Just two days ago, I posted some comments on the debacle at Olympus. Several days had already passed since the first stories broke about the firing of Olympus' British CEO. At that time, as I noted, it looked like a classic culture-clash story. And then things got muddier, as the ousted executive, Michael Woodford, accused the company of firing him for presenting evidence of fraud in the 2008 acquisition of a British medical equipment manufacturer, Gyrus.
The story is still unreeling slowly, but today's New York Times carries another Hiroko Tabuchi article that's worth noting. On Wednesday, Olympus' chairman -- to whom Mr. Woodford had presented his evidence of fraud -- resigned. He regretted "causing concern" to the shareholders (Olympus' share price has fallen by half), and continued to insist that there was "no corruption" in the deal to acquire Gyrus.
Tsuyoshi Kikukawa, who resigned yesterday, had been with Olympus for nearly 50 years, and its chairman for ten. He has been replaced by Shuichi Takayama, a managing director who has been with Olympus for 30 years.
As the Times article notes, the current debacle can be seen "as evidence of still-frequent lapses of corporate governance in a country where truly independent board members are still rare, although there’s a requirement that one director or auditor be independent. And still in force, experts say, is a deep-rooted Japanese business culture in which personal relationships can sometimes seem to take priority over generally accepted accounting practices."
So, is it culture? Or is it ethics? And will it look more like one to us, in the West, and more like the other, to those in Japan?
Thursday, October 27, 2011
Wednesday, October 26, 2011
Make Haste Slowly, Please
Let's say you've developed a nifty new medical device, and -- best yet! -- you've gotten some venture-capital financing to help you bring this product to market. How many regulatory hoops should you have to jump through to start selling it to the patients who need it?
What if you're one of those patients? More hoops, or fewer?
Or if your nifty device doesn't work? Or has side effects you hadn't been aware of?
Different answers, maybe?
Today's New York Times carries an article by Barry Meier and Janet Roberts on the expensive lobbying efforts by venture capital firms to reduce the regulation required to bring new devices to market.
According to the Times article, venture capitalists and device manufacturers "argue that the FDA suffers from high personnel turnover, an unwieldy bureaucracy and a regiment that forces start-up device companies to run new and costly tests constantly, often duplicating past efforts."
But that's only one side of the story, isn't it?
The reporters quote the editor of Archives of Internal Medicine, who said that venture capitalists operate under "this unwritten assumption that every new device is innovative." But the reality, she added, is that some devices "are killing people or causing significant harm."
I've written about more than one of those devices in the past -- the cone-beam CR scanner that may be exposing children and adolescents to excessive radiation (post, here) and the DePuy hip replacements whose metal-on-metal design is failing early far too often, requiring painful and extensive additional surgery (post, here).
The House seems more interested in the manufacturers' and investors' concerns, however:
Shouldn't they be "deeply concerned" about the "survival" of their patients?
What if you're one of those patients? More hoops, or fewer?
Or if your nifty device doesn't work? Or has side effects you hadn't been aware of?
Different answers, maybe?
Today's New York Times carries an article by Barry Meier and Janet Roberts on the expensive lobbying efforts by venture capital firms to reduce the regulation required to bring new devices to market.
According to the Times article, venture capitalists and device manufacturers "argue that the FDA suffers from high personnel turnover, an unwieldy bureaucracy and a regiment that forces start-up device companies to run new and costly tests constantly, often duplicating past efforts."
But that's only one side of the story, isn't it?
The reporters quote the editor of Archives of Internal Medicine, who said that venture capitalists operate under "this unwritten assumption that every new device is innovative." But the reality, she added, is that some devices "are killing people or causing significant harm."
I've written about more than one of those devices in the past -- the cone-beam CR scanner that may be exposing children and adolescents to excessive radiation (post, here) and the DePuy hip replacements whose metal-on-metal design is failing early far too often, requiring painful and extensive additional surgery (post, here).
