By Jack Cumming

The first time a person attends the Annual LeadingAge Conference can seem overwhelming. It’s huge. There are so many events. Music is playing. People are milling everywhere. And then, there’s the exhibit hall.

Overwhelming

Walking from the corridors, teeming with attendees, into the massive space and innumerable booths of the exhibit hall gives one a quick glimpse of how huge the senior living industry is. There are so many vendors there, seeking notice and patronage. If the first impression of the conference was overwhelming, walking into the exhibit hall takes it up a notch.

Right at the front, the most noticeable booths are those of the investment bankers specializing in senior living and their development colleagues. The investment bankers raise the money, and the developers put it to work expanding existing communities or developing new ones. Senior housing is capital-intensive, meaning it takes a lot of money, and this is where the money is to be found and put to use.

The Big Money Questions

This open evidence of money everywhere leads one to think about the money ethics of the industry.

• Is it ethical to claim tax exemption for organizations that require proof of wealth before resident beneficiaries can move in?
• Is it ethical to use contractually required entrance fees as at-risk equity capital?
• Is it ethical to promise lifetime benefits without holding full reserves specifically to meet those deferred late-life obligations, including residence?
• Is it acceptable that most of those who structure and govern senior living communities choose not to live in them when they, themselves, become eligible?
• Is it ethical to market “continuing care” or “life plan” without licensure and the capability to provide all stages of care implicit in those terms?
• How would the industry stand up to an intensive and well-publicized inquiry into its practices and beliefs?

A distraction into an alternative universe can give us a glimpse into how such a public event might play out. Here’s how.

An Alternative Money Universe

Financial concentration is not new. We can examine its universality and temptations in the form of an alternative universe. No one now living exists in that alternative universe. We’re not thinking here of science fiction but of history with real events, real players, and real outcomes. The takeaway: with concentrated wealth comes opportunity, but also the possibility for clever transactions. Clever can be rationalized, while opportunity is the path of wisdom.

A quick story can explain this more clearly. It’s the story of how I came to realize the wisdom of avoiding clever subterfuge. As a young man, I was studying for actuarial exams. After work every evening, I would go to the library on the 14th floor of the New York Life building on Madison Avenue, find a small table in an alcove, and settle in to study.

A Distraction

As is often the case when one concentrates on a difficult task, distractions would present themselves. Most often, it was the books on the shelves of that isolated alcove. That’s where I discovered the transcripts of the “Joint Committee of the Senate and Assembly of this State of New York appointed to investigate the affairs of life insurance companies transmitted to the legislature, February 22, 1906.”

The investigation was called the Armstrong Investigation, for short, after the chair of the committee, and the hearings were held in the Aldermanic Chambers of New York City to ensure easy attendance by witnesses and maximum coverage by the media of the time. The daily proceedings created the leading news stories day after day as the hearings took place.

Since I was building a career in life insurance, naturally, I read that avidly when I should have been immersed in mathematics. Math can never have the fascination that the maneuverings of people have. The great Charles Evans Hughes was the counsel for the committee. History thus gives us this completed example of what can occur in an alternative universe that is a mirror of our own.

Scandal or Mere Lack of Understanding?

It turned out that there had been scurrilous abuses of authority by some of the leading businesspeople of the age. It caused great scandal, and it took the life insurance industry twenty years to recover from the mistrust aroused.

New York Life, my employer, was a mutual company, owned by its customers and run assiduously for their benefit. I resolved then and there to adhere to that premise of customer service as a lodestar and to be ready if ever needed to stand to account as Charles Evans Hughes long ago called those self-absorbed men (they were virtually all men) to account.

The money names from that faraway past are still with us today. J. P. Morgan is now part of Chase Bank, but Equitable Life, New York Life, and Goldman Sachs still do business under those names. Kuhn, Loeb eventually merged into Lehman Brothers, and its remnants were absorbed into American Express.

Personalities

Consider, though, the fascinating players in the 1905 drama. George Walbridge Perkins was simultaneously vice president of New York Life and a partner of J. P. Morgan. Let that sink in for a minute. Imagine Morgan lending securities to New York Life overnight on the last day of the year in order to dress up New York Life’s balance sheet.

It would be as if Dan Herman of Ziegler and Mark Andrews of Greystone were the same person. Of course, then it was about the ties between the source of funds and their facilitation. Now, it is more about the links between facilitating finances and their use. Money is all about sources and uses.

For those who may not have time to delve deeply into the transcript, the examination of George Walbridge Perkins is indicative both of naïveté and self-dealing in that alternative universe of long ago. For that purpose, I recommend starting on page 856 of Volume I of the transcript referenced earlier. We get to know Mr. Perkins very quickly. It would be an understatement to say that he is self-assured.

Think of the contrast between a man who deals in millions and a clerk, Milton Monroe Mattison, who is paid $10 a week. I was struck by Mr. Mattison’s proud statement at one point about a transaction that netted many hundreds of thousands of dollars: “We … made a very handsome profit …” We can only imagine what this modest servant thought when testifying on behalf of Mr. Perkins and his Midas touch.

It’s Still Relevant

As I was rereading this testimony recently, I couldn’t help but think that people like Dan Hermann, who are still active in financial dealings today, would find the reading as fascinating as I did then, so many years ago. Frankly, I learned more that was of value to my career from this reading distraction than I did from what I should have been studying.

The thinking of those who then confronted similar ethical and equitable challenges to those of today is best learned from their own utterance. Charles Evans Hughes’s probing of their convictions and why they held them raises that thinking to a much higher level.

Lessons Learned

What will you learn if you take time to obtain and peruse this fascinating set of tomes? First, I learned early in my career to be open in all that I do. I decided then that I would conduct my life so that I would be no more than embarrassed if everything I had done were to come to light. Yes, there are things of which I am ashamed. For instance, I made a fearful mistake in marrying unwisely at a young age. That’s an embarrassment, but I’ve been very blessed in my marriage with my second wife, Valerie.

Second, it reinforced a bit of wry wisdom that I had from my father. My father used to give joking advice. “Don’t marry for money,” he adjured, “but go where the money is.” That’s still true today. If you aspire to wealth, then go where wealth is to be found. Wealth is found in the money concentration that facilitates the sourcing of money to be used for constructive purposes.

My son once worked as a paralegal for a prominent Wall Street law firm. That was nearly fifty years ago. As a young man, my son was discussing money with a law partner. The partner advised him, “If you want money, go to investment banking. I draw about $800,000 a year (think 1983), while my counterpart at Goldman Sachs receives $5 Million.” The impression left by that massive exhibit hall at the LeadingAge Annual Conference is one of money.

Beyond Money

In case you’re curious, I can share that my son never did get rich. Instead, most of his career was as an attorney in service to the California Supreme Court and, for a stint, the D.C. Circuit Court of Appeals. I’m very proud of his accomplishments.

To conclude, it’s not true that money doesn’t matter. Money represents the quantification of human endeavor and achievement. It matters. Integrity, though, matters more and is the more difficult to pursue. Integrity requires that we know what is ethical and equitable in any given situation, and that is not always clear.

The only way to end this is to quote Goethe from his masterwork, Faust, which deals with these matters. Goethe concludes by having God declare, “Wer immer strebend sich bemüht, den können wir erlösen,“ which translates as, “Salvation comes to those who strive as best they can.”

Nancy Reagan famously counseled Ronald Reagan to answer pointed accusatory questions simply with, “We’re doing the best we can.” That’s all that is asked and all that is needed. Click here for a paper describing the Armstrong investigation and its impact. Imagine how such a thorough investigation of today’s senior housing might play out.