Conversations With Tamar Frankel
Posted: Feb. 22, 2007 By TINA SPEE Tamar Frankel was well on her way to a fulfilling law career in Israel. The Tel Aviv-born professor worked as an attorney in the Israeli Air Force and the Ministry of Justice in the 1940s and 1950s before joining a private practice started by her father. Lucky for us, she became a visiting law scholar at Harvard Law School in 1963 and remained stateside. Since joining the faculty of the Boston University School of Law in 1968, Frankel has become one of the nation’s sharpest legal minds in the areas of fiduciary law, financial system regulation and corporate governance. Frankel is grateful to BU for letting her move around from her Boston base. She’s enjoyed stints as a visiting scholar at the Brookings Institution and the Securities and Exchange Commission and has taught at Harvard, the University of Oxford and the University of Tokyo. She’s also consulted for the People’s Bank of China, helping the country control inflation. Within her areas of expertise in finance and the law, Frankel has written some of the most important treatises and books, including “The Regulation of Money Managers,” “Investment Management Regulation” and “Securitization: Structured Financing, Financial Asset Pools, and Asset-Backed Securities.” With her recent book “Trust and Honesty: America’s Business Culture at a Crossroad,” published by Oxford University Press in 2005, Frankel jumped into the world of mainstream writing. In the book, Frankel writes that ethical standards in Corporate America have eroded and that society has tolerated this dishonesty and abuse of trust. In the era of WorldCom and Enron, “Trust and Honesty” is a wakeup call. From her small, book-lined office across the hall from BU’s center for banking and financial law, Frankel describes how the public can demand better leadership from people who are in positions of power. “It was the first time where I was driven to write to the public at large, which meant another type of presentation, another style, to some extent another format,” says Frankel, 81, whose accent still echoes of her Israeli roots. “But I had to get it out of my system. And so I spent quite a bit of time writing it and loving every moment of it.” LAWDRAGON: What were you trying to answer with this book? TAMAR FRANKEL: The question that I faced was, “OK, you see so much fraud happening. Should we be excited about it?” Maybe the reason for what we see is more transparency today than in the past. After all, we always had fraud. This is a society of entrepreneurs. We push the envelope. That’s our nature. That’s the nature of these United States. And when you push, you might cross the boundaries as well, sometimes to the right and bright side, sometimes to the dark side. I didn’t think I could prove that there is more fraud today than in the past, although it seems to be so. What did strike me was the fact that fraudulent behavior has become more acceptable. The attitude towards fraud became: “Wake up. Be a realist. See that this is human nature and that’s the way things are.” And business people would say, “What can we do? Everybody does it. We must do it too.” LD: You seem to be driven to the idea that trust is lacking from our society now. TF: It’s interesting because Americans are trusting people. Americans trust their social systems more than they trust particular people. This is in contrast to China and other countries where people trust people more than they trust their social systems. Americans trust their political system more than they do the politicians or the law more than they do the lawyers or the banks more than they do the bankers. I dread the possibility that Americans will cease to trust the law and the systems by which they live. Then, I am afraid, Americans will have lost their way of life. LD: Is this problem increasing? TF: I am concerned that dishonesty will increase with the attacks on law. For business, this is dangerous and wrong. As I wrote in my book, “Law is not the enemy of business. It is the enemy of crooked business.” Law protects business from competing by crookedness. I suspect that the rise of economics in law has not done us a lot of good. Law can use the concepts of economics but not its objectives and values. Economics has resulted in the basic assumptions that undermine trust and encourage verification of what other people say and promise — the antithesis of trust. The implication of economics is that people are entirely selfish. Therefore, each party should take care of itself against possible dishonesty of the other. This is a market environment, which is effective only if the parties are more or less on the same playing field. Even then I believe that human nature generally, and the nature of Americans in particular, is not so self-interested. But if we assume that most people are selfish that becomes our culture — a culture of mistrust. People may say to me “Don’t give us the sermon from the mount.” But that’s not what I’m saying. I would like to have reached a balance rather than extremes. People need not completely rely on each other or trust each other blindly. I think it is good to have some self-reliance and skepticism. But right now we are moving toward the extreme of mistrust. LD: What do you see happening to the economy if this continues? TF: Dishonesty and mistrust cost. If we continue this way, we will pay for dishonesty more and more. And we’ll produce shoddy services and shoddy products at a greater rate because with fraud comes shoddiness just as with drugs come bad athletes that win … . The cost of dishonesty brings the prices up or the quality down. LD: