The Ethical Barometer

MLB Commissioner, Rob Manford, denies any intestinal manipulation. Tony Clark, the players’ association’s executive director, begs to differ. Mr. Manford acknowledged that the sports is considering new specifications. And, beneath it all is an interesting conflict of interest. MLB purchased the manufacturer of baseballs, Rawlings, in 2016 for $395 million. Mr. Manford says that the purchase was made in order to keep Rawlings, a major supplier for the sport, viable. The hits and the home-runs just keep coming as the rabbit balls keep hoping up.

From steroids to humidors, the MLB is a study on a sport, players, and teams who behave as amoral technicians. They take their toes right to the line. They will not step over the line (they think), but they are unapologetic about what they are doing because they do not see the issues. Were the Barometer working on this issue of the baseballs and resulting homers the message to the MLB Commissioner would be: Change the specs, sell Rawlings to someone else, and live with the number of homers that come naturally. How many times do we have to walk through the Valleys of the Shadows of Pushing the Envelope before we begin to rein in players, teams, leagues, and fans.

“I want to be clear that there is not a demand problem.” Those are Elon Musk’s words as he indicated that total delivers would be between 80,000-90,000 cars. He indicated there might be an all-time record for deliveries. The things missing in the delivery figure: costs (and ergo profits) and sales. Tesla says that it will be hiring. Again, costs and sales. You want to root for the best for a visionary, but the switching focus on which numbers is a signal. From sales to production to deliveries and away from profits and costs mean that we celebrate each quarter without really knowing future plans and potential demand. It is not lying or misrepresentation, but it is a distraction strategy: Issue reports on singular numbers that bring resulting joy singular. Overall? Watch those other numbers when the record deliveries are celebrated.

Those DNA tests that the family history sites run are quite fun. You can find relatives that you never knew that you had. However, once those DNA profiles are out there for public consumption, crimes can be solved. For example, over three decades ago, two young people were found dead in Washington state. The police had nothing to go on except a semen sample found on one of the teen’s clothing. By 1994, DNA testing emerged, and the detectives tried to find a match, with even the FBI unable to help. To find a match, the DNA data bases have to have that person in there. There is no nationwide, universal DNA test or data base. One of the detectives in the case realized that there was a bigger DNA data base than what he and the FBI were working with in their quest. Oh, those ancestry sites!

Detective James H. Scharf of the Snohomish County Sheriff’s Office used the DNA from the victim’s clothing and found two second cousins of the suspect with a DNA match. CeCe Moore, a genetic genealogist, traced the cousins’ family tree and found great-grandparents and then traced forward from them, which led her to a couple with a son in a home seven miles from where one of the teen’s boys was found. That son, William Talbott II, was 24 at the time of the murders, and his DNA matched the sample from the teen’s clothing. Heather Murphy, “Milestone for Genealogy Sites: First Guilty Verdict,” New York Times, July 1 2019, p. A11. All achieved through the use of public records. No warrant needed.

Mr. Talbott was convicted of two counts of murder. Detective Scharf was only on the stand for six minutes. The jury deliberated for two days. The case must have troubled them, and that would be because a harsh reality emerged with this first-ever case. Truth percolates. It finds a way. It took scientific discovery and broader use of that tool in the private sector, but DNA spreads. And it tells a tale.

One question the Barometer is always asked, “How can you say that truth percolates? There are many things we will never know about or many more no one can ever find.” There is one variable in truth percolation: Time. It took from 1987 until 2019 to get a conviction of Talbott, but it all percolated through what amounts to science being on the side of truth. The defense introduced evidence of letters from family, friends, and neighbors — no one could believe that Mr. Talbott could have done such a thing. The Barometer has interviewed friends and family of white-collar criminals who all say, “This is the last person I would ever expect to do such a thing.” As Detective Scharf, with years of investigating crimes against children, explained, “Everyone in this world has secrets.” Yes, there are secrets, temporarily, but truth percolates.

In what is its strongest statement of responsibility for the crashes of two of its 737 Max jets, Boeing will give $100 million to support the families of the victims. Government and nonprofit organizations will assist in the distribution of the funds. The purpose of the funds is to provide funds for living expenses, education, and hardship. The funds are separate and apart from the suits some of the family members have filed against Boeing that allege faulty design of the planes.

CEO Dennis Muilenberg said the fund could grow with employee contributions, contributions that Boeing has pledged to match. He also added that Boeing is focused on “re-earning” passenger trust in Boeing airplanes.

