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Would you be ticketed for speeding while your mayor escaped penalty? The extent to which the powerful, especially Wall Street firms, influence their own legal outcomes at enforcement agencies like the SEC and the Justice Department is causing alarm among the U.S. public. An appeals court is set to rule soon on whether a judge has the right to answers or must simply acquiesce to an agreement made between the SEC and Citigroup.  Here’s why the case should go to trial.

The issues began when the SEC accused Citi of “substantial securities fraud” related to “dump[ing] some dubious assets on misinformed investors,” according to a filing in the case. The securities regulator and the financial behemoth then worked out an agreement that the penalty would be $285 million of corporate funds, with no requirement that Citi admit wrongdoing.

Judge Jed Rakoff wanted more information on the settlement before making a judgment that it should go forward. Writing on November 28, 2011, he said “there is little real doubt that Citigroup contests the [SEC’s] factual allegations.” So he ordered the case to trial – and the SEC appealed.

When I spoke with former SEC chair Arthur Levitt in 2012 about the case, he referred me to his statements on Bloomberg TV: “The public is infuriated. They see executives going scot free.” “For Citigroup with the history they’ve had, the repeated number of cases in the past two or three years, I can understand Rakoff’s reaction to this,” he said.

Today, it’s not just regular folks that feel apprehensive about the state of financial regulation and enforcement. Besides Levitt, other former SEC top dogs also fear our regulatory system is failing us.

Last year, former SEC Chief Accountant Lynn Turner expressed his concerns to me about “the level of regulatory capture and close ties to the securities industry at the current SEC.”

In a wide ranging conversation last week, former SEC chair Harold Williams told me, “There is a feeling generally that the SEC is not being as aggressive as it ought to be, as enforcement minded, and that’s an unfortunate impression. If it’s erroneous, the SEC must dispute it. But I’m not sure they can.” The SEC did not respond to a request for comment for this article.

There are also concerns that regulators like the SEC have become a revolving door for professionals who move to private firms and then use their influence on behalf of those companies at the agency. “We’re concerned that the constant movement of SEC employees to and from powerhouse firms, such as Citi can shape the mindset of employees throughout the agency in a way that benefits SEC-regulated businesses,” says Michael Smallberg, an investigator with The Project On Government Oversight (POGO).

POGO has been studying the SEC’s revolving door for some time and their files include cases of individuals who left the SEC, went to work at Citi and then appeared before the SEC representing Citi. Two such cases include Scot Draeger, former counsel to then-Commissioner Roel Campos and Joshua Levine, former senior attorney in the SEC’s Enforcement Division.

Other situations are more opaque and the SEC redacts information in the disclosures. For example, there are filings related to Andrew Lawrence, former senior counsel in the SEC’s Enforcement Division, and Tammy Bieber, former attorney-advisor in the SEC’s Office of the Chief Accountant. Both went to work at private law firms and worked on the “Matter of Trading in the Securities of Citigroup, Inc. (HO-09548).” An SEC spokesperson would not provide a response regarding what HO-09548 was about.

Of course, not all those who move from the SEC to private industry take advantage of their ties to encourage special leniency for their new employers. Some SEC alumni use their experience to encourage their new bosses to meet high standards.

“The door at the SEC has revolved for a long time, but when you tie that to a sense that the Commission is not aggressive in enforcing its mandate, that’s serious. It reinforces the idea that the SEC is not aggressive,” Williams says.

The appeals court is expected to rule soon. Given the revolving door between the SEC and banks like Citi and the lack of public faith in enforcement, it’s important that the trial proceed. If not, maybe it’s time to just hang up a sign that says, “For Sale: Justice, Seldom Used.”

