Monday, July 23, 2012

Delivering Alpha 2012 - Why Corporate Fraud Is So Rampant: Wall Street's Cop - US Business News - CNBC

Why Corporate Fraud Is So Rampant: Wall Street's Cop - US Business News - CNBC


Tuesday, June 26, 2012

Sandusky Sex-Abuse Conviction Expected to Impose Long Legacy on Penn State

Ethics Newsline® » News » Sandusky Sex-Abuse Conviction Expected to Impose Long Legacy on Penn State

Lost amidst the cheering about justice being done in the Sandusky case is a conversation about just what went wrong at Penn State that allowed these horrendous crimes to continue long after the University became aware of the problem. The facts, as we know them, are currently clear: An Assistant Coach at Penn State observed misconduct, and reported it to his supervisor (the late Joe Paterno). Paterno, a half-century veteran leader of the University's football program "reported" the matter to the Athletic Department, which did NOTHING. Police were not notified; the University's compliance officer was not notified; and the crimes and abuses continued.

It seems to me that the Ethics and Compliance organizations of NCAA schools, and in fact at all colleges and universities, should follow the basic tenets of the Organizational Sentencing Guidelines, which require that (1) the Chief Ethics Officer report to the President and the governing board of the organization, (2) the organization operate an anonymous reporting hotline, (3) the organization conduct independent reviews and investigations of allegations, and (4) the ethics and compliance organization be periodically assessed by an outside consultant or advisor.  If this structure were in place, activities of the Athletic Department would be under the scrutiny of the University, and all allegations of wrongdoing would be investigated at that level, rather than be "squashed" by the Athletic Department to avoid "killing the golden goose" that is the University Football Program.

Just my opinion...any thoughts?

Thursday, March 15, 2012

Why I Am Leaving Goldman Sachs -

Why I Am Leaving Goldman Sachs -

Yesterday's New York Times Op-Ed piece by Greg Smith has sent shock waves through Wall Street. This was not, however, because of the "revelation" of a toxic culture and greed-motivated business practices in one of the world's largest and most important investment banks. The Street has been stunned because one of its own elites "broke the code" by going public, confirming our worst suspicions: that the problem with Wall Street is not limited to to a few bad actors (as it was with the wave of corporate fraud in the early 2000s), but is symptomatic of a fundamentally corrupted corporate culture that rewards profits and has made a mockery of government regulators, business ethics programs, and even its own customers.

Instead of analyzing Smith's public resignation, I share with you some excerpts taken from his letter which highlight his main points and represent, in my view, a "call to action" for Corporate America and those responsible for remedial actions.  Smith's points are a "to do" list for those of us tasked with helping companies turn around their ethical cultures and create real, effective Ethics and Compliance activities that fundamentally change the business processes of U.S. corporations.
  • ...the environment now is as toxic and destructive as I have ever seen it."
  • "...I look around today and see virtually no trace of the culture tha made me love working for this firm for many years. I no longer have the pride, or the belief. 
  • ...the current chief executive officer....and the president...lost hold of the firm's culture on their watch.  I truly believe that this decline the firm's moral fiber represents the single most serious threat to its long-run survival."
  • "The firm changed the way it thought about leadership. Leadership used to be about ideas, setting and example and doing the right thing. Today, if you make enough money for the firm you will be promoted into a position of influence."
  • "Today, many of these leaders display a Goldman Sachs culture quotient of exactly zero percent. ...not one single minute is spent asking questions about how we can help clients. It's purely about how we can make the most possible money off of them."
  • "It makes me ill how callously people talk about ripping their clients off." I have seen five differnet managing directors refer to their own clients as "muppets."
  • "No humility? I mean, come on. Integrity? It is eroding. "
  • "It astounds me hoe little senior management gets a basic truth: If clients don't trust you, they will eventually stop doing business with you."
  • "You don't have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about "muppets", "ripping eyeballs out", and "getting paid" doesn't exactly turn into a model citizen."
  • "Goldman Sachs today has become too much about shortcuts and not enough about achievement. It just doesn't feel right to me anymore."
  • "I hope that this can be a wake-up call to the board of directors....weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again...."
I hope that this letter is a wake-up call for ALL boards of directors, particularly those in the financial industry.  We have got to get this culture right again. For our economy, for our children, and for our country.  

Sunday, January 1, 2012

US agencies want 1,000-plus contractors barred -

US agencies want 1,000-plus contractors barred -

The linked article from the Boston Globe reports that the Administration, under pressure from Congress to "weed out" government contractors for ethical violations, has proposed to ban almost as many contractors in 2011 as President George W. Bush did in his entire second term. During 2011, federal agencies have proposed suspending or debarring over 1,000 companies and individuals from contracting with the federal government. According to Stan Soloway, president of the Professional Services Council (a trade association representing hundreds of government contractors), "the use of suspensions and debarments is getting increasingly hostile."

Contractors can be proposed for debarment for a variety of reasons, including poor performance, ethical issues such as over billing or false claims, or even a violation of one of hundreds of regulations contained in the Federal Acquisition Regulations (FAR), the complex manual guiding the bidding, selection, and execution of federal contracts. Increasingly, the government has been using the debarment process as a way to address what they believe are deficiencies in the ethical culture of a company, even if only evidenced by a single minor FAR violation.

