Social Issues

Corporate America needs a 21st century Dragon Lady

Posted on by j.giglio

While successful female business leaders have made headlines in recent years — a Mary T. Berra, Virginia M. Romelty, and Indra K. Nooyi all come to mind — just 5.2 percent of CEOs of companies in the S&P 500 are women.

To reduce this imbalance we need a modern incarnation of the Dragon Lady, a protagonist who is surely among the great characters in American literature. Unfortunately, her real significance has become obscured by the passage of time since she starred in Milton Caniff’s comic strip “Terry and The Pirates,” which he set in turbulent China during the 1930s and 1940s and is now regarded as something of a masterpiece.

It began as a standard newspaper comic strip that followed the adventure story traditions of its time. Terry Lee was a plucky adolescent who ran around China under the watchful eyes of his adult mentor, Pat Ryan. Pat was a two-fisted Black Irish soldier of fortune who was assumed to be an appropriate guardian for Terry because he smoked a pipe, talked in terse ambiguities, played football in college and never displayed any discernable sense of humor.

But all these conventions went out the window when the Dragon Lady appeared.

These days, people think of her as the quintessential Asian temptress, luring men to perdition with her irresistible female wiles. Embodying in full-blooded glory all the primal male fears of women, which they have woven into elaborate horror stories to tell each other in locker rooms, sports bars or their equivalent ever since Old Testament times.

Many contemporary women find this stereotype offensive, and rightly so. But it has nothing to do with the remarkable character Caniff created. Unfortunately, newsprint is highly perishable, so few people today can see for themselves what the Dragon Lady was really all about.

Yes, she was awesomely beautiful. But she never let this genetic accident define her character. She paid no attention to the standard male view that a woman’s physical appearance is the most important thing about her.

Yes, she spent most of her life engaged in various illegal activities. But this was more an expression of her clear-eyed pragmatism than evidence of any moral depravity inherent in her female nature. From her perspective, living outside the law gave her more freedom to be herself than she could ever have enjoyed in any of the conventional roles assigned to women. The Dragon Lady had no patience with this.

It is worth mentioning that Terry and Pat were not above reproach either, since they were seeking a lost gold mine that was obviously not their lost gold mine.

She was a brilliant and sophisticated woman, whose Chinese-English ancestry had made her an outcast to both societies. Highly educated in Eastern and Western cultures, she was wise in the ways of the world and the frailties of its people. Most of all, she choose to live entirely by her own existential set of moral principles that gave no quarter to anyone. All of which made her more than a match for Caniff’s irredeemably wicked multiethnic villains.

He introduced her in 1934 as the strong-willed leader of a pirate gang preying up and down the South China coast. This kind of dominating role in command of an all-male crew was scarcely common among female characters in the American literature of the time. But Caniff made it seem like the most natural thing in the world by emphasizing her cool intelligence, emotional toughness, and Wall Street trader’s ability to balance risks and rewards.

The behavior of many members of the masters of the universe club would suggest that they have limited talent. Many organizations are directed by the can-do-no-wrong man of the extended moment who leaves no indelible trace and will be forgotten long before he will be remembered.

You will know women have finally arrived when there are as many incompetent women in the C-Suite as incompetent men. Ain’t it de troot?

Originally Published: December 23, 2018

 

If the American Dream isn’t dead, it’s in big trouble

Posted on by j.giglio

The American Dream is one of the country’s most attractive founding myths. Ask Americans what the term means and they will provide various definitions that are neither true nor false; people are free to define their core concepts as they see fit.

There is no one American Dream; there are many, based on specific circumstances. Historically, definitions have ranged from religious and political freedom to social equality and economic mobility in the hope that everyone would have an equal chance to succeed.

Sadly, the idea that anyone who really wants to can make their way to the top in the United States may be dead. The ordinary working-class individual would have to be living in a commercial to still believe in the American Dream. When you are poor, trying to get a fair share of the American pie can become a burden that only makes you angry and frustrated.

