Just when I thought the government couldn’t give lighter hand slaps for fraud, corruption, and general sleaze, I read this story in the paper today about Beazer Homes USA and their fraudulent practices.

Basically a few lower level employees got fired, but the CEO is staying in his job and isn’t going to jail, and the board remains unchanged, oh – and the CEO got a big bonus even though the company lost hundreds of millions last year.  If the government really wants executives and boards to rethink breaking the law, or that breaking the law will have any result other than an increase in salary and bonus, then this is a huge and startling step in the wrong direction.

As the article describes, in 2007 it was reported by a North Carolina newspaper that “fraud was committed in numerous ways.”

Problem #1 – a newspaper discovered the fraud, not a regulatory body or a consumer.

What are the regulators doing? Is there no oversight at all?

So now Beazer has agreed to pay $15 million as part of their penalty for their bad behavior, largely selling homes to people who couldn’t afford them.  Hard to know from the article how much fraud was involved, but with over $400 million in losses at Beazer, I am guessing $15 million doesn’t scratch the surface.

But it gets a lot worse.

Problem #2 – the company knows the names of the people it defrauded but they don’t have to make any effort to notify or help them.

“If the company knows a particular customer was defrauded, and by how much, it is under no obligation to point that out to the customer.”

This is where it starts to get totally insane.  If Beazer and the government know the specific names of people who were defrauded, and the amount, AND there is now $15 million to pay them back, they aren’t required to notify them (let alone apologize)?  It’s up to the homeowners to do the research and figure this out?  So the company that is in the business of making and selling homes (the expert), expects their customer, probably having little or no expertise in mortgages, let alone fraud detection, to figure all of this out and file a claim?  Well, at least they can hire a smart lawyer to help them sort this out, right?

Problem #3 – the victims of the crimes can’t hire lawyers to help them sort through this.

Well, that’s not the exact wording, but when the article points out that “no money can go to lawyers who help these homeowners” – if the lawyers can’t get paid to help the homeowners, then I think the odds are low that they will be able to hire a good lawyer to help.

Problem #4 – the boss got a big bonus, got to keep his job, and so did the board.

“If a boss can preserve his deniability about crimes committed by his company – perhaps by showing little curiosity about just how the profits are being earned when he is taking in millions from cashing in stock options – then he can escape being held accountable if the crimes are eventually uncovered.”

The CEO claimed to know nothing of the fraud, and presumably that is at least part of the reason he gets to keep his job and not get arrested, but that’s crazy.  And what was the board doing all this time?

Given the magnitude of the real estate and banking mess, don’t we need harsher penalties that motivate executives and boards to pay attention to what is causing profits and losses and take accountability for them, while at the same time not block the consumer from knowing when they have been wronged?

I don’t know why we think any of this will get better anytime soon if we don’t rethink enforcement.

-Ric

There’s little debate about what is the oldest profession in the world, so it’s a good bet that one of the oldest sayings in the world is “sex sells” and that has never been more true in the age of the internet.

I am not going to bother to dig up the statistics, many of us have read and heard that the first place big money was made on the internet was porn, and because of that, the people in porn had to blaze a trail in making internet transactions trustworthy, making it much easier for companies that were growing up (with fewer limitations on how grown up their customers were . . .) to offer secure transactions over the internet.

It looks like porn is at it again, but this time in a less obvious way.

The article in the paper this morning (here) was on the front page of The New York Times and I think that’s probably where it belonged.  The key of the article is captured by this quote:

“On the Internet, the average attention span is three to five minutes,” said Steven Hirsch, co-chairman of Vivid Entertainment. “We have to cater to that.”

Basically, the thrust of the article is that the porn industry is removing plots from their films because they don’t have time to do character development and storyline and still have time to deliver what their customer wants when the customer attention span is three to five minutes.

