The Sport of Footnotes

First, there was this year’s Kentucky Derby with the disqualification. Country House, a 65-1 odds horse, won the Derby after Maximum Security was disqualified because of a lane foul. Now we learn that Justify, the 2018 Triple Crown winner, tested positive for for scopolamine, a banned substance that can enhance performance. The drug can clear the airway and optimize the heart rate. However, the trainer of Justify, Bob Baffert, and owner said that scopolamine can be found in jimsyn weed, which can grow in the wild where dung is found and hay and straw are produced. Horses eat hay and straw! Jimsyn weed gets mixed in and straight to the horse’s mouth. “Environmental contamination” is a defense when horses test positive. The Barometer is stunned that Lance Armstrong did not think of this one.

The failed drug test was conducted on April 7, 2018. By the time the test results were returned, it was April 18, 2018, two weeks before the Derby.The amount found was 300 nanograms per milliliter, which was excessive. However, in fairness, it seems that all of the horses tested positive for scopolamine, just not at the Justify level. At the time of the test, Justify was undefeated and just had one more race prior to the Derby (Santa Anita) to qualify. Justify qualified, but let’s just add that the pony was lucky to make it alive out of that facility. They lost 30 horses in six months there.

At any rate, an investigation into an environmental defense takes two months. The California Horse Racing Board had five to eight days to get such an investigation done. Bob Baffert, Justify’s trainer was notified on April 28, 2018 of the positive test, as is provided under the regulations, he asked that another sample from the test be sent to an approved independent lab. The sample was sent to an independent lab on May 1, and the results were confirmed on May 8. The Kentucky Derby was on May 5, 2018, a race Justify won.

No one ever filed a complaint with the California Horse Racing Board, so there was never a hearing. Rick Baedeker, the executive director of the Board, took the case directly to the commissioners of the Board. In a private executive session (something that had never been done before), the Board voted unanimously not to proceed with the case against Bob Baffert. In addition, The Board changed the penalty for a finding of scopolamine from disqualification and forfeiture of the purse to a fine and suspension.

The interesting thing about the Board is that it is made up of folks who own horses and employ Baffert as their trainer. The Board members regulate the jockeys and trainers that they employ. When the regulators are the regulees, there is a bit of a conflict. Sounds like rigorous oversight is not the game. Baffert was investigated in 2013 when seven horses he was training died within a 16-month period. The horses had been given a thyroid hormone without a diagnosis of any thyroid problems. Baffert said that he gave the horses the drug to build them up. The drug can cause weight loss. No action was taken against Baffert then. The Board says that it exercised reason and common sense and saved the taxpayers money by not pursuing the case.

Justify is currently in Australia, doing study things for $450,000 per day. Not bad work if you can get it. No word on jimsyn weed intake.

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Audit Partner at KPMG Sentenced to One Year and a Day for PCAOB Scam

David Mittendorf, the second-in-command for KPMG’s audit practice, said at the sentencing hearing that “never in my wildest imagination” did he think that obtaining the names of those KPMG clients that the Public Company Accounting Oversight Board (PCAOB) was targeting for audit-quality review was criminal. Let’s see — obtaining information from a quasi-government enforcement agency that is not public is not somehow on your list of no-nos? Mr. Mittendorf added that what had already happened to him (being taken away in shackles at 5:45 AM, etc) was sufficient deterrent for any auditors out there thinking up such scams. The judge did not buy, and off to prison he goes. Safety tip for sentencing hearings? Pull a Felicity Huffman — contrition, tears, and apologies to those who got cheated. 14 days for fraud on that one. Saying, “I had no idea!” is not a sentence-reducer.

Notice, Mr. Mittendorf did not say he did not think it was cheating. The goal here was to do a better job on those company audits than the ones that PCAOB was not going to review. Sort of defeats the whole goal of quality audits, does it not? KPMG assures that it has learned: it has now invested in new software to improve audit quality. Ironic, is it not? If only they had spent the money first instead of attempts at gaming the system.

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“I know this salesman is a crook, but we make more money letting him steal from us than we would from somebody who is honest.”

A supervisor offered this rationalization. What had happened is that auditors had discovered that a salesman was was submitting to have three meals per day reimbursed by the company. The salesman always billed $24.99 for each meal, just below the company’s $25 receipt requirement. The company then lowered the receipt requirement to $15. The salesman’s three receipts then came in at $14.99. When told of the conduct by auditors, the supervisor opted for doing nothing. Enforcement is to organizations what integrity is to individuals. The auditors are going to have their hands full now.