In 1931, the now obscure historian, James Truslow Adams wrote “The Epic of America,” a book that gave one of the first recorded definitions of the American Dream. He was not writing about consumption, buying things you don’t need and can’t afford with borrowed money. He focused on ideals rather than material goods. According to Adams, the American Dream was:

“That dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement. … It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position”.

He was describing a society that values equality and merit are above all else; with hard work, everything is possible. It doesn’t matter where you are from, what schools you went to, or how much money your parents have. What matters is that if you work hard, you can become anything you want. Everyone in America has a chance to pursue his or her personal vision no matter who you are.

Conversely, success is a choice. It’s your own fault if you don’t make it from rags to riches.

In the wake of the Great Recession and the 2008 financial crisis, many people believe the American Dream is dead. The issue of economic inequality has captured the attention of groups across the social and political spectrum; the general public, policy makers, business people, and academicians. Surveys show that more and more Americans believe income and wealth are distributed unfairly.

Few would deny the growing gap between rich and poor in the United States is at historic levels. Wealth and income imbalances have been documented with monotony.

The inconvenient truth is that the richest 10 percent currently own nearly 60 percent of U.S. wealth. The top 1 percent now earns about 30 percent of total income. The top 0.1 percent earns more than 10 percent. According to the Federal Reserve Board 40 percent of Americans can’t cover a $400 emergency expense.

A number of factors have been suggested as important contributors to the widening gap between the “haves” and “have nots” and the increasing concentration of income and wealth. Among them are globalization, technological advances, crony capitalism, lower taxes on the rich, and government policies and programs.

Until these causes and consequences are addressed, there is no realistic hope for dealing with unacceptable levels of economic inequality in the world’s richest country. America will continue to witness the erosion of the middle class and the creation of a permanent underclass that undermines the conceit of a democratic society in which all people have an equal and inalienable right to life, liberty and the pursuit of their own happiness.

Originally Published: November 19, 2018

 

Concentration of power benefits the haves

Posted on by j.giglio

In the continuing controversy over economic inequality in the United States, the focus is on such factors as the decline of organized labor, tax cuts for the well off, outsourcing of American manufacturing jobs overseas, and the substitution of capital for labor. But the lack of competition in many sectors of the economy is also a powerful driver of disparity, redistributing income and wealth from consumers generally to the affluent.

As with lengths of skirts, lapels on men’s suits, and other more or less important customs, there are also fashions in markets. Over the last two decades, many firms have been consolidated across the U.S. economy. Oligopolies are common and concentration is increasing in numerous industries.

Many markets are now oligopolies, in which a small number of companies account for most sales. In major industries from telecoms, social media and internet search to retail, airlines, beer, pharmaceuticals, hospitals, banks, the American public has seen a few giants come to dominate. What competition does exist is among just a few participants, not exactly the type described in textbooks.

These firms use their market power to increase prices, drive down wages and assert greater authority over workers. They find ways to deter new firms by creating and maintaining barriers to entering the market, and use economies of scale to exercise strong leverage over suppliers. In addition to raising prices relative to what they would charge in a competitive market, these powerful companies may also reduce quality or convenience, modifying product features and reducing customer discounts. All this leads to a transfer of wealth from buyers to sellers.

It should not be overlooked that consolidation of market power also concentrates political power, thanks to the lobbying muscle of oligopolistic companies. Economic and political power can be mutually reinforcing. As things stand, market power gives these companies the resources to protect their competitive advantages and leverage their advantages through the political process buying the all-important access.

Take the $2.5 trillion health care industry, where rising prices are partially driven by increased consolidation. Consider the large number of hospital mergers that limit competition among hospitals. Today, many Americans today live in areas where there is little such competition.

