The Unheeded Wisdom of Nicholas Brady

The Treasury Secretary who served under Dubya's father warned that no good ever comes of rapacious greed. What a pity no one listened

By Howard Gleckman

Listening to the withering criticism being leveled at Treasury Secretary Paul H. O'Neill lately, I can't help but think about one of his predecessors, Nicholas Brady, who served under George H.W. Bush.

Like O'Neill, Brady had the misfortune to run Treasury during an economic slump. Like O'Neill, Brady was vilified for being the wrong man for the job. And like O'Neill, Brady was also widely considered a public-relations disaster. His sin: He wasn't perceived by Washington to be glib enough.

Yet, Brady tried to send an important and powerful message to CEOs of a decade ago that seems remarkably prescient today. If corporate execs had listened to him, the late '90's bubble, the accounting frauds, and the financial pain of the past two years might have been avoided.

SOUND ADVICE.

  Thirteen years ago, in an era when debt-financed merger mania was consuming Wall Street and business, Brady told me: "We've got a fly-now, pay-later mentality, and I have this gnawing feeling that sooner or later, it's going to bite us."

That was in September, 1989, before the dawn of the New Economy, and well before the bull market began to run in earnest. Even then, Brady's views were considered faintly old fashioned, quaint even. But Brady knew bubbles, and he knew greed. And he knew the difference between hard-nosed business practices and short-term rapaciousness. "Having some basic principles is not only a pleasant way to live, it's also profitable," he said back then.

The son of a corporate chairman, Brady came to the Treasury with a long resume as an old-line investment banker, including a stint as CEO of the white-shoe Wall Street brokerage Dillon Read & Co. He took over Dillon in 1971, just before the go-go market of the 1960's topped out and the crushing bear market of the 1970's took hold. He became boss at Treasury in time to unwind the savings and loan debacle of the 1980s as well as a nasty Mexican debt crisis. Brady was no naïf when it came to the ups and downs of markets.

As a result, he struggled to find a way to tie executive compensation to the long-term success of a company, rather than its short-term share price. While options weren't much of an issue in the '80's, bonuses and outright grants of stock were.

DEAF EARS.

  The downside of Brady's tenure at Treasury was that he never could get anyone to pay attention, at least when it came to public finance in the U.S. While his instincts were on the money, he never had much influence on corporate thinking. The race for the quick buck, which Brady abhorred, defined the dot-com and telecom bubbles that would develop after he left. Yet, the only things he gets credit for today are some creative solutions to what was a deeply troubling Mexican debt crisis.

Today, Brady is 72 and chairman of Darby Overseas Investments, a private investment firm that specializes in Latin America and emerging markets finance. Brady is not the sort to say, "I told you so," and he didn't return calls for comment on his views of the '80s. But his words have stayed with me and speak for themselves. And we all would have done well to listen to them.

Gleckman is a senior correspondent in BusinessWeek's Washington bureau. Follow his views every Tuesday in Washington Watch, only on BusinessWeek Online

Edited by Douglas Harbrecht