Truth Percolates — And Its Nature Has Spawned a New Business

Virginia — Is there an elected official in the Commonwealth who does not have bizarre yearbook issues, sexual assault allegations, and/or incredibly poor responses to either? From 35 years ago to 15 years ago, the indiscretions and misconduct of the past have percolated to the surface. The process of redemption is possible, but does require a step back for reflection. That no one in the top four slots in government is willing to take that step tells us that no one there is quite ready for forgiveness.

Saudi Arabia – Crown Prince Mohammed has said that he had no involvement in the murder of journalist Jamal Khashoggi. However, an intercepted and recorded conversation of the Prince in 2017 finds him saying that he would use “a bullet” on Mr. Khashoggi if he did not return to the kingdom and stop criticizing Saudi government. True enough, a bullet was not the choice of weapon, but Mr. Khashoggi met a grisly death at the hands of a squad of folks close to the Prince who were dispatched to an embassy far, far away. The very same embassy into which Mr. Khashoggi walked but never emerged, at least not living.

Entrepreneurial spirit has kicked in now. Principal Communications, a major Hollywood player when it comes to representing stars and handling media relations, had created a new company, Foresight Solutions, which will work with Edgeworth Security, a firm with former U.S. government sleuths, to offer preemptive services — they will find the skeletons and yearbooks in your closets before someone else does. That way, the Oscar folks can research their potential hosts and screen out those with problematic Tweets, Facebook posts, or yearbooks. Foresight says that it will comply with all privacy laws because, “Ethics and standards have to be major guideposts.”

Between social media, intelligence, memories, and yearbooks, young people today have two important lessons: Truth percolates and what you do and say, even as a young ‘un, or in private conversations counts and can and will be used against you. There is one sidebar lesson — those yearbooks have been beasts for everyone from Supreme Court nominees to governors to comedians called upon to host the Oscars.. No images yet from Prince Mohammed’s yearbooks.Although, the Barometer believes that one gets the Princeship regardless of flawed behavior in the past.Indeed, even flawed behavior in office is not a deal breaker, which brings us back to Virginia. A governor who changed his denial and nearly did a moonwalk to illustrate his confessed black-faced conduct is still in office. So are his direct reports.

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More McKinsey Issues: More Than a Conflict

The bankruptcy of SunEdison took an interesting turn with a court filing by an attorney for one of SunEdison’s creditors. The filing, based on an investigation that the SunEdison board launched after receiving reports from employees, alleges that McKinsey and SunEdison executives worked together to be sure that McKinsey was paid. The scheme alleged was one of McKinsey no longer directly billing SunEdison but calling back its unpaid bills and then rebelling them to several solar projects for SunEdison customers.

Problem with the scheme? McKinsey had not done any work on those projects. In fact, e-mails setting up the plan have a McKinsey partner writing, “Acknowledge that this is not ideal,” and that “we should anticipate some spirited opposition from PMs (project managers).” Spirited opposition? If you were a PM and suddenly got bills for your project for which there was no work, you bet your boots you would push back. Hence, the SunEdison employees reports to the company about cash flow issues. Hence, the investigation.

In bankruptcy, scheming to get paid ahead of other creditors before bankruptcy is declared is prohibited, and the court is permitted to call back any such payments. When there is deception involved in getting the payments, well, the court has broad discretion. The creativity of McKinsey is stunning. And creativity may be a charitable term. The pleading asks for McKinsey to return $37 million in fees paid through the arrangement. Ah, the doctrine of voidable preferences. Ah, the tangled webs we weave that are foiled through our own e-mails.

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The Treasury Secretary on Private Jet of Junk-Bond King Milken

The Barometer has a question: What kind of government regulations could look at a flight by the U.S. Secretary of the Treasury on the private jet of a convicted securities fraudster and conclude that no ethics waiver was necessary?

Treasury Secretary Steven Mnuchin flew from Washington to Los Angeles on the private jet of the king of junk bone, Michael Milken, and the Treasury Department said, “Nothing to see here. No problem.”

