Editor’s Note, from GAP President Louis Clark: Michael Winston is a former executive at Countrywide Financial Corporation, who blew the whistle on the company’s clearly fraudulent activities that contributed to the 2008 financial crisis and subsequent recession. A guest on GAP’s American Whistleblower Tour initiative and a close collaborator of ours, Winston has agreed to publish several entries on The Whistlebloggerregarding both his experience as a truth-teller in the finance industry, and the continued lack of accountability enforced by the government toward the officers of large-scale financial institutions. These entries are part of GAP’s Know Your Rights campaign covering the Banking Industry.
I had already had a career nearing three decades in executive positions in Fortune 100 companies when I was approached by Countrywide Financial Corporation. When I accepted an invitation to go work for this rapidly growing mortgage company in 2005, I was eager for a new opportunity and envisioned years of impact, performance and the satisfaction that comes from knowing we made a difference. They told me they wanted me to help them build a broadly diversified financial services powerhouse, a “Goldman Sachs on the Pacific.” I was excited to help them. I served as Managing Director and Enterprise Chief Leadership Officer.
When I was recruited and made my first of three trips to Countrywide, I was told by the recruiter:
When you see the company’s logo, Michael, you’ll see that the word “principles” forms the base of the triangle. That’s because principles form the base of everything we do. They have to. If we find anyone making ethical breaches, we fire them immediately. There’s no wiggle room when it comes to that. We are the number one mortgage lender in the nation – but we’re nowhere near as big as we intend to get, and that kind of success doesn’t happen without a firm bedrock of sound principles.
What had impressed me during those recruiting sessions was Countrywide’s strong declaration about principles. Recruiting packets stated Countrywide was…
Steadfast in our guiding Principles – Countrywide strives to promote a culture of ethics, in which honesty, integrity, and respect for others provide the foundation for our interactions with employees, customers, business partners, and stakeholders. These principles are epitomized by our commitment to engaging in fair and responsible business practices and to taking a “do-the-right-thing” approach to all business decisions.
In fact, the actual practice at Countrywide could not have been further afield. I had no idea I would wind up in a battle that would consume years of my life. I never dreamt the nation’s economy would soon lie in tatters, forcing millions from their jobs and, in record numbers, from their homes as well. I never suspected that my new employer would in a few years come to be known as one of the prime players in a global economic crisis of historical proportions – an institution that Senator Charles Schumer (D-NY) referred to as “ground zero of the financial crisis.”
My experience with Countrywide was one of progressive revelations, most of them shocking. It was not just a rogue culture; it was more like a cult. In this cult, people did as they were told, without questioning or even thinking; bad behavior was rewarded and principled behavior was punished.
Highly principled behavior should be rewarded. This seems axiomatic. Of course we would reward integrity, honesty, transparency. However, many of the companies which caused the economy to crater with shoddy loans and exotic investment products, both of which vaporized in value, got rewarded for wrongdoing, going along with the flow. Even if the flow was fraud, deceit and duplicity.
I saw this up close. It was not a pretty sight. Neither is the specter of people being punished for refusing to engage in fraud, deceit, or corruption.
The retaliation of Countrywide Financial to those who challenged fraud, deception and corruption was malicious, blatant and public. The headline of a spate of stories that hit the media confirms that Countrywide perpetrated the “Great Mortgage Cover-Up.” Several of us tried to stop the fraud, corruption and deception. Our warnings were dismissed or ignored by management. Instead of being rewarded for doing the right thing, the “whistle-blowers” were punished, isolated, tormented, financially harmed, and ultimately dismissed.
Such punishment was openly administered by management while surrounded by those who would not challenge them. The purpose was twofold; to humiliate the whistleblower and to warn others of the fate with which they, too, could be met. The not-so-subtle and chilling message is: Do Not Challenge Our Practices.
Many people saw me punished for protecting the company’s health and refusing to help enable fraud, corruption and deception. If such retaliatory behavior goes unpunished, people will be afraid to stand up to oppression and wrongdoing in the future and will feel powerless. My colleagues must see that such retaliation will not be permitted. They will then be encouraged to do the right thing. Moreover, to not do so would be to reward behavior that is not in the best interests of society … to look after one’s own interest and not look after each other.
