A $50 Drug or a $2,000 Drug - Which Would You Prescribe?

Imagine this situation: You are an eye doctor, treating older patients with an all-too-common problem, wet macular degeneration, which, untreated, can lead to severe vision loss. A cancer drug has been used to treat the condition successfully, at a cost of about $50 a pop.

Now, the same pharmaceutical company that makes the cancer drug you've been using introduces a new drug specifically designed to treat macular degeneration. Great! Except it's going to cost $2,000 per dose.

Oh, and remember that the condition arises most often in patients 60-plus, so Medicare is going to have to pay for much of the cost.

Are you going to switch your patients from Drug A to Drug B?

According to an article by Katie Thomas and Rachel Abrams in today's New York Times, you're significantly more likely to do so if you're being paid "consultant" fees by the pharmaceutical manufacturer.

Raise your hand if you're surprised.

I'm not seeing many raised hands, and I'm not surprised.

Since I started this blog back in 2009, I've argued against "gimme caps" and their like (see here or here) because there's abundant research that we are all way more influenced by even small gifts than we want to admit we are. Thomas and Abrams note that

Specialists who study conflicts of interest between physicians and the drug industry say even modest payments have been shown to influence behavior.

"That’s why a sandwich is so effective — no one wants to feel like they were being bought off for $5," said Dr. Adriane Fugh-Berman, an associate professor at Georgetown University Medical Center in Washington and director of PharmedOut, a project that educates doctors about drug marketing claims. "That’s why they convince themselves that the drug is better."

And of course, the ophthalmologists who are prescribing Genentech's Lucentis (the $2,000 drug) instead of Genentech's Avastin (the $50 drug) do insist that it's because Lucentis is a better drug. 

But here's the kicker. While not every doctor who prescribed Lucentis frequently received consulting fees from Genentech, a suspiciously high percentage of them did:

Half of the 20 doctors who received the most money from Genentech to promote Lucentis in 2013 were among the highest users of the drug in 2012, billing for higher amounts of Lucentis than 75 percent of their peers. The figures were compiled from two federal databases that covered different periods, and it is not known whether or how much Genentech paid the doctors in 2012.

The 20 doctors earned $8,500 to $37,000 over five months in 2013, payments that included consulting and speaking fees as well as travel expenses and meals. Genentech says it has an annual cap of $50,000 a doctor for speaking fees.

That's not a smoking gun, but it does raise eyebrows, and questions. 

Eric Campbell, a professor of health care policy at Harvard Medical School, said doctors frequently denied that relationships with drug companies could change their behavior, despite many studies to the contrary. "They are suggesting that the drug companies that are spending this money, that these companies are dumb enough to be wasting their money," he said.

I don't think the companies are that dumb. Do you?

Chicken, Egg? Or: Egg, Chicken?

We had seen plenty of examples since the near-implosion of the financial sector in 2008 of bankers behaving badly (you can find an oldie-but-goodie here).

I've even wondered whether the problem was more with the individual bankers or with the banking organization (here), and came to the conclusion that it was some of each.

Today's New York Times carried a brief article by Douglas Quenqua on some fascinating research by University of Zurich economists, reported by Kerri Smith in the journal Nature (here) that "bankers were about as honest as anyone else — until they were reminded that they were bankers." So it's not just the individual, or the organization: it's the overall culture of banking.

The economists asked more than 100 employees of a major bank to participate in their study. As Smith reports, 

...[Half of] the participants were quizzed about their jobs and their company, to prompt them to think of their identity as bank employees. The other half answered questions about their hobbies.

The participants were then asked to toss a coin ten times, unwatched by the researchers, and to report the outcome. They could earn money if they reported flipping more heads than tails — and up to US$200 if they reported flipping all heads or all trails.

The first group reported flipping heads 58.2% of the time — significantly higher than would be expected by chance alone. The control group reported tossing 51.6% heads.

And in case you're wondering whether people in other professions would show a similar pattern, the answer is: No.

The study authors suggest some possible measures to combat bad banker behavior, "such as having bankers swear a professional oath to consider the impact of their work on society — akin to the Hippocratic oath taken by physicians — or stopping companies from rewarding employees who behave dishonestly."

Good luck with those.

Who's Trustier than TRUSTe?

Lots of folks, it seems.

I've thought well of TRUSTe, a company that is (to quote their website) "the leading global Data Privacy Management (DPM) company and powers trust in the data economy by enabling businesses to safely collect and use customer data across their customer, employee, and vendor channels."

Moreover, "All TRUSTe solutions are engineered to enable businesses to continuously develop new and innovative products and marketing programs while adhering to best practices for providing customers with transparency, choice and accountability regarding the collection and use of personal information."

OK, that's a little heavy on the marketing-speak, but you'd think I'd like something that promised consumers "transparency, choice and accountability", right? The little TRUSTe symbol on a website seemed like a Good Housekeeping seal of approval.

I'd even assumed -- without really thinking about it -- that a company that certified websites for adhering to privacy standards was probably a not-for-profit.

Turns out I was wrong on several counts. (Sigh. Not for the first time, of course, and surely not the last.) Well, I was half-right about the final assumption: TRUSTe was founded as a nonprofit in 1997, but converted to for-profit in 2008. Let's just think about that for a moment, shall we?

