So, What Else Is New?

What starts out as a straight forward ethical issue can sometimes turn quickly into a legal problem. Saturday (04.21.12) the New York Times laid out in detail (nearly 7,600 words and a baker’s dozen photos) the slide down the proverbial slippery slope that Walmart has taken over the last decade in Mexico. And maybe in other nations as well.

One in every five Walmart stores is in Mexico. The company is very popular south of the border and very profitable. Under the leadership of Eduardo Castro-Wright Walmart exploded in Mexico, opening new stores by the hundreds. This dazzling pace left their competitors in the dust. According to the Times account growth fueled by millions in bribes to local officials. Building permits, zoning and environmental issues, all the bureaucratic paperwork that normally takes weeks and months to clear, melted away in days. 

Castro-Wright was hailed for his success, promoted into a senior position in the United States and rumored to be a candidate for the top post at Walmart. There is, however, strong evidence that Castro-Wright encouraged the use of bribery to achieve the spectacular growth of Walmart de Mexico. So how could this happen without the knowledge of folks at headquarters? It couldn’t, it didn’t, they knew; in fact it appears it was decided at the highest levels to sweep it under the rug. 

When evidence surfaces that some individual or organization has strayed from the straight and narrow, invariably the number one response is, “everybody does it.” While that’s not what Walmart is saying now, it seems to have played a major role in overlooking the use of bribes in Mexico. 

Walmart headquarters’ rationale followed the “that’s just the way they do business down there” line of thinking. The most disturbing aspect of this mess is that it seems to have permeated every level at Walmart. That makes it part of the company culture. 

While Walmart has made positive moves on many fronts, it seems every time something big like this scenario rises, they fall short. That’s culture. The Times report isolates one of the moments in this scenario when Walmart lost their way big time. Their internal investigation had exposed the bribery in Mexico. Instead of putting an end to the misconduct and firing those responsible, they turned on their own investigators, “accusing them of being overbearing, disruptive and naïve about the moral ambiguities of doing business abroad,” AKA, everybody does it.

There is nothing morally or ethically ambiguous about what went on in this case. If their code of ethics amounts to anything more than words on paper, the first mention of a bribe should have been rejected out of hand. It seems inconceivable –given the jobs and taxes that a Walmart store offers a community– that bribes would have to be paid to local officials to get them built. So once again the culture doesn’t live up to the words in the Walmart Code of Ethics; surprise, surprise, surprise.

“It’s Official, Even the Banks Say They Messed Up” 

A Wall Street Reputation Study* commissioned by New York communications firm, Makovsky + Company unearthed some not too surprising outcomes, from a very surprising source. The study targeted communications and marketing types at mid-sized to large publicly traded and private financial organizations: banks, brokerages, insurance companies, etc.

They see the viewpoint held by the public that their behavior tossed America and the world into economic chaos as “The” biggest challenge they face. Almost all of those surveyed (96%) believe they brought it on themselves. Eight of ten see bonus swollen “C” Suite compensation packages as a major issue for the financial sector. Big surprise: three out of four believe that “increased regulation will help their firms improve reputations and trust with customers faster.” 

Now that’s not big news to anyone who has looked at the roll deregulation played in allowing the greed driven, crazy speculation fueled trip that took most of the world down the drain, but to hear it from the greed sector, WOW! We can imagine how that went over on “K” Street where the financial types have been pouring bucks by the tens of millions into the politicians’ pockets fighting even modest regulations.

It gets even more interesting; more than half admitted the “Occupy” movement had a “real impact on their business.” Four out of ten said they were surprised by “Occupy,” but only three out of ten think it’s over. Seven of ten say it will carry on at least through the November elections. Given the reaction of the Wall Street types who were pictured literally looking down their noses while enjoying pricy luncheons as the protesters marched outside their watering holes, this is a real surprise. Our guess is that those distaining the riff-raff were not the folks from communications, who likely saw the storm clouds gathering. That’s reflected in the 73% who said, “Their marketing/communications departments grew in importance over the past year.” Let’s hope their influence upstairs grew as well.

"With the six-month anniversary of the movement sparking a resurgence, the consensus is that Occupy Wall Street is not going away anytime soon, and financial services executives need to be better prepared to address this issue moving forward," Scott Tangney, executive vice president and head of the Financial Services practice at Makovsky, said in a news release. Time will tell if the warnings expressed by this study and clearly elucidated by Tangney sink in up in carpetland. 