Separately, there are other SEC issues worthy of note, in particular, problems with President Obama’s SEC nominee.

http://management.fortune.cnn.com/2013/01/30/mary-jo-white-sec-obama/

Her ties to JP Morgan may make it difficult to address the disclosure issues there. The bank board’s report provides a cautionary tale for corporate board members.

http://management.fortune.cnn.com/2013/01/22/jp-morgan-london-whale/

Political spending should be on the radar of every corproate board.

http://management.fortune.cnn.com/2013/01/09/corporations-dark-money-qualcomm/

I welcome your comments at ebloxham@thevaluealliance.com

The Value Alliance and Corporate Governance Alliance http://www.thevaluealliance.com/
Copyright 2013 The Value Alliance Company. All rights reserved.

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Board members should be combing through their books for insider trades — and re-examining their stock and option awards programs — after the Columbus Dispatch’s reports on the Big Lots case and the WSJ report on that case and four other companies where executives are under investigation for insider trading.  The WSJ report that at least 4,185 executives may have engaged in suspicious trades since 2004 should be giving board members and shareholders pause.

The use and spread of insider information damages our capital markets – and hurts the reputations of firms that do not comply with rules to keep our markets fair. Morgan Stanley paid $5 million for the part they played in providing information to favored analysts in the Facebook IPO. Netflix has also come under scrutiny for potential leaking of material information to a select group.

Regulation FD (fair disclosure) has been important to our capital markets and was designed to stop insider trading in its tracks so that there is a (more) level playing field for all investors. It’s important that companies comply.

Please read the article here.  (I welcome your comments at ebloxham@thevaluealliance.com)

http://management.fortune.cnn.com/2012/12/17/why-netflix-got-into-hot-water/

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Who heads the Treasury and SEC going forward will matter. The decisions on “who” will impact not only our economy and the capital markets but also public perception of government’s value.

Here is an article with my criteria and some possible picks. I would welcome your thoughts at ebloxham@thevaluealliance.com

http://management.fortune.cnn.com/2012/12/04/treasury-sec-leadership-choices/

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Is looking behind the numbers a lost art? M&A transactions might be more accretive if the reviews were more rigorous. So too, it’s easy to accept earnings as is when paying CEOs. But boards need to look beyond that. We need incentives that work to increase the size of the pie and make our country more prosperous.

Here’s an article on the fiscal cliff based on a recent Institute for Policy Studies report. Should CEOs be paid bonuses for changes in the tax code?

http://management.fortune.cnn.com/2012/11/26/fiscal-cliff-ceo-pay/

If you have comments on this blog post, please ignore the comments are closed notice below and just email me directly at ebloxham@thevaluealliance.com

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It is time, as a nation of business leaders, to roll up our sleeves and get to work on the very real economic problems the U.S. is facing – to finally move the needle on the economy, wages for our workers and jobs for the un- and under-employed.

We need to address our issues as a nation of business leaders and stop what has been termed “economic development”, a zero sum game of regions pulling jobs from each other with expensive, unproductive tax incentives, instead of working to maximize the U.S. economy as a whole.

As a nation of business leaders, we need an approach to our problems that involves real expertise, where success can be measured, cross-fertilized and replicated from one location to another.  And we need an approach that is agile, productive and cost effective. In short, we need a solution that makes sense.

A new plan, right in front of us, will roll out soon. An “enterprise development and market competitiveness project” is being launched with specific goals in mind.

“The project is designed to raise incomes and employment…. Focusing on the role of small and medium-sized enterprises … the [project] will facilitate the development of competitive enterprises … by stimulating innovation, enhancing workforce skills, accelerating new enterprise formation, improving access to finance, and addressing shortcomings in the business environment. The [project] will provide technical assistance, training, and grants to … [expand] sales in new and existing markets. The [project manager] and [the U.S. government] will mobilize additional resources from other sources to accelerate growth.”

The manager for this project has been chosen. And work will begin soon.
In Armenia.

Armenia (in rough figures) has a population one-hundredth the size of the U.S. (3.2 million people versus approximately 311 million here). The workforce is roughly 7.1% unemployed versus our July figure of 9.1%.

