The Ethical Barometer

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-books 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.