Bottom Line Ethics

“To be ethical in a profession, a person needs to be both competent and honest. It is unethical to act dishonestly, and that is particularly evident when it is for personal gain. But it is also unethical to project competence, or to pretend to know something professionally, when in fact you do not.”

** From the Editor: “How to Lose a Profession” is a sobering essay on the value of integrity and having moral courage when integrity is lacking. In the interest of integrity and morality, read the full article before you react. **

In recent days, the Securities and Exchange Commission announced that they were fining Big 4 accounting firm KPMG $50 million for systematically stealing the PCAOB inspection lists for the years 2015-2017 to know in advance which of their audits would be inspected. All but one of the partners or managing directors involved have entered guilty pleas or been convicted, so the announcement was no surprise. In fact, the $50 million penalty seems relatively modest in light of the charges.

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When I was growing up, I idolized ballplayers who scrapped and worked hard to do what the team needed. They were always “whatever it takes” guys; lay down a bunt, hit behind the runner, hit the ball in the air with a runner on third and less than two outs. They were not looking for the glory, but they were the glue that held a baseball team together.

But “whatever it takes” has taken on a new meaning in adulthood, most recently demonstrated by the recent college admissions scandal. Parents focused on maximizing opportunities for their children were willing to pay to game the admissions system in two ways—direct payments to coaches for their children to be classified as athletic admits when they were not competitive athletic recruits, and paying to cheat on standardized tests. The lack of controls at well-regarded schools, even Ivy League schools, meant that the “whatever” in “whatever it takes” was simply money funneled through Rick Singer. And the lack of control over testing centers by the College Board and the ACT, when their only product is an exam that is supposed to be a reliable measure, meant that the willingness to travel to take the exam at those testing centers was part of “whatever it takes.”

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As the ball floated helplessly through the air and nestled in the arms of LSU safety Grant Delpit, I watched with dismay as another chance for an Aggie football breakthrough disappeared like a puff of breath on a cold night. Delpit slid to a stop, and I turned to the aisle, unwilling to watch the inevitable kneel down that followed the Gatorade bath enjoyed by LSU coach Ed Orgeron. I’m sure the young defensive back was already rehearsing in his mind the answers he would give to a swarm of reporters about how it felt to seal a game that sent his team to a New Year’s Six Bowl.

But I was stopped in my tracks by the wholly unanticipated announcement: “The previous play is under further review.” An inadvertent touch of knee to ground nullified the interception, and an improbable 4^th-and-18 conversion, followed by a sideline catch and a “just in time” spike, left the Aggies hanging by the slenderest of threads, with one play, and one second, to go. No one could have imagined the bedlam that was to follow over the next hour and a half.

 This is our 13^th year as Aggie season ticket holders, and nothing could have prepared us for what we were about to experience. It reminded me of watching the end of the first Rocky movie, when both fighters were punching with everything they had and yet barely standing up. The overtimes that followed Quartney Davis’s touchdown on the last play of regulation consisted largely of a series of momentum swings, devolving into two offenses running roughshod over defenses depleted by the weight of nearly 200 plays. For the first time in 100 years, it looked like the 12^th Man might actually be needed on the field.

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My favorite team, the Baltimore Orioles, just introduced their new executive vice president and general manager, Mike Elias, a Yale grad who is known as an analytics expert who has been helpful in rebuilding the Houston Astros. There is general agreement that he is a timely hire, and Baltimore fans on social media seem very supportive. A team once known for the “Oriole Way,” a commitment to excellence and professionalism characterized by unselfishness even among its star players, is joining the modern world of excellence through explicit calculation.

One of the most interesting articles I have read in recent years was an interview by Sports Illustrated writer and author of Astroball, Ben Reiter, of a former St. Louis Cardinals scouting director and analytics expert, Chris Correa. Correa went to federal prison for a widely reported breach of the Astros’ database that gave the Cardinals a clear competitive advantage in understanding the Astros’ evaluation of players. In that article Correa stated that while he initially saw his hacking as no different than stealing signs in baseball, he, in his words, eventually “. . . recognized how essentially disrespectful my behavior was of the people whose privacy I violated.”

