Horseshoes and Ethics         

It’s the Final Four this weekend; then the ultimate on the following Monday evening—the real, the authentic basketball championship!  It may not be the best sporting event but it’s way ahead of whatever’s in second place.

I like sports, competition.  I’ll even watch curling.  

And if winter comes can spring…and horseracing be far behind?  The Kentucky Derby, the Steeplechase.  And when I think of the running of the horses I’m reminded of my favorite Cousin Minnie Pearl (the late, beloved philanthropist Sarah Cannon) story.

“Minnie told of the time her uncle took his teenage son to the local blacksmith shop to teach him something about shoeing horses.  On their way to the shop, her uncle told Junior to be very careful in the shop and “don’t touch nothin’.”  Junior nodded.  Once inside Junior was simply carried away with the old smithy picking the horseshoes up with large tongs, placing them in the hottest heat imaginable, taking them out and cooling them off to form the desired shape.  Junior was wide-eyed at the spectacle of the horseshoes and grabbed one just as it began its cooling process.  Quickly dropping the shoe to the floor, he was scolded by his father, who exclaimed, “Burned you didn’t it?”

To which Junior replied, “No sir, it just don’t take me long to look at a horseshoe.”

Unfortunately for some it takes far too long to learn the painful consequences of bad behavior, misaligned morality and ethics indecision.  Except for whom I perceive as narcissistic and excessively greedy profiles (I could mention names but will refrain), most CFOs, CPAs, and CEOs whom I’ve observed are authentically remorseful and penitent about their bad choices and actions.  And as I’ve seen some of their confessing videos and read accounts of their prison rehabs, some general themes flow out of their experiences which might form three chapters in an “Ethics Made Simple” or “Ethics for Dummies” book:

CHAPTER ONE—TELL THE TRUTH!

Bruce Pearl, former idolized basketball coach at the University of Tennessee, was at the top of his career when he broke NCAA rules on high school athletes visiting Universities or coaches’ homes.  Pearl had a cookout with his coaches and a star high school recruit and he advised his coaches not to tell anyone about it.  Later in the NCAA investigation into the rules infraction, Pearl not only lied about the cookout, but also told the athlete’s father to lie as well.  The lie cost Pearl not only his job but a three year suspension from college coaching (a three year show-cause penalty which effectively suspended his coaching activities).   Recently, Pearl was hired as the new basketball coach at Auburn.

We could debate the relative fairness of the punishment for such an itsy bitsy lie.  But there’s no doubt in my mind that had the truth been told, Pearl would probably still be at Tennessee. 

Tell the truth!

CHAPTER TWO—TRUMPET TRANSPARENCY!

“BofA Settles Crisis-Era Suits” reads the front page story of March 27, 2014 Wall Street Journal.  $9.5 billion to the Federal Housing Finance Agency (FHFA), $15 million to the State of New York, and other billions on class action lawsuits.  Principal allegations included Bank of America’s misrepresentation of the quality of $200 billion in mortgage-backed securities purchased by Fannie and Freddie.  BofA’s acquisition of Merrill Lynch in September 2008 led to a multi-billion dollar settlement with a group of investors again alleging misrepresentation and false and misleading financial statements. 

 Looking back to the events that led to the financial crisis in the fall of 2008, much of the scandal derived from not only run-away greed but its companions—cover-up, misrepresentation, clouding the facts.  In short these financial institutions failed and hid behind a shield of chicanery, trickery and manipulation.

Trumpet—let all hear it clearly and loudly—transparency!  

CHAPTER THREE—TETHER YOU TENSION!

There is a necessary tension that is omnipresent in our personal relationships, business, government and all aspects of life.  Decisions in tough situations are seldom hastily made.  The graver the implications of a decision, the more agonizing the tension.  Making a decision about life support or death is a different level of tension than deciding between attending Junior’s baseball game and Sister’s volleyball game.  As Robert Fulghum observed (Uh-oh—Some Observations From Both Sides Of The Refrigerator Door):  “Life is lumpy. And a lump in the oatmeal, a lump in the throat, and a lump in a breast are not the same lump. One should learn the difference.”

Weston Smith, former CFO of Fortune 500 company HealthSouth, describes to university students and professional  audiences the intensity of tension in his role when he continued to falsify entries to financial statements to publicly report consistent earnings.  Smith under pressure from the President/CEO stated, “We had to come up with elaborate schemes to perpetuate the fraud.  It was a time of absolute nauseating excess.”  Smith’s rationale in succumbing to the tension he experienced was voiced in such statements as, “We can’t disappoint Wall Street; everybody does it.”  His tension reached its zenith when he felt coerced to sign the company’s first Sarbanes Oxley certification that the financial statements were fairly presented.  Smith knew a multibillion dollar fraud was contained within the financial statements he affirmed were fairly presented.  Oh the tension.

Smith, following fourteen months in federal prison and four months in a halfway house, in open penitence many times over suggests that the tension and pressure he and other CFOs in similar straits experience must be resolved with a moral and ethical compass moored to doing the right thing no matter the circumstances.  Tension, which we all feel at times, must be managed, controlled and most importantly tied to unshakeable moral and ethical principles.

Tether your tension!

In my career with various roles, I have been saddened to see a few good and decent men and women in trusted functions fail to stand up for what they knew to be right.  In every case, lies were told, manipulation and cover-up persisted and tension to keep up a certain lifestyle caved to keep the embezzlement and fraud alive.  Perhaps it is an oversimplification to try to reduce to “three Ts” the antidote to fraud but telling the truth, trumpeting transparency and tethering tension to moral and ethical principles is an approach to staying on the proper path to sustain the trust of employers, friends, family and the public.  

We don’t have to grab the hot horseshoe.  We have a better choice.

Ad astra

Per aspera

David A. Costello, CPA