The House seems more interested in the manufacturers' and investors' concerns, however:
Since February, four House panels have held hearings on the impact of FDA procedures on device approval. At those sessions, 19 of the 26 listed witnesses were investors, entrepreneurs, industry consultants, trade group officials or patients who said that agency delays in approving a device had harmed them or a loved one. The list included no patients injured by a flawed device; one hearing the Senate had a more varied witness list. [emphasis added]One investment fund manager is quoted as saying, "This is about survival... We are deeply concerned about the future."
Shouldn't they be "deeply concerned" about the "survival" of their patients?
Tuesday, October 25, 2011
Culture Clash, or Egregious Ethics?
When the news broke about ten days ago that Olympus -- the Japanese company best know for its digital cameras, although its medical equipment business is far more profitable -- was firing its British CEO, it seemed like a classic culture-clash story.
Indeed, that's how it was presented. As the New York Times' Hiroko Tabuchi reported (full story, here), Olympus' chairman said, "We hoped that he could do tings that would be difficult for a Japanese executive to do... But he was unable to understand that we need to reflect a management style we have built up in our 92 years as a company, as well as Japanese culture."
Isn't that a fascinating comment? In other words, Olympus wanted a CEO who was un-Japanese, but not too un-Japanese. How's that for a recipe for failure? (Michael Woodford, the ousted CEO, was British, but had spent 30 years with Olympus, so you'd think he would have a pretty good handle on Japanese culture.)
Share prices in Olympus dropped dramatically on the news of the CEO's demotion.
They declined further two days later, when Mr. Woodford claimed that he was forced out because he had presented the Olympus chairman with evidence of fraud. (Article by Hiroko Tabuchi here)
As further explained a few days later by the Times' Wayne Arnold and John Foley (full story, here), Mr. Woodford said that "he was forced out after pointing out governance problems surrounding overseas acquisitions, in particular a $1.9 billion deal for Gyrus, a British medical equipment firm. He accuses [sic] the board of violating British law against paying a buyer for an acquisition, false accounting and breach of fiduciary duties."
So now it appears not to be a cultural issue at all, but an ethical and legal one. Were Japanese laws allegedly violated as well? Or only British laws?
The heart of the conflict, as reported yesterday by the Times' DealBook reporter, Ben Protess, is "a mysterious $687 million payout" made by Olympus to two formerly-unknown Japanese bankers (full story, here). That payout was originally described as a "fee" for advising Olympus on the 2008 Gyrus takeover. But, as Protess notes, that payout is "more than 30 times the norm on Wall Street" -- and Wall Street is not generally known for underpaying itself.
Protess also reported that "the FBI is now investigating the $687 million payment... The focus of the investigation is not yet clear, and a spokesman for the FBI ...declined to comment."
So now there are American laws that may have been broken, too?
Protess quotes Jeffrey Manns, an associate professor at George Washington University Law School: "This is such an extraordinary deviation from normal fees.... No one would have entered into this transaction if they were showing good business judgment."
Olympus, of course, insists that the payment was "appropriate".
It's far too early to know whether this is primarily a cultural clash or an ethical (and legal) breach; the mess may well end up having elements of both, and those elements may be closely intertwined. Either way, there's an ugly smell hanging over a once-admired firm.
Indeed, that's how it was presented. As the New York Times' Hiroko Tabuchi reported (full story, here), Olympus' chairman said, "We hoped that he could do tings that would be difficult for a Japanese executive to do... But he was unable to understand that we need to reflect a management style we have built up in our 92 years as a company, as well as Japanese culture."
Isn't that a fascinating comment? In other words, Olympus wanted a CEO who was un-Japanese, but not too un-Japanese. How's that for a recipe for failure? (Michael Woodford, the ousted CEO, was British, but had spent 30 years with Olympus, so you'd think he would have a pretty good handle on Japanese culture.)
Share prices in Olympus dropped dramatically on the news of the CEO's demotion.