When asked to take a look in the mirror and grade the industry, communications pros surveyed gave themselves pretty low grades, 57% graded "average," "below average" or "failing.” But then there were those with their heads in the sand, the 9% who gave themselves a “perfect” grade. This could be a watershed moment. Will the financial quarter embrace reform, or seek a return to the dark side? 

*Echo Research, February 22 through March 1, 2012

© 2012 GLG

Surprise, Surprise 

The Same Great Winners

A nationwide research study by Satmetrix, a West Coast provider of customer experience software, reinforces the ethical business model’s value. By and large it’s no surprise that companies boasting a long history of ethical standards top the Satmetrix Benchmark study. Wegmans, Costco, Apple, Jet Blue, American Express, Virgin America, Amazon, Lowes, Google, all the usual suspects top this  study and when it comes to doing the right thing by all their stakeholders. And guess what? They are leaders when you check their bottom line.

Satmetrix measured the attitudes of 30,000 consumers and used the results to rank 200 brands in 22 industries to create its Net Promoter Scores (NPS®) for each company. People were asked to score the companies they do business with on a zero-to-ten point scale. NPS® scores are based on a customer’s willingness to recommend their company. The percentage of those giving a company a 9 or 10, minus the percentage of those rating them 6 or lower, produces the company’s NPS® score.

Surprisingly, the highest score -an 83% NPS®- was in the banking sector, USAA, an organization that offers a wide range of financial services and insurance to its members - active duty and military veterans. When you look at the broad picture banking had more detractors than supporters. Seven large banks were in negative territory with Wachovia leading the charge to the bottom with a minus 15% NPS® score. Among major credit cards American Express was on top with a 43% NPS®. 

Amazon’s 76% NPS® was a close second to USAA’s overall lead, followed not too far behind by ethically oriented Wegmans and Costco at 73% & 71% respectively. These two perennial poster children for maintaining a healthy bottom line while covering all the ethical bases, manage it in spite of the large number of entry level jobs in their operations. Wegmans also has managed to stay on the Fortune 100 Best Places to Work list ever since it was created. They have been in the top five for eight years running and were ranked number one in 2005. That’s amazing when you consider the benefits and salary levels of companies like Google that they go head-to-head with year after year for the Fortune workplace honor roll.

Costco was on top of the retail pile again this year with a NPS® 71%, Nordstrom and Belk had a very respectable 66%. Once proud and respected Sears is at the bottom of that list with less than half the Costco score, a 35% NPS®. Is it any wonder? Reminiscent of a famous Roman fiddle player, Sears Chairman Edward Lampert is reportedly laying out $40 million for an estate just north of Miami; it’s said to be a record price for a single-family home in Dade County. All this while he is gutting the iconic retailer, selling off and closing Sears stores. Adding a let-them-eat-cake touch, the ethically challenged Lampert’s new digs features a series of “Versailles-Style Reflecting Pools” that will enable them to reflect on all the little folks they crushed so they could enjoy this idyllic setting.

That Greasy Sleazy Feeling

 

As we pull out of the gas station these days, in addition to the empty spot in our wallets there’s a scent of sleaze in the air. It’s not our friendly gas station dude, he’s just trying to get by like a lot of us; it’s more complicated than that. The more we drill down, we discover that it has little to do with the price of oil. But isn’t oil scarce, aren’t we importing more than ever before? No, actually we are producing about 80% of our needs. All that new drilling that fired up over the last few years combined with reductions in usage, has narrowed that gap. Don’t say anything out loud, but America is even exporting oil. What’s the problem then?

There are many factors from the seasonal bump we see this time every year, to the capacity of our refineries, to unrest in the Middle East. While the latter does not seem to be a real factor given how little we need from those folks, there is no doubt that it is a factor. Not in the way you might think, however. No less an authority than Goldman Sachs has found a culprit that adds at least $.56 to the price of every gallon of gasoline. It’s the casino called Wall Street.

