The Ethical Barometer

Barbra Streisand, once a “Funny Girl” and not so “Funny Lady,” now channeling Che Guevara (see her appearance at the Oscars), does not understand apologies. Her apology regarding her bizarre remarks about Michael Jackson and the documentary, “Leaving Neverland,” were an act of moral disengagement, not remorse, “I am profoundly sorry for any pain or misunderstanding I caused by not choosing my words more carefully about Michael Jackson and his actions.”

Choosing your words carefully? Ms. Streisand said that the boys in the documentary who spoke of their molestation (something a bit more than actions) were at least not killed by what happened. Ah, escaping death is the measure for appropriate conduct. Then there was the passing judgment on the parents — their fault for allowing the kids to stay overnight. And the kids? Well, in Ms. Streisand’s mind and words, they were “thrilled” to be with them.

An apology means that you are sorry for what you said because it was wrong. You are not sorry for misunderstandings that resulted. You say you were wrong in what you said because “deep remorse” is not possible unless and until you acknowledge the errors. Saying you did not choose your words carefully does not address content.

Meanwhile, Diana Ross is tweeting her song titles to end the conversation, “STOP IN THE NAME OF LOVE.” It is not clear that halting discussion of what these men say happened to them as young boys in Mr. Jackson’s home is a resolution. The failure to review whether the criminal justice system and we as a society responded appropriately at the time awards an escape from the uncomfortable introspection we need to do. Ms. Streisand and Ms. Ross surely understand, as women who have portrayed victims of injustice, that films serve as a force of reckoning, review, and change. Denial and plugging our ears while humming tunes from the Supremes do not get at the issue of pedophilia and what we are doing or perhaps not doing to address it.

Martin Tobin, a Los Angeles finance guy, was the one who tipped off federal authorities about the Rick Singer bribes-for-admission scandal. Mr. Tobin was being questioned by federal authorities about a pump-and-dump scam. Pump-and-dump scams are the stuff of induced hype. Folks buy a stock and then pump up its values through touting the stock’s value, the company, or potential earnings, and then when they have pumped the value up sufficiently, they sell the stock and move along. Mr. Tobin admitted to authorities that he had already paid a bribe to Rudy Meredith, the head women’s soccer coach at Yale in order secure admission at Yale for one of his daughters. One of Mr. Tobin’s daughters graduated from Yale in 2015, and two other daughters are currently there, expected to graduate in 2019 and 2020.

Federal authorities asked Mr. Tobin to pretend to be interested in paying another bribe to Mr. Meredith for his last daughter, a high-school senior, in order to complete the family ties to Yale. Mr. Tobin’s meeting with Mr. Meredith in a Boston hotel room was recorded, and in the recording, Mr. Meredith allegedly agreed to designate the Tobin daughter as a soccer recruit in exchange for $450,000. In exchange for his help with the Varsity Blue operation, Mr. Tobin was not charged in that scandal, and entered a guilty plea to one count of conspiracy to commit securities fraud, and one count of securities fraud.

You never trust the people you cheat with — they will throw you under the bus.

The Barometer sees the charts in the newspapers. Charts to be filled out for March Madness, Sweet Sixteen, Elite Eight, and Final Four. The alliterations are clearly clever. Then there is the language of sportscasters: “Sky-walking with a big-time push.” Until the Barometer got the translation the assumption was that the TV had been switched to the space walk and a drive to finish the repairs.

As devoted as the fans are and as colorful as the shoes seem, there is that ethical cloud that hangs over this college sport. Yesterday’s Wall Street Journal provided the proverbial straw on the camel’s back. The players and staff are swiping the rugs from their locker rooms. Bless the NCAA’s heart, they were trying to make things “homey” for the players with area rugs here and there in the locker rooms. The NCAA has no idea with whom they are dealing.

