No consequences? That's why LinkedIn was hacked.

See story (here).  Oh, part of the problem is that smart people tend to forget that bad things can happen to them.  Part of the problem is flat-out hubris.  But the biggest problem?  If there are no real consequences to bonehead mistakes, then the incentive to avoid those mistakes is very, very low. 

Will heads roll at LinkedIn?  Maybe.  But I don't know if the right heads will roll.  Unless the folks at the very top feel the consequences, then the wrong people will learn the lesson about not protecting passwords.

A perfect combo: Jen Lancaster and a discussion of optics of public companies.

Enjoy.

A great idea: tying risk to responsibility.

See Joe Nocera's New York Times column today (here).

Quite sensible suggestions, really.

And quite likely, they'll be impossible to implement, unfortunately (here), thanks to the bureaucracy.

A good op-ed on how regulation doomed Titanic.

See Chris Berg's opinion piece in the Wall Street Journal about how Titanic's owners' decision to comply with the regulations on the number of lifeboats caused one of the most fundamental errors contributing to the sinking (here).  Were there the "appropriate" number of lifeboats?  No.  But were there the legally required number of lifeboats?  Yes, plus four more.  And yet, there were too few lifeboats by far.

When a regulation bears little relationship to the underlying reason for the regulation, it's actually worse than useless.

What do you get when conflicts are ubiquitous?

You get people who wake, as if from a dream, to realize that what they've been doing has (a la Arthur Andersen) come 180 degrees away from the firm's original culture (see Greg Smith's NYT op-ed, here) and what they've been facilitating hasn't been nearly as clean as it should have been (see Andrew Ross Sorkin's NYT Dealbook columns here and here).

Greg Smith's "Why I Leaving Goldman Sachs" includes this paragraph:

It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.

Mr. Smith is right about the importance of leadership in a firm's culture.  It matters that a company's officers and directors reward the right behavior and punish the wrong behavior.  But what I liked most about Mr. Smith's op-ed is that it recognizes that culture isn't up to the C-level suite and the board alone.  Senior people have to reinforce the culture all the way down the line.  They have to watch what their people do and say (and reinforce the right behavior).

As I've said before, the problem isn't that all people are evil.  It's that all people are human, and humans have an unlimited capacity to fool themselves into thinking that what they're doing is the right thing to do, even when it isn't.  When senior people rationalize their behavior, a company's decline isn't far behind.

As for the board, it can start thinking about how to turn around this very important company, or it can continue down the same path.  I'll be interested in watching what happens.

Conflicts of interest redux.

Andrew Ross Sorkin wrote a great piece in yesterday's New York Times about the "heads I win, tails you lose" approach that Goldman Sachs seems to have used in the El Paso-Kinder Morgan deal (here). 

Lots of people think that mere disclosure of conflicts will cure each and every one of them.  Sure, disclosure will cure some, especially with sophisticated clients.  But even with the most sophisticated clients, disclosure is a tough thing to get right.  Disclose too little, in consideration of each client's confidential information, and the consent to the conflict isn't very "informed."  Disclose too much, and the clients' confidential information goes out the window.

I'm going to guess that most of the time, the disclosure is too little, not too much.  And that's not just right.