalls in managing corporate
reputation.
7) What needs to be changed within
the relationship to the Media themselves?
The financial crisis has confirmed that
media are ‘followers’. Let’s have a
dream: media becoming triggers!
8) While following the crisis: do you
feel informed?
All depends on which channels you
are using for getting the news. In the
US, a recent study has shown that
the so called traditional media are
still the main source of information
– and that new media are indeed
mostly ‘brokers’. Here, let’s meditate
the famous quote of Lao-Tzu: „He,
who knows, does not speak. He, who
speaks, does not know“. This is particularly
true in the financial sector!
9) What type of information should
get more space in future helping you
to build your own opinion?
If somebody would be able to establish
a fair correlation between core
media information and financial
markets’ trends, I would read the
media very differently! In the mean
time, let’s enjoy the ‘life style’ pages
and the FT supplement “How to
spend it“!
10) How do you see the options for
the banking industry to regain trust?
I am afraid this is a hopeless challenge
for the coming ten years, at
least – and even furthermore, so
long bankers don’t accept the basic
idea that they are also members of a
society and not necessarily the masters
of the universe. To be respected
and trusted by billions of Mrs. and
Mr. Nobody, they should shift from
glorious egocentric Philanthropy to
everyday Corporate Social Responsibility...
To end this interview, let me tell you
here a great story, which is reported
| 147

Communication
148 |
by Joseph Klatzmann in his book
“The Jewish Humour“: A man asks
a rabbi why the rich persons are so
egoistic and greedy. “Look through
the window. What do you see?“
requests the rabbi. “I see people
who pass in the street.“ “Take this
mirror now. What do you see?” “I see
myself“. “The window and the mirror
are made of the same glass. However,
it is enough to give a silvery sheen
to the glass and one sees nothing any
more, but oneself”, concludes the
rabbi.

Trust and Credulity, Sin and Suspicion
6. Trust and Credulity, Sin and Suspicion:
Must the Crisis of Trust lead to a Society
of Suspicion?
By Canon Alistair Macdonald-Radcliff
“Doing God’s work” is an arresting
way for one of the world’s leading
bankers to describe his activities to
The Times of London in an interview
in November 2009. Certainly, it must
be allowed that if such is his work
there is no business like God’s business,
since, for Mr. Lloyd Blankfein,
Chairman and CEO of Goldman Sachs
the last year has been especially
profitable, despite the wider context
of calamity. But all these new banking
profits have happened at a time
when trust in bankers has hit an alltime
low and they are widely blamed
for even precipitating the global
financial crisis.
Yet in their recent evidence to the
Financial Crisis Inquiry Commission in
Washington, the heads of JP Morgan,
Goldman Sachs, Morgan Stanley and
the Bank of America would have
none of this. In the words of The
Guardian commentator, Dan Roberts
“The script has definitely gone
around: blame everyone else and
talk up your own bank.” Thus it was
that they variously blamed “lack of
regulation, lack of oversight in the
mortgage market, pro-cyclical bank-
ing rules, macro economic factors,
underlying weaknesses, trade imbalances
etc. Everything, in fact, except
the behaviour of highly-incentivised
Wall Street bankers.”
Perhaps the theologically minded
Mr. Blankfein had in mind a previous
script, where Adam blamed Eve and
Eve blamed the serpent for causing
them to eat of the forbidden fruit. If
so, however, he should have remembered
too that it was upon eating
that fruit that Adam and Eve realized
that they had no clothes and were
soon to face an altogether harsher
climate and exclusion from the previously
effortless abundance of their
garden of Eden.
Certainly it is clear that for the banks
and other leading financial institutions
merely to say that “the past is
the past, we are basically good and
you should trust us” will not suffice.
But it is important too to recognize
that thinking about how to negotiate
the challenges more successfully
in ways that can both be practically
applied and bring about sustainable
improved performance is far from
| 149

