One complaint I often hear about Church leaders is that they are great at business but poor at pastoral care.  I disagree: I think they’re actually bad at business.  They either have bad lawyers and advisors, or they have good lawyers and advisors whom they refuse to listen to.  

Many of you may have seen the news that the Securities & Exchange Commission (or “SEC”), the United States federal agency that is charged with enforcing federal securities laws, reached a settlement with the LDS Church for violations of securities laws.  

By way of background, the SEC was formed in the aftermath of the 1929 stock market crash and is intended to enforce laws against market manipulation–to make the markets fair to all investors.  These laws include everything from insider trading (the rules that landed Martha Stewart in jail when she sold stock in a pharmaceutical after getting a tip that its drug was about to receive an FDA denial) to misrepresenting information to the investing public in financial statements (the rules that landed Enron in major trouble when it fudged accounting rules to inflate revenue and hide debt in subsidiaries) to the rule at issue here:  the requirement that institutional investment managers with more than $100 million in holdings disclose their equity holdings every quarter.  This rule is intended to provide transparency into the holdings of the nation’s largest institutional investors (who have enough assets that they could influence market activity).

Institutional investors don’t really like this rule–it’s an administrative pain (as are many securities regulations), and many institutional investors don’t want people to copy their investing strategy because that strategy is their “secret sauce.”  (In other words, the excuse that some are making for the Church–that it didn’t want members to copy its investment strategy–is not unique to it but rather is a concern shared by many institutional investors subject to 13f.)  But, unlike other admittedly-complex securities rules and regulations, this one is pretty straightforward.  In fact, Church leadership was specifically informed of the need for Ensign Peak Advisors (“EPA”) to file 13f disclosures.  It failed to do so between 1997 (when it was formed) and 2019, and, further, took measures to obscure its investments by splintering them into multiple different entities (thirteen in total) that were essentially shells for EPA set up only for the purpose of obfuscating 13f filings.  EPA retained control of all investment decisions for these entities.

I’m not going to address the details for why this was illegal or rebut contentions that it wasn’t illegal–Sam Brunson over at By Common Consent did an excellent job of that already.  His post and the comments about what the SEC rules were, why they exist, what the Church did wrong here, and how it harmed people are worth a read, as is his commentary about honesty.  

What I do want to comment on is that I think whoever made these decisions is bad at business.  

As someone who regularly advises on legal and business decisions, and watches others make decisions, there are several questions we often consider:

  1. Is it legal?  If so, is it squarely legal or does it skirt the edge?  What level of legal risk is the organization willing to accept?  
  2. Is it ethical?  Does the decision align with the organization’s values?  
  3. Even if the action is legal, could it cause PR / reputational harm to the organization?  (This is often a more important consideration than 1.  Fines can be paid.  Public trust, when lost, is very difficult to win back.)
  4. If the organization is trying to obfuscate a practice, should we step back and consider whether that practice is problematic to begin with?  Should that be a sign that perhaps we should reconsider the practice and behave in ways that we would be comfortable reading about in the newspaper?

How would these questions have been answered in this case?

  1. Legality:  illegal.  To the extent they thought splintering into separate 13f filings was “legal” (it wasn’t, because EPA retained control of the investments), it was on the very edge of legality and clearly intended to subvert the intent of the rule (transparency in financial markets).  It was problematic enough that at least two employees resigned rather than make false statements–but rather than investigating or rethinking the strategy, those employees were simply replaced with yes-men.  (For more discussion on the legality, head over to Sam’s post & comments).
  2. Ethical / values alignment:  To the extent the Church values honesty and integrity, no, this action is not aligned with the organization’s values.  I suppose to the extent the Church values secrecy and obfuscation–which increasingly seem to be the case–then this does align with its values.  
  3. PR / public trust fallout:  I don’t know how this is going to sit with the average member–if people thought it was a good idea to continue to tithe to the Church after the $100B news broke, I am not sure this would move the needle for them.  Some people will defend the Church no matter what.  Others may think that securities laws are stupid, and not worth following.  But perhaps for some this is a new flavor of unappetizing.  Certainly, it smacks of hypocrisy to ask members to be transparent with their bishop about how they are spending their money with respect to tithing when the organization makes a concerted effort not to be.  
  4. Transparency:  This seems like a question Church leaders should really be asking themselves.  If they are not comfortable with the public knowing what they are doing, should they be doing it?  As mentioned, the “we don’t want members to copy us” argument is not particularly persuasive (the information is too stale to really be worthwhile, and this is the same concern that other institutional investors have).  The “we don’t want people to know how much money we have” seems to suggest that they know it’s a problem, and perhaps they should do something about it rather than hide it.  To the extent they think that they are breaking the rules for a nobler cause–well, so did Elizabeth Holmes (while she may have had many reasons for lying, one was that she truly believed her tech would save the world–once she got it to work).  It’s a bad excuse.  

