Executive Times

Volume 4, Issue 6

June, 2002

ã 2002 Hopkins and Company, LLC

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Lie, Reply, Comply, Testify

Think back over the past month and recall the following: what you said on every phone call; what you said to every person you met personally; what you conveyed in every e-mail message you wrote; what you said or agreed to in every letter or form that went out under your name or signature. When presented to a jury during a trial, will the record speak for itself? How will you and your organization be perceived? Were all the messages consistent, and did they represent the whole truth and nothing but the truth? Did your actions comply with all the policies of your organization? Every issue of Executive Times calls attention to executives and companies in the news, offers reflections, and encourages readers to consider what you might have done differently if you faced the same situation as another individual. Over the past few weeks, many of the stories in the media that have caught our attention involve the struggle of individuals to do what they thought was right. Sometimes what they did complied with policy, sometimes not. One pattern that should cause concern for most executives involves the lack of attention to policy compliance. Here’s a scenario: policies are created and communicated; employees ignore the policies; managers don’t enforce the policies; compliance checkers get little respect and no attention; executives are shocked that policies aren’t being followed. Financial settlements and/or stock price declines follow. As you read about selected individuals and organizations in the news, think about what you might have done the same or differently from the executives we examine.

Readers who’ve been awaiting our first five-star rating for 2002 may want to jump ahead to page 5 where you will be pleased to note our top score for Daniel Goleman’s new book Primal Leadership. A total of fifteen books are rated in this issue. Page 6 presents four-star ratings for what may be Carol Shield’s last novel, Unless, and also for a fascinating presentation of early American history in James Simon’s new book, What Kind of Nation?

Accumulate what?
Most of our e-mail messages are clear and straightforward. These messages disclose what we think and how we feel about something, often in blunt terms. When New York State Attorney General Elliot Spitzer got his hands on copies of e-mail messages from former Merrill Lynch Internet analyst Henry Blodget, he found all he needed to take action against the company. At the same time the company rated stocks buy, hold, accumulate, or “Favored 15,” Blodget sent private e-mails inside and outside his company that told another story. On Infospace, a Favored 15 recommendation at the time, Blodget, who was paid $12 million in 2001 and accepted a voluntary separation package from the company at the end of 2001, said to another analyst, “can we please reset this stupid price target and rip this piece of junk off whatever list it's on.” When an investor asked for more information about GOTO, here’s the exchange of e-mail: “‘What's so interesting about GOTO except banking fees????’ Blodget's response: ‘nothin.’” A law firm called attention to Merrill’s buy rating on 24/7 Real Media at the same time Blodget described the stock internally as “a piece of shi(-).” Over the past few days, all the media have reported on the $100 million fine that Merrill Lynch agreed to pay a part of their settlement with Spitzer (See http://www.oag.state.ny.us/press/2002/may/may21a_02.html.) That’s on top of the $10 billion decline in market capitalization since the conflict of interest issue arose, and before the spate of individual lawsuits begins. Here’s what Merrill CEO David Komansky had to say (ML press statement at http://www.ml.com/about/press_release/05212002-1_ag_agreement_pr.htm): “Merrill Lynch would like to take this opportunity, as part of the agreement reached with New York State Attorney General Eliot Spitzer and other states, to publicly apologize to our clients, shareholders and employees for the inappropriate communications brought to light by the New York State Attorney General's investigation. We sincerely regret that there were instances in which certain of our Internet sector research analysts expressed views that at certain points may have appeared inconsistent with Merrill Lynch's published recommendations.
We view this situation as a very serious matter and have informed our research department personnel that such communications, some of which violated internal policies, failed to meet the high standards that are our tradition and will not be tolerated.
As a result we have taken steps to guard against such instances in the future. In addition, we are taking steps to reinforce the firewalls that separate our research department from investment banking. The agreement we have reached with the State Attorney General is designed to accomplish these objectives.
Through the adoption of new policies, intensified oversight, and strengthened enforcement of existing ones, we pledge to provide investors with research that sets a new industry standard for independence.”

Do you have any idea about your organization’s exposure to “inappropriate communications?” Do any of your star employees shoot from the hip rather than comply with policy? Are your policies on the use and deletion of e-mail followed? Blodget was considered a successful and talented analyst. When he finishes writing a book for Random House, would you hire him, now that another company has paid for an expensive lesson that he’s likely to have learned?

Climate of Fear

An unusually loud whistle started to blow from Minneapolis as we published this issue. Minneapolis FBI agent and attorney Colleen Rowley sent a thirteen-page letter to FBI director Robert Mueller with copies to members of the joint Congressional committee investigating the 9/11 attacks. Time acquired a copy of the letter and you can read this edited version at http://www.time.com/time/nation/article/0,8599,249997,00.html. Rowley claims that the FBI headquarters failed to take the Minneapolis office agents’ seriously; supervisors modified forms to prevent action; bureaucrats failed to inform the Minneapolis office about the Phoenix office’s concerns about flight training; and Director Mueller and others have been making false statements. That’s a mouthful from the usually tight-lipped FBI. Here’s one excerpt: “in most cases avoidance of all ‘unnecessary’ actions/decisions by FBIHQ managers … has, in recent years, been seen as the safest FBI career course. Numerous high-ranking FBI officials who have made decisions or have taken actions which, in hindsight, turned out to be mistaken or just turned out badly … have seen their careers plummet and end. This has in turn resulted in a climate of fear which has chilled aggressive FBI law enforcement action/decisions.” We’ll hear more about this letter in coming days and weeks.