The same is true in other economic sectors. Merger mania in the airline industry has resulted in eight majors combining to create four giant carriers over the past decade. Not to be ignored is the fact that a handful of large institutional investors such as BlackRock, Vanguard, Fidelity, and State Street are among the top shareholders for all four major airlines. Given the huge extent of common ownership in the U.S. airline industry, it is not surprising that the price wars of the 1990s have ended and profits are on the rise as companies may refrain from competing aggressively when their competitors have the same large shareholders.

Consider the drastic increase in banking industry concentration, where too big to fail banks, instead of getting smaller, are pretty much taking over the financial universe. The five largest banks in the U.S. – JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and US Bancorp – have about $7 trillion in assets. That’s nearly 45 percent of the industry’s total. The other 55 percent of assets are divided among 6,000 institutions, according to the Federal Reserve. The top-10 banks’ share of the deposit market has increased from about 20 percent to 50 percent from 1980 to 2010.

Looking beyond individual industries affected by excessive market power, the bad news is that this concentrated power leads to concentration of wealth and income, and contributes to increasing economic inequality because the returns from market power go disproportionately to the wealthy, like company shareholders and senior executives.

God love them, for they are reaping rewards to which ordinary Americans have no access. Amen.

Originally Published: October 13, 2018

Strategy defies description

Posted on by j.giglio

In a famous Hindu parable, three blind men encounter an elephant for the first time and try to describe it, each touching a different part. “An elephant is like a snake,” says one, grasping the trunk. “Nonsense; an elephant is a fan,” says another, who holds an ear. “A tree trunk,” insists a third, feeling his way around a leg.

Similar confusion surrounds the notion of strategy. The word is tossed around promiscuously. The fact that there are so many competing conceptions of strategy suggests that the concept is subjective and ambiguous enough to defy any singular definition.

Strategy is important but it is also wickedly hard to deal with complexity, ambiguity, and uncertain outcomes in a competitive landscape. Getting it right is an uphill struggle, whether in business, athletics, military affairs, politics or other human endeavors. Strategy is an art, not a science.

The confusion surrounding the subject of strategy presents a challenge, especially for students. It requires them to think in interdisciplinary terms, that invariably means finding connections, for as historian Edith Hamilton put it, “to see anything in relation to other things is to see it simplified”. For example, business students struggle to integrate and coordinate various functional areas. They get caught between warring disciplines such as finance, accounting, and marketing. This is especially difficult in an academic environment with the pressure to specialize.

Strategy: the word is beguiling and elusive, but do we really know what it means? Is it as former Supreme Court Justice Potter Stewart said about pornography: “I know it when I see it”?

To put it simply, strategy is the link that connects resources with a set of realistic and prioritized objectives. Some theorists suggest a practical way to think about strategy is that it is a bridge connecting means to ends and the present to the future. Scratch that. Because the metaphor is at odds with reality. Strategies are far from linear.

There are circles and waves and dead ends and the inevitable influence of chance. But they rarely form a straight line. Events seldom conform to expectations. To paraphrase Mike Tyson, everyone has a strategy until they get punched in the mouth.

The question that haunts every strategy is “how.” How do you get from means to ends? It’s always the how before the who and why. Strategy is the relationship that unfolds at the intersection of means and ends.

Although your objectives may be infinite, available resources are finite. One challenge in developing a successful strategy is to keep goals within resources and not to confuse means with ends. That requires lining up feasible objectives in a queue and making hard decisions about trade-offs.

Strategy is more like having a map. It helps you navigate the distance between means and ends. It transports you from one place to another. It illuminates the competitive landscape with alternative routes. It traverses distance and time. Maps give you greater control over your surroundings. They help you see into the future; what you seek to accomplish and how you should go about it.

Strategy is not fixed; it’s not a blueprint. It is an iterative, continuous process that involves seeking feedback, dealing with surprises, and correcting course when necessary, all while keeping the ultimate objective in view. It is not a three-act play, but more like a soap opera; one thing following another.

Life often goes in a direction not of your choosing. That is why you need to adapt. No strategy is built to last forever. It is wise to allow for considerations of changing circumstances.

