Now That’s A Conflict: The Sordid Tale of John Schiller and Energy XXI

John Schiller, former CEO of Energy XXI Ltd., has settled an SEC investigation by paying $180,000 and agreeing to a five-year ban as a corporate officer of a public company. The SEC, in announcing the settlement, alleged that Mr. Schiller had failed to disclose that he traded business contracts in exchange for personal loans from contractors and a portfolio manager at a fund that held 8.4% of Energy XXI’s stock. The SEC summary also alleged that Mr. Schiller pledged $23 million against his shares in Energy XXI to fund “an extravagant lifestyle.” If that was insufficient, the allegations also indicate that Energy XXI failed to disclose “at least” $1 million in perks and personal expenses for Mr. Schiller.

Energy XXI declared bankruptcy in April 2016. The board ousted Mr. Schiller in February 2017. Better late than never.

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Truth Percolates: Nursing Home Pay Records Reveal Low Staffing Levels

The families of nursing home residents, many of the homes rated quite high by the federal government, had long complained that staffing levels were inadequate. Residents were not being turned to prevent bedsores. Baths were being skipped. Medications missed. But, the nursing home administartors insisted that the staffing levels were just fine.

Enter a simple wage study. The federal government took a look at the pay records for the nursing homes. If you want the truth on staffing levels, you look at the daily payroll records. Kaiser Health News took a look at the records from 14,000 facilities. Staffing levels were dangerously low, especially on the weekends. The ratings were based on the staffing levels that the facilities self-reported. It turns out that the data were not correct. That data differed from the payroll data.

There is almost always a means for checking self-reported data. On safety, check worker’s compensation claims to verify reported injuries and lost work days. With staffing, check payroll, particularly when there are mandated staff-to-patient ratios. On claims of earnings, check the cash. The cross-checks are where truth percolates.

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Temple Business School Submitted False Numbers for Rankings of Its Online MBA Program

Temple University hired the Jones Day law firm to conduct an investigation of the school’s Fox Business School. The investigation concluded that under the leadership of the dean of Fox false information had been sent to at least one of the rankings organization. Temple’s Fox had held the number one slot in the U.S. News & World Report rankings for its online MBA programs. Temple self-reported the problems to the rankings services and fired Dean Moshe Porat.

Pennsylvania’s State Attorney general announced its own investigation into whether Temple broke any laws in its advertisements, which touted the rankings. U.S. News & World Report revised its published rankings to list Temple as “unranked,” and has asked Temple for additional information in order to determine whether information for other colleges at Temple and for Temple itself in order to determine whether rankings beyond the Fox Business School are accurate.

Claremont-McKenna experienced the same issue several years back. Calling all deans and presidents – check your data that was submitted for rankings. Figures don’t lie, but liars do figure.

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Memo to Wells Fargo: You Cannot Fix This With Ads and Social Responsibility

The Barometer, a longstanding customer of Wells Fargo, admits to being a little insulted. The full and multi=page ads just keep coming from Wells Fargo. You know, “Established 1852. Re-Established 2018.” But, the talk of a diverse board. The $20-million expansion of its Innovation Incubator (IN2), which advancing emerging clean technologies and start-ups. The 433,800 meals through its joint effort with the United Way, the Wells Fargo Holiday Food Bank. And $1 million per day to charities. Then, $50 million to Native-American communities for economic development. Wells Fargo employees volunteering 5,500 hours per day. The list goes on. All good causes. All noble efforts. But, these old saw social responsibility tools are indulgences for the fake account debacle. The transparency of busting one’s buttons is misdirection. Never mind what you see going on in the news, we are reborn.

Here’s a smattering of the bad news that continues to erupt at Wells since the time of the fake accounts scandal: We learned in May that Wells improperly altered corporate clients’ data; We learned in June that Wells is now on the “no business with” list for state and municipal bonds because of its sales practices (including New York City); We also learned in May that an audit of Wells pension fund management revealed retention of fees that should have come back to the cities and states using Wells as their managers and those government entities are now switching their fund to other managers; We learned that Wells’ brokers kept rebates that should have gone to their customers; Wells’ share price has risen only 8% since September 2016 (just before the fake accounts scandal emerged); and Wells is struggling under the federal restrictions placed on it because of the fines, penalties, and regulatory oversight. And with each new issue, we get the Wells line that it was a system error. The Barometer will give them that: FIX THE SYSTEMS!