They declined further two days later, when Mr. Woodford claimed that he was forced out because he had presented the Olympus chairman with evidence of fraud. (Article by Hiroko Tabuchi here)
As further explained a few days later by the Times' Wayne Arnold and John Foley (full story, here), Mr. Woodford said that "he was forced out after pointing out governance problems surrounding overseas acquisitions, in particular a $1.9 billion deal for Gyrus, a British medical equipment firm. He accuses [sic] the board of violating British law against paying a buyer for an acquisition, false accounting and breach of fiduciary duties."
So now it appears not to be a cultural issue at all, but an ethical and legal one. Were Japanese laws allegedly violated as well? Or only British laws?
The heart of the conflict, as reported yesterday by the Times' DealBook reporter, Ben Protess, is "a mysterious $687 million payout" made by Olympus to two formerly-unknown Japanese bankers (full story, here). That payout was originally described as a "fee" for advising Olympus on the 2008 Gyrus takeover. But, as Protess notes, that payout is "more than 30 times the norm on Wall Street" -- and Wall Street is not generally known for underpaying itself.
Protess also reported that "the FBI is now investigating the $687 million payment... The focus of the investigation is not yet clear, and a spokesman for the FBI ...declined to comment."
So now there are American laws that may have been broken, too?
Protess quotes Jeffrey Manns, an associate professor at George Washington University Law School: "This is such an extraordinary deviation from normal fees.... No one would have entered into this transaction if they were showing good business judgment."
Olympus, of course, insists that the payment was "appropriate".
It's far too early to know whether this is primarily a cultural clash or an ethical (and legal) breach; the mess may well end up having elements of both, and those elements may be closely intertwined. Either way, there's an ugly smell hanging over a once-admired firm.
Monday, October 17, 2011
If You Check In, Can You Still Check Out?
Two unrelated, but weirdly related, articles in the New York Times caught my eye yesterday:
"Online Banking Keeps Patrons Tangled in Fees" wrote Nelson Schwartz in the first. In the second, "The Haggler" (columnist David Segal) investigated the questionable practices of Synapse Group, a magazine subscription firm that "is skilled at signing up subscribers but miserable at alerting them later that their subscriptions are being renewed. So bad that a plaintiff’s lawyer, Gary Graifman, filed a class-action lawsuit against it, contending that it purposely tries to make its renewal notices look like junk mail."
At first glance, these don't seem related, do they? But consider one example from Schwartz's story:
"Online Banking Keeps Patrons Tangled in Fees" wrote Nelson Schwartz in the first. In the second, "The Haggler" (columnist David Segal) investigated the questionable practices of Synapse Group, a magazine subscription firm that "is skilled at signing up subscribers but miserable at alerting them later that their subscriptions are being renewed. So bad that a plaintiff’s lawyer, Gary Graifman, filed a class-action lawsuit against it, contending that it purposely tries to make its renewal notices look like junk mail."
At first glance, these don't seem related, do they? But consider one example from Schwartz's story:
Tedd Speck, a 49-year-old market researcher in Kent, Conn., was furious about Bank of America’s planned $5 monthly fee for debit card use.But he is staying put after being overwhelmed by the inconvenience of moving dozens of online bill paying arrangements to another bank.
“I’m really annoyed,” he said, “but someone at Bank of America made that calculation and they made it right.”
In other words, the bank has made it as difficult as possible to "unsubscribe". Meanwhile, what did the plaintiff's lawyer say about Synapse's practices?
“You subscribe to, say, Sports Illustrated, but you get a notice from a company called Synapse, which no one has ever heard of,” says Mr. Graifman, of the New York law firm Kantrowitz, Goldhamer & Graifman. “The whole game is to discourage as many people as possible from canceling, and these guys are very sophisticated about how they do that.”
He sent a copy of the renewal notice that Synapse sends to customers. The front reads: “Less time at the newsstand means more time enjoying your favorite magazines.” Next to that is: “Subscriber rate enclosed. Up to 40 percent off newsstand prices.”
