The U.S. political season is in full bud. More than a year before the next Presidential election, candidates are maneuvering for public approval during a time when debt downgrades and high unemployment are roiling the stock markets. That backdrop assures plenty of finger pointing and divisive language.
The current President seems a willing participant. Following the downgrade of U.S. debt by Standard & Poor’s, Barack Obama declared that the United States is still a ‘triple A’ country “no matter what some agency may say”. A week or so later someone at the Department of Justice leaked to the New York Times the fact that the DOJ was investigating S&P’s methodology. That was on top of the investigation of S&P by the Securities and Exchange Commission into whether someone leaked the news of the downgrade as well as whether S&P accurately analyzed America’s ability to repay its bills.
All this smacked of an administration hell-bent on finding a scapegoat for the dismal state of the economy, no matter what the government itself has done to contribute to the mess. Obama’s stance that ‘he’s right and everyone else is wrong’ has done little to create the kind of collaborative environment necessary to get Congress to agree on doing anything. At no time was this more apparent than during the negotiations leading up to agreement to raise the country’s debt ceiling hours before the U.S. was scheduled to be in technical default.
Is this leadership? Many in the corporate world wondered the same thing a year ago when Obama talked about ‘kicking ass’ over the BP oil spill in the Gulf of Mexico and firing the company’s chief executive. Most everyone agrees that the Deep Horizon explosion was an environmental and economic disaster of huge proportion. But responding with language casting the company charged with cleaning it up as the dark villain in the plot only made clean-up efforts more difficult. It created a level of distrust between the public, the states, the federal agencies involved and the company which made cooperation that much more challenging.
Now the administration has S&P in its sights. Clearly the agency is facing a number of challenges as is its owner, the McGraw-Hill company. Investors are pressuring McGraw-Hill to spin off less lucrative businesses such as its education division and keep the more lucrative rating agency, which contributes a larger share of profit than revenue. Yet the golden goose itself is being threatened by the man in the White House who is pandering to voters mad at what the debt downgrade has done to their retirement accounts
In late August, S&P responded by appointing a new leader. Doug Peterson, a veteran Citibank executive and its chief operating officer, was named president, succeeding Deven Sharma who had come under attack over S&P’s maintenance of high ratings on mortgage bonds that turned out to be toxic. Peterson is a good choice for a company in Obama’s sights. He led Citi through its regulatory problems in Japan, no small feat. An American with a Masters in business administration from Wharton, he has also lived in Latin America and has developed a natural understanding of how to work collaboratively in different cultures. He stands a better chance than most in helping S&P out of a difficult corner and restoring its reputation as a reliable rater of debt. That is no small matter. S&P rates thousands of debt issues and those ratings underpin tens of thousands of financial decisions that investors make every day. Should the administration take S&P down, the financial system itself could take a hit.
So Peterson’s job is huge. Let’s hope he turns out to be a more collaborative leader than the President himself..