The Ethical Barometer

If you did not quite catch the drift of this groovy lingo, the Barometer can help. The line is from an e-mail of a JPMorgan Chase trader during the eights years of spoofing Chase had going on in metals and Treasury bonds. Spoofing? Well, that occurs when bond and metals traders place orders that they then quickly revoke in order to fool the market into thinking there is movement/demand in metals or bonds. During that interim period, the traders can then capitalize on the market response’s to the fake orders.

Now back to the e-mail. What the trader was saying was that his fake orders moved the markets because firms use algorithms based on market supply and demand. However, an algorithm has no way of knowing if the fake orders were indeed fakes. So, those algos trigger purchases and sales, depending on whether the orders were “buy” or “sell.” The spoofers fool the algos.

But the algos have the last laugh. The Justice Department caught five spoofers at Chase. They were terminated and face charges. Chase must pay a $920 Million fine for spoofing activity that went on from 2008-2016. Chase admitted the conduct occurred and entered into a deferred prosecution agreement If Chase stays clean and beefs up its ethics and compliance program for three years, there will be no prosecution. Looks like the DOJ juked the spoofers.

According to an indictment handed down by a federal grand jury, two former Amazon employees formed a unique consulting business. They were hired by vendors who were trying to get their products back on Amazon after Amazon had banished them from the kingdom of instant shopping and free shipping. The two former employees turned consultants paid four Amazon employees over $100,000 to reinstate the products. All six of them were indicted. https://www.justice.gov/usao-wdwa/pr/six-indicted-connection-multi-million-dollar-scheme-bribe-amazon-employees-and. Amazon said that it cooperated with federal agents during the investigation. Commercial bribery carries 5 years and $250,000 in fines. The Barometer did not see any income tax charges. Just wondering if the Amazon employees reported the bribes as income. Just curious.

Sixty-four students, who were rated lower than rejected applicants by admissions readers, still managed to get into the top four UC system schools. They were all white, and one-half of them had families with income over $150,000. One applicant who had a “do not recommend” on his admissions application got into Berkeley because his father “had the capacity for major gifts to the school.” The state audit report that reviewed admissions processesin the Cal system recommended that the president of UC Berkeley oversee admissions for three years just to be sure “improper influence” is eliminated.

Senator Dianne Feinstein’s husband, Richard Blum, an investment banker and a UC regent since 2002, was identified by the state auditor’s office as being responsible for intervening and getting an applicant bumped up from the waiting list to admission at Berkeley. Mr. Blum called it all “a bunch of nonsense.” Side-door, back-door, under-the-rug, and down-the-chimney admissions are not nonsense. They hurt deserving, earnest, and honest applicants and undermine public trust in higher education. Between this state’s audit findings (and trust the Barometer, any college or university would find the same things going on in their admissions processes) and the whole Varisity-Blue-Rick-Singer thing, seems as if it is time for a little, “Physician, heal thyself” for those in the ivory tower who lecture the world continually about conduct and values.

COVID-19 brought us the great migration of employees from work to home. Now that the COVID-19 lockdowns are ending (although the rioters and protesters never did work from home), CEOs are thinking through remote work. Some CEOs are candid, as the Wall Street Journal reported. Rajat Bhageria, CEO of Chef Robotics said, “We tried. You just cannot get the same quality of work.” Jamie Dimon, CEO of JP Morgan Chase, noted, “We’ve seen productivity in certain areas drop.” Dana Cannedy, Simon and Schuster on the other hand offers this, “We’re all grown-ups. I don’t have an issue with it.” Mark Zuckerberg is also on board promising Facebook is still leaning in, “I think we’re going to be the most forward-leaning company on remote work.” “Corporate Leaders Weigh In on Remote Work,” Wall Street Journal, September 25, 2020, p. B6.