If that doesn’t say “Toss me, I’m junk mail,” what does?
If you do toss that piece of "junk mail", you will shortly discover that by not replying, you have "permitted" Synapse to bill your credit card automatically for renewals. In other words, they've made it as difficult as possible to unsubscribe. The original complainer to The Haggler had forwarded the company phone number that had been listed on her credit-card bill; if you do call the number, what you get is "only an automated voice routine, not a human being."
In neither of these cases does the company care about customer satisfaction. They define loyalty as "gotcha".
Meanwhile, on Synapse's website, the home page extols the company's "values" and "social responsibility". Synapse, of course, doesn't really care about you, the magazine reader who can't get out of your subscription. It cares about the magazine, which has hired it to keep you on the hook (Synapse is a wholly-owned subsidiary of Time Inc.). Synapse is particularly proud of its patented "magazine subscription model, Continuous Service." And what is Continuous Service? It's a model that
eliminates the inefficiencies and inconveniences of the traditional model, and replaces it with a solution that meets the needs of today's harried consumer. Today, tens of millions of subscribers enjoy the simplicity and superior experience of continuous service.
Sounds exactly like what the plaintiff's attorney was describing, doesn't it?
The banks, meanwhile, will trill away about how much easier it is for you to have all your accounts at one bank, and to pay your bills online. They will not tell you that "using the Internet to pay bills, do automatic deductions and send electronic checks reduced customer turnover for banks by up to 95 percent in some cases." Even if you're deeply dissatisfied, the thought of having to change all those accounts is daunting.
Every business wants to hold onto its customers, of course. The question is, Are you being truthful and transparent about how you're holding on to them?
Friday, September 30, 2011
When is a Promise Not a Promise?
If you grew up in the '50s and '60s, like me, you remember a world where dads (and a handful of moms) went off to work every morning, and stayed with the same employer for years and years. After 30 or 40 years, those dads retired with a company pension, usually enough to keep them comfortable, if not wealthy, through their remaining years.
Sounds like a fairy-tale today, doesn't it? Who still stays with the same company for 40 years? As for company pension plans, what are they? If you're lucky, you have a 401(k) that you've been lugging around with you from job to job, and which -- given the vagaries of the market -- is probably worth a whole lot less than you thought it was going to be worth in late 2011.
Some of us even bought the line that companies fed us: that they needed to get rid of massive pension-plan schemes to remain competitive with international firms that had no such obligations.
But the truth is a little different.
According to Ellen Schultz, Wall Street Journal reporter and author of a new book, Retirement Heist, "When companies began cutting benefits it wasn’t to remain competitive because the plans had a huge surplus and there was no cost to the company. What they were doing is taking the plan and finding a way to convert some of the assets into a benefit for the company and also to boost their profits." (Click here for a transcript of an interview with Ellen Schultz on NPR's Morning Edition on 29 September)
From being significantly overfunded in the '90s, the remaining corporate pension plans are now significantly underfunded. As an example, in the late '90s, Schultz reports, GE's pension plan had a $20 billion surplus -- even though it had not made any contribution to the fund since the mid-1980s. Today, GE's plan is underfunded by $5 billion. What happened?
When companies started looking for ways to get rid of older (read: more expensive) employees in the early '90s, Schultz writes, they could have offered those who were laid off a generous severance package. But "the cost-effective way was to instead promise them a bit more pension money in lieu of severance." In the end, "you've just laid off somebody who's expensive and it has cost you nothing." The problem is that you have just added a person to the eventual pension pool ... without having increased the pool's funds.
"Cutting the benefits actually gives companies a boost to profits. It’s an accounting effect. If you promise to pay $100 million to retirees, that’s a debt on the books. If you cancel that debt, then you get to keep the profit," says Schultz. So pension dollars were used to finance downsizings, and to sell assets in merger deals.
Meanwhile, of course, senior executive pay and pensions continue to rise dramatically. Today's New York Times carries an article by Eric Dash, who writes drily that "the golden goodbye has not gone away."
