NewsNotables – Issue 66

MBA Graduates Will Vow to be More Ethical

The Seattle Times, May 31, 2009

Nearly 20 percent of the graduating class of the Harvard Business School have signed “The MBA Oath,” a voluntary student-led pledge that the goal of the business manager is to “serve the greater good.” It promises that the Harvard MBA graduates, who signed the oath, will act responsibly, ethically, and refrain from advancing their “own narrow ambitions” at the expense of others.

“We want to stand up and recite something out loud with our class, said Teal Carlock, who has accepted a job with Genentech. “Fingers are now pointed at MBAs and we, as a class, have a real opportunity to come together and set a standard as business leaders.”

Comment: I think the oath is well done and very meaningful. A higher percent of the class accepting the oath would have been encouraging, but hopefully this will increase at Harvard and other business schools. The real test will be a few years down the line as to the oath being practiced. The oath is reprinted on p. 15 of this issue.

SEC Slaps Trade Ban on Staff

The Wall Street Journal, May 23, 2009

The SEC imposed tough new rules on stock trading by employees, following an investigation into the trading of two veteran enforcement lawyers. The rules, for the first time, prohibit staff from trading shares of companies under SEC investigation, regardless of whether employees have personal knowledge of the investigation.

The SEC’s inspector general disclosed the trading of two lawyers and referred them to prosecutors for further investigation. They haven’t been charged with a crime at this point. According to the report, the two lawyers mostly followed the SEC rules but didn’t report some trades. The two friends had a standing lunch date on Mondays where they talked stocks and politics, according to the report. They shared what the report called “a passion ” for financial markets and spent a good part of their workday emailing each other with stock ideas.

The inspector general cited trades made in companies’ shares around the time those companies were facing SEC probes. No one person is charged with reviewing forms or monitoring trades. The lawyers supervisors never questioned their stock holdings, even though one lawyer made over 200 stock trades in two years.

Comment: It seems inconceivable with the lack of monitoring and stock trading rules at the SEC that is in place to protect the public. The SEC comes down hard on insider trading but it appears some of their own lawyers were using information concerning companies under investigation and traded with insider information themselves. In my former life, my company had a substantial investment portfolio. I was prohibited in participating in any IPO and stocks that the company had in its investment portfolio. It just made good sense to separate yourself from any possibility of a conflict of interest.

Businesses Get Tougher on ‘Friendly’ Fraud

The Wall Street Journal, May 26, 2009

Online merchants are fighting a surge in so-called-friendly fraud, as more customers try to get out of paying their Internet purchases in the recession. Online jeweler Inc. and Expedia Inc. are among companies seeing at least 50 percent spikes from October in friendly fraud, a term used to describe when a customer disputes an online charge but doesn’t return the item or has already used the product.

Common scenarios include customers falsely claiming they never received a product or they received the wrong item. Some customers deny they ever authorized the charge and refuse to pay for them. Since the markets tumbled last year, says its rate of suspected friendly fraud has tripled, while Expedia’s has doubled.

These companies say the fraud is sometimes blatant, with some customers sending back boxes filled with rocks instead of the item that was shipped, and then asking for their money back. But in most cases it’s hard to distinguish between fraudsters and customers who legitimately don’t receive their online purchases.

The problem is similar to what happens in retail stores when customers return clothes or other items for a refund, after having already used the products, a practice known as “wardrobing” or “closeting.” Fraudulent returns to retailers totaled $11.8 billion in the U.S. in 2008. Companies are stepping up their vigilance against friendly fraudsters by analyzing computer records to identify consumers who charge back items frequently.

Comment: The phrase “friendly fraud” caught my eye because it seems like an oxymoron. After reading the article, I don’t see anything “friendly” about the fraud that is being committed. Fraud is fraud no matter how it is wrapped.

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