When the optics are this bad, the rules are irrelevant. We can talk ourselves blue trying to justify the actions:

Mr. Mnuchin reimbursed Mr. Milken for the flight
The two are old friends (not sure this one helps, but the regulations are more liberal for optically challenging conduct when friendship rests beneath the interaction).
They are unsure whether the two discussed a potential pardon for Mr. Milken.
Mr. Milken has been a philanthropic giant, complete with the Milken Institute, a think tank. He has funded projects for increasing global prosperity, helping youth, and advancing medical research. Purchasing goodwill for pardon purposes does not make a private jet flight any less tacky. In fact, given the formulaic approach of philanthropy to felonious reprieve, the jaundiced eye takes on greater tint.

Despite all attempts at mitigation, the whole thing shows, at a minimum, poor judgment. A cabinet official trekking across country with a felon who committed securities fraud is a story that will not go begging for coverage. Cozy relationships undermine public trust, no matter how much reimbursement come along.

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More on Pharmas and Addiction

Purdue Pharma has been running ads about its role in stopping the opioid crisis. However, a court filing reveals that members of the Sackler family, founders of Purdue, took a slightly different track upon learning of abuses of their prescription drug, OxyContin. E-mails from Richard Sackler, included in a court filing read, “We have to hammer on abusers in every way possible. They are the culprits and the problem. They are the reckless criminals.” The attorney general of Massachusetts revealed the e-mails as part of a suit against the company seeking recovery for the costs to the state of dealing with the addiction problem. The e-mails were during the 1999-2003 time period when Mr. Sackler was CEO of Purdue. At that time, the company was receiving information that OxyContin was being abused and sold on the street.

The e-mails also direct sales representatives to encourage doctors to prescribe the highest doses possible of the drug. The drug was the company’s most profitable one.

Purdue has already entered a guilty plea to federal charges that it misrepresented the dangers of OxyContin. The company paid a $634.5 million fine in2007 following the plea. The Sacklers were not named in that case.

On the bright side, one sales rep complained to the company about Mr. Sackler’s micromanagement of the company and his attempts to control what sales reps were saying.

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Connection Between Gifts and Payments to Docs and Opioid

A study published Friday in the JAMA Network Open finds a link between those counties in which physicians receive the highest number of gifts and payments from pharmaceutical companies and the rate of opiod overdose in those counties. Scott E. Hadland, Ariadne Rivera-Aguirre, and Brandon Marshall, et al., Association of Pharmaceutical Industry Marketing of Opioid Products With Mortality From Opioid-Related Overdoses, January 18, 2019, https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2720914.

Herewith the findings:

In this population-based, cross-sectional study, $39.7 million in opioid marketing was targeted to 67 507 physicians across 2208 US counties between August 1, 2013, and December 31, 2015. Increased county-level opioid marketing was associated with elevated overdose mortality 1 year later, an association mediated by opioid prescribing rates; per capita, the number of marketing interactions with physicians demonstrated a stronger association with mortality than the dollar value of marketing.

In other words, the rules of conflict of interest apply, even to physician relationships with pharmaceutical companies. While the physicians will always believe that they are doing what it best for their patients, the subtle influence of “stuff,” including cash, cannot be dismissed even in those with the noble goal of caring for the health of others. Nobility cannot trump the power of the mind’s need to respond in a positive way to those who help us, give us stuff, or, are just plain nice to us.

We can talk until we are blue in the face about how the medical profession answers a higher calling. Even those in the highest of calling suffer from human foibles. Nearly all of us suffer from the weakness of taking stuff from other. We just have a need to quid their pro.

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New Study: When They Change the Wording in the Earnings Reports– Be Afraid

In a working paper, “Last Prices,” economist professorsLauren Cohen, Christopher Malloy, and Quoc Nguyen, gathered together the annual (10-k) and quarterly reports (10-q) of publicly traded companies and discovered something investors should consider: the numbers are not the answer; the key is in the wording. Actually, the key is in the CHANGES in the wording. For example, look at the risk discussions of companies. When the wording changes, trouble’s a’comin’. For example, following the findings in this important research, the Barometer took a look at Tesla’s latest reports. Walk through the 10-q’s for the last year. In the risk discussion — watch the increasing length. The longer that discussion, well, you could draw a parallel graph for the also increasingly bizarre behavior of Elon Musk over the past year.