How frustrated would you have to be to write a 13-page letter as a reply to what you consider wrongdoing? If you’ve thrown a roadblock in front of an employee, what reaction do you expect to receive? How do you resolve internal differences about decisions? Does your workplace have a climate of fear?

Look the Other Way

A page one feature in The Wall Street Journal (May 23, 2002 http://online.wsj.com/article/0,,SB1022105177291276520.djm,00.html) used the examples of several brokerage firms to illustrate how complacent companies can be about their compliance operations. Here’s a partial list of ways to make your organization vulnerable to fraud: let top producers avoid following the rules; let branch compliance staff be supervised by production management; ignore red flags like the use of post office boxes for customer statements; pay compliance staff as little as possible and ensure their status is at the bottom of the organization’s hierarchy; allow compliance to be referred to as the “business prevention department”; let employees use their own computers for corporate work; avoid or make errors in doing employee or third-party background checks. Given how fraudulent actions have impacted other companies, your organization’s motto might have to become “comply or die.”

How important is compliance within your organization? How does importance get reinforced? What do the primadonnas in your organization get away with? If one of them is a criminal, what’s the potential impact on your organization?

“Hotel Cram It Down Ya”
We interrupt our pause in commenting on the Enron/Andersen stories to call to your attention the testimony by Andersen partner James A. Hecker which we found in Crain’s (May 9, 2002 http://www.chicagobusiness.com/cgi-bin/news.pl?id=5357). Federal prosecutors called on Hecker to present his 1995 parody of the song “Hotel California,” which he applied to Enron and called “Hotel Ken Lay-a.” Here’s our favorite part:
“Her mind was Black and Scholes-twisted, though her margins are thin
She's got a lot of pretty, pretty spread that she takes in.
How we work in the bullpen, no budget sweat
Big hours on the summary, but nothing much net.

So I called up the partner, I said, "Please book this entry."
He said, "We haven't had a debit here since 1993."
And still the gurus are calling from far away
Worry wart in the middle of the night, just to hear them say.

Welcome to the HOTEL MARK TO MARKET
Such a lovely place, such a fragile place.
They're livin' it up at the HOTEL CRAM IT DOWN YA,
When the suits arrive, bring your alibis.”
Hecker testified that this was just a joke, and unlike many parodies, was not based on truth. He had some time on his hands, and wrote this for fun. We bet he wishes he had been busier in 1995.

Creative and artistic employees in your organization may have the courage to use their talents to send messages to management. Can you hear what they are trying to tell you? If you are one of those artists, is there something you wrote as a joke five or more years ago that might be misunderstood today? Have you ever made fun of a customer or client? How would you like to launch your parody song career in a courtroom?

Follow-up

Here are selected updates on stories covered in prior issues of Executive Times:

Ø In the January 2002 issue of Executive Times, we asked readers to take a second look at your resume to be sure nothing written there or in a corporate fact sheet stretched the truth about you and your past. The advice may have come too late for United States Olympic Committee President Sandy Baldwin. USOC CEO Lloyd Ward accepted her resignation (http://www.usocpressbox.org/usoc/pressbox.nsf/) when news came out in late May that her resume contained significant untruths.

Ø If Lloyd Ward’s name rang a bell for you, it could be that you read about his troubled tenure as Maytag CEO on the pages of Executive Times. (See October 1999 and December 2000 issues). Business Week reported (May 17, 2002 http://www.businessweek.com/bwdaily/dnflash/may2002/nf20020517_9424.htm) that his successor at Maytag, Ralph Hake, has made significant progress in improving the company’s results, especially by reversing Ward’s missteps.

Ø In the July 2000 issue of Executive Times, we led with a story about seven large international banks that banded together to offer clients a single electronic interface for financial exchange trading called Fxall.com. We made it sound like a good idea, and asked readers to think about whether your organization would be likely to be one of the seven banks who allied with one another, or one of the three large banks that remained on the sidelines, and why. We read in a page one story in The Wall Street Journal on May 15, 2002 (http://online.wsj.com/article/0,,SB1021421905951110240.djm,00.html) that “The Justice Department is investigating a group of the world's largest banks for allegedly using their online trading service to restrict competition in the foreign-currency market.” Maybe this venture will turn out to be not so good an idea after all.

