Is It What You Know, Or Who You Know, that Matters?

Imagine that you have a position to fill at your company. What more natural than to ask your current employees whether they know someone with the right skill set? After all, it's in their interest as well as yours to have someone in the job who not only has the necessary expertise, but also that intangible, but all-important, "fit".

It's a hiring technique that's increasingly common. And in general, I don't think there's anything wrong with it.

Except......

Today's New York Times carries a report on the trend by Nelson Schwartz. He notes,

Some [firms], like Ernst & Young, the accounting firm, have set ambitious internal goals to increase the proportion of hirings that come from internal referrals. As a result, employee recommendations now account for 45 percent of nonentry-level placements at the firm, up from 28 percent in 2010. 

The company’s goal is 50 percent. Others, such as Deloitte and Enterprise Rent-A-Car, have begun offering prizes like iPads and large-screen TVs in addition to traditional cash incentives for employees who refer new hires. 

What's wrong with that? Well, imagine a slightly different scenario from the first.

Imagine that, rather than looking to hire, you are looking to be hired. Imagine that you are one of the long-term unemployed. Schwartz writes, "Nearly 4.8 million Americans have been out of work for 27 weeks or more, according to the Labor Department, three times as many as in late 2007. The typical unemployed worker has been jobless for 38 weeks, compared with 17 weeks before the recession."

You may have had a great network while you were in your last job, but how great is that network after 27 weeks?

I still don't believe that referral hiring is inherently unethical ... but there's got to be some way to offer a helping hand to those who don't have the connections. "It's who you know" is not the marker of a vibrant economy.

 

Socialize the Risk, Privatize the Profits: It's Just Wrong

One of the most troubling changes of the past several decades, I believe, is the mantra that Private Industry can do it (whatever "it" we are talking about) better than Government can.

It has led to a steady outflow of work by the government to private contractors with little or no oversight. It has lead to the Socialization of Risk and the Privatization of Profit.

I find that ethically repugnant.

Today's example comes from Ryan Reilly's article in the Huffington Post: "KBR, Guilty in Iraq Negligence, Wants Taxpayers to Foot the Bill".

Here's the story: Some 800 US soldiers were exposed to sodium dichromate, a known serious carcinogen, when they were securing an Iraqi water treatment facility, operated by KBR contractors, in 2003. Soldiers were apparently told that the substance was, at worst, "a mild irritant".

In November of last year, Oregon jurors awarded 12 Guard soldiers and veterans $85 million in damages for KBR's negligence. Other suits against the company are still pending.

Here's the kicker:

KBR, however, says taxpayers should be on the hook for the verdict, as well as more than $15 million the company has spent in its failed legal defense, according to court documents and attorneys involved with the case. [emphasis added]

KBR's contract with the U.S. to rebuild Iraq’s oil infrastructure after the 2003 invasion includes an indemnity agreement protecting the company from legal liability, KBR claims in court filings. That agreement, KBR insists, means the federal government must pay the company's legal expenses plus the verdict won by 12 members of the Oregon National Guard who were exposed to the toxin at the Qarmat Ali water treatment plant.

What does the indemnity agreement actually say? We don't know, because it's classified.

Most government agencies -- but not the Pentagon -- are banned from open-ended indemnification agreements. The agreement was declassified in late December and given to a Houston-based lawyer who helped with the successful suit against KBR, but was given to him "under a protective order that banned him from sharing the language to parties not involved in the case" [emphasis added here, too]. The Huffington Post has filed a Freedom of Information Act request for the document.

Can You Spell "Chutzpah"? It Seems AIG Can.

Have you seen the new AIG (American International Group) advertisements that say, "Thank you America"?

The ads started running New Year's Day, shortly after the government sold off its final stake in the company (with a nice little $22 billion profit for us taxpayers). Back in 2008, shortly after the collapse of Lehman Brothers, the near-failure of AIG was halted when the government stepped in (because no private sources would loan them anything). Eventually, the government ended up with a 92 percent stake in the company.

Slowly but surely, the company bought its way out, by selling off some divisions and holding several stock offerings. Along the way, it also proved itself to be stunningly tone-deaf (you may recall that in 2009, the company got upset when word leaked of the size of the bonuses it was planning to offer to the "best and the brightest" who had ... very nearly bankrupted the company in the first place).

So I was intrigued by the ads. Maybe they've finally learned a little humility, I thought.

As if.

Because today's news is the ultimate bite-the-hand-that-feeds-you story: the AIG board is considering joining a $25 billion shareholder lawsuit against the government. The suit was filed in 2011 by Maurice Greenberg, a former CEO of AIG (until 2005, when he was forced out over allegations of improper business dealings). Mr. Greenberg is still a major investor in AIG.

According to a story in today's New York Times by Ben Protess and Michael J. de la Merced, the lawsuit

contends that the onerous nature of the rescue — the taking of what became a 92 percent stake in the company, the deal’s high interest rates and the funneling of billions to the insurer’s Wall Street clients — deprived shareholders of tens of billions of dollars and violated the Fifth Amendment, which prohibits the taking of private property for "public use, without just compensation."

I think this is the dictionary definition of chutzpah.

At the time, the alternative for AIG was bankruptcy. Which I think would have been a lot harder on the shareholders.

Newly-minted Massachusetts Senator (and member of the banking committee) Elizabeth Warren had this to say:

Beginning in 2008, the federal government poured billions of dollars into AIG to save it from bankruptcy. AIG’s reckless bets nearly crashed our entire economy. Taxpayers across this country saved AIG from ruin, and it would be outrageous for this company to turn around and sue the federal government because they think the deal wasn’t generous enough. Even today, the government provides an ongoing, stealth bailout, propping up AIG with special tax breaks—tax breaks that Congress should stop. AIG should thank American taxpayers for their help, not bite the hand that fed them for helping them out in a crisis.

(Complete story at Business Insider, here)

I'm with Elizabeth on this one.