The Ethical Barometer

Right up there with “the dog ate my homework” is a new explanation from Amazon’s founder in the midst of a mid-life crisis, “The Saudis did it.” When suggestive text messages from Mr. Bezos to his girlfriend, Lauren Sanchez, showed up in the National Enquirer, Mr. Bezos hired experts to determine who got them to the infamous supermarket tabloid. Their conclusion: The Saudis did it.

The FBI has another theory. Ms. Sanchez’s phone records indicate that she sent them to her brother, Michael Sanchez. The FBI has records showing that Mr. Sanchez received a $200,000 payment from the Enquirer. American Media, publisher of the Enquirer, long ago issued a statement saying that the brother was the source. The FBI is investigating whether American Media attempted to extort Mr. Bezos. American Media has also stated that no third party was involved in their sourcing, just AM and MS doing a deal via a written contract. The Wall Street Journal has reviewed the contract, the text messages, and the payment documentation. Mr. Sanchez says that the Journal has it wrong.

Carlos Danger, Pierre Delecto — these public figures with online presences that they somehow believe are secret. It’s all going public, with or without the Saudis. Think before you post, send, text, tweet.

Goldman Sachs has announced that it will no longer have companies with exclusively white male boards as going-public clients. Unless those clients are in Asia, Latin America, or the Middle East.

Along with that, Goldman Sachs also announced that it will no longer fund oil and gas development in the Arctic region. There goes Alaska.

This from a company that just had its tentacles into IMBD, a Malaysian government investment fund. That finished with charges of money laundering, and Goldman agreeing to a fine for ignoring red flags that were beating it about the head and shoulders. A Goldman employee entered a guilty plea to helping Malaysian government officials embezzle from the funds. Just the sight of the Jho Low character at the heart of IMBD scurrying around with the rich and famous and investing in DiCaprio films should have raised at eyebrow or two at the now highbrow firm. The company’s revenue was down 13% as a result of its legal cost alone on that choice of customers.

Goldman may have made a splash with its announcement at Davos and won the hearts and minds of Greta fans by abandoning the Northern Slope. Hoity-toity is not the same as cautious or scandal-free. Woke does not equal wise.

Mr. Stumpf, who presided over the largest growth of bank accounts and services per customer in the banking industry, also agreed to pay a $17.5 million fine. The individual sanctions against a banker were unusual. Following the 2008 market and bank collapses, banks were held to account with fines and compliance requirements. However, there was little to no accountability for executives at the Wall Street banks post-crisis. Tjr settlement appears to be a message to banking executives on minding the store more carefully. Know what thy employees are doing.

Dr. John Kapoor, the founder of Insys, who was convicted in May 2019 of conspiring to bribe doctors and defraud health insurers, was sentenced to 5.5 years in prison. The Chandler, Arizona-based company had a market value of $3.2 billion in 2015. Its fentanyl drug, Subsys,was a top seller. Today Insys is worth only $3.87 million, because of all the civil lawsuits by families of those who died of overdoses and by state and local governments seeking to recoup the costs of treating those addicted to the drug. Dr. Kapoor had already surrendered his 59% interest in the company. The rights to Subsys royalties were sold for $60 million.

Prosecutors sought 15 years because of the evidence at the trial that Insys paid doctors for sham talks and offered them lap dances in exchange for increasing their Subsys prescriptions. But Judge Allison D. Burroughs was unsure whether Dr. Kappor was the central player in the conspiracy. Insys’s former CEO and a Vice President entered guilty pleas before the trial and testified against Dr. Kapoor. They received sentences of three years and 30 months, respectively. The sentences for sales personnel, who also cooperated with prosecutors, ranged from one year to 33 months.

Let’s recap. In 2012 (April), former Best Buy CEO, Brian Dunn resigned (abruptly as the Wall Streeters say). The Board concluded that he had “an extremely close personal relationship” with a 29-year-old subordinate at the company that “negatively impacted the work environment.” In May 2012, Best Buy founder and chairman, Richard Schulze resigned (abruptly) after the Board concluded that he was aware of the “extremely close personal relationship” but said nothing to the Board.

