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Paul R. Portney

Paul R. Portney

Paul R. Portney is Dean of the Eller College of Management at the University of Arizona, where he also holds the Halle Chair in Leadership.

We are all hedge-fund managers

The acquittal of Ralph Cioffi and Matthew Tannin--two former hedge-fund managers at Bear Stearns--on securities-fraud charges raises an interesting question for leaders. The trial turned on whether or not Cioffi and Tannin had deliberately painted a rosy picture of the subprime market to investors while privately acknowledging the market was in serious trouble.

The question is: At what point does exhorting one's employees, troops, investors, donors or even parishioners to keep the faith in the face of deteriorating circumstances verge into behavior that is morally indefensible or even criminally liable? To put the matter bluntly, if each CEO, military commander, fund manager or non-profit leader were brought to trial for raising hopes that were dashed after the fact, we'd better start building jails on every street corner, even if relatively few such cases were won.

In fact, one of the very most important parts of leadership is motivating people to keep up or even redouble their efforts in difficult times, even when a leader knows that things could get worse or possibly even implode. Think about Abraham Lincoln, Franklin Roosevelt and Winston Churchill. We know that each harbored grave doubts he dared not share with those he was attempting to rally.

It would be hard to find a CEO who has not at one time or another--particularly in a company's early years--painted a rosier picture of that company's future prospects to investors, employees and others than he knew deep down could be justified. And having spent a fair amount of time in the non-profit sector, I know this happens there, too. That's one things that leaders do: convince people that success is within reach. And that very act of convincing them often makes success a reality.

Would a military commander be justified in suggesting to his troops that reinforcements are on their way (though they are not) if he or she believed that this would spur them on and turn the tide in an important battle? Here, too, I'll leave it to others experts to decide. Worse still is exhorting people to take one action (buying mortgage-backed securities, for instance) at the same time the exhorter is putting her eggs in another basket (Cioffi of Bear Stearns pulled $2 million of his own money from the funds he was praising to others, prosecutors said during the trial).

It would be nice to paint bright line and know what things a leader can say without fear of moral or legal reprobation and what things no decent and responsible person should utter. But it's not that simple, and the Cioffi-Tannin case is a reminder that in the grey areas of leadership, we have to balance hope with truth.

By Paul R. Portney

 |  November 13, 2009; 7:00 AM ET
Category:  Economic crisis Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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You can blame the "leaders" if you so desire, but these people are not leaders.

They are salesmen. There is absolutely no reason to have sympathy for those who were misled as part of a marketing effort. Everyone involved went into it with their heads up, their eyes open, and their greedy little paws grasping at illusions.

Posted by: IGiveup1 | November 16, 2009 10:52 AM
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The commentators here have it right. If this is the kind of leadership being endorsed and ethics be damned, then we are in more trouble than we think.

The leadership trait deficit has spread to all campus and the majority of business in the U.S. It has existed for years in our elected officials.

Profit should be a by-product of leadership and not the reverse.

It is easier today to spend a million lobbying congress for a billion in tax breaks and anti-competitive legislation versus making long term investments in plant and equipment in the U.S.

More examples of the leadership deficit.

Posted by: wesatch | November 16, 2009 7:40 AM
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I hope you are not thinking Alexander the Great and Julius Caesar because we're thinking Louis XVI and Nicholas II.

Posted by: gannon_dick | November 14, 2009 4:14 AM
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If the President Roosevelt or Lincoln had been painting a rosy picture, while seeking asylum in a safe country, they would deserve jail too. You have few ethics. Those guys yanked their money from the funds. If the water is safe, stay in it with me. They covered their butts, while leaving others to hang. Sometimes, you have to rally the troops. They asked us to fight on, while retreating. You defend this? No wonder our business leaders are so unethical. You should be burned in effigy. No wait, why burn an innocent dummy. I hope your school has better representatives than you.

Posted by: rcvinson64 | November 14, 2009 12:20 AM
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Apparently "Ethics" is an unknown concept at the Eller College of Management as well as Bear Stearns.

Posted by: shadowmagician | November 13, 2009 9:54 PM
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Your logic is completely flawed. In the case of the CEO's and battle field leaders and others you mention, and especially for Lincoln, Roosevelt and Churchill, they were all deeply invested it what they were rooting for. They all stood to take personal loses should they lose. In the case of your two "scum bags", they were NOT invested in their rah-rahs. To the contrary, they had taken all of their money out of what they were selling to others - for a profit. *If* they had remained invested with their own money then they were not guilty. But whatever the juries findings were based on legal mumbo jumbo and lawyer tricks, they were guilty of defrauding their customers into buying what they were selling.

Posted by: dmuston | November 13, 2009 8:25 PM
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The consequence of being a lying leader should be no less than what the lie caused to happen to the lowest on the totem pole.

Posted by: rcubedkc | November 13, 2009 3:52 PM
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When a "leader" stands to personally and materially benefit from his actions the bright line seems pretty clear to me

Posted by: clary916 | November 13, 2009 2:42 PM
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