The term “analytics” possesses a sense of cold objectivity that makes ethics unnecessary. Truth is truth, science is science, facts are facts. Of course, there is some subjectivity in how analytics are interpreted or generalized to others. But there is a heartlessness, a Darwinian ruthlessness that suggests that analytics are synonymous with value. This is much the same tone expressed by investment banks and Wall Street analysts in valuing companies and their management teams. When I teach executive education sessions, I realize that the financial leaders of public companies are driven by this unrelenting pressure to meet performance standards evaluated by quarterly measurements. It is entirely predictable what the analytics (and the analysts) will say, so C-suite executives have incentives to characterize things a certain way. Today, the machine is the market, and its judgment is pitiless.

Analytics is also the basis for most of baseball strategy in major league organizations now, from scouting young players to determining defensive shifts during the game for particular hitters. The Orioles are certainly late adopters when it comes to analytics, and many have blamed the collapse of the team’s performance on a series of poor, ill-informed management decisions that relied too much on instincts, and occasionally on emotion. What is ironic is that the Orioles did this while simultaneously maintaining what is thought to be the most aggressive medical evaluations of players they considered trading for or signing as free agents.

Data analytics is quickly becoming central to the accounting profession, and to the careers of the young CPAs I prepare. We are revamping courses and offering new courses that target the analytic and coding skill sets necessary to succeed in financial roles in organizations. We are leveraging powerful technologies that can potentially improve the quality and efficiency of audits, reduce errors in reporting and decision making, and improve the quality of consulting advice. It is no longer a question of whether we should prepare students for a data analytics world; it is how to stay ahead of the learning curve without just teaching specific software that may be irrelevant within three years.

My fear for my profession is that we will become simply practitioners of the head, and not of the heart. One of the core characteristics of the accounting profession is a hardheaded dedication to the truth, which seems entirely aligned with analytics. Analytics provide us more insight into what is truly going on economically within an organization. I embrace their ability to make us better practitioners.

But what a data-driven new reality can never give us is a heart commitment to the importance of seeking truth as an ethical value, or a moral duty to uphold truth in order to protect the public. This has always been the core of the accounting profession, but it is being commoditized away in a number of ways. CPAs will get richer using their analytical skills to increase clients’ wealth than they will making sure clients tell the truth. And what we should expect to see in an analytics world is consulting fees dominating audit and tax services in public accounting firms.

It is not surprising that regulators in the UK today, and in the U.S. 16 years ago, have wrestled with what to do about this reality. It is not an intractable problem, and I am not suggesting the sky is falling. But while I am giving my students the analytics necessary to make them competitive in the marketplace, I hope I can provide them with context.

It is not just calculated value that matters; truth and duty are important, too. A failure of the head when it comes to analytics may cause you to lose a client, or a job. But, as Chris Correa can attest, a failure of the heart may cause you to lose your soul.

And, in the end, the accounting profession will become irrelevant not because it is insufficiently analytical, but because it is insufficiently committed to revealing – and holding people accountable to – the truth.

As I began writing this on a Friday afternoon, Tesla’s stock was down almost 14 percent as a result of the Securities and Exchange Commission filing suit against Elon Musk for securities fraud, and seeking his removal as the company’s CEO. This follows Musk’s decision on August 7 to tweet, “Am considering taking Tesla private at $420. Funding secured.” At the time, that represented roughly a 20-percent premium to the stock price. The SEC (and many others) believe that he rounded the price to $420 as a marijuana reference to impress his girlfriend. But the market’s immediate reaction during the rest of the day was a 6 percent increase in the share price. And, unfortunately for the Tesla CEO, he had arranged no such funding.

