Last week, I talked about my utter disenchantment with Rajat Gupta, former global head of McKinsey and ex-Goldman board member now accused of passing on insider trading secrets (a charge he denies). Unfortunately, this week we already have to move on to our next case study: Jon Corzine, former Goldman CEO, former governor of New Jersey, most recently CEO of the brokerage firm MF Global.
MF Global filed for bankruptcy on Monday. The bankruptcy filing revealed MF Global held assets estimated in value somewhere between $100-500m (the wide range should raise eyebrows even before you read on), as opposed to liabilities of $1bn. MF Global used to be a brokerage that earned its revenue from commissions on futures trades executed by customers. That wasn’t enough for former Goldman CEO Corzine. He decided to turn MF Global into a mini-Goldman and used its balance sheet to buy up $6.3bn of government debt of European periphery states. He refused to listen to concerns raised, absolutely convinced that the European leaders would not let the periphery states go down. When European leaders instead agreed on a 50% haircut on Greek debt, MF Global faced a huge loss.
After announcing a loss for the quarter and forced to disclose their holdings to regulators, customers started pulling out money, MF Global frantically tried to sell part of its business to avoid bankruptcy. During the sales negotiations, it emerged that up to $700m of customer money were unaccounted for (which raises speculation if MF Global used customer money to finance its losing trades – which would constitute a shocking breach of financial services regulation). The sales negotiations flopped and MF Global filed for bankruptcy on Monday. Up to 2,500 people might lose their jobs as a result, with 700 jobs estimated to be lost in London.
It is a shocking tale of arrogance, hubris, lack of accountability and, to be honest, competence. I cannot believe how little some executives have learnt over the last three years of financial crisis that the world has witnessed. And what were the board members of MF Global doing? Did they voice concerns that Corzine chose to disregard? I am sure we will find out more in the coming weeks, providing us with valuable lessons on the complete failure of a leadership style based on overconfidence and greed.
Unfortunately, these still seem to be qualities that can get people to the top in some organizations of the corporate world. The ideal of the aggressive alpha-male as the visionary leader is a major obstacle to women breaking the glass ceiling and is also the cause of some of the spectacular frauds and corporate failures we have observed over the last years. With luck, the example of Jon Corzine will teach boards to look for different qualities in future leaders for their organizations.