Sometimes so much is happening in the world of corporate compliance that I can't address just one subject in my usual column here. This would be one of those weeks…
Corporate Culture, Crystallized
Compliance officers and regulators alike talk all the time about the importance of a “culture of compliance” and “strong ethical tone at the top.” Let's be honest; we all agree on the importance of those concepts, but how often do you actually see a real, concrete example of them? Rarely.
A better way to explain those concepts to your boards and your workforces might be to demonstrate the converse: what a truly unethical culture looks like, led by corporate managers who telegraph to employees that they don't care about ethics. And now you have just that concrete example, thanks to Rupert Murdoch and News of the World.
I have been a reporter all my professional life, and I love a juicy tabloid headline. Still, what the reporters at News of the World did—hacking the voicemails of murder victims, celebrities, dead soldiers and lord only knows who else—is beyond the pale. It violates every ethical precept I've ever known; the idea would never even enter the head of any reporter in North America who I know. Now come even more allegations of payoffs to police, and emails destroyed by the millions.
In the United States, this sort of conduct might be grounds for a corporate criminal indictment—yes, like the death sentence handed down to Arthur Andersen back in 2002. You have a systemic culture of unethical behavior, from the reporters who did the hacking, to the higher-level executives who condoned it and apparently tried to cover it up by deleting emails. Worse, when the controversy finally caught up to the Murdochs (Rupert and son James, the heir apparent), they simply closed News of the World and threw several hundred people out of work. Punishing those at the bottom today for the misbehavior condoned by those at the top yesterday is not the signal that strong, ethical corporate leaders should be sending. Nor is it terribly wise, when government investigators are circling your company like sharks.
I'll leave the rest of the News of the World scandal to others who are chronicling the gory details much more vividly than I have room to report here. But look closely, compliance officers. The correct response is not, “There but for the grace of God go I,” but rather, “This is exactly opposite of how we should conduct ourselves here.”
It's the Record-Keeping, Stupid
Here in the United States, insurance companies are giving the banks fierce competition for who can better demonstrate the price of sloppy record-keeping. Banks have already slowed the home-mortgage industry to a snail's pace, largely because they either cannot produce the correct records to foreclose on a property in arrears or cannot process refinancing applications anywhere near the rate necessary to get the mortgage industry healthy again. Now insurers are getting into the act with death-benefit policies, admitting that they can't prove allegations of fraud from those who took out huge policies on people who didn't need them.
Exhibit A is an interesting article from the Wall Street Journal this weekend, telling the tale of AXA Equitable's efforts not to pay out a $5 million policy on a woman who died in 2009. After her death, AXA Equitable learned that her estate was valued at less than $100,000, not the $12 million listed on her original application. AXA Equitable balked at paying, and the investors who purchased that death-benefit policy—paying the premiums, so they could collect the $5 million payout—hauled AXA Equitable into court.
On the stand, AXA Equitable conceded numerous paperwork flaws: no credit check done on the woman, no efforts to verify outside reports attesting to the size of her estate, even an admission that the firm “did not do everything perfectly.” Jurors sided with the investors, who got their $5 million. But the article give examples from several other insurers such as AIG, ING Groep and Phoenix Cos.
Billions of dollars are at stake with these death-benefit polices. They may be morbid, but they're legal, and I have a hard time sympathizing with firms that didn't do their paperwork.
XBRL: It lives!
Anyone who reads my column regularly knows that I cast a skeptical eye at XBRL, the data reporting language that theoretically gives investors far more visibility into a company's financial data than anything possible today. I say “theoretically” not because XBRL technology is a dud. On the contrary, it works well and has real utility for investors. They just never actually, you know, use it.
Well, XBRL US, the consortium that develops the technology, is trying to change that. This week the group is announcing “the XBRL Challenge,” a contest that seeks to uncover the first generation of open-source software tools that will mine the financial data tagged in XBRL. A $20,000 grand prize will be awarded to the company, team or individual developer who submits the most inventive and useful application leveraging XBRL-formatted data from the SEC's EDGAR database.
This is a good idea. Long have I wondered when Google, Yahoo or other businesses that let consumers crunch financial data would get into the XBRL game. I've heard the argument that many software shops have been waiting for a critical mass of XBRL-tagged data to pile up, and that's plausible; only in the last year have large filers had to start tagging all their financial data, even the numbers in the tables and footnotes. But plenty of possible uses exist for this data, and it could be as helpful to consumers as the first wave of financial analysis websites were in the 1990s.
XBRL US will accept submissions through Jan. 31, 2012, with final judging and awarding of prizes on Feb. 29, 2012. To help with development, participants will be given tools and support from XBRL US, including access to a database of XBRL financial fundamentals from all public companies and technical documentation on how to work with XBRL data.