Thanks to Sue Shallenberger of the Wall Street Journal for her expose on expense reports and cheating. September 10, 209, p. A9. Other examples include employees submitting for reimbursement for the cost of a pogo stick and bed-bug removal.

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We (ne “We Work”) Postpones IPO

Finally, investors are taking to heart the lessons of the dot-com bubble. Following questions about We’s truth net worth and its corporate governance (documented here last week in what is curtly, but accurately described as, “Conflicts galore!”), the IPO has been postponed. The net wort, touted as $47 billion is believed to be more like $15-$20 billion. And, is a giant leap for corporate governance advocates everywhere, We has agreed to have a lead director who is independent. We may need more than one independent director to rein in CEO Adam Neumann, but when an elephant flies, you do not fault it for not staying up long enough. Oddly for We, but logically for the rest of the business world, We’s net worth might improve if the conflicts were eliminated.

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Michigan State to Pay $4.5 Million Federal Fine for Failure to Investigate Allegations

Michigan State has settled with the U.S. Department of Education for its failure to report and address claims of sexual abuse by Lawrence G. Nassar. Dr. Nassar was the physician for the USOC WOmen’s Gymnastic Program. He is in prison for 40-175 years. Education Secretary Betsy DeVos said, “What transpired at Michigan State was abhorrent, inexcusable, and a complete failure to follow the law and protect students. Michigan State will now pay for its failures.”

The findings of the Department Education indicate that William Strampel, the former dean of the university’s College of Osteopathic Medicine, knew about the abuses and failed to take action. He is serving a year in jail for his failure to report or address the abuse. The investigation also found that Dr. Lou Anna K. Simon, the former MSU president, also failed to take action. She has been charged with lying to investigators.

The new president,Samuel Stanley, accepted the resignation of June Youatt, the provost because of the findings in the report, including an e-mail which Dr. Youatt sent a one-line summary of the issue to the HR VP that included a smiley-face emoji. Why do people put these things in e-mail?

MSU has already settled civil suits brought by the victims for $500 million.

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The We (ne “We Work”) Conflicts

With a public offering pending, We had to come clean on the types of relationships (aka conflicts) that are no-no’s in publicly trade companies. Here is a summary:

CEO Adam Neumann — We purchased the trademark “We” from Neumann for $6 million
We promised to undo the transactions
Neumann owns four of the properties where We leases space
We promises to phase out Mr. Neumann’s ownership
In July 2019, Mr. Neumann borrowed more than $740 million from We using his shares as collateral (Bernie Ebbers (worldCom)pulled this kind of stunt and SOX
prohibits these loans) — about half of the loans were for the exercise of stock options
Rebekah Neumann — an executive with We and co-founder
Ms. Neumann’s brother-in-law — chief product officer
Mr. Neumann’s brother-in-law — runs We Fitness
Michael Gross vice chairman — his parents served as the real estate brokers on a building lease in Miami
Arash Gohari co-head of real estate — — owns one building leased by We
UA Contractors — doing We renovation work as well as renovations on two of the Neumann homes. The three brothers who own UA have a blended relationship with We. Employees are not sure if they are a separate firm or working for We or both. We says it is phasing out We contracts with UA.

The Barometer has seen some serious conflicts in her time, but these are the kinds of sloppy operations that have to be cleaned up before going public. This is pre-2000 corporate governance. Some caution is in order here.

For more, go to Eliot Brown, “We Work Draws Worries of Conflicts,” Wall Street Journal, September 7, 2019, p. B1.

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Novartis and Data Manipulation on $2.1 Million Gene Therapy?

Novartis, one of the world’s largest pharmaceutical firms, is under FDA investigation. Novartis stock is taking a tumble because the company withheld data from the FDA in its application for approval of a gene therapy treatment for spinal muscular atrophy. The FDA investigation is a setback for the company that, as of 2018, was trying to put behind it a generic price-fixing scandal, improper marketing techniques, and a previous allegation of data manipulation.

The $2.1 million gene therapy treatment was given expedited approval by the FDA. Then Novartis revealed that it was conducting an internal investigation into possible data manipulation in the testing of the drug, Zolgensma. Novartis has fired two scientists and maintains that the conduct was isolated. However, there was a two-month delay in announcing the internal investigation, a delay that permitted the drug approval process to end successfully. Novartis has defended the delay by explaining that it did not want to tip AveXis executives on the existence of the internal probe. AveXis produces the drug, and Novartis said that it feared the executives there would interfere with the investigation. Somehow a defense that is based on the fact that you do not trust the executives of your contractor seems slightly off kilter.