Changes in the external environment frequently are a catalyst for strategy. If you are not growing and evolving, you’re standing still and the rest of the world is surging ahead. It is Darwinism at its most refined; you develop the resources that allow you to survive or you just hide. But even that will not last for long.

Originally Published: June 30, 2018

 

On D-Day, the eyes of the world were on the Allies

Posted on by j.giglio

In the first days of June 1944, BBC transmitters beamed to the forces of the French Resistance the prearranged signal that indicated the start of the long-awaited naval, air, and land invasion of France that would open a critical second front against Germany.

The 74th anniversary of the Normandy landings is a useful moment to pause, reflect and ensure that the memory of this historic event doesn’t slip away. June 6, 1944 became historical shorthand for a generation of Americans, a date that needs as little explanation as “September 11” does for their progeny.

As General Eisenhower wrote in his June 6 Order of the Day, “You are about to embark upon the Great Crusade towards which we have striven these many months. The eyes of the world are upon you.”

The Plan for Operation Overlord was codenamed D-Day. The “D” in D-Day is a general term for the start date of any military operation. The Allies selected Normandy as the landing site because it provided the best access to France’s interior.

Operation Overlord was the greatest technical feat of the war. The challenges of mounting a successful landing were daunting. Herculean preparations requiring remarkable coordination among the Allies for Operation Overload had been going on since 1942.

The forces assembled constituted the greatest amphibious force in history. An armada of more than 5,000 ships and landing craft were waiting to transport more than 150,000 British, Canadian, and American troops; 1500 tanks; and thousands of guns, vehicles, and supplies to five beach heads along a 50-mile strip of the heavily fortified Normandy coast. Leading the way were over 300 minesweepers that cleared a path through a minefield that stretched across the English Channel to the Normandy beaches.

The Americans landed to the west on Utah and Omaha beaches, while the British and Canadians landed on the east at Gold, Juno, and Sword beaches. Allied casualties on D-Day have been estimated at 10,000 killed, wounded, and missing in action, 60 percent of them American. The first 20 minutes of the movie “Saving Private Ryan” captures vividly the horrible realities of the landing and the price paid by the soldiers.

They were supported by 12,000 planes, some of which had been systematically destroying bridges and access routes to seal off the invasion area from the interior while others—transports and gliders —prepared to drop paratroopers and demolition teams well behind the beaches to complete the job.

The invasion was a high-risk operation, the outcome of which was by no means certain. The defenders had been preparing their reception for four years, building a formidable Atlantic Wall of concrete, wire, machine guns, mines, and artillery. SS panzer divisions lurked in the wings. As General Rommel famously remarked: “the first 24 hours of the invasion will be decisive, the fate of Germany depends on the outcome … for the Allies as well as Germany it will be the longest day”.

Despite furious German resistance, the Allies carried the day on June 6 and established a precious beachhead. Once the Wehrmacht recovered from its surprise, resistance was fierce. The Americans could not take Cherbourg, the principal port of the invasion coast for three weeks. The British, who should have entered Caen on the evening of D-Day, fought their way in on D+34 (July 9).

Finally caught in the decisive Battle of the Falaise Pocket, the Germans had nothing to do but run. After that, the road was clear for the race to Paris and the drive for the Rhine. Rommel was right, 11 months later Nazi Germany crumbled onto the scrap heap of history.

D-Day, June 6, 1944, paved the way for the liberation of Europe with countless acts of sacrifice by the men and women of the armed services that still resonate today. Success on the “longest day” marked the beginning of the end of the war in Europe.

Originally Published:  Jun 2, 2018 

 

Corporate America needs a 21st century Dragon Lady

Posted on by j.giglio

While successful female business leaders have made headlines in recent years — a Mary T. Berra, Virginia M. Romelty, and Indra K. Nooyi all come to mind — just 5.2 percent of CEOs of companies in the S&P 500 are women.