Legacy

Evolutionary Elegance

Readers and non-scientists lost a treasure in mid-May when Harvard paleontologist Stephen Jay Gould died at age 60. His prolific writings on evolution and biology made those subjects accessible to a wide audience. Many of us looked forward to reading his monthly column in Natural History, which he wrote for 300 consecutive issues. Some of us could even overlook his love for the New York Yankees, the passion of which came across on more of his pages that you’d think likely. Gould’s 1972 theory of punctuated equilibrium remains controversial among biologists trying to figure out how organisms change and grow. Students flocked to his Harvard classrooms where he usually lectured enthusiastically and without notes. In one book, he wrote, “Science is not a heartless pursuit of objective information. It is a creative human activity, its geniuses acting more as artists than as information processors.” Gould was one of those artists. His death came a few weeks after the publication of a comprehensive book he’d worked on for the past twenty years, The Structure of Evolutionary Theory. We confess that we took a pass on reading it when we saw that it came in at 1300+ pages. Whether his theories become widely accepted or not, Gould’s success in explaining them and presenting them to a wide audience will be remembered. Each of us can learn from Gould the ways to explain what we know to others in words that they can understand.

Latest Books Read and Reviewed:

(Note: readers of the web version of Executive Times can click on the book covers to order copies directly from amazon.com. When you order through these links, Hopkins & Company receives a small payment from amazon.com. Click on the title to read the review or visit our 2002 bookshelf at http://www.hopkinsandcompany.com/bookshelf.html).

Title (Link to Review)	Author	Rating	Review Summary	Purchase
See No Evil: The True Story of a Ground Soldier in the CIA’s War on Terrorism	Baer, Robert	•••	Disgruntled CIA agent’s story of his work life and how the CIA and White House devalues field and foreign sources, weakening the ability of the U.S. to know what’s going on around the world.
The Power of Six Sigma: An Inspiring Tale of How Six Sigma Is Transforming the Way We Work	Chowdhury, Subir	••	Primer suitable for any employee that explains the buzzwords of Six Sigma and presents an easy-to-read story that explains Six Sigma clearly.
Slack: Getting Past Burnout, Busywork and the Myth of Total Efficiency	DeMarco, Tom	•••	Diatribe against those who overdo efficiency and proposal for understanding the value of slack.
Martin Luther King, Jr.	Frady, Marshall	•••	200-page, well-written biography covers King in both “the transcendently spiritual and the convulsing carnal.”
Primal Leadership: Realizing the Power of Emotional Intelligence	Goleman, Daniel	•••••	Outstanding presentation of the effective use of leadership styles. Strong case for why organizations need resonant leaders, and practical, usable information to help one become a better leader.
Make Your Own Luck: Success Tactics You Won’t Learn in Business School	Kash, Peter Morgan	••	Motivational stories from Kash’s life and others. Interesting and upbeat. Good section on values.
Small Wonder	Kingsolver, Barbara	•••	23 essays begin to provide an artist’s response to 9/11. Author at her best in displaying her passion for natural history and biology.
The Sweetest Dream	Lessing, Doris	•••	Members of an extended family along with waifs and strays come and go from a London house where they find or give refuge. Great writing.
The Nanny Diaries	McLaughlin, Emma and Nicola Kraus	•••	A Park Avenue nanny tells all about the ways she was exploited and a four-year old neglected by the self-centered Mr. and Mrs. X. Sometimes funny, often sad, perspective.
Wish You Were Here	O’Nan, Stewart	•••	Join a sad extended family on their last seven days at the newly sold family vacation home on Chautauqua Lake.
2^nd Chance	Patterson, James with Andrew Gross	••	Predictable, junk-food mystery: short chapters; fast moving, predictable action; interesting plot. Clumsy use of female first-person narrator and weak character development.
The Pretender	Pollock, Ellen Joan	•••	Fast-paced true story of how Marty Frankel executed financial fraud around the world. A real page-turner, stranger than fiction.
President Nixon: Alone in the White House	Reeves, Richard	•••	Consistent and repeated images of Nixon working on his own from 1969 through 1973. Adds to understanding the enigmatic Richard Nixon.
Unless	Shields, Carol	••••	Poignant novel of a woman’s struggle with loss. Extraordinary writing about ordinary life from author dying of breast cancer.
What Kind of Nation: Thomas Jefferson, John Marshall and the Epic Struggle to Create a United States	Simon, James F.	••••	Fascinating and interesting book that transports readers to the crises early in U.S. history, especially Jefferson’s push for the supremacy of state’s rights, and Marshall’s position on strong central government and an independent judiciary.

ã 2002 Hopkins and Company, LLC. Executive Times is published monthly by Hopkins and Company, LLC at the company’s office at 723 North Kenilworth Avenue, Oak Park, Illinois 60302. Subscription rate for first class mail delivery of the print version is $60.00 per year (12 issues). Web version subscriptions are $30.00 per year. Single issues: $10.00 print; $5.00 web. To subscribe, sign up at www.hopkinsandcompany.com/subscribe.html, send an e-mail to executivetimes@hopkinsandcompany.com, call (708) 466-4650, or fax to (708) 386-8687. For permission to photocopy or e-mail Executive Times, call (708) 466-4650 or e-mail to reprints@hopkinsandcompany.com. We will send sample copies if requested. The company’s website at http://www.hopkinsandcompany.com/archives.html contains the archives of back issues beginning in the month after the issue date.

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