Apart from the banished coaches, the X-rated recruiting scandals, and the bribery, there is the underlying erosion of the original noble goal of college sports scholarships: to provide the financial means to talented athletes to obtain an education. Today, colleges and universities provide future NBA players with a place to park it for a year before they turn pro. They are not in school long enough to even have to worry about grades for eligibility the following season. The academic world is now the farm club for the NBA. The problems with bribery, corruption, and hedonistic behaviors spring from the loss of the original soul and virtue of college sports programs. The NCAA is no longer running the show when it comes to ethics. Their little investigations and sanctions could not handle the level of misconduct. The Justice Department has stepped in with prison time as the punishment because the loss of post-season play or scholarships just was not doing the trick. The schools have adopted the CEO defense when fraud gallops through their organizations: “I knew nothing.” Okay, maybe an assistant coach here and there, but not the rest of us.

When it comes to playoffs and championships, we dutifully fill out the brackets and pretend for 4-5 weeks that none of the terminations, the shootings, the suspensions, and payments to parents matter. There may be corruption, but, man, can those guys play basketball. At least for a year.

The title of William “Rick” Singer’s, dynamic and now criminally indicted college counseling coach, presentation done in the financial services sector. One expert characterized Singer as someone with a seemingly “magic elixir” for parents on getting their kids into college.

The magic elixir for the affluent was affluence — you pay to get your child into school and Mr. Singer developed the method for cheating.

Why didn’t the affluent just give a building to the college? That’s the way the affluent usually get their kids into school. Saves the expense of the Singer middle man.

If you are looking for an investment, not to worry. Jeffrey Skilling is meeting with former Enron executives to form a new energy venture. He’s looking for backers. Get out your wallets!

2 Chainz and Cardi B have had a harsh reality. Like the Beatles and their “Tax Man,” the successful artists have learned that the IRS does take a chunk once you land in those higher income brackets. They are upset that they have to pay, but fear the Wesley Snipes treatment, “Don’t let ’em try to Wesley you. You get rich, they got’ try to Wesley you.” Along the lines of George Harrison’s lyrics:

Let me tell you how it will be
There’s one for you, nineteen for me
‘Cause I’m the taxman, yeah, I’m the taxman

The rappers also question where the money is going: There are rats on the trains, and “y’all not spending it in no damn prison.” Harrison saw the same issue all those yers ago:

Don’t ask me what I want it for
(Ah, ah, Mr. Wilson)
If you don’t want to pay some more
(Ah, ah, Mr. Heath)
‘Cause I’m the taxman

Wilson was the British prime minister at the time.

Interesting that artists see the same issues over the decades. However, Mr. Harrison’s lyrics can be reproduced in the family hour — the full content of the rappers’ choice of words and turns of phrases cannot be shared with a “G” audience. Fascinating, however, that views and talking points on taxes change once success comes and the tax bills come in. Welcome to the highest brackets of talent and taxes.

The Summer Olympics will be held in Japan in the summer of 2020, a selection that was made in 2013. The head of the Japanese Olympic Committee will resign in June because investigators have uncovered a vote-buying scandal that swayed the members of the International Olympic Committee to vote for Tokyo over Madrid and Istanbul.

Tokyo and IOC members have short memories. Salt Lake City officials engaged in all types of vote-buying to get the 2000 Winter Olympics to Utah. Everything from shopping sprees to medical care to college admissions were used to win the hearts and minds of IOC members. Japan used a simpler strategy and just funneled $2 million through a consulting firm owned by a son of a former IOC member who then tossed his influence around with the current IOC members from Africa to win their votes to Tokyo.

AH, the lessons of history — there are few scholars when it comes to bribes.

The late Karl Eller, former CEO Circle K Corporation and Combined Communications.

Mr. Eller has a life story worth a study. His father left his mother and his two siblings when Mr. Eller was five years old. He began his business life with a billboard company and then bought Circle K. Without retail experience, that chain of gas stations and retail stores went into Chapter 11 bankruptcy. Mr. Eller was 61 years old at the time and he had $100 million in debt from the retail foray due to personal guarantees. Rather than declare bankruptcy he told his creditors that he would pay them back. Some creditors wanted cash straight away, and he paid them 10 cents on the dollar. The remaining creditors who hung in there with him were paid in full. He was able to do so because he started another billboard company, which he eventually sold to Clear Channel for over $1 billion.

