How About That Rikers Island?

We’re talking abuse of inmates by guards and inmates, misuse of official cars, and the jail monitor allegedly spying on the Corrections Department of Investigations staff as they attempted to figure out what was going on at the Big House. A scathing report was just issued, and now the Department of Investigation has added a letter to Mayor Bill de Blasio that alleges rules violations by the prison monitor, i.e., listening into interviews of inmate by the Department of Investigation. Apparently, according to the letter, the monitor had joined the other side. Although, which side that would be remains unclear — the staff? the inmates? both? Or were they one and the same? Heck of a culture going on there. Classic sandbox — someone from the outside points out the problems and those from within the sandbox undermine the outsider and threaten the finks. Is there a management bone in any one’s body in New York government at any level?

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Wells Fargo Independent 110-Page Report Has a Footnote on Whistle-Blowers

Wacky, probably some fraudulent, sales tactics were pervasive at Wells Fargo. When you have to fire 5,300 employees in one fell swoop, you have a culture problem. Yet, following a high-falutin’ law firm independent investigation, and that report, to Well’s Fargo’s credit, has been released, the discussion of retaliation is found in Footnote 26 on p. 87 (of 110 pages). https://www08.wellsfargomedia.com/assets/pdf/about/investor-relations/presentations/2017/board-report.pdf. Read it and wonder:

Based on a limited review completed to date, Shearman & Sterling has not identified a pattern of retaliation against Community Bank employees who complained about sales pressure or practices. The review, which is ongoing, thus far has consisted of the following five steps. First, Wells Fargo’s outside counsel provided a spreadsheet listing 115 potential whistleblower cases identified by Wells Fargo’s HR legal team for the period 201116 (this included many different types of claims, e.g., sexual harassment). From that spreadsheet, ten case files (including legal documents, employee files, HR records, ICE records and case-related correspondence) from the period 2011-2013 were identified for review because the spreadsheet description suggested those cases could be related to sales practice misconduct. The review of those ten files did not reveal any documentary evidence suggesting purposeful retaliation in those cases. Second, based on a review of these ten case files, media reports, the Shearman & Sterling document repository and a list provided by Wells Fargo’s legal department of publicly-disclosed whistleblowers, counsel identified 11 former Wells Fargo employees to interview (only three of whom agreed to speak). Counsel also reviewed documents relevant to those 11 individuals located in Shearman & Sterling’s document repository. This inquiry did not identify evidence of retaliation. Third, Shearman & Sterling analyzed whistleblower and EthicsLine reports made to the A&E Committee going back to 2011, and identified nine incident descriptions as potentially implicating sales practice-related retaliation. Two of those incidents related to employees whose files were reviewed as part of the review described in the first step, above, and review of the other seven files has not been completed as of the date of this Report. Fourth, Wells Fargo’s outside employment counsel reviewed files (including ICE records, EthicsLine data, HR data and media reports) relating to 885 employees, consisting of employees who (i) called Wells Fargo’s EthicsLine between January 1, 2011 and October 5, 2016, identified themselves on the calls and were subject to a corrective action within 12 months of their call or (ii) during the month following the September 8, 2016 settlement announcement, claimed in media reports that Wells Fargo had retaliated against them for reporting sales misconduct or sales practices concerns. Shearman & Sterling is in the process of independently reviewing the following two sets of files reviewed by Wells Fargo’s outside employment counsel, in each case as supplemented by a search for relevant documents in its own document repository: (i) eight files identified by Wells Fargo’s employment counsel as raising “concerns,” and (ii) ten additional files of employees who were also among the 5,367 terminations referenced in the September 2016 settlements. Fifth, whistleblowers have been identified in the derivative complaints relating to sales practices filed by Wells Fargo shareholders. Shearman & Sterling determined that one of those did not involve a sales practice-related matter, and has reviewed the files related to two other publicly-identified whistleblowers as part of the review described in the first step above. Counsel is still in the process of reviewing the files relating to an additional four individuals.

Some advice for the Wells board of directors (who got by with a squeak at last week’s annual meeting):

1. Wells has a culture problem. It has an internal audit problem. It has a problem with to whistle-blower reports. It has a problem with what to do in a crisis of this magnitude. Quit running ads and commissioning investigations. See below.
2. Law firms do not investigate culture — they are looking for violations of the law. And it shows.
3. People generally do not create retaliation documentation. Stunningly, the law firm seems surprised to write, “We could not find a stitch of evidence.” Watch out, Holmes and Watson.
4. Most employees will not take a complaint through to action. Stunningly, again, internal audit did not follow up with the complaints to see what was what. Internal audit did not even catch the patterns on fake accounts. Talk to the people who left voluntarily. The Barometer’s son is one — he has a letter that he sent to headquarters explaining why he was resigning in 2012 from a Wells branch. Most informative.
5. Current employees at are not candid with a law firm. Investigations make most people nervous, particularly when they have witnessed colleagues dropping like flies — voluntarily or otherwise. And Wells has not indicated that it understands the issues. It is trying to survive a criminal investigation and it shows.
6. Read The Seven Signs of Ethical Collapse. It can help you understand the culture of fear and silence. Until you get that part of this crisis, you have relegated the real issues to footnotes.