As all experienced leaders know, one way to solve big problems is to break them down into smaller ones. Another way to solve problems is to copy concepts that work in one arena and apply them, with some adjustments, to other situations.
If we can define a project like this for Armenia with a population one hundredth the size of ours, why not define 100 regional projects of this type for the U.S.?

Of course, to move on such an undertaking requires agility, expertise, funding and a minimum of bureaucracy. The projected cost for those running the project in Armenia is $17 million. The U.S. would need 100 Armenia-type projects; $17 million times 100 is $1.7 billion.

As a benchmark, similar projects have been done in the U.S. for $10 – $15 million in the past. One such example is the Oklahoma City miracle which noted economic development expert Ed Morrison, now Economic Policy Advisor at the Purdue Center for Regional Development, spearheaded with the involvement of business leadership — in particular, Charles Van Rysselberge, who headed the Oklahoma City Chamber at that time.

Where could we get $1.7 billion?

Just as Van Rysselberge did in Oklahoma City, the initial cash could come from business leaders. If CEOs of the Fortune 500 each pledged $1 million per year over the next five years, that would amount to $2.5 billion , more than enough to take on the task. Then, any infrastructure spending could come, just as it did by the efforts of Van Rysselberge in Oklahoma City, from passing local sales taxes to fund those programs. (If you think sales taxes can’t be raised for the right efforts, think again. Van Rysselberge, who moved to Charleston to head up the Chamber there, says that Charleston just this last November passed a one cent sales tax to build new schools and create jobs there.)

Before Oklahoma City, Van Rysselberge had used Morrison to help turn around Shreveport, La, when he was CEO of the Chamber there, and the plan Morrison built was “recognized as the most creative economic development plan in the U.S., for which Morrison won a national award” says Van Rysselberge.

Following his experience at Oklahoma City, Morrison, a Yale graduate and former strategy consultant for Telesis, a spinoff from the Boston Consulting Group, sat down to figure out what had made Oklahoma City and his other successes possible.

He recognized that there was a methodology and, if he could teach it to others, his work could be replicated. (His approach is called “Strategic Doing”.) Strategic Doing is a “lean and agile approach to strategy development”, Morrison says. The process is “open source” and Morrison has established a certification program in “strategic doing” at Purdue University. The idea is to have a way to guide complex adaptive systems, like open networks of people, to take action along the lines of the rules that guide software development in open source environments.

Morrison recognizes that what makes real progress possible in the knowledge economy is not hierarchies nor specific institutions. What makes it possible are networks of passionate individuals supported by passionate leaders. “In a knowledge based economy, networks are the curators of wealth, not hierarchal systems,” he says. “We need collaborative investments, horizontal networks. Entrepreneurs get it,” he says. “Strategic doing” helps these collaborations of individuals “quickly move to co-create value and measurable outcomes” he says.

Strategic doing has now been adopted by an entire network of universities interested in economic development. The initial brainchild for meetings between the universities came from Tim Franklin, director of the Office of Public Partnerships and Engagement at Pennsylvania State University and his wife Nancy, director of Outreach sustainability initiatives and assistant director of Penn State Institutes of Energy and the Environment (PSIEE). They set out to create a national model and make it replicable. Tim Franklin, who is passionate about regional economic development and whose own work in Virginia has won recognition, worked with Morrison to “not just focus on policy” but build a network of universities focused on economic development called TRE Networks, “a system with capacities”, Franklin says. “Now the network provides a neutral space where collaboration can occur and a set of resources for anyone wishing to tap into it”, Morrison says. “The Presidents of the Universities participating have been key. They are the passionate leaders supporting these efforts.”

Several weeks ago a solar summit was held in the football stadium at Arizona State University using the strategic doing approach under the leadership of Todd Hardy, Arizona State’s Associate VP of Economic Affairs in the Office of Knowledge Enterprise Development. “Using the approach, facilitated by Morrison, a group of 120 people met and 40 have signed on to help move forward an agenda to develop Arizona’s leadership and expand its business opportunities in solar energy development”, Hardy says. Hardy was impressed that so much could be accomplished in such a short time. It provided Morrison “a reaffirmation of his approach” Hardy says. “We made a great deal of progress in just a day and a half”.

