Archive for the ‘Full Disclosure’ Category

Service of Saving Money

Thursday, July 26th, 2012


Who doesn’t want to save money, especially these days?

My friend Clotilde, [she asked me to use this pseudonym], told me about how some in one industry are approaching this objective although she didn’t cotton to the approach. Clotilde heard the story on NPR. I read David Folkenflik’s coverage in “Fake Bylines Reveal Hidden Costs Of Local News” on

oldfashionednewsroomFolkenflik wrote that major newspapers in Chicago, Houston and San Francisco admitted that they published print and/or online items under fake bylines.

That’s the least of it. According to Folkenflik, “As was first disclosed by the public radio program ‘This American Life,’ the items in question were not written by reporters on the staffs of the papers at all but by employees of what is effectively a news outsourcing firm called Journatic.

“‘How do you get police blotters from 90 towns? It’s not easy. But that’s what we do,’ says Brian Timpone, a former television reporter and small-town newspaper owner who created what became Journatic six years ago.”

strapped-for-cashFolkenflik continued, “Journatic has dozens of clients, many of them strapped for cash but all hungry to serve up local news for their readers.”

Worth repeating: I’ve found that daily newspapers are turning to syndicated stories to fill their pages rather than to spend money for reporters to cover local business news.

Back toFolkenflik:  “‘It’s a short-term cost-cutting measure, and that’s all it is,’ says Tim McGuire, the former editor-in-chief of the Minneapolis Star Tribune, who now teaches media business and journalism ethics at Arizona State University’s Cronkite School of Journalism and Mass Communication. ‘It’s not a long-term solution to providing local news to people who want it.'”

Journatic has 60 employees and 200 freelancers but what most caught my friend’s attention was that the company hires 100+ people from abroad to write copy. One employee who rewrites the foreigners’  material told Folkenflik that these writers are paid “a pittance.”

Since I began to write this post, the Chicago Tribune, a Journatic client, suspended its relationship when it learned that “the company had published stories with fake bylines and that a writer there had plagiarized a story on TribLocal, the network of suburban papers and hyperlocal websites Journatic published on behalf of Tribune,” according to Julie Moos on The Tribune has brought in a former editor as a consultant to help “the outsourcing company on its processes and standards.”

Are cut-rate solutions like this better than nothing? Do you think such cost-cutting measures will help save newspapers? 


Service of Cures That Don’t

Monday, June 4th, 2012

Fire retardant fabrics have been around for ages, though you wonder why as they seem to do harm, prevent little and serve no good purpose. If you’ve attended a home furnishings trade show in a windowless space, soon your eyes will sting and your throat will feel scratchy–a clue that something’s up. Could it be all that upholstery and carpeting?

In “Are You Safe on that Sofa?” in The New York Times, Nicholas D. Kristof writes that if there is a fire, toxic smoke is all you can expect from the so-called fire prophylactic.

He praises The Chicago Tribune for superb journalism for its investigative series, “Playing with Fire.” Kristof credits the series for revealing that these retardants were inspired by the tobacco industry: “A generation ago, tobacco companies were facing growing pressure to produce fire-safe cigarettes, because so many house fires started with smoldering cigarettes. So tobacco companies mounted a surreptitious campaign for flame retardant furniture, rather than safe cigarettes, as the best way to reduce house fires.”

Kristof continues: “The documents show that cigarette lobbyists secretly organized the National Association of State Fire Marshals and then guided its agenda so that it pushed for flame retardants in furniture. The fire marshals seem to have been well intentioned, but utterly manipulated.”

The plot thickens as he reports that the advocacy group, Citizens for Fire Safety “pushed for laws requiring fire retardants in furniture.” This group has three members, notes Kristof: The three major manufacturers of flame retardant chemicals. He notes that the group paid a doctor to lie about children who died in fires because there was no fire retardant on sofa cushions in their house. The kids didn’t exist.

He quotes a toxicologist who points to growing evidence that retardants “don’t provide safety and may increase harm” and who asks why they aren’t used in planes if they are so effective. Children who play on the floor breathe in dangerous dust from the chemicals and they can alter brain development in a fetus.

Kristof wraps up his op-ed piece saying that the purpose of these flame retardants is to make three companies rich. “The lesson is that we need not only safer couches but also a political system less distorted by toxic money.”

If there are laws that require furniture to use fire retardants this means that a manufacturer can’t sell a line of clean, organic fabric-covered sofas and chairs. Apart from paying someone to reupholster your sofa with untreated textiles and keeping children off the floor near upholstered furniture, what to do?

