The Ethical Barometer

For both Matt Patricia, the new head coach of the Detroit Lions, and Luke Heimlich, an Oregon State baseball player with amazing talent, the sudden emergence in the media about their alleged sexual misconduct, 22 years and 6 years ago, respectively, the revelations hit hard. For Patricia, the Detroit Newsreported that he, along with another young man, had been indicted for aggravated sexual assault of a woman during their spring break on Padre Island. The victim was “unable to testify” because she could not face the “pressure” of a trial, and the indictment was dismissed. For Heimlich, the allegations, which he denies despite his guilty plea at age 15, involved charges of “child molestation in the first degree” of his young niece. Heimlich was just weeks away from completing all the requirements of his sentence to have his record expunged when The Oregonian ran a full story on the case.

These are the cases that try our souls. These are the cases where enviable athletic talent resides in a person whose pasts, whether true or false, make us uncomfortable.

And then there are the ethical issues, most of which have not been considered in the year of MeToo. What does become of those who have made mistakes? Does it make a difference if they acknowledge their mistakes? Do we sentence them to the life of a pariah? How do the victims cope with success of those who harmed them? The stomach churns, but you can’t help the empathy that swells for both sides. Forgiveness and judgment are not our jobs. Thank goodness. These are the times when we are glad to surrender accountability to a higher authority and let the sports teams grapple with the issues. We leave the NFL franchise, the Oregon State administrators, and the major league baseball teams to make decisions about their future with little guidance from us because no matter which way you turn, it feels wrong and more wrong and then the empathy returns. Oh, why can’t they all be like Joseph Profumo? Go away and devote your life to charity.

Perhaps what we can do is learn from these troubling events in the lives of others. These two lives and the events in them, current and past offer a lesson for all. This stuff just wants out there. The NFL, the Patriots (where Patricia was an assistant coach, and the Detroit Lions say they did not know and the background checks did not bring up the information. Oregon State? Well, Sports Illustrated struggled mightily to find what they knew about Heimlich and when they knew it, but the answers are not clear or forthcoming. Which leaves us with Patricia and Heimlich. They should have gotten all of this out there, take their pain, and get it over with because it is coming out anyway. And “It” has the worst timing. After 22 years for one, just at the peak of an NFL career as a head coach, and weeks before a juvenile record is expunged. Uncannily impossible? No, not when truth wants out there. it will find a way. Perhaps it is the nondisclosure that finds us wondering about their character. We can forgive and forget, but maybe we just want the right to have it on the table, and the earlier the better, and sooner rather than later.

Educational institutions can lose their federal funding if they have an excessive number of loan defaults among their graduates. An excessive rate is measured using the figure of how many of an institution’s graduates default within 3 years of graduation (called the cohort default rate). The intent is to measure whether the institutions are producing graduates who can earn a living and repay their loans.

However, educational institutions have found a way to game the metric. They are contacting their graduates and asking them to put their loans in forbearance (i.e., on ice), which means that the borrowers can avoid default. They are not paying their loans, but loans on ice do not count against the institutions’ co-hort rate. The forbearance rate has doubled since 2009. Graduates face consequences for the forbearance option. Their loans accumulate interest, their credit ratings are affected, and they cannot obtain loans for houses. The educational institutions benefit by talking graduates into forbearance, but the graduates suffer. Taxpayers foot the bill for forbearance too. The likelihood of a loan being repaid after forbearance is reduced substantially because the amount of the loan continues to grow. Graduates find themselves in a hole and the interest keeps digging them in deeper.

Legislation has been proposed to close the forbearance loophole and provide graduates with new options, including a longer 25-year repayment plan with lower monthly payments as well as government service loan forgiveness programs.

Apparently in their haste to meet the requirements for a consent decree on its anti-money laundering controls, Wells Fargo employees improperly altered information on documents related to corporate customers. The employees were adding Social Security numbers, addresses, and dates of birth to customer information for corporate clients. Such information should be added or altered only after following specific processes, including customer permission. Fear of regulatory reprisal was the motivation. An employee spoke up about what was happening. Wells disclosed the activities to its regulator once it determined that the alterations were made without customer consent and were not isolated. Haste makes waste. Now Wells faces oversight on creating “more robust processes” for the entry and alteration of information. The irony is that this activity occurred in 2017 and 2018, even as Wells was running ads on its re-founding since the accounts falsification issues. Customer permission message not yet received.

