Volume 8, Issue 11
2006 Hopkins and Company, LLC
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What is it
about rats? After reading the Stanley Bing “While You Were Out” column by Gil Schwartz in the October 16 issue
of Fortune titled, “You Leaky Rat!”
rats keep coming to mind. While Bing’s column
focused on the rats involved in the H-P
board leak and pretexting scandal, and which rats
are to blame for the mess, this issue explores other aspects of the problems
with rats. Last weekend, a friend described eating an ice cream cone with
another neighbor outside a local creamery, and losing appetite over the sight
of rats leaping in and out of dumpsters in the alley behind the store, and
sadly, in a sightline with her seat. Days later, she was still disturbed by
Fifteen new books are rated in this issue, beginning on page 5. Chris Anderson’s The Long Tail received our highest rating with five stars. Despite the title, this is not a book about rats. Two books are highly recommended with four-star ratings; eleven books are recommended with three-star ratings; and one books received a two-star rating. There may be some end of year grade inflation with these higher than usual ratings. Visit our 2006 bookshelf at http://www.hopkinsandcompany.com/2006books.html and see the rating table explained as well as explore links to all 515 books read or those being considered this year, including 39 that were added to the list in October. If there’s something missing from the bookshelf that you think we should be considering or if there’s a book lingering on the Shelf of Possibility that you think we should read and review sooner rather than later, let us know by sending a message to email@example.com. You can also check out all the books we’ve ever listed at http://www.hopkinsandcompany.com/All Books.html.
How do you communicate the stories of bad behavior in your organization? Do you tend to avoid certain problems or problematic people, rather than face them head on? How vulnerable is your organization to the occasional rats who work there? How quickly do you flush them out?
Fraudulent tactics may be expanding faster than the ability of companies to detect and prevent those tactics from succeeding. According to a page one article in The Wall Street Journal (10/25/06) (http://online.wsj.com/article/SB116174264881702894.html), retail fraud criminals are using technology to pilfer and resell products. “Using sophisticated tactics such as bar-code forgery and fraudulent gift cards, criminals are stealing larger amounts, and it has gotten harder to catch them. Law-enforcement officers say many of the high-tech thieves belong to organized-crime rings that have turned retail theft into big business. And the Internet has made it easier for them to find buyers for the loot…Brad Brekke, vice president of assets protection at Target Corp., estimates that more than 50% of theft at the Target chain involves some high-tech twist - either in how the goods are stolen or how they are unloaded…Bar-code swindlers are hard to catch, says Mr. Brekke, a former agent with the Federal Bureau of Investigation. If an alert cashier points out that a bar code is ringing up the wrong price, the thief can either pay the difference or just say he doesn't want the item any more and walk out. ‘The risk level is very low,’ he says. Mr. Brekke has been trying to persuade manufacturers to print prices on boxes or come up with bar codes in assorted sizes, which would be trickier to substitute. In the meantime, Target's loss investigators have begun to monitor sales reports for unusual patterns, trends and anomalies.” That monitoring led Target to identify and get police to arrest one customer who replaced barcodes on Lego sets, changing the price from $100 to $19. According to the Journal, “police investigators determined he had stolen more than $600,000 of the Danish building toys over three years from dozens of stores in at least five Western states.” That’s a lot of legos. Reliance on “alert cashiers” who are paid a minimum wage seems less than adequate. The retail rats are having a feast. If your rat traps are less effective than those of your competitors, count on the rats learning that fast and picking off what they want from your organization.
How do you assess the success of the monitoring efforts you conduct to mitigate fraud risk to your company? Are there weaknesses in your controls and processes that make you more vulnerable than you should be? Has your technology kept up with criminals? How quickly can you spot a rat? Are you the rat’s best friend?
If enough people do the same thing, even the most steadfast individual can rationalize that the behavior is acceptable. According to some observers, stock option backdating spread because of that alignment with the practices of others. The Corporate Library issued a research report in October titled, “The Spread of Options Backdating,” (http://www.thecorporatelibrary.com/TCL-store/Compensation_Reports/Current-Research.asp) that investigated the 120 firms for items in common. We read in The Mercury News (10/21) (http://www.mercurynews.com/mld/mercurynews/business/personal_finance/investing/stock_options/15805233.htm) that, “Though it found no evidence of wrongdoing, a watchdog organization thinks it has identified a key indicator of companies that might have rigged stock options: Corporate directors who sat on more than one board might have spread suspect practices like a virus from company to company. The irony is that directors are supposed to set and oversee a company's ethical tone and policy. But an analysis released Thursday by the Corporate Library discovered that nearly 43 percent of the suspect companies have directors who sat on the boards of more than one implicated company. That's a statistically high proportion vs. boards selected at random - suggesting that such overlapping roles could be a red flag for backdating problems.” It takes a lot of energy to go against a trend, and the more one can say that a practice exists because it is done elsewhere, the less one worries about standing alone. The problem comes from joining a rat pack instead of a group of industry best practitioners. The result is catching a disease from a rat.
How do you perform a reality check against trendy practices? Are you more likely to follow the actions of competitors no matter what? What have you done to inoculate yourself and your organization from the ill effects of trends? What makes you decide not to compete through practices that you think are wrong?
Those timid executives who would rather
“go along” instead of stand up against certain practices will feel even more
reluctant after reading an interview in Fortune (10/30) (http://money.cnn.com/magazines/fortune/fortune_archive/2006/10/30/8391852/index.htm?postversion=2006102)
with Anwar Ibrahim, former Malaysian Finance Minister and Deputy Prime Minister. Ibrahim was
jailed in 1998 and placed in solitary confinement for six years on trumped up
charges after leading a campaign against government corruption. Currently a
Do you provide subtle support of unsatisfactory practices in your organization? Do you look the other way when you observe certain behavior? Are you more likely to go along with practices or stand up to them?
update on stories covered in prior issues of Executive
noted the wind versus water controversy among Katrina homeowners, insurance
commissioners, insurance companies and certain politicians in both the October 2005
2006 issues of Executive Times. We read recently in The New York Times (10/12) (http://www.nytimes.com/2006/10/12/business/12insure.html)
that Senator Trent Lott
inserted language into a Homeland
Security bill calling for that agency to investigate potential fraud in
the way insurers handled Katrina claims, including the one he made to State Farm for $400,000 that the
company rejected. “‘Given that the senator has a personal dog in the fight,
his actions have the appearance of an abuse of power,’ said Randy J. Maniloff,
a lawyer in
said in the June
2006 issue of Executive Times that
a re-appraisal of Carly Fiorina’s
tenure at Hewlett-Packard may be
underway, and that we await her book to hear her story on what was happening
inside the company. Her book, Tough
Choices, is on our Shelf of Possibility, but we couldn’t resist noting
some of her book tour comments, via an interview in the October 23 issue of Business Week (http://www.businessweek.com/magazine/content/06_43/b4006129.htm):
“Did you first trigger the
investigation into the boardroom leaks at HP? No. What I did when faced
with a very damaging leak was to call a board meeting. I dealt with the issue
directly with each of my board members. To me the leak was...a symptom of
something bigger: dysfunction. You
didn't say: "We need to hire outside investigators"? Absolutely
not. I wasn't going to have someone run around behind the scenes trying to
figure out what's going on in our board room. This was something for us to
solve. Board member to board member. Figure out how to move forward in a
productive way. That's what corporate governance is about.” The record is set
straight: she was neither rat nor exterminator.
He spent the
majority of his life in
Latest Books Read and Reviewed:
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2006 Hopkins and Company, LLC. Executive
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