On a number of occasions recently people have asked about Elon Musk, “What was he thinking?” and sometimes even, “What was he smoking?” It is not just his recent appearance on Joe Rogan’s podcast apparently smoking a blunt, but his initial willingness to put his company at risk through refusing a relatively gentle SEC settlement offer. Instead, the SEC sought to ban him from serving as an officer or director of a public company, leading him to agree on Saturday to a $40 million penalty (half of it to be paid by him), removal as chairman for at least three years, and the addition of two independent directors to Tesla’s board.

Most agree that Elon Musk is an innovative genius. But smart people do stupid things for a variety of reasons. Psychologist Robert Sternberg identifies five fallacies of thinking that are often drivers of this decision-making: egocentrism, a false sense of omniscience, a false belief about one’s omnipotence, perceived invulnerability, and unrealistic optimism. Others have arguably checked all five boxes, like Martin Shkreli of Turing Pharmaceuticals, who mocked those opposing his choice to dramatically raise the prices of certain critical drugs. This included referring to members of Congress as “imbeciles” on Twitter after citing his Fifth Amendment rights against self-incrimination when he was called to testify before them. He was sentenced to seven years on fraud charges related to a hedge fund and forfeited over $7 million dollars.

Despite Elon Musk’s many successes, an argument can be made that he is characterized by all five of the fallacies as well. It is not uncommon that a CEO would have a streak of egocentrism, but a visit to his Twitter feed, especially as he engages with those who are shorting his stock, will give you a sense of self-preoccupation. He is extremely knowledgeable, but he could use some help from a veteran CEO or a more involved board to check his tendency to project himself as omniscient. At the very least, he could use someone who understands federal securities laws. His oblivious $420 tweet reflects a false sense of being powerful enough to do whatever he wants. Toking on YouTube is just one example of his sense of invulnerability. He has also been sued for making potentially libelous accusations, without apparent support, about a British diver who questioned the usefulness of Musk’s mini-sub to rescue Thai boys trapped in a cave. And while unrealistic optimism alone is hard to criticize, his consistently aggressive assumptions about both car production and operating cash flow have earned him broad criticism.

What is ironic is that Tesla is likely finishing a record quarter in production, if not cash flow. They seem to potentially be turning the corner on some measures, even while they still have real challenges ahead. And eliminating the uncertainty with the SEC resulted in a predictable Monday morning bounce back in Tesla’s share price.

Of the five fallacies of thinking, all but egocentrism are really just bad calculations of reality, and sometimes it takes a cold bucket of water to make a person come to grips with reality. If you want to run a public company, an SEC suit to ban you from serving as an officer or director officially qualifies as a cold bucket of water.

For now, it seems to have been enough to bring Elon Musk to his senses. Only time will tell if it is enough to keep him there.

Credit: theverge.com, September 7, 2018

She will graduate in two days and move on to a successful career far from these bustling university halls. And yet here she is this morning, double checking final grades and inputting data for a research project we have worked on together. And she is doing this for minimum wage when she could literally be working for twice the money at her second job down the street at a local bank.

She recently told me she was the second busiest teller in the state for her bank holding company, and she is rewarded accordingly. Still, she focuses, making sure my students get their due, and that I have a chance to move my research forward once she is gone.

To say that Johnna Heller is my teaching assistant is to speak to me of the highest order of student imaginable. She has perhaps been busier than any TA in recent memory, and at the same time she has been finishing coursework and preparing for the CPA exam.

She holds her longsuffering boyfriend at bay while she plows through another set of questionnaires or does the first pass on a grading assignment for 106 students. He knows she will let him buy her dinner eventually and, since he is also studying for the CPA exam, he busies himself with the task at hand. Such is the price of dating excellence.

A legacy of excellence

I have had a number of remarkable TAs in my years as a professor who have made a real difference in moving my work forward and allowing me to more effectively do my real job, which is investing in people. This semester I had the privilege of seeing two of them in one day who have moved into significant roles of influence in their firms. One trained my son’s analytical mind to deal with data while he was still in high school, setting the table for his time in business school and his career as a consultant. Another made sure that son had a ticket to an Aggie Cotton Bowl, and still takes the time during many of her monthly visits to Connecticut with her firm to take the train to New York City and buy my daughter dinner. My flash drive is named for a third.

