Wednesday, October 15, 2014

Who Guards the Guardrails?

I grew up in hilly, curvy New England, and still love nothing more than driving some of those hilly, curvy roads. Probably at speeds in excess of posted limits.

But some of those roads make me just a little nervous, and so I'm grateful for guardrails.

At least I was, until I read an article by Danielle Ivory and Aaron M. Kessler in Monday's New York Times that warned that the guardrails installed in nearly every state in the country may not be safe. In fact, "some guardrail heads had apparently malfunctioned, in essence turning the rails into spears when cars hit them and injuring people instead of cushioning the blow." (Full article here; followup article from today's Times, here; the issue has also been covered by Brian Ross of ABC's 20/20 newsmagazine, television clip here)

Missouri has banned further installation of these guardrails, as have Nevada and Massachusetts. Virginia is considering a similar move, and is threatening to remove those currently in place.

A primary manufacturer of guardrails, Texas-based Trinity Industries, is the object of a federal whistle-blower lawsuit, alleging fraud, following a significant design change.

Trinity’s new design reduced the width of the steel channel behind the rail head at the end of the guardrail, from five inches to four. Instead of sliding along the rail, which collapses much like an accordion, and helping it curl out of the way of the oncoming vehicle, the rail head can become jammed, some state officials say. In those cases, the long metal guardrail does not get pushed aside — instead, it can become a bayonet that can pierce the vehicle and any person in its way, the state officials say.

Design changes, along with detailed diagrams, are supposed to be disclosed to the Federal Highway Administration.

But when Trinity narrowed its rail head design it did not make any such disclosures. In response to a question from The Times, Trinity said it submitted results of the crash tests to the agency in 2005, though it did not directly address whether it highlighted the change to the rail head.

For at least seven years, tens of thousands of the modified ET-Plus rail heads were installed from coast to coast. It was only in 2012, after a patent case in Virginia led to the discovery of the change, that the federal highway agency was alerted.
 At least five deaths, and many more accidents, have been blamed on the guardrails. The Federal Highway Administration continues to claim that the guardrails are safe.

But I'm starting to have my doubts about the FHA's claims.

Especially because, as the Times journalists report, "internal communications and documents from the highway administration show that a senior engineer charged with examining the guardrails expressed reservations about their safety, before he signed off on their continued use about two years ago."

Feel like expressing more than reservations?

Tuesday, October 14, 2014

Inspections are Easy. Now Comes the Hard Part.

Steven  Greenhouse reported in today's New York Times that two separate groups have completed inspections of more than 1,700 garment factories in Bangladesh (full article, here).

It's an impressive total, especially for those of us who have been appalled by continuing stories of unsafe working conditions (I've written lots of blogposts about it, most recently, here). As I've written, all of us who buy clothes have a responsibility to try to determine that those clothes were made under fair and safe conditions.

But that's far easier said than done: This factory may be safe, but that one not. And the label on my T-shirt only says, "Made in Bangladesh". I can take the easy way out, and not buy anything made in that country, but then I am penalizing everyone, whether it's a factory owner who tries to do the right thing or one who belongs in a Dickens sweatshop horror story, not to mention the millions of workers who are working long hours under terrible conditions to try to support their families.

The two inspection groups -- a European-dominated group called the Bangladesh Accord on Fire and Building Safety, and an American-dominated group called the Alliance for Bangladesh Worker Safety -- found flaws at every factory they inspected. But the range was considerable:
All that is needed at some sites is removing machinery and stored fabric from overloaded floors, while others will need sprinkler systems, automated alarm systems and the strengthening of support columns.

The average cost for factory upgrades, the Bangladesh Accord on Fire and Building Safety found, was $250,000, but in some cases, the costs could exceed $1 million.

The inspections are the easy part. How long will it take for the necessary upgrades to be completed? And will those changes be maintained?