In today's New York Times, Edward Wyatt reports that the Federal Trade Commission has penalized TRUSTe "$200,000 in profits... as part of a settlement for failing to annually recertify the privacy practices of companies in more than 1,000 instances while claiming on its website that it did so each year." (Full article, here)

The commission said that from 2006 to January 2013 TRUSTe failed to conduct annual privacy checks on some of the companies it certified. The company also failed to require companies using its seal to indicate after 2008 that the company was no longer a nonprofit corporation. 

In a blog response (here), TRUSTe CEO Chris Babel wrote that companies that were not reviewed annually were those that had multi-year contracts, which "represents less than 10% of the total number of annual reviews we were scheduled to conduct" and that "over 90% of multi-year clients" had two-year contracts, which meant that "the vast majority were reviewed every other year."

Babel also promised, "We have taken swift action to address the process issues covered by the agreement [with the FTC]."

Remember what your mother taught you? "Fool me once..."

We'll be watching.

This represents less than 10% of the total number of annual reviews we were scheduled to conduct during that time.
Multi-year clients that did not undergo the annual review step of their certification were reviewed when their agreements were up for renewal. Because over 90% of multi-year clients signed two-year contracts, the vast majority were reviewed every other year.
- See more at: http://www.truste.com/blog/#sthash.zpAk8r7s.dpuf

his represents less than 10% of the total number of annual reviews we were scheduled to conduct during that time.
Multi-year clients that did not undergo the annual review step of their certification were reviewed when their agreements were up for renewal. Because over 90% of multi-year clients signed two-year contracts, the vast majority were reviewed every other year.
- See more at: http://www.truste.com/blog/#sthash.zpAk8r7s.dpuf

At the Risk of Repeating Myself:

If people are dying because of your product, you should really really do something to fix the problem.

Trust me on this: Sweeping research under the rug is not going to make the problem go away.


Less than a year ago, I asked how many people had to die before a company would wake up and start recalling their product (full post, in re GM's ignition switch defects, here).

I'm asking the question again today, as more information comes out about airbag defects at Takata.

According to an article by Hiroko Tabuchi in today's New York Times, the Japanese airbag manufacturer, "alarmed by a report a decade ago that one of its airbags had ruptured and spewed metal debris at a driver in Alabama", conducted secret tests, using airbags retrieved from junked vehicles. The results? According to former employees (anonymous "because of continuing ties to Takata"):

The steel inflaters in two of the airbags cracked during the tests, a condition that can lead to rupture, the former employees said. The result was so startling that engineers began designing possible fixes in preparation for a recall.....

But instead of alerting federal safety regulators to the possible danger, Takata executives discounted the results and ordered the lab technicians to delete the testing data from their computers and dispose of the airbag inflaters in the trash, they said.

Those secret tests were conducted a decade ago, "after normal work hours and on weekends and holidays during [the] summer". 

That was four years before Takata, in regulatory filings, says that it first tested the problematic airbags. The results from the later tests led to the first recall over airbag rupture risks in November 2008.

The current recall has grown to involve ten automakers (BMW, Chrysler, Ford, Honda, Mazda, Mitsubishi, Nissan, Pontiac, Subaru, and Toyota) and 14 million vehicles. A more complete list of years and models affected, compiled by the National Highway Traffic Safety Administration, can be found here.

I understand the pressures that automakers and their suppliers face - to keep costs down, to meet brutal "just-in-time" manufacturing schedules, not risking penalties for late deliveries. But:

“That put a lot of pressure and incentive on us to never miss a shipment,” said one of the former managers. “I’d argue, ‘what if my daughter bought the car with the bad airbag?’ But the plant would tell us, ‘Just ship it.' ”

"Just ship it"? Really?

What's the Difference Between a $5.60 Big Mac and a $4.80 Big Mac?

One of them comes with a living wage for the server, and the other doesn't.

In today's New York Times, Liz Alderman and Steven Greenhouse explore the difference between a Big Mac purchased in Denmark and one bought in the United States (full article, here). For the consumer, the difference is 80 cents (16.67%), which was actually a lot less than I had expected, given how loudly U.S. franchises have been prophesying the end-of-the-world should living wages become the norm here.

Cross-cultural comparisons are always risky. Denmark has a much higher cost of living than most of the U.S., higher taxes, high levels of unionization, etc.

But... the Danish example proves that it is possible to have that Big Mac and not penalize the McDonald's worker for the sin of being poor.

I've written before about the appalling way that U.S. capitalism concentrates on going lower and lower (example here). A living wage is a moral issue, not an economic one, but it's nice to know that the economics work too. 

The base wage for a McDonald's employee in Denmark is $20 an hour, "two and a half times what many fast-food workers earn in the United States," and much higher than the $15 an hour for which  many U.S. workers have been campaigning. Note that:

Denmark has no minimum-wage law. But ... [a Danish worker's] $20 an hour is the lowest the fast-food industry can pay under an agreement between Denmark’s 3F union, the nation’s largest, and the Danish employers group Horesta, which includes Burger King, McDonald’s, Starbucks and other restaurant and hotel companies.

By contrast, fast-food wages in the United States are so low that half of the nation’s fast-food workers rely on some form of public assistance, a study from the University of California, Berkeley found. American fast-food workers earn an average of $8.90 an hour.

Most corporate fast-food companies won't discuss employee wages because "those decisions [are] made by its franchise operators", which is disingenuous at best, since corporate will train franchisees on how best to keep down labor costs.

But it's not just the wages that are different:

In Denmark, fast-food workers are guaranteed benefits their American counterparts could only dream of. Under the industry’s collective agreement, there are five weeks’ paid vacation, paid maternity and paternity leave and a pension plan. Workers must be paid overtime for working after 6 p.m. and on Sundays.