Service of Buying on Principle

Monday, April 23rd, 2012

The other week, NYC introduced its “Taxi of Tomorrow” and public advocate Bill de Blasio [Photo right, below] howled. I heard him talk about the city’s choice of foreign partner on the radio and on his website he noted that the billion dollar contract for “the exclusive right to manufacture New York’s taxis” is going to a business that operates in Iran. It’s one of a dozen car companies on de Blasio’s “Iran Watch List” that “targets businesses that operate in Iran and undermine economic sanctions.”

The website quotes de Blasio: “You cannot do business with the people of New York City with one hand, and prop up the dangerous regime in Tehran with the other. For our billion dollars, taxpayers and taxi riders deserve a guarantee that ____ will stop selling its vehicles to Iran.” I put the space in the quote although de Blasio identifies the company on his blog.

When I’ve met investment advisors, they’ve asked me if there are any companies or industries I wouldn’t want to support. It’s a good question for many reasons. Some might forget and inadvertantly invest in–and be accused of insider trading–stock in a company the firm they work for advises. Cigarette or arms manufacturers might be on the “no” list for others.

There’s a side issue to de Blasio’s point that’s worth a mention even if off-topic. I identified the car manufacturer to a friend who observed: “Why didn’t the city pick an American brand?” As I began to write I also remembered a buy American initiative where participating manufacturers hung the red, white and blue “Made in America” tag with logo on clothing, appliances and other products. Would this be unfitting today?

In wartime, many won’t buy anything made by their enemy. Some have longer memories than others and children often keep up their parents’ boycotts. Is such a consideration anti-business and therefore inappropriate in a tight economy? Or do we have no enemies?

Are there things you won’t invest in, buy, attend or support on principle, or is such thinking so yesterday?

Service of Conflict of Interest

Thursday, October 20th, 2011

Some who practice public relations give it a bad name. Because it’s one of those industries that lots of people don’t “get,” it can have a harder time than others justifying itself. And then there are the high profile sleazes. They exist in every industry from medicine and hedge fund management, banking to politics.

How do I handle the splash from PR people who don’t conduct themselves ethically and land in the spotlight? I avoid any hint of conflict of interest as do my associates and millions of doctors, hedge fund managers, bankers and politicians.

Years ago, an acquaintance asked me to help promote his friend’s business. His friend was a furrier in New York’s garment district. I interviewed the owner, he showed me how the coats were made, and we addressed his challenges. His comment to our mutual contact after our meeting was surprise: “She didn’t ask to try on a coat or for a discount.”

So this is why my nose is out of joint when a reputable news source known for business reporting offers to sell me its top stock picks. It smacks of conflict of interest. I don’t mind when it offers me discounts on wine. It’s not known for wine reviews. Used to be that reporters at a news source such as this returned holiday gifts and would not accept even a cup of coffee from a business or PR person. This place isn’t alone.

The New York Times  reported last month that magazines are selling fashion picks in online stores and one through its website. Eric Wilson notes that GQ sells its selections through Park & Bond; Esquire sends readers to and the Vogue website is the place to buy select items from this season’s runways. Wilson quotes the website: “Vogue may receive a commission on some sales made through this service.”

Wilson notes the potential friction between these venues and stores like Saks, Neiman’s and Barneys. The impact of editorial conflict of interest is worse.

How many times have I told a client adding beige to a lackluster, generic product line or planning an open house where nothing will be different that day from any other: “No reporter, editor or blogger will consider sharing this with their readers. To get out this information you’ll need to buy an ad.” With a change in editorial policy, how this might change, and not for the better for readers.

PR people tout the value of third party endorsement when a reporter or magazine features a product or service. It’s the ultimate sales tool. Do you think that smudging of roles for magazines and newspapers, where they sell some of their picks as well as feature them, will affect their credibility and validity with readers? Might it eventually accelerate their demise, the ultimate irony as one of their arguments is that they are trying to stay afloat through such sales?

Service of Reading the Small Print

Wednesday, May 4th, 2011

Do you sign up for free computer programs without reading the agreement’s small print? I do and feel nervous every time, expecting to get a bill for $zillions or find out I’ve opened myself up to some kind of catastrophic obligation.

People get married with prenuptial agreements and 50 percent don’t pay too much attention to the “in sickness and in health” part of their wedding vows. Maybe the feeling is that canny lawyers can slip you out of almost anything including employment and client contracts, wills and rental agreements. There’s a joke in our family that when submitting an insurance claim be prepared to learn that the company doesn’t pay for operations done on Tuesdays, when you had yours, and that the tree that knocked a hole in your roof was an elm, and they only cover damage from maples.

