The Ethical Barometer

There were seven of us gathered for a birthday celebration. But there was fear in the air as we sang “Happy Birthday to you.” We all knew the possibility of something else in the air. A Swedish study that concluded that those who sing Happy Birthday are more likely to get COVID-19. Those popping P’s and B’s are the root cause. There was an awakening in the Barometer. We grieve for our loved ones and for all families who have suffered a loss. We have witnessed the tough slogs to recovery for those who have survived. But there comes a point when we must begin the process of weighing costs, accept some risks, and return to some presumption that we have control over our lives.

The Barometer is “Zoomed” out. Aretha Franklin sang about this “zoom” thing way ahead of her time, “Who’s Zooming’?” The Queen of Soul sang about being take for a ride in the cause of love. One line is “Who’s zommin’ who?” (Grammatically speaking, it should be “Who’s zooming’ whom?” but we shall grant artistic license.) So it is with our fears and response to COVID-19.

What we have accepted without so much of a whimper is a continuing world without hugs, kisses, and even handshakes. We have accepted restaurants with no atmosphere. Sitting outdoors among the protestors turns out to be expensive – they eat your food before you can. We have accepted masks, even in banks. Butch and Sundance would have loved this brave new world. We have accepted no theater. We banished movies except for Netflix. But, we have our priorities — we have relented on movie theaters only recently because of our longing for films featuring comic characters from the 1960s. This is a world where we witness small, quaint, and personal-touch businesses disappearing. Retailers from Brooks Brothers to bridal stores to Payless Shoes are working through bankruptcy. Business is booming for tailors, however, because they have to alter clothes for the COVID 10-20-pound weights gains.

The politics behind these issues are so strident that half the country would not take a COVID-19 vaccine even if it were successfully tested. Distrust is so high that the pharmaceutical firms joined together to take out full-page ads in major newspapers promising to develop their vaccine “with high ethical standards and sound scientific principles.” Funny, that probably should have been an assumed business strategy for no altruistic reason, just the fear and reality of class-action suits. In this era, ethical and scientific integrity have to be spoken/printed aloud. Now the pledges to take the vaccine when it is developed are being demanded and offered in a beneath-childish scenario that the Hatfields and McCoys and the Capulets and Montagues would have found beneath them.

We have created a no-school world, something we dreamed of as children but were denied such by adults who knew better. Now the adults are forcing children to stay home as children beg to return to school. Out of the mouths of babes comes wisdom in a time of hysteria. Forget sports. Forget weddings. Forget honor guards at veterans’ funerals. Forget funerals unless you can pick and choose 10 people who will be permitted to attend. Forget travel for fear of being stuck there for months when you planned for a week. Forget concerts. Forget church meetings. No political rallies. No gyms, unless you wear a mask during aerobic exercise. Does that sound healthy?

Despots dreamed of such complicity. It’s John Lennon’s whining dream come true, and all without an army or battle or even actual laws. Kings with proclamations met greater resistance. There were always a few peasants willing to foment high dudgeon and storm the castle with pitch forks. Today the peasants are inside, binge-watching and baking banana bread.

So, what do we have? Humanity sitting inside, apparently hoarding Lysol spray and toilet paper (grocery stats bear out the purchase trends), not shaving, not dressing (even for Zoom meetings), watching mediocre or bad (on so many levels) films, not exercising, not learning, and getting about 4 weeks to the gallon. It does not take a social scientist or medical expert to assess the mental and physical health risks in this prescription.

Have we really thought all of this through carefully? Do we even think about the level of micromanagement of our lives when there is now a warning label on singing “Happy Birthday”? Here’s one girl who is willing to say, “You better think about what you’re trying to do to me.”

The Queen says everything better, especially when it comes to zoomin’:

Guess you believed the world
Playin’ by your rules
Here stands an experienced girl
I ain’t nobody’s fool.

The TD Ameritrade crowd was buying up the Tesla shares. Tesla was headed into the elite S&P 500 companies. However, Tesla did not make it, despite accumulated profits over four quarters. The market is puzzled. The market needs to look deeper into Tesla’s financials. The old saying is that GM runs a pension plan and builds cars for a hobby. Tesla runs a company selling regulatory credits to other companies so that those companies can balance their emissions standards books. Tesla may be building cars for a hobby as well. The source of profits is as important as the profits themselves. There have always been twists to Tesla’s numbers.