It's one thing to reward a retiring CEO for a brilliant tenure, but consider these examples that Dash cites:
None of the moves that Schultz and Dash describe appear to be illegal. But grossly unethical? Oh yeah.
Sounds like a fairy-tale today, doesn't it? Who still stays with the same company for 40 years? As for company pension plans, what are they? If you're lucky, you have a 401(k) that you've been lugging around with you from job to job, and which -- given the vagaries of the market -- is probably worth a whole lot less than you thought it was going to be worth in late 2011.
Some of us even bought the line that companies fed us: that they needed to get rid of massive pension-plan schemes to remain competitive with international firms that had no such obligations.
But the truth is a little different.
According to Ellen Schultz, Wall Street Journal reporter and author of a new book, Retirement Heist, "When companies began cutting benefits it wasn’t to remain competitive because the plans had a huge surplus and there was no cost to the company. What they were doing is taking the plan and finding a way to convert some of the assets into a benefit for the company and also to boost their profits." (Click here for a transcript of an interview with Ellen Schultz on NPR's Morning Edition on 29 September)
From being significantly overfunded in the '90s, the remaining corporate pension plans are now significantly underfunded. As an example, in the late '90s, Schultz reports, GE's pension plan had a $20 billion surplus -- even though it had not made any contribution to the fund since the mid-1980s. Today, GE's plan is underfunded by $5 billion. What happened?
When companies started looking for ways to get rid of older (read: more expensive) employees in the early '90s, Schultz writes, they could have offered those who were laid off a generous severance package. But "the cost-effective way was to instead promise them a bit more pension money in lieu of severance." In the end, "you've just laid off somebody who's expensive and it has cost you nothing." The problem is that you have just added a person to the eventual pension pool ... without having increased the pool's funds.
"Cutting the benefits actually gives companies a boost to profits. It’s an accounting effect. If you promise to pay $100 million to retirees, that’s a debt on the books. If you cancel that debt, then you get to keep the profit," says Schultz. So pension dollars were used to finance downsizings, and to sell assets in merger deals.
Meanwhile, of course, senior executive pay and pensions continue to rise dramatically. Today's New York Times carries an article by Eric Dash, who writes drily that "the golden goodbye has not gone away."
It's one thing to reward a retiring CEO for a brilliant tenure, but consider these examples that Dash cites:
- $13.2 million in cash and stock severance, in addition to a sign-on package worth about $10 million, for Leo Apotheker, just ousted from Hewlett-Packard after 11 months;
- $17.2 million in cash and stock in August to Robert P. Kelley, ousted from Bank of New York Mellon;
- Nearly $10 million to Carol Bartz after her ouster from Yahoo
None of the moves that Schultz and Dash describe appear to be illegal. But grossly unethical? Oh yeah.
Saturday, September 24, 2011
PS: UBS
A week ago, I quoted FT associate editor John Gapper, asking whether it was a rogue trader or a rogue bank that was behind UBS' "rogue trading" loss of $2.3 billion.
It looks more and more like the latter. Columnist James B. Stewart, writing in today's New York Times, reviews the sadly-long history of, um, questionable behavior at UBS and notes,
No one has suggested that the current chief was in any way involved in the "rogue trades" -- but then, it's not even clear that the trader involved, Kweku Adoboli, profited directly from his trades (the "profit", for Mr. Adoboli, would be that a dramatic success would have propelled his career upwards).
It looks more and more like the latter. Columnist James B. Stewart, writing in today's New York Times, reviews the sadly-long history of, um, questionable behavior at UBS and notes,
The problem the [UBS] board faces is whether the UBS culture ... was one of personal greed. UBS should ruthlessly and visibly weed out not just executives with dubious ethical and legal standards, but anyone who puts their personal interests ahead of clients -- which, when you think about it, should be the litmus test for anyone who claims to be a professional.The current chairman, Oswald Grunwald, was brought out of retirement (from Credit Suisse) specifically to bring a new ethics focus; it is now rumored that the trading loss will cost him his job -- just as substantive legal and ethical lapses brought an end to the prior chief executives (Peter Wuffli, in 2007, and Marcel Rohner, in 2009).
