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.
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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.
