Putting the ‘Rat’ in Rato

Needless to say the past two decades have been turbulent financially, and this has resulted in a general loss of trust in the ‘executive class’ globally due to their shortcomings (albeit this is thanks to a few terribly bright individuals). It is no surprise that this group of global executives and business leaders seems incorrigible. The bankrobbers of the Wild West were so numerous because each new perpetrator was convinced they would avoid getting caught and outsmart the rest, and it seems so simple to crack open a vault and haul off the cash. The difference now is that this ‘bankrobber’ trope is developing within the banks themselves. Rodrigo Rato, (pictured below left), has managed to rack up quite the list of allegations, and his latest has him presently standing trial in Madrid.

Image courtesy of ESADE Press Room © 2010, some rights reserved.

Image courtesy of ESADE Press Room © 2010, some rights reserved.

Mr. Rato has a CV anyone hiring in the financial sector would drool over: law degree, MBA, PhD in economics. So one would assume he is an intelligent man, and he probably is, but he has left a long trail of corruption and greed as he has slithered from high salary to high salary, far too confident to ever assume he would get caught. His first major role was as the economy minister for Spain under the Popular Party (PP) between 1996-2004. This may have also been where Rato learned how to get his hands dirty, as in Spain the allegations of corruption linked to the PP are well established . Indeed, this month several party officials are being put on trial for benefitting from illegal commissions during the government of Aznar (under whom Rato also served), specifically between 1999-2005. From here Rato transitioned to become the managing director of the International Monetary Fund (IMF), a prestigious role, which he maintained for a short period, 2004-2007. He blamed his early departure on ‘family circumstances‘, though the Spanish press assumed he was returning home to enter the private sector, a notably more lucrative venture. Now this obviously isn’t criminal, but it does reveal something about Rato’s character, upon seeing, or possibly even being offered, a role in the private sector he went after the larger paycheck (even though his salary at the IMF was around $450,000, not to mention this is tax free due to diplomatic status).    Now at this point if you are still questioning whether Rato is actually such a ‘bankrobber’, it’s all about to heat up. Rato became chairman of Caja Madrid in 2010, and then pushed for the creation of the Bankia group (a merger with six other savings banks). At Bankia, Rato was again chairman until his swift resignation in 2012. Within a few months Bankia was practically insolvent, and Bloomberg had named him the fifth worst CEO of 2012, due to allegations of ‘fraud, price-fixing, and embezzlement’. These crimes led to the need for the Spanish government to rescue Bankia, and required them to take out ‘a 41 billion-euro bailout from the European Union’ in order to ensure Bankia did not take all of the government’s finances with it. This is where it becomes clear that Rato was part of this ‘bankrobber’ set. Entrusted with the savings of the public he sought bigger paychecks and bonuses simply because he could, and in the process he essentially plunged the nation further into debt. Furthermore, this placed yet more strain on already tense relations within the European Union. At the moment, Rato is on trial for what seems like a trivial sum compared to his other reported transgressions (and for those which may still be lurking in the shadows).

Rato and his fellow associates had decided to issue themselves ‘unofficial‘ company credit cards at Bankia, which was a practice carried over from Rato’s former bank Caja Madrid. Rato, along with 64 other lucky card holders, were able to rack up a tab of $13.5 million, all of which of course remained off the tax books, between 2003-2012 as millions of Spaniards suffered in the financial crisis. Now for a man who helped put Spain another ‘€41 billion-euro’ in the red, spending ‘€44,200‘ over the course of 2010 illegally seems like a petty sum. We really are terribly sorry if the trial disturbs your daily siesta Mr. Rato, but you have proven to be a brilliant example for the rats that are currently plaguing the global financial markets.

To reiterate, the public of the whole Western world is extremely wary of the financial sector as a whole, and the banking industry is certainly the impetus for many of these sentiments. It would be foolish to conclude that the system is all rot and we ought to put every banker on trial, because the majority of bankers and CEOs who rightfully receive their large paychecks and bonuses are not the issue. The issue is within the type of leader, more specifically manager, that has been bred in this system. The top business and management programs, that are turning out the next generation of executives, are teaching leaders to be hyper-competitive, high-risk, and essentially immoral. This leads to overconfidence and arrogance that can be attributed to the collapse of Enron, the financial crisis of 2008, and the destruction Rato has left in his path. As Kochan explains, these corrupt executives seem too focused on working for shareholders, via raising stock prices and evaluations with little to no care of how it’s done. Yes, Rato is no angel, but it’s not because he is not intelligent enough or incapable to be a good manager, he simply has prioritised short term self benefit by taking his management and business learning and putting it on steroids. In order to prevent further crimes, such as Rato’s, which harm so many and benefit so few, the answer is not to simply add more government regulation or to cap bonuses, but rather, to revise how we create these managers who will fill these positions in the future, replacing a focus on jumps in stock price to long term, sustainable, and prudent growth.