While the capability exists, funding remains an issue. And that’s where business leaders need to step up, as they did in Oklahoma City.

In 1927, the Shreveport Chamber of Commerce set out a plan for renavigation of the Red River. They held firm to that goal. 68 years later, persistence paid off and it was accomplished, Van Ryssellberge says.

Holding fast and being nimble. As a nation of business leaders, we need both to confidently meet our future and contribute to our future prosperity. Some university leaders have stepped forward. Where will the next crop of Van Rysselberges, from the business community, come from to support these important efforts?

Another version of this article is published here. http://management.fortune.cnn.com/2011/08/23/what-would-real-economic-stimulus-look-like/

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Eleanor Bloxham www.eleanorbloxham.com

Copyright 2010 The Value Alliance Company. All rights reserved.

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Does  CEO compensation in the form of stock and stock options create alignment with company value creation? No.

Current case: The debt ceiling gymnastics.
As the stock market drops, is that reflective of less value creation by a particular CEO? (No.)
Should a CEO receive less income because the stock market is being held hostage by certain members of Congress? (No.)
Conclusion: CEO compensation in the form of stock and stock options does not create alignment with company value creation.

Does enforcement matter? Regarding highway speeds, it does, and one attorney says yes it does matter with companies too.
FT (Richard Waters): Google faces fresh fire over web reviews         “Without proper sanctions, ‘no big company would ever obey the laws, they would do whatever they could get away with until they were caught’, said” Gary Reback, a Silicon Valley lawyer. http://www.ft.com/intl/cms/s/2/561dcd98-b61f-11e0-8bed-00144feabdc0.html#axzz1TP7KiEVv

Just like they predicted in the Weekly Reader in elementary school, fewer work hours are needed today …but then it was just supposed to mean more leisure time not millions unemployed.
FT (John Gapper): America’s turbulent jobs flight           “US manufacturing has a good story to tell but that story is about technology and productivity rather than jobs for the millions of people out of work” http://www.ft.com/intl/cms/s/0/1d467a7c-b883-11e0-8206-0144feabdc0.html#axzz1TP7KiEVv

Civility in America 2011 (See link)http://www.webershandwick.com/resources/ws/flash/CivilityinAmerica2011.PDF
The economics of incivility.
The percentage of people who didn’t buy from a company because of incivility rose 13 percentage points over last year to 69%. The percentage who changed their opinion about a company due to incivility rose 14% (also to 69%). 1 in 5 employees have quit a company due to incivility in the workplace. Company leadership and employees themselves are primarily to blame for incivility according to those surveyed.

 
The Value Alliance and Corporate Governance Alliance www.thevaluealliance.com
 
 Eleanor Bloxham www.eleanorbloxham.com
 
 Copyright 2010 The Value Alliance Company. All rights reserved.

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On the debt ceiling crisis: Don’t we have enough crises to deal with without manufacturing one?

Reading (July 27):
NYT (Steven Davidoff): Proxy Access in Limbo after Court Rules Against It        “How do you quantify the costs and benefits of democracy?”   http://dealbook.nytimes.com/2011/07/27/proxy-access-in-limbo-after-court-rules-against-it/?nl=business&emc=dlbkpma21

WSJ (David Wessel): What’s Wrong With America’s Job Engine?          “Over the past 10 years..The labor force has grown by 10.1 million.But the number of private-sector jobs has fallen by nearly two million.”
http://online.wsj.com/article/SB10001424053111904772304576468820582615858.html?mod=ITP_marketplace_0

WSJ (Willa Plank): CEOs in Their Own Words: Don’t Plan on Much Hiring          ”Outside of rail and technology companies, almost none of them discussed long-term plans to significantly expand their work force.” http://online.wsj.com/article/SB10001424053111904772304576470484142293112.html