Unlike most American fast-food workers, the Danes often get their work schedules four weeks in advance, and employees cannot be sent home early without pay just because business slows.

In other words, Danish workers are treated like valuable human beings, not simply as "costs". Not surprisingly, fast-food worker turnover is low and front-line employees even think about their jobs as potential careers, not something to move on from as quickly as possible. Turnover is expensive, but you don't see U.S. fast-food companies looking for good ways to reduce that, do you?



True, Danish fast-food franchises appear to be less profitable than American ones (by how much is not clear, but they're certainly not unprofitable, or they wouldn't be around for long). And those burgers are certainly a little more expensive, but Danes seem OK with that:

“We Danes accept that a burger is expensive, but we also know that working conditions and wages are decent when we eat that burger,” said Soren Kaj Andersen, a University of Copenhagen professor who specializes in labor issues.

That U.S. Big Mac still taste as good to you? Mine seems to have some straw in it.

Still Waiting for Stronger Action

The numbers of states banning a particular type of guardrail has now grown to ten. In the event of a vehicular collision, the guardrail and its "redesigned" end terminal are supposed to slide along, cushioning the impact of the vehicle; instead, the ends are sometimes malfunctioning, effectively driving a spear into the vehicle itself. (I first wrote about this issue about ten days ago - original post, here.)

The issue is that redesigns are supposed to be tested and approved by the Federal Highway Administration before installation.... and they weren't. A Texas jury found that Trinity Industries, the guardrail manufacturer, had defrauded the government, and awarded $175 million (which, under federal law, will be tripled to $525 million; complete New York Times article on the jury findings, by Danielle Ivory and Aaron M. Kessler, here).

Ivory and Kessler reported on Tuesday (full story, here) that the Federal Highway Administration had finally ordered more testing on the guardrail design. Meanwhile, "At least 14 lawsuits blame the guardrails for five deaths and more injuries." The Trinity "ET-Plus" units have been installed in virtually every state.

Ivory reported today that there are now ten states that have banned the ET-Plus: Colorado, Hawaii, Massachusetts, Mississippi, Missouri, New Hampshire, Nevada, Oregon, Vermont, and Virginia.

I'd like to see my state added to that list. And could we hurry up on the testing please?

Happy Endings Can Happen!

...but it helps to have The New York Times watching.

Yesterday, I wrote about the woman who was essentially fired from her job for being pregnant (that's a simplification, but it's a long story, and if you want the details, you'll find them here). Her employer's move appeared to be a clear violation of a New York City ordinance protecting pregnant workers, but I was more taken aback by the simple lack of compassion and decency.

Today, it turns out that the woman is being offered her job back.

In a followup article, reporter Rachel Swarms writes that the woman - now unemployed for nearly three months - can return "immediately without loss of seniority and without fear of retaliation," in the warm and welcoming words of her employer's lawyers.

The lawyer, of course, is "not admitting that [the company] had violated any laws or fired Ms. Valencia," and that the health and safety of employees is "of utmost importance."

Why do I find that last statement a little hard to believe?

What Ever Happened to Common Decency and Compassion?

At the workplace, apparently, it's being forced out by the Almighty Bottom Line.

Today's New York Times carries a deeply depressing article by Rachel Swarns about the risks of being pregnant in the workplace. No, not the risk of harm to your developing child, the risk of getting fired for the fact of being pregnant. Oh, and: to hell with the legality of that action.

According to the article, the 39-year-old woman, who had suffered a miscarriage the previous year, arrived to work with a note from her doctor saying that her current pregnancy was again high-risk and she should work no more than eight hours a day. Eight hours a day, five days a week -- that sounds like a fulltime job to me.

And the job was critically important to her financial stability. She earned $8.70 an hour (after three years on the job -- there's another whole post in that comment alone); her husband was a driver for a private bus company. Together, they earned enough to cover their expenses, including a "studio apartment in Corona, Queens." Not exactly high living, but they were getting by.

What would her bosses say? She worried and prayed.

...[It] was the busy season at the Fierman Produce Exchange, and her bosses had already told her she had to work overtime. So as Ms. Valencia sorted potatoes on that Aug. 8 morning, she worried: How would her supervisors respond to the doctor’s note? At the end of her shift, would she still have a job?

Stop right here and think what you would do if you were Ms. Valencia's employer.

Here's what happened: 

...[When] Ms. Valencia told her supervisors in July that she had a high-risk pregnancy, they told her she could work only without restrictions, she said. After taking time off to try to negotiate an accommodation with the company, she returned when her co-workers volunteered to handle the heavy machinery and lifting.

In August, she said, her supervisors insisted that she work overtime. Ms. Valencia felt so ill after two lengthy shifts that she went to the hospital and then to her doctor, who gave her the letter that she handed to her boss.

....

Ms. Valencia said she begged her managers to excuse her from overtime as her doctor had recommended. She pointed out that the company’s busy season typically ended in September, and that overtime was rarely needed during the rest of the year.

But her managers insisted that she could not work without a full-duty medical clearance. So Ms. Valencia turned in her company identification and wept as she started the long commute home.

 Excuse me?