Here is the statement Wells released following this latest problem:

“This matter involves documents used for internal purposes. No customers were negatively impacted, no data left the company, and no products or services were sold as a result.”

Quite a disclaimer that must be issued. The Barometer is starting to feel sorry for Wells — the stage-coach bank that can’t shoot straight.

Do you think? Another “No Surprises Here” headline. Fake founders. Fake photos. Ah, the world of Internet currencies.

Even as Wells continues to run its two-page ads that explain how much it has changed, the more things remain the same. The latest ethical issue is Wells’ admission that it pocketed client rebates that the clients had coming from mutual funds. Under revenue-sharing plans that Wells had with mutual funds holding client investment funds, Wells was supposed to return those funds to the clients. For example, the Chattanooga Fire & Police Pension Fund board questioned Wells for months about its practices in the Wells institutional retirement and trust unit. Wells finally admitted the error to the board and refunded $15,000 of the $47,000 discovered to the Chattanooga pension fund.

Attributing the failure to return the rebates to clients, Wells explained that a “system set-up error” caused the mistake. Wells also acknowledged that other clients were affected. The Chattanooga fund has decided to fire Wells as its manager, “The Board has lost confidence that the answers provided by Wells to date are complete.” The Board also filed a whistleblower complaint with the SEC outlining its concerns about Wells and has filed a suit seeking an accounting from Wells. Because Wells has managed the Chattanooga fund since 2005, the rebates could be as much as $2 million. The Board of the Tennessee fund had a former SEC attorney conduct the investigation into the Wells management of the fund. The lawyer received four answers from Wells in asking the questions about the rebates:

1. That information was confidential and could not be disclosed.
2. That there were not rebates,
3. An acknowledgement of a problem and partial payment of $5,000
4. An admission of the set-up error and more rebate payments.

There’s that tangled wen thing again.

The owners were asking $10 million for their Los Angeles home. They had plenty of interest and traffic, but no one who looked at their home ever made an offer. After months of no interest, the couple’s wise real estate agent began checking with the other agents who had brought in the prospective buyers to see why the disdain for what should have been a desirous and primo property. It turns out that the couple’s housekeeper, fretting that she would lose her job if the house sold, was offering asides to the touring prospective buyers to warn them away from a purchase. Barking dogs, canyon echoes, and raucous neighbors were just a few of the housekeeper’s yarns spun in the name of job security. The couple’s real estate agent told them that as long as the housekeeper was there, their house would not sell. The advice? Make sure the house is vacant when prospective buyers come. The house sold within weeks once the housekeeper was not around to offer fake warnings. Children, neighbors, and relatives have all been known to sabotage sales for a variety of reasons but all the same goal: make the sellers stay put.

Watch your back when selling your home: from offspring to the keepers of the castle, these third parties are good at brutal sabotage.

We all had figured that out sometime ago, but are surprised the number is so low. However, the real surprise in the survey is the reason the embellishers embellish — they knew that their bosses would not know the difference. Now that’s crackerjack management. Thanks to USA Today for this data in its May 14, 2018 edition. p. 1B.

Jes Staley, the CEO of Barclay’s was incensed about the content of an anonymous letter than bank had received from “John Q. Public,” expressing concerns about a hire that Mr. Staley had made of a former colleague of his at Chase Bank. Mr. Staley felt that allegations in the letter were incorrect and asked that the individual’s identity be disclosed. About that time, a second letter came in with similar content to the first.

The British Financial Conduct Authority(FCA) imposed the large fine and Barclay’s board took away 500,000 pounds from Mr. Staley’s annual bonus. And the story is not over. New York state authorities are still investigating.

Mr. Staley’s initial defense was that the decision to intrude into the investigation of the letters were made at lower level, without his knowledge. He then progressed to the belief that the letter was from an outsider and therefore not a whistleblower situation and that he could know the identity. The FCA found that the identical nature of the two letters made it likely that they came from inside the organization. However, without talking with compliance, the board, or even the executive committee, Mr. Staley told security that he was cleared for knowing the identity. Those within Barclay’s then told the board about the unmasking of the whistleblower, and the board reported the incident to regulators. Oh, what a tangled web.

