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Saturday, December 28, 2013

Target’s Senior Managers in Damage Control Mode: A Forensic Appraisal

The number of transactions at Target, a major American retailer, during the weekend before Christmas in 2013 came in at between 3 to 4 percent lower than for the same weekend in 2012.[1] That the number of shopping days between Thanksgiving and Christmas in 2013 are five less than in the previous year and number of transactions at other retailers during the weekend in 2013 is slightly higher than for the previous year suggests that Target did indeed take a financial hit due to the massive breach in electronic security. The debit and credit-card numbers of up to 40 million customers (between November 27th and December 15th) could have been compromised by hackers who immediately began selling the “secured” information from abroad.[2] Lest this lesson in the downsides of electronic commerce and globalization be enough bitter medicine to swallow, Target’s damage control gives us a rare opportunity to glimpse the mentality of the company’s corporate-level managers by inference.

The first piece of evidence concerns the customers’ PIN numbers—the four digits you enter after swiping your card. During the final days before Christmas, Target’s management denied that the PIN numbers had been compromised. “We continue to have no reason to believe that PIN data, whether encrypted or unencrypted, was compromised,” Molly Snyder, a company spokeswoman, said, no doubt in anticipation of a hoped-for frenzy just before Christmas; to minimize continuing damage, existing and potential understandably nervous customers would need to be assuaged and pacified, lest the company lose its shirt (without payment!)[3]


Woefully convenient, a Target spokesperson “confirmed” two days after Christmas that encrypted PIN data had indeed been stolen. “While we previously shared that encrypted data was obtained, this morning through additional forensics we were able to confirm that strongly encrypted PIN data was removed. We remain confident that PIN numbers are safe and secure. The PIN information was fully encrypted at the keypad, remained encrypted within our system, and remained encrypted when it was removed from our systems.”[4] Because the company did at the time store information that hackers would need to decrypt the PIN numbers, the debit card accounts had “not been compromised due to the encrypted PIN numbers being taken.”[5] The key word here is compromised, for in Molly’s pre-Christmas mollifying and no doubt legally-crafted words, “We continue to have no reason to believe that PIN data, whether encrypted or unencrypted, was compromised.”[6] Parsing the “before and after” company statements, it becomes clear that just because the PIN numbers were stolen after all does not mean this theft compromised the debit cards. That is to say, in terms of legalese, the second statement does not contradict the first.[7]

The narrow mountain pass was likely dug before Christmas in order to assuage customer fears before Christmas by holding off on as much of the bad news as possible until after even the day after Christmas—not a light retail day to be sure. For support, I submit for your esteemed consideration Reuters’s report that a senior payment executive at Target said a few days before Christmas, as Molly was mollifying, that the hackers had indeed taken PIN data.[8] We can thus deduce that Target’s senior managers were aware of the PIN thefts even as the spokeswoman was assuring the public that the PIN data had not been compromised.

The asseveration is at the very least misleading. To be stolen is a sort of compromised condition. Perhaps the hackers had gotten their hands on some software that would decrypt the numbers without the company’s management’s knowledge. After all, it had taken managers until December 15th just to realize that the debit and credit-card numbers were being lifted.  Furthermore, Molly could easily have said “stolen but not compromised.” The fact that she did not include “stolen” indicates an intent to withhold the additional information that Target’s managers would undoubtedly have presumed would hurt sales leading up to Christmas and the day after that. The sin of omission often reveals more than what meets the eye.

Besides being liars intent on manipulating actual and potential customers, Target’s senior managers minimized what they would give up pricewise to stem the exodus of weary customers. As though misers, the corporate managers showed themselves to be selfishly cheap, or niggardly, even in making up for their own mistakes.

Specifically, the strategists conveniently presumed that a measly 10% discount would be sufficient, or good enough, to bring back in any timid buyers. To be sure, many in Target's market segment may indeed be inclined to overreact, swallowing the company line on a 10 percent discount being a big deal. The company's corporate managers undoubtedly had a sense of the makeup of their typical shopper. Playing on the herd mentality may have kept the 3 or 4 percent reduction in transactions from being something like 15 or even 20 percent.
 