This seems like a clear violation of the Pregnant Workers Fairness Act, a New York City ordinance which took effect in January of this year, and

...[which] requires employers to make reasonable accommodations for pregnant workers — such as providing rest and water breaks, modified schedules and light duty — so long as the accommodations don’t cause undue hardship for the employer. Makes sense, right? It’s actually critical, particularly for low-income women who sometimes get pushed out of their jobs — and into poverty — when they become pregnant.

But I actually care less about the legality than about the stunning lack of basic human decency. We are, after all, talking about a temporary disability. What if Ms. Valencia had broken a bone or strained muscles? Would that be grounds for pushing her to leave? (And note: the story does not make it clear whether she was actually fired, in which case she would be eligible for limited unemployment insurance, or pushed into resigning, in which case she wouldn't.)

Ms. Valencia's co-workers had the decency to offer to help with the most physically demanding elements of her job. But her bosses didn't have the decency to hire temporary workers to pick up the slack during the their busy season.

And some people still wonder whether there's a need for unions today. Ask Ms. Valencia. 

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?

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. 

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.

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?

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?

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. 

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".

Write Well and Keep Our Advertisers Happy

Imagine, for a moment, that you are the chief executive of a major magazine publishing company. These are tough days in the print publications world -- more and more readers are getting their news and entertainment online, where it's updated faster and provided more cheaply (often, for free). So if you have any hopes of staying profitable (or returning to profitability), you have to find ways to boost revenue or cut costs.

An obvious starting point for boosting revenue is making your advertisers happier.

An obvious starting point for cost-cutting these days is trimming staff.

But publishing relies on, among other things, writers. How many people will pay money for a magazine that's all ads? I don't always throw out the catalogues that clog my mailbox, but I certainly wouldn't pay money for them. (Yes, I'm familiar with Lucky, which straddles the line between magazine and catalogue.)

So you have decided that you need to cut your writing staff. But who to cut? How will you determine which writers to keep and which to jettison? What criteria will you use to judge them? Quality of writing, for sure (especially since you've already gotten rid of most of the copy editors who could improve anyone's material). Their productivity, no doubt. What else?

In this day of social media, their ability to produce Twitter-teasing snippets and YouTube-ready video is probably important too.

But what about this: Advertiser-friendliness?

That's the direction in which Time Inc. has moved, and Henry Luce is doing wheelies in his grave. Time Inc., with its stable of famous publications (TIME itself, plus Sports Illustrated, People, Entertainment Weekly, Fortune, etc.), was spun off from Time Warner in June (Wall Street Journal article from March 2014 on the spin-off, by Keach Hagey and Martin Peers, here). Layoffs have already occurred, and more are expected.

Gawker Media reported yesterday (here; by Hamilton Nolan; a similar story, by Ravi Somaiya appears in today's New York Times, here) that Sports Illustrated writers were being evaluated on the following criteria:

1. Quality of writing
2. Impact of stories / Newsworthiness
3. Productivity / Tenacity
4. Audience / Traffic
5. Video
6. Social [media]
7. Produces content that [is] beneficial to advertiser relationships

So much for the "Great Wall" between editorial and publishing.  

The information was provided to Gawker by the Newspaper Guild, which represents some Time Inc. employees; the guild was provided with the information by Time Inc. itself. A union representative told Gawker:

Time Inc. actually laid off Sports Illustrated writers based on the criteria listed on that chart. Writers who may have high assessments for their writing ability, which is their job, were in fact terminated based on the fact the company believed their stories did not 'produce content that is beneficial to advertiser relationships.

An arbitration demand has been filed, "disputing the use of that and other criteria in the layoff decision-making process."
 

You may be thinking, "So what?" But how much editorial writing (by which I mean both news articles and opinion pieces) will you trust if you know that the writers are being judged by their advertising-friendliness? Is that highly positive piece on a new technology in "Big Business Magazine" for real? Should you invest? Or it it written that way because the new technology comes from a company that's advertising heavily in "Big Business"?

Back at the dawn of time, I was a newspaper reporter. And though many readers are cynical about journalists' "objectivity" (and post-modernists argue, with considerable justification, that objectivity is an illusion), I can tell you that we took it very seriously. We did our damnedest to tell the story as we saw it, and be damned to whether the person we were writing about was a close personal friend of the publisher or not.

Welcome to 21st-century journalism.

A Sports Illustrated spokesperson is quoted in both Gawker and the Times complaining that the report is "misleading and takes one category out of context", and that "SI's editorial content is uncompromised and speaks for itself."

It may be speaking, but what exactly is it saying?

Who Lives? Who Dies? You Decide.

Medical history is rife with the stories of unethical research (e.g., Tuskegee syphilis experiments; Centers for  Disease Control comments here), and African history is rife with stories of the horrific exploitation of native populations by colonizing countries (Wikipedia article on Africa colonization, here).

Put the two together, and you have the potential for a highly toxic brew.

So what would you do, in the face of the current outbreak of Ebola hemorrhagic fever in West Africa? There is an experimental drug, available in tiny quantities. It is just finishing up animal testings, and is due to start in soon on clinical trials. It shows promise, but its actual effectiveness is unknown. Should it be distributed to current Ebola sufferers? And if so, to whom should it be given?

Do you give to front-line African medical workers, as the ones who have put themselves at the greatest risk, but who may already be too sick to benefit, or whose medical care may not be "up to" Western standards? Or do you give to Western aid workers, who have been airlifted home, and can be treated in high-isolation sterile wards?

If you give it to the Africans, and they die, is this just another example of using non-whites as guinea pigs for First-World medicine?