Writing (July Fortune):
U.S. jobs crisis: It’s time for corporate leaders to step up          “So the real question is what, without government assistance, can the overseers of U.S. corporations do to help solve the national demand for jobs?” http://management.fortune.cnn.com/2011/07/27/us-jobs-crisis-corporate-leadership/?section=magazines_fortune

Apple’s no-win CEO succession efforts          “Taking the work of the board offline means there is a working problem with the board online — signaling that a problem with process, power, or personalities at the board level needs to be resolved. It behooves any board in such circumstances to try to address the real source of the difficulty, rather than use alternate means to accomplish a goal.”
http://management.fortune.cnn.com/2011/07/25/apple%e2%80%99s-no-win-ceo-succession-efforts/

News Corp directors: Half way out the door?      ”Only time will tell whether support of the stock and support of the management go hand in hand. The company used to have “equity ownership requirements” for directors, according to the company’s 2008 proxy. Those requirements were not included in the company’s 2009 or 2010 proxy reports.”
http://management.fortune.cnn.com/2011/07/19/news-corp-directors-half-way-out-the-door/

What’s in store for Rupert Murdoch?         John M.”Nash thinks that CEOs should not sit on any board, including their own company’s board. The CEO can attend board meetings, but ‘shouldn’t have a vote,’ Nash says.”
http://management.fortune.cnn.com/2011/07/19/what%e2%80%99s-in-store-for-rupert-murdoch/

Who can right the ship at News Corp?         The right tone at the top, good governance. None of those words sound so sweet – or powerful – as in the midst of crisis. In the helter and skelter of the every day, they can be brushed off as meaningless. In the midst of an engulfing crisis, though, it is no longer possible to simply repair them, to put lipstick on the pig  – they must be made again whole cloth.     http://management.fortune.cnn.com/2011/07/18/who-can-right-the-ship-at-news-corp/

How to get paid like a U.S. CEO          “The research shows that U.S. CEO pay is higher primarily because U.S. CEOs are awarded high levels of equity compensation, which includes pay in the form of company stock and stock options…When companies have U.S. institutional owners, boards are more likely to offer high levels of equity compensation (and, in turn, total compensation), the research shows.”
http://management.fortune.cnn.com/2011/07/05/how-to-get-paid-like-a-u-s-ceo/

Will Bank of America execs get to keep their bonuses?             “Implement bonus deferrals — so executives have to wait to be paid the full amount of their bonuses. Bonus deferrals help ensure that pay is made on an accurate performance assessment and that there aren’t any billion dollar ‘oops’ moments lurking in the background.” http://management.fortune.cnn.com/2011/07/01/will-bank-of-america-execs-get-to-keep-their-bonuses/

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The comment period for a multi-agency proposal on compensation at financial institutions ended yesterday, leaving a gaping hole in the rules proposal. http://www.sec.gov/rules/proposed/2011/34-64140.pdf

Although a large portion of CEO compensation is paid in stock or options, the impact of incentive pay which is paid in equity, rather than cash, is entirely missing in the proposal.

But research by Professors Rüdiger Fahlenbrach and René M. Stulz in 2010, following the crisis, demonstrated why equity as its own component should not be ignored. While the knee jerk reaction is that if equity is held by executives, it will create alignment with shareholders, the research didn’t demonstrate any such benefits.

According to the research, “banks where CEOs had better incentives in terms of the dollar value of their stake [in the company] performed significantly worse than banks where CEOs had poorer incentives.” “The top … equity positions at the end of fiscal year 2006 [were] held by James Cayne (Bear Stearns, $1,062 million), Richard Fuld (Lehman Brothers, $911.5 million), Stan O’Neal (Merrill Lynch, $349 million)[and] Angelo Mozilo (Countrywide Financial, $320.9 million).”   All of those firms fared poorly in the crisis: sold in distress or in the case of Lehman, went bankrupt. http://www4.gsb.columbia.edu/rt/null?&exclusive=filemgr.download&file_id=7214553&rtcontentdisposition=filename%3DStultz_Bank%20CEO%20Incentives%20and%20the%20Credit%20Crisis%2020100508%20RMS.pdf

This finding indicates that the banks of CEOs with poorer equity ownership stakes did better — and that perhaps equity ownership exacerbates rather than ameliorates risk taking on the part of CEOs. Certainly, it is well recognized that high equity stakes would logically tend to dampen full negative disclosures.