We could ask these same questions with respect to the Church’s response to sexual abuse allegations (instructing bishops that they were legally prohibited from reporting sexual abuse), which I described here:

  1. Legality: Maybe.  As described in my post on the issue, I think there’s an argument that bishops were in fact mandatory reporters (particularly those who were also physicians).  In addition, regardless of whether they were mandatory reporters, they were certainly allowed to report at their discretion–legal advice that they were prohibited from reporting was simply incorrect.  
  2. Ethical / values alignment:  The Church claims that it wants to protect children, so this behavior would seem to contradict that purported value.  It seems the Church actually values protecting priesthood leaders and the institution.  I actually don’t even think that their advice aligns with that value, though!  They actually put those leaders, and the institution, at greater risk through not reporting.  
  3. PR / Public trust:  This seems a fairly obvious answer.  I would guess that, for most people, covering up sexual abuse is worse than not covering it up.  
  4. Transparency: The Church went to great lengths to hide its treatment of sexual abuse hotline reports–maintaining a data retention policy that required deletion of all call records at the end of every day, and treating the conversations as attorney-client privilege (a stretch of that coverage in my opinion).  I understand a desire to protect privacy, but if the Church felt good about the way it was handling reports of sexual abuse, there are ways to protect privacy without keeping the innerworkings and responses secret.  The secrecy should have given raise a little flag in their conscience telling them that, perhaps, something was not right in the way they were handling abuse.  That flag was ignored.   

In both cases, I think failing to consider all four of these issues when engaging in a potentially questionable practice or making a difficult decision is just plain bad business.  Even setting aside the most honest thing to do, or the best thing for victims of sexual abuse to do, and assuming that Church leadership’s number one priority is to protect the institutional Church–which is what I do in fact assume–these actions actually went against the ultimate interest of the institutional Church.  They damage the institutional Church in the longrun.    

If Church advisors did not help decisionmakers through these considerations, they are bad advisors. They should be fired. Bad advice certainly doesn’t excuse the ultimate decisionmakers from their role in deceptive and shadowy schemes (despite their attempts at scapegoating advisors in the press), but it does suggest the Church should choose its advisors more carefully. Perhaps having yes-men in these situations is not the best setup even if you don’t like hearing no. Sometimes no is the right answer.

If advisors did advise to these problems (and it sounds like there were some that did in fact alert decisionmakers to some of these issues), and the decisionmakers ignored that advice, then–regardless of whether the actions were legal, moral, honest, etc.–they were unwise stewards of the institutional Church.  They were short-sighted–whatever public fallout would have occurred in response to the 13f filings, I doubt it would have been worse than the fallout now after decades of dishonest behavior.  

For a group of men who claim to see around corners, they seem to have walked head-on into this one.  Perhaps they’ve been too long out of the business world.  

What do you think?

  • Would you change anything about the four considerations I outline for making business decisions?  Are there examples of Church decisions that score well (or poorly) on this rubric?
  • Do you think there is a subset of the membership for whom this will be a significant needle mover, or do you think anyone whose needle wasn’t moved in the last few years is probably immune?  
  • Do you think Church leaders have a tendency to “protect” the membership from information they don’t think the membership can handle?  What do you think of this attitude? Is it good or bad for the institution in the long-term?
  • Do you think Church leaders engage in short-term thinking at the expense of the long-term?  Why or why not?