To reduce this imbalance we need a modern incarnation of the Dragon Lady, a protagonist who is surely among the great characters in American literature. Unfortunately, her real significance has become obscured by the passage of time since she starred in Milton Caniff’s comic strip “Terry and The Pirates,” which he set in turbulent China during the 1930s and 1940s and is now regarded as something of a masterpiece.

It began as a standard newspaper comic strip that followed the adventure story traditions of its time. Terry Lee was a plucky adolescent who ran around China under the watchful eyes of his adult mentor, Pat Ryan. Pat was a two-fisted Black Irish soldier of fortune who was assumed to be an appropriate guardian for Terry because he smoked a pipe, talked in terse ambiguities, played football in college and never displayed any discernable sense of humor.

But all these conventions went out the window when the Dragon Lady appeared.

These days, people think of her as the quintessential Asian temptress, luring men to perdition with her irresistible female wiles. Embodying in full-blooded glory all the primal male fears of women, which they have woven into elaborate horror stories to tell each other in locker rooms, sports bars or their equivalent ever since Old Testament times.

Many contemporary women find this stereotype offensive, and rightly so. But it has nothing to do with the remarkable character Caniff created. Unfortunately, newsprint is highly perishable, so few people today can see for themselves what the Dragon Lady was really all about.

Yes, she was awesomely beautiful. But she never let this genetic accident define her character. She paid no attention to the standard male view that a woman’s physical appearance is the most important thing about her.

Yes, she spent most of her life engaged in various illegal activities. But this was more an expression of her clear-eyed pragmatism than evidence of any moral depravity inherent in her female nature. From her perspective, living outside the law gave her more freedom to be herself than she could ever have enjoyed in any of the conventional roles assigned to women. The Dragon Lady had no patience with this.

It is worth mentioning that Terry and Pat were not above reproach either, since they were seeking a lost gold mine that was obviously not their lost gold mine.

She was a brilliant and sophisticated woman, whose Chinese-English ancestry had made her an outcast to both societies. Highly educated in Eastern and Western cultures, she was wise in the ways of the world and the frailties of its people. Most of all, she choose to live entirely by her own existential set of moral principles that gave no quarter to anyone. All of which made her more than a match for Caniff’s irredeemably wicked multiethnic villains.

He introduced her in 1934 as the strong-willed leader of a pirate gang preying up and down the South China coast. This kind of dominating role in command of an all-male crew was scarcely common among female characters in the American literature of the time. But Caniff made it seem like the most natural thing in the world by emphasizing her cool intelligence, emotional toughness, and Wall Street trader’s ability to balance risks and rewards.

The behavior of many members of the masters of the universe club would suggest that they have limited talent. Many organizations are directed by the can-do-no-wrong man of the extended moment who leaves no indelible trace and will be forgotten long before he will be remembered.

You will know women have finally arrived when there are as many incompetent women in the C-Suite as incompetent men. Ain’t it de troot?

 

Imagining ‘It’s a Wonderful Life, 2017’

Posted on by j.giglio

 The holidays would not be the same without watching “It’s a Wonderful Life” and feeling every moment of struggle as George Bailey discovers that riches are not measured in dollars and cents. The film highlights the importance of family and love and celebrates civic and familial virtues.

Those of you who have seen the classic 1946 movie will remember one of its most famous scenes. George Bailey runs a small community bank with a mortgage business. One day, as he is headed out on his honeymoon, George is confronted by a group of depositors wanting to withdraw their savings because they are nervous about the bank’s solvency.

He explains that he doesn’t keep their savings lying in the bank safe. Instead, he has invested most of the money in affordable mortgages on the homes they own.

Sam’s money is in Chuck’s house. And Chuck’s money is in Dick’s house. And Dick’s money is in Sam’s house…

So it goes, with customers able to own their homes instead of having to pay rent to Old Man Potter, the predatory capitalist villain who owns the leading commercial bank in Bedford Falls – and most everything else in town.