A strong negative correlation between equity stakes and bank performance such as the research finds would seem to be a compensation mechanism that the regulators should be curious to understand in setting policy, given the apparent risk to bank performance and the huge consequences to stakeholders.

So why don’t the regulators examine the issue more closely or address it in their rules proposal?

This isn’t the first time I’ve written on the topic. Here’s what I wrote to the SEC on this in September 2009 http://www.sec.gov/comments/s7-13-09/s71309-107.pdf and to the Federal Reserve on this in November 2009 http://www.federalreserve.gov/SECRS/2009/December/20091214/OP-1374/OP-1374_112709_25335_596100224676_1.pdf.

And it’s not as if equity is a miniscule part of CEO pay. A quick review of the summary compensation tables in the latest proxies shows that the current CEOs of JP Morgan, Bank of America, Citigroup and Wells Fargo, through the crisis (over the last three years) received $127 million in equity and option awards, on average 80% of their total pay. It would appear the 80/20 rule would clearly apply warranting a look at the impact of equity.

To address compensation at financial institutions, regulators need to re-examine all the reasons equity may create these perverse effects including the fact that payments in equity may exacerbate the tendency to overpay (because of the false notion that equity and options are funny money and not real cash to the corporation). It may also encourage managers to take risks, increase the volatility of returns, extract potential windfall benefits from timed sales, and manipulate stock prices. And equity pay may do all this while diluting other shareholders and diminishing accountability to them and distracting managers from the real business of managing the business.

If regulators examine the issue carefully and reflect the impact in the rules proposal, maybe history won’t repeat itself. If they don’t, there is no reason to expect we won’t see the same movie once more.

The Value Alliance and Corporate Governance Alliance www.thevaluealliance.com

Eleanor Bloxham www.eleanorbloxham.com

Copyright 2010 The Value Alliance Company. All rights reserved.

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Why do regulation and public policy and legislative efforts too often fail to do their intended job?

For some time, I’ve argued that one reason is that the inputs are flawed and that there needs to be more inclusiveness in the decision making pool for legislation and regulatory initiatives.

In this article for Fortune I discussed the issue in a particular case related to control frameworks in the Sarbanes-Oxley implementation. http://money.cnn.com/2010/07/16/news/economy/COSO_SEC_flaws_Sarbox.fortune/

I have also written directly to the regulators at the FDIC and SEC about my concerns in this arena, encouraging them to draw in and expand the pool of resources they consult with — in order to combat regulatory capture and make better regulations.

Legislators need to do this also. When I attended a meeting at the Academy of Sciences a few years ago, a congresswomen told the green energy industry members in attendance there that if they hoped to succeed they would need to hire more lobbyists. Clearly, that is the antithesis of a free and open democracy.

In my letters to the regulators I have recommended making greater use of independent experts to supplement industry lobbying. I was pleased therefore to run across this recent working paper on regulatory capture by Professor Lawrence Baxter whcih advocates these ideas.  http://scholarship.law.duke.edu/faculty_scholarship/2355/

The issue of how laws and rules are made is not a small issue and it should be of interest to everyone. Let’s hope when Baxter’s work is published, it will make a difference in encouraging more inclusiveness and as a result better legislation and regulation for all.

The Value Alliance and Corporate Governance Alliance www.thevaluealliance.com

Eleanor Bloxham www.eleanorbloxham.com

Copyright 2010 The Value Alliance Company. All rights reserved.