According to Michael Barbaro who wrote “In Elite Library Archives, a Dispute Over a Trove,” in The New York Times, writer Paul Brodeur wants back all the papers he gave to the New York Public Library many years ago. Seems the library distilled to 53 the 320 boxes this 79 year old novelist-turned-investigative reporter donated and told him that he has until August to pick up the remaining boxes or they’ll trash them.

Barbaro reported that archivists “noted that Mr. Brodeur had explicitly given up all rights to the papers when he signed a ‘deed of gift’ donating them to the library. According to that deed, the library ‘reserves the right to return’ any items it wishes and ‘may dispose of the same as the library determines in its sole discretion.'”

No doubt the library has run out of space and is revisiting all of its archives to make room for more papers without having to rent or buy additional space. Whatever the reason, the result hurt Mr. Brodeur’s ego and expectations. He was told in 1997 that his papers had been “reviewed and prepared for public viewing” and were in the permanent collection’s 88 miles of stacks. Last summer, library staff informed him that they had weeded out such things as “photocopied news stories and multiple drafts of New Yorker writings.”

What’s sad is that the papers–whether in the 267 boxes that the library plans to toss or the entire 300+ cartons if Brodeur wins the argument–will no doubt become moldy and useless in the shed he’s built for them on his Cape Cod property. In any case, it doesn’t appear from the photo of the shed in the paper that researchers will be able to access them from the cramped wood structure.

Do you think the library should give Brodeur back all his boxes? Have you been burned by not reading the small print? Do you feel that anyone with enough money or power can find or create a loophole to slip through whether the print is large or small?

Service of Risk Management: Derivative Contracts

Thursday, August 19th, 2010

We are very fortunate to have a guest post from a seasoned financial expert, Zachary. Get on your thinking caps, readers. He is addressing a crucial if complicated subject with which we need to become familiar, if we aren’t already.

Derivative Contracts as Risk Management Tools

Laymen, and even some financial professionals, can be excused for being confused by media coverage and government pronouncements about derivative contracts.  Most of this material has been prepared either by non-professionals with little actual knowledge, or by high-level professionals whose written product is replete with specialized vocabulary and statistical concepts that most people do not have the background to understand.

Contrary to the impression given by the media, derivatives are not at all a new concept.  They are contracts whose value comes from (is “derived” from) the value of a specified commodity, or risk-based financial instrument.

The earliest contracts arose in agriculture, when farmers would attempt to protect the value of a crop that could not be sold until a later date.  They would enter into a contract today to sell all or a portion of their crop at a specified future date at a specified price, thus, in effect, insuring themselves against possible declines in market prices.

As international trade grew, buyers and sellers had an additional risk factor to deal with in the form of possible changes in the value of foreign currency.  They would approach their bankers to assist them with this problem, and the banks, in attempting to manage their risks with foreign currencies, developed active foreign exchange markets, and various types of derivative contracts (i.e. contracts whose value depended on foreign exchange rates) to manage that risk.

Over time the tools for accurately valuing these contracts became progressively more sophisticated.    By the mid-1990s, it was possible to enter into derivative contracts covering such arcane things as ocean freight rates, and bunkers (fuel) for ships.  Various trading houses began to use derivative contracts, in combination with a variety of other financial instruments, to create the complex financial instruments that many people believe were at the heart of the financial meltdown [that many others feel is not yet over].

Historically, derivative contracts were instruments created in order to allow the parties to the contracts to manage or control various risks they faced in the economic environment. They served a bona fide economic purpose, and could generally be considered a good thing.  I would like to emphasize this point, because it was the abuse of these contracts, using self-serving risk management practices that resulted in the problems we experience today.

Risk Management for Derivatives

The first step in any kind of risk management is to measure the cash flow from all the instruments in the portfolio.  In complex portfolios, the calculation is itself complex:  so complex in fact that it could not be done with the then existing technology.  

Before the advent of cheap computing power, therefore, risk managers simply made assumptions:  typically, that the risk was 15% to 20% of the face amount of the contract. This approach lacked precision, as the percentage was arbitrary.

Note: Much of the media discuss derivatives in terms of the face amounts of the contracts, known in the trade as “notional amounts.” But the actual amount at risk is, with very few exceptions, far less than the notional amounts.  This is because as long as there is an active market in the commodity or financial instrument to which the contract refers, the parties may acquire another contract taking the opposite risk direction. 

An important corollary: Notional amounts are poor, highly misleading measures of risk.  They do not take into account risk positions in the opposite direction: In fact, such offsetting risk positions are added to the total notional amount, rather than deducted from it, as would be more appropriate.