It seems as if Wells is trying to buy a reputation. Oh, that it were that easy to recover from a scandal (and some subsequent misdeeds) that destroyed trust. Like a new or re-established business, Wells will need to earn back that trust slowly. Trust does not come from flashy ads of braggadocio. It comes from rooting through the whole bank for lax processes and control, for managers and leaders who do not buy into being reborn and are simply laying low until they get through “this government thing,” and focused audits on how divisions are earning their revenue. Are those numbers real or have they been achieved through some tactic that will emerge? My bet is on some issues that still have not emerged at Wells.

That type of effort is quiet, takes time, and cannot be flashed about as evidence of progress. In short, Wells has a culture problem and good deeds will not cure it. In fact, it makes those who are really not on board with the ethics things more cynical: “Okay, so we paid a fine and were slow for awhile. Look how much we made before we got caught, and we can do some good deeds as penance and move on.” An internal focus, not external fluff, is the ticket here. Fluff is insulting, especially to longstanding customers who would welcome the pride that we would have in our bank’s quiet humble efforts to truly change.

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NCAA and Injury Reports: Gambling Demands Reality and Student Privacy Rights May Trump It

The college football coaches are used to euphemisms. They don’t say that a player has an ACL — we know what that is and we have the time frame from our own children and their surgeries and physical therapies. College coaches, as Paul Myerberg of USA Today describes, NCAA coaches simply say that a player is “out with a knee.”

Apparently, however, with gambling about to hit college sports, the Big Ten is asking for the NCAA to create a national system for reporting injuries. Colleges are operating with a load of regulatory overhead. The terse descriptions of college coaches may be given under direction from university general counsel. FERPA protects students (and football players are students for purposes of federal privacy protections despite their lack of degree progression or GPAs) from public disclosure of information related to their educational experience (and an injury could be part of that). There are also the privacy protections of HIPAA — medical conditions of patients cannot be publicly disclosed (or disclosed to any third parties) without their express permission.

Enter the gamblers — they want to know who’s playing in a particular game. And that may be what they will have to settle for.

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John Brennan in the New York Times Magazine on Speaking Out

John Brennan, former CIA director under President Obama, gave a profile story to the New York Times Magazine. Here are two quotes from the article:

“We’re at a critical stage in our nation’s history. When I see there is dishonesty and a lack of integrity, Yeah, I speak out.”

But, follow along closely now because he does not want to speak out too much:

“I just don’t want to get into details about what I know or don’t know.”

Now there’s speaking out for you.

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Rod Rosenstein and Truth Percolating

Rod Rosenstein, assistant attorney general of the United States and second in command at the Justice Department, is featured on the front page of today’s New York Times. According to the article, which is sourced to 4 people, Mr. Rosenstein appeared conflicted, was “shaken,” “unsteady,” and “overwhelmed” when he wrote the memo about former FBI Director James Comey’s performance at the FBI. President Trump fired Mr. Comey shortly after he received the Rosenstein memo. The sources maintain that Mr. Rosenstein was angry at the time because he felt that the White House used him to rationalize firing Mr. Comey. Well, now, why write the memo of justification for firing Mr. Comey if you cannot support firing Mr. Comey?

Then the “Why did you write it?” question eludes the Times. And there is a big part of the story that only gets a few lines. Mr. Rosenstein has made public statements before Congress that show no regret about the memo, “I wrote it. I believe it. I stand by it.” Yet the Times story quotes one of the four people as saying Mr. Rosenstein sounded “frantic, nervous, upset, and emotionally dis-regulated (whatever that means).” The sources say that Mr. Rosenstein was criticized by career prosecutors for allowing President Trump to use him.

The Justice Department, through a spokeswoman, disputes the descriptions, saying that if Mr. Rosenstein was all those things it was because Mr. McCabe had concealed the Comey memos from him. Mr. McCabe’s cadre of anonymous sources disputes that story, with a close McCabe associate saying Mr. Rosenstein never brought up the memos to Mr. McCabe. Mr. McCabe was terminated by FBI Director Christopher Wray for lying. Talk about your tangled webs. Make up your own chart and insert here. Isn’t the FBI supposed to be chasing the liars?