Figures don’t lie, but liars do figure. However, they will not risk minimizing risk. They can fool around with the numbers, but you cannot withhold increasing risk. They didn’t. It’s just that investors were so enamored of Tesla that they didn’t read. We should.

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They Never Do Just One Thing

Hacienda Health Care in Phoenix is under investigation for two reasons:

A woman who has been in the Center since she was 3 in a comatose state was sexually assaulted. Since the now 29-year-old woman cannot speak or move on her own, the assault was discovered when she gave birth to a baby boy on December 29, 2018. A frantic 9-1-1 call found the staff member admitting that no one at Hacienda knew that she was pregnant. The Phoenix Police Department is now investigating and has taken DNA samples from all male employees.

The Center is now under investigation for Medicaid Fraud. From 2009 to the present, Hacienda has received at least $6.7 million in Medicaid funding. The recently resigned CEO’s pay doubled between 2008 and 2017 — to $674,212 for 2017 in compensation.

A case against Hacienda is pending before the Arizona Appeals court because of its refusal to turn over financial records in response to a subpoena from the Arizona Health Care Cost Containment System, which began an investigation at Hacienda for what it has called “suspicious payments” between 2013-2014.

The executive Vice President of the Hacienda board has indicated that Hacienda would “accept nothing less than a full accounting of this absolutely horrifying situation.”

Perhaps the board should have stepped in earlier — in 2016, when the first questions emerged about Medicaid payments. Where there is trouble with fraud, there is trouble because no one is watching, whether it be the employees with patients or different employees with billing. These events are tragic on so many levels. The most vulnerable among us are the victims when leaders and managers are asleep at the wheel.

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The Lying Thing

Over the past few weeks, the newspapers have been delving into the subject of lying.  The Mueller investigation has resulted in criminal charges for lying to various folks (FBI, Congress, Mueller and his folks).  Books have been written about lies and lying.  The truth is, we all lie.  When someone asks, “Do I look okay?”  We often answer (in fact, if the Barometer’s data are correct — it is 87% of us), in the interest of being kind, “Of course.” Even when we do not believe our friend, family member, or co-worker does indeed “look okay.”  That type of lie, often called the white lie, is not motivated by malice or intended to deceive.  We do not speak what we truly believe because of our concern for the other’s feelings.  

Yet, we have not spoken aloud what actually went through our brain.  Therein lies the rub.  We wear down our ability to speak the truth, and we chip away at the conscience that spurs us on when we need to tell the truth.  

Sometimes we are accused of lying, but we really have forgotten the truth and just spout what we believe to be the truth.  Again, there is no malice, but what we have done is still misleading,  We will eventually be confronted with, “But you said this,” or “Hey, you told me this!” In that careless moment we have compromised trust  and set up an incident that will be long in the tooth when it comes to what others remember about us and our actions.

Rather than trot down these two difficult paths of rationalization, use alternatives.  When the Barometer seeks a spousal opinion on appearance, the spouse of 42 years responds, “Do you want the truth or do you want to feel good?”  If there is not a 42-year relationship whose terms include tolerance, humor, and heavy doses of reality, make a suggestion about appearance that causes you to believe that the person does not “look okay.”  “Let’s get that spot out.”  “Maybe we could press the jacket.”  These phrases offer some signal that sends folks back to the mirror for a more introspective and a rethinking of reality.  

Sometimes, generic advance suggestions head off the need for the “okay” appearance evaluation. For students who are headed into interview season, we sit them down and show them what will make them look okay before they are headed into the one-on-one,  If we wait until the day of their interviews, we face of choice and saying, “Lose the 15 bracelets,” or sending them into the interview with a lie and unshaken confidence because we do not want a last-minute discussion of the dangling bangles.  Topics of discussion in advance generic session include tight clothes, short skirts, shaving, footwear.  