No one has suggested that the current chief was in any way involved in the "rogue trades" -- but then, it's not even clear that the trader involved, Kweku Adoboli, profited directly from his trades (the "profit", for Mr. Adoboli, would be that a dramatic success would have propelled his career upwards).
Friday, September 23, 2011
Are You a Slave Owner?
A recurring request in this blog has been for all of us to be more thoughtful consumers -- to think about the repercussions of the purchases we make. It's not enough to score a better deal (though that feels great!): we need to think about how the purchases we make affect the world we live in.
For example, for several years we have been asked to consider the size of our "carbon footprints", measuring our individual and household effects on the greenhouse gas emissions that are causing climate change.
And we've learned about "blood diamonds" (diamonds whose sales are used to finance insurgencies, warlord activities, and other conflicts).
An article by Andrew Martin in yesterday's New York Times introduced me to a new concept: the slavery footprint.
You may think that slavery is a thing of the past, but the creators of a new website want us all to understand that "anyone who is forced to work without pay, being economically exploited and is unable to walk away" is a slave, and that the State Department estimates that there are 27 million slaves globally.
If you want to know how many slaves work for you, take the survey, here. Along the way, you'll get depressing little bits of information, like: "Bonded labor is used for much of Southeast Asia's shrimping industry, which supplies more shrimp to the U.S. than any other country. Laborers work up to 20-hour days to peel 40 pounds of shrimp. Those who attempt to escape are under constant threat of violence or sexual assault."
The site and survey were created by the Fair Trade Fund, a nonprofit group that focuses primarily on human slavery; funding was provided by a State Department grant.
As Martin writes, the purpose of the survey is "to get consumers engaged enough in the issue to do something about it, primarily hoping people demand that companies carefully audit supply chains to ensure, as best as they can determine, that no 'slave labor' was used to manufacture its products."
What do you know about who made the stuff that surrounds you? I know that my answer now has to be, Not enough.
(PS: if you're curious about the size of your carbon footprint, a couple of free calculators can be found here, from the Nature Conservancy, and here, from the Cool Climate Network at the University of California, Berkeley.)
For example, for several years we have been asked to consider the size of our "carbon footprints", measuring our individual and household effects on the greenhouse gas emissions that are causing climate change.
And we've learned about "blood diamonds" (diamonds whose sales are used to finance insurgencies, warlord activities, and other conflicts).
An article by Andrew Martin in yesterday's New York Times introduced me to a new concept: the slavery footprint.
You may think that slavery is a thing of the past, but the creators of a new website want us all to understand that "anyone who is forced to work without pay, being economically exploited and is unable to walk away" is a slave, and that the State Department estimates that there are 27 million slaves globally.
If you want to know how many slaves work for you, take the survey, here. Along the way, you'll get depressing little bits of information, like: "Bonded labor is used for much of Southeast Asia's shrimping industry, which supplies more shrimp to the U.S. than any other country. Laborers work up to 20-hour days to peel 40 pounds of shrimp. Those who attempt to escape are under constant threat of violence or sexual assault."
The site and survey were created by the Fair Trade Fund, a nonprofit group that focuses primarily on human slavery; funding was provided by a State Department grant.
As Martin writes, the purpose of the survey is "to get consumers engaged enough in the issue to do something about it, primarily hoping people demand that companies carefully audit supply chains to ensure, as best as they can determine, that no 'slave labor' was used to manufacture its products."
What do you know about who made the stuff that surrounds you? I know that my answer now has to be, Not enough.
(PS: if you're curious about the size of your carbon footprint, a couple of free calculators can be found here, from the Nature Conservancy, and here, from the Cool Climate Network at the University of California, Berkeley.)
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