Monday, August 10, 2015

The Merchants of Doubt Are Back in Town

In 2010, historians of science Naomi Oreskes and Erik Conway published a terrific book called The Merchants of Doubt (the book was followed last year by a documentary of the same title, directed by Robert Kenner).

In their book, Oreskes and Conway outlined the way some key scientists, political conservatives, have manipulated scientific data to cast doubt on the dangers of smoking, the reality of human-caused climate change, the existence of a hole in the earth's ozone layer, etc.  (More information about the book can be found at the Merchants of Doubt website.)

Coca-Cola seems to have found the technique compelling.

In today's New York Times, Anahad O'Connor reports that Coca-Cola is providing funding to scientists who argue that obesity is caused, not by eating too much, but by exercising too little (full article, here).

Global Energy Balance Network, the non-profit receiving Coke funds, is described on its website as "a newly formed, voluntary public-private, not-for-profit organization dedicated to identifying and implementing innovative solutions -- based on the science of energy balance -- prevent and reduce diseases associated with inactivity, poor nutrition and obesity. It is a premier world-wide organization led by scientists working on the development and application of an evidence-based approach to ending obesity." ("Energy balance" is the simple equation of calories in, from food and drink, to calories out, from physical activity.)

So much for all that pesky criticism about the role that sugary soft drinks play in weight gain and obesity.

So it's really all about getting up off that couch, and not so much about getting your hand out of the cookie jar, right?

Sadly, no.

As Aaron Carroll wrote in the New York Times last June, research clearly shows that, to lose weight, eating less is far more effective than exercising more (article, here).

Among other points, Carroll noted that studies have shown that "total energy expenditure and physical activity levels in developing and industrial countries are similar, making activity and exercise unlikely to be the cause of differing obesity rates."

Moreover, exercise can raise appetite, so if all you do is exercise more... you may find that you're eating more too.

That's not to say exercise is unimportant. Carroll wrote that:
Many studies and reviews detail how physical activity can improve outcomes in musculoskeletal disorders, cardiovascular disease, diabetes, pulmonary diseases, neurological diseases and depression....
But that huge upside doesn't seem to necessarily apply to weight loss. The data just don't support it. Unfortunately, exercise seems to excite us much more than eating less does.
So why would Coca-Cola be funding this Global Energy Balance Network? Let's see...

As O'Connor reports today, regular Coke sales are down ("In the last two decades, consumption of full-calorie sodas by the average American has dropped by 25 percent."), there are widespread efforts to tax sugary drinks and/or to remove them from school vending machines.


Monday, July 27, 2015

Should "Cost of Doing Business" Include Product Safety?

Over the years, I've spent a lot of time thinking about the "cost of doing business".

Traditionally, that has meant a pretty simple calculation: add up all the expenses needed to run your business (renting office space, buying and supporting the tech equipment you'll need, phones, lights, insurance, your own salary and that of any needed support staff, etc., etc.); divide that by the number of days per year that you expect to have to work; and you end up with a daily break-even: make more than that, on average, and you'll be profitable; make less, and you'll go broke. The difference can be small... but the results dramatic.

As Charles Dickens' Mr. Micawber says in David Copperfield:
Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds, ought and six, result misery.
What else should you include in the "cost of doing business"?

For a while now, it's become apparent that fines related to failure to comply with government regulations are part of that "cost" calculation in many industries. I've written about that in regards to banking (here and here, for example), agriculture (here), technology (here), and automotive (here).

Today's New York Times has a Bill Vlasic article that sheds more light, unfortunately, on that cost calculation.

According to the article, the National Highway Traffic Safety Administration (NHTSA) has fined Fiat Chrysler a record $105 million "for failing to complete 23 safety recalls covering more than 11 million vehicles."

Let me repeat myself: 23 safety recalls, and 11 million vehicles.

Fiat Chrysler has admitted to violating federal safety rules.
...[The] civil penalty was broken down into a cash penalty of $70 million, and an agreement that Fiat Chrysler would spend at least $20 million on meeting performance requirements detailed in the consent order. An additional penalty of $15 million will be assessed on the company if an independent monitor, who has yet to be announced, discovers further violations of safety laws or the consent order. 
Under the order, Fiat Chrysler is required to buy back as many as 500,000 vehicles with defective suspensions that can cause drivers to lose control. Also, owners of more than one million Jeeps with rear-mounted gas tanks that are prone to fires will be given an opportunity to trade in their vehicles at rates above market value.
As I've written before -- about General Motors in that case -- If your product has a problem, please don't wait for people to die to address it.

