Moody’s CEO gives himself a performance review and decides he’s doing an OK job

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Yesterday I went to the Financial Crisis Inquiry Commission‘s hearing on ratings companies.* My story is supposed to go up on later today. (UPDATE: here it is now.) In the meantime, I’d like to share the most absurd moment from yesterday’s hearing.

One line of questioning revolved around how managers are compensated at Moody’s. Are they incentivized to simply grow market share, or does the quality—and longevity—or ratings matter in a meaningful way, too? During this discussion, one of the commissioners asked CEO Ray McDaniel if he gets some sort of performance review. Yes, he said. And who determines how good a job McDaniel is doing? Well, he does.

That’s right, the CEO of a company with $1.8 billion in revenue is ultimately accountable to… himself. McDaniel writes a “self-evaluation,” and then files it with the company’s board of directors for review. That must be an interesting part of the process, considering McDaniel is chairman of the board.

And there, in a nutshell, is what’s wrong with corporate America. If the Founding Fathers taught us anything, it’s that you’ve got to have a system of checks and balances. If you are immersed in a particular job—or  institution, or worldview—you are going to, by definition, lack perspective. The way to make sure you’re not doing something dumb (like, say, letting investment bankers dictate your business) is to get some outside feedback and advice. This is especially important since people are greedy and prone to influence, and from time to time the world goes crazy with housing bubbles and whatnot. The only way we can even start to hope to keep our wits about us is to have strong controls in place to help shape our behavior when we most need it.

A real performance review might not be a bad start. And, in a way, that’s what Phil Angelides and rest of the Financial Crisis Inquiry Commission gave McDaniel yesterday. They rolled out their charts and data and asked hard questions about what McDaniel was thinking. Unfortunately, at this point, it’s all backward-looking.

Although there is also real value in deeply understanding how the system broke down. Along those lines, one of the commissioners asked McDaniel if he could send the commission copies of his self-evaluations. He said yes. So this morning I put in the same request of Moody’s PR office. I’ll let you know what I hear back.

*I refuse to refer to these profit-seeking enterprises as “agencies,” since they aren’t agencies, even though that’s how they’re popularly known. Just because the U.S. government lends a set of firms its imprimatur doesn’t mean I have to use my language to bolster their already-too-lofty status.