Corporate Scandal Watch

Conflicts of interest redux.

2012-03-07T07:24:00.000-08:00

Andrew Ross Sorkin wrote a great piece in yesterday's New York Times about the "heads I win, tails you lose" approach that Goldman Sachs seems to have used in the El Paso-Kinder Morgan deal (here).

Lots of people think that mere disclosure of conflicts will cure each and every one of them. Sure, disclosure will cure some, especially with sophisticated clients. But even with the most sophisticated clients, disclosure is a tough thing to get right. Disclose too little, in consideration of each client's confidential information, and the consent to the conflict isn't very "informed." Disclose too much, and the clients' confidential information goes out the window.

I'm going to guess that most of the time, the disclosure is too little, not too much. And that's not just right.

Why I should be on a public board that could use my expertise, part n.

2012-03-07T07:12:00.001-08:00

See Luke Johnson's opinion piece in the Financial Times (here). How difficult is it to fix boards that have become hotbeds of infighting?

Really, really difficult.

It's that old lightbulb joke:

How many psychiatrists does it take to change a lightbulb? One, but the bulb really has to want to change.

David Skeel on what's wrong with the mortgage settlement.

2012-02-21T07:16:00.000-08:00

In one of Prof. Skeel's typically astute op-eds, he explains what's wrong with the settlement proposed by the state attorneys general (here).

Best quote in an op-ed referencing Nozick.

2012-02-15T08:59:00.000-08:00

John Kay's piece in the Financial Times (here) includes this wonderful paragraph, which applies to corporate pay and the pay of estate professionals in bankruptcy cases:

And again, problems arise when people voluntarily hand over money that is not their own. John Kenneth Galbraith once described executive pay as a warm personal gesture by the beneficiary to himself. In today’s world of remuneration committees, it is more often a warm personal gesture by friends to each other.

Perfect.

A must-get book if you're interested in Ponzi schemes.

2012-02-14T13:43:00.000-08:00

Check out The Ponzi Book (here). This book is for professionals who find themselves in the middle of a Ponzi scheme and need to understand the overlap among state corporate law, other state law, bankruptcy law, criminal law, and jurisdiction (to name just a few). Here's the Table of Contents.

Were I to find myself in the middle of litigating a Ponzi scheme, this book would be the first one I'd open.

My Dad found this post for me.

2012-02-07T13:18:00.001-08:00

See here. Loved it.

Groupthink revisited (revisited again).

2012-02-07T07:10:00.000-08:00

A few weeks after I wrote this post (here), I came across this study (here) discussed in the Wall Street Journal. It gives some insight into why smart people might not speak up in small groups.

What happens when smart people don't speak up--or when people don't listen to them? See here.

Groupthink, revisited.

2012-01-14T08:16:00.000-08:00

It's always interesting when the New York Times and the Wall Street Journal intersect (usually, they're two different worlds). Today's WSJ story (here) suggests that rotating accounting firms will help in avoiding the too-close relationship that develops between the accounting firm and the client over time, and today's NYT article (here) suggests that the combined ideas of many aren't always better than the solitary ideas of a single smart person.

Reminds me of one of my favorite websites (here). In particular, check out this one and this one.

Why so few women directors?

2011-12-27T06:59:00.000-08:00

Today's WSJ discusses the paucity of women directors (here). There are good reasons and bad ones for appointing women to any board. I don't believe that women automatically have an inherently different point of view or that their mere presence on a board will change its dynamics. (Check out Enron's former board, which counted Wendy Gramm among its members, for example.) But I do believe that individual women may have individual characteristics that might help particular boards. Every organization has its own needs, and those needs will change from time to time. But when an organization is searching only for directors who have been directors elsewhere (regardless of performance), and when most directors historically have been male, guess what happens?

For why I might be a useful board member for certain types of organizations, see here.

Interesting article.

2011-12-22T18:08:00.000-08:00

Forwarded to me from my buddy Marc Stern (article here).

The economic crisis in a nutshell, courtesy of Dilbert.

2011-12-21T08:09:00.001-08:00

See here.

Not just one but two great op-eds.