As of a few hours ago, Fiat Chrysler stock was down, following the fine announcement, but who knows how seriously the penalty will affect the stock price. After all -- it's just a cost of doing business, right?


Wednesday, June 24, 2015

Paid Leave: Do the Right Thing. I Don't Care If It's For the Wrong Reason.

The United States likes to celebrate its "exceptionalism", except when it's exceptional on the wrong side of the bell curve. Did you know, for example, that the US is the only developed nation that doesn't require employees to have some sort of guaranteed paid leave -- either sick leave (to care for themselves or a child) or family leave (to care for a newborn or newly-adopted child or seriously ill family member)?

The only protection workers have is the 1993 Family and Medical Leave Act which guarantees some workers up to 12 weeks of unpaid leave to care for a child or a family member or themselves. (More info about the FMLA is available from the Department of Labor; for example, here and here)

As reported in Claire Cain Miller's "Upshot" column in today's New York Times, maybe paid leave will finally get traction here. A few states require sick leave; a few cities require family leave. But there has been to date no political will for a national policy. This despite the fact that, as Miller notes,
Polls show that the vast majority of Americans support both. Eighty-five percent are in favor of requiring employees to offer paid sick leave, and 80 percent support paid family leave.

You'd expect politicians to want to get in front of that parade. And really - sick leave? Isn't that a no-brainer? I don't want my waiter serving me food when she's fighting off a cold. Ugh. And I don't want my financial analyst mis-entering data because he's focused on what's happening to his sick child at home.

So who's against this idea?
 Corporate America, as a whole, has long fought paid leave. Executives, especially at small businesses, say it burdens employers with additional costs and the need to temporarily replace employees. Some studies have found that when governments require paid leave, employers pay for it by decreasing employees’ wages.

But this argument is the same one that got trotted out in opposition to the Family and Medical Leave Act. It was used to argue against overtime laws. It is used every time increases in the minimum wage are proposed. And yet, somehow, every time those small steps are taken to improve workers' lives, businesses manage to adapt and succeed.

Moreover, not all small businesses agree. Miller interviewed the owner of one small business who offers her employees 12 weeks of paid parental leave because "It was not just the right thing to do but also a really important retention policy."

With the unemployment rate now below 6 percent, retention rates are more and more important. So maybe we can get employers to focus on doing the right thing. I don't care if it's for the wrong reason.

Tuesday, June 23, 2015

Once Again: If People Are Dying Because of Your Product, Admit It, and Fix It. Fast.

Most of us hate publicly admitting our failings. We're good at not admitting them to ourselves, and we're really good at hiding them from those whose opinions matter to us.

In this case, corporations are people too!

I've written before (here and here) about the problems with Takata airbags. The story -- which is now "resolving" itself with the largest automotive recall in U.S. history (32 million vehicles) -- continues to unfold. In an article in today's New York Times, reporters Hiroko Tabuchi and Danielle Ivory write that "Takata halted global safety audits at its manufacturing plants in 2009, a year after Honda had started recalling a small number of cars to replace the airbags."

Let's think about that for a moment: Your product has been identified as having a potentially life-threatening problem (to date, eight deaths have been attributed to the defect). One of your customers has started recalling vehicles in which your product was installed. And this is the moment when you choose to stop doing safety audits???


This was only one of several "serious safety lapses", according to a report released yesterday by Senator Bill Nelson (D - FL). According to the article, "a Takata executive is among those scheduled to testify before the [Senate] committee [on Commerce, Science, and Transportation] about its defective airbags."

I'm looking forward to reading that testimony.

Takata has already claimed that the report is inaccurate, based on out-of-context reading of corporate emails:
The company said that it had conducted regular reviews of product quality and safety and that the halted global audits referred to in the report related only to worker safety, not product quality or safety.
I feel much better, don't you?

