The “Slam Dunk”/”Quick Hit” Culture at the SEC

If you thought that “The Seven Signs”  applied to only for-profit entities, you would be wrong.  Numbers pressure is everywhere, even in government and even if meeting the numbers is self-destructive.  If the just-released Office of Inspector General’s report is any indication, employee stats may have been the root cause for the SEC in Fort Worth, Texas passing (four times) on bringing enforcement action against Stanford Securities because it was not a “quick hit” for their success-rate stats.  Stanford was a $1.5 billion Ponzi scheme that eventually came to light when the Madoff scam broke and, as a result, pressure on the SEC to step up enforcment actions.  From 1997 – 2009, the SEC was looking at Stanford and finding “extraordinary earnings” and “odd interest rates.”  Four look-sees did not net any enforcement action against Stanford, a company that has now collapsed as a Ponzi scheme. The SEC enforcement employees were responding to the metrics.  Complex cases did not get them the numbers they needed for a good performance evaluation. Even the SEC’s own response to the damning OIG findings includes the following:

We found that senior Fort Worth officials perceived that they were being judged on the numbers of cases they brought, so-called “stats,” and communicated to the Enforcement staff that novel or complex cases were disfavored. As a result, cases like Stanford, which were not considered “quick-hit” or “slam-dunk” cases, were not encouraged.

 

Perceeived?  Wonder who sent that message? Employees do respond to incentive plans.  But, those incentive plans are not for the inexperienced.  You will get your numbers, but you will get them at the expense of your own credibility as employees find a way to meet those numbers.  Real or not, they will get them.  And then there you are — suffering the credibility problem:  Are you really enforcing the laws just because your crackerjack enforcement staff is being rewarded for meeting performance goals?  The answer of “No” is a tragic irony  for Stanford investors and the SEC.  Pressure to meet numbers is one of the signs of ethical collapse.  Oddly, the SEC enforcement staff ws experiencing its own numbers pressure even as the Stanford sales folks were living and expanding under their own.

About mmjdiary

Professor Marianne Jennings is an emeritus professor of legal and ethical studies from the W.P. Carey School of Business at Arizona State University, retiring in 2011 after 35 years of teaching undergraduate and graduate courses in ethics and the legal environment of business. During her tenure at ASU, she served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. In 2006, she was appointed faculty director for the W.P. Carey Executive MBA Program. She has done consulting work for businesses and professional groups including AICPA, Boeing, Dial Corporation, Edward Jones, Mattel, Motorola, CFA Institute, Southern California Edison, the Institute of Internal Auditors, AIMR, DuPont, AES, Blue Cross Blue Shield, Motorola, Hy-Vee Foods, IBM, Bell Helicopter, Amgen, Raytheon, and VIAD. The sixth edition of her textbook, Case Studies in Business Ethics, was published in February 2011. The ninth edition of her textbook, Business: lts Legal, Ethical and Global Environment was published in January 2011. The 23rd edition of her book, Business Law: Principles and Cases, will be published in January 2013. The tenth edition of her book, Real Estate Law, will also be published in January 2013. Her book, A Business Tale: A Story of Ethics, Choices, Success, and a Very Large Rabbit, a fable about business ethics, was chosen by Library Journal in 2004 as its business book of the year. A Business Tale was also a finalist for two other literary awards for 2004. In 2000 her book on corporate governance was published by the New York Times MBA Pocket Series. Her book on long-term success, Building a Business Through Good Times and Bad: Lessons from Fifteen Companies, Each With a Century of Dividends, was published in October 2002 and has been used by Booz, Allen, Hamilton for its work on business longevity. Her latest book, The Seven Signs of Ethical Collapse was published by St. Martin’s Press in July 2006 and has been a finalist for two book awards. Her weekly columns are syndicated around the country, and her work has appeared in the Wall Street Journal, the Chicago Tribune, the New York Times, Washington Post, and the Reader's Digest. A collection of her essays, Nobody Fixes Real Carrot Sticks Anymore, first published in 1994 is still being published. She has been a commentator on business issues on All Things Considered for National Public Radio. She has served on four boards of directors, including Arizona Public Service (1987-2000), Zealous Capital Corporation, and the Center for Children with Chronic Illness and Disability at the University of Minnesota. She was appointed to the board of advisors for the Institute of Nuclear Power Operators in 2004 and served on the board of trustees for Think Arizona, a public policy think tank. She has appeared on CNBC, CBS This Morning, the Today Show, and CBS Evening News. In 2010 she was named one of the Top 100 Thought Leaders in Business Ethics by Trust Across America. Her books have been translated into four different languages. She received the British Emerald award for authoring one of their top 50 articles in management publications, chosen from over 15,000 articles. Personal: Married since 1976 to Terry H. Jennings, Maricopa County Attorney’s Office Deputy County Attorney; five children: Sarah, Sam, and John, and the late Claire and Hannah Jennings.
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