Mr. Eller wrote a book called, “Integrity Is All You’ve Got.” He repaid his creditors because, as he explained, he wanted to preserve his reputation. The Barometer served with Mr. Eller on a corporate board — he never missed a meeting. He had his detractors. The grass didn’t grow where Al Neuharth spat after talking about Mr. Eller, wheeler-dealer. But, he was married to Stevie for 66 years. On balance, this man left this life with honor. RIP.

Martin Winterkorn, former CEO of VW in 2015 when the VW falsified emissions test scandal emerged. Mr. Winterkorn resigned shortly thereafter. VW settled the emissions scandal with the EPA for $25 billion. However, on March 15, 2019, the SEC filed a civil suit against VW and Mr. Winterkorn for misleading bond investors about the emission scandal. The complaint alleges that Mr. Winterkorn was told of the emissions falsification as early as 2007, just after he became VW’s CEO.

The Barometer believed that the phrasing of the Winterkorn. See post on September 17, 2015 for these denials:

“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.”
“I am not aware of any wrongdoing on my part.”
“I am stunned that misconduct on such a scale was possible in the Volkswagen Group.”

According to the SEC complaint, which lawyers for VW call “legally and factually flawed,” and VW will offer a vigorous defense. However, the complaint highlights Mr. Winterkorn’s management style of micro-management and noted this quote in the 2010 annual report of the company:

The Volkswagen Group is so successful today because this notion of ‘digging deeper’ has become part of our corporate culture. . . . As an automotive manager, it is not enough simply to enjoy driving cars—you have to understand them right down to every last detail. Many things in our Group today only work because my Board of Management colleagues and I are extremely well versed in all aspects of the business. If developers say that a solution is not possible from a technical, timing, or financial point of view, I am able to challenge them. And everyone knows that.

And the complaint also alleges:

Winterkorn and other VW executives were made aware of the defeat device as early as November 2007, during a meeting with VW engineers, to discuss the emissions problems with VW’s “clean diesel” vehicles. Although at least one meeting participant warned that putting the existing vehicles on the road in the U.S. would damage VW’s reputation if the vehicles’ high emissions were later discovered, those concerns were ignored.

And the bonds were sold based on the representations of a successful clean diesel vehicle. The case will continue to highlight what the SEC has uncovered and strengthens the bond holders’ civil suit for recovery of their losses.

Three incidents in the news caught the Barometer’s eye that involve “parenting,” and bad judgment.

1. The kiddos storming Senator Diane Feinstein’s office, demanding action on climate change. Most analyses of the video focused on Senator Feinstein’s alleged arrogance in responding to the lads and lassies. The Barometer watched the video and wondered in awe at what kind of parents allow their children to experience that level of fear. Visions of sugar plums do not dance in these kids’ heads — they have had apocalyptic tales tossed hither and yon so much that what they seem to know, with great conviction, is that death, destruction, and dogs and cats living together (to quote the Ghostbusters) are a mere 12 years away. The cherubs have turned out to be a litigious bunch, bringing suit to halt their nightmares, via judicially imposed green dreams, plans, or beheadings. One, brought by Our Children’s Trust, is headed to the U.S. Supreme Court.

As Paul Tice pointed out in the Wall Street Journal, the last time kids took the lead on moving social policy the kids got hurt. The crusades of children through Germany and France to liberate Jerusalem ended badly — many of the children died and many were sold into slavery.

How about a little parenting that allows children to spend their time amongst the flora and fauna that we do have or even experience the concrete of an urban skate park before we offer them up as plaintiffs and activists in Senate offices? How about if we parents provide them with a secure environment, a solid education, and the assurance that society has the both the capacity and [some] adults to address dangers.

2. The slapping your child in the face with cheese squares. You have no doubt seen the videos of the toddlers having a slice of cheese hurled at them. The poor tots are visibly stunned by what has hit them. Several of them cannot see and do not yet have the motor skills to reach up and remove the Velveeta or Kraft square from their noses and foreheads.