Trust and Credulity, Sin and Suspicion
easy given the prevailing cultural terrain.
Nonetheless, it is possible to be
clear about the following needs:
• errors and wrongs need to be identified
and acknowledged;
• corrective steps need to be taken in
terms of regulation and oversight;
• to prevent a culture of concealment
procedures that allow for
rehabilitation and recovery must be
put in place also;
• attention must be paid to those
most harmed by past errors.
But before these steps can begin and
as fingers start to point, we might all
do well to remember the words addressed
to the Galatians (6, 1) “Brothers,
if someone is caught in a sin, you
who are spiritual should restore him
gently. But watch yourself, or you
also may be tempted.”
The word “sin” may be a good point
from which to start even if it is
nowadays almost shocking because
it is so unfamiliar. Indeed, the only
time it is at all commonly encountered
is when people say it might
be sinful when they begin to eat a
dessert. Yet the concepts of greed,
dishonesty and even theft are hardy
perennials since the time of Eden and
they clearly need to be considered
amidst the present woes, since a key
step required before reform can be
accomplished I Nonetheless, it must
be conceded that the prevailing cul-
150 |
ture certainly does confront us with
a fascinating assortment of tensive
tendencies if not downright contradictions
within which to work.
Western culture, in particular, seems
to pride itself on being ever more
widely permissive, on the one hand,
while on the other, it is ever less
forgiving, to the point that some
have suggested that it “permits
everything but forgives nothing”. It
should be no surprise therefore that
it is being “found out” that often
seems to be the greater error, not
what was done before hand. To
counterbalance this, we seem intent
on devising ever more relentless and
intrusive means of achieving “transparency”
and accountability. Quite
literally at airports, the new scanning
technology can see through even our
clothing, and in some countries, like
Britain, there is at least one security
camera for every eight citizens. On
another level, it will soon be impossible
to do anything and still less to
write it without it being for ever
potentially available for later public
recall. Anyone who demurs in the
name of the fast dying concept of
privacy has to answer the immediate
repost of “what is it that you would
like to hide?” Yet, in fact increased
surveillance lowers the level of trust,
and increases suspicion. Instead of
ever greater knowledge supporting
greater confidence, we find that it is
fear and doubt that are on the rise

as the abundant data and statistics
provided in this volume attest.
In the midst of all this, the media responds
to a rapacious public demand
for the exposé, knowing well the entertainment
value of laying bare the
duplicities and failings of institutions
and public figures. This reflects our
frank enjoyment of a good scandal
and our schadenfreude at the fall of
the mighty. But behind this there is
too an implicit but growing presumption
that the ultimate sin is hypocrisy.
This has a dark side, for while it is
true that wrongdoing is compounded
by concealment, the cover-up should
not normally be seen as the real
crime. If hypocrisy is indeed the tribute
that vice pays to virtue it should
not be allowed to distract from
deeper error. An overemphasis upon
hypocrisy can be used with ratchetlike
effect to erode overall standards
of behaviour on the basis that rather
than have people uphold a principle
– which they sometimes find it hard
not to break – it is better to abandon
the principle itself, since then there
will be no hypocrisy. To let a principle
fall simply because people tend to
break it from time to time is merely
to leave the boundaries of what is
permitted forever expanding and
undefined.
To add to all the confusion, the very
language of “right” and “wrong”,
“true” and “false” is now itself
widely avoided. There seems to be a
feeling (naturally) that such language
is somehow out of place. People
speak instead of being “uncomfortable”
about what they actually think
is wrong. It is surely no accident that
we find ourselves using the language
of comfort instead of the harder
one of “right and wrong”, “true
and false”, for it reflects not merely
a “comfort driven society” but an
ultimately philosophical doubt that
we can set out a basis, which we can
actually justify, for the good and the
true any more than the beautiful.
We seem unsure that we have access
to the way things are independent
of our thought about them and thus
imagine that perhaps all we are
left with is ultimately emotion and
preference. If all art is of equal merit
why shouldn’t all actions be of equal
value too, aside from our responses
to them? And if that is the case, then
there can indeed be no crime, as
such, beyond that of getting caught.
In sum, we apparently think that
we are basically good and are yet
ever more condemnatory of error
and strident about hypocrisy while
demanding ever more elaborate
processes to achieve transparency.
But at the same time, we are not sure
there are many, or even any, ultimate
boundaries to conduct which we can
warrant beyond the levels of mere
pragmatism and preference.
| 151