If you give it to the Westerners, and they survive, is this just another example of valuing Westerners' lives more highly?

The question is now more-or-less moot, as there are virtually no supplies of the experimental drug, ZMapp, left (click here for CDC's explanation of Ebola, and here for CDC's Q-and-A on ZMapp). At most, there are a few hundred doses remaining; to date. more than 1,800 cases have been reported and more than 1,000 people have died.

The questions are discussed at length in two Andrew Pollack articles for The New York Times (August 8 piece, here; August 12 piece, here). Pollack's most recent article reported that

On Tuesday, the World Health Organization endorsed the use of untested drugs to combat the outbreak, which has already killed more than 1,000 people and continues to spread. But ZMapp and other potential treatments are in such short supply that another politically charged question remains: Who should get them?

Marie-Paule Kieny, assistant director general of the World Health Organization, said at a news conference in Geneva on Tuesday that several drugs and vaccines had shown some promise in animal testing and might conceivably be used.

But none are “available in unlimited supplies right now,” Dr. Kieny said. “I don’t think that there could be any fair distribution of something which is available in such a small quantity.”

So -- who would you choose?

And let's make the discussion a little tougher. The Times' Donald G. MacNeil Jr. reported today (full article, here) that

The Ebola outbreak in West Africa is so out of control that governments there have revived a disease-fighting tactic not used in nearly a century: the “cordon sanitaire,” in which a line is drawn around the infected area and no one is allowed out.

Troops in Sierra Leone and Liberia are closing off roads in infected areas, not allowing people in or out. So... do you just let the people inside that "cordon" fend for themselves, and die or not? Do you provide the limited medication you have to the ones living in the area with the highest levels of disease? MacNeil reports:

“It might work,” said Dr. Martin S. Cetron, the disease center’s chief quarantine expert. “But it has a lot of potential to go poorly if it’s not done with an ethical approach. Just letting the disease burn out and considering that the price of controlling it — we don’t live in that era anymore. And as soon as cases are under control, one should dial back the restrictions.”

Experts said that any cordon must let food, water and medical care reach those inside, and that the trust of inhabitants must be won through communication with their leaders.

 How ethically will panicked people behave? And how much trust in Western medicine and aid do you think exists in West Africa today? 

If You're Planning on Bringing Out the Big Guns...

...Please make sure they're aimed correctly.

Over the weekend, I read the full-page ad that "Authors United" ran in the New York Times opposing Amazon's actions against publishing house Hachette. The ad, signed by hundreds of authors (most not published by Hachette), argued succinctly that "None of us, neither readers nor authors, benefit when books are taken hostage."

Amazon has de-listed many Hachette-published books over the price of e-books, and is now reportedly in a dispute with Disney, preventing Amazon customers from pre-ordering unreleased material (books or movies whose publishing / release date has been announced, but has not yet occurred).

Amazon had earlier posted its own "Readers United" manifesto, accusing Hachette of over-pricing ("Many e-books are being released at $14.99 and even $19.99. That is unjustifiably high for an e-book. With an e-book, there's no printing, no over-printing, no need to forecast, no returns, no lost sales due to out of stock, no warehousing costs, no transportation costs, and there is no secondary market — e-books cannot be resold as used books. E-books can and should be less expensive."). It has also accused Hachette of collusion with other publishers in setting those prices, and quoting George Orwell.

Now, those of us who love books and words love Orwell. This is, after all, the man who skewered the mis-use of language with the "Newspeak" of 1984, and the three great slogans of "the Party":

• War is Peace
• Freedom is Slavery
• Ignorance is Strength

According to Amazon, its e-book platform would have been seen as a threat to traditional publishing by Orwell, just as the introduction of inexpensive paperback books was:

The famous author George Orwell came out publicly and said about the new paperback format, if "publishers had any sense, they would combine against them and suppress them." Yes, George Orwell was suggesting collusion. 

The Internet exploded in response, because the actual quote is:

The Penguin Books are splendid value for sixpence, so splendid that if the other publishers had any sense they would combine against them and suppress them.

A slightly different spin, wouldn't you say?

In fact, as noted by David Streitfeld in today's New York Times, Orwell went on from there (full article, here):

Orwell then went on to undermine Amazon’s argument for cheap e-books. “It is, of course, a great mistake to imagine that cheap books are good for the book trade,” he wrote, saying that the opposite was true.

“The cheaper books become,” he wrote, “the less money is spent on books.”

Instead of buying two expensive books, he said, the consumer will buy three cheap books and then use the rest of the money to go to the movies. “This is an advantage from the reader’s point of view and doesn’t hurt trade as a whole, but for the publisher, the compositor, the author and the bookseller, it is a disaster,” Orwell wrote.

 Hachette has issued its own salve (Sarah Gray article in Salon, here), in which CEO Michael Pietsch responds directly to the Amazon complaints, noting that (among other things),

We know by experience that there is not one appropriate price for all ebooks, and that all ebooks do not belong in the same $9.99 box. Unlike retailers, publishers invest heavily in individual books, often for years, before we see any revenue. We invest in advances against royalties, editing, design, production, marketing, warehousing, shipping, piracy protection, and more. We recoup these costs from sales of all the versions of the book that we publish—hardcover, paperback, large print, audio, and ebook. While ebooks do not have the $2-$3 costs of manufacturing, warehousing, and shipping that print books have, their selling price carries a share of all our investments in the book.