For the second “lie” of misremembering, before spouting answers, learn some phrases to clarify your certainty, “I believe this is what happened, but let me check.”  Or, “I am not sure, but I may be able to look back through my e-mails.”  Or, “I don’t know.”  Warning:  That last one is tricky.  If you know, but you are saying “I don’t know,” then we are back into lying territory, and probably with intent.  The same with, “I don’t recall,” or “I don’t remember.”  If you truly do not recall, you have spoken the truth.  If you recall, but do not want to answer, then you have a lie. See congressional testimony of James Comes for 245 times of saying one of the following: “Don’t know,” “Don’t recall,” and “Don’t remember.”

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What Do Clients Want From Consultants?

The Barometer has done quite a bit of work with companies and organizations that are grappling with the fallout from ethical lapses. One common thread that emerges in gathering information about how these folks got into difficulty — they all had very positive reports from consultants. “Mature compliance program”. “Top tier of companies on employee engagement.” “Has all the components of a compliance program as recommended by the federal government.” Still, many of these organizations are under CIAs, despite the reassurances third-party consultants gave to them about their ethics and compliance programs.

The Barometer has concluded that management and boards commission these consultant reports to provide themselves with the cover of being able to check the dashboard measures of a good ethics and compliance program. Wells Fargo would be an illustration — off the charts in ratings on ethics and compliance. The consultants provide technical reports that provide the assurance that all is well.

While managers and boards relied on these reports, their organizations were spinning into legal and ethical difficulties, sometimes quite quickly. Julie Sweet, the CEO of Accenture, had an interview with the New York Times on her journey to and experiences as a CEO of an organization of 469,000 employees. Her closing key to success, “I don’t care what level you are, there is a need to offer straight talk when you’re working with clients. You have to have the courage to deliver tough messages. We’re living in a world where clients constantly are saying to me, ‘The most important thing you can do is to tell me what I need to hear, not what I want to hear.'” Enough said.

David Gellis, “Living as an Example of ‘Leading by Example,'” New York Times, January 6, 2019, p. BU6

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Carlos Ghosn: Oh, the Hubris!

There is little question that Carlos Ghosn, the former CEO and Chairman of the Board of Nissan, has experienced a stunning fall from iconic businessman to a jail cell in Tokyo. His arrest was based on charges of his failure to report income and the use of company funds for personal expenses.

Collecting information over the past month since his arrest, the Barometer feels the “deja vu all over again.” From Enron to WorldCom to Madoff to Musk to Kozlowski and Tyco. The pattern emerges again. Brilliant and visionary business people with ideas, drive, and stunning success. Wealth beyond even their dreams. The bizarre expenses, and then the fall, sometimes through financial collapse, sometimes through arrest, and sometimes both.

In Ghosn’s case, a recap of his lifestyle as CEO:

His compensation was 11 times that of the chairman of Toyota
Lear-jet, worldwide travel
He commissioned a sculpture for Nissan headquarters by a Lebanese artist and friend for $888,000 following his earning the moniker of “Le Cost Killer”
His second wedding was na extravagant event with Marie-Antionette costumes (oh, and the cake for eating too, lots of cake)
While driving a Porsche through he streets of Tokyo, he grazed a couple and injured them (not driving a Nissan was a bit of a problem for the Japanese)
Shareholders tried to rein in compensation, and Mr. Ghosn dismissed their arguments

More than the financials, more than management discussion, more than any financial analysis — the behavior patterns of CEOs offer the real story of where a company (and the CEO) are headed.

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One For the Books: The Businessman Who Paid the Cop is Convicted; The Cop Is Acquitted

It was a New York City corruption trial, so that may explain a great deal. However, even by New York City standards, this is one for the books. Businessman Jeremy Reichberg, AKA “the fix-it guy” expected favors from the NYPD, such as a police escort to a nail salon for a nurse he wanted to date. Then there was the transport by police boat to a barbecue. In exchange, foamier Deputy Police Inspector, James Grant, received a junket to Las Vegas from Mr. Reichberg (complete with a prostitute). Following the acquittal of Mr. Grant and the conviction of Mr. Reichberg, Mr. Grant turned to Mr. Reichburg and said, “You’re going to be okay.” One wonders if the jury saw that promise. Mr. Grant’s defense was that anything Mr. Grant did was based on “friendship.” The two grew up together in the Borough Park neighborhood, and Mr. Grant’s lawyer argued that friends ask for help and friends give help. The distinction of help coming from public funds escaped notice.