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“This is a seismic cultural shift, when a corporation puts a woman’s rights above the bottom line.”

Wendy Walsh, former O’Reilly guest. However, in the case of Fox News, O’Reilly got the boot because the bottomline was being affected. O’Reilly advertisers pulled their ads from his program. You lose ad dollars, you fix it. Sometimes business interests and rights walk on the sale side of the street. The two are not always at war. And, the free market does work.

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“People getting accounts they didn’t sign up for? I don’t need an M.B.A. in finance to understand that’s wrong.”

Stephen Beck, founder of CG42, a strategy company, discussing Wells Fargo’s problems. Funny how this simple point eluded so many within the bank.

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Why Tesla Should Make Us Nervous

Seen it before. Written about it before. The cult-like following among investors and buyers. Tesla is a cultivated brand — status symbol — environmentally conscientious folks who can feel pretentious and pure at the same time. The iconic CEO — Elon Musk. Written about, talked about, and quirky. Facebook posts for ending a marriage are always great fun. That classic swagger — billionaire by age 32. Iconic CEOs mean turnover in the management team. Ugly departure of the former CFO and the original founders. Oh, take a look at that executive compensation with the stock options. We have an irrational share price that cannot come from growth. Where’s the capacity for building and selling the cars the company would have to sell to justify the stock price? 500,000 cars by 2018? As of 2016, Tesla produced 100,000 cars. Stinky governance. Musk is CEO and chairman and no one has any choice about that. Tesla pays SpaceX to leases it aircraft. Tesla bought SolarCity, a company that has been unprofitable since 2012, and Musk’s cousin is the CEO. Not sure how the shareholders of Tesla benefit from the acquisition, but members of the Board do because of their investments. Kimbal Musk, Elon’s brother, may be the most independent director of all because of the investment interconnections among and between the others. The sheer number of subsidiaries is mindboggling. Numbers pressure. The cash burn rate. Investors just managed to pony up another billion in an offering. And this is a company that is unprofitable. The marketing budget has gone from $9 million in 2013 to $58 million in 2015. Divide that by 100,000 cars sold. Think what GM could do with that kind of budget per car.

You hope that Mr. Musk is just a genius and that this all works out for investors. However, Mike Jackson, CEO of AutoNation may be right — it is either the greatest Ponzi scheme ever or, the Barometer’s phrase, another Apple. The Seven Signs of Ethical collapse are evident here — and those seven signs were present in all the once-great ones: Enron, WorldCom, Adelphia, Madoff. You hope for the best, but there comes a point when you have seen the story one too many times.

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Barclay’s: The Bank That Can’t Shoot Straight and Its Latest Gaffe

Antony Jenkins was named Barclay’s CEO in December 2012 following the LIBOR rate-fixing problems at the bank, a serious misstep that cost the bank almost one-half billion in fines. Mr. Jenkins, by all accounts, worked diligently to change the Barclay’s culture. Then, he was fired by Barclay’s board in July 2015 because he was not doing enough shareholder-wise. So much for the culture change; we want turn-arounds and earnings. Enter James E. Staley, former JPMorgan investment bank executive, to take the Barclay’s CEO slot. Hiring from the home of the London Whale and that $6-billion trading loss, may not speak “culture is important here,” either.

In January 2016, things got sticky. The board learned through an anonymous letter that Mr. Staley had asked for some unmasking of a whistleblower. Apparently, the whistleblower Staley wanted identified by the bank’s information security team had written letters to the Barclay’s board and a senior executive raising allegations about another executive and his behavior. Mr. Staley said the allegations were untrue, and he sought to identify the author of the letter.

Now, stop here for a minute. In the world of ethics and compliance, one of the keys to anonymous reporting is anonymity. However, Mr. Staley insists that he did not know such a request was wrong. CEO training must have forgotten to mention the anonymity thing. An investigation by a law firm hired by the Barclay’s board found that Mr. Staley was told at the time his request that he could not unmask the identity of whistleblowers. Mr. Staley did it anyway, has admitted what he did, and is likely to have his bonus (or some portion thereof) clawed back.