Amazon is under increasing pressure from Wall Street to produce profits, not just revenues. And while there are plenty of happy Amazon customers who will decry the evil profiteer publishers, I side with the publishers and Authors United on this one (this despite being -- full disclosure -- a generally satisfied Amazon Prime subscriber). I don't want prices to go so low that authors can't make a living. Because then they'll stop writing. And that won't be good for publishers like Hachette, for Internet bookstores like Amazon, or for readers like me. 

The Only Reason I'm Not Boycotting Market Basket Is...

... There isn't one in my neighborhood.

But as a native Bay Stater, I've been following the extraordinary story of grocery workers rallying for an ousted CEO (A good summary of the current situation, in yesterday's New York Times, is here; article by Katharine Q. Seelye and Michael J. de la Merced; the actions were also covered by WBUR's On Point radio program today, here).

I drove by the Gloucester MA Market Basket store over the weekend and found that while the nearby rotary had several employees holding up "Honk if you love Artie T." signs, the store's parking lot, designed for hundreds of cars, held fewer than ten.

The Market Basket story has elements of a soap opera (or a Russian novel), with feuding cousins threatening the structure of an entire business on which thousands depend. The chain was founded about a century ago by Greek immigrants, and has grown to 71 stores in Maine, New Hampshire, and Massachusetts. Control has passed to grandchildren, two of whom (Arthur _T._ Demoulas and Arthur _S._ Demoulas) have been fighting for control. Arthur T., who had been president, was forced out in June, and Arthur S. took over, bringing in two "co-chief executives", and apparently exploring options for the sale of the chain.

Market Basket workers made their feelings about "Artie T." clear, and were joined by Market Basket customers, who honored the workers' requests to boycott the store. While many line cashiers and stockers are still showing up for work, they have less and less to do, as few customers are buying, and shelves are empty, as Market Basket warehouse employees are refusing to deliver goods to the stores. The chain is said to be losing millions in sales each week.

Joined by store managers and mid-level executives (several of whom were fired after organizing the first protests), the action is unlike any other workplace disruption seen -- the 99%, if you like, protesting for a member of the 1%.

Boston's WBUR (full article, here) interviewed an assistant produce manager who was protesting: Why was he there? His reply was:

I have concerns, but at the same time I will take the risk because this company has provided me with everything I’ve needed for the last 11 years. Artie T. has made the company what it is. He’s genuinely interested in the associates as well as the customers.

 What's going on here? Just a summertime tizzy? I don't think so. As an opinion piece in the Lowell (MA) Sun noted (here), customers are standing with the protesters, it wasn't just about the "fair prices" for which Market Basket was known:

Market Basket was and is a real place. A place where an actual human being rings up your groceries instead of those stupid, soulless, self-scan aisles. A place where the kid from your neighborhood shows you where an item is. A place where the store manager says hi to you by name and blurts out the weekly specials over the intercom: "Attention, Mah-ket Basket shoppahs." 

And the attention that the workplace action is getting is only increasing. The Sun writer added: 

This is about something much bigger than Market Basket employees or customers now. This is about the middle class having a chance. This is about America.

As many of you know, I argue regularly against "shareholder value" as the be-all and end-all of capitalism. I've written about it often (e.g. here, and, most recently, here). Positive results for shareholders aren't just about this quarter's share price. They're about the long-term. And for that you need well-paid and -trained employees, and loyal customers. Which Market Basket had, in spades. It's a shame the board of directors didn't realize the value of what they had.  

Worried About That Used Car You're Thinking of Buying? Go to New York City.

Why regulate? I'll say it again: Because if you don't, too many people won't do the right thing.

I wish that weren't true. But it is, and we all know it. Oh, and we know all the "good" reasons why, too. (Free example: "Gee, I really want to do the right thing, but my competitor, across the street? He's a horrible person, and I know he won't do the right thing, which would cost a little more, so he'd be able to charge less, and I'd go out of business. But really: I'd like to be able to do the right thing. Honestly.")

I wrote a month ago (here) about my disappointment that CarMax's "rigorous inspection" of the used cars it offered for sale did not include having vehicles under recall repaired before sale. It turns out -- which I didn't know, and I suspect most other consumers don't either -- that while a new-car dealer must repair a recalled vehicle before it can be sold, used-car dealers aren't required to do that.

The National Highway Traffic Safety Administration (NHTSA) has been asking Congress for such a law, but proposals have been languishing in both House and Senate (what a surprise!).

In a May New York Times article, the NHTSA director said, "It should be a slam dunk...To me it is hard to oppose ensuring that people who buy a car, whether it is new or used, or whether you are renting a vehicle, can have the confidence that it is safe." (Full article, here)

New York City is now taking matters into its own hands. According to Rachel Abrams and Christopher Jensen, in today's New York Times (full article, here), 

New York [City]’s requirement is a stricter interpretation of a state law that requires all vehicles to be safe and roadworthy in order to be sold. Now, city officials want to make it clear to dealers that being safe includes repairing cars under recall....

Companies found to have sold unrepaired used cars will be required to notify the vehicles’ owners about the defect and make any necessary repairs. The department is prepared to issue violations to offending companies and, if necessary, revoke their licenses to operate.

While some dealerships already have policies in place requiring the repair of vehicles under recall, others are complaining about the additional burden this regulation will place upon them:  "When do we stop babysitting the consumer?" asked one used-car dealer.

He clearly has a different definition of "babysitting" than do I.

The question is, How many people will have to be injured or die before Congress takes action?

How Is Inversion Different From Evasion?