Now I am in an administrative role that forces me to delegate more to my TA than I have historically done. But I sensed from the first day that Johnna worked for me that this was a job that she really wanted to do. It makes me wonder, in a world where business school students seem more focused on success than growth, what lies ahead of her.

I remember a young man once who began working on a master’s degree when he was married, with two small children in tow. Without many alternatives, he sought out a TA job in his chosen field of accounting. Because all the accounting slots were filled, he was assigned a teaching responsibility in statistics, managing to stay about two days ahead of the students all semester long. But in those frantic days, he discovered something remarkable that he had not seen in his first few years of work—his work made a difference in students’ lives, and it made them better. Like Johnna, he didn’t make much money doing it. But that experience changed the course of his life. After public accounting and another visit to industry, he returned for his Ph.D., and the rest, as they say—is my life.

Thankful for a teacher

That professor I first worked for would not remember me now, nor the difference he made in my life, though he is still teaching today. His mentoring and friendship as I first tried my wings allowed me the confidence to chart a new course, one that has been meaningful to me in so many ways. And I have never really stopped to express my gratitude. So let this be my thank you to Dr. Gary Kelley at West Texas A&M University.

This week I will say goodbye to a person who cannot be measured by her wage or by her accomplishments. As with the other remarkable people who have gone before her, the life ahead of her is far removed from the cluttered office of an aging professor, with memos stuck in pincushion walls, and the dusty memories of a career measured in plaques and diplomas.

Her boyfriend—and the world—wait for the emergence of one significant life at the other end of that graduation stage. What lies ahead for her is a life of impact and meaning, one with purpose and direction. She is going to make a difference.

Next week I will turn from my computer to my doorway, half expecting her to be standing there silently, waiting to ask a clarifying question. The ghosts of those who went before her hover outside my door, apparent only to me in my quieter moments.

In truth, as I wrote these words, she appeared in my doorway one last time, for the best conversation we have ever had. It is one that I will remember for a while, and it made me reflect on who I really am inside, and who I want to be. It also made me love my wife and children more.

Around Aggieland, this is a week of rejoicing and laughter. And I will readily join in with the students and their families as they celebrate.

But there’s a certain melancholy for me, as well. Because, this week, I will be saying goodbye to my TA.

On a gray Tuesday afternoon I stood, flower in my lapel, staring at the American flag with my brothers at my side, listening silently to the strains of “Taps” as we paid tribute to an American hero. This flag was draped, not flying, and was eventually carefully folded and handed to Bob’s daughter, who has known the grief of losing both her brothers and her father within a year. Her quiet dignity and more, her joy at knowing her father’s life was well lived, buoyed us all.

Since I only got to know Bob in his 70’s, I really never pictured him as anything but older. So I was taken aback by pictures of a strapping pilot who was flying in the Army Air Corps while he was still a teenager. I had heard the stories at barbecues and gatherings; Bob escorted bombers over the Alps from Italy into Germany. My brother Pat, who helped eulogize him, told of Bob’s bearing down to strafe a Nazi supply train only to have the top of a freight car open and reveal flak guns trained directly on him. After several creative approaches, he realized that keeping the plane in one piece and himself alive were probably in the best interest of the Army Air Corps.

Because he did, he lived to be my father’s best friend over the last 20 years. They met at the YMCA when my dad began working out regularly after my mom’s death, and they struck up a friendship that sustained them both for two decades. This included weekly lunches at the Mason Jar, perhaps as much to talk to the waitresses as to eat a meal. But they were a connection with someone who understood—what it was to fight a war where your buddies didn’t come home, but you did; what it was to lose the love of a lifetime and have to point yourself toward some other useful goal in life; what it was to grow old and fend off watchful kids who wanted you safe more than they wanted you happy.

