NewsNotables – Issue 52

Hacker’s Infections Slither Onto Web Sites

San Jose Mercury News, February 5, 2007
Computer security experts said 2006 was the year that hacking stopped being a hobby and became a lucrative profession practiced by an underground of computer developers and software sellers. Like true business people, bad guys broadened their reach by attacking popular social networking sites, they diversified their product line by launching attacks through popular software applications like PowerPoint and Adobe Reader and expanded their activities overseas.

Software makers who try to stop online crooks say they are bracing for a new level of nastiness in 2007, including malicious Web sites that are booby-trapped with software that automatically loads itself onto machines of users who simply visit a site. Hackers realize they have a limited time before their attacks are blocked, so they are opening up their arsenal and trying everything possible.

Microsoft has acknowledged Vista flaws. Meanwhile, the criminal underground has begun peddling information about Vista’s vulnerabilities, one of the many ways unscrupulous programmers have found to profit from their expertise.

Comments: In the technology world, nothing will remain secure for long. As soon as security flaws are corrected, others will be found by underground unscrupulous technology thieves. This reminds me of changes made to the tax code by Congress to close loopholes. As soon as one loophole is closed, others spring up due to unscrupulous tax experts.

Hyundai Chairman Is Found Guilty

The Wall Street Journal, February 5, 2007
A Korean court found Hyundai Motor Co. Chairman Chung Mong Koo guilty of embezzlement and fraud, and sentenced him to three years in prison, breaking a pattern of leniency for high profile executives convicted of white-collar crime. This fraud was not insignificant. Prosecutors alleged that Mr. Chung took about $100 million from Hyundai for political payoffs and personal use.

The decision poses a major leadership problem for Hyundai as it faces slower growth and mounting challenges including new competitors from China. Another quandary for Hyundai is should it replace Mr. Chung, who is the son of Hyundai’s founder and has been depicted for years as a near-omnipotent leader. Mr. Chung is 68 years old, but has no clear successor. Also, Mr. Chung’s son runs the company’s Kia affiliate. Hyundai said nothing publicly about preparations it was making in case Mr. Chung received a prison sentence. Company executives last week were privately saying they expected him to receive a financial penalty but no prison time. Mr. Chung will appeal.

Comment: White-collar crime in many countries around the world has tended to be swept under the rug. As evidenced by this article from Korea and similar action taken in other countries, the rest of the world is beginning to take corporate crime seriously. Even though we live in a time where corporate scandals are a daily event in America, ethical standards are stronger than ever before. All countries have a long way to go, but I believe we are headed in the right direction.

The Hard Rain That’s Falling on Capitalism

Everybody’s Business, January 28, 2007
Capitalism values people as individuals according to contract, not according to the status of our birth. This in itself is a miracle. This miracle has been vibrant in the lives of hundreds of millions of Americans who have gone from nothing to something, thanks to the dynamics of capitalism. They have seen their pay rise, and they have been able to convert their sweat and toil and creativity into capital by saving and investing in the stock market and becoming capitalists themselves.

The system of capitalism is wide open. If you have an idea, you can turn it into capital. The writer goes on to say he had a chilling thought about capitalism, the most fundamental building block is trust. When farmers sent their savings to banks in London and Glasgow and Paris, they had to be able to count on it not being stolen. That was what allowed capital to be accumulated and deployed and for the entire world economy to take off.

When I see what the top dogs at all too many corporations are now doing to that trust, I feel queasy. Outrageous — yes, obscene — pay. Greedy backdating of stock options, which in my opinion is straight-up theft. Managers buying assets from their trustors, the stockholder, at pennies on the dollar, then forestalling competing bids with lockups and insane breakup fees.

These misdeeds and many more are hammer blows at the granite foundation of trust we built many years ago. How long democratic capitalism can survive these blows before it gives in and gives birth to revolution or to be an out-to-out aristocracy, I am not sure.

Empires come and go. Economic systems come and go. There is no heavenly guarantee that capitalism will last forever as we know it now.

Comments: The author of this article brings up some sobering thoughts about all too many fraudulent actions by CEOs and senior executives. Until recent years, I have thought of financial fraud occurring at low-to mid-level management. Unfortunately, in recent times fraud has made it to the top. Ultimate power, with insufficient checks and balances, is more temptation than many top executives can cope with. If this is not brought under control, the author has a point that, “There is no heavenly guarantee that capitalism will last forever as we know it now.”

By Roger Eigsti
Board President,
Institute for Business, Technology, and Ethics