The Ethical Barometer

The title of a Wall Street Journalarticle on how fertility clinics are offering parents new options, including DNA tests on embryos to predict their baby’s eye color. That way they and pick and choose embryos.

The unknown is parenthood, with different joy accompanying each little being who comes into this world with your DNA but wholly unique characteristics. Love those characteristics, celebrate and rejoice in the knowledge that this particular child is uniquely yours.

In our household, we had the experience of raising a child with significant disabilities. She never walked, talked, or even sat up, and had to be fed via feeding tube for most of her life. Yet this silent human being with such dignity stayed with us for nearly 20 years. Someone asked us when she died from respiratory complications whether we we do it all again. We replied, “In a heartbeat.” Who would want to miss what she brought to our home, our lives, and our other children? Perspective, for one thing. perspective that makes eye color seems like vanity, pride, and, well, just silly.

Who knows why some eyes are blue and some brown — Mendel’s work aside. Who knows why one child has a huge birthmark and others have webbed toes? Part of parenting is learning that you cannot control another life. You cannot engineer a child, en utero or postpartum. More importantly, you should not engineer a child. The Barometer votes a big “no” on the WSJ question.

Mr. Musk will settle the SEC suit he vowed to fight only yesterday morning. He will pay $20 million and no longer be chairman of the board of Tesla. Yowzers. When entrepreneurs go off the rails at full speed, it is not a pretty sight.

It took the SEC about two weeks to figure out that when Elon Musk tweeted that he had funding for going private at $420 per share, he was puffing. “Puffing” is a charitable description. The complaint alleges Mr. Musk misled shareholders. The SEC wants Mr. Musk ousted, and may seek to ban him from serving as an officer or director of a publicly traded company. Tesla shares dropped 9.9%, to $277. Mr. Musk has chosen to fight the suit, “I have always taken action in the best interests of truth, transparency, and investors. Integrity is the most important value in my life and the facts will show I never compromised this is any way.”

Not sure what the best interests of truth and transparency are. But, truth and transparency generally are in the best interests of investors. Either the $420 going-private statement was true or it was false. If it was false, it was not transparent. Whether it was true or false, transparent or opaque, the statement was never in the best interests of investors. Just look at the share price, the debt, and cash-burn rate.

The investigation began in 2014, and was called Operation Car Wash. The investigation focused on construction companies, and Operation Car Wash discovered that the construction companies over-billed Petrobras and bribing Brazilian officials and Petrobras executives for the privilege of over-billing and being awarded contracts. They just went to the well too often — Petrobras suffered multi-billion dollar losses and a dive in its share price. Several Brazilian officials, including former President Luis Inacio Lula da Silva, are serving prison terms for their roles in the bribery scam. Marcelo Odebrecht, the former CEO of Odebrecht, one of the construction firms, served 2.5 years of a 10-year sentence and is now at home, all the time, on house arrest.

Because of violations of the Foreign Corrupt Practices Act (FCPA), Petrobras agreed to pay the U.S. $85.3 million in fines, submit three years of compliance reports, and admit criminal violations of the FCPA requirements on maintaining accurate books and records. Petrobras had already agreed to a $930 million civil penalty with the SEC, but the SEC agreed to credit that amount back to the shareholders because the SEC saw the shareholders as victims of the corrupt executives.

What a car wash!

Safety tip for avoiding FCPA violations — check pricing differentials and see what’s going on with that.

In 2016, the California Public Employees’ Retirement System (Calpers) hired Marcie Frost, the former director of the Washington Department of Labor & Industries, as its new CEO. Since the time of her appointment, Calpers is about to have it third CFO and a series of top executives have left. Calpers has 77% of what it needs to provide for future retirement benefits.

In addition, what has emerged are questions about Ms. Frost’s educational background. When she was appointed, the press release said that she was pursuing a dual degree at Evergreen State College in Olympia. However, a blog contacted the college and she was not enrolled. Ms. Frost was confronted at a staff meeting about how she had presented he educational credentials.

Ms. Frost explained that she had been honest during the interview process and disclosed that she did not have a college degree. The search firm Heidrick & Struggles had prepared a document on her background and described her as being “currently matriculated in a dual degree program” at Evergreen. That document was used as the basis for the press release on her hiring.

In fairness to Ms. Frost, she has had an amazing 30-year career, including a successful tenure as director of the Washington fund, keeping funding at 86% and standing up to the governor on combining government benefit units. She was a teen mom who worked her way up through the ranks in state government and stands on those credentials.

