PoliticsAndProblemsAired

As a manager you might find yourself in the midst of a major problem. Dealing with it inside the organization is one challenge, having it reach a newspaper is another. How have these incidents been supressed for so long? Who knew? What management principles were at play?

-Becky Winant 2002.06.27

What do current stories about Arthur Anderson, Enron and Imclone tell us about management? Or, should I say what do the current media stories tell us?

Years ago in Sociology 1-oh-whatever, I remember the professor saying that what we hear in the media is simply a reflection of what politicians and local officials want us to hear, not a reflection of a real fluctuation in human activity. This is a traditional way in which media is used to control popular behavior and opinion.

How do you think this says something about your organizations? - BeckyWinant 2002.06.24

Becky - was that prof speaking before or after Watergate? I think that "politicians getting what they want said by the media" has been cured, but possibly the cure is worse than the illness was.

I remember detective stories from the 1950's where the murder was committed because the murderer couldn't face disclosure of some horrible truth that seems trivial today - so many things are now out of the closet! Perhaps the Anderson demise will swing us all back toward that level of fear of exposure, but I doubt it's enough to get "scared straight." -BobLee 2002.06.24

Bob, My Sociology class was pre-Watergate. Let us not forget another fifties memory: the Mc Carthy trials, which regardless of how far fetched, ruined many careers and lives, :(

The specific class was: Deviant Behavior (which I took it because the prof was well known for his expertise...and...this can go on in lots of exchanges I've heard already :)...So, The basic idea was that police and other govt. agencies have statistics on crime. When politicians or govt. agencies want a change they simply change the rate, slant and quantity of information that is released - molded to elicit a specific response.

Have you ever seen this in any federal or local level?

- BeckyWinant 2002.06.24

Becky..regarding what current events tell us about management (Add Rite Aid to your list). The most surprising thng to me about these stories is that is took so long for these people to be 'found out'. How wide is the circle of conspiracy? And what caused the normal checks and balances not to work? I wonder how many accountants and financial analysts knew and were afraid to even suggest improriety. I'd love to understand the 'culture' of those organizations! MarieBenesh 2002.06.25

We should add K Mart to the list. They've been thrashing at the management level for a while. For example, 3 CIOs in one year.

I think a lot of strange things go on because people don't want to say anything or maybe don't know what to do with the information, or don't care.

- BeckyWinant 2002.06.25

Marie - we might like to live in Internet time, but I don't think I'd like justice at Internet speed - I'd rather wait for the evidence to become clear. Tyranny runs quicker, (like Mc Carthy hearings), but hurts a lot more than waiting for justice.

That's also a truth about managing with feedback - don't be so concerned about correcting micro-deviations, but ensure that the checks and balances catch up eventually. The costs of not trusting outweigh the benefits of catching the occaisional rip-off. If your rip-off mileage is much worse, then institute checking earlier. My experience is that most people do try, and establishing trust allows them to ask for help, heading off the dark side. Employ the helpful theory rather than the paranoid theory. - BobLee 2002.06.25

Bob-Not sure what you meant re the Internet-time justice.

As for rip-off's, I think you hit the core of the issue with the statement, "establishing trust allows them...". Seems like the trust level in some of these companies must be very very low for these 'non-standard' accounting procedures to get by without someone questioning it. I remember long debates at a former employer about whether we could charge certain kinds of items to capital or expense, and the financial types coming in with the final word.

Much as I'd like to think all these people were trying to be 'helpful', it's hard to imagine that when some walked away with $50M in their pocket from stock sell-offs and told employees that they 'could not' sell their stock. In the case of Enron, we must also assume that the woman who ratted was trying to be 'helpful', too. On the other hand, the books were so complex with all those companies held in various configurations, maybe no one had a picture of the whole thing, and couldn't see the forest for the trees. MarieBenesh 2002.06.26

Bob, I'm with you on delivering "justice" before it's wine. A seemingly simple issue may be a lot more complex than at first glance. I think this is similar to management making policies that employees have to live by, and also how those policies are enforced.

I'd like to think that simple policy is better, and I wonder if this works with larger companies. - BeckyWinant 2002.06.26

Marie, I would think that trust level is high if something goes by without question. Hmmm. Are you saying that low trust keeps people from pointing out the obvious?