2011-11-08T17:26:00.000-08:00

The first, from Nassim Taleb, in today's New York Times, points out that bonuses are not the best idea when it comes to bankers taking on too much risk (here); the second, from Joe Nocera, showed up in today's Las Vegas Sun but isn't on the Sun's web page. It is on the New York Times's webpage (here).

Both op-eds remind us that it's important to pay attention to the facts: study the behavior of people whose compensation isn't linked to the prudence of their decisions (Enron, anyone?) to see if bonuses make sense; pay attention to the the factors pushing people toward strategic defaults on their mortgages and try to think of sensible solutions (reductions of principal) as a way out of the mess.

What doesn't work? Ignoring the facts. For example, check out Andrew Ross Sorkin's column today on the continuing saga that is the H-P board (here).

Boards that don't pay attention to actual performance before awarding incentives? Check. Bonuses not linked to actual performance? Check. Reasons why underperforming boards need to consider different ways of finding good new board members? Oh, about a few trillion.

Foreclosure follies.

2011-11-02T10:33:00.000-07:00

See Joe Nocera's column (here) and Gretchen Morgenson's column (here). There's been conduct unbecoming on both sides of the "bad mortgage" issue. Let's see if we can start coming to some reasonable resolutions soon.

That "boom" you hear? It's MF Global Holdings going down, thanks in part to bad decisions concerning compensation.

2011-11-02T10:27:00.000-07:00

See Joe Nocera's column describing Corzine's compensation here.

Musings about the Gupta insider trading indictment.

2011-10-27T07:06:00.000-07:00

See here.

Live streaming today of USC's corporate governance conference.

2011-10-27T05:04:00.000-07:00

See here.

Good teachers inspire good students.

2011-10-27T04:49:00.001-07:00

Click here for a post on the Enron rap that one of Daniel Sokol's students wrote.

It's easy to get too cozy to clients.

2011-10-18T08:05:00.000-07:00

See Floyd Norris's report in today's New York Times (here). Seems as though some Deloitte folks were taking the word of the execs of the companies they were auditing, rather than doing some digging on their own. So much for learning from Enron (see yesterday's Wall Street Journal report on Enron 10 years later, here).

Why don't we learn from our mistakes? Well, I have some theories. I think that we combine a failure to pay attention to history with some common cognitive mistakes that even the smartest among us make, and we get the same-old, same-old.

Stop me if you've heard these phrases:

"I know these guys. They wouldn't lie."

"If there were really a problem, someone would have told us by now."
"I am not getting too close to my clients."
"Everybody does it."

So I'm not particularly surprised by this Deloitte issue, or by Andrew Ross Sorkin's report on what may be massive overvaluing of Groupon by Goldman Sachs.

It's enough to make one an avowed pessimist.

Shameless self-promotion over at my other blog.

2011-10-11T14:28:00.000-07:00

See here.

Joe Nocera on the economy.

2011-10-11T06:55:00.000-07:00

Joe Nocera has another right-on-point op-ed in today's New York Times (here).

A few thoughts on the composition of boards.

2011-10-10T13:47:00.000-07:00

Last week, I read about Chelsea Clinton's appointment to a corporate board (here). (I have to admit that I felt seriously jealous of Ms. Clinton after I read this. The good news about her appointment is that she's exceptionally smart and well-connected. But she's also ... 31 years old. These days, 31-year-olds feel like kids to me.)

This morning, I read Lucy Kellaway's column on how important it is to have someone on a board who's unafraid to speak up (here).

Let's combine the two stories. I've never met Chelsea Clinton, but I have a feeling that she's tough enough to be able to speak up if she sees something hinky happening. I hope so. It's important to have people who can fight groupthink in organizations, and boards are especially susceptible to groupthink.

For more of my thoughts on why boards (and other organizations) need naysayers to slow them down, see this PowerPoint I did (here).

The rest of us are obviously in the wrong business.

2011-09-30T11:54:00.000-07:00

The business of getting fired may, occasionally, be more lucrative than I had thought. See here and here.

Update: AND here.

Want a healthy company? Reward failure.

2011-09-27T07:11:00.000-07:00

See here, from today's Wall Street Journal. Organizations that give people room to mess up and (this is the important part) learn from their mistakes will do better than ones with incentives that encourage either (1) hiding mistakes or (2) avoiding risk.