The methodology description is fuzzy, but USA Today published a study by Comparably on the “Top-rated CEOs for Diversity.” The data were collected from June 7, 2018-June 7, 2019 and were collected from a pool of “ethnically diverse” employees (anonymously). Here are a few of the rankings:

5. Google
11. Salesforce
15. Microsoft
17. Facebook
18. Apple
24. Coupa Software
29. Amazon
30. Starbucks

Now, let’s compare what we saw in the press during the same period. Google fired two employee for raising questions and issues related to diversity. These are the Silicon Valley/Seattle companies and their struggles in recruiting women and minorities are the subject of ongoing seminars, discussions, and hand-wringing. Facebook chastised an executive for attending the Kavanaugh Senate hearings on the now-Justice’s nomination (the two were friends). There is the Ellen Pao discrimination suit that consumed the techies. Starbucks had a stand-down on diversity.

The inconsistencies between rank and activities can be found by “Googling” the company names. Like all employee surveys, one should wonder about issues such as anonymity fears, gaming, and the usual rankings interpretations.

Aide to former New Jersey Governor Chris Christie (Bridget Kelly) and Port Authority executives Bill Baroni and David Wilder were convicted of federal crimes for creating a traffic jam closing of highways leading to the George Washington Bridge. They said they were conducting a traffic study. The government successfully prosecuting them under the theory that their actions were payback to the mayor of Fort Lee for his failure to endorse then-Governor Christie for re-election.

The U.S. Supreme Court held, in reversing the convictions of Governor Bob McDonnell and his wife, that the standards of “distasteful” and “tawdry” conduct cannot be used as a basis for prosecution under the federal bribery statute. The court noted that public corruption criminal statutes should not give government “boundless interpretations” on conduct that is unethical. This case is something less than Rolexes and Ferraris in exchange for a good word on a product. It would seem that Ms. Kelly and the Baroni/Wilder team have a shot.

The news stories laud the courage and activism of the Wayfair employees. However, one must look far and wide to find an important part of the story. Wayfair was not selling mattresses to ICE, as some stories reported, or the federal government, as most of the stories reported. Wayfair was selling mattresses to Baptist Children’s Family Services, a government contractor running detention centers. A nonprofit government contractor. A religious-based nonprofit trying to make conditions better in the humanitarian crisis at the border.

Regardless of how we feel politically about immigration laws, immigration policies, and who caused what or did what, we have those who serve those who are at the border, for whatever reason. Those who serve need food, shelter, sleep, and basic hygiene products to do so effectively. Shall we punish toothpaste companies? Shall we boycott dairies? Shall we boycott Frito-Lay if a bag of chips ends up in a detention center? Shall farm workers walk out because lettuce is making its way into meals there?

The praise for Wayfair employees not only misses facts, it misses reality. Corporate activism is depicted as the brave effectors of Generation X, Y, and Z employees who feel empowered to demand certain actions and views from their employers. From Google to Microsoft to Twitter and all up and down the Silicon Valley, these employees demand that their employers adopt their political views.

The Barometer is all for employee activism, but stunned on employee inconsistency in this realm. Employees rarely speak up about defective products, shoddy production, money laundering, or insider trading. The press coverage just is not there. Yet, these are the activities that bring a company down. So, this brave new generation remains sullen and mute on legal and safety violations because, “I don’t want to lose my job.” One wonders where the line is for what employees can tolerate in employers.

There is little thought, but plenty of emotion and few facts, that go into social responsibility issues and protests. Employees fail to grasp that their self-righteous indignation on their chosen issues puts their companies at risk. Wayfair is currently struggling financially. Turning down customers on the basis of their customers or sales (although not selling to a religious nonprofit that is giving teens a mattress on which to lay their weary heads seems slightly antithetical to social responsibility goals), is not an effective path back from the business red zone. Ironically, employees’ vocal positions on these safe, media-darling issues will produce the same negative consequences for their employers their reticence and silence on the legal and safety issues do: You destroy the business (not even taking into account the customer backlash that could follow).

Wayfair did agree to make a donation to the Red Cross (a donation greater than the profit Wayfair will make on the mattress sales). The Red Cross stays away all things border. Still not good enough to prevent the walk-out. Neutrality is insufficient in this era of emotion — my way, or no way. The employees may get their wish. Wayfair may not survive.