I don’t think I talked to my dad in the last number of years without asking how Bob was doing. He became a part of the family, a “Where is Bob?” when absent from dinners with Dad. But it became harder for Bob to get around, and sometimes he fell, and there were the last-minute reasons for not meeting at the Mason Jar that eventually led to him needing to move near his daughter, too far for Dad to see him on a regular basis. And, this past year, Dad moved four hours away to live with Pat. Still, the phone calls between them continued, with Dad always concerned afterward about how Bob was doing.

My dad is 97. When you are 97, all your friends have gone before you. Some went 70 years too soon, and in an instant, to ensure that people like me have the opportunity to live in freedom. Some went mid-life and unexpectedly, and some just eventually had their warranties run out. I always wondered why Dad had so few close friends through the years, when I have been blessed with a number. I think I am coming to understand that when your soulmates, your comrades in arms, are ripped from your life suddenly, as Dad’s and Bob’s were in World War II, it is hard to want to take the risk of embracing that pain again in friendships.

I never saw Dad love a friend like he loved Bob. There were guys he admired and respected, but no one had his heart the way Bob did. My brother Pat shared the gospel as he eulogized him, “because that’s what Bob would want me to tell you.” Bob modeled grace and acceptance for my dad, loving Dad exactly where he was in his life. And he did it for a long period of time.

And he made my dad laugh all the time, one of the kindest gifts one man can receive from another. Because after Mom died, there was too little laughter. Introspection will only carry you for so long. What Dad needed, and God gave him, was a buddy, a best friend who knew him and loved him anyway.

As I kissed my dad goodbye after the funeral, I knew he was entering again into the unknown. It’s hard enough to find a Bob when you’re 77; what do you do when you’re 97? Growing old is not for the faint of heart.

But as I reflect on Bob, I am grateful for the gift he was to my family, and to my Dad. Dad won’t be going back to the Mason Jar. But in this season of life when he lives, safe but emotionally unmoored, with my brother, he can look back on 20 years of memories and have a sense of what it would have been like if his war buddies had lived. Because the best of them would have been like Bob, carefree and full of hope even in the last days of struggle.

I don’t know what you do when you say goodbye to the last best friend you will ever have. If I know my Dad, he will walk forward and say, “So be it.” But he will never forget what it was like to have a friend who accepted him completely.

And neither will I.

Olympic Gymnast Aly Raisman Confronts Larry Nassar (Fox News)

Why do we scratch our heads and say, “How did Olympic gymnastics doctor Larry Nassar get away with his morally repugnant and abusive behavior for so long?” “Why did people enable movie mogul Harvey Weinstein’s egregious behavior, not just ignoring it, but facilitating it?” “Why did no one speak up when the police from my home town, Baltimore, allegedly carried around toy guns and BB guns to plant on people they happened to shoot?”

Moral courage is the willingness to take a potentially costly moral action simply because it is your duty to do so, or “the right thing to do.” It is acting in spite of the personal consequences because of the harm that can be prevented or good provided to others. Moral courage is what turns moral judgment into moral action.

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Two seemingly unrelated stories in the news, one in the entertainment industry and one in the world of sports, have me thinking about how difficult it can be to summon the moral courage to do what everyone agrees, in retrospect, should be easy to do. The numerous charges of sexual misconduct against Hollywood producer Harvey Weinstein have dominated the headlines, particularly since entertainment and news are a bit hard to separate nowadays. And this week, former Baylor and Cleveland Browns wide receiver Josh Gordon revealed how he was able to pass drug tests while he was a college student and remain eligible to play.

Harvey Weinstein

While the scope and importance of these two stories may be fundamentally different, what they have in common is this—enablers are always necessary for someone to escape justice over a prolonged period of time. Weinstein was allegedly enabled by a long line of subordinates and friends, some of whom were likely on his payroll for that very purpose. Gordon claims that an assistant coach provided him with cleansing drinks and taught him how to drink them so that his system would be free of evidence he had been taking drugs whenever he was tested.