On the other hand, risk management professionals focus on the NET amount at risk, as they should, [not the face amounts].

Statistically based Value at Risk [VAR] systems, made possible only by the availability of large amounts of cheap computing power, were the next phase in the development of risk management principles. VARs have dominated the market for quite some time.  This concept calculates the potential risk in derivative contracts on the basis of historical variations in their prices. As a general rule, bank regulators have pressed banks to use very conservative measures–three standard deviations rather than two, for example–and then require additional allowances for high stress situations.  This is referred to as “stress testing.”

As risk management principles became more and more statistically based, they were increasingly sensitive to a) the actual variation and relationship between the factors; and b) the intensity of the stress situations.

Long Term Capital Management (LTCM), a hedge fund manager active in the early 1990s, was owned and staffed by people with expertise with complicated statistical models. They believed their models, and at times stretched the credibility of underlying relationships.  For example, a transaction based on Russian Government bonds was hedged with oil price derivatives, on the theory that Russian Government bonds would move to some degree along with certain Russian oil prices.  When the transaction failed, it turned out that the resulting losses were much larger than anticipated.  In statistical terms, the stress was way beyond what was expected.

The LTCM Russian transaction was not a normal banking transaction.  However, 10 years later, bankers were still structuring transactions in which they tried to hedge risks by accepting as fact statistical relationships that had no basis in reality.  There has been little change: For example, transactions were structured to hedge the values of securities issued on the basis of underlying mortgages, without taking into account that the underlying volatility of real estate-based securities was inherently much greater than for other interest bearing securities.  This was because of the relationship between interest rates and mortgage re-financing: As interest rates decline, mortgage re-financing tends to increase as borrowers act to reduce their costs.  The faster that rates decline, the greater will be the level of re-financing. The “bottom line:” The value of these securities is highly volatile, materially impacting the risk to the parties writing credit derivatives on their value.

Derivatives can be a valuable part of any risk management strategy.  However, if they are not governed by sound risk management practices (including but not limited to conservative reserving) they can be counterproductive and dangerous. Abuse and media hype have added to both the confusion and hysteria.

Here’s your opportunity to ask an expert your questions about risk management and derivatives!

Service of Full Disclosure

Friday, July 16th, 2010

In his column, The Ethicist, Randy Cohen wrote recently in The New York Times, “Your wife should err on the side of caution and not take anything of value from a supplier.” The woman supervised travel for a company and she’d won the grand raffle prize of two roundtrip tickets to Japan at an event sponsored by several airlines. There were some 1,000 guests.

In my first job out of college I worked at Dun & Bradstreet writing credit reports. We were told that if a company we visited manufactured matchbooks not to take a single match, even to light a cigarette. That has been my guideline ever since.

Yet I think that Cohen is being harsh in this instance. He softens at the end of the column, noting to the husband who sent in the query, “At the least, she must disclose her winnings to her supervisors and get their green light before she packs her bags.” I’m comfortable with that.

Some in the media won’t let a PR person buy them so much as a cup of coffee. Others gather enough loot over years to fill a strip mall. Reporters and editors don’t have a lot of time to schmooze over lunch these days, nevertheless, just as business is done by some on a golf course, I can’t imagine how, for the price of a lunch or a coffee, anyone would sell their soul and run photos of horrible looking, poorly made or faulty goods in a new product column or run positive coverage of a lackluster ad campaign or sleazy business.

What about a book or movie reviewer who is sent/given a galley or invited to preview the flick? I don’t recall reading in their reviews that they didn’t pay for the book or seat at the theatre and it doesn’t bother me. What about a beauty editor sent samples that aren’t samples but entire bottles and jars? No problem in my mind. Making up samples would cost a fortune and wouldn’t provide the same experience. Packaging–how the beauty product looks and how the dispenser works–is part of the evaluation.

Full disclosure: I send promo codes to reviewers who ask for them so they can try a client’s smartphone application and have given hundreds of yards of fabric and countless rolls of wallpaper and dinnerware and flooring to be used for newspaper or magazine new product pages or to decorate a home that a magazine photographs.

Obviously, if a company pays any of the reviewers for their assessments, they must disclose this relevant piece of information, whether they write for a blog, web site, an online or print newspaper or magazine. Special sections or advertorials are paid for by the participants and are clearly identified by publishers, usually at the top of the page.

Because attitude and service are more than half of the experience, I think that a restaurant, hotel or travel reviewer should be anonymous and pay for all his/her expenses, no exceptions.

What about stock brokers? Should they tell you that they’ve been told to push an investment by the boss?

Where do you stand on full disclosure? Do you care?

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