The commodities market was designed to stabilize the price of grain, cattle, pork and other things including oil. The idea is to assure the producer’s pricing when the fruits of their labor hits the market. But of course it turns out that you don’t have to be a buyer or seller of these commodities to get into the game. You just have to have the bucks and the free pass that the Congress gave Wall Street, immunity from gambling laws. Add something like instability in the Middle East and give their roulette wheel a spin; we always lose.

Now the commodities market is flooded with all kinds of financial instruments, things like “swaps,” the fun stuff that helped toss the world economy into the dumpster. Speculating on commodities has always been around but until recently the end users and producers controlled over two-thirds of the contracts. Today that number has flipped and two-thirds are in the hands of speculators. Not the players in the oil market that have traditionally dominated this game. Today a frighteningly small number of Wall Street types hold the price of oil in their hands; playing with what we pay at the pump.

You can figure that seven to eight bucks is pocketed by the Wall Street types every time you fill up, ten bucks or more if you drive a bigger vehicle. The average price for a gallon would be a little over three bucks without Wall Street’s “take.” Given the rare peek we got into the wonderful world of Wall Street when one of its own, Greg Smith, laid out his reasons for leaving Goldman Sachs in an OP-ED, you can imagine the nicknames the Wall Street types pin on us. While most businesses, in fact most folks are trying to do the right thing, pond scum like Goldman and their ilk have no concept of the ethical life.

“Good News, Bad News”

First, the good news. A study* by a group of academics from UC Berkeley and the University of Toronto supp0rts our long-held belief that most folks are by nature ethically inclined. They carried out a series of seven naturalistic and experimental studies. The first two –using the naturalistic method– in our opinion put their unwitting participants in the easiest atmosphere to ignore their ethical standards – they were encased in a large steel machine, driving their cars.

The academics had students work in teams during light traffic periods. In one test they had a student walk up to a crosswalk as a car approached and make eye contact with the driver. Sixty-five percent of the drivers stopped and allowed the student to cross. The other study had to do with stop sign courtesy. At a four-way intersection, observers watching from a distance noted when drivers cut in front of another car that had the right of way. About thirteen percent hit the gas pedal, but a wide majority, eighty-seven percent of those in this study waited their turn.

The other five experimental studies tested voluntary participants in a controlled laboratory environment. They went through a series of tests that showed-up those who cheat, lie, and seem to feel that they are entitled to more than their share. In these studies –just like the first two– a majority of the participants chose an ethical path.

Now the bad news. The academics were checking the relative ethical behavior of the rich vis-à-vis those further down the food chain. They found that some of the well-dressed luxury car drivers were more likely to blow through a pedestrian crossing or to cut in front of a car with the right of way at an intersection. In the other experiments more of the well-off took extra candy from a jar leaving less for the children, and they endorsed the over-worked Gordon Gekko line from the movie Wall Street, “Greed is Good, etc., etc., etc.

Keep in mind that disappointed as we might be that those blessed with wealth and its accoutrements do not deal with their fellows as ethically as those less endowed, the majority of the well-off “did” follow an ethical path. Even Gekko has changed his view and can now be seen in FBI sponsored television appeals to guard against insider trading.

Greed is not good. It’s a lousy way to live, even for those who succeed following this path. Those who choose an ethical business model, those who care for their customers, their employees, their suppliers, their community, the environment, those who put their fellows first, find that their bottom line takes care of itself. Studies show this path to be many times more profitable than that taken by the what-ever-it-takes, profit-comes-first believers. It’s all good news! 

*Citation: Proceedings of the National Academy of Sciences (PNAS), Vol. 109 No. 9, Feb. 28, 2012.  “Higher social class predicts increased unethical behavior.” By Paul K. Piff, Daniel M. Stancato, Stéphane Côté, Rodolfo Mendoza-Denton, and Dacher Keltner.

Banking 101

The “K” Street Banker Boys are pouring millions into the political arena in a desperate effort to hold on to the massive Las Vegas style gambling enterprise that characterizes too much of our banking sector today. Banking differs from Vegas in two important ways, however.

1)  When the bets the Wall Street Bankers place against the suckers (AKA “us”)  go against them, they just run to the taxpayers (us) who cover their losses. So they can’t lose. That’s too-big-to-fail banking.

2) The banks managed to get themselves immunized from the state lottery laws, so they can bet on anything. For instance, they could legally bet whether you will make your mortgage payment on time when they have no connection to you or your mortgage.