In George Bailey’s day, a lending institution would keep a home mortgage on its books until it was fully paid off. The default risk was held by the bank, which sought to protect itself by granting mortgages only to clearly creditworthy borrowers with stable incomes sufficient to meet monthly mortgage payments and the ability to invest a significant portion of their own money in a down payment.

In a modern “It’s a Wonderful Life”, director Frank Capra could have contributed to an understanding of the financial crisis by turning George Bailey into a rapacious mortgage broker willing to do almost anything to maximize his mortgage origination volume.

A modern-day Capra would present a series of fast-paced sequences showing how George converted low-income homebuyers with non-existent credit into qualified sub-prime mortgage applicants.

No money for a down payment? “Not a problem,” George reassures the applicant. “You can take out a small first mortgage to cover the down payment, then a larger second mortgage to cover the rest of the purchase price.”

“But won’t that mean high monthly payments?”

“Not with adjustable rate mortgages that charge interest only for the first two years.”

“But after two years, when the much higher monthly payments kick in …?”

“Nothing to worry about. The way house prices are skyrocketing, you’ll be able to refinance with a single bigger mortgage to pay off both original mortgages, and give yourself enough extra cash to cover the monthly payments for several years.”

“And after that?”

“As long as home prices keep going up, you’ll be building equity in your house, which you can tap for ready cash by refinancing yet again.”

“So the house keeps paying for itself?”

“That’s what it amounts to.”

“Sounds great. What’s next?”

“Let’s fill out the mortgage applications together right here on my PC. I know how to word the answers to give banks what they’re looking for.”

“Do I need documentation for my income?”

“Nah. It’s all streamlined these days. The banks run your applications against their crazy computer models to see if you qualify for the mortgage. And you will. It’s just a formality.”

“A formality?”

“Banks are mainly interested in generating new mortgages to sell to Wall Street. Each mortgage they sell increases their servicing fee volume, so they approve as many applicants as possible.”

Just then, George gets a phone call from Old Man Potter, George’s hungriest lender for the sub-prime mortgages he sells to his Wall Street buddies.

“Hi Mr. Potter,” George says, leaning back in his desk chair with a big smile. “Just going to call you … No, a first and second mortgage this time … Yeah, I thought you’d like that … Great. I’ll see you at the club around six.

A wonderful life indeed.

Originally Published: Dec 9, 2017

Transformation takes the fast lane for automakers

Posted on by j.giglio

Recently, the Ford Motor Co.’s new CEO outlined plans to aggressively cut costs and funnel the savings to electric, self -driving cars. The company plans on increasing its production of profitable trucks and SUVs, while de-emphasizing less profitable cars and sedans.

What a difference a few years makes in the fast-changing automobile business. Car companies all have big plans to transform from mere sellers of vehicles to businesses that touch all aspects of mobility.

There are now multiple sources of innovation in an industry that has seen relatively little change. For over a century, the business model was how many vehicles a firm sold. Now companies are looking at how to reconcile disruptive innovations with traditional products and services.

The transformation is being driven by a succession of innovations — the Internet, the cloud, big data, 3-D printing, robotics, machine learning, artificial intelligence, autonomous vehicles, connectivity, the internet of things, electric vehicle power trains, and shared mobility, as well as changing car ownership preferences. Each reinforces the others and accelerates disruption.

China, the United Kingdom, and France are talking about banning the internal combustion engine by 2030. Moreover, China’s government has implemented aggressive incentives for electric vehicles that favor local companies, which could give Chinese firms significant advantages and economies of scale in the world’s largest consumer market.

These innovations are causing automakers to rethink the way they do business. Given how central the automobile is to the economy and to people’s daily lives, it’s not a stretch to suggest that these innovations will change how Americans live.