It is important, however, to put the managerial decision to go with only 10 percent into perspective. The truncated "shopping season," still-stubborn real unemployment rate, and two immobilizing winter storms were putting pressure on retailers to offer steep discounts, albeit on selected items. "The real economy spoke this holiday season," lamented Brian Sozzi of Belus Capital Advisors just after Christmas. "Consumers are not financially strong enough to go out there and spend willy-nilly. . . . If the customer didn't need to shop, they didn't go out and shop."[9] Accordingly, retailers extended selective, well advertised sales well beyond the day after Thanksgiving, stretching even through the weekend before Christmas. As if Target's trumped up 10 percent were not sufficiently dwarfed by these deals, retailors tried desperately to draw shoppers in on the day after Christmas by offering still deeper discounts (on selected items). Old Navy, H&M, and Forever 21 brandished 75% Off signs, Armani Exchange and Abercrombie came in at 60 percent, and the Gap went with half off.[10] Who would not naturally look back by then on Target's "redemptive" discount as a slap on the face, given the managerial lapse at the customers' expense (both literally and figuratively)?

Besides the sheer cheapness, the 10 percent figure may intimate an underlying refusal to fully admit being responsible for one's mistakes. The management’s smallness may also imply a certain, rather disparaging, and thus insulting, attitude toward Target's customers—that they are only worth getting 10 percent off even when the management is at fault.

Moreover, how Target’s senior managers view the company’s customers may be much worse than disrespect; a subterranean level of passive aggression may silently undergird the squalid mentality. browsing through a Target store a few days before Thanksgiving, thus within the period in which the card and PIN numbers were being stolen, I could not but notice two college-student aged guys wearing what looked like police uniforms, complete with badges and American flags.  The clincher came as I noticed handcuffs in black leather containers hanging off the belts.  Concluding that the two guys, one of whom sported the already out-of-date “Justin Bieber” pre-teen "wind sheer" hairstyle, were indeed police officers, I was perplexed as to why one was lifting a product off a shelf to a waiting customer while the other officer was ringing up sales at the department’s cash register. The managerial overkill dressed up in false pretense felt like naked aggression poised to spring into the open at any provocation, real or imagined. At the very least, I felt the store manager had been a bit excessive in anticipating a riot in the electronics department after Black Friday.  

As it happened, the cashier in the store’s cashier area who rung up my purchase of underwear had been a police woman for fourteen years before she had an operation on her knees. She informed me that the two “officers” were actually sales associates. They could not actually use the handcuffs; the props were meant to intimidate customers. Not exactly the best in customer service.

At the time, I just assumed that store's manager must have invented the heavy-handed and deceitful ploy. Hesitating just before swiping my card, I just could not ignore the store manager's  presumptuousness in having two young employees impersonate police officers as though even the law were merely an obstacle to be dismissed as applying only to others. I suppose my disgust, nay anger, made me think of the latent passive aggression that must have been sourced in the store manager's psyche. As though coming out of a momentary daze, I found myself thinking out loud to the cashier. "I would be an utter hypocrite, were I, being an ethicist, to complete this purchase." As it turned out, standing on principle saved me from being one of up to 40 million victims of the electronic theft. In hindsight, I wish I had told the sympathetic cashier that I could not in right mind buy clean underwear from a company with so much dirty underwear behind the scenes.
 
A month later, a banker no doubt with much experience in business told me that the police-impersonate-intimidation decision must have come from Target’s corporate level. He also had no doubt whatsoever that Target’s senior management had known of the PIN numbers thefts well before Christmas and were therefore lying about the “additional forensics” conveniently done the day after the day after Christmas.

With the additional information, I could then put together the pieces of the bizarre puzzle to glimpse a truly sordid corporate-level culture consisting of too many creatures all too willing to let a greedy instinctual urge, aided by egocentricity and arrogance, get out of control, all to ready to lie, manipulate, and even inflict passive aggression as if with utter impunity and thus no ethical or legal delimiting constraints. Perceiving the external world selectively, only those things or people who appear as potential props or easy marks to be manipulated for gain, greed is utterly impervious to the restraint that comes out of conscience. Put another way, greed does not recognize should. Nor does it recognize itself as being subject to rules or the law. The indifference to ethics and criminal law can even become sociopathic. Moreover, greed assumes that any possible hindrance is a semi-permeable membrane allowing avarice to pass through with ease.

Perhaps the dirty underwear at Target has enjoyed a shelf-life far beyond the expiration date, and therefore should be summarily thrown away so it will not be inflicted on the unsuspecting customers in the future. Easier said than done.
 



1. The figures come from the retail consultancy, Customer Growth Partners.
2. Reuters, “Target Inevitably Loses Shoppers in Wake of Data Breach,” December 23, 2013.
3. The Huffington Post, “Target Confirms Encrypted PIN Data Was Stolen in Data Breach,” December 27, 2013.
4.  Ibid.
5. Ibid.
6. Ibid, emphasis added.
7. Bill Clinton’s “I did not have sexual relations” might come to mind here.
8. The Huffington Post, “Target Confirms Encrypted PIN Data Was Stolen in Data Breach,” December 27, 2013.
9. Natalie BiBlasio, "Deal Hunters' Adrenaline Hits Peak," USA Today, December 27, 2013.
10. Ibid.

