Wednesday, September 30, 2015

What Tom Brady and Volkswagen have in common

We note that last week automaker Volkswagen admitted that “’defeat devices’ used to cheat emissions testing were installed in 11 million vehicles worldwide.” The admission resulted in the swift “resignation and prompt replacement of CEO Martin Winterkorn, and a 30-percent drop in the company’s stock..” Volkswagen will be removed from the Dow Jones Sustainability Indices (DJSI) as of October 6 (showing, once again, just how unreliable these index measures are).  
Env and Stock
Some time ago (2011), we quantified the impact environmental factors have on stock prices using several statistical techniques. Our analysis showed that investors and publicly traded companies must recognize the impact environmental incidents and issues have on a given firm's ability to use company assets and therefore generate revenue and profits.
As we stated on February 5, 2015 in testimony to the Norwegian Ministry of Finance and on April 22, 2015 in testimony to the Government of the United Kingdom: 
“the market value of environmental, social and governance factors continues to grow, companies and investment managers will engage in fraudulent practices related to these factors. These practices will range from simple falsification of environmental, social and governance records to more sophisticated, but no less fraudulent methods related to environmental, social and governance ratings. We note that unethical practices have flourished in capital market institutions, propelling ethical standards of behavior downward.”
A few things about the VW scandal stand out:
1. Firstly, it worked for a good, long time (long defined relative to the hyper short term attention span of the current marketplace).
2. It establishes the model we expect others will continue to use: a very technical type of fraud. 
3. The opacity of the scandal is stunning: only highly skilled technicians were able to see what was really occurring on the inside (of both the company and the engines…)
4. It matches what we saw in the mortgage fraud crisis. At a far more trivial level, it also matched the “deflated football scandal” in the NFL. Both cheats require astonishing levels of arrogance and skill: not only do you really have to be on the inside, but you REALLY have to want to win to even attempt such a thing. 
5. It strikes at the very core of trust.
For now, any short term gains have been completely swamped by losses. That 30% decline in stock price translates into $30 billion, and that represents 30% of the company’s market value. Over the long term, this value will probably return, just as it did to companies in the financial sector, and as it did, for that matter, to the football deflating Patriots. Their starting quarterback, Tom Brady, didn’t miss a single snap (and stands in stark contrast to the suspensions and punishments meted out to Black players, BTW).
This is the core of the ethical issue facing both the marketplace AND organized sports.

Monday, September 7, 2015

#BlackLivesDoNotMatterToTheDCGovernment

As noted in Testimony to the Council of the District of Columbia on Thursday, March 12, 2015: “Our 2016 Fully Adjusted Return® forecast for the City suggests a crisis may be coming soon in the August/October (2015) timeframe." 

(The testimony can be found at:
https://drive.google.com/file/d/0Bx3S91AlzNJ4RGF0WTZQd05Ha3M/view?usp=sharing and https://youtu.be/rlr_DomOais below:)


One newspaper recently reported a "growing fear that the District is less safe. This fear resides with the City’s gentrifiers, not its natives, since Black male DC natives have been subject to elevated
murder risk for decades. The truth is that as long as Blacks are the victims, Washington, DC's murder rate has never been a concern for the DC City Council or their masters, the Congress of the United States, our Constitutionally anointed overseers.

Failing to recognize that synthetic drugs, domestic violence, and illegal guns are all factors in the increase in homicides anchors this lack of actual concern to a desire on the part of the Congress and the City Council to score political points on the backs of the DC victims, again, as long as those victims are Black. The lack of concern also shows up in other ways:

·         “The D.C. Council gave..$33 million in tax breaks for LivingSocial to keep the growing company in the District ..yet, LivingSocial has no male African-American DC natives in the management ranks.

·         The City recently 'sold' the former site of the R.L. Christian Library at 1300 H Street NE to FundRise, another DC firm that operates in a discriminatory manner with respect to employment
and with respect to offering development or investment opportunities to African Americans."

·         And, then, there's this: "District officials,,(spent) more than $475,000 during their visit to South by Southwest in March..to convert a restaurant near Austin’s convention center into a
'We DC' lounge and work space during the day, and a party venue for attendees to socialize at night. The rental and food costs alone would be $251,500 over five days." Really? We spent $300 creating a "South by Southeast" conference focused on Black tech talent in Anacostia. (See: https://www.linkedin.com/pulse/martin-marion-tech-william-michael-cunningham-am-mba?trk=pulse_spock-articles)

To deal with the crisis the City has proposed sending in the Police, having unveiled a crisis management plan that calls for “deploying more police, expanding police powers of search and seizure, targeting parolees, spending more money on crime-fighting tools such as surveillance cameras, GPS tracking and forensic technology.”

Our most recent DC forecast suggests these “solutions” are not likely to work, since they lack a collaborative nature and confirm that the City will not seek assistance from the whole community. This, in turn, takes us back to where we started: #BlackLivesDontMatterToDC