Trust and Credulity, Sin and Suspicion
Yet, despite all this, there are two
happy thoughts to which we seem
to cling with surprising conviction.
The first is that, through it all, we are
making progress. Not that people
would suggest by this some sort of
“excessive” optimism, we may be
sure, along the lines of believing
that “every day in every way we are
getting and better” but, nonetheless,
there seems to be a certain quietly
held and cosy presumption that the
continuity of progress is a given part
of how the world is. And then, in
the second place, there is the further
gratifying if surprising presumption
that we apportion our beliefs to the
evidence we have considered.
On reflection it ought to be a matter
for surprise that we have supposed
we could hold all these ideas together
without signs of tension. After
all, one might have thought that the
evidence around us and the course of
human history – upon even a cursory
examination― might have given
grounds for hesitation. But hitherto,
it would appear that consistency was
indeed but the “hobgoblin of small
minds” and that we have been happy
to rest content and journey on upon
our way. At least until now, when it
seems we are having a collective and
corporate crise de foi as we finally
see that we have a problem. All this
is crystalised in our present crisis of
trust precipitated by the financial
crash. Such is the magnitude of the
152 |
crisis that in an act of true desperation
there are sudden calls for “values”
and even for religion to supply
anew these apparently forgotten
things !
Needless to say, none of this is in fact
very new. The novelty lies merely in
the context and the particulars of the
precipitating crisis. As long ago as the
fourth century BC we were presented
with a relevant image by Glaucon
the brother of Plato who tells not
of a banker at that time but instead
of the shepherd Gyges who found
a gold ring which had the ability to
make him invisible when placed on
his finger. On realising the ring’s
power, Gyges used it to seduce the
queen, murder the king, and take the
throne.
Glaucon took this to illustrate his
contention that however law-abiding
and good we may appear, we would
all do as Gyges did, albeit in probably
a less dramatic fashion, to serve our
self-interest, if we could avoid detection
and punishment. And, Glaucon
went on to make the even more dramatic
claim, that we would be right
to do so, since each human being’s
only interest is their own self-interest,
and we have no interest in justice
and morality for their own sakes.
Surely, this is the nub of the present
matter. For why should we ever trust
others if we think that only the fear

of detection and punishment is preventing
them from harming, stealing
from and betraying us? A constant
quest to ensure detection and punishment,
while proper and necessary,
will in the end fail if that is all that
we do. It will never warrant real trust
and will leave us on an endless and
ultimately fruitless quest. Just as in
the case of airport security, if all the
focus moves to finding the bomb and
not the bomber and, even more important,
what it is that is making the
bomber want to explode the bomb,
true security will never be the result.
Such a perspective risks creating a
wider economy of fear, for when
we doubt that others have enough
such fear, we are likely to think that
we should be prepared to pre-empt
their attacks with our own. But
then, since they can anticipate that
we will be prepared to do this, they
should logically be expected to take
measures to resist and overcome our
attacks. The predictable result will be
a downward spiral, that can only end
with the triumph of the most ruthless
and brutal. In such a context, life may
well come to fulfill the Hobbesian
picture of being “nasty, brutish and
short”.
But merely because such a perspective
is sad and disagreeable does not
in any way refute it or show it to be
wrong. We must deal with the world
as it is and not as we might wish it
to be, since mere recourse to some
fantasy is unlikely to be sustainable.
For this reason we have good cause
to be highly suspicious of the mere
instrumental invocation of religion
as though it were some last straw at
which to clutch before we finally sink
into the beckoning chaos. To change
the image (after Marx), it is not a
favour to anyone if we see religion
as merely the source of a convenient
opiate by which to keep wrongdoers
at bay and ourselves numb to life’s
harsher realities. Religion should
only be invoked if it has a unique
and true contribution to make and
we are willing to embrace the entire
moral economy that it may offer,
such as that from acknowledgment
of error through to the possibility of
rehabilitation and redemption .
In addition, it is entirely evident that
many of the egregious episodes of
misbehaviour that contributed to
the recent financial crisis were in no
sense morally obscure –greed is not
a novelty! And it is implausible to
suppose that the perpetrators are
saying “If only I had known! Someone
should have told me what I
really needed was a new set of values
and a new source of moral insight!”
Nonetheless, a good case can be
made for seeing religion as providing
a necessary adjunct and context for
the moral, but it needs to be carefully
made if it is to be useful and
to provide more than a mere source
of vocabulary for the right and the
| 153

