Do CEOs Learn From Experience? Not At Best Buy

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?

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“Why didn’t you believe in me?”

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.

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“I haven’t been forgiven by god [sic] for the covering up what I did last night.”

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.

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E-Mail Chatter at Boeing: Oops!

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 go 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.

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How about those Astros?

Enough said. Cheating.

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Alphabet (nee Google) Chief Legal Counsel Leaving Amidst Allegations

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?

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McKinsey & Company: Semper Fi

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.

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In This New Year: Honesty Brings Hope

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.

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A CEO on the Lam: Ghosn Flees Japan

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.

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Finally . . . Boeing CEO Departs

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.

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“My work has been forgotten.”

Harvey Weinstein in an interview with the New York Post. Mr. Weinstein added, “I made more movies directed by women and about women than any filmmaker, and I’m talking about 30 years ago, I’m not talking about now when it’s vogue. I did it first, I pioneered it.” Mr. Weinstein used actress Gwyneth Paltrow as an example. Ms. Paltrow was paid $10 million for her 2003 movie, “View From the Top.” He said that she was the highest paid actor at that time in any independent film. “Higher than all the men,” Weinstein added.

Mr. Weinstein fails to understand that only alleged financial crimes are forgiven. Plenty of accused financial types are back in business. Their past record of performance counts. What you did for women counts little when you are charged for what you did to women.

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Bernie Ebbers, former CEO of WorldCom, Gets Early Release

Bernie Ebbers, the man at the helm when WorldCom, once the largest company in America (market cap) which turned out to be an $11-billion fraud. Mr. Ebbers was sentenced to 25 years, and had served about 13 years when a federal judge granted a release due to his frail health and what his daughter describes as dementia. WorldCom declared bankruptcy, which topped Enron at that time as the largest bankruptcy in U.S. history.

Testimony from former employees about being instructed to cook WorldCom’s books to reduce expenses in order to make WorldCom look profitable resulted in the Ebbers conviction. WorldCom’s CFO, Scott Sullivan, facing 25 years, sang like a canary, and got five years. After serving most of his sentence, he was released on home confinement and three years of probation in 2009. He lives in Boca Raton. Bankruptcy laws at the time provided homestead exemptions for many of the Enron-era execs for their Florida mansions. Mr. Ebbers will go home to Mississippi to live with family.

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Those Patriots: Spygate, Deflategate, and Spygate, Again

Spygate was in 2007 and involved allegations that the Patriots were stealing signs of rival teams. Then came Deflatgate in 2015 — an, as yet, unsolved mystery in the minds of Goddess, et al.,with the inflation levels of footballs used in NFL play when the Patriots are out and about. Now, 2019, we have someone, Belichick denies it was anyone associated with the Patriots, filming the Bengals. Kraft Sports Productions is responsible, as in Kraft, owner of the Patriots.

How is it that the Patriots are always in and around this stuff but never know anything? Beyond that presence is the bizarre fact that they were filming the Bengals with their mighty 1-12 record. It’s like the economists when they say it is not possible for one company to continually outperform all the other companies in an industry — it defies logic that they could be 50% better than the other companies as a means of explaining their 50% higher performance. Their advice? Look deeper on what exactly is going on with the accounting, the financial reporting, the sales practices, and their regulators. Talent and hard work explain some of the difference, but not consistent beyond-all-odds performance. So it is with the Patriots. Perhaps someone needs to really check what goes on as they “Do Their Jobs.”

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“Nasdaq Pulls Ahead of NYSE in IPO Race”

Headline from today’s Wall Street Journal.” Could we have a current value comparison? And check back in a few years to see what has happened to the IPOs driving the numbers.

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