Novartis assures that there is no concern for safety of the patients. An FDA commissioner tweeted that he expected there would be a finding of wrongdoing and that there would be consequences. Novartis also assures that the issue was isolated to a couple of rogue scientists. If the Barometer had a nickel for every time the phrase, “These were just a couple of rogues that we have now fired,” well, this blog would not be free.

There is no such thing as isolated-rogue responsibility when it comes to events this big. Given the company’s culture as of 2018, something more than firing a couple of scientists is probably in order.

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Tailhook Deja Vu

Well, here we go again. The Navy parties hardy, as we learned from the Tailhook days, but have obviously forgotten. The Navy terminated the three leaders of SEAL Team Seven (known as the triad) for their failure in leadership. The three did not take action when they learned of a Fourth of July party (in Iraq where the platoon was serving) during which a female service member assigned to the platoon was allegedly raped and another female service member experienced unwanted sexual contact. Needless to say, there was considerable alcohol consumed at the party. The entire platoon has invoked the right to remain silent.

The words of the Navy in announcing the the termination of the three leaders and in sending the entire rights-invoking platoon home to Colorado, “Navy Special Warfare insists on a culture where ethical adherence is equally important to tactical proficiency. Good order and discipline is critical to the mission. We’re actively reinforcing, with the entire force, basic leadership, readiness, responsibility and ethical principles that must form the foundations of operations.”

Let’s hope the lesson is learnt this time.

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Trust Lost: Mechanic Charged with Sabotaging an American Airlines Flight

American Airlines mechanic, Abdul-Majeed Marouf Ahmed Alani, who has worked for AA since 1988, was upset about contracts negotiations for the mechanics’ union. The negotiations have dragged on since 2015, and Mr. Alani felt that the failure to reach an agreement for a wage increase had affected him financially. The whole process has been ugly, with AA suing the union for causing an operational slowdown. However, Mr. Alani is accused of finding his own remedy by trying to sabotage a plane just before it was scheduled to leave Miami for the Bahamas with 150 passengers aboard.

Mr. Alani is accused of supergluing a piece of foam to block a module that reports speed, pitch, and other critical data to pilots. Yes, those would be critical functions. Fortunately, the pilots never took off because when they revved the engines to test their power, they got an error message. The pilots sent the plane for inspection and the mechanics discovered the amateur foam rig.

Mr. Alani was arrested, but says that he did not want to harm the passengers. He explained to investigators that he just wanted to delay or cancel the flight so that he could get overtime to compensate for what he felt he was entitled to if the negotiations had been successful.

Mr. Alani, like all accused criminals, never think through their “perfect” crimes. There are cameras on the jets in the hangars. The cameras taped a white pickup pull up next to the plane slated for the Bahamas flight, a man getting out, and that man opening a compartment under the cockpit. Mr. Alani’s fellow mechanics were able to identify him as the man in the video.

AA vie president of operations referred to the conduct as “extremely serious.” The president of the union said that he was “shocked.” For the Barometer, it was sobering. We are all so dependent on the integrity of others for our safety: that those who build our cars install all the parts and do so correctly, that those who handle or produce our food do so safely, and that those who services our airplanes would not take deliberate action to sabotage a flight. We just lost that last bit of trust. Let’s hope new processes are put in place to keep a more watchful real-time eye on the folks who work on and around the planes. Trust lost means more watching, more regulations, and more cost. Oops, there goes the wage increase.

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Tennis Players Gaming the System

The human mind has no limitations when it comes to figuring out ways around rules. Enter the game of tennis. The Women’s Tennis Association (WTA) and Association of Tennis Professionals (ATP) are in the process of developing and changing the rules for bathroom breaks because, it appears, players are using the the breaks strategically. For example, a claimed bathroom break need not actually be used to go to the bathroom. There are no time limits on bathroom breaks. As the CEO of WTA explained, “The rule is there to provide for a need for the players. It is not meant to be strategic or a momentum changer.”

In addition, there are the stories of players being handed a banana on the way to the bathroom. However, the banana contained a piece of paper with coaching tips. Other players have made calls for help with the match, some even calling mom. The problems have arisen recently because most past players simply did not take breaks. As 1985 U.S. Open Champion, Hana Mandikova, said she never used a bathroom break in her entire career, but “It’s just that there’s so much money involved now, that everybody’s looking for every little edge.” One of today’s players begs to differ, “We do whatever it takes to win the match.” Spoken like a true gamer of the loopholes and ambiguities in the rules.

