Executive Times

Volume 8, Issue 11

November 2006

2006 Hopkins and Company, LLC

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Plague

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!” (http://money.cnn.com/magazines/fortune/fortune_archive/2006/10/16/8390288/index.htm), 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 the sight. Eureka! The problem isn’t the rats themselves; it’s what they do to us. They bring on feelings of disgust: in us. They carry disease: hurting us. They cause damage: we pay for repairs. The rat-like behavior by some humans can also lead to changes in us. Our inner rat can emerge to counter the offenses of the rat bothering us: we become the rat. Once harmed by a rat, we can assume someone is a rat, and not extend trust: we see rats everywhere. An organization can reward the performance of rats, and lead to a plague of bad outcomes: if the rats win, be a rat. As you read the stories in this issue and reflect on the rats around you, schedule a flu shot, tune out the negative political ads, get ready to vote, and consider how to best deal with the rats that can harm you and your organization.

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 books@hopkinsandcompany.com. You can also check out all the books we’ve ever listed at http://www.hopkinsandcompany.com/All Books.html.

Sunshine
As bad as Congressman Mark Foley’s behavior was in the page scandal, a larger story has emerged about the extent to which House leadership investigated and acted when advised of his misdeeds. There may be a natural human tendency to pretend that the rats aren’t really there, but avoidance usually leads to bigger problems. We expect leaders to act decisively in solving problems, and not ignore them. In an article in the Summer 2006 issue of Business Ethics titled “Ethics After Enron,” (http://www.business-ethics.com/whats_new/Vol_20_No_2_Ethics_After_Enron.html) Steve Skalak, partner in the corporate investigations practice of PricewaterhouseCoopers says “companies also shouldn't forget one of the most important - and most counter-intuitive - lessons learned from Enron and other business ethics scandals. The old saw that communicating stories of bad behavior only inspires others to try it themselves has proven untrue. ‘One key best practice in corporate investigations is communicating that you have detected and mitigated a problem,’ he says. ‘That has a substantial deterrent effect and is definitely preferable to keeping everything confidential.’” Leaders who say that they learned about a problem, investigated the facts, and acted to solve the problem are lauded. Leaders who say they didn’t pay attention, or handled the problem privately, are often called to task for their lack of diligence. Rats tend to watch out for those leaders who shine bright lights, and move to the dumpster where they can do their damage unseen and ignored.

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?

Switched

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?

Disease

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?

Caged

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 teacher at Georgetown University, he said to Fortune’s Marc Gunther, “Often it's not a question of blatant, outright corruption. It's the subtle endorsement of unsatisfactory practices - for example, when it comes to labor standards or the exploitation of natural resources. Some international corporations become involved in inappropriate practices when meeting their financial bottom-line goals requires working with repressive governments…In my experience, business can tend toward cronyism, corruption and other poor practices in the absence of a free press, a vibrant civil society and effective law enforcement…Many use the notion of Asian values to make excuses for governments that do not support democracy, accountability, the need for a free press and an active civil society. Others say security and development take precedence over freedom and democracy. I don't accept any of this. Certainly there may be regional variations in how business is done, but accountability, universal human rights, an independent judiciary and a free press are not Western or Eastern values. They are universal values that we should all embrace.”

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?

Follow-up

Here’s an update on stories covered in prior issues of Executive Times:

Ø We noted the wind versus water controversy among Katrina homeowners, insurance commissioners, insurance companies and certain politicians in both the October 2005 and January 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 Philadelphia who represents insurance companies.” The wind continues to blow and the water is rising, and all the rats are running for high ground.

Ø We 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.

Legacy

Remember

He spent the majority of his life in America as a successful Ford dealer in New London, Connecticut, a town that reminded of him of where he grew up in Poland. Sigmund Strochlitz spent the first 35 years of his life in Poland and Germany, including fifteen months in the Nazi concentration camp Birkenau at Auschwitz, where his parents, sister and wife were killed. He worked alongside Elie Wiesel, whom Strochlitz met at Birkenau, in creating the National Holocaust Memorial Museum. Strochlitz died at age 89 in late October. We read in his obituary in The New York Times (http://www.nytimes.com/2006/10/21/nyregion/21strochlitz.html) that one of his most significant contributions to the museum came after he saw it for the first time. According to the Times, “He looked at the model of the Birkenau crematoria, the very ones in which his family had burned. He sensed something important was missing. ‘Where are the killers?’ he asked. A sculpture of a Nazi putting gas canisters in the chamber was added.” He spent his life speaking out forcefully on many issues, always willing to confront anyone. Some say it was his relentless lobbying that helped his friend Wiesel receive the Nobel Peace Prize. He will be remembered as one who remembers, and who knew both friends and enemies, and the need to keep the rats visible and recognized.