Presently, the Board is grappling with the report that came from an anonymous letter. According to the letter, Best Buy’s current CEO, Corie Barry, had a romantic relationship with former Best Buy Senior Vice President, Karl Sanft. The relationship occurred before Ms. Barry wasnamed CEO. Mr. Sanft no longer works at Best Buy, having moved along to the chief operating officer position at 24 Hour Fitness Worldwide.

The Board assures that “Best Buy takes allegations of misconduct very seriously.” A law firm is now conducting an independent review.

Now if we could just get Best Buy executives to take misconduct seriously, preferably before engaging in it. We have not had back-to-back allegations such as this since Phil Condit left Boeing under a cloud of inappropriate relationships. Mr. Condit was replaced by Harry Stonecipher who then left Boeing for having an inappropriate relationship with a subordinate.

The Barometer offers the same question proffered each time these”relationships” percolate: How do these people find the time for this stuff? Private jets to maximize their time use. Executive assistants do their scheduling. Communications folks writing their speeches. These are busy people. Maybe. As the saying goes: Idle hands are the devil’s workshop. Or is it playground?

Matteo Sloane, in confronting his father, Devin Sloane, who entered a guilty plea to paying $250,000 to a USC account and a charity to have his son admitted to USC as a water polo recruit. Mr. Sloane responded, “I lost sight of what was right.” Matteo noted, “Kids should have more breathing room and more say in their life path.” Out of the mouths of babes, good advice for all 36 parents in the Operation Varsity Blue cheating scandal and any parents who may have crossed the line on essay editing or doing projects for their cherubs.

A Boeing employee weighing in via e-mail on the pretense his company was creating that no additional training was necessary for pilots on the redesigned Boeing 737MAX with its Maneuvering Characteristics Augmentation System (MCAS). MCAS was the term used inside the company. Outside the company it was called “an addition to the existing speed-trim system.” With this duplicity, as one e-mail explained, there would not be “additional work due to training impacts and maintenance manual expansions.” Think additional costs and regulatory delays.

Boeing has responded to these e-mails by explaining that “sentiments expressed in these communications are totally unacceptable,” but that it the levels of training recommended were entirely appropriate.

New CEO, same spin.

It remains unclear to the Barometer why employees feel free to spout off in e-mails. Feel free to schedule meetings, ask questions about shipments, and even grouse about the break room mess or someone swiping your lunch from the fridge. However, yammering away on e-mail about disagreements on product designs, development, and evolving customer issues may be a risky proposition.

The latest lesson on e-mail dangers comes from exchanges that involved Boeing employees, including the 737MAX chief technical pilot who wrote (and sent) the following:”I want to stress the importance of holding firm that there will not be any type of simulator training required. Boeing will not allow that to happen. We’ll got toe to toe with any regulator who tries to make that a requirement.”

And there was this response from an employee as the difficulties in developing simulators for training emerged, “Our arrogance is our demise.” Ouch.

Boeing and Holman Jenkins Jr. of the Wall Street Journal have taken a “move along, folks, nothing to see here” approach to the e-mails. Here’s some convoluted reasoning: The e-mails on training have nothing to do with design. The training was necessary to compensate for the design issues with the plane. It seems that the training/simulator folks came late to the 737MAX debacle. The chatter came from other segments of the company. Mr. Jenkins wonders where these employees were in the design phase — the Barometer guesses they were working in other parts of the company. Not all employees were in on the design discussions or production. They came late, too late, but not by design it were, and certainly were not compensating for their supposed failure to speak up earlier.

The chatter about training shows knowledge at that point of an issue with design that had to be fixed. Yet, the fix was not imminent. There is no good way to look at the admissions in the “training” e-mails.

And here’s one more e-mail defense of Boeing that is one for the textbooks: There were 10 million safe landings and only 2 crashes. True enough, but, as the Barometer always explains to students, “Dying customers is always bad for business,” whether by design or training.

Holman Jenkins, Jr., “Boeing Emails Explain Nothing,” Wall Street Journal,” January 15, 2020, p. A15.

Andy Pasztor and Alison Sider, “Chatter at Boeing Undercuts Its Defense of MAX Stance,”Wall Street Journal,” January 11, 2020, p. A12.

Enough said. Cheating.

