Integrity
Matters
December 3, 2003
Restoring
trust can take years
Question: (E-076)
Dear
Jim:
Everywhere there are integrity issues:
politics, business, education, organized religion and
even in the family structure itself. The mutual fund scandal
is over the top. Do you have any recommendations for where
to turn in these turbulent times?
Response:
The places to turn for answers regarding
restoring confidence and trust are to the very same institutions
you mention as sources of problems. There is little doubt
that most individuals are doing a good job - in government
service, free enterprise, teaching, spiritual leadership
and parenting. Yet, there are those who take advantage
of the system and abuse their privileges. They must be
rooted out, wherever they bring harm and abuse.
We know that trust has been broken and
that confidence has been shattered for millions of investors,
customers, religious believers, and the voting public.
Fortunately, because of our free press, we have fortunate
to have learned about many of these disturbing and sometimes
illegal activities. Some of those individuals and institutions
being dragged through the headlines may very well be guilty
of compromising our culture, our society and even our
value systems. How fortunate we are to live in a democracy
in which courageous reporters accept the responsibility
to blow the whistle on behaviors that are inappropriate.
Restoring trust is a key. Secretary of
State, Colin Powell, last month suggested that
"trust" once broken - is hard to restore, harder
even than restarting an economy." Powell's
comments refer to Iraq and the multiple challenges its
people must address. He states: "We must remember that
the nightmare that Saddam Hussein inflicted on Iraq lasted
longer than Joseph Stalin's tyranny in the Soviet
Union. To expect the tragedy of Iraq's past to recede
swiftly is unrealistic. Wounds take time to heal, and
even when the physical scars disappear, often time psychological
ones remain."
Powell's insight and sensitivity
can be applied in other areas as well, perhaps nowhere
more dramatically than with the recent mutual funds scandals.
Piggy-backing on Mr. Powell's "trust-restoring"
comments, and what actions are most difficult to execute,
think about how the Boston-based Putnam Investment fund
responded to recent allegations. It seems that two senior
investment managers at Putnam were charged with using
improper trades to profit personally from mutual funds
they oversaw. Putnam denied any wrongdoing but confirmed
that four money managers had been fired. This scandal
has tarred the reputation of mutual funds, traditionally
viewed as safe and conservative. Will the recent crack
down on mutual funds scare off some of the 90 million
people who have invested in them? When might their confidence
be restored?
William
Donaldson, head of the Securities and Exchange Commission,
understands how fragile trust can be when he addresses
longer-term implications resulting from the recent wrongdoings
of the mutual fund industry. Donaldson knows that until
trust is restored and abuses are stopped, all too many
innocent investors will lack investment confidence. If
the securities industry does not act responsibly to restrain
abusive trading, clarify conflicts of interest and demand
better disclosure of fees, "You can be sure that...those
of us in the government will."
Over and over, we remind our Integrity
Matters readers: "It should be common knowledge
that free markets must regulate themselves (including
those working in mutual funds) or governments will."