In teaching MBAs, one of the key ethical topics in financial reporting is quality of earnings. Understanding how a company got to its earnings s perhaps more important than the earnings themselves. One-time currency-exchange-rate-boons do not a steady stream of earnings make. The clever application of GAAP and presentation of earnings breakdown are insights into ethics and character. Some retailers switch from calling out their sources of revenue to hide declines in their primary product sales. For example, Apple no longer calling out its phone sales or Coach no longer separating out outlet sales from store sales. How those earnings are presented can conceal the strength of the brand and the potential for earnings going forward. That too-clever-by-half approach in what goes into earnings never bodes well for the future.

The Barometer has said and written many times, upon studying the e-mails and texts of businesspeople later convicted of crimes related to their electronic messaging, “Who does this?” Or, “What kind of fool would put that in writing?” From Anthony Weiner (nee Carlos Danger) to Hillary Clinton to Arthur Andersen partners to parents working to get their talentless children into prestige schools as water polo stars, these folks somehow feel above the fray. In a way proud of their actions, they seem to enjoy the thrill of hornswoggling others, seducing the young and/or their direct reports, and unleashing photos that would make Michael Avenatti (nee “Creepy Porn Lawyer”) blush.

We now have some explanation offered thanks to Elizabeth Holmes, former CEO of Theranos, the gigantic blood-testing company fraud. She may claim “mental disease or defect” as a defense in her upcoming fraud trial. One guesses that there are some wires loose when behavior beyond brazen turns into fraud. However, loose wires do not mean lack of knowledge about the nature of their conduct. Insanity has been a tough defense for serial killers. Serial tricksters, especially those who build a nonexistent blood testing process into a $9-billion company, will have a steep hill to climb.

Warren Buffett once said of companies that experience difficulties that the difficulties continue to emerge following their initial problems and headlines. He compared it to turning the light on in the kitchen in the middle of the night. You are going to scare out a great many cockroaches heretofore undetected.

Boeing is now facing an FAA probe on its 787 Dreamliner jets. Heretofore a very safe plane used on international routes, Boeing found parts for this plane were defective. Produced in its South Carolina plant, the parts are now under intense scrutiny. The good news is that Boeing’s new and enhanced safety review uncovered the defects. The bad news is that it will take some time to figure out how the defective parts rolled through without necessary checks. The additional bad news is that the FAA must determine whether to impose streamlined maintenance checks, a process that will ground fleets. Shining the light in areas where that light is a surprise always nets valuable information. The hope for the brand languishes but the deference to safety is progress.

When HR is weak on investigating complaints and doling out discipline, you get exactly what McDonald’s is going through now. An ugly lawsuits by the board against the company’s departed CEO. The allegations are that Mr. Steve Easterbrook had three sexual relationships with employees, and that the Board approved his severance package without knowledge of such. Now comes an investigation into the HR Department at the company over reports from employees that their complaints were ignored. They feared retaliation and did not pursue further action from HR.

Among the allegations are that the head of HR (chief people officer in McDonald’s Happy Place) joined in on the drinking and inappropriate comment fest at the company’s 2018 Christmas party. When will we learn? Surely “Mad Men” would have sworn companies off these gala events. There was an investigation by legal counsel with this conclusion: Heavy drinking was inappropriate and to let them know if it happened again. That oughta do it.

Therein lies the problem for what would ripen into a mess. The strongest communication about its values that any organization can give is by the action it takes against employees who violate organizational rules and standards. Let them off lightly, and you not only allow the behaviors to continue, but they will get worse. Do a slow-walk investigation and employees get the message. No big deal. You force them to live with it or leave. Employees working in a poisoned culture are never as engaged, productive, or loyal as those who feel that their companies stand by stated values.

The McDonald’s suit and all that will follow is a lesson for all leaders, and, especially, HR VPs, people officers, talent managers or whatever they are calling them now. The folks who get the complaints. Listen up, follow up, and stand up for sanctions.

On the night of March 13, 1964, Kitty Genovese died at the hands of an assailant as 38 “respectable, law abiding citizens” of Kew Gardens in Queens, NY that heard her cries did nothing. The story became one of the horror of “egocentrism in the urban jungle.” However, there was one neighbor, a friend of Miss Genovese, who, upon hearing from a frantic neighbor that her friend was slumped inside the rear building door, went to her side. The then-30-year-old mother of a new baby held Kitty as they waited for help. Miss Genovese died in the ambulance en route to the hospital.

It was Miss Genovese’s brother who restored some semblance of hope in society as he featured that neighbor, Sophia Farrar, in his documentary about the night his sister was murdered. Mrs. Farrar explained what she did with one hope: That Kitty knew she was there with her and for her. Mrs. Farrar took a risk that 37 others would not. A young mother there for her friend.