Many people would rather spend their lives around successful people than people of integrity. This is true not just because some of these people are dishonest, but because successful people can offer them things that people of integrity may not be capable of providing. These folks want to project that they are successful and that their success is merit based. This was true of numerous people engaged in the Galleon Group insider trading scheme headed by Raj Rajara

tnam, projecting skill in trading when they were really masters of getting people to divulge information illegally. Volkswagen engineers followed the orders from above to design defeat devices for their vehicles that would shut down emission controls and maximize gas mileage, except when the vehicles were being tested by emissions control experts. …Read more

I am still attached to college and professional sports, but I am quickly losing my love for them. And it’s a bit ironic why—it seems to me that the search for justice, which is central to my daily thinking, has completely invaded the sports world. And I’m not sure that it is making it a better place to be.

There are several unintended consequences to the search for sports justice. The easiest one to notice is the length of games. NFL games are taking longer than ever, with the average game through eight weeks in 2016 taking three hours and 12 minutes—five minutes longer than two years before. The length of college football games has been steadily climbing for the last decade, and is fast approaching 3½ hours. The average major league baseball game now takes over three hours, and game two of the World Series, a simple 5-1 Cubs win over the Indians, took four hours and four minutes. Of course, endless commercials play a part in this change. But the advent of replay as central to all these sports is making the games substantially longer. And, particularly for football, the review methodology is inordinately inefficient and involves too many people, inflating the delays driven by the search for justice.

I am also put off by the nonstop complaining on the field that results from this search for sports justice. Kansas City Chiefs tight end Travis Kelce, best known for being ejected earlier this season for throwing his towel at an official, went on a profanity-laced tirade against the referee after the Chiefs’ playoff game loss to Pittsburgh, saying the ref didn’t even deserve to work at Foot Locker. He was obviously frustrated by a holding call on a two-point conversion that would have tied the game. But the disrespect that coaches and players obviously have for referees now is embarrassing. Officials are regularly subjected to animated hand-waving exhibitions after calls, particularly in the NFL. And, for the most part, officials walk away and take it. In both professional and college football, officials are getting an earful from coaches on both sidelines throughout the games. It takes an awful lot to get an unsportsmanlike conduct penalty called on the bench, and the coaches know that. So they model for their players how to get in the referee’s head with their comments, in hopes of getting a future call.

I am on Twitter, so I know a lot about the general decline in respect going on in American society, particularly in politics. But it used to be, at some level, that sports was largely immune to this. I grew up a fan of the Baltimore Colts, and thus hating the Green Bay Packers. When I was a boy, the Colts lost a playoff game to the Packers because of a blown call by an official on a field goal that was obviously missed. It was agonizing for Colts fans. But it didn’t result in a meltdown by Colts players, or by coach Don Shula toward Vince Lombardi or the refs. I can even remember watching a TV show later in which players from both sides were laughing about it. Colts fans didn’t like losing, but you had to respect what Lombardi did with the Packers, especially when we had the better quarterback. Travis Kelce’s explosion in the locker room is commonplace, and it even seems like reporters sometimes encourage it with their questions after tough losses.

But long games, endless whining and a general lack of respect have made being a spectator a lot less fun for me. I know that a great deal of money, and lots of people’s views of themselves, depend on game officials getting calls right. But I have to say that it is sucking much of the joy out of something that has always been a sweet part of my life.

I guess that we as a society have largely rejected respect in favor of justice. I think that both are important, and, in my mind, they are not mutually exclusive. I would not want to abandon the pursuit of justice so that I could be thought of as respectful.

But there are unintended consequences to abandoning respect in order to get the “right” outcome. Things that used to add spice to life—for me, sports, politics, and the differences between us—are becoming increasingly distasteful. It really just struck me that I am writing this on Martin Luther King Day. I cannot think of anyone in my lifetime who more doggedly pursued justice while demonstrating respect than Dr. King.

We could learn a lot from him.