Trust and Credulity, Sin and Suspicion
wrong –as and when we tire of the
comfortable, the uncomfortable and
even perhaps the insensitive.
But let us first go back to a vital point
at hand, namely that we all do, in
fact, have a basic understanding of
what trust is, even though fully articulating
what it involves and what
an adequate grounding for it may require
is problematic. The simple fact
that trust is possible is an important
starting point. If, in the face of the
possibility of trust we hold to the picture
of human beings as moved only
by gross self-interest many of our
most valuable cooperative activities
will seem to be irrational, and will
seem to persist only through blind
habit or irrational hope. Such quotidian
matters as a visit to the doctor
and other professional relationships,
not to mention friendships will all be
suffused by doubt and mistrust and
the corrosive anxiety that perhaps we
should get in first before they attack
us or otherwise diminish us in some
way.
The reality of the possibility of trust
thus makes it evident that human
beings may take responsibility for the
ways in which their behaviour influences
others and their decisions in
ways that transcend the immediately
egocentric. This may further point
towards a way of explaining how
trust can be in a deep sense rational,
which in turn can offer an opening
154 |
to the possibility that trust can be
genuinely and successfully promoted
and maintained.
When we trust others, we have
confidence in them such that we feel
we can rely upon them to do or take
care of something about which we
are concerned, even though they are
in a position not to do it, or to harm
or damage it, or even take it from us,
if they wished. This entails that the
act of trust is one in which we make
ourselves vulnerable but we do so in
the confidence that the recipient of
our trust will not exploit this vulnerability,
and more widely, that this
person will actively take care of what
we make vulnerable.
This last point about vulnerability is
important. It makes clear that trust
always involves risk. It always involves
the risk that the trusted person will
not do what is required for the trusting
person. And that is necessarily
the case since, if there were a guarantee,
then there would be no need
for trust in the first place and the fact
is that those in whom we trust have
a choice as to whether they fulfill
the trust. Since there is risk, there is
also therefore danger, for in trusting
we risk the loss of the things that we
entrust to others, including potentially
our self-respect as a person
able to make such judgments about
whom to trust –something which can
be shattered by the betrayal of our

trust. (And just to be clear it is not
suggested therefore that all doctors
and other professionals carry a warning
label stating that “trustworthiness
may go down as well as up and
you are advised that past performance
is no absolute guarantee of
future conduct”)
But what about religion?
It is interesting at a time of rampant
and aggressive secularism in the
western world to find religion being
again widely invoked as a source of
moral insight. This is certainly something
that most religious traditions
have historically seen themselves as
supplying, but there are particular
challenges within a context of pluralism.
Unless all religions are deemed
somehow to point to some common
ethical insights the question of how
they mutually relate will be important.
It seems implausible to imagine
that they do in fact all share exactly
the same moral views, indeed in
many cases they have often claimed
that they offer a unique moral vision.
Thus it is possible to hear of
such things spoken of as a uniquely
Christian or Muslim ethic yet, insofar
as they lay claim to insights not
otherwise available, then it is open to
question just why people of another
or no faith should feel these insights
to be normative for them?
Unless a basis for adopting whatever
principles are proposed can
be articulated upon a basis all can
share, why should non-believers
agree with them? But then, insofar
as such a process can be successfully
attempted, what meaning does it
still have to speak of a specifically
Christian or Muslim ethic (to cite but
two possibilities)? Again, if it is suggested
that the good will ultimately
be that which is most conducive to
human flourishing, for example, does
this not risk reducing all of ethics to
a form of utilitarianism or at least
consequentialism?
Space does not allow these issues to
be adequately addressed here, but
one possibility may lie in suggesting
that the key to the uniqueness of a
religious tradition’s moral insights
may lie in the overall perspective it
makes possible as much as in the particularities
of its ethical injunctions.
Thus the possibility of a redeemed
world, and the consequent possibility
of hope and ultimate meaning which
this implies, may constitute a perspective
upon morality that is unique
and which can both occasion insights
not otherwise available. It can also
point to a grounding for the moral
itself that lies far more deeply rooted
than in the mere vagaries of our
emotional responses and preferences.
This in no way precludes subjecting
the principles derived to the kinds
of test already mentioned, in terms
of human flourishing and so forth.
| 155