If you're talking taxes, the answer's easy: Inversion is legal, evasion is not.

But if you're talking the morality of tax-avoidance... well, I think it gets a lot murkier.

If you've read this blog even casually, you know that one of my favorite quotes is from the great American jurist, Oliver Wendell Holmes: "Taxes are the price we pay for a civilized society." (Last used, I think, here when I was also talking about sleazy tax-avoidance schemes)

And if you've been following the business news lately, you've seen a lot of talk about inversion deals. (If you, like me, are not a tax accountant / lawyer, the short definition is: Moving out of the US and establishing your corporate "headquarters" in a country with a lower corporate tax rate than ours.)

And the more I've been reading about these deals, the madder I've gotten. Clearly, if the Supreme Court is right, and Corporations Are Persons, then way too many of them are sociopaths.

The current poster child for inversion is Minnesota-based Medtronic and its acquisition of Massachusetts-based-but-Ireland-headquartered Covidien (14 June 2014 New York Times article detailing the deal, here). But it's hardly the only such company making this move. Today's Times, for example, carries a David Gelles article (here) about the anticipated acquisition of Ireland-based pharmaceutical giant Shire by Chicago-based even-bigger pharmaceutical giant AbbVie.

Lawmakers may be starting to pay attention. Treasury Secretary Jacob Lew sent a letter to Congress Tuesday (as reported in today's New York Times by David Gelles, here), urging it "to take immediate action to halt the rush of companies abroad." Lew and some lawmakers are concerned about the significant reduction in tax receipts; I'm outraged by the immorality.  Especially as many of the pharma companies that are moving abroad receive substantial payments from the federal government through Medicare and Medicaid.

Thankfully, I'm not alone in my outrage.

Fortune senior editor at large Allan Sloan has written an excellent, blistering cover story (here; long but absolutely worth reading; if you're an audio person, Sloan gave a great interview to WNYC's Leonard Lopate yesterday, available here) on the fiscal and philosophical damage that mass inversion can / will cause. Sloan fairly presents the argument for moving "headquarters" abroad:

The U.S. tax rate is too high, and uncompetitive. Unlike many other countries, the U.S. taxes all profits worldwide, not just those earned here. A domicile abroad can offer a more competitive corporate tax rate. Fiduciary duty to shareholders requires that companies maximize returns.

But, Sloan argues, if your taxes are too high, you shouldn't desert the US: You should stay and fight for tax reform. Moreover:

I define “fiduciary duty” as the obligation to produce the best long-term results for shareholders, not “get the stock price up today.” Undermining the finances of the federal government by inverting helps undermine our economy. And that’s a bad thing, in the long run, for companies that do business in America.

Yes. I have written before that "shareholder value" is too often used to justify really questionable behavior (example: here).

The simple solution, many are saying, is to cut the US corporate tax rate. But would that work? Sloan believes (and I agree), that it wouldn't:

In the widely hailed 1986 tax reform act, Congress cut the corporate rate to 34% (now 35%) from 46%, and closed some loopholes. Corporate America was happy–for awhile. Now, with Ireland at 12.5% and Britain at 20% (or less, if you make a deal), 35% is intolerable. Let’s say we cut the rate to 25%, the wished-for number I hear bandied about. Other countries are lower, and could go lower still in order to lure our companies. Is Corporate America willing to pay any corporate rate above zero? I wonder.

Great: So we're back to playing a how-low-can-you-go game, and to hell with the rest of us. I don't know about you, but I'm stuck here -- and patriotically glad of it -- and paying my taxes. And may I point out that, while the "sticker rate" is 35%, it's not the actual rate that most companies pay (2013 CNN Money piece, here; according to the GAO, the effective tax rate in 2010 was ....12.6%).

As I said, Sociopaths. 

Hate Those Regulations And Unions? Look In The Mirror, And You'll See Why They Exist

Senior managers seem to take great pleasure in excoriating the twin evils of government regulation and labor unions. Without those, they say, think how much more efficient our marketplaces would be! Think how much more profitable our company would be!

It's my opinion that government regulations and labor unions are in fact statements about how badly many companies are run. I can't think of many governments that begin with massive regulation of corporations -- regulation comes about because of horrific instances of environmental pollution, workplace safety lapses, or other abuses. Labor unions have trouble getting into companies where workers feel valued and well-paid. If your employees are starting to mutter about unionizing, the problem's not with them: it's with you.

I wrote a few months ago (full post, here) about the tiniest hints that companies are learning that hiring more employees and paying them better results in happier customers, bigger sales, and even higher profits. Today's New York Times has two article that relate to this discussion.

In the first (full story, here), Steven Greenhouse writes about the growing pushback against "on-call" schedules that give workers little or no control over their working hours. In many cases, workers learn only a day or two in advance -- occasionally on the day itself -- whether they will be working or not. That gives them little time to arrange for child care, for example, or to work a second job to improve their financial situation.

A retail organization representative is quoted opposing proposed regulations that would require employers to pay workers extra if they are given less than 24 hours' notice, or to grant flexibility for care-giving or school-conflict requests: "Where employers and employees now work together to solve scheduling problems, you’ll have a very bureaucratic environment where rigid rules would be introduced."

Expect that, as I hear it from retail employees, employers and employees don't "work together". Unless you define "working together" way differently from the way I do.

A University of Chicago professor notes, "Frontline managers face pressure to keep costs down, but they really don’t have much control over wages or benefits...What they have control over is employee hours."

