The Ethical Barometer

Professor Dan Ariely of Duke University has some new studies that might help us cut back on cheating.  If those who taking a test read “The Ten Commandments” before beginning, they are more honest when asked to self-report their scores.  Professor Ariely has more  . . . Continue reading →

The Barometer is exhausted.  How many times must we live through these financial frauds before we refocus?  The announcement that Satyam, an Indian company that provided services for many of the Fortune 500, had a fictitious cash balance of $1 billion has us reeling.  Why?  In this post-SOX era with audit reforms, we have all the problems solved.  But, within a matter of weeks, we have had Madoff, Drier, and now Satyam.  All of these cases shocked us, and all of them left us wondering, how could it have happened?  The time has come to regroup and focus on qualitative factors that are a dashboard for trouble ahead.  For example, Madoff surrounded himself with direct reports who were a full generation younger and who happened to be his sons.  Think Charles Keating and Lincoln Savings and Loan. Think the Rigas family and Adelphia.  Think Downey Savings. Think of AIG and the Greenberg sons who ran Continue reading →

The United States Attorney for the District of Connecticut reached a settlement with Yale University on allegations that this fine institution of higher learning had violated federal regulations on grant administration and accounting.  Without admitting guilt, Yale agreed to pay $7.6 million, one-half as damages and the other half as penalties.  Ladies and gents, boys, and girls, we have been down this grant road before.  In 1990, we had Stanford with its creative definition of what constituted overhead for purposes of federal grant reimbursement; sheets, flora, pianos, and yachts made their way into the labs’ overhead costs.  In the Yale case, the investigation focused on the problem of funds left in federal grants.  When the grant ends, the Feds get the funds back.  The government alleged those at the university, however, transferred the funds to other unexpired grants for continuing use.  Also, the investigation focused on faculty summer salaries.  As anyone with a nine-month contract knows, you ain’t paid in the summer unless you are teaching or have research dollars.  However, to get those research bucks, you must be devoted to research.  Yale faculty, allegedly, did other things besides research but still billed the government for 100% of their salaries.  Those activity reports certifying 100% devotion to the lab are signed under penalty of perjury and they do matter.  Why do we keep making the same mistakes? Over the past few years we have seen Johns Hopkins, the University of Alabama, the University of Connecticut, Northwestern, and Cornell reach settlements over research grant issues.  The Barometer offers some help. Continue reading →

The Barometer has but one word as a response, “Bully!”  Self-restraint and voluntary action will cure the CEOitis that is bound to influence laws and regs waiting in the wings.  Well done you, you Citi folks. 

China clearly has different performance standards for the heads of its regulatory agencies.  Last year, when the pet food poisoning occurred along with deaths from tainted prescription drugs, the head of the Chinese equivalent of our FDA was found guilty of accepting bribes and sentenced to death. He was executed without so much as a month’s stint on death row.  In the parlance of our youth, that seems way harsh.  The death penalty for regulators who make mistakes?  Why, they’d be dropping like flies in DC!  However, as the Barometer’s friend and economist colleague Steve Happel says, the death penalty for the Chairman of the Fed who gets things wrong is probably a good idea.

Now comes the guilty plea of Tian Wenhua, the former chairwoman of the dairy company that sold the tainted baby formula that killed six children and caused another 294,000 to become ill.  Continue reading →