Somewhere in and amongst the friends, the close associates, the spokeswoman, and Mr. Rosenstein’s public statements and speeches, the truth rests. Eventually, the truth will percolate. In the meantime, the Barometer is grateful to have never worked in D.C. Too many buses to get thrown under. Too much duplicity. Too many back- and front-stabbers. Too much drama. Too many painful career deaths by a thousand cuts. For the sake of ending the nation’s “emotional dis-regulation” let’s hope for bubbling percolation so that this mess can be wrapped up and we can move on to something less soap operaish. We are all “sane,” “overwhelmed,” “nervous,” “upset,” and, one new adjective, disappointed with the whole lot of them. A pox on all your fiefdoms.

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Algeria’s Fix For Student Cheating?

Algerian officials had enough of the students cheating during exams. Their solution? Shut down the Internet in the whole country during exam hours. A digital blackout. In order to cheat, the students will have to go low tech — back to answers on palms, crib sheets, and towels in the restroom. The human mind knows no limitations when it comes to cheating.

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McKinsey and South Africa’s Corruption: A Loss on a $700-Million Contract and Brand Damage — Should Have Listened to Jeffrey Skilling

Top front page and 3 full; inside pages in today’s New York Times about McKinsey & Company’s consulting contract with Eskom, a South African power company. It was a $700 million contract, but the payment was contingent on turning around a nearly insolvent company. In the late 1980s, when McKinsey was just launching into energy consulting, Jeffrey Skilling was with McKinsey. Yes, that Jeffrey Skilling, former CEO of Enron who was convicted of and imprisoned for accounting frau. At that time, Mr. Skilling was against anything but flat-fee contracts in energy. Payments under contracts based on whether McKinsey delivered results, Mr. Skilling argued, would be an incentive to tell clients to reduce costs when cost reduction might not be in its best interests. Mr. Skilling told McKinsey partners that such contracts “could destroy” McKinsey. Funnily enough, Mr. Skilling saw the ethical issue. The other partners did not. McKinsey went full speed ahead into results contracts in the energy sector.

The $700 million bet in South Africa was a big one. Just the amount McKinsey would be paid (and with government agencies the amount paid is always public) would turn the heads of officials and citizens in financially struggling South Africa. However, the payment amount turned out to be the least of McKinsey’s worries. It affiliated with a local company, without really doing the vetting. As it turns out, that company was a front for other companies that were funneling money to other companies in order to funnel money to the Gupta family to funnel money to government officials.McKinsey found itself in the midst of a national scandal with an illegal contract.

Some saw the red flags in 1980. Some saw the red flags in South African corruption. Some saw the red flags when the contract amounts were so large. Some saw the red flags when they witnessed the profligate spending. But seeing the red flags is different from acting on them. This one, as Dominic Barton McKinsey’s resigning managing director said, “I take responsibility. This isn’t who we are. It isn’t what we do.”

Yes, actually it is who McKinsey is now. A ‘tin ear” to ethical issues gets one into a great deal of deafness and the fallout of failure.

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“Not subprime mortgages, not Countrywide, not Angelo Mozilo. I wish I had that kind of power.”

Former Countrywide CEO, Angelo Mozilo, in an interview with the Wall Street Journal on whether the mortgages loans his company (and many others) made were the cause of the 2008 housing crisis and market collapse. He says a liquidity crunch and panic were the causes. This from a man who was accused by the SEC of unloading $140 million of his stock based on inside information. He settled the charges for $22.5 million.

Experts and those grounded in reality beg to differ. “It wasn’t just Countrywide, but Countrywide was taking shortcuts everywhere. They weren’t picky about quality. And everybody bought into this, hook, line, and sinker at exactly the wrong time.” Mr. Mozilo is, amazingly, still selling.

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McKinsey & Co. and the Duty to Disclose

The McKinsey RTC division of McKinsey & Co. participated in the restructuring of United Airlines, American Airlines, Edison Mission Energy, NII Holdings, Inc., Alpha Natural Resources, Inc. and SunEdison, Inc. McKinsey RTC was an adviser to those companies during their restructurings. McKinsey RTC did not disclose to the bankruptcy court that McKinsey & Co.’s retirement funds, through its hedge fund investors, held a stake in the debt or other obligations of those six companies.

