The Ethical Barometer

A few weeks ago I was giving a speech and had included in my materials a slide that listed the companies that have suffered financially because of ethical lapses.  I explained that I was missing Bear Stearns and Lehman’s because my handouts were due before we lost those companies in the Wall Street shuffle.  A participant objected, “But you have Fannie Mae on there already!”  I explained that Fannie Mae had been on the list since 2005 because of its $7 billion accounting fraud back then.  He was stunned, “Fannie Mae had problems in 2005?”  Yes, and if we had cleaned house back then, how different Fannie, our mortgages, and perhaps our markets would look today.  ‘Tis a rare thing that a company takes us by surprise in terms of its collapse.  There are always faint signals.  And, in some cases, there was sizzle.  We failed to scout out the steak.  Bring me any company over which we are currently clicking our tongues and I will show you that the signals of “Trouble Ahead!” were there. Continue reading →

ImClone was the company in which Martha Stewart owned stock that she unloaded the day before its CEO (her friend) announced that FDA approval for the company’s anti-cancer drug, Erbitux, would be delayed which led federal investigators to Martha’s door with questions about fortuitous timing which led to broker’s spinning tales of deceit and backdated orders to sell and altered phone logs which then led to Martha’s indictment and conviction for obstruction which then led to jail time.  Eli Lilly will be paying $6.5 billion for ImClone (that’s $70 cash per share) because Erbitux is a great drug.  Martha unloaded her shares for $58 to beat the next day’s decline.  With Erbitux sales climbing, the best is yet to come for ImClone share owners. The moral of the story?  Make good investments and hang onto them.  Beating the market nets losses that often include jail time. Ironically, MSO, Martha’s company was at $70 a share before she was indicted.  MSO traded just above $6.00 today.  Her company never recovered its share price despite good earnings performance.  Ah, priceless trust.

Darvocet

Texters, e-mailers, Blackberryites, and iPhone users – Beware!  We can tell what you were doing and when you did it.

First, there is the sad tale of the texting engineer.  Just seconds before the fatal collision of a Los Angeles commuter train with a freight train, the commuter train’s engineer sent a text message.  Engineer Robert Sanchez received a text message at 4:21:03.  He sent a text message at 4:22:01.  The crash occurred 22 seconds later.   Continue reading →

As a firm believer in shareholder activism’s ability to bring about governance reforms, I am loathe to admit that government intervention may be necessary in certain circumstances.  But, when I am right, I say so.  When I am wrong, I also say so.  AIG spent $443,000, including $23,000 for spa treatments, at a California St. Regis resort for a retreat for top-performers that was held within one week of the government’s rescue loan of $85 billion to the mismanaged firm.  This conduct is akin to that of the friend who orders steak and lobster just after borrowing rent money from you.  Continue reading →

PBS journalist Gwen Ifill is scheduled to moderate tonight’s vice presidential debate.  Yesterday, news broke that Ms. Ifill has a book scheduled for release on Inauguration Day.  The title of the book is “The Breakthrough:  Politics and Race in the Age of Obama.”  The book refers to Mr. Obama’s “stunning” campaign.  The book is a conflict of interest.  Ms. Ifill had two choices:  (1) Disclose the book (which she did not); or (2) Don’t serve as moderator.  All the other dismissive pooh-poohs appearing here and there are rationalizations.  There are only two ways to manage a conflict:  Don’t or Disclose.  Ms. Ifill herself pooh-poohs those of us who worry, always, about conflicts,  Continue reading →