This is a big deal and it extends well beyond porn given how much internet usage is increasing across so many demographic segments.  Given that people are already selling songs one at time, instead of full albums, and books like my book Rethink can be purchased electronically a chapter at a time, there are precedents for more bite-size demand from the consumer, but this lays out the requirement more explicitly than I have seen previously.

Newspapers and publishers now have to rethink what they need to cut out of their content en route to these three to five minute segments. This is the sad reality of the world we live in that print books and the printed Sunday New York Times are becoming less and less popular, but content creators and managers need to make the adjustment that porn has already made.

Hopefully they keep the story lines.

-Ric

I have to say, it was with very mixed emotions that I read Paul Krugman’s piece on healthcare reform yesterday which is here.  On the one hand,  he is absolutely right, that we have to look around the world to find examples of countries that have figured out how to deliver  healthcare in scale to the masses without breaking the bank.   That point is 100% valid, but sadly he stopped there.

Which is why I was delighted to see the article Paul O’Neill wrote here, on the same physical page, albeit below the fold.  O’Neill points out that there are some astonishing statistics about basic flaws in healthcare related to things as basic as infections in hospitals.  Beyond the lofty overall comparisons that Krugman offers, O’Neill is dead on in the need to focus on more tactical, basic mistakes that shouldn’t be tolerated.  It is nothing short of inexcusable that there are not already controls in place to enforce these policies (absent some obvious lack of basic human motivation to do the right thing which David Brooks wrote about today very elegantly today here).

I talk a lot about what O’Neill did for Alcoa in the Rethink book, specifically his ability to find the right metric that drives overall success.  I have to say the metrics he points out in this Monday article seem more glaringly obvious, and I am a bit disappointed that Nobel laureate Krugman chose to give this issue such a simplistic spin – O’Neill, again, has hit the nail on the head in terms of what’s needed.

I just hope the Obama team read this O’Neill piece so they can focus on fixing some basic problems, rather than just seeing if they can make their cost models align with the rest of the world.

-Ric

Two weeks ago Paul Krugman talked about the liquidity “gap” as the big issue in this recession.

In his piece today here, he focused on the recent news of higher than expected unemployment.  While I concede that unemployment inching toward 10% is troubling, I still get back to something I wrote about a couple of weeks ago – we need several specific goals so that we can really know when we are making progress. Focusing on one measure right now, out of the context of all of the other factors in this economy just isn’t very helpful.

What level of unemployment is the target in the short term? How much spending is enough consumer spending? What level of unemployment is enough progress?  How much additional (or less) regulation is needed in financial services?  There needs to be a list of key indicators so that people stop jumping up and down about one of them, largely out of context.

Krugman says the Obama stimulus plan to create 3 .5 million jobs isn’t “remotely enough” but he doesn’t define “enough” and I am sure he doesn’t think it’s realistic to get unemployment to zero.  I wouldn’t be at all surprised if creating that many jobs in the right places would go a long way (please create some infrastructure jobs in Washington state to fix the horrible roads so my car doesn’t take such a beating), but I don’t have enough visibility into the other key drivers to know what else has to happen in parallel with that to be “enough.”

If we don’t define enough, if we don’t define success, how are we ever going to declare victory?

-Ric

A very short post, because the video says it all, but this is such a great example of rethinking I am most impressed.

Taking the water out of the toilet, and also capturing the methane gas is such a great idea, and it’s going to have such a huge impact, because of the volume of people and geographies it can help. The Dispose Waste “what” will always be there, but with the increasing pressure on our water supplies, eliminating the use of drinking water to remove waste is a huge step forward.

Now I don’t expect upscale neighborhoods like Beverly Hills to get rid of their flush toilets anytime soon (except maybe someone like Ed Begley, Jr who is cartoonishly environmentally friendly), but there are places all around the country and the world that this can help.

I am a little skeptical about whether there is enough methane to power our stoves, but it’s still all very clever.

It does seem like making the toilet out of manure is a bit much, but if the poo, I mean shoe, fits . . .

-Ric