The board has received media kudos for holding Mr. Staley to account. Pardon me? There is no way to change a culture when you fired the CEO who was trying to do so but was not making enough money followed by the retention of a CEO who is not too busy to seek the identity of whistleblowers. For what purpose we will never know. What we do know is that Barclay’s has a problem going forward. What employee is his or her right mind would make an anonymous report now? This guy needs to go if the board expects to ever hear about any issue. Mind you, Mr. Staley sought the whistleblowers identity because he felt the whistleblower was in error. Don’t we all! That’s why we have compliance officers and investigations. We sort things through to determine if the whistleblower is right or wrong.

Worse, the regulators have just gotten started on their investigation. Mr. Staley says that he has apologized to the board (“for errors on my part,” which is a weasely way of saying, “Hey, those other guys did it too!”) and vows to cooperate with regulators in their investigation. Let’s hope the regulators see the issues the board missed.

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How Come No One Offered to Take the Dragged Passenger’s Place?

The United Airlines passenger-dragging has a ubiquitous presence on the Internet, TV, radio, and at work gathering places. Every opinion possible has been uttered, save one. Yes, we have no rights as passengers. Yes, United did not handle things well. Yes, this is a PR nightmare. Yes, the lawyers are circling. But, the Barometer sees shortcomings and failures in others beyond United and airport police. How come not one of the seated passengers offered to take the man’s place? There would have been nothing wrong with a passenger saying, “It’s not worth this, I can get off the plane.”

As a frequent flyer, the Barometer has pretty much seen it all, especially the selfishness of travelers. The walking on the backs of other passengers to get on the plane as quickly as possible. The Shetland-pony-size comfort pets. This is a wild crowd. Air travel is not for the faint-hearted. But, when there is tension in the air, and you are not involved, how about easing the tension instead of contributing to injuries, a lawsuit, and a multi-million-dollar award? It is difficult to know who is right and who is wrong, but you know when someone is being physically harmed. Passengers in the video were saying, “This is not right.” No, it was not, no matter who did what, when, and why. Victims of the bystander effect, not a single passenger stepped in. Preventing escalation and further harm is a good thing. So, step in. Help out. Sacrifice.

The Barometer has given up her carry-on bag space to appease foul-mouthed passengers, agitated because they don’t want to check their bags. The Barometer has switched seats when other passengers refused. The Barometer has no expectations on air travel, save one The flight must be relatively crash-free. And 99.9% of the time, my expectation is met. I am grateful for that. Any other inconveniences are solvable and make for great stories. The Barometer would have offered to get off the plane. Frequent flyers know that they will, somehow, get from Chicago to Louisville. A small price to pay to stop the blood-drawing dragging of a human being through the aisle of a regional jet. Life is short. Opportunities to help abound. And in this season, would it have been too much for a single passenger to make a sacrifice to save another?

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Wells: Two Days of Full-Page Ads on Their Changes: What They Got Right and What They Missed

Reading through the full-page ad Wells Fargo has run in the Wall Street Journal, New York Times, and USA Today. for two days in a row. They have done some good things:

1. Fired some executives who were linked to inappropriate sales practices.
2. The Board “cancelled [Wells prefers the British spelling] all 2016 cash bonuses for 8 senior leaders (including the new CEO) who were serving on the Operating Committee.
3. Separated out the roles of CEO and Chairman of the Board.
4. Refunded $3.2 million to 130,000 customers.
5. Eliminated product sales goals.
6. Changed pay mechanisms for retail bankers.
7. Increased pay for entry-level employees.
8. Created a new Office of Ethics, Oversight, and Integrity.
9. Added protection for those who come forward with issues.
10. Increased training for managers on how to respond to employee concerns and issues.

Good start, but here are some gaps.
1. The changes are all dashboard — you can list them and they make for a nice list. However, the question is whether the culture has changed. The Barometer took a look at the latest report Continue reading

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“We did nothing wrong, OK?” Roy Williams, UNC men’s basketball coach

Uttered by the coach whilst whining about “this junk,” referring to the academic scandal at the university that resulted in 3,000 students getting credit for coursework in classes that never met (and nearly half of the students were student-athletes, mostly football and basketball players). “This junk” went on for 18 years, and the coach seems surprised that it has affected UNC’s reputation and ability to recruit. Well, ethical lapses do that. Ask Wells Fargo what has happened to its ability to recruit new customers. Ask BP about its inability to drill when it was banished from federal contracts. Ask the former Arthur Andersen employees how hard it was for them to get work after their firm collapsed.

Until the term turns from “this junk” to “serious issues involving academic integrity,” UNC cannot move beyond the taint. The first step, in the grand and healing philosophy of AA, is admitting that you have a problem.

Hat tip to USA Today today, April 3, 2017, p. 1C for the quote. Nancy Armour, “Carolina Blue Has a Black Mark.”