Parents today clearly have too much time to spare. How on earth did this activity start? Now there is not only the fear that polar bears will be roaming their Santa Clara neighborhoods foraging for small children because of melting ice but that somewhere out there is a cheese slice with their name on it (both thanks to their parents).

3. The college admissions cheating. Words have not yet been invented to describe the parents who did this “for their children.” With this parental activity, the three examples come together into one common theme. Children are not props, children are not our entertainment, and children are not trophies that we hold up to show the world what we have produced. However, in this case, photo alterations, cash, and grad students changing exam scores produced the results. Vanity, vanity, all is vanity. Ecclesiastes 1:2. At some point, these sad youth will awaken and realize that the accomplishments their parents had painted, plastered, and baling wired on to them did not give them the skills, knowledge, or fortitude they needed to survive in a rugged world. In the quest to give their children everything, these parents deprived their children of what they needed most — work, resiliency, and humility born of the blessing of failing once in awhile.

As in business, the quest to make the numbers at any cost and by any means, gets you the numbers, but it kills the company.

Climate change, American cheese, and cheating — all with the common thread of parents who forgot to nurture, support, and set an example.

David Middendorf, the former national managing partner for audit quality at KPMG, was convicted of four of five counts of conspiracy and wire fraud. Mr. Middendorf’s strategy waster audit qualify was an interesting one: obtaining information from employees of the federal Public Company Accounting Oversight Board (PCAOB) as to which companies that KPMG audited would be on the agency’s list for governmental review of audits. KPMG would then pull out the big audit guns (although the Barometer is not sure what that metaphor means when it comes to auditing) when conducting its audits of those companies. Quality is much easier when you get a heads-up on where the regulators are headed.

Jeffrey Wada, also convicted of three of four counts of conspiracy and wired fraud, was the PCAOB employee who passed along the information to KPMG. KPMG fired all of its employees involved in the activities, and three of those four entered guilty pleas. Mr. Middendorf’s attorney indicated that he will appeal because “what happened was not are fraud.” What happened was wrong, however. Just because we cannot find a crime to fit the activity does not mean the activity was ethical. What a defense! I cheated on the exam, but it was not a crime. Oh, but it was, plainly, and simply, dumb. Funnily enough, when PCAOB went back and did a REALLY thorough check of KPMG’s audits, it found “serious deficiencies” in half. Looks like the audit quality title was a misnomer for Mr. Middendorf. Amazing how so many convicted executives allowed pressure (financial, for goals, for recognition) be the sole processing mechanisms for their decisions and actions, which then actually defeated the very purposes of their jobs and their companies.

Gordon Caplan, private equity lawyer and co-chairman at the law firm, Wilkie Farr & Gallagher LLP, named “Dealmaker of the Year,” by American Lawyer, who was arrested in the Varsity Blue admissions scandal for his efforts with William “Rick” Singer to get his daughter into college.

Not really sure if we can measure honesty here. Mr. Caplan is accused of paying Mr. Singer $75,000 to improve his daughter’s test scores. However, Mr. Caplan had to have a psychologist certify his daughter as having a learning disability so that his daughter could take the ACT exam at one of the locations where Mr. Singer had bribable test administrators. Mr. Caplan and his daughter flew out to California, Ms. Caplan took the ACT, and, thanks to the administrator who changed her answers, her previous score jumped from the low 22 to 32, thanks also to the cash and Mr. Singer’s efforts. Mr. Singer wanted to go to a score of 33, but Mr. Caplan felt it was too much of a jump. In a phone conversation following the successful cheating, the content is damning:

Mr. Singer: “It’s the home run of home runs,” Singer later said.

Mr. Caplan: “It works every time?”

Singer: “Every time.”

Interestingly, the ACT balked twice at the daughter’s request for extra time on the exam based on a disability classification, but the Feds asked ACT to cooperate because they were running the sting.

However, assuming arguendo Mr. Caplan is being honest, he missed a thought — he may be finished too.