The Barometer has some advice for the CEOs. Let’s be honest about the work-at-home issue. Not everyone is being honest. If you want to know about in-office vs. at-home work, talk to your customers. Indeed, listen in on the conversations your employees are having with customers, or not having. In probating a family member’s estate, the Barometer spent a good part of the national lockdown on the phone with bank estate departments, securities firms, utilities, and even the VA. They all explain that “your call may be recorded for monitoring or training purposes. The Barometer wishes that she had the calls recorded. Bob Newhart could not do as well making up comedic telephone calls. Those employees working at home sans supervision hav serious issues:

1. They struggle to pull up files.
2. Their voices, perhaps because they are speaking through their computers, are often garbled. You pick up about 50% of what they are saying. Calls, as a result, take longer.
3. Dogs and babies are now a big part of work conversations. The Barometer loves both species, but it can be difficult to hear when they participate in beneficiary claims. And, mark this well, your call is extended when pets and babies are around and awake.
4. The calls drop at high rates, and you will be back in the same queue working through the same prompts to reach your final designation listening to, “Due to COVID-19 call volume is unusually high” and on and on. And you will be reminded again that your call could be monitored.
5. Not all of your employees are truly on the job.

The Barometer has had to call Computershare, a company that handles address and name changes and share transfers for some of the country’s largest companies. Yesterday, after about 22 minutes on hold in the queue, there was the usual ring and an answer, which means we should have actual human contact. No voice sounded from the other end — the Barometer offered several, “Hellos” and “Is anybody there?” The Barometer then listened for 5 -7 minutes (the company can check the recording) as the employee who was supposed to be answering phones was having a good time chatting it up with someone on another phone. There was laughter and general good times for the employee. At one point, a dog barked, and the Barometer yelled, “Hey!” a few times, hoping that the employee might take the call. No luck. Worse, the phone call could not be terminated — the phone was stuck in listening mode. As much as the Barometer hoped that the employee would return to “work” and pick up the phone, the wait was too much. So, the Barometer shut down her phone, turned it back on again and went straight back the queue. Another 30 minutes on hold. Upon reaching a human for a second time with this employee realizing that there was indeed a call, the Barometer listened to off-and-on static for the first five minutes of the call, requiring the employee to repeat much of the conversation. AT the end of the call, during which nothing was resolved, the Barometer asked for an opportunity to speak, since the call was recorded or monitored. The Barometer then relayed the experiences of that morning with the hope that someone ini training or monitoring would pick up the issues and attempt to resolve the, One quick way to do so? Get the employees back in the office working. Better technology. Access to files. Communication to supervisors when employees are stumped. And the peaceful quiet of an office sans Fido.

While millennials and some CEOs would have us believe that working from home is the greatest thing since Post Toasties, they have obviously not assumed the role of one of their customers. The waits are long, the information needed is not available, the resolution of issues is is missing, delayed, or simply abandoned, and the dogs and babies are not getting enough attention. Please, assume that every office has the same need for employee presence as the factories and plants with employees engaged in production. Because, with employees working from home, one cannot assume that they are producing anything or near as much as they could. Human nature — when the cat’s away and all. Please, everyone, get back to work.

We have good news and bad news. The good news is that VW has completed its three years under government supervision, Its monitor has signed off, certifying that the structures and processes are in place, but noting that the typical ethical infrastructure is just a starting point. The root causes of the falsification of emissions: pressure to get the emissions rate down and the “lack of a speak-up culture.” Systems and infrastructure do not conquer fear in employees about speaking up.

The bad news is that former VW CEO, Martin Winterkorn, will stand trial on charges of defrauding customers. According to the charges, Mr. Winterkorn was aware of the emissions falsification scheme as early as May 25, 2014, but took no action to stop it, to bring it to the attention of regulators, or even share the problems with the board. VW ended up paying about $30 billion in fines, penalties, and customer compensation for the actually very dirty autos. When the story became public, Mr. Winterkorn said: (1) “I am shocked by the events of the past few days. Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group.” (2) “I am not aware of any wrongdoing on my part.” and (3) “I am stunned that misconduct on such a scale was possible in the Volkswagen Group.” At the time the Barometer wrote that a CEO saying “I am not aware of any wrongdoing pro my part” was slippery at best. Plug in “Winterkorn” and/or “VW” in this site’s search function and see how predictive the Barometer can be, even back in 2015.