Mrs. Farrar recently died at age 92. RIP. May we remember her example of courage and friendship.

The latest indictment in the UAW’s long and corrupt history is Dennis Williams, former president (left in 2018). The indictment alleges that Mr. Williams and others used union funds total trips to Palm Springs, California and Missouri. The UAW paid rent for villas, golf course fees, cigars, and lavish dinners. The UAW paperwork submitted indicated that the travel and expenses were for attendance at conferences. However, there were no conferences.

This latest indictment brings the total of UAW officials criminally charged to 15. Former UAW Gary Jones has already entered a guilty plea to embezzlement and racketeering — same cities (add Coronado, CA to the list) and same sort of conduct. The bottom line is that regional and national officials were having a good time at UAW expense.

The current UAW president, Rory Gamble, is negotiating with the Justice Department to implement reforms that would settle the ongoing investigation. Ethical leadership is what the Justice Department wants. The UAW needs a federal monitor. But before that, a good housecleaning.

Teva, an Israeli-based pharma, has quite a market in generic drugs for high cholesterol, blood clots, and skin conditions. However, in an indictment filed by the Justice Department last week, Teva is accused of engaging in price-fixing and bid-rigging with its competitors. The indictment alleges Teva and other pharmas were allocating customers — deciding who would win which bids and just divvying up the market accordingly. This strategy cuts way back on the need for sales efforts. But, it also cuts into illegality. According to the indictment, the Teva employee who spearheaded the market fixes sent almost 80% of the 941 phone and text messages to competitors in 2014. That employee has been working with the Justice Department but appears to be a “swing” witness. Her story has changed.

Teva attempted negotiations with Justice Department officials for a settlement, but the dastardly Justice Department insisted on an admission. Teva was not of a mind to provide such, hence, the indictment. The company with $17 billion in revenue last year does not believe that it did anything that violated the law. Employees in other companies involved have sung like canaries, so we shall see.

One tidbit, Teva used its work on a COVID-19 vaccine as a reason for going easy on them. The Justice Department was not moved, except to indict.

The World Bank publishes a report called, “Doing Business.” The report ranks countries according to their regulatory environments. Countries can improve their rankings by reducing bureaucratic burdens on starting a business and expanding access to electricity. However, since 2018, everyone from the World Bank’s then chief economist to the Center for Global Development have been pointing to possible corruption in the data used to put together the rankings. The most recent rankings find China, Azerbaijan, UAE, and Saudi Arabia soaring. For example, Azerbiajan, the country that comes to all of our minds when we think “business growth,” soared from 80th place to 34th in just a year. China climbed from 90th to 31st, right up there with Azerbaijan when we think of friendly governments and capitalism. The data point to what one expert said was “rot within the project.”

All data is only as good as the folks who put it together and those those who get their hands on it before publication.

The COVID-19 virus has certainly had its share of controversy. Lack of honesty in presenting data to the public does not help. One of the more blatant misrepresentations was uncovered in Kansas through a freedom of information request made by the Kansas Policy Institute. The Kansas Department of Health and Environment released a chart that purported to show that the 15 counties that had followed Governor Laura Kelly’s mask mandate were successful in reducing COVID-19 cases at a far greater rate than the 90 counties that failed to enforce the mandate.

The chart however, used different y axes for the county groups. So, of course the 90 counties would seem to have a higher number of cases.

The Kansas Policy Center decided to take the data it obtained and do what most of us learned in sixth grade: When doing comparison graphs, plot two different color lines using the same x and y axes.
https://kansaspolicy.org/wp-content/uploads/2020/08/Picture1-1.png.

Take a look at the graph and you will see the counties without the mandate did better. You will also see that the Kansas DHE chose not to start its graphs until July 12, which was 9 days after the mandate went into effect. The Kansas Policy Institute chose to start on Day One of the mask mandate, and the 90 counties did even better in that period.

Conflicting reports about COVID-19 data are troubling. One cannot really follow the science if there are two sets of data for the same events. The Barometer thinks back to a now departed and dear colleague who once said in a meeting during which we huddled over a PhD candidate’s puzzling research data, “Figures don’t lie, but liars do figure.” Politics makes for some figuring and even stranger charts in these “all is political” times.

“Tis quite an accounting error at the German company, Wirecard. The company’s value went from 13 billion (Euro) in June2020 to 200 million (Euro) in August 2020. Wirecard owns a bank and does payment services and suspicions about fraud had been circulating since January 2019. So far, four Wirecard managers and executives, including its former CEO, CFO, and accounting manager, have been charged with fraud, breach of trust, and market manipulation. The allegations are that the managers began inflating revenue in 2015.