David Drummond, chief legal officer for Alphabet (Google, we’re talking about Google here), will be departing the company after 20 years. Mr. Drummond filed the company’s original articles of incorporation as an attorney with the law firm Wilson Sonsini. He was Google’s first general counsel. In the last three months, Mr. Drummond has unloaded $221 million in stock options. In 2018, his total compensation was $47.3 million. 2019 compensation remains to be seen.

Mr. Drummond departs under a cloud of allegations. The first is that he is named in a suit brought by shareholders that alleges Mr. Drummond, other officers, and its board were “actively and directly” involved in an alleged coverup of sexual harassment and discrimination at Alphabet. Alphabet and/or Google have denied the claims, but were given an extension to file a response to the 82-page complaint. Turns out that a shareholder got access to the board minutes under nondisclosure terms. Excerpts from the minutes turned up in the complaint filed with the court, but they are redacted (one assumes only to the public. At some point the judge will need a look-see.) The suit was filed at the time 20,000 Google employees took to the streets to protest the company’s inappropriate handling of sexual harassment complaints.

Jennifer Blakely, a former contract manager in the legal department, claims that she had an affair with Mr. Drummond that began in 2004. She adds that she had a child with him in 2007. Mr. Drummond responded that he was “far from perfect” and that he holds a “very different view” on the Blakely allegations. Mr. Drummond has since married another employee from the legal department and will leave the company (ies) at the end of January 2020.

Mr. Drummond was behind Google’s decision to pull out of China in 2010. There was the human rights issue, but Google also discovered that the Chinese government had hacked the Google accounts of several activists in the country. Google went back in 2016. Like the NBA, Google said, “What the heck!” — too big of an economy to not do business there. And Google earned its social responsibility wings and moral authority from their, at least initial, avoidance of evil, as their credo went.

The allegations and responses belie the reputation of this avant garde second happiest place on earth. Amidst the toys for thinking innovation, the juice bars, and free food were so not-so-nice people when it comes to the one-on-one stuff that exists in all workplaces. Seems as if the management and managers were part of the problem.

The Barometer offers a parting thought, the same parting thought in all of these questionable-behavior-by-executives cases: What on earth were they thinking?

The New York Times obtained a copy of McKinsey & Company from 2010, the high powered consulting firm compared its 90-plus-years of doing business as akin to the Marine Corps, the Roman Catholic Church, and the Jesuits. The report describe McKinsey as “analytically rigorous, deeply principled seekers of knowledge and truth.” However, actions do speak louder than words and McKinsey is an amoral technician. McKinsey pushes the envelope inits interpretations of the law. They elude illegality, but their actions feel slippery. Here is a summary:

Federal bankruptcy rules require that financial consultants and advisors in bankruptcy (generally Chapter 11) proceedings. Yet, as documented on this website, McKinsey paid an $11 million fine after it finally revealed that its firm retirement fund held investments in the companies involved or affected by the restructurings and debt resolutions in those bankruptcies. For example, McKinsey’s fund held interests in two hedge funds that were creditors of GenOn Energy Inc. Yet, McKinsey served as an adviser in the Chapter 11 bankruptcy of that company. Bankruptcy rules require advisers to disclose all interests that may be a conflict of interest. McKinsey did not disclose its retirement fund’s investments in the hedge fund, let alone the hedge funds’ interests. “Not a problem,” was McKinsey’s take because it did not own any interest. Pure balderdash that those working with GenOn’s outcomes could benefit or be harmed by its bankruptcy restructuring. De minimis, said they.

McKinsey provided advice to Janssen Pharnaceuticals on how to market opioids to increase sales. The states of Oklahoma, Massachusetts, and New Jersey used McKinsey records to help build its case that the company engaged in irresponsible marketing of its fentanyl patch. McKinsey also advised Purdue Pharmaceutical on how to “turbocharge” its sales of Oxycontin. McKinsey assured that its work supported”the legal prescription and use of our clients’ products” and that it was no longer “advising clients on an opioid-specific business on a global basis.” Does that mean they advise on a local or national basis? No worries, however, when an executive for the company was asked about its aggressive marketing plan using the language from McKinsey’s advice, McKinsey went under the bus. Twice the executive said that the marketing plan consisted of “McKinsey’s words,” not ours.However, McKinsey was not fired, and, in fact, is still used by Janssen today for “different projects.” Nothing illegal, but amoral.

