Category Archives: Communicate

Altered metrics

If someone asks you to “alter” or “fudge” a financial metric reported to the market, take pause.  Or hit the big red button.

“Witness: Magnate Knew of Altered Metric,” The Wall Street Journal, June 28, 2017 B9. The chairman of a large company allegedly knew that one of the financial metrics the company reported to the market for the previous quarter was improperly inflated.  Or fudged, as they say in the trade.  By $12 million.

The former chief accounting officer took a plea to fraud (and admitted to lying on other matters) and is cooperating with the government; the former CFO is charged with criminal fraud and is at trial.  The company is “cooperating.”  The chairman hasn’t been charged.  Yet.

Why isn’t the company charged?  At least one of its agents appears to have committed a fraud.  Why isn’t the chairman charged, if he knew?  Is this consistent with the Yates memo?  Is there a civil (derivative) suit against the chairman?

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Texas Administrators

Soon to be signed into law is a bill holding school administrators, superintendents, and principals criminally liable for failing to report teachers who commit “inappropriate acts” with students.  The offending teachers are already potentially liable.

“Texas Measure Targets Improper Teachers, The Wall Street Journal, May 22, 2017 A3.

Surprising it wasn’t the law already.  Mr. Bumble was right:  the law is a ass.

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Wealth Mismanagement

Yes, the Oscars ceremony had its information mix-up, when Warren Beatty was given the wrong envelope.  But who was (and “was” is probably the operative word) in charge of calculating and communicating the cost basis for stock?

“Morgan Stanley Gave Clients Wrong Data,” The Wall Street Journal, February 28, 2017 B9.  Firm miscalculated the cost basis, and therefore the gain, on sales of stocks by the firm’s wealth-management clients for 5 years.  Anticipated cost: $70 million.

How do you ensure that the right information is getting to the right place (person) at the right time?  What controls do you have in place?  Are those controls people, process, or technology?  While it took PWC a few minutes to correct the error at the Oscars, it took Morgan Stanley five years.  Who had the better process?

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You manage what you measure

If you are serious about imposing a requirement, measure compliance with that requirement and publish the data.

“OPEC Data Show Compliance With Production Cuts,” The Wall Street Journal, February 14, 2017 B9. OPEC confirms 90% of its members are complying with agreement to curtail output.

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Legerdemain

What happens when you have a duty to disclose information to your shareholders and you try to hide that disclosure?

“Fox Faces Probe In Ailes Settlements,” The Wall Street Journal, February 16, 2017 B3.  Company incurs at least $35 million to deal with sexual harassment claims involving the former CEO.  But maybe they didn’t tell their shareholders enough information about these payments.

If this is happening on a big issue, what does it say about the reliability of internal reporting on other issues?  Is legerdemain acceptable corporate behavior?

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Culture

I normally avoid picking from The Wall Street Journal‘s editorial pages, as opinion is not the level of fact within the purview of this blog.  But today provides an exception.

“So You Want to Be a Diplomat? CEO’s Need Not Apply,” The Wall Street Journal, December 13, 2016 A17.  Discussing the nomination of Rex Tillerson, the writer says:

Knowing Exxon Mobil’s highly legalistic corporate culture — according to the office grapevine [sic] infractions such as talking during a fire drill or inviting a government official to a meal that cost more than the federal gift threshold were fireable offenses [emphasis added]– I expect that Mr.Tillerson would raise the bar for ethical standards in the Trump administration.

I suspect this approach would raise the bar in just about every organization.

Does this highlight a problem with other organizations, that allow employees to violate corporate policies and procedures with impunity?  Do you have to sweat the small stuff to get the big stuff right?

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Exchanging information about chickens

The exchange of price-related information between horizontally aligned competitors is often a no-no in the US.

“U.S. Poultry Producers Face Scrutiny,” The Wall Street Journal, December 12, 2016 B2.  The Georgia Department of Agriculture compiles a price index based on input from chicken sellers, but not chicken buyers.  This index is then used in establishing the prices paid by some buyers.

Is the government facilitating price fixing?  For the chicken sellers, is it risky to share price information with anybody other than the buyer?  Is this exchange contrary to company policy?  Did the lawyers approve?

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Due diligence in M&A

“H-P Deal Leads to Indictment,” The Wall Street Journal, November 12, 2016 B4.  Autonomy’s former CFO indicted for fraud in the sale of the company to Hewlitt-Packard.

This was fairly bog-standard alleged fraud, albeit on a much grander scale (nearly $9 billion).  Follows a $100 million payment by H-P to some of its shareholders.

Is this a value-of-information case or a value-of-compliance case (for Autonomy)?  Or just poor due diligence by H-P?  How did Autonomy’s board miss this?  How did H-P (and it’s lawyers and investment advisers) miss this, pre-acquisition?  Might this be worthy of another post- Caremark decision on negligent oversight?  If not, what will it take to hold a board liable for failing to meet its fiduciary duties?

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Separating fact from opinion

The polls leading up to the election were wrong.  What do you do it you can’t or don’t get accurate information?

“Media Face Backlash for Getting It Wrong,” The Wall Street Journal, November 10, 2016 B1.  Media acknowledges “oversights” in run-up to Trump’s election victory.

Does this reduce the value (or cost) of future election polls?  Why did so many polls get it so wrong, and so consistently?  Is there a fundamental disconnect?  Was there some other bias in the polling methods or analysis?

What is an exit poll worth today, versus last week?  What can the polls that did get it right charge the next time?  Should future polls have much larger margins of error?

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Does information governance include “crisis management”?

If “information governance” is how you go about managing the receipt, creation, use, storage, transfer, transmission, and disposal of all non-public information received or created in the course of a company’s business, then by definition the term touches upon how your company handles information in a crisis.

“Wells Fargo’s Botched Crisis Management,” The Wall Street Journal, October 14, 2016 A1.  Company and its senior management were excoriated for how they handled the account-shoving scandal.  Sure, over the years (3) they fired 5,300 employees, but the board didn’t know how many employees were fired until the outside regulators reported it.

How did senior management learn of the problem?  What did they do and when did they do it? How did they manage their receipt of that information?  How did they handle communications with the board, inside the bank, and the regulators?  And the press? Not well, one might surmise.  What impact on their brand?

I am not suggesting that the person (vel non) who “owns” information governance also “owns” crisis management, but certainly a poor crisis management response is one of the risks of poor information governance.  The consequences can be huge.  Did the board effectively oversee the operations?

 

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