 

Friday, December 27, 2013

An Interfaith Declaration of Business (Ethics)

Released in 1994, “An Interfaith Declaration: A Code of Ethics on International Business for Christians, Muslims, and Jews” is comprised of two parts: principles and guidelines. The four principles (justice, mutual respect/love, stewardship and honesty) are described predominantly in religious terms, devoid of any connection to business. In contrast, the guidelines invoke the principles in their ethical sense, devoid of any religious connotation. The disconnect in applying religious ethics to business is not merely in books; the heavenly and earthly cities are as though separated by a great ocean of time.

                                                                                        Are these religions applicable to business?    Wikipedia

To be sure, the text refers to business in discussing the ethical principles of love, stewardship and honesty, however briefly. Love in the business world is to extend out from corporate boundaries to  stakeholders. Stewardship applies to a business’s use of resources such that ownership itself is qualified beyond the reach of regulation. Lastly, honesty includes the use of “true scales.” The honest are said to get a religious reward (i.e., resurrection), presumably to compensate for any monetary loss in being honest in business.

Turning to the guidelines for business, they are portrayed predominately in the text mostly as a defense of corporate capitalism. Strangely, the reference to the principles is devoid of any religious association. The following guideline is typical: “The efficient use of scarce resources will be ensured by the business” (A.7). Another guideline adds a reference to an ethical principle: “Competition between businesses has generally been shown to be the most effective way to ensure that resources are not wasted, costs are minimized and prices fair” (A.2). To be sure, fairness is indeed an ethical principle, which John Rawls applies in his Theory of Justice. However, fairness is not among the religious ethical principles. Furthermore, no religious content is referenced in the guideline, as well as still another: “The basis of the relationship with the principal stakeholders shall be honesty and fairness, by which is meant integrity” (B.3). The reader is left to ponder what integrity looks like in terms of the three Abrahamic religions.

A major problem in relating monotheism and business ethics comes down to the enigma that God’s omnipotence cannot be limited by a human ethical system, and yet divine decrees that violate secular ethical principles are untenable and thus typically considered to be invalid. For example, killing people who refuse to convert because God says rankles the modern conscience into seemingly rebelling against the Ultimate. The question naturally flairs up regarding whether God really decrees the sordid practice. Looking out of a smoked window in this earthly realm, we mortals tend to conceptualize or sense God as extending beyond the limits of human perception and cognition. This means that we cannot rely on any firm answer in justifying a divine decree above a social ethic. 

For example, insisting that employees keep the Sabbath, whether on Friday, Saturday, or Sunday, may not be fair to the workers who do not recognize the validity of the Ten Commandments. Given the limitations discussed above that preempt religious intuition, belief, and experience from being recognized as factual knowledge, an employer cannot justifiably treat the revelation as though a fact that an objecting employee has no cause to ignore. The question of the revelation's divine validity is ultimately at stake here, and no answer can possibly settle the matter in dispute.

In conclusion, it follows that throwing monotheism into the mix of business and ethics cannot reduce to a simplistic list of determinate guidelines. Getting beyond the “oil and water” of the sacred and profane turns out to be a whale of a challenge to religious business practitioners. In Christian terms, the problem can be put in terms of whether the "fully human and fully divine" Christology devoid of blending is a sufficient basis to cross the ocean of time between Sunday and Monday.  


Source:


Related paper: "Religion in Strategic Leadership: A Positivistic, Normative/Theological and Strategic Analysis," Journal of Business Ethics (2005) 57: 221-239.

Does Greed Have a Bright Side in Christian Theology?

In Business Ethics for Dummies (p. 123), greed is defined as a basic desire for more. The authors posit a “reasonable greed,” which in business “fuels growth,” which in turn “creates jobs and adds value to a society [and] economy” (p. 124). The authors conclude that “in terms of this social and economic growth at least, greed is a good thing” (p. 124). This sounds like a partial affirmation of Gordon Gekko’s claim that “greed, for lack of a better word, is good” (Wall Street). As long as greed proffers good consequences—the greatest good for the greatest number—the desire for more is ethical, or “reasonable.”

In terms of Christianity even where the religious thought has allowed for profit-seeking and the holding of wealth (e.g., for the virtues of liberality and magnificence), greed itself has been excoriated as sin. That is to say, even though Christianity contains different takes on the relationship between wealth and greed, the religion has never approved of the desire for more.

Theologians have typically