The fine is one of the first fines imposed by the FCA under new British laws intended to hold financial officers personally accountable for misconduct. Some view the fine as a pittance, while others have applauded, noting that the level of the fine was nearly 1/4 of Mr. Staley’s annual pay.

The offenses by Mr. Staley were serious. He apologized for his mistakes and labeled his actions “inappropriate.” The real damage will take some time to repair. He is still at Barclay’s, still in charge, and he unmasked, without approval by compliance or the board, the author of an anonymous report. That type of conduct in a CEO does chill the ethical culture.

Since 2009, the number of hit-and-run vehicle deaths has increased 60%. The total was 2,049 for 2016. Running away from the mortally wounding is a shocking act. An act that reflects a lack of character. That these cowardly acts of non-accountability are on the increase is some measure of where we rein our ethics.

When hubris kicks in, collapse is not far behind. Tesla’s stock fell over 5% with the testy behavior of Tesla’s CEO. Iconic CEOs spell trouble when it comes to companies and their futures.

Martin Winterkorn, CEO of Volkswagen from 2007 to 2015 was indicted for conspiracy and wire fraud in connection with the company’s emissions testing in the United States. Volkswagen indicated that It was cooperating with U.S. officials, bit neither Mr. Winterkorn nor his attorney had any comments following the announcement of the indictment.However, Mr. Winterkorn said after the emissions scandal emerged in 2015 that he had no knowledge of the software fix that caused emissions in VW cars to be lower during testing than they actually were. The indictment alleges that he was told about the emissions evasion techniques in May of 2014 and again in 2015.

The indictment represents the highest executive-level charges since 2011, when Siemens executives were charged in connection with the company’s payment of bribes in violation of the Foreign Corrupt Practices Act (FCPA).The allegations in the indictment do not line up with the findings of VW’s own internal investigation. Tangled webs and all being what they are.

The New York Times Ethicist had another gem on ethics. A family called for an Uber and, Surprise! a driver who did not seem to be acquainted with English or the area, showed up as their means of transportation. The drive was struggling with GPS, incorrectly headed to the Holland Tunnel, and the family instructed the driver to pull over illegally. The family wanted out before they headed to New Jersey and wasted time. The police arrived, poised to issue a ticket. The police backed off, but the family wanted to know if they were obligated to pay for the ticket. The Ethicist advised that the driver made the mistake on the GPS, ergo, driver pays.Lip service to “you cowed him into it … you can afford to pay better than an Uber driver….” The main concern of the Ethicist was to make sure the driver got a bad review.

Once again, a key point goes unaddressed. With Uber. Lyft, and any other entrepreneurial ride services, there is assumption of risk. These are not experienced drivers. In too many cases, whatever driver screening occurs has proven to be flawed. The drug testing, who knows? In short, you get what you pay for. If you want a driver who knows the ropes and GPS, hail a cab. Uber is an adventure at best and, at its worst, well, you have seen the headlines. Disruptive business models often disrupt lives, including those of their customers. There are costs associated with transportation. You can reduce screening and reduce costs. You assume that risk. Oh, and a take a gander at the Bay Area and the congestion that has resulted from all those Uber cars on the roads. We are all subsidizing that with our time. And we are not as successful in talking the police out of tickets for illegal turns so that we do not have to sit in traffic.

Thanks to USA Today and Bridge by Instructure for this tidbit on fear and silence in the workplace.

Oh, what times are these when New Jersey senators who were tried on corruption charges for accepting gifts from one Salomon E. Melgen are given a serious tongue lashing. The trial ended with a deadlocked jury. But, the Senate Ethics Committee comes to the rescue and has ordered Senator Menendez to repay the market value of all of the gifts received. Senator Menendez’s lawyer was outraged at the committee’s actions, noting that, “The [criminal] proceedings clearly demonstrated that there was no violation of the any law.” Assuming arguendo that the jury was correct to be stumped by it all, law and ethics are two different things. Senator Menendez has a clear criminal record and an ethics conviction. The law and ethics are two different things. Not breaking the law does not ethical conduct make.