Apparently, the German government and regulators were all in with this financial wunderkind. Chancellor Angela Merkel was all in for Wirecard’s acquisition of AllScore Financial, a Chinese Company. And employees at BaFin, the German bank regulator, were trading Wirecard shares in 2019 and the first six months of 2020. In fact, the trading was ongoing whilst BaFin was investigating Wirecard. German officials agree that Wirecard is a financial disaster but that BaFin’s supervisory mechanisms are sound. VW and emissions falsification. Wirecard and revenue falsification, and apparently German regulators were enjoying the ride. Fahrvergnugen and all that.

A manager at American Express is in the news because she alleges that she was suspended for raising issues about the sales tactics of AMEX employees charged with sales of the company’s corporate card. Sophia Lewis and other employees say that they witness salespeople, heavily incentivized by commissions, to ignore the company’s requirement of $4 million in revenue. The applications, according to Lewis and other AMEX employees, were submitting the applications without verification of income.

If it all sounds familiar, think Wells Fargo and its new account incentives. Or think mortgage brokers during the subprime era. The more mortgages they wrote (without income verification), the more they earned. For AMEX salespeople, at $475 to $650 per application submitted, the temptation, pressure, and compensation are enough to entice even he pure among us. AMEX says Ms. Lewis was suspended for other reasons and is on medical leave. But her performance rating dropped after she reported the conduct.

Two sides to the story, but if 50% of it is true, AMEX should be investigating.

It feels as if the politics get in the way of the serious nature of the conduct of former FBI lawyer, Kevin Clinesmith. In order to represent that Carter Page, who was an adviser to the Trump 2016 presidential campaign, was not a source to another government agency, Mr. Clinesmith altered an e-mail from the CIA in response to his e-mail question on the source status. The CIA response said that Mr. Page “was or is a contact.” Mr. Clinesmith added “and not ‘a source'” to make it look as if the CIA had denied source status when it, in fact, had confirmed that Mr. Page was doing work for the CIA.

Mr. Clinesmtih plans to enter a guilty verdict. His behavior was a breach of all ethical standards lawyers pledge to uphold. To put I more plainly: This was wrong. If the FBI can make stuff up to get a warrant to spy on a presidential adviser and thereby on the presidential candidate, imagine what they could be doing to us? This stuff matters, even if Mr. Clinesnith felt he was saving the country from Trump.

The board of McDonald’s kinda, sorta did an investigation into the conduct of their then CEO, Steve Easterbrook, in November 2019. The board concluded that they did not have enough evidence to show that Easterbrook’s behavior (sending sexually explicit text messages, photographs, and engaging in FaceTime calls with an employee) involved “dishonesty, fraud, illegality or moral turpitude.” Those were the four grounds for termination in the Easterbrook contract. Instead, not finding a breach of terms, they sent Mr. Easterbrook away with a severance package of $700,000 in cash, and $17.4 million in stock grants. Various reports put the value of the package at $40 million.

Now come the results of a real investigation. After another employee disclosed that she had a sexual relationship with Mr. Easterbrook (something Mr. Easterbrook denied to the board in the first investigation), presumably new investigators searched the company e-mails under the employee’s name and found e-mails that Easterbrook sent from the company e-mail to his Hotmail account. And, well, as it turns out, the photographs as well as the e-mails to which they were attached were indeed hot. Easterbrook had deleted the e-mails from his phone. However, company e-mails are backed up; it just turns out that the original crackerjack investigators, treading lightly, only investigated the e-mail misconduct but did not take the time to go through the rest of the treasure trove of Easterbrook e-mails on the company server.

The board made it all this public. Good thing. A company trying to change a culture with new leadership cannot move on unless it acknowledges the reality of what was going on with its former CEO. How demoralizing it must have been to employees who knew the truth to witness the November result. The guy who did something wrong walked away with $40 million and probably lied to get that. The irony of the past few months of moralizing statements, pledges of zero tolerance, andforces of change from new leaders must have brought some chuckles.

Now the board looks silly. McDonald’s is back to square one in changing its culture, and the lawsuit will drag this all out for months. Is it any wonder we question the wisdom, depth,and backbone of corporate boards? And one last thing for CEOs everywhere: How many times must we go through this scenario before you surrender and find something else to do? One more thing: your e-mail is discoverable, sooner or later (depending on the quality of the investigation).