However, the issue is candor. Saying you have a degree when you do not is a common hiring deception. Trying to de-emphasize the lack of a degree with current enrollment is a typical cover. Being confident enough in your work experience that the lack of a degree is overcome gives candidates the chance to explain the life story — and Ms. Frost has a compelling one.
Unfortunately, with Calpers’ hiring processes now under investigation and the taint of the press release, Ms. Frost is at the center of the resulting turmoil. And all because of the use of the words “enrolled” and “matriculated.” Being a public pension beneficiary, the Barometer prefers someone sans degree who is willing to reduce the assumed rate of return to 7% and aims for 86% funding as CEO. Enrollment at this point in a successful 30-year career is largely irrelevant — the problem is whether that point was made during her interviews and clear to the board members who hired her. That goes to Ms. Frost’s ethics and may be behind the struggle she faces with turnover and staff.

As described here a week ago, one of Sloan Kettering’s cancer researchers, Dr. Jose Balsega, had received compensation from pharmas that was not disclosed either to Sloan Kettering or to the editors of the journals publishing his research on the efficacy of the drugs of those pharmas. Well, Dr. Jose Balsega resigned as a result, but there are new conflicts to explore.

Sloan Kettering staff members, Dr. David Kimstra (chairman of the pathology department) and Dr. Thomas Fuchs, head of the occupational pathology lab, founded Apaige.AI. The start-up has the goal of developing algorithms that can distinguish between cancerous and benign tumors, something that they say would revolutionize cancer treatment.

As part of the arrangement, Paige.AI has been given access to Sloan Kettering’s 25 million patient tissue slides and all of the work done by its pathologists over a 25-year period. To which the pathologists responded, How come those two get to profit from all the work we have done at a nonprofit research center?

The response was that the work was so incredibly important to cancer research and access to such slides so expensive that this arrangement was the one way the AI could be developed.

The problems that emerged? For starters, the privacy of the patients. Patients have their records there for purposes of treatment and have not consented to commercial use. Another problem was the difficulty of obtaining investors. In this highly risky field, Paige.AI could not get the capital it needed. As a result, three Kettering Sloan board members became investors. On deals such as this, nonprofits must show that they did not provide assets to insiders for less than market value. However, no one bothered with an independent evaluation of the transaction, either its value or legality. There was no competitive bidding for the use of the pathology slides and work. The response of the scientists: The AI work would help everyone in cancer research and treatment and Kettering Sloan would be sharing its findings. Still, details for sales, profits, and their distribution remain a mystery. No worries though, Dr. Balsega is on the advisory board of Paige.AI and can handle deftly any conflicts issues that might arise.

As for the pathologists, they say they are not interested in compensation. What they are interested in is input into how, why, and when their work can be transferred and on the interests of patients.

Brilliant scientists still need help with conflicts — Dr. Klimstra’s response was that the only thing he cared about more than his family was running the pathology department. Ergo, in the minds of medical researchers, there is no conflict. Oh, but there is, This deal that needed non-scientific vetting, supervision, disclosure, and some legal advice. Nobody at one of the nation’s finest seemed to be able to spot the issues, conflicts, or the appearance of impropriety.

Report commissioned by the bank and completed by a Swedish law firm that found there was money laundering that was brought to the bank’s attention in 2007. The interesting part is that it was the Russians who warned the bank about the money laundering problems. So far, 6,200 customers have been investigated, “the vast majority of which have been found to be suspicious.”

In addition to he Russians, a whistleblower in the bank reported that employees were working with customers who had been known to break the law, kind of a basic tenet in the prevention of money laundering. Also, JPMOrgan, Danske’s correspondent bank, ended its relationship with the bank because it had so many nonresident customers, yet another red flag.

The Mavericks workplace must have been one wild place. Executives viewed pornography and made sexual advances to co-workers, according to a 43-page report based on an NBA investigation. The report did not implicate Mr. Cuban, but employees told investigators that it went on for so long that they felt he must have been aware. Mr. Cuban issued an apology through ESPN:”I messed up. In hindsight, it was staring me right in the face andI missed it. I wasn’t as focused on the business as I should have been.” Yes, indeed.

The hotline will help. That way employees will not have to talk with Sports Illustrated reporters about the ordeals of working in the Maverick office (which is the way the NBA investigation started after the SI. article appeared. Now they can call or talk with the ethics and compliance officer. Those basic components of an ethical infrastructure can make a difference.

Scott Cacciola, “Handling of Harassment Will Cost Cuban $10 Million,” New York Times, September 20, 2018, p. B9.

Initially, Shari Redstone, the controlling shareholder of CBS, took the position that Les Moonves, the CEO had to go. The directors were resistant and said they were willing to stay until midnight to get an agreement to stand 100% behind Mr. Moonves as he faced allegations of assault and sexual harassment.

Two weeks later, Mr. Moonves was out. The reason: One of the woman was planning to go public with her accusations and Mr. Moonves was working to find her a job at CBS in order to have her continue her silence. Mr. Moonves did not tell the board about her or his work to ensure silence. In short, he misled his board.

The board did not have to deal with allegations, denials, and proof. The duplicity of Mr. Moonves did him in.

James B. Stewart, “Revelation of Moonves’s Deceit Was Last Straw for CBS Board,” New York Times, September 13, 2018, p. A1.