Every business line at Wells is under investigation by the Justice Department, the Securities Exchange Commission, and/or the Comptroller of the Currency (OCC). Here’s how bad things are: The OCC has spent so much time at Wells Fargo that it is considering two unusual actions: (1). Charging Wells for its time there; and (2) Imposing mandatory changes in the executive line-up.

There are risk management issues, issues with required refunds to customers, delays in communicating with mortgage customers who had experienced improper charges, and mandatory insurance requirements for customers who already had insurance.

There comes a point where board members should have a few questions because Wells is now 2.5 years out from the discovery of the millions of fake accounts created by bank employees in order to meet performance and incentive goals. The issues are management issues, ergo, one turns to management. But, CEO Tim Sloan came from Wells. There have been changes, but, so far the feet don’t seem close to the fire.

If federal government regulators are not happy with the pace of change, the pace may be a tad slow because these folks are happy with slow. It took the Department of Health and Human Services six months to get a Social Security card to the Barometer, despite calls and letters. Eventually, the Barometer received 3 cards. In other words, when a non-crackerjack operation tells you that you are not running a crackajack operation, there may be some problems with management. This is the fifth or sixth wake-up call.

The allegations in the federal indictment outline one heck of a cheating scandal so that the wealthiest parents could get their children into the top-ranked schools. The schools are variously described as “elite” and “best.” The Barometer, having spent four decades in the academic trenches, wishes she could have had a chat with both parents and children: Graduating from Harvard, Yale, UCLA, UT Austin, Stanford, Wake Forest, Georgetown, and USC is no guarantee of a happy or successful life. Think OJ Simpson (USC), Jeffrey Skilling (Harvard), Janis Joplin (UT Austin), and so on. (The schools were not implicated in the indictments — they were the victims). Also, there are mighty successful graduates of community college, trade schools, or no college who have done just fine. Try and get a trim carpenter, or an AC technician these days and you learn that they are as rare as hen’s teeth and as expensive as your doctor or lawyer.

These discussions aside, the list of activities that comprise the allegations include:

1. Having others take the ACT and SAT for the famous and/or wealthy kids. Bribing test administrators took care of that problem.
2. Passing off the famous and/or wealthy kids as athletes to get admission when the kids had no athletic talent or experience. Upon arrival on campus, the famous and/or wealthy kids would feign a career-ending injury.
3. The rich and/or famous parents would make donations to a fake charitable organization, Key Worldwide Foundation, that would then make payments to university employees or testing officials who would then grease the skids for the kids. After all, what good is paying a bribe if you cannot deduct it as a charitable donation?
4. The ring leader of the whole scheme, William Singer, has entered a guilty plea. A Yale soccer coach will also enter a guilty plea, i.e., the rich and famous will be thrown under the bus. The Yale soccer coach is expected to plead guilty to accepting a $400,000 bribe in order to put one of the kids on her soccer roster. The parents of the fake soccer student-athlete paid $1.2 million to the Foundation for that plot. Seems like the margins were fairly high for Singer, eh?
5. 33 of the 50 indicted are parents, including actresses Felicity Huffman and Lori Loughlin.
6. Ms. Huffman paid $15,000 to have her oldest daughter’s SAT score altered a mere 400 points, up to 1420. Did anyone not question this wide swing? Ms. Huffman’s husband, actor William Macy was not indicted. Should be some interesting discussions over this one at home tonight.
7. Ms. Loughlin paid $500,000 to get her daughters admitted as a crew team recruits at USC. Ms. Loughlin’s husband, Mossimo Giannulli (you might recognize his name from your Target designs), was also indicted.
8. The wiretapped phone calls offer a treasure trove of evidence against the charged individuals.Jane Buckingham, a boutique owner, and another charged parent, agreed to pay $50,000 to have someone else take her son’s SAT and reflected in a phone call that she knew it was all a tall order, “I know this is craziness, I know it is. And then I need you to get him into USC, and then I need you to cure cancer and [make peace] in the Middle East.” That would establish all the intent the Feds need.
9. The kids knew. Now they will be living with the Internet stories and an eternal asterisk by their degrees.