In a previous post, I shared reports that Takata had conducted secret tests, using airbags from junked cars, as much as a decade ago, and came up with some alarming results. More alarming, however, was that those results didn't prod the company to take action. Something similar appears to have happened with the global safety audits:
When Takata eventually restarted the safety audits in 2011, auditors identified quality lapses in the plants [in Monclova, Mexico, and Moses Lake, WA], the report said, citing internal company emails....
But those findings were not shared with Takata's headquarters in Tokyo, the report said, citing internal emails from Takata's safety director at the time.
Then, when the safety director returned to the plant months later to conduct a follow-up audit, employees appeared to scramble to create the appearance of a safety committee within the plant. 
It just gets worse.

We do know that the propellant, which is intended to help the airbag inflate very fast in the event of a crash, can degrade. When that happens, the airbag may inflate with too much force, rupturing the steel canisters that hold the propellant and spewing metal shards into the passenger compartment. But it's not altogether clear what causes the propellant to degrade (moisture and high temperatures help, but not all propellant exposed to those conditions degrades in the same way). Nor is it completely clear what causes the inflater ruptures. So it's likely that "replacement airbags being fitted in recalled cars [will] ...eventually have to be recalled."

And you wonder why I like regulators with teeth?

Monday, June 22, 2015

Will Coal Finally Clean Up its Act?

I started writing about how dirty "clean coal" is back in 2010 and 2011 (here, here, and here), originally driven by the horrific death of 29 miners in the Upper Big Branch mine in April 2010, the worst mine disaster in the US in more than four decades. Massey Energy, owner of the Upper Big Branch, had come to see fines for safety violations as simply a cost of doing business, and it seemed as though no one could do anything about it.

Finally, maybe, someone is.

A 2011 Mine Safety and Health Administration report explicitly blamed safety violations at the mine for allowing coal dust and methane gas to collect and ignite (MSHA report, here), but it wasn't until November of last year that Don Blankenship, Massey Energy's former chief executive, was indicted on four criminal counts by a federal grand jury in West Virginia (13 November 2014 New York Times article by Trip Gabriel, here; indictment, here). Massey Energy is now owned by Alpha Natural Resources, which acquired Massey in 2011.

Penalties for the criminal counts Blankenship is facing, which include conspiracy to violate mine safety and health standards and conspiracy to defraud the United States (by obstructing the Labor Department and MSHA efforts to enforce mine safety standards), could add up to more than 30 years of prison time.

Blankenship's trial has not yet begun (originally scheduled to begin in January, it has been postponed to October; Blankenship has pleaded not guilty and is free on $5 million bond), but something has changed in West Virginia.

In a long article in Sunday's New York Times, David Segal recounts what brought down Blankenship, a man who had long acted as though the state in general and his coal mines in particular were a private fiefdom. The short answer is: hubris.
...How did Mr. Blankenship become the first coal chief in the region to face charges that could put him in prison? One answer is that the tragedy of Upper Big Branch was of such a scale and its apparent causes so mercenary -- prosecutors say the explosion stemmed from a hellbent emphasis on production at the expense of safety -- that a criminal case may have been inevitable. It came, too, at a time when economic shifts have reduced the power of coal kinds, who now rule over fiefs in decline.
Then there is Mr. Blankenship himself, a man who can come across as a cartoon of a corporate villain. He tangled with inspectors and buffaloed rivals. He is a Republican in a state that was long a Democratic redoubt, and he seemed to relish making public officials his enemies.
And while many senior managers -- think of the bankers who nearly ran this economy off the rails in 2008 -- insulate themselves from criminal liability with layers of middle management, Blankenship was micro-manager par excellence. There's no way he can pretend not to have know what was happening at Upper Big Branch.

Segal quotes a West Virginia University law professor: "One reason that Blankenship is being prosecuted is that he was different from other top coal executives. Most CEOs don't get production records every half-hour by fax. That places him right in the mine, hands on. That makes him vulnerable."

How vulnerable? We'll have to wait and see.

Wednesday, May 20, 2015

How Long Should It Take to Admit to Product Defects?

That, of course, is a very different question from, "How Long Will It Take to Admit to Product Defects?"

About six months ago, I wrote (here) about the growing number of automotive recalls related to Takata airbags, involving millions of vehicles in the US and elsewhere. The first hints of problems arose more than a decade ago. At the time, Takata was still denying that its airbags were at fault.