We consumers are the ones who must demand greater transparency. The companies that sell us $2 T-shirts won't care about garment-worker safety if we don't. 

Thursday, October 9, 2014

The Road to Hell is Paved with Good Intentions...

... and especially with many little mis-steps.

As C. S. Lewis wrote in this Screwtape Letters,
Indeed the safest road to Hell is the gradual one -- the gentle slope, soft underfoot, without sudden turnings, without milestones, without signposts...

Until suddenly, you turn around, see your surroundings, and wonder, How on earth did I get here?!?

Lewis may have been an Oxford don, but he was on to something big. Of all his works of Christian apologia, The Screwtape Letters is by far my favorite. An epistolary novel, the book is a manual on How to Be a Better Devil, full of "wise" advice from the senior Screwtape to his just-starting-out-in-the-family-business nephew, Wormwood.

In the Preface, Lewis noted,
I live in the Managerial Age, in a world of "Admin." The greatest evil is not now done in those sordid "dens of crime" that Dickens loved to paint. It is not done even in concentration camps and labour camps. In those we see its final result. But it is conceived and ordered (moved, seconded, carried, and minuted) in clean, carpeted, warmed and well-lighted offices, by quiet men with white collars and cut fingernails and smooth-shaven cheeks who do not need to raise their voices. Hence, naturally enough, my symbol for Hell is something like the bureaucracy of a police state or the office of a thoroughly nasty business concern.

Lewis could have been a professor of business administration. (How he would have disliked that!)

The truth of the "slippery slope" is explored in a 4 September Harvard Business Review blog piece by an HBS professor, a fellow at the University of Arizona, and an assistant professor at the University of Washington. (Yes, I'm a little behind in my reading.)

The authors' research has shown that, given the incentive and the opportunity to cheat a little, people will. No surprise there. The next time? They'll cheat a little more. And then a little more, and a little more. The next thing you know, you're Bernie Madoff. Or at least Ken Lay.

And it's not just about one or two "bad apples":
Unfortunately, the assumption that unethical workplace behavior is the product of a few bad apples has blinded many organizations to the fact that we all can be negatively influenced by situational forces, even when we care a great deal about honesty.

In other words, being around a few bad apples can make us complacent about the bad choices we may be tempted to make. (I've written about this before, here; the point I wanted to make then, and will reiterate now, is that the old saw about a few "bad apples" reminds us that they spoil the whole barrel: you have to take all the apples out, and turn them over, looking for the blemishes that have spread from the rotted ones.)

It doesn't take draconian methods to keep people on that straight-and-narrow:
Environments that nudge employees in the right direction, and managers who immediately identify and address problems, can stop ethical breaches before they spiral out of control.

Friday, October 3, 2014

Who Will Watch The Watchers at the Fed?

It will come as no surprise to anyone who's read even one of my posts if I say that I'm a big believer in regulation.

But only if the regulators actually regulate.

This would seem obvious.

Not so, in the Through-the-Looking-Glass world of the New York Federal Reserve Bank, at least not according to the reports last week from Jake Bernstein at ProPublica and Ira Glass at This American Life, reprised in an article by Nathaniel Popper and Peter Eavis in today's New York Times.

The short version is this: Shortly after the 2008 financial crisis, and near-meltdown of the U.S. economy, questions began to arise as to why the New York Fed -- which is responsible for regulating Wall Street's big banks -- had not seen the crisis coming, had not done anything to prevent the disaster. Was the Fed, people asked, just a little too cozy with the institutions it was supposed to watch?

Or, as someone asked long, long, long ago: Quis custodiet ipsos custodes? (It was the Roman poet Juvenal who posed the question: Who will watch the watchmen?) (How often do I get to use my classics degree in real life, eh? Actually, writing this blog, I get to use it a lot -- most recently, I think, here. Sigh.)