Keith Leverkuhn, Boeing’s 737 MAX program manager from 2013-2018. Not sure that two virtually identical crashes in 2018 and 2019 involving the 737 MAX that resulted in the deaths of 347 people constitute evidence of success. Be that as it may, Boeing has assured Congress that it has “bolstered safety” by giving engineers a “stronger voice” in the process of designing and building its airplanes and a more direct line to “top management.” How did they not have that before? No worries, however. Michael Teal, the chief engineer for the 737 MAX through its 2017 debut, is now in charge of the development of Boeing’s new 777X. Good news there.

There were seven of us gathered for a birthday celebration. But there was fear in the air as we sang “Happy Birthday to you.” We all knew the possibility of something else in the air. A Swedish study that concluded that those who sing Happy Birthday are more likely to get COVID-19. Those popping P’s and B’s are the root cause. There was an awakening in the Barometer. We grieve for our loved ones and for all families who have suffered a loss. We have witnessed the tough slogs to recovery for those who have survived. But there comes a point when we must begin the process of weighing costs, accept some risks, and return to some presumption that we have control over our lives.

The Barometer is “Zoomed” out. Aretha Franklin sang about this “zoom” thing way ahead of her time, “Who’s Zooming’?” The Queen of Soul sang about being take for a ride in the cause of love. One line is “Who’s zommin’ who?” (Grammatically speaking, it should be “Who’s zooming’ whom?” but we shall grant artistic license.) So it is with our fears and response to COVID-19.

What we have accepted without so much of a whimper is a continuing world without hugs, kisses, and even handshakes. We have accepted restaurants with no atmosphere. Sitting outdoors among the protestors turns out to be expensive – they eat your food before you can. We have accepted masks, even in banks. Butch and Sundance would have loved this brave new world. We have accepted no theater. We banished movies except for Netflix. But, we have our priorities — we have relented on movie theaters only recently because of our longing for films featuring comic characters from the 1960s. This is a world where we witness small, quaint, and personal-touch businesses disappearing. Retailers from Brooks Brothers to bridal stores to Payless Shoes are working through bankruptcy. Business is booming for tailors, however, because they have to alter clothes for the COVID 10-20-pound weights gains.

The politics behind these issues are so strident that half the country would not take a COVID-19 vaccine even if it were successfully tested. Distrust is so high that the pharmaceutical firms joined together to take out full-page ads in major newspapers promising to develop their vaccine “with high ethical standards and sound scientific principles.” Funny, that probably should have been an assumed business strategy for no altruistic reason, just the fear and reality of class-action suits. In this era, ethical and scientific integrity have to be spoken/printed aloud. Now the pledges to take the vaccine when it is developed are being demanded and offered in a beneath-childish scenario that the Hatfields and McCoys and the Capulets and Montagues would have found beneath them.

We have created a no-school world, something we dreamed of as children but were denied such by adults who knew better. Now the adults are forcing children to stay home as children beg to return to school. Out of the mouths of babes comes wisdom in a time of hysteria. Forget sports. Forget weddings. Forget honor guards at veterans’ funerals. Forget funerals unless you can pick and choose 10 people who will be permitted to attend. Forget travel for fear of being stuck there for months when you planned for a week. Forget concerts. Forget church meetings. No political rallies. No gyms, unless you wear a mask during aerobic exercise. Does that sound healthy?

Despots dreamed of such complicity. It’s John Lennon’s whining dream come true, and all without an army or battle or even actual laws. Kings with proclamations met greater resistance. There were always a few peasants willing to foment high dudgeon and storm the castle with pitch forks. Today the peasants are inside, binge-watching and baking banana bread.