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USC Spreadsheets Tracked Applicants by Their Relationship to Donors and the Amounts Each Donor Gave

The e-mails are bad enough, “Long-time donors,” $25K to Heritage Hall,” and $15 mil.” The athletic department was using its special admits slots to help the university with its donors. So, the folks gaming the system for admission were not gaming as much as we thought. The admissions folks and athletic department appear to be playing the game as well.

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“In Primes of Careers, Women Bear Burden of Caregiving.” New York Times, September 2, 2019

The headline was striking for a story about women caring for their parents. Even more striking was a quote within the article from a woman who was once a paralegal but dropped that career in order to take care of her mother who has Alzheimer’s disease. She has taken less demanding jobs so that she can be there for her mother. She told the reporter,”I lost ten years of my life. What’s going to happen to me?” A project officer for the Centers for Disease in Atlanta who cared for her mother who has dementia until she was able to get her on Medicaid told the reporter, “Caregivers are physically and mentally and financially dying.”

There can be no doubt that caring for a parent is challenging. However, the article, in its attempt to paint such a hopeless picture for both parent and caregiver neglected to discuss the benefits of the role.

The Barometer had a technician who made and polished hard contacts for her for decades. These skilled individuals are tough to come by in this era of soft lenses and laser corrective surgery. Suddenly, he was no longer at his business. He shut it down for years. When he returned to his business, he explained that he took over caring for his father. He said it was difficult to walk away from a business that could no longer run because he was the nucleus of the operation. But he added, “I would never trade the time that I had with my dad. We developed a great relationship during his last years. I didn’t have that before.” He also explained that after his father died, he came back to his business and was pleasantly surprised by the loyalty of all his ophthalmologists and customers who returned to him for their hard contact lens needs. He was in his tennis shorts that day and explained that he learned through his experience in caring for his father that he could take a little time for himself. He said he had barely visited his father for years before he assumed the role of caregiver. He said that his business was not only back, but better. So also was his life. His experience has been stuck in the Barometer’s mind for nearly ten years. He gave a profound lesson on choices and life.

Nearly all of us have faced or will be caregivers in some form for our parents. Our lives will change in stepping up; new challenges, including job, career, and lifestyle changes will be part of that. However, the Times article presented those challenges as something that no one should face. Worse, the article fell into the either/or conundrum that we use to avoid doing the right thing. Under the either/or conundrum decisions are based on assumed outcomes. Either I find someone else to care for my parent or my career, financial security, and/or life are over. They either/or conundrum commits the ultimate flaw in logic — it assumes the outcome. What the article did not cover are the stories of those who have been caregivers and who can look back, their parents now gone, and realize the impact and importance of stepping up when it was terribly inconvenient, financially draining, and physically exhausting. Those stories could inspire, reassure, and provide perspective on priorities. Funny, how about a description of parenthood? Financially draining, physically exhausting, mentally frustrating, and offering little in the way of career advancement. But, these dear parents did it anyway.

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Ohio State Medical Board Had Evidence in 1996 of Dr. Richard Strauss’s Sexual Abuse of Ohio State Students: No Action

A quote from the review panel report, requested by Ohio Governor Miek DeWine, just released on Friday:

“Documented systemic failures at both The Ohio State University and State Medical Board of Ohio prevented any tangible administrative or criminal consequences from ever being taken against Richard Harry Strauss during his lifetime.”

Dr. Strauss abused hundreds of students, and the Ohio State Medical Board took no action. However, the report also finds that Ohio State University employees also failed to take action. The result was that Strauss moved to California, with no warnings from Ohio officials about his medical board investigation, and began operating a clinic there. He committed suicide there in 2005. Because of inaction by too many professionals and administrators, this demon of a doctor was not stopped and was never held to account criminally for his actions.

So far? Penn State, Michigan State, and Ohio State have all had abuse going on on their campuses. And, perhaps it is a Big 10 thing, but action was either not taken, was insufficient, and/or was delayed. There are layers of lessons to be learned from all three schools and the medical boards.

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More Gaming the System in Online Reviews

There is an inherent conflict of interest between travel review sites and the targets of those reviews. Travel review sites depend upon those being reviewed for their revenue. So, when those who pay the site ask that a negative review be removed, well, some do succumb. TripAdvisor will delete negative reviews on, for example, facilities, if the hotel can show that the facilities have been updated or repaired. TripAdvisor does notify the poster that the review is being taken down.

Some companies pay people to write reviews. The online review sites have caught on and are now requesting proof of a stay or meal, depending on hotel or dining reservations. Sometimes the threat of suit causes the removal.

In short, you may not be getting either the most-up-to-date information or authentic reviews. Who knows? However, be aware when using travel sites — some are gaming that system.

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