The Fed itself commissioned a report, in 2009, to see what went wrong, and what it could do better. One of the biggest problems uncovered in the report was "regulatory capture". As explained by Mr. Glass on his radio show, 
Regulatory capture is when a regulator gets too cozy with the company he's supposed to be monitoring. He's a watchdog who licks the face of an intruder, and plays catch with the intruder, instead of barking at him. 

Or, as Mr. Bernstein put it in his article:
The New York Fed had become too risk-averse and deferential to the banks it supervised. Its examiners feared contradicting bosses, who too often forced their findings into an institutional consensus that watered down much of what they did.

Either way, the Fed was seeing questionable behavior, but not acting on that knowledge. The report recommended new hires, who would be independent-minded and capable of resisting that "capture". One of those new hires, Carmen Segarra, lasted only seven months  in 2011-2012 before she was fired. She sued last year, claiming that her employment has been terminated because she was too tough on the bank, Goldman Sachs, to which she was assigned (New York Times article on the suit from October 2013, here). That suit was dismissed earlier this year (New York Times article from April 25, here).

Interest heated up again when ProPublica and This American Life published secret recordings that Ms. Segarra had made while she was working for the Fed. As the Times reporters put it,
While Ms. Segarra’s suit was dismissed, the newly released recordings suggest that her supervisor at the New York Fed went easy on Goldman, even after saying he wanted “to put a big shot across their bow” on a deal in which Goldman was suspected of helping make Banco Santander look financially stronger than it was.

The New York Fed has issued a statement (at the ProPublica website, here) that "categorically rejects the allegations being made about the integrity of its supervision of financial institutions." But enough questions are being raised by both House and Senate committees. Yesterday, Massachusetts Senator Elizabeth Warren released this statement:
When regulators care more about protecting big banks from accountability than they do about protecting the American people from risky and illegal behavior on Wall Street, it threatens our whole economy. We learned this the hard way in 2008. Congress must hold oversight hearings on the disturbing issues raised by today's whistleblower report when it returns in November - because it's our job to make sure our financial regulators are doing their jobs.

One of the biggest problems here is the revolving door between regulators and banks, similar to the revolving door between Washington's legislators and lobbyists. If your next (Big!) paycheck is likely to come from the organization you're "supervising" ... just how tough are you going to be?

Thursday, September 18, 2014

When At Fault... Countersue!

Schoolyard bullies can often get their way simply with the threat of violence. If you've been punched once, you may just surrender your lunch money the second time without fist ever having to connect with nose.

Apparently, this lesson has been learned in the corporate boardroom as well.

Susan Antilla, in a DealBook article in today's New York Times, reports the case of an unhappy investor who is being countersued by the brokers whom he is suing.

The investing group had sent Reef Securities of Richardson, TX, a total of $90,000 to be placed in the energy industry. An initial payment was received, and then distributions slowly dropped to nothing. The investors sued. And then Reef countersued.
"They said we’d be liable for their legal expenses," which could have been $400,000 or more, Mr. Vaerewyck [one of the investors] said. "That’s a pretty significant piece of change for a group of retired individuals."

This is apparently the new way to deal with an unhappy customer.
Like Mr. Vaerewyck and the other Reef customers, investors who lose money in private placements face a new obstacle when they take their cases to arbitration before the Financial Industry Regulatory Authority, or Finra, as they are required to do in any dispute. The brokers they have sued are suing them back, accusing them of reneging on indemnification agreements.

Thankfully, this response is "not widespread". But the most depressing quote in Ms. Antilla's article came from a lawyer representing the unhappy Reef investors: "Every brokerage firm out there would do it if they thought they could get away with it."

Really? Sigh. 

In private placements, "investors must sign documents that say they indemnify the issuer and its agents for any losses, lawyer fees and case costs in the event the investor makes a misrepresentation. Investors also agree in writing that they are sophisticated and understand the risks of the investment." Which is why they make such appealing targets for countersuits. But isn't the indemnification for the issuer, not the broker? Don't you, as an investor, rely on the broker to steer you towards a good deal?