Can we regain our trust in people who have power in our companies and financial systems? TF: There’s one rule that can lead to honest behavior: “Don’t do to others what you don’t want done to you.” How do you implement this rule to make it a reality? That’s where culture comes in. Culture is a social habit, the opposite of a calculated behavior. If we have to think every time whether something is good or bad or whether we want others to do it or not to do it, we have lost the battle. What we need is a knee-jerk reaction the way we drive a car — automatically. We ought to have a knee-jerk reaction to dishonest behavior. We have to reverse the trend of accepting dishonesty as an inevitable way of life. To be sure, it takes time to change the slides into dishonesty, just as it takes time to change a bad habit. Further, dishonesty should be nipped in the bud when it starts. Otherwise, starting what seems just a little bit wrong will grow to become a full-fledged fraud. Also, it takes more than just one group of people to reverse the trend. It requires many. We need both good leadership and good following. … Competition doesn’t mean that we have to eat each other alive. Instead, even though it is not a very exciting vision, we should compromise. Let us leave the extreme to an aspiration for honesty. But everyday solutions should not be extreme. Let us live with some give and take, even if it is not all an immediate give or all immediate take. LD: How did you become interested in these areas of law? TF: I was interested in corporations because, especially in the United States, this type of organization allowed the entrepreneur to pool together capital, labor and management and to create tremendously powerful and productive large organizations with no dictates from outside. That is fantastic. So that is what drew me. But then the financial market through which capital flowed fascinated me. And then it wasn’t only the market but the intermediaries, such as insurance companies, pensions, mutual funds and investment advisers that make the financial markets, and the asset-backed securities mechanism. And with all of that came the recognition that I’m dealing with power. I am dealing with private power, and I’m dealing with limitations on that power. LD: Before that, you were a lawyer in Israel. It wasn’t unusual at the time for a young woman to hold the positions you held in the country? TF: Even when the state of Israel was established in 1948, there were a fair number of women lawyers; there were a fair number of women prosecutors in the government and of women judges. And there were also very strong women in politics. By the way, the chief justice of the Supreme Court today in Israel is a woman. LD: You worked for the Israeli government? TF: Yes, I worked for the government but only for about a year and a half. My father was a lawyer. He was the first president of the Israeli Bar Association. I went to work for him and less than a year after that — and even though he was relatively young — he had one heart attack and he was gone. So I continued to operate his office. The clients, both Arabs and Jews, were good to me and gave me a chance. Then I worked as a lawyer for a number of years, took a partner, and then I departed and he continued the service to the clients. I wanted to teach and to write. So that is what I did. … My mother’s family came to Israel around 1870. My mother came when she was 2 years old. My father was a latecomer; he came in 1920. At that time the Jewish community was very small. Tel Aviv, for example, was entirely different from the Tel Aviv of today. I walked to school barefoot in the sand with sandals on my back. It was an idealistic society that dreamt about a Jewish state where Jews could find refuge from prosecution and extermination that they experienced throughout the ages, and lastly in Nazi extermination camps. Some of my notions and beliefs come from that idealistic period. I admit that some of this attitude to life and society has remained with me to this very day. LD: What are some of the things you are working on now? Frankel says she is working with an engineer who specializes in risk-control systems to develop mathematical equations that can help regulators and corporations detect and analyze mistakes. She also is working with an economist to make teaching materials for lawyers and businesspeople based on “Trust and Honesty.” TF: There is another project, which I think I would like to work on with other experts. I believe that, barring a Third World War, more and more corporations and institutions will cover the globe and more and more directors will come from different cultures. They will have to understand each other in order to work together. We will need more guidance on dealing with other cultures and interpreting cultures. LD: You seem excited to continue teaching and writing in different areas. TF: I enjoy it very much. More than that. I think one of the exciting things about teaching and writing is not to get stuck in your own generation. The way to do it is to listen to the new generation and try if not to identify, then at least to understand a very different world. I do it in my teaching by discarding my notes every year and from time to time changing the teaching materials so as to start from scratch, so to speak. I always discover something new that I haven’t thought about before. There’s a lot of excitement in listening to different views, viewing different realities and trying to understand them and mesh them with your own experience and knowledge. Page: 1 of 1 pages for this article
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