As the Barometer once said to a former student who was working for a defense contractor that made weapons and who was struggling mightily, “You may have to find a different company with social and political values consistent with your own.” Wayfair employees may soon be looking for such a company. The Barometer only hopes they can find such a company somewhere in a supply chain. Where is a company that sells products to entities, agencies, governments, other companies, and human beings that someone could not find objectionable? There is that line question again. We are now into secondary boycotts. Can tertiary ones be far behind? The Baptists are next. Followed by anyone who sells to Baptists. Followed yet again by anyone who sells to those who sell to Baptists. Followed by boycotts of those who defend Baptists. Followed by boycotts of those who were Baptists 40 years ago. You get the idea.

The FAA has stepped in and transferred three senior managers from its FAA office that oversees Southwest Airlines. The FAA took the steps following a series of investigations by the Office of the Inspector General (OIG) for the agency that raised concerns about retaliation against whistleblowers who have raised safety concerns about Southwest Airlines’ operations and maintenance. The FAA union for safety inspectors has also reported concerns about retaliation to the FAA.

The FAA has had ongoing investigations into that FAA office’s supervision of the airline’s management of issues such as maintenance of 100 jets, computation of the weight of checked baggage, and hazardous landing incidents. The three FAA managers were in the FAA areas for supervision of operations and maintenance.

Southwest issued a statement indicating that it is cooperating fully with the FAA as well as the OIG office. The weight computation issue was reported by the Wall Street Journal, and Southwest will be implementing new procedures for baggage counting. Variations in onboard weight affect pilot’s calculations.

Some reports indicate that the issues spring from a changing culture in the FAA, with a battle of wills between those who believe in the old FAA mission of promoting aviation and those who believe that the FAA’s mission is one of safety in air travel. The maintenance investigation found that the FAA permitted about two dozen Southwest planes to continue flying despite the discovery that the planes had missed required structural inspections. There is a pull-and-tug dynamic at the FAA office that results in the whistleblower complaints by those who are concerned about safety issues.

Facebook’s announcement that it would be entered the cryptocurrency market with its Libra brings us one of these moments: What on earth are the people running this company thinking?

Oh, but Facebook says the Libra is an entire into loans and the credit world. If you have a Facebook page, the whole world knows what your BFF had for lunch. Again, what could possibly go wrong?

With kudos to Alain Cohn, Michael Andre Marechal, David Tannenbaum, and Christian Lukas Zund for a culturally deep and comprehensive study on civic honesty.Science June 19, 2019. https://science.sciencemag.org/content/early/2019/06/19/science.aau8712.

The authors sent research assistants into public places (hotels, stores, bank) and explained to receptionists, desk clerks, and other types of employees that they had found the wallet on the street and were in a hurry. They asked the person to see if they could return the wallet using the information that was visible. The visible wallet contents includeds cash (and some with no cash), and a business card for a fictitious freelance software engineer, a ploy that keeps the finders from trying to contact employers. There was also a grocery list and a key in the wallets. The names and business cards were changed to reflect the culture/country/city. in 355 cities (for a total of 17,303 wallets). There were 25 cities in the United States, from Albuquerque to Memphis to New York.

In the wallet study the authors learned the about the wallet entrustees:

-They do not operate under the old adage, “Finders keepers, losers weepers.”
-They are more likely to turn in the wallet if there is cash in it.
-The more cash in the wallet, the greater the likelihood that it will be turned in.
-The wallets with the largest amount of cash has a 72% return rate compared to 61% for the lesser cash wallets
-The wallets with no cash had a 46% return rate

What gives? It turns out that we think of the following things when faced with the wallet:

We do not want to be known as thieves. And we think about that in our processing.
We give great weight to the psychological cost of how we treat others.

A majority of us continue to rely on a vey basic test: How would we feel if it were our wallet? And e behave accordingly.

By country: Highest return rate: Switzerland and Scandanavia. Lowest return rates: China and Morocco.
The United States is just average.

There is so much data in the study, so more to come, as the Barometer digs deeper. But, there is a little spring in the step with the reassurance of the returned wallets.

If there is one thing the Barometer knows is a certainty in this life it is that the human mind knows no limitations when it comes to figuring out ways to meet numbers goals without actually having to achieve the very purpose of those number goals. If a company implements a wellness program — rewarding employees for healthy living– healthy living will not be the goal. The goal will be to meet the metrics used by the company for giving employees healthy living rewards. For example, if the company gives employees Fitbits and rewards employees for reaching 10,000 steps per day, one will soon find Fitbits strapped to hamsters that are running in wheels, or strapped to the top of a powered-up table saw. Or even just sitting at their desks shaking the Fitbits with their hands.