Trust and Credulity, Sin and Suspicion
In addition, there can be a powerful
message of humility, insofar as
religion may well point out that
mankind is not presently by nature
immaculate nor perfectible by means
of our own powers alone. Above
all, there is an immensely powerful
perspective presented by the
understanding of ourselves and the
universe as one in which we have our
being as created by God. The understanding
of God , in the particular
case of Christianity and Judaism, as
well as Islam, is one of a God who is
the ultimate object of trust, as that
than which nothing greater can be
conceived, and upon whom we rely
for existence from one moment to
the next.
The fidelity of God, as one to be
trusted and who keeps his promises
is the principal theme of the Bible, so
the concept of trust could hardly be
more deeply rooted than by this religious
understanding of the cosmos
and our place within it. Moreover,
the specifically Christian understanding
of the possibility of a redeemed
world offers a particularly compelling
vision in which to ground the moral
universe and the nature of the moral
life which we are ultimately called to
live. And it is one with the capacity
to warrant a restraint upon greed
by virtue of its emphasis upon our
shared participation in the community
of faith where the welfare of the
individual can only be fully achieved
156 |
within the context of the wider
whole. This can be put in other (Aristotelian)
terms by seeing the function
(ergon) of humankind (which
is rationality for Aristotle) as something
only fully realizeable within the
context of the family and community
since “man is born for citizenship”
(Nicomachean Ethics 1925a:1097)
If all this risks seeming too metaphysical,
the earlier point about the
possibility of exploring that which is
conducive to human flourishing must
be remembered. Whatever flaws
may be found in the details of his
argument, Francis Fukuyama’s book
Trust: The Social Virtues and the Creation
of Prosperity. (New York 1995)
can serve to illustrate possibilities
for evidence-based debate upon the
insights we derive. He argued that
trust between individuals is essential
to a healthy economy and sought to
present evidence which suggested
that social cooperation depends, not
only on formal institutions such as
contracts and laws, but also, vitally
and specifically upon trust between
individuals. He argued that it is the
culture of trust (as the source of
spontaneous sociability) that allows
enterprises to grow beyond the level
of a family enterprise into professionally
managed organizations, for trust
expresses beliefs about the predictability
of actions that are essential
to institutional growth. High levels
of trust lead to higher institutional

eliability and lower administration
costs and such trust levels if sustained
can thus support larger and more
efficient organizations. But such trust
cannot be forced negatively merely
through legislation since it in fact
requires a prior overall moral context
in which each individual accepts their
role
But if all this is to be carried through
into meaningful application there is a
paradox, for we must not ultimately
focus unduly on error in practice and
we will need to reign in the culture
of suspicion and concentrate more on
promoting the good than on only detecting
the bad. We can never have
total guarantees about the performance
of people and we will need to
make sure that professionals and all
those engaged in providing services
to the public have the freedom necessary
to do so. Intelligent accountability
that does not stifle operational
effectiveness must be attained.
Above all, the culture of suspicion
must be reigned in by the successful
articulation and application of those
principles and practices that alone
can warrant the trust we must be
able to place in them. To paraphrase
Samuel Johnson: it is better to have
trusted and failed (occasionally) than
never to have trusted at all.
| 157

Contributors
Kofi A. Annan was the seventh Secretary-General
of the United Nations,
serving two terms from 1 January
1997 to 31 December 2006 and was
the first to emerge from the ranks
of United Nations staff. In 2001 Kofi
Annan and the United Nations were
jointly awarded the Nobel Prize for
Peace with the citation praising his
leadership for “bringing new life to
the organisation”.
Current activities
Since leaving the United Nations,
Kofi Annan has continued to press
for better policies to meet the needs
of the poorest and most vulnerable,
particularly in Africa. He has also
continued to use his experience
to mediate and resolve conflict. In
Kenya in early 2008, Mr. Annan led
the African Union’s Panel of Eminent
African Personalities to help find a
peaceful resolution to the post-election
violence.
www.kofiannanfoundation.org
158 |
Alfred R. Berkeley III
University of Virginia, BA, 1966
Wharton School of Finance, MBA,
1968
USAF, 1968 – 1972; 1978- 1980; Major
Alex Brown & Sons, investment
banking, General Partner, Managing
Director, 1972-1996
NASDAQ Stock Market Inc., President,
Vice Chairman, 1996-2003
National Infrastructure Advisory
Council, 2001- Present (Presidential
Appointment)
Evaluator, National Medal of Technology,
2003 - present
Pipeline Financial Group, Inc., Chairman
and Chief Executive Officer
2003 - present
Johns Hopkins University, Trustee
Allen University, an historically black
university, Trustee
World Economic Forum, USA, Director
Realpage, Inc., Director
ACI Worldwide, Inc., Director
XBRL US, Inc., Director