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Truth Percolates: Sometimes Through a PowerPoint Slide

Boeing was desperate for titanium — the nuts, bolts, rivets, washers, all thousands of them for its new Dreamliner aircraft (its fuel-efficient competition to the super-size Airbus). The parts had to be titanium because of the weight issues. However, in 2006, there was a worldwide shortage of titanium. For help with its supply chain issues, Boeing turned to McKinsey & Co., the gold standard for offering “best practices” to its clients. And McKinsey did come up with a proposal: Boeing would join a titanium mining partnership that would be financed by a Urkranian oligarch to mine titanium in India. The McKinsey proposal indicated that Boeing would have to do “character due diligence” on the deal because of the risks of doing business with oligarchs, especially oligarchs from the Ukraine who are close to Vladimir V. Putin. And throw in some other partners from Sri Lanka, India, and Hungary and you have warning buzzers.

In fact, a PowerPoint slide attached to the McKinsey proposal indicated that winning permits for the titanium mines would involve bribing officials of the Indian government. The slide emerged in the course of discovery that the Justice Department was doing on a case involving Dmitry Firtash, the head of the mining consortium.

Everyone denies that there was bribery, but the slide indicates that there were a number of Indian officials open to bribery. Boeing and McKinsey have both cooperated with the Justice Department.

This one smells. Funny how denials seem to be fade as PowerPoint slides emerge. That’s because :truth percolates.

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Madoff’s Former Secretary Released From Prison Early

Annette Bongiorno, 70, secretary to Bernie Madoff, was released from prison. She had been sentenced to 6 years in prison and had served about 2/3 of her term. She was eligible for early release under the new federal law, the First Step Act, which just became effective last week. Her advanced age was one factor in her eligibility for early release. At the time of her sentencing, the federal judge recommended that she spend her last year of her term at home.

During her testimony at trial, Ms. Bongiorno admitted to owning a Bentley and two Mercedes-Benzes. She also said that she had become frugal as she grew older, selling her Boca Raton home and downsizing by purchasing a condominium for $6.5 million. She had a $50 million investment account, a $300,000 salary per year, and the luxury of being shuttled to work in a car service each day. During her testimony she assured the court that the perks were not a means of keeping her quiet. She said that she never understood anything; she just typed what she was told to type.

Right there might have been a clue. Also, a secretary with three luxury vehicles might also have been a red flag. “I knew nothing” is a popular defense these days, in business and politics.

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Subway Fare Evaders: There Are More, and They Have Really Good Reasons

Fare evaders cost the New York City Metro Transit Authority $215 million this year. The number of fare evaders is up from 2017: 1.8% of riders to 3.2% for 2018. How do they do it? Use the open emergency exit door. Enter as passengers exit via this unauthorized means. About 61 people per hour do that. Vault over the gates — gymnasts do well with jumping the turnstiles. Children slip under the turnstiles. Why do they do it? The rationalizations abound:
1. “My Metro card was not working.”
2. “I don’t feel like going all the way there (one block to a machine) to put money on my card.”
3. “Sometimes it’s easier to use the door.”
4. “I’m sad that the Metro is losing money, but I’m more sad about what’s happening to black people.”
5. “They don’t fix the lights. They are not doing what they are supposed to do.”

There is the problem with enforcement. The Manhattan district attorney’s office decided to no longer prosecute fare evaders. Metro agents faced with people whose cards are not working often tell riders to just get on through the emergency exit. The emergency door exit alarms were disabled in 2014, so riders getting off the subways use that door to exit and then leave it open, a temptation for the fare evaders. The influx at the emergency door is so great that those exiting have to go back to using the normal exits — they cannot get through.

If it’s any consolation, the evaders interviewed do not feel bad about their evasion. For further consolation, evasion is worse for buses, about 16% of riders do not pay.

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