So, what do we have? Humanity sitting inside, apparently hoarding Lysol spray and toilet paper (grocery stats bear out the purchase trends), not shaving, not dressing (even for Zoom meetings), watching mediocre or bad (on so many levels) films, not exercising, not learning, and getting about 4 weeks to the gallon. It does not take a social scientist or medical expert to assess the mental and physical health risks in this prescription.

Have we really thought all of this through carefully? Do we even think about the level of micromanagement of our lives when there is now a warning label on singing “Happy Birthday”? Here’s one girl who is willing to say, “You better think about what you’re trying to do to me.”

The Queen says everything better, especially when it comes to zoomin’:

Guess you believed the world
Playin’ by your rules
Here stands an experienced girl
I ain’t nobody’s fool.

The TD Ameritrade crowd was buying up the Tesla shares. Tesla was headed into the elite S&P 500 companies. However, Tesla did not make it, despite accumulated profits over four quarters. The market is puzzled. The market needs to look deeper into Tesla’s financials. The old saying is that GM runs a pension plan and builds cars for a hobby. Tesla runs a company selling regulatory credits to other companies so that those companies can balance their emissions standards books. Tesla may be building cars for a hobby as well. The source of profits is as important as the profits themselves. There have always been twists to Tesla’s numbers.

In teaching MBAs, one of the key ethical topics in financial reporting is quality of earnings. Understanding how a company got to its earnings s perhaps more important than the earnings themselves. One-time currency-exchange-rate-boons do not a steady stream of earnings make. The clever application of GAAP and presentation of earnings breakdown are insights into ethics and character. Some retailers switch from calling out their sources of revenue to hide declines in their primary product sales. For example, Apple no longer calling out its phone sales or Coach no longer separating out outlet sales from store sales. How those earnings are presented can conceal the strength of the brand and the potential for earnings going forward. That too-clever-by-half approach in what goes into earnings never bodes well for the future.

The Barometer has said and written many times, upon studying the e-mails and texts of businesspeople later convicted of crimes related to their electronic messaging, “Who does this?” Or, “What kind of fool would put that in writing?” From Anthony Weiner (nee Carlos Danger) to Hillary Clinton to Arthur Andersen partners to parents working to get their talentless children into prestige schools as water polo stars, these folks somehow feel above the fray. In a way proud of their actions, they seem to enjoy the thrill of hornswoggling others, seducing the young and/or their direct reports, and unleashing photos that would make Michael Avenatti (nee “Creepy Porn Lawyer”) blush.

We now have some explanation offered thanks to Elizabeth Holmes, former CEO of Theranos, the gigantic blood-testing company fraud. She may claim “mental disease or defect” as a defense in her upcoming fraud trial. One guesses that there are some wires loose when behavior beyond brazen turns into fraud. However, loose wires do not mean lack of knowledge about the nature of their conduct. Insanity has been a tough defense for serial killers. Serial tricksters, especially those who build a nonexistent blood testing process into a $9-billion company, will have a steep hill to climb.

Warren Buffett once said of companies that experience difficulties that the difficulties continue to emerge following their initial problems and headlines. He compared it to turning the light on in the kitchen in the middle of the night. You are going to scare out a great many cockroaches heretofore undetected.

Boeing is now facing an FAA probe on its 787 Dreamliner jets. Heretofore a very safe plane used on international routes, Boeing found parts for this plane were defective. Produced in its South Carolina plant, the parts are now under intense scrutiny. The good news is that Boeing’s new and enhanced safety review uncovered the defects. The bad news is that it will take some time to figure out how the defective parts rolled through without necessary checks. The additional bad news is that the FAA must determine whether to impose streamlined maintenance checks, a process that will ground fleets. Shining the light in areas where that light is a surprise always nets valuable information. The hope for the brand languishes but the deference to safety is progress.

When HR is weak on investigating complaints and doling out discipline, you get exactly what McDonald’s is going through now. An ugly lawsuit by the board against the company’s departed CEO. The allegations are that Mr. Steve Easterbrook had three sexual relationships with employees, and that the Board approved his severance package without knowledge of such. Now comes an investigation into the HR Department at the company over reports from employees that their complaints were ignored. They feared retaliation and did not pursue further action from HR.

