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THE MADNESS
[performance evaluations] and to give people a heads up on where they stand relative
to their peers.” Team managing directors, who oversaw the analysts rating the
deals, received a base salary, cash bonus, and stock options. Their performance goals
generally fell into the categories of market coverage, revenue, market outreach (such
as speeches and publications), ratings quality, and development of analytical tools,
only one of which was impossible to measure in real time as compensation was being
awarded: ratings quality. It might take years for the poor quality of a rating to become
clear as the rated asset failed to perform as expected.
In January , a derivatives manager listed his most important achievements in
a performance evaluation. At the top of the list: “Protected our market share in
the CDO corporate cash flow sector. . . . To my knowledge we missed only one CLO
[collateralized loan obligation] from BofA and that CLO was unratable by us because
of it’s [sic] bizarre structure.”
More evidence of Moody’s emphasis on market share was provided by an email that
circulated in the fall of , in the midst of significant downgrades in the structured fi-
nance market. Group Managing Director of U.S. Derivatives Yuri Yoshizawa asked her
team’s managing directors to explain a market share decrease from to .
Despite this apparent emphasis on market share, Clarkson told the FCIC that “the
most important goal for any managing director would be credibility . . . and perform-
ance [of] the ratings.” McDaniel, the chairman and CEO of Moody’s Corporation,
elaborated: “I disagree that there was a drive for market share. We pay attention to
our position in the market. . . . But ratings quality, getting the ratings to the best pos-
sible predictive content, predictive status, is paramount.”
Whatever McDaniel’s or Clarkson’s intended message, some employees continued
to see an emphasis on Moody’s market share. Former team managing director Witt
recalled that the “smoking gun” moment of his employment at Moody’s occurred
during a “town hall” meeting in the third quarter of with Moody’s management
and its managing directors, after Moody’s had already announced mass downgrades
on mortgage-related securities. After McDaniel made a presentation about
Moody’s financial outlook for the year ahead, one managing director responded: “I
was interested, Ray, to hear your belief that the first thing in the minds of people in
this room is the financial outlook for the remainder of the year. . . . [M]y thinking is
there’s a much greater concern about the franchise.” He added, “I think that the
greater anxiety being felt by the people in this room and . . . by the analysts is what’s
going on with the ratings and what the outlook is[,] . . . specifically the severe ratings
transitions we’re dealing with . . . and uncertainty about what’s ahead on that, the rat-
ings accuracy.” Witt recalled, “Moody’s reputation was just being absolutely lacer-
ated; and that these people are standing here, and they’re not even
addressing—they’re acting like it’s not even happening, even now that it’s already
happened. . . . [T]hat just made it so clear to me . . . that the balance was far too much
on the side of short-term profitability.”
In an internal memorandum from October sent to McDaniel, in a section
titled “Conflict of Interest: Market Share,” Chief Credit Officer Andrew Kimball