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I have an interest in human thought processes — particularly those that drive  decision-making and behavior. Why? Part of it is because of the ramifications those unconcious processes can have beyond what we may see i.e. the butterfly’s wings.  I think it’s also because we often see decisions we can’t understand – how was that decision arrived at? – and we want to know what drove them.

This weekend I was doing some research and came across a variety of interesting connections between what we think — and our physical being. The kinds of judgments we make apparently about people and our reaction to ideas relates to our own physicality – we are human after all. It isn’t something most of us are aware of (I don’t think) yet it does reinforce the importance of suspending disbelief and belief in our daily encounters and decision making — and being aware.

ABC news reported on several of these studies a couple of years ago. (Read their report here: http://abcnews.go.com/Health/ColdandFluNews/story?id=6096724&page=1)

For example, according to their report, a study out of Yale found those who held a cold beverage “gave more negative or ‘cold’ attributes like selfishness” to a person they were meeting, while those who held a warm beverage “rated the same person with ‘warm’ attributes like generosity.” “In a second study,they gave 53 test subjects hot or cold packs to evaluate under the guise of a product study…Afterward, the group touching the cold packs were more likely to act ‘cold-hearted’ by choosing a small giveaway prize for themselves, while the group touching the hot pack was more likely to choose a giveaway gift certificate for a friend.”  Even minor changes in movement can impact perception.

Another study “has found that whether a person is asked to push off from a desk with their hands on top, or pull in with their hands below, will influence whether they make positive or negative judgments.” (Kareem Johnson, a professor of psychology at Temple University in Philadelphia who studies human behavior is cited as the author of this work in the ABC report but that is incorrect. ABC may have been referring to the work of Joseph Priester according to Professor Johnson.)

And whether you feel socially excluded or included can impact your guess of room temperature with individual estimates ranging from 54 to 104 degrees depending on whether you feel excluded (cold) or accepted (warm) according to research at the University of Toronto published in the journal Psychological Science. (http://abcnews.go.com/Health/ColdandFluNews/story?id=6096724&page=1)

Research out in May by University of Michigan professors Lee and Schwarz (Please read here: http://sitemaker.umich.edu/wing.sing.lee/files/lee___schwarz_washing_away_dissonance_science_7may2010_ms.pdf) cites earlier studies that found “Hand-washing removes more than dirt—it also removes the guilt of past misdeeds, weakens the urge to engage in compensatory behavior” (Zhong, Liljenquist 2006), “and attenuates the impact of disgust on moral judgment” (Schnall, Benton, Harvey 2008)

It also cites past and more recent research that shows to avoid buyers remorse “People reduce dissonance by perceiving the chosen alternative as more attractive, and the rejected alternative as less attractive, after choice, thereby justifying their decision.” (Festinger 1957 and Cooper 2007).  They tested whether hand-washing had an impact and found that it does “suggesting that hand-washing psychologically removes traces of the past, including concerns about past decisions.” “Much as washing can cleanse us from traces of past immoral behavior, it can also cleanse us from traces of past decisions, reducing the need to justify them.”

The New York Times had a Freakonomics article summarizing literature on similar topics in September. http://freakonomics.blogs.nytimes.com/2010/09/01/cleanliness-is-next-to-morality/

And David Pizarro at Cornell has done an impressive amount of research in the area of judgment and influences on judgment. Please see http://www.peezer.net/publications/.

I think we are in early stages of understanding how our bodies impact our minds and decisions — but it is an important topic for our judicial system to consider – both in terms of influences on criminality and judgments of criminals.

See this article published last year by Inbar and Pizarro. http://www.astcweb.org/public/publication/article.cfm/1/21/2/How-disgust-influences-moral-and-social-and-legal-judgments

As boards make important decisions and listen to the conclusions of others and evaluate their own decision making outcomes, it’s important to keep in mind how being merely human (in live bodies and physical environments) can impact our judgments, after all.

The Value Alliance and Corporate Governance Alliance www.thevaluealliance.com

Eleanor Bloxham www.eleanorbloxham.com

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