Emilio Botín-Sanz de Sautuola
y García de los Ríos
Chairman, Banco Santander.
Executive Director.
Chairman of the Executive, the International
and the Technology, Productivity
and Quality Committees.
Born in 1934 in Santander (Spain).
Graduate in Economics and Law.
Dr. Joachim Faber
Personal details
Date of birth: May 10, 1950
Place of birth: Gießen, Germany
Education
Studies in law at Bonn University
Doctorate (Dr. rer. publ.) from the
Hochschule für Verwaltungswissenschaft,
(University of Administrative
Sciences), Speyer, including research
work at the Sorbonne, Paris
Professional career
1983 – 1997
Various positions at Citicorp in
Frankfurt and London
1995 – 1997
Head of capital market business in
Europe, North America and Japan
1997
CFO and Member of the Board of
Management of Allianz
Versicherungs AG
Since 2000
CEO of Allianz Global Investors AG,
member of the Board of Management
of Allianz SE
(formerly Allianz AG)
| 159

Contributors
Mark B. Fuller is CEO Co-Founder,
Chairman and CEO of Monitor Group.
Harvard Graduate School of Business
Administration, Cambridge MA, USA,
Degree: Masters in Business Administration
(MBA) with Honors, 1979
Harvard Law School, Cam-bridge MA,
USA, Degree: Doctor of Jurisprudence
(JD) with Honors, 1979, Member
of Harvard Law School Project on
Negotiation, Teaching Fellow in
Social Science course 174: Managing
International Conflict, Award: Award
for Teaching Excellence
Harvard University, Faculty of Arts &
Sciences, Cambridge MA, USA, Degree:
Bachelor of Arts (AB) in History
with Highest Honors, 1975, Awards:
Magna Cum Laude, Dean’s List,
Harvard Prize for History, member of
Phi Beta Kappa, John Harvard Prize,
Detur Prize, Nominated for numerous
fellowships
Professional Experience:
1983-present: The Monitor Group
(1,400 employees), Co-Founder, Chairman
and Chief Executive Officer
160 |
Joseph Fuller is a co-Founder and
Chief Executive Officer of Monitor
Group, a leading global consultancy.
He joined Monitor at its inception
and currently oversees its consulting
operations in twenty-seven offices
globally. Monitor Group serves many
of the world’s most respected companies,
as well as governments and
non-governmental organizations.
During his tenure at Monitor, Joe has
worked with clients in a wide variety
of industries, especially those with a
heavy reliance on technology. He has
particularly deep experience in two
of the world’s most dynamic sectors,
life sciences and telecommunications,
and has advised leading companies
and important regulatory bodies in
both industries.
Joe has contributed extensively to
Monitor’s intellectual property. His
interest in research began during his
collaboration with Professor Michael
Porter of Harvard Business School on
the development of the concepts presented
in Porter’s book, Competitive
Advantage.

Richard Gaul, born in 1946, since May
2008 Chairman of the German Public
Relations Council DRPR; since January
2007 freelance communication
consultant, partner of “Zehle-Gaul-
Communications GmbH”
Professional career: 1964 - 1970
studies in economics and politics in
Cologne and Bonn; 1970 - 1971 editor
Kölner Stadt-Anzeiger; 1972 - 1977
Business editor Stuttgarter Zeitung;
1977 - 1978 editor manager magazin,
Hamburg; 1978 - 1979 editor DIE
ZEIT, Hamburg; 1979 - 1985 deputy
head of business department, DIE
ZEIT, Hamburg; 1985 - 1989 head
of “Presse”department BMW AG,
München; since 1989 Head of “Presseund
Öffentlichkeitsarbeit” BMW AG,
München; from summer 2000 head
of communications and politics.
He is serving on the board of directors
of Media Tenor International.
Scott Gaul is the Product Development
Manager at MIX. He joined
MIX in early 2006, working as analyst
for Eastern Europe and Central Asia
and East Asia and the Pacific. Prior to
joining MIX, Scott worked on interest
rate risk management and asset/liability
management issues for banks and
other financial institutions, including
the World Bank. He also has experience
at a leading microfinance
institution in Kyrgyzstan. As Product
Development Manager, Scott researches,
develops, and operationalizes
new information products that serve
MIX’s mission, business priorities and
client information needs, such as the
new MIX Market platform.
Scott has a bachelor’s degree in
Mathematics from the University of
Chicago, and a master’s degree in
International Economics and International
Development from the Johns
Hopkins School for Advanced International
Studies (SAIS) in Washington.
He speaks Russian.
| 161