And employees have no power to resist.

That situation won't change until retailers stop thinking of their store employees purely as a cost. I know I'm not the only shopper who has left a store in annoyance, and without spending the money that I had intended to spend, because I couldn't find anyone on the floor to help me.

In the second story (here), Eduardo Porter compares the commitment that many early- to mid-20th century employers had to their employees to what passes for commitment today. He recalls Eastman Kodak's early profit-sharing plan, Ford's revolutionary (for the time) $5 a day salary for its workers, and other well-known examples. Meanwhile, today, too many companies still worship at the altar of Milton Friedman and "shareholder value".

Companies, of course, are not charities. Their main responsibility is to remain profitable.

Still, there is a case to be made that attending to workers’ rights or environmental degradation might help the business in the long term...

More broadly, company executives are under a new form of pressure. George Serafeim of Harvard Business School points out that the information age has brought greater transparency to corporate operations. Customers, investors and employees know more about what businesses do around the world and can exert influence to change their behavior.

Of course, while corporations may clean up what's visible to the outside world, that's no guarantee that the same will occur on the inside. Which is why I support whistle-blower protections, too.

Is It Possible to be TOO Transparent?

You know how I'm going to answer that question, right?

But I've been thinking about it all day, after reading an article by Bill Vlasic and Danielle Ivory in today's New York Times, whose headline tells the story: "In recall blitz, GM risks its reputation."

They quote an analyst: "We’re hitting unprecedented numbers and it’s reasonable for people to start asking, When and where will it end?"

(Note that a substantial number of comments to the Times article are along the lines of:  Reputation for quality? What reputation for quality? Unless you mean, Poor quality.)

Still, it made me think of a post I wrote in March (here) in which I encouraged manufacturers with a problem to address it as quickly and directly as possible, as a big hurt now will hurt less than a lot of little hurts later.

But is it possible to recall too many products at once? I don't think so, despite the massive size of the current spate of recalls (more than eight million more vehicles were recalled on Monday, many with ignition-switch issues that appear to be similar to the Cobalt problems that started the wave).

I expect that GM will take a hit in sales in the short term -- although June sales were actually up from a year ago, as were year-to-date sales (see Ward's report, here), thanks to strong government fleet and commercial fleet orders -- but if CEO Mary Barra and her team can show that they are serious about changing the culture of GM, the long-term effects of the recall(s) should be positive.

I'll stick to my old line: To rebuild Trust, embrace Transparency.

Just How "Rigorous" Should a "Rigorous Inspection" Be?

Many years ago, I worked for an automotive manufacturer. It was a common saying that "all new cars are alike, but every used car is different."

What we meant by that was that the differences between two brand-new Maximotor Mojomodels were generally insignificant. But once those two Mojomodels were a few years old, they could be very different, depending on whether one owner had driven many more miles, or had the car serviced less regularly, or had driven nothing but short in-town runs, or lived in an area with high use of road salt, or... or... or.... Those differences were potentially endless, and could be critical.

Which is why buying a used car could be fraught with peril. Even if you were armed with the latest Consumer Reports, and knew that Maximotor Mojomodels were highly rated for reliability, safety, and durability, could you be sure that this Mojomodel -- all shiny with fresh polish, "only" two years old, with "only" 20,000 miles on the odometer, and tricked out with all the options available -- was really a good buy?

When I bought my first car, I hired an independent mechanic to go over two possibles for me, because, honestly, it could have been a bunch of mice running around on a wheel that made the car go, as far as I knew. I had my heart set on a cherry-red Fiat, but on Terry's recommendation, ended up with a lime-green Subaru that served me well for several years.

But what if you don't know a good independent mechanic? That's why I thought CarMax was a great idea when it was introduced in the early '90s. It dealt head-on with many "used-car dealer" stereotypes. Go to its site (here) and right at the top you'll see that "All of our used cars are CarMax Quality Certified and include a 5-day Money-Back Guarantee". Deeper in the site, and in TV commercials, the company trumpets its "125+ - point inspection" that "checks the core systems of every car".

Wow, I feel better!

Alas, it appears that "Quality Certified" may not mean what you or I think it means.

According to a Christopher Jensen article in today's New York Times, " a coalition of 11 consumer groups has asked the Federal Trade Commission to investigate" whether CarMax ads are deceptive. 

The groups say CarMax does not fix vehicles that have been recalled before it sells them, even though the retailer’s ads promise that the vehicles have had a rigorous quality inspection.

It should be noted that while the "National Highway Traffic Safety Administration requires new-car dealers to fix recalled new vehicles before they can be sold", this is not true of used-car dealers or used cars. (Did you know that? I certainly didn't.) The Times article notes that NHTSA "is seeking such authority from Congress." (Given how quickly Congress takes action these days, I'm not holding my breath.)

According to a CarMax spokesperson, "CarMax provides the necessary information for customers to register their vehicle with the manufacturer to determine if it has an open recall and be notified about future recalls."

Which is probably just as far as they need to go, legally.

The CarMax spokesperson is right that "automakers did not give retailers like CarMax the authority to carry out recalls at their facilities", but there is nothing preventing CarMax from taking a vehicle on its lot that is subject to a recall to the nearest authorized dealership, having the recall repair done, and then bringing it back to the CarMax lot.

Sometimes, going just as far as you need to go isn't far enough. Especially if you are trumpeting that the "foundation" upon which your business is built is "INTEGRITY" (their caps, not mine).