Finra, of course, insists that intimidating unhappy customers "would violate Finra conduct rules". Ya think? The Finra representative goes on to say that in such circumstances they would certainly "investigate". I feel much better now, don't you?

Monday, September 15, 2014

Wouldn't You Like to Know What Ed-Tech Companies Know About Your Kids?

We all know that companies collect an amazing amount of information about us from our online wanderings, although it's possible that many of us aren't aware of just how much is being gathered.

And there's no question that the power of this Big Data is only beginning to be exploited.

Since it's early days yet, there are some laughable errors that occur, that serve as useful reminders that you are being tracked. For example, I recently booked a mini-vacation through one of the online price-comparison sites, and now I'm seeing ads everywhere for vacations spots. A little late, don't you think? After all, I've already booked a non-refundable trip: A better offer is not going to get me to change plans, so why even bother?

But others are harder to laugh off, and that's especially true when it comes to children.

Today's New York Times has a thought-provoking piece by Natasha Singer about how much information schools are collecting about your kids.We already know that kids, while stunningly sophisticated about how to use the latest technology, aren't necessarily as sophisticated about understanding how long that digital footprint may last, and how it may come back to haunt them later. But at least that's stuff they post themselves.

What about the stuff that's collected that they don't know about? As Singer reports:
At a New York state elementary school, teachers can use a behavior-monitoring app to compile information on which children have positive attitudes and which act out. In Georgia, some high school cafeterias are using a biometric identification system to let students pay for lunch by scanning the palms of their hands at the checkout line. And across the country, school sports teams are using social media sites for athletes to exchange contact information and game locations.

Take a moment to think how such information, in someone else's hands, might be used.

While some 30 states have recently passed regulations limiting student data collection, or requiring greater transparency about such data collection and use, there are still a lot of holes that need to be filled. 

There is a federal law that "limits the disclosures of student education records by schools that receive public funding. But critics have long complained that the 40-year-old law, written for the file-cabinet era when student records were kept on paper, has not kept pace with digital data-mining." (More info on that law, here)

Many schools don't regulate "the kinds of information their education technology vendors collected from students or how the companies used those details."

Singer reports that California has now passed (although Gov. Jerry Brown has not yet signed) a wide-ranging bill, that
prohibits companies from selling, disclosing or using for marketing purposes students’ online searches, text messages, photos, voice recordings, biometric data, location information, food purchases, political or religious information, digital documents or any kind of student identification code. The idea is to prevent companies from using information about students for any activity not intended by schools.

Most adults don't read the "privacy policies" published by the websites they visit, and children are even less likely to do so, or to have the foresight to understand how the information trail they leave behind might be used. Let's put a little protective shield around them. 

Wednesday, August 27, 2014

When is Discrimination Apparently Not Discrimination?

It seems that if you discriminate on the basis of economics, that's OK.

Today's New York Times has an interesting Mireya Navarro article about "poor doors" -- how you access your low-income apartment that's tucked into a luxury high-rise. Heaven forfend that you should pass through the same lobby as your betters.

Heavy sarcasm here, in case you had any doubts.

It's not quite as simple, or simply distasteful, as it sounds.
Developers say the configuration of one building with an attached affordable segment works better when the market-rate units are for sale, as in the case of condos. If that is the choice, the developer is required to provide two separate entrances under the current rules of the program. [The affordable units are only available as rentals.]

Moreover, as Gina Bellafante wrote in a July Times article about the issue,
It isn’t simply that rich people find poorer people yucky, though in some cases that will certainly be true, but that owners typically prefer living among other owners, out of the belief that this arrangement best protects the value of their asset. Renting has the taint of transience, diminished stability and so on.

But it still runs counter to what many of us love about cities -- the opportunities for all kinds of different people to cross paths under all kinds of circumstances. 

And just think what the reaction would be if it were a "people of color door" and a "white door".