Several years ago, while serving as Managing Director, Enterprise Chief Leadership Officer for Countrywide and Bank of America, I was compelled to file a lawsuit against them both for their aberrant and abusive business, and their safety and human resource practices. After months of pretrial motions through which the defendants sought to avoid trial, and a jury trial lasting nearly a month, we had a verdict. On February 3, 2011, the jury vindicated me and held Countrywide/BOA accountable for wrongdoing in violation of public policy.
I may be the only plaintiff in the country who has been able to convince a court of the direct involvement of the top officers of Countrywide – including cofounder, CEO and chairman of the board Angelo Mozilo – of wrongdoing, and thus compel their testimony.
So far, none have been meaningfully punished personally.
There is another way to act. Perhaps, had Countrywide actually practiced the principled behavior they purported, their company would not have cratered. Lockheed Martin showed us another way to respond to accusations of wrongdoing. Whistleblowers should raise a cheer for Lockheed. So, too, should employees, shareholders and society.
According to articles in Huffington Post, Chicago Tribune and citations in Wikipedia, Vice Chairman, President and COO Christopher Kubasik was removed recently from the company in the wake of purportedly improper behavior. He was asked to resign after an ethics investigation found he had a lengthy relationship with a subordinate.
Lockheed CEO Bob Stevens discussed the transition and succession plan. Stevens said in the conference call that an employee came forward in late October with concerns about an inappropriate relationship between Kubasik and a subordinate. Lockheed hired an outside firm to do the investigation, which ended with an emergency board meeting and the termination of Kubasik.
The employee who came forward was not the person involved in the relationship, and the subordinate in the relationship no longer works for the company, Stevens said. He did not say who came forward, but characterized the person’s actions as “quite courageous.”
Stevens then stated:
As I look at corporate America today and our company, I am very pleased that our employees have enough trust in our leadership and enough confidence in our process that they would step forward with an allegation about the highest level executives in our company, without fear of reprisal and without concern, and know that they would be treated fairly and that their concerns would be given a full expression in an investigation … and that’s exactly what’s happened here”
Stevens insisted that the indiscretion was a personal matter for Kubasik and the company will get through this episode without a scratch. Clearly, they have created the culture in which people feel free to report on serious breaches of conduct. He continued:
I don’t believe the company is in crisis. I believe we’re changing course as a result of the observations that were brought forward to us in this ethics matter. We’ve acted cleanly, clearly and decisively, with regard to the action we’ve taken. The very good news is that we have significant bench strength of executive talent in this company. In my judgment, that’s not accidental … we believe that strategically and operationally and financially, we will not miss a beat.
Marillyn Hewson, a 29-year Lockheed veteran, became President and Chief Executive Officer in January 2013 when Stevens stepped into an executive chairman role. Stevens said he and Hewson will revise the transition plan as needed.
One can only imagine what would have happened had this incident occurred at Countrywide. Clearly, given what several colleagues and I experienced, the behavior would have been completely different.
Perhaps that is why Countrywide’s Founder and Chairman, as well as its executive team, left in disgrace. Angelo Mozilo received the highest fine in SEC history, $67.5 million. Perhaps this is why the company lost over 95% of its market capitalization. Perhaps this is why BoA has paid an estimated$60,000,000,000, by my estimation, in settlement of claims against Countrywide wrongdoing.
Lastly, perhaps this is why the Workforce Composition Report, which was produced by a third-party about Countrywide’s practices, noted that 14,700 employees voluntarily left the company during 2006. Sixty-six percent of those (9,648) employees left without even getting a formal review/performance rating or exit interview. They just left.
Surely, after foreclosing on America, America had to foreclose on them.
Which company would you rather work for? More importantly, which company would you rather your children worked for? Lastly, in which company would you rather invest?
Michael Winston is a former executive with Countrywide Financial. This post is from a guest blogger, and not GAP staff. If you are interested in authoring a guest post related to whistleblowing, please email Blog Editor & GAP Communications Director Dylan Blaylock at [email protected] with your idea.