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Bruno Fernandes de Souza — Convicted Girlfriend Murderer Who Fed Her Body Parts to a Dog Gets a Two-Year Soccer Contract

Yes, you read that correctly, Bruno, as the star goalkeeper is known in Brazil, was signed by Boa Esporte for two years. He received a 22-year sentence for killing his ex-girlfriend after she demanded child support for their newborn child. He has been released because of his lengthy appeal. He had served six years. And you thought the NFL was bad.

The soccer club’s president says that he was not breaking any laws and, in fact, was fulfilling a “social obligation” by helping Bruno readjust to society after prison (and the act of exploring dismemberment as a possibility for canine nourishment — note, The Barometer inserted this last part). “I have a clear conscience that Bruno needs this process of re-socialization. He deserves another opportunity.” He may have a clear conscience, but the rest of us are sleeping with the lights on tonight.

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“Your biographical information will always have this senseless taint.”

U.S. District Judge Susan Wigenton in sentencing Bill Baroni, the former deputy executive director of the Port Authority of New York and New Jersey. Mr. Baroni received a two-year sentence. Bridget Anne Kelly, a member of New Jersey Governor Chris Christie’s staff was sentenced to 18 months. Ms. Kelly’s infamous e-mail read, “time for some traffic problems in Fort Lee.” The two were convicted one seven counts of conspiracy, fraud, and civil rights violations for closing down access lanes to the George Washington Bridge in September 2013 as payback Continue reading

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Former Penn State President Graham Spanier Convicted of Child Endangerment

He avoided the felony charges, but got a misdemeanor conviction for what the jury found was his failure to stop the Sandusky abuse of minors on the Penn State campus. The one count conviction carries punishment of up to five years and a $10,000 fine. Tim Curley, the former athletics director at Penn State, and Gary Schultz, a former senior vice president, turned state’s evidence and testified against Mr. Spanier in exchange for a misdemeanor charge.

The two testified that the three had come up with a plan to not report the Sanudusky behavior and simply handle it in-house with a strong talk with Sandusky. Their plan was self-described as “compassionate.” The smoking gun e-mail that got Mr. Spanier, despite his denials that he knew what was happening is seemingly inexplicable, “The only downside for us is if the message isn’t “heard” and acted upon, and we then become vulnerable for not having reported it.” No, actually, there was another downside. That would be the additional victims of Sandusky who were harmed over nearly a decade of Sandusky’s unfettered access to young males. How we frame an issue dangerously justifies bad decisions and blinds us to true harm. When children are involved, err on the side of no-holds-barred, swift action, not “compassion.”

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The “Carousing” General Will Keep His Security Clearance

Brig. Gen. Ron Lewis, a military adviser to Secretary of Defense, Ash Carter, used his government credit card to pay his tabs at “Hooker Hill in Seoul, drank excessively on trips with Secretary Carter, and had “inappropriate interactions” with military and civil female personnel. Mr. Carter sacked him, the Army lopped $10,000 of his pension, and a letter of reprimand outlined all of what was just described. However, the Army has recommended that he keep his security clearance.

Post-military employment with defense contractors requires security clearance. So, the Army does not want to interfere with his ability to cash in with his experience. The bars in Rome and sex clubs in Korea will be happy to know that the former general will be back with private credit cards. Is there an ounce of common sense in Washington, D.C.? Did it occur to anyone there that his behavior pattern a risk to security? And, who would hire this guy? Let’s find him a new line of work, away from national security, travel, and women. Retirement will do nicely.

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“Bootlicking Sycophants”: A Study on Analysts’ Praise for Management in Exchange for Access

All analysts want that bit of information they can get from management for an edge in the market. Professors Jonathan Milian, Antoinette Smith, and Elio Alfonso now have a study, “Does an Analyst’s Access to Information Vary with the Favorableness of Their Language When Speaking to Management?” documenting that analysts use groveling to flatter management into serving up more info. Hat tip to Jason Zweig at the Wall Street Journal for finding the study and sharing it with the world. Without him, the paper would have been limited to its 58 downloads, well, 59 with the Barometer’s actions.

In a review of 16,000 earnings conference calls from 2003-2013, the professors found that analysts uttered the term “great quarter” 3,000 times. And that praise is not the only phrase used (although it is the only one with a Twitter account named after it:@greatquarter, which is a parody look at what analysts do). In fact, “great quarter” is mild in comparison to “Amazing,” “Incredible,” “Phenomenal,” and “Congratulations.”

Praise and flattery will get you something, and for analysts, it is access. In one-half of the calls, the authors found praise from analysts. Analysts have entered the school of “everyone gets a trophy.” Anything shy of Chapter 11 bankruptcy gets you a thumbs-up from the peanut gallery of analysts.

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