With this substantially increased risk environment for federal contractors, what can companies do to protect themselves? The answer is surpisingly simple. Companies need to do everything they can to shore up their ethical culture and demonstrate their ethical due diligence in advance of the inevitable contracting violation. I use the term "inevitable" because with the hundreds of complex regulations and requirements, mistakes WILL be made. When an erroneous claim is submitted; an employee does not accurately fill out his timecard on a time and materials contract; a competitor's bid information is mistakenly emailed to a competitor; or a supplier provides an item from a foreign country (in violation of the Buy America Act, the first thing the government will attempt to determine is whether the violation is an "aberration" or an isolated event by a "bad actor", or whether it is part of a pattern emerging from a weak ethical culture. To determine this, the government will look at the company's ethics program, including the authority, responsibility, and organizational placement of its Ethics and Compliance Officer; the adequacy of its code of conduct; the sufficiency of its ethics training; and the corporate leadership commitment and "tone at the top" when it comes to ethics.

Companies need to proactively ensure that their ethical house is in order BEFORE the crisis occurs. An independent external assessment by a business ethics professional knowledgeable of the government requirements is essential. If the government is already involved in a matter, companies can proactively suggest the use of an independent monitor as an alternative to more punitive actions (such as suspension or debarment) to assess the company's ethical culture, help them strengthen their ethics and compliance program, and monitor their progress for a period of time. All of these actions are designed to demonstrate that the company is a "responsible party" that can safeguard the taxpayer's interests WITHOUT the potentially business-ending suspension and debarment action that now seems to be the government's preferred method of dealing with corporate ethics issues.

Friday, November 11, 2011

COMMENTARY: Sorry, Joe, You Have to Go


I was happy to see Michael Josephson's commentary today, where he reconsidered his previous support of Penn State's Joe Paterno. Yes, Paterno is a legend, and built a reputation of honesty, integrity, and character by molding young football players into men for decades. However, when no one was looking, Paterno failed the ultimate test. When faced with the choice of doing the right thing or taking a "half-measure" that he knew posed the lowest risk to himself and his beloved football program, he chose the most convenient (and despicable) path. Paterno had to know that reporting a child molestation in the Penn State locker room to the Athletic Director would not result in full transparency, an investigation, police involvement, or justice for the molester. Rather, Paterno knew that the matter would be handled "quietly", if at all, protecting the reputation of the team (and the coaches). The NCAA has been struggling with the weak, often non-existent ethical cultures of college athletic departments for years. Violation after violation has revealed that the nation's colleges and universities don't want to "kill the golden calf" , the money machine generated by their football programs. Colleges and their athletic departments have frequently turned a blind eye to even the most egregious NCAA recruiting violations until a fed-up whistleblower goes to the press.

What this entire Penn State mess illustrates is that ignoring the ethical culture of an organization has consequences for everyone involved. Colleges and universities need to establish strong ethics and compliance programs, reporting directly to the Board of Trustees that oversee every aspect of university life. Yes, even the Athletic Department. If there had been an anonymous hotline; a meaningful, and enforced code of conduct that required reporting of violations; regular ethics training sessions as a reminder of the obligations of every employee, faculty member, and coach; and a tone at the top of each department, from the Chairman of the Board of Trustees, to the University President, to the Director of Athletics, perhaps the despicable behavior of this one man that destroyed the lives of these children could have been stopped sooner.

Paterno should have confronted his former Assistant coach, stopped this crime, and called the police. That's what a person of character would have done. Integrity is what you do and how you act when no one is watching. Paterno failed the test. Decades of football championships and college kids overturning cars in defense of their "Joe-Pa" won't change this basic fact. This is Paterno's new legacy. Perhaps it will serve as a teaching moment for colleges and universities throughout the country.

COMMENTARY: Sorry, Joe, You Have to Go

Friday, October 21, 2011

" Occupy Wall Street:" A Protest Against Fraud?

" Occupy Wall Street:" A Protest Against Fraud?

There has been much discussion about the reasons behind the growing movement originally labeled "Occupy Wall Street". Is this merely a situational reaction to the current economic crisis and its resulting high employment, or does it go much deeper into the ever widening class divisions in this country? The author of the attached article correctly presents another view: that the 'Occupy" movements, now spreading around the world might be motivated, in part, by the seemingly endless string of unethical corporate behavior that has contributed greatly to our economic problems. From the accounting scandals of Enron, Tyco, Worldcom, and Adelphia that happened almost a decade ago, to the stunningly bad decisions made by companies like AIG, Standard and Poors, Merill Lynch, Countrywide and others that led to our economic meltdown in 2008, the absence of ethical behavior in corporate America is finally stimulating a reaction across the country. While it is still unclear exactly what the movement is asking for, the common thread of terms used by hundreds of protestors interviewed involves words like "accountability", "transparency", "equity", "ethics", and "morality". Finally, it seems that Americans are viewing corporate ethics and compliance as more than some arcane requirement contained in the Federal Sentencing Guidelines. Hopefully, as the movement's leadership, goals, objectives, and strategies are better defined, the principles of corporate ethics, compliance, and accountability will emerge as concrete areas in which our government, and our society, can better focus its attention.

Wednesday, September 28, 2011

Mistakes Companies Make

Check out my article, "The Seven Biggest Mistakes Companies Make that Erode Ethical Culture and Destroy Reputation", published in the October 2011 Compliance and Ethics Professional, the journal of the Society of Corporate Compliance and Ethics (SCCE).