Exactly. The fraud is on the part of BMW, but also on the SEC for "slapping the wrists" of the OEMs, and not providing serious repercussions for this behavior.
Isn't fining a company for misleading investors a kind of strange remedy anyways? Ultimately, a big fine would end up hurting the company's investors anyways...
Okay, what kind of fine would you want? People on HN seem to want to lock up every CEO in existence and fine every company into bankruptcy, despite not even deeply understanding what kind of law breaking actually went on.
Well, it is a financial crime for the purpose of profit by a corporation. Since you can’t jail a corporation, you have to disincentivize the law breaking. The only way you can do that is, at minimum, making the fine larger than the money profited from the crime. Otherwise that is not a disincentive, as it is a net positive to commit said crime. But since exposing these crimes is difficult, it is likely that the discovery of one crime is likely part of a pattern. So fining multiples of the profit would disincentivize even if the risk of discovery was low.
As for CEOs, they are both in a position extreme power, and profit massively from company profits. So even through inaction or apathy to criminal activity, they can profit while not holding any liability. I personally think that if you want to be in that position, you should be held “strictly liable” for what goes on under your watch. If you don’t want to take responsibility for what is done under your watch as a CEO making 10s of millions of dollars, don’t take the job.
This style of fudging and outright fraud on timing (over your quota one month? Report the overage on the next month to give yourself some breathing space), is utterly commonplace within sales culture generally.
I'm sure it doesn't happen everywhere, but where your compensation and value is entirely determined by sales goals, this kind of thing goes on rampantly. For example, the Wells Fargo Account Fraud scandal came from exactly the same kinds of things--A massive drive to meet your goals at the expense of all else. Someone is close to their goal one month, and fudges something ever so slightly to make it; other people hear about it, and then it is routine.
Executives don't care because the numbers look good. Sales people don't care because they are hitting their numbers. Only when an outside force comes along does the house of cards come tumbling down.
Hell, I'd bet most developers do something similar. E.g. you're working on a ticket that's estimated for three days and you finish it at lunch time on the third day. Do you immediately ask for more work or do you take it easy for the rest of the day?
You are right. Specially in today's extreme JIRA culture where a day delay in 2 week work cause projects go red and 3 level reporting need hour long meeting on what's being done to remediate the situation urgently.
If anything I've often seen the same thing happen in development, but from the other side.
i.e. You never should have had this much work put in the sprint, but the business decided that Deadline Driven Development was a part of their 'Agile' process. You wind up with 13-21 points when you normally can only do 8.
Naturally, corners are cut. Usually around unit tests. (And then everyone wonders why the tests are worthless)
Yup. That's where what GP wrote comes into play, though in the opposite role than they meant. There are at least three reasons you need to pace yourself at work:
One, peak capacity work is unsustainable over long term; there's no point in burning yourself out in the span of few months, because then you won't be doing anything at all.
Two, if your managers try to set up the workload at the level of your observed performance (or worse, try to squeeze more work by assigning a bit more things to do than were done the last time), then if you start going on afterburners, you'll set up an unrealistic baseline that you'll be later held accountable to. That's where cutting corners will start.
Three, systems with no slack are fragile. If everyone is constantly crunching and a genuine emergency pops up, nobody will be able to deal with it. There's probably some general principle in systems science that systems under full load are not optimal once you start doing risk analysis.
Good managers understand that, and will actively prevent you from getting yourself overworked - as developers are sometimes prone to do.
Your second point conveys what I meant far better.
I'm by no means saying one should be a shirker, I mean you should manage your managers by understanding that their role is to get the most work out of you as possible. Leaving yourself a little leeway is just common sense, as you say, if you're working yourself to the bone constantly and giving people the impression that that's just your standard level, eventually something's going to give, likely your mental health.
But that drags your ratings down, not up. You do not look better by doing work slower. If you had an actual "ticket goal" to hit, then you'd be taking overtime, instead of buffer time.
> It seems that a fictitious transaction was made at the Toshiba subsidiary "Toshiba IT Service", which reminds me of that Toshiba legendary fraudulent accounting. Legendary accounting in which operating income exceeded sales due to over-manipulation of accounting and the wave getting bigger and bigger.
I don't understand the economics of this decision. BMW investors got screwed even more because some executives were giving them fraudalent information? I understand that it's easier to collect the money from the company, but I believe that public company CEOs should get into prison much more often that they are.
Rich people don’t go to prison for crime in America. America attracts rich people from around the world. I can’t see the Germans wanting to start the reverse trend.
I would guess that with something like this (where there is probably a lot of people involved in varying capacities) it's easier to demonstrate that the company as a whole did something wrong than it is to demonstrate that specific people within the company did it.
Well that is a problem of the laws themselves. For any sufficiently large company, especially one where the CEO profits privately directly from the company profiting publicly, a portion of that money should be tied to the company directly in terms of liability. You shouldn’t have to prove the CEO was directly involved. At the level they are, the very nature of their position should have some sort of liability in regards to the actions taken by that company under their watch. It should be built into the very regulations and laws. This would hold CEOs accountable for inaction, apathy, or ignorance leading to law breaking within their company, and it would only apply to compensation for managing said company.
The laws in the US do pierce the corporate veil for execs, especially in the case of fraud. Also, SOX does make execs criminally liable for the accuracy of some financial records regardless of their involvement.
I would not be surprised to see a class-action from investors in addition to this fine.
In theory, I would just charge the CEO. That should be default. CEO can defend himself pointing to people who made the decision without his acknowledgement if that was the case. CEO should have trustworthy people manage the company.