This set some of our biggest financial institutions onto a path focused on profit and the outrageous bonus structure that this gambling hall culture has spawned. A culture defended haughtily by JPMorgan Chase “Whiner-in-Chief” Jamie Dimon, who chose newspapers to justify the banker’s insane paychecks.

Duded out in his trademark 1950’s “Ducktail” do, Jamie is quoted, “Obviously our businesses have high capital and high human capital,” implying that nobody in newsprint land could compare. What nonsense. And, their capital –cash, that is– is not theirs, it’s ours, the billions we gave the banks to stabilize our economy. So what are they doing with our money? They are rolling the dice again, confident that we will bail them out again, when the dice come up snake-eyes again.

 “Proprietary Trading,” as the bankers like to call it, was a principle cause of the recession. This practice is a recipe for disaster. Here and there the milk-toast mild Dodd Frank Act does have a tooth left. The one dealing with proprietary trading, called the Volcker Rule, is facing a firestorm from the banking lobby. It would pretty much take gambling out of the banking business, push the bankers back into the real world where they can fail, and when they do, fail without taking the country down with them.

When Bill Clinton signed “The Commodity Futures Modernization Act” opening up Wall Street to gambling, Washington unleashed a chain of events that resulted in the collapse of the world economy eight years later. Wall Street began leaping one ethical barrier after another and today everyone but the bankers is suffering.

The folks who actually toil day in and day out for a living, like those struggling to find a workable journalism model, shouldn’t have to put up with sneers from a second-rate punk like Jamie Dimon. Banking at every level has but one reason to exist, to provide the capital that sustains our economic life. Dimon and his lot are clueless when it comes to that kind of banking.

Our Banking Problem

Last week (02.23.12) Bank of America kissed off Fannie Mae saying it would no longer sell mortgages to the (closet taxpayer backed) mortgage buyer. Published reports say the break is over some of the crappy mortgages BofA sold Fannie in the past. Mortgages, Fannie thinks BofA knew –or should have known – were crap. Fannie apparently wants their money back. BofA says the mortgages went south because of the recession, so Fannie (we the taxpayers) should eat them.

Like a lot of bad things this looks back to 2008. BofA bought subprime mortgage lender Countrywide Financial as it was about to go belly up. BofA says the Feds “made us” buy it; some think BofA thought it was getting a real steal. In any case, BofA is down +/- $30 billion on the deal so far. The once biggest dude in the world of banking has been on a diet slimming down, dumping anything it can and backing away from the mortgage business, whilst dodging its responsibilities and sticking the taxpayers with its problems at every opportunity. Case in point: last August, when BofA ran their manure spreader through Fannie they picked up a half billion dollars of our money.

It’s sickening when you consider how much (+/- $45 billion in TARP) we gave BofA to forestall their potential collapse. Not to mention BofA’s use of the Federal Reserve “Discount Window” where the Fed passes under-the-radar loans to the banks. Late in 2008 as BofA was attempting to take over Merrill Lynch, between them the two entities were living on about $80 billion in the Fed’s stealth loans.

All the while, regular folks, many of whom had been -through their naivety- lured into home loans they could not possibly hope to pay, were getting no help from the banks. Instead of using TARP and the other taxpayer bucks to help little folks they had set up to fail, the banks went back to gambling with more of the shaky financial products like derivatives that got us into this mess.

How big a deal is BofA’s decision to stop selling loans to Fannie Mae? It’s pretty big if you think it’s the people’s job to make sure that these too-big-to-fail banks don’t fail. BofA says it’s no big deal, they can sell off their mortgages to Freddie Mac and Ginnie Mae. These two agencies complete the triumvirate of federal agencies created to help make the American Dream –home ownership- come to be. Like Fannie Mae, Freddie Mac is a publically owned company and is “wink, wink” not backed by the taxpayers. Ginnie Mae was spun off from Fannie and is the only openly taxpayer backed entity of the three.

It’s past time to stop the reckless gambling, to break up these ethically challenged too-big-to-fail behemoths, and get the resultant smaller banks refocused on the reason for their existence, to provide the funds to keep our economy moving. If we could get the banking sector resized and refocused, the two Maes and a Mac might be good for us; right now they are just good for the banks.