In addition to traditional automakers, changes in mobility will impact industries such as energy, insurance, retail, public transit, and health care. For example, the National Highway Traffic Safety Administration reported earlier this month that total traffic deaths on U.S. highways rose 5.6 percent in 2016 to a decade high of 37,461. This is roughly the same number who die from breast cancer, gun deaths and opioid overdoses combined. The Centers for Disease Control and Prevention estimated that in 2010-2011 there were an average of 3.9 million annual emergency room visits caused by motor vehicle traffic injuries.

Driverless technology creates a potentially accident-free future with drivers exiled to old-fashioned leisure trips on Sunday afternoons. What are the implications for reducing health care costs as emergency rooms lose millions of patients each year and hospitals have hundred of thousands fewer patients who need to stay overnight?

Automakers face a number of existential threats. Besides traditional rivals, a wide range of players have been racing to get in on the action, including tech companies, ride hailing firms, logistics companies and auto parts suppliers. Tech companies view the car as a platform, like a cell phone body. They see the vehicle of the future as software on wheels, enabling drivers and passengers to devote their time to personal activities. As Elon Musk once said: “Tesla is a sophisticated computer on wheels.”

On the other hand, automobile companies think of it as a car with extra software. The only certainty is that it is uncertain who will come out on top: Traditional players or new entrants? The hardware or the software folksguys? Western or Asian firms? Product or service companies?

Automobile companies are making big strategic bets on autonomous technology, electric cars, and transportation services. Financial decisions have to be made in light of the need to serve two worlds; the traditional automobile industry and disruptive technology-driven trends that will ultimately take over the mobility industry. Defining the right balance will be critical.

In a pervasive modern view, the past is a burden that must be shed to give way to a new kind of life. This is the fundamental challenge facing so many industries that are being disrupted by a succession of innovations. While it is debatable when driverless cars will be available to the masses, there is no doubt that a driverless future will profoundly change society, even in ways we are not yet even considering.

Originally Published: Oct 28, 2017

Equifax brass betrays America, walks away with a windfall

Posted on by j.giglio

Just when you think nothing can surprise you when it comes to corporate incompetence, along comes the massive data breach at the credit reporting agency Equifax.

The breach may have given hackers the names, birth dates, driver’s license numbers, Social Security numbers and other personal, intimate data of 145.5 million Americans, about half the country’s adult population. This data is what allows people to buy or rent homes, get auto loans and have credit cards.

Failing to secure consumer information puts Americans at risk of identity theft, tax return scams, and financial fraud for the rest of their lives. The extent of the pain and expense people will endure as a result of the breach is yet not fully understood.

Equifax is one of three primary national credit reporting bureaus. The firm collects, processes, maintains and sells the sensitive and personal data of more than 820 million consumers worldwide. Simply put, they harvest your information, sell it without your permission to companies who want to sell you stuff, and they do not pay you. Consumers are not the clients under this business model, they are the product, so the firm has no incentive to prioritize them.

By relying on an open source code that it knew was subject to hacking, Equifax left data exposed beginning at least on March 7, 2017. Free patches to the vulnerable software were available and well known to the firm by that date. The following day, the Department of Homeland Security alerted Equifax that its software was vulnerable to hackers, but the company failed to take precautions that would have protected the personal data of millions of people.

As a result, information was compromised between May 12 and July 30. The company learned of the breach on July 29 and “rushed” to get the word out to the public – six weeks later. They did not notify each consumer affected by the hack, so individuals learned that their information was stolen long after the crime occurred.

The firm initially asked consumers to provide the last six numbers of their Social Security numbers to gain access to an unworkable website. While Equifax may have been unsure about whether a consumer was victimized, it was clear that everyone could sign up for a supposedly free credit monitoring service that required customers to provide credit card numbers.

After a year, Equifax could start charging unless consumers cancelled the service. Those who signed up for credit monitoring were also asked to give up their rights to sue the company.

The firm, victims were being asked to pay for protection, was the same one that could not protect their information in the first place. Equifax’s senior managers must be graduates of Trump University. The firm changed the terms after the media attacked the story like white blood cells ganging up on a diseased organ.