Among the allegations are that the head of HR (chief people officer in McDonald’s Happy Place) joined in on the drinking and inappropriate comment fest at the company’s 2018 Christmas party. When will we learn? Surely “Mad Men” would have sworn companies off these gala events. There was an investigation by legal counsel with this conclusion: Heavy drinking was inappropriate and to let them know if it happened again. That oughta do it.

Therein lies the problem for what would ripen into a mess. The strongest communication about its values that any organization can give is by the action it takes against employees who violate organizational rules and standards. Let them off lightly, and you not only allow the behaviors to continue, but they will get worse. Do a slow-walk investigation and employees get the message. No big deal. You force them to live with it or leave. Employees working in a poisoned culture are never as engaged, productive, or loyal as those who feel that their companies stand by stated values.

The McDonald’s suit and all that will follow is a lesson for all leaders, and, especially, HR VPs, people officers, talent managers or whatever they are calling them now. The folks who get the complaints. Listen up, follow up, and stand up for sanctions.

On the night of March 13, 1964, Kitty Genovese died at the hands of an assailant as 38 “respectable, law abiding citizens” of Kew Gardens in Queens, NY that heard her cries did nothing. The story became one of the horror of “egocentrism in the urban jungle.” However, there was one neighbor, a friend of Miss Genovese, who, upon hearing from a frantic neighbor that her friend was slumped inside the rear building door, went to her side. The then-30-year-old mother of a new baby held Kitty as they waited for help. Miss Genovese died in the ambulance en route to the hospital.

It was Miss Genovese’s brother who restored some semblance of hope in society as he featured that neighbor, Sophia Farrar, in his documentary about the night his sister was murdered. Mrs. Farrar explained what she did with one hope: That Kitty knew she was there with her and for her. Mrs. Farrar took a risk that 37 others would not. A young mother there for her friend.

Mrs. Farrar recently died at age 92. RIP. May we remember her example of courage and friendship.

The latest indictment in the UAW’s long and corrupt history is Dennis Williams, former president (left in 2018). The indictment alleges that Mr. Williams and others used union funds total trips to Palm Springs, California and Missouri. The UAW paid rent for villas, golf course fees, cigars, and lavish dinners. The UAW paperwork submitted indicated that the travel and expenses were for attendance at conferences. However, there were no conferences.

This latest indictment brings the total of UAW officials criminally charged to 15. Former UAW Gary Jones has already entered a guilty plea to embezzlement and racketeering — same cities (add Coronado, CA to the list) and same sort of conduct. The bottom line is that regional and national officials were having a good time at UAW expense.

The current UAW president, Rory Gamble, is negotiating with the Justice Department to implement reforms that would settle the ongoing investigation. Ethical leadership is what the Justice Department wants. The UAW needs a federal monitor. But before that, a good housecleaning.

Teva, an Israeli-based pharma, has quite a market in generic drugs for high cholesterol, blood clots, and skin conditions. However, in an indictment filed by the Justice Department last week, Teva is accused of engaging in price-fixing and bid-rigging with its competitors. The indictment alleges Teva and other pharmas were allocating customers — deciding who would win which bids and just divvying up the market accordingly. This strategy cuts way back on the need for sales efforts. But, it also cuts into illegality. According to the indictment, the Teva employee who spearheaded the market fixes sent almost 80% of the 941 phone and text messages to competitors in 2014. That employee has been working with the Justice Department but appears to be a “swing” witness. Her story has changed.

Teva attempted negotiations with Justice Department officials for a settlement, but the dastardly Justice Department insisted on an admission. Teva was not of a mind to provide such, hence, the indictment. The company with $17 billion in revenue last year does not believe that it did anything that violated the law. Employees in other companies involved have sung like canaries, so we shall see.

One tidbit, Teva used its work on a COVID-19 vaccine as a reason for going easy on them. The Justice Department was not moved, except to indict.