Contributors
Andrew Gowers is Global Head of
Communications at BP.
joined Lehman Brothers as Head of
Communications on 05 June 2006. In
December 2005 he was appointed to
lead an independent Review for HM
Government of the UK‘s intellectual
property regime. Andrew was Editor
of the Financial Times from 2001 to
2005.
After graduating from Cambridge
University, Andrew began his journalistic
career in 1980 when he joined
Reuters as a graduate trainee. In
1981, he was appointed Brussels correspondent
and in 1982 he became
Zurich correspondent.
He joined the FT in 1983 on the
foreign desk in London. In 1994, he
was appointed deputy editor.
From July 1997, he spent 15 months
as acting editor while the editor,
Richard Lambert, was in New York
to launch the new US edition of the
Financial Times. In January 1999,
Andrew Gowers was appointed founding
editor of a new German language
business newspaper, Financial
Times Deutschland.
162 |
Canon Alistair Macdonald-Radcliff,
Director General of the C-1 has served
as Senior Advisor to the World Economic
Forum and its Council of 100
Leaders’ West-Islamic Dialogue. He
was also for-merly Dean of All Saints’
Cathedral in Cairo and a Fellow of
the Ethics and Public Policy Center in
Washington DC. a founding partner
of Christian Edge an internet publishing
company and a Director of
Avancia Consulting Inc. He was educated
at the Universities of London
and Oxford where he specialized in
Philosophical Theology with Professors
Richard Swinburne, Brian Davies
O.P and Paul Fiddes as his supervisors
and also taught Philosophy of Religion.
He took an STM Degree at Yale
where he also served as a Research
Fellow. He has undertaken extensive
international work for the church
and assisted on an adjunct basis the
work of the Anglican Consultative
Council and served as special advisor
to Lord Carey of Clifton, the 103rd
Archbishop of Canterbury.
www.C1WorldDialogue.org

Philip D. Moyer has been the President
and Chief Executive Officer of
EDGAR Online, Inc (NASDAQ: EDGR)
since 2007. From 2005 to 2007, Mr.
Moyer was in early stage private
equity and venture capital with Cassini
Capital and as an Entrepreneur
in Residence at Safeguard Scientifics.
During this time he was co-owner of
Cassiopae – a European based Asset
Backed Securities software company.
From 1991 to 2005, Mr. Moyer was at
Microsoft. His most recent roles at
Microsoft were General Manager of
the Professional Services Industry (Accounting,
Legal, HR Outsourcing), General
Manager of Global Customers,
and General Manager of East Region
Enterprise Services (which included
the Consulting, Enterprise Support,
Partners, & Pre Sales Technologists
organizations). Prior to joining Microsoft,
Mr. Moyer was the co-founder
of Orion Systems Group, an education
and municipality software company
which was subsequently sold to
Sungard. He started his career at GE
Aerospace. Mr. Moyer holds a B.S in
Computer Science from the University
of Pittsburgh.
Michel Ogrizek is a seasoned international
consultant in strategic communications,
counselling leaders of
international institutions and global
corporations for more than 20 years.
Former Vice Chairman of Edelman,
Michel assumed responsibility for the
worldwide corporate network and
supervised global practices in Risk,
Issues and Crisis Management, Financial,
Employee Engagement, Health,
and First&42nd, Edelman‘s management
consulting unit..
Before joining Edelman’s headquarters
in New York City, Michel was
successively managing board director
and head of communications at the
World Economic Forum (Geneva);
managing director and global head,
marketing & communications at
UBS Warburg (London); global head
of corporate relations at Unilever
(London and Rotterdam); president &
CEO of Edelman‘s European operations;
president and CEO of Hill &
Knowlton, France.
He is serving on the board of directors
of Media Tenor International.
| 163