Consumer anger has been further intensified by the actions of three senior Equifax executives, including the chief financial officer, who sold shares worth $1.8 million in the days after the breach was discovered, according to Bloomberg. The firm said the executives were unaware of the breach when they sold the stock. This does not pass the smell test.

The miscreants being punished and doing time in the near future is about as likely as finding a clean politician in New Jersey. Richard F. Smith stepped down as CEO and won’t get the $5.2 million in severance he would otherwise have received, but he will collect a lavish pension estimated at $18.4 million. Compare that to the tens of millions of victims who may be haunted by the breach for the rest of their lives.

Equifax’s senior management was criminally negligent. They put the firm’s self-interest before their duty to the public, betrayed the public trust with impunity and displayed contempt for consumers.

Once again, a big financial institution screws up. The CEO walks away with a golden parachute and millions of Americans are left holding the bag.

Originally Published: October 14, 2017

Hold Wall Street managers to account

Posted on by j.giglio

At 1:45 a.m. on Monday, Sept. 15, 2008, Lehman Brothers Holdings Inc., the fourth largest investment bank, sought Chapter 11 protection in the biggest bankruptcy proceeding ever filed. There are many reasons why Lehman failed and responsibility is shared by auditors, government officials, regulators, and credit rating agencies.

Looking back, much of the blame for Lehman’s failure and the ensuing financial meltdown that led to the Great Recession resided with senior executives, aka professional managers, in the financial markets who did a poor job of allocating capital and managing risk. They acted less like stewards of their firms and more like the keepers of a guild, accountable only to themselves and focused on short-term results at the expense of long-term performance.

The failure to understand that there are huge risks associated with the pursuit of high returns was a major contributor to the financial meltdown. One way to avoid repeating this disaster would be to require top managers in industries that are important to the public welfare to earn government licenses that testify to their qualifications, just like physicians and lawyers, who must pass tough state exams, and accountants, who must also demonstrate a certain number of years of successful professional work in their field to gain a certified public accountant license.

Why not have the same rigorous licensing requirements for professional managers before they are permitted to hold top management jobs in critical industries and public-sector positions? It has become clear that the challenges of managing large organizations have grown to such a level of complexity that only individuals with the right mix of skills can effectively meet them.

One way to begin professionalizing management is to require anyone graduating with a management degree to pass a comprehensive federal or state exam that tests their mastery of the fundamental body of knowledge they allegedly learned, including accounting, finance, statistics, data analysis and organizational behavior.

During the financial meltdown, Lehman’s top executives could have by no means been described as competent. Ditto for Merrill Lynch, AIG, and so many other firms. Finding incompetent executives among this crowd was like finding sand on the beach; they were clueless to the real dangers of excessive risk taking in the form of the lack of protective equity capital and massive use of leverage built around short-term borrowings.

Despite earning more than managers in any of the world’s other major industries, they were like irresponsible children who had somehow gained access to Cold War missile control rooms, playing with the shiny buttons that could launch nuclear warheads against an unsuspecting world.

Which they ultimately did, wiping out more than $11 trillion of wealth in the process and leaving the American taxpayer to clean up the mess.

In addition to core technical skills, a management licensure test should measure the ability to think critically and consider the moral consequences of decisions. Is it too much to expect a management graduate to be educated about how to leverage the power of markets to create a better world rather than serving only their own selfish interests? Or to possess the ability to think critically, which allows them to solve problems beyond those addressed by their functional training?

For sure, such an examination would increase employers’ faith in a graduates’ competence. It might be wise to make passing the test a periodic requirement to ensure that managers stay current in their knowledge and the ethical challenges posed by an ever-changing business world.

To paraphrase the philosopher George Santayana: those who fail to learn from history are destined to repeat it. The incompetence of senior managers was a driving force behind the 2008 financial meltdown from which many Americans still have not recovered nearly a decade later. The time has come to hold managers to the same standards as other professionals whose competence impacts the well-being of society.

Originally published: September 16, 2017