If you haven't been following the issue: The propellant, designed to help the airbag inflate very fast in the event of a crash, can under certain circumstances degrade; when that happens, the airbag may inflate with too much force, rupturing steel canisters that hold the propellant, and spewing metal shards into the passenger compartment. To date, six deaths have been linked to the defect, and more than 100 injuries, many of them very serious.

Yesterday, at long last, Takata admitted that its airbags were defective. According to an article in today's The New York Times by Danielle Ivory and Hiroko Tabuchi, Takata has now agreed to a massive recall of nearly 34 million cars and light-duty trucks, "about one in seven of the more than 250 million vehicles on American roads". This recall is "the largest automotive recall in American history."

It shouldn't have taken this long to get here.

The National Highway Traffic Safety Administration, which is "dedicated to achieving the highest standards of excellence in motor vehicle and highway safety" (according to its website, here), began  receiving complaints about airbag-caused injuries nearly 15 years ago. Ivory and Tabuchi report that, "in 2009, the agency opened an investigation into Takata and its airbags, only to close it six months later, citing 'insufficient evidence.'"


Fortunately, the new NHTSA administrator "has shown greater assertiveness towards companies like Takata."

Evidence kept piling up, and Takata kept denying any problem. Finally,
in the face of mounting evidence, federal safety regulators in February began to fine Takata $14,000 a day because it had not cooperated fully in the agency's investigation. The company disputed the agency's assertions. With the expansion of the recall, though, regulators said they would suspend that fine, which had reach more than $1 million. It is unclear if it will be collected.
So is your car one of the "lucky" ones? It's not clear. Ten automakers (BMW, Chrysler, Ford, Honda, Mazda, Mitsubishi, Nissan, Pontiac, Subaru, and Toyota) have already recalled 14 million vehicles due to the defect. The agency had posted a list on its website of the relevant models, but Ivory and Tabuchi report that
...[NHTSA] would not know exactly which models of cars would be recalled until it coordinated with automakers, which could be several days. The final number may change as more tests are performed....
Of concern to most motorists is that a recall of 1 in 7 vehicles now on the road obviously can't be done all at once.

It could in fact take several years; NHTSA recommends that owners continue to drive their cars in the interim.

At the risk of repeating myself yet again: If people are dying because of your product, you should really do something to fix the problem. Sweeping it under the rug will not make it go away.

Tuesday, May 19, 2015

What Does It Take to Get Fired?

If you're a stockbroker, apparently, more than can be believed.

As The New York Times' Susan Antilla wrote in today's paper (here),
In most professions, it would take only one or two acts of egregious conduct before troubled employees were shown the door. In the case of one stockbroker who has repeatedly had complaints from investors, it took 69 customer disputes filed over the last 13 years before he was barred from the business. [Emphasis added.]
Customers starting complaining about Jerry Cicolani Jr. in 2002. Despite that, he continued working for Merrill Lynch until 2010 (he started there in 1991), collecting a total of more than 60 complaints before his departure, during which time Merrill "paid $12 million in settlements to his customers". So we're not talking about showing up late for work on a regular basis, or parking in the boss's space.
In 2004, Mr. Cicolani was subject of an inquiry by the New York Stock Exchange over his handling of "numerous customer accounts" at Merrill, according to regulatory records, but wasn't sanctioned.
The Securities and Exchange Commission had already sued him, in May 2014, over his role in a Ponzi scheme. His most recent employer, PrimeSolutions Securities, based in Cleveland, fired him a day after that lawsuit was filed.
Despite all that, it wasn't until September 2014 that the Financial Industry Regulatory Authority (Finra), which is responsible for monitoring stockbrokers, decided to bar Cicolani from the business.

Back in November, there was a flurry of headlines in the business press suggesting that Finra was becoming more aggressive in pursuing broker-miscreants (example, here), but it's not clear that this is actually happening. (Antilla does quote a Finra spokesperson who claims that the agency "has refocused its resources over the last two years to aggressively pursue repeat offenders.")

Meanwhile, Antilla reports, there were clients who had been with Cicolani for years, who learned, from the FBI, that their money was gone. One 83-year-old retired doctor was quoted as saying, "It floored me because I always have trusted my brokers and their guidance. It was almost impossible to believe he would have done that to me."

Cicolani denies all claims, taking the Fifth.