Enter high school students, not in pursuit of knowledge or excellence, who just need a GPA to get into the college of their dreams. These would be the students whose parents could not afford to lay down some serious scratch for bribing coaches, etc. There is a new crop of online and alternative schools in which high school students can take the really difficult courses, rack up AP courses, or just take courses in what employees at some of the schools say “lack sufficient academic rigor.” The courses count on their high school transcripts as completed courses, and, well, the GPAs do rise.

In some of the alternative schools, administrators’ bonuses are geared to the number of sessions they deliver to a large part-time student population. The more courses, the more course sessions completed, the higher the bonuses. So, what we have in these schools are students there to game the GPA system who are being led by instructors and administrators who are gaming their system for reaching high sessions numbers. Some of these schools have created symbiotic dynamics — the desire to game is their common fuel.

The whistleblowers are out and about in the schools. Next stop? Regulation of both alternative courses and the businesses that offer them.

Since the time of the second crash of one of the company’s 737 MAX jetliners, Boeing has been defiant, slow-to-react, silent, and circuitous. Each passing day has brought new information, new testaments from pilots, and new revelations about the 737 MAX. Quality control in production, training of pilots, disclosures on warning light issues, and more drips and drops. There were some close calls, i.e., “We made a mistake, but others are to blame for what happened.” And some false reassurances that Boeing was “relentlessly focused on safety to ensure tragedies like this never happen again.” However, Boeing’s CEO,Dennis Muilenburg, just spoke to reporters a few days ago at the Paris Air Show and said, “We clearly made a mistake in the implementation of the alert,” (The alert related to the angle-of-attack-sensors on the two jets that crashed). Boeing waited for a year to inform airlines and regulators about the issue after concluding, incorrectly, from an internal investigation that the issue with the sensors “did not adversely impact airplane safety or operations.” Bottom line? The warning light on the sensors did not work unless the airline purchased a separate cockpit indicator. The airlines and the FAA were not told immediately.

The FAA faulted Boeing for the year-long delay in disclosure during a May hearing. Pilots suggested months ago that they should have been told. Data showed that the pilots in the Ethiopian crash performed all the procedures Boeing recommended but could still not gain control of their aircraft. Initially, the idea that pilots on foreign airlines were not trained as much as necessary in simulators had ben floated. Painfully, the truth has emerged, and the “mistake” admission has finally followed. But, it is an admission by an organization that ceded the ethical high ground and now finds itself trying to rebuilding trust with airlines and passengers. Airlines have canceled Boeing orders, and delays in delivering 737 Max jets have shaved off $1 billion in revenue. To really rebuild trust, Boeing needs an examination of its culture — how and why the one-year delay in disclosure. What was everyone at Boeing thinking and why? Then on to explore the delay in admission following the first and second crashes. Same questions. The company will find that the answer to the questions for both delays is the same. The Barometer suspects that there are some very bright employees, engineers, and managers who can offer tremendous insight into the realities of the Boeing culture.

The last time the SEC fined an audit firm $50 million was when Deloitte Touche settled with the agency for its audit work for Adelphia. Deloitte neither admitted or denied that its audit work, which meant that the world was unaware that the Rigas family had perpetrated a $2.3 billion fraud on investors by hiding off-the-book liabilities as well as conducting a classic piggy-bank raid of company assets. Arthur Andersen missed the off-the-debt problem at Enron, yet another multi-billion-dollar-fraud. Arthur Andersen is no more. Deloitte and KPMG were both auditors on the HP acquisition of Autonomy, which turned out to be an $8.8 billion fraud. PwC was the auditor for AIG, Tyco, Yukos, and Satyam ($1.5 billion fraud). PwC also messed up the best picture award in 2017 (LaLa Land was announced incorrectly as the winner because the PwC partners gave the presenters the wrong envelope). KPMG was fined for the $1.5 billion earnings fraud at Xerox over a four-year period and had a partner plead guilty to charges of insider trading by feeding a friend client information. The so-called Big Four have one heck of a track record when it comes to following the money, or the fake money.

The record for these audit firms, which audit 98% of publicly traded companies, is not stellar. So, in this round, KMPG executives decided to recruit Public Company Accounting Oversight Board (a quasi-government entity established post-SOX to audit the auditors of publicly traded companies, AKA, PCAOB) employees to let KPMG folks know which of the KPMG client audits would be subject to PCAOB reviews so that, one guesses, the firm could do a crackerjack job on those audits. They got the information from PCAOB employees for two years.

Then, to add to the evolving ethical culture at KPMG, certain employees who had passed the PCAOB training exams (required by PCAOB for all audit firms under its jurisdiction) shared their answers to fellow KPMG employees so that they could be assured of passing the PCAOB exams. The subject of the training? Integrity and other professional topics.