Latest Books Read and Reviewed:

(Note: readers of the web version of Executive Times can click on the book covers to order copies directly from amazon.com. When you order through these links, Hopkins & Company receives a small payment from amazon.com. Click on the title to read the review or visit our 2006 bookshelf at http://www.hopkinsandcompany.com/2006books.html).

Title (Link to Review)	Author	Rating	Review Summary	Purchase
The Long Tail	Anderson, Chris	*****	Niches. Simple concepts, summarized in our review and excerpt, with huge implications and consequences for producers and distributors. Our highest rating because of that potential impact.
Blow the House Down	Baer, Robert	***	Plausible. Former CIA field officer’s debut novel presents plausible story of the events preceding 9/11. Disturbing in how much of this fiction may be rooted in facts.
The Way of Ignorance	Berry, Wendell	***	Responsibility. In these 19 essays Berry pierces through the rhetoric of the arrogant and humbly and clearly proposes ways for us live together toward the common good.
Dragon Fire	Cohen, William S.	***	Outlandish. Debut novel by former Secretary of Defense has clunky writing, convoluted plot and implausible actions, but still recommended given the author’s insider experience.
The Discomfort Zone	Franzen, Jonathan	**	Uncaring. Award winning writer’s memoir packed with fine prose and little insight. Readers will like the way he says things more than what he says.
When Madeline Was Young	Hamilton, Jane	***	Duty. Complicated relationships unraveled through superb writing on the themes of duty and caring, set in the suburban 1960s and today.
Without Precedent: The Inside Story of the 9/11 Commission	Kean, Thomas H., and Lee. H. Hamilton	***	Processes. Co-chairs of 9/11 commission tell how they got their work done: in public, behind the scenes, and in the media. Fingers pointed directly at those who blocked or delayed the work.
After This	McDermott, Alice	***	Gifts. Gifted author’s latest novel wastes no words telling us the stories of Long Island’s Keane family from 1940 to the present, packed full of that era’s blessings, losses and disappointments.
The Book of Fate	Meltzer, Brad	***	Loyalty. Political thriller with Presidential aide protagonist and lots of pages of step by step action. Good for in-flight reading or a mind-free weekend.
The Emperor’s Children	Messud, Claire	***	Longings. Pretense dominates a small set of privileged characters in New York City in the six months before and two months after 9/11. By the end, they get what they want or what they deserve.
The Messenger	Silva, Daniel	***	Infidels. Protagonist Gabriel Allon is back fighting terrorists from Jerusalem to Rome to London, along with the headlines: Al-Qaeda attacks, Saudi financing and U.S. covert actions.
The Prince of the Marshes	Stewart, Rory	***	Chaos. 30-year-old British diplomat tells the story of his service for the coalition in trying to manage an area in Southern Iraq for almost a year, beginning in late 2003, amid ongoing chaos and strained relationships.
River of No Reprieve	Tayler, Jeffrey	***	Journey. Description of a raft journey along 2,400 miles of the Lena River and what the author and guide encountered as they reconstructed 17^th century Cossack trips to annex Siberia for Ivan the Terrible.
LBJ: Architect of American Ambition	Woods, Randall B.	****	Larger. Thanks to tapes and records newly released, even more information about the active and complicated U.S. President can be uncovered, and under Woods’ scholarship, the impact of LBJ can be understood in a more balanced way than was presented in earlier biographies.
Profit with Honor	Yankelovich, Daniel	****	Stewardship. Sound and practical recommendations on how to have both a free market and a civil society. Part of the Future of American Democracy Series from Yale University Press

ã 2006 Hopkins and Company, LLC. Executive Times is published monthly by Hopkins and Company, LLC at the company’s office at 723 North Kenilworth Avenue, Oak Park, Illinois 60302. Subscription rate for first class mail delivery of the print version is $60.00 per year (12 issues). Web version subscriptions are $30.00 per year. Single issues: $10.00 print; $5.00 web. To subscribe, sign up at www.hopkinsandcompany.com/subscribe.html, send an e-mail to executivetimes@hopkinsandcompany.com, call (708) 466-4650, or fax to (708) 386-8687. For permission to photocopy or e-mail Executive Times, call (708) 466-4650 or e-mail to reprints@hopkinsandcompany.com. We will send sample copies if requested. The company’s website at http://www.hopkinsandcompany.com/archives.html contains the archives of back issues beginning in the month after the issue date.

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