I have always learned more from mistakes than from successes. My dad's a chemist, and he always cautioned me to question results that agreed with my hypotheses. We don't tend to examine our successes. We should, but we don't, because we like the results. But we should also examine our failures to figure out (if we can) what happened.

And it's not just giving people room to mess up that matters. It's rewarding those mistakes publicly because the people who made them were trying to do something good and have learned something from the effort.

OK, it's not a scandal (yet).

2011-09-26T18:51:00.000-07:00

My buddy David Smith, who does really interesting research over at the University of Virginia (see here), pointed me to this article about Nevada's corporate climate, especially the shell-friendly regulations (here). And I quote:

At the same time, Nevada is attracting an outsize number of companies with shaky financial reporting, according to a study published in March by Michal Barzuza and David C. Smith of the University of Virginia.

Want to read that research? Click here.

Dear HP Board: Perhaps you need some new blood?

2011-09-22T07:02:00.000-07:00

See here and here. Doing the same thing over and over and expecting different results hasn't worked so well for you, has it? Perhaps you should consider using someone who studies why smart people do dumb things.

Character matters.

2011-09-21T06:25:00.000-07:00

For those of us who love "the pinks" (Financial Times subscribers), this morning brought a lovely piece about how character isn't innate--it's earned. Luke Johnson wrote A Crisis Is the Only Way to Test Your Value (here).

He's right, for several reasons. First, it's easy to behave well when everything's going right. That's no test of character. Second, experience shapes character. Character is a series of decisions over someone's lifetime, not a static quality. And third, someone's reaction to an event will be affected both by his own experiences and the group he's in. We're affected by social pressure more than we realize, so being alert to that social pressure matters.

Leaders need to understand that it's not "who they are" that matters as much as how they behave, especially when things aren't going well for them.

UBS and the wrong checks and balances.

2011-09-19T14:16:00.000-07:00

Kim Krawiec has a great post over at The Faculty Lounge (see here) about the UBS rogue trading scandal and the patterns of behavior that make such high-stakes exposure possible.

"Too good to be true" never is.

2011-09-17T11:23:00.000-07:00

In yesterday's Wall Street Journal, Michael Rothfeld reported (here) that Société Générale may have ignored a red flag on Allen Stanford's account. He writes:

At issue is a Swiss bank account held by one of Mr. Stanford's companies at SG Private Banking (Suisse) SA, a Société Générale subsidiary, that was allegedly funded with investors' money and used to make payments into Mr. Stanford's personal accounts and for bribes to his Antiguan auditor. Prosecutors in the criminal probe are examining whether Société Générale failed to follow due diligence procedures or to ask questions about irregular banking activity, the people familiar with the matter said.

I've been working on a mini-essay for an upcoming conference on the intersection of white collar crime and bankruptcy law (see here), and this whole issue of why smart people can ignore red flags fascinates me. I'll be following this story. More on the conference as we get closer to the event.

Corporate Scandal Watch

Conflicts of interest redux.

Why I should be on a public board that could use my expertise, part n.

David Skeel on what's wrong with the mortgage settlement.

Best quote in an op-ed referencing Nozick.

A must-get book if you're interested in Ponzi schemes.

My Dad found this post for me.

Groupthink revisited (revisited again).

Groupthink, revisited.

Why so few women directors?

Interesting article.

The economic crisis in a nutshell, courtesy of Dilbert.

Not just one but two great op-eds.

Foreclosure follies.

That "boom" you hear? It's MF Global Holdings going down, thanks in part to bad decisions concerning compensation.

Musings about the Gupta insider trading indictment.

Live streaming today of USC's corporate governance conference.

Good teachers inspire good students.

It's easy to get too cozy to clients.

Shameless self-promotion over at my other blog.

Joe Nocera on the economy.

A few thoughts on the composition of boards.

The rest of us are obviously in the wrong business.

Want a healthy company? Reward failure.

OK, it's not a scandal (yet).

More on the HP board's latest decisions.

Dear HP Board: Perhaps you need some new blood?

Character matters.

UBS and the wrong checks and balances.

"Too good to be true" never is.