When doing government work at Rikers, a McKinsey partner told government officials and members of his team to use Wickr, a messaging site that automatically deletes messages in a timetable set by the users for hour or days. Certainly avoids all those public records requests on the project — the records automatically disappear. Not illegal, but an interesting approach to transparency on government work.

McKinsey worked for Boeing exploring options for obtaining titanium (in short supply in 2006) for its planes. McKinsey came up with the idea of Boeing investing in a titanium mine in India and those eliminate the suppliers and obtain titanium at the source. There was a McKinsey PowerPoint slide on a potential investment in a more in India in cooperation with a Ukrainian oligarch that would require influencing eight government officials, listed in the slide. The partner encouraged Boeing to “respect traditional bureaucratic processes, including the use of bribes.” McKinsey responded by saying that it did not encourage violation of the FCPA, but declined to provide the full slide set on the presentation of the mining opportunity. Let’s see, Ukraine, India, and a mine involved together in an investment in India. What could possibly go wrong?

The list could go on with the power company in South Africa, and the mess with the GSA and contract pricing rules that McKinsey got changed in its favor, something that the OIG concluded “violated requirements governing ethical conduct.” Not illegal, amoral.

Yes, onward march, ye deeply principled consultants seeking knowledge and truth. Just be sure to put it all on Wickr.

An employee at a waste and recycling center in Misomer Norton, GB opened a box during his sorting work and found 15,000 pounds (about $20,000). The box had been left at the center by a couple who had just cleaned out a deceased relative’s home. The employee took the box and money to the staff. The staff went through the security footage. They tracked down the couple via their license plate. The police traced the license plate and found that the owners lived 27 miles away in Burnham-on-the Sea. The police interviewed the couple without disclosing what had been discovered. When the police were satisfied with their account, which aligned with the tapes at the center, the police returned the money to them.

When the couple learned about the money they indicated that they were not surprised because the relative was known for stashing cash around the house. The police praised the center’s staff: “Without their diligent attitude, integrity, and assistance, the family would never have known about the money found, and we would not have been able to return it to them, especially in time for Christmas.” The honest employee chose not to be interviewed and was said to be “having a well-deserved Christmas break.” Indeed. His actions give us all hope about humanity’s condition.

There is another moral to the story: Check the boxes for contents before you toss, donate, or dump.

Former CEO of Nissan and Renault, Carlos Ghosn, fled from Japan for Lebanon, via private jet, of course. Even when CEOs are fugitives, commercial flights are not good enough. Although Ghosn was released from jail and was living in Tokyo, he was order not to leave the country. Generally, courts require passport surrenders when someone makes bail. So, it remain unclear how he escaped Japan or how he got into Lebanon. However, Lebanon is his homeland and the fact that he was featured on a 2017 Lebanese postage stamp might explain his uncanny ability to flit across the globe whilst facing charges related to his expenditures including the cost of a Louis the XIV costume birthday party at Versailles. Perhaps he used his costume as a disguise. However, a guy from Lebanon in a French king’s suit and a powdered wig probably should have raised a few immigration flags.

The Wall Street Journal reports that Ghosn remains defiant about the criminal charges. One could say that flight to a non-extradition country does not bode well for cooperation or even a trial.

In yet another example of how corporate boards cannot move decisively, after over a year of shoes dropping because of two crashes of the 737MAX, Boeing’s CEO has departed to spend more time with his family or whatever cover story given. That Boeing made a mistake in the design of the aircraft was a problem. However, the tin ear of now former CEO, Dennis A. Muilenburg, to the issues and scope of the crisis was stunning to watched as the clock ticked and the hits kept coming, financially and mistake-wise.

During the Q & A in a speech in May, a participant asked if Boeing’s CEO should be fired. The Barometer’s response, “I am mystified as to what the board [of Boeing] is thinking. He needs to go.”
Those who preside over the missteps at any company cannot buy credibility with customers or regulators. They were there. They are responsible, and they lack moral authority to assure. When a conintuing CEO seems to only exacerbate the problems in their idea of crisis management REALLY need to go.