I said in theory, because while that would be sweet, in practice our law is so complex that even huge CEO with tons of lawyers cannot really be sure he is abiding it. If you want somebody guilty it's just a matter of time invested, especially with the amount of activity that is taken by a whole company.
That goes contrary to basic tenets of law in most of the world. People who are charged with a crime start with a presumption of innocence, it is the responsibility of the prosecution to demonstrate that they broke the law. In the US, the standard required is "beyond a reasonable doubt".
On the other hand, civil penalties (like fines) don't have the same burden of proof, which is why you often see them in situations like these. They are easier to prove. They generally only require a "preponderance of the evidence" to prove.
On the other hand, every serious investor knows that you need to spread your risks. This is just another example why that is crucial. Buying a stock always carries a risk of losing money. You can’t bet it all on one horse.
The specific risk of a stock isn't of much concern for investors because they can easily eliminate this risk through diversification. This is also why specific risk is not compensated for by higher returns: only non-diversifiable risk such as market risk carries a risk premium.
Of course this is a quantitative perspective that is not shared by high concentration discretionary investors like Buffet. Buffet needs to pick stocks with low idiosyncratic risk because he is not being paid a risk premium for it.
Or how many relevant people were indicted after Dieselgate. Or a single time a member of the judical system was. It is actually feudal societies that we live in.
One would think that German companies exhausted all their luck, when they didn't even get a slap on the wrist for using forced labour during the WWII. Some didn't even apologize. Yet they still pull some dirty stuff from time to time and still exist on the market... that is a mystery to me.
36 comments
[ 0.23 ms ] story [ 74.9 ms ] threadWell, it is a financial crime for the purpose of profit by a corporation. Since you can’t jail a corporation, you have to disincentivize the law breaking. The only way you can do that is, at minimum, making the fine larger than the money profited from the crime. Otherwise that is not a disincentive, as it is a net positive to commit said crime. But since exposing these crimes is difficult, it is likely that the discovery of one crime is likely part of a pattern. So fining multiples of the profit would disincentivize even if the risk of discovery was low.
As for CEOs, they are both in a position extreme power, and profit massively from company profits. So even through inaction or apathy to criminal activity, they can profit while not holding any liability. I personally think that if you want to be in that position, you should be held “strictly liable” for what goes on under your watch. If you don’t want to take responsibility for what is done under your watch as a CEO making 10s of millions of dollars, don’t take the job.
I'm sure it doesn't happen everywhere, but where your compensation and value is entirely determined by sales goals, this kind of thing goes on rampantly. For example, the Wells Fargo Account Fraud scandal came from exactly the same kinds of things--A massive drive to meet your goals at the expense of all else. Someone is close to their goal one month, and fudges something ever so slightly to make it; other people hear about it, and then it is routine.
Executives don't care because the numbers look good. Sales people don't care because they are hitting their numbers. Only when an outside force comes along does the house of cards come tumbling down.
i.e. You never should have had this much work put in the sprint, but the business decided that Deadline Driven Development was a part of their 'Agile' process. You wind up with 13-21 points when you normally can only do 8.
Naturally, corners are cut. Usually around unit tests. (And then everyone wonders why the tests are worthless)
One, peak capacity work is unsustainable over long term; there's no point in burning yourself out in the span of few months, because then you won't be doing anything at all.
Two, if your managers try to set up the workload at the level of your observed performance (or worse, try to squeeze more work by assigning a bit more things to do than were done the last time), then if you start going on afterburners, you'll set up an unrealistic baseline that you'll be later held accountable to. That's where cutting corners will start.
Three, systems with no slack are fragile. If everyone is constantly crunching and a genuine emergency pops up, nobody will be able to deal with it. There's probably some general principle in systems science that systems under full load are not optimal once you start doing risk analysis.
Good managers understand that, and will actively prevent you from getting yourself overworked - as developers are sometimes prone to do.
I'm by no means saying one should be a shirker, I mean you should manage your managers by understanding that their role is to get the most work out of you as possible. Leaving yourself a little leeway is just common sense, as you say, if you're working yourself to the bone constantly and giving people the impression that that's just your standard level, eventually something's going to give, likely your mental health.
But that drags your ratings down, not up. You do not look better by doing work slower. If you had an actual "ticket goal" to hit, then you'd be taking overtime, instead of buffer time.
https://news.ycombinator.com/item?id=24086106
https://en.wikipedia.org/wiki/Toshiba#2015_accounting_scanda...
> It seems that a fictitious transaction was made at the Toshiba subsidiary "Toshiba IT Service", which reminds me of that Toshiba legendary fraudulent accounting. Legendary accounting in which operating income exceeded sales due to over-manipulation of accounting and the wave getting bigger and bigger.
https://pbs.twimg.com/media/EOjN_NRU0AEEGUL?format=jpg&name=...
I would not be surprised to see a class-action from investors in addition to this fine.
I said in theory, because while that would be sweet, in practice our law is so complex that even huge CEO with tons of lawyers cannot really be sure he is abiding it. If you want somebody guilty it's just a matter of time invested, especially with the amount of activity that is taken by a whole company.
On the other hand, civil penalties (like fines) don't have the same burden of proof, which is why you often see them in situations like these. They are easier to prove. They generally only require a "preponderance of the evidence" to prove.
Of course this is a quantitative perspective that is not shared by high concentration discretionary investors like Buffet. Buffet needs to pick stocks with low idiosyncratic risk because he is not being paid a risk premium for it.
The fine was $18Mn, the SEC press release says BMW raised $18Bn from investors.
Remember me how many executives from GS got into prison for the 1MDB saga
On how to violate all sorts of laws and get away with it, that is.