Contributors
Roland Schatz,*1965 in Bielefeld,
Journalist in the 5th generation,
studied philosophy, economics,
history and political science and was
influenced by Profs. Henner Kleinewefers,
Ottfried Höffe and Prof.
Josef Maria Bochenski in Fribourg
(CH) and Profs. Ludger Honnefelder
and Peter Baumanns in Bonn. M.A.
thesis on “Consequences of Immanuel
Kant’s Postulate for Civil Dis-obedience”.
His journalistic background:
Braunschweiger Zeitung, epd and
Freiburger Nachrichten. Foundation
of InnoVatio Publishing Ltd. in 1985
to support the old idea of a Greek
Agora with authors as Karl Popper,
Hans Küng, Heinz Maier-Leibnitz, the
Weizsäckers et.al: Journals, books,
congress organisation with a focus
on media monitoring, organisational
development, East-West Dialogue,
culture management, applied
business ethics and new methods in
education.
2008 he was announced Global
Media Export of the UN Alliance of
Civilization, 2009 he founded the
C1 World Dialogue Foundation with
Prince Ghazi of Jordan.
164 |
Wadim Schreiner is the Managing
Director of Media Tenor South Africa
in Pretoria. He has a Masters in Journalism
from the North West University
in South Africa, having written
his paper on “News flow in and out
of Africa and particularly the image
of Africa in international media”. He
has and currently is reading in media
theories and communication methods
at the University of Stellenbosch,
the University of Cape Town, as well
as the Gordon Institute for Business
Science. He has spoken at a several
media and journalism conferences
in the United States, South Africa,
Asia and Africa and has published a
number of research articles in international
journals on South African
and international media trends. He is
an editorial member of Ecquid Novi,
the African Research Journal and a
member of the Council for Communication
Education in Africa.

Matthias Vollbracht is Director of
Economic and Business Research at
Media Tenor International in Zurich/Switzerland.
In his research and
consulting work, Matthias Vollbracht
focuses on the impact of media coverage
on public opinion, individual
stakeholder groups and the reputation
of institutions and individuals.
Furthermore, he works on studies to
explore the impact of media on asset
prices and economic behaviour such
as investors’ and consumers’ confidence
as well as inflation expectations.
Matthias Vollbracht received
his degree in economics from the
University of Mainz, Germany and
has worked as a business journalist
before joining Media Tenor.
Liv Apneseth Watson
Board of Director – IRIS Business Services
(India) Private Limited
XBRL International Steering Committee
Member
Chair – XBRL International Jurisdiction
Development Working Group
Liv A. Watson is one of the founders
of XBRL and recently joined the
Board of Director of IRIS Business Services
Private Limited. IRIS is a leading
information and technology player,
which has been in existence for close
to 15 years. IRIS’ core strengths lie in
working with unstructured information
received from various sources, and
standardizing and streamlining such
information sets. IRIS has been very
closely involved with the XBRL space,
in the areas of taxonomy creation,
software solutions and conversion of
data into XBRL format.
She is serving on the board of directors
of Media Tenor International.
| 165

Contributors
Paul Wilkinson was Senior Adviser to
U.S. Securities and Exchange Commission
Chairman Christopher Cox
and oversaw adoption of eXtensible
Business Reporting Language as the
Commission’s data standard from
2005 until 2009. The views expressed
are his own. He is a California attorney,
publisher of http://paulwilkinson.com,
and Chief Strategy Officer
for CLOUD, Inc., http://cloudinc.org,
a non-profit organization formed to
create standards giving people more
control over their personal information.
He was the Executive Director
of the U.S. House of Representatives
Majority Policy Committee from 2001
until 2005 and is the co-author of
Set The Default To Open: Plessy’s
Meaning In The Twenty-First Century
and How Technology Puts the
Individual Back at the Center of Life,
Liberty, and Government, Texas
Review of Law and Politics, Vol. 14
(forthcoming).
166 |
Robert B. Zoellick
11th Chief Executive of World Bank
Mr. Zoellick was formerly Vice Chairman,
International of the Goldman
Sachs Group, and a Managing Director
and Chairman of Goldman Sachs‘
Board of International Advisors.
In 2005-06, Mr. Zoellick served as
Deputy Secretary of the U.S. State
Department:
From 2001 to January 2005, Mr.
Zoellick served in the President‘s cabinet
as U.S. Trade Representative.
From 1993 to 1997, Mr. Zoellick served
as an Executive Vice President of
Fannie Mae.
Following Fannie Mae, Zoellick
served for a year as the Olin Visiting
Professor at the U.S. Naval Academy.
From 1985 to 1993, Mr. Zoellick served
with Secretary James A. Baker, III at
the Treasury Department (from Deputy
Assistant Secretary for Financial
Institutions Policy to Counselor to the
Secretary); State Department (Undersecretary
of State for Economic and
Agricultural Affairs as well as Counselor
of the Department).