The disclosure form to the bankruptcy court is a sworn statement that the adviser is a “disinterested party.” McKinsey released a statement saying that it met all legal requirements and that it has been approved for participation by the bankruptcy courts handling the Chapter 11 proceedings for the companies. McKinsey believes that the retirement fund is run separately and therefore disclosure was not required under the regulations.

McKinsey may be right. But, let’s look at it from another angle. How those companies fared in Chapter 11 restructuring had an effect on every McKinsey employee in terms of the performance of their retirement fund. The data are still out on that one. We have us a little letter of the law vs. spirit of the law situation here.

As we say in training on conflicts of interest, if there is the slightest chance of appearance or a glimmer of doubt, disclose.
Interesting how sophistication always gets in the way of being upfront.

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One of the Worst Quotes from the Justice Department Inspector General Report on the FBI Investigation of Hillary Clinton’s Private E-Mail and Server

FBI attorney Lisa Page and Peter Strzok, paramours, engaged the following in their preparation for questioning then-candidate Hillary Clinton about her e-mails, server, and destruction of both:

10:52 p.m., Page: “One more thing: she might be our next president. The last thing you need us going in there loaded for bear. You think she’s going to remember or care that it was more doj than fbi?”

10:56 p.m., Strzok: “Agreed.”

SO MUCH FOR JUSTICE BEING BLIND!

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Training Can’t Solve These Problems

Members of Congress, the broadcast industry, and Hollywood producers were removing their clothes in offices and elevators. Paul Ryan’s congressional solution is sexual harassment training for all members of congress and their staff. A Starbucks manager handles a non-paying customer issue with police escalation. CEO Howard Schultzz shuts down the enterprise so that they can all be trained on their biases. The former director of the FBI pulled an Alexander Haig and took over the Justice Department via press conference. FBI Director Christopher Wray has ordered that all FBI agents have training on avoiding bias.

Speaking as someone with a vested interest in training, allow me to share this hard truth: Training cannot fix these workplace problems. Training is salve for the conscience. Training is a checked box that can bring lower insurance rates and reduced sentencies and fines should the training not take.

Subjecting an entire workforce to training when a couple of ne’er-do-wells at the top created a public relations nightmare is one of the worst things to do. You add resentment to the emotions that frontline employees, who are already disgusted by the behaviors of a few, feel.

Fear of litigation, concerns about privacy, and visible contrition by subjecting employees to Pollyannaish platitudes drive leaders to the trainers. What leaders should be doing is firing the offenders. We once knew to keep our clothes on at work. Get rid of those who can’t. The FBI surely can muster the fortitude to fire agents who spend their time at work having affairs, texting on government phones, and using those texts to plot an overthrow of an election and mock the American people. Discipline is the training organizations need. When heads roll, behaviors change.

At the heart of every ethical and legal lapse in any organization is bad behavior. Sometimes, as in the case at the FBI, the top layer of leadership is the problem. Leaders at the FBI were accepting tickets, meals, and general camaraderie from journalists. See what happens if a field agent started that kind of nonsense. Get rid of the leaders and everyone is trained on accepting “stuff.” Starbucks fired the manager at the Philadelphia store for not following company policies. That was the right thing to do. The day of closing for training was based on an erroneous conclusion about the bias of its workforce. One manager behaving badly does not a bad culture make.

Save your money. Don’t hire the trainers. Fire the offenders, and do so before they impose the feel-goodism of a blanket one-size-fits-all prescription. The fortitude to fire is the fix.

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“Mediterranean-Diet Study Is Retracted, Then Reissued With Same Findings.”

New York Times, June 14, 2018, p. A23. Hold the olive oil — no one is clear on this one. Issue, retract, reissue, and still no one can replicate. Turns out the folks in the villages where the subjects eating the Mediterranean diet became the envy of their neighbors, who were not getting the free olive oil. So, the researchers gave out the police oil to the control groups in the villages. So, the village folks were eating the same diet. No randomness here. Still, the researchers stand behind the study. The moral of the story is to watch those grad students in the field. They can mess up a study through their generosity.

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