Gun-shy regulators

Senate President Juan Ponce Enrile made a point of citing the lack of qualification of the SEC official entrusted with the function of regulating pre-need firms. The man was a literature major and from his performance at the hearing and the mess we now have in the pre-need industry, it seems that he really does not understand his job. That’s not surprising in government bureaucracy. There are many unqualified people holding jobs they cannot perform because some powerful politician placed them there.

But can a literature major survive or even thrive in the world of business? The answer is yes, but it depends on the person. I once read of a CFO in a leading American firm who is considered one of the best in his field. He was a literature major too and if I remember right, even taught literature in college before he took on the corporate job.

When he was asked what a literature major was doing in the world of finance, he said that actually, a good background in the humanities is an advantage in the business world. It enables you to go beyond the numbers and into the less empirical world of human emotions, human motivations… why we do what we do… Close familiarity with Shakespeare, for instance, always makes him conscious of the human malevolence around him. A literature major with the number crunching skills of MBAs has the advantage of a more finely attuned intuition that’s necessary in making tough decisions. He may also be more sensitive to ethics, what is right or wrong.

I know of at least a couple of good local examples of such people. Nonoy Colayco who has distinguished himself in the world of finance was a year below me at journalism school at UP. He was a noted writer at the defunct Free Press and Asia Philippines Leader, writing accounts of contemporary events along the style of the late Nick Joaquin. Martial Law came and he shifted gears by going to finance. He made a name in AIG in New York when being in AIG was something to be proud of.

Another example is Rene Carlos Mendoza, who was three years below me also at UP Mass Comm and my contemporary at pre-martial law ABS-CBN News. Sonny was a broadcast major and because of Martial Law, he too became a finance man, an investment banker working abroad for some time with a major Swiss bank. He still brokers deals today in his private consultancy based in a famous building on Legaspi Village.

My point is, being a literature major is no hindrance to being an effective financial regulator if the person has also taken time to study finance and acquire enough competencies in the field to gain the respect of the businesses he is regulating. Apparently that didn’t happen with this SEC official. My guess is, he probably isn’t a very good literature major either or he would have been able to, at the very least, use literary insights into human motivations to advantage in stopping financial criminals in their tracks.

Competence in finance and banking or even the law does not always guarantee good regulators. Some of the country’s most competent financial and legal experts are at the BSP. Yet, they too were less than effective in stopping scoundrels in the banking system. Maybe there is something wrong with our laws. But I think the greater reason is that even if they have ample powers under existing laws, the best of our regulators are gun shy.

In the case of the BSP, the people charged with regulating the banking system are still reeling from the effect of the Banco Filipino case. That case made them extra cautious because they could be held personally liable and any action they take puts their personal assets at risk. There’s nothing wrong with caution and due process except that in most cases, timeliness is essential in the matter of dealing with problem banks and financial institutions like pre-need firms. They may need same safe harbor assurance that would protect them when they do their jobs.

Additionally, even the best of them have been intimidated by powerful politicians who intervene on behalf of supporters or business partners who are subject to regulatory sanctions. Because they know what is good for their careers, the regulators play it safe by not angering political big shots. Even the autonomy granted to the BSP in dealing with the financial system cannot withstand the cultural realities in the Philippine bureaucracy.

Maybe we are not attracting the right people because the salaries of government regulators are pitifully small, in comparison with what is prevailing in the industries they are regulating. It makes them susceptible to regulatory capture, meaning they end up viewing their jobs from the perspective of those they are supposed to regulate rather than what’s in the public interest.

What are we to do? One suggestion of Singapore’s Tony Tan Keng Yam, deputy chairman and executive director of the Government of Singapore Investment Corp., is to give regulators a substantial financial bonus to go after the financial shenanigans. Tan suggested at Davos that one reason American regulators fell down on the job was that they were paid too little.

Mary L. Schapiro, the new head of the US Securities and Exchange Commission, will make about $162,000 a year. Timothy F. Geithner, the new Treasury secretary, will pull down about $191,300. As the New York Times observed, “both of them will make less than many 20-somethings made on Wall Street during the boom.”

The financiers were always one step ahead. “The financiers, after all, have a big incentive to outsmart the financial police. It is called a bonus. Wall Street lures a lot of bright minds with money. How can federal agencies compete? They can’t,” the NYT article concludes.

I doubt if more money will make regulators more effective. Reducing them to the level of bounty hunters will in time engender an attitude that precisely made the Wall Street guys greedy enough to pull the financial system down. Maybe the regulators, like Wall Streeters, would start thinking about the money, rather than what is right, the NYT wondered.

The NYT article also observed that “not everyone is motivated by money alone. People become teachers, doctors, engineers and, yes, financial regulators for all sorts of reasons.” It is important that the regulators are well paid but they must also be well trained and well motivated to do a good job. That does not seem possible in our bureaucracy.

My reaction to Sen Enrile: what did you expect?

Gift certificates

Here I am writing about such things as the financial meltdown, economic stimulus plans and trade wars but when people recognize me at the mall and at social functions all they want to know is what happened to that item on gift certificates I wrote about over a month ago. Did Nanay respond to you? Is DTI stepping in? What about expiry dates on cell phone loads?

Oh well… it is what clearly affects the wallet in a micro level that really counts. The complexities of macroeconomic issues are beyond most people and they couldn’t care less. Maybe I should write a consumer complaints column except that would be one frustrating exercise. Customer service in this country is a sham. Retailers only pay lip service to it.

No, Nanay didn’t respond. Even the PR consultant of National, a UP MassComm contemporary, was not very helpful. There is a new DTI official in charge of consumer complaints, Atty Pete Mendoza, and he has not responded either. I have also heard nothing from Smart, Globe or the NTC about the complaints on expiry dates on cell phone loads. So, what else is new?

My advice to all of you is to now avoid buying gift certificates because you and the one receiving your gift will be sold short by the expiry date provision. The one major impact of my sad experience with Powerbooks is that my mall visits have now been less enjoyable because I can’t get myself to step into a Powerbooks or National book store. For someone who loves browsing and buying books there, that’s undeserved punishment.

So I still have P4,000 worth of expired Powerbooks gift certificates. People keep on telling me that they have thrown so many of those expired gift certificates too. It is such a profitable racket so that I don’t expect the retailers will let go unless government orders them. Then again, remember what I said earlier in this column about regulatory capture? Such is life!

Job interview

From Lal Chatlani.

Makovick, after the interview: “Everything went well till they asked to see my testimonials. I guess I showed them the wrong thing.”

Boo Chanco’s e-mail address is [email protected]