Accounting is an odd practice and not al all black and white. There are few "standard" practices and often more than one way you can allocate an expense, particularly if it is large and non-standard. Having run a business where we had regular meetings with the accountants and lawyer, I realized that seemingly logical choices weren't quite that simple.

The Enron stock fiasco seems just plain mean. A lot of people got hurt. - BeckyWinant 2002.06.26

Becky -- Yes, my point was that low trust means you keep your head down! If something goes by without question that need not be questioned, then fine, but if it goes by and should have been questioned, then perhaps we dared not question it.

I agree accounting isn't black and white, hence the debate about capital vs. expense in my example. Today was interesting, though, how did Worldcom lose 3.9 Billion! dollars in expense and find it 3 months later? I do think that we are having a bit of a media feeding frenzy on this stuff...I suspect these things have happened in the past and were reported on page 39 of the Wall STreet Journal. MarieBenesh 2002.06.26

Rite Aid is an interesting example of the current frenzy around accounting shenanigans. Rite Aid having problems with its books is not new news, much of the conduct came to light in late 1999 early 2000. The reason Rite Aid is back in the news cycle is that a grand jury has issued indictments just now. I choose to believe that the timing is the result of a long careful investigation, not jumping on the current band wagon.

Other behavior that came to light at Right Aid was far more serious than cooking the books. Also about the same time, Rite Aid settled with some state attorney generals over the sale of goods past their expiration date, and Florida was investigating allegations of price discrimination in prescription medicine.* I don�t know what became of that investigation. But because cooking books is the current media focus they aren�t revisiting the other problems. I�d much rather hear what became of the Florida investigation than who is being charged with cooking the books three years ago. ShannonSeverance 2006.06.26

Shannon, I wonder why Florida has these accusations? Taking advantage of an aging population? Maybe this is harder to prove?

I think the cooking books is of interest to the government because they see money due them. Usually people are moving money around to avoid paying taxes.

For insight into the world of high profile people and how they deal with problems, have you read "Buck Up, Suck Up, and Call Me When You Foul Up by James Carville and Paul Begala?

- BeckyWinant 2002.06.27

I think that ethics get stressed harder in a down economy. People are less secure in their ability to take a "career limiting move" by blowing the whistle, and at the same time the reckless gamblers are looking for any way to meet or exceed quotas that were set in better times. Since quotas usually ratchet upward until something releases the latch on the ratchet, this puts more pressure on the gamblers who turn to thinking not only outside the box, but outside the law. The Wall Street crew is always pressured in that direction - insider trading, touting what you're unloading, pushing people to trade to garner commissions. Republican administrations seem to follow that pattern, too: cut taxes, "Oh, gee, we need to tighten belts.", "Oh, gee, our contributors really need the estate tax repealed!".

The problem of optimizing tactically rather than strategically usually trends toward these positions. YAHOO turned its back on the customer's reasons for loyalty and optimized a technicality in their privacy policy that will drive them away in droves. The power of informed customers networked and one click away from your competitor is consistently overlooked.

--BobLee 2002.06.27

Bob, Ah yes, the problem of short-sighted, short term solutions. I've often thought that publically trading a company is a devil's bargin. You get money in exchange for you and your employees losing decision-making priority.

Why do you think (or know) that YAHOO made such a change?

- BeckyWinant 2002.06.27

Without spending the time in Lexis/Nexis to look up the details, I believe the reason that Florida was looking into Rite Aid, was that it was a resident of Florida who happened to be a disgruntled former employee, and who decided to get even by spilling the beans. So more a matter of happenstance than planning.

If it were a matter of tax collection, many of the current scandals wouldn�t bother the government, because they involve the overstating of earnings. Which would imply higher tax collection, except that companies KeepAtLeastTwoSetsOfBooks.

- ShannonSeverance 2002.06.27

Shannon, Oh... overstated earnings for higher stock prices?

Not all companies keep two sets of books. I didn't. AYE doesn't. Others likely do not. Aren't two sets of books illegal? ...not to mention time consuming? Oh, is that why you hire Arthur Anderson? :) (okay, cheap shot, couldn't resist).

I can't wait to see what turns up on your new page. - BeckyWinant 2002.06.27

Sure AYE keeps two sets of books. There is our accounting books, and there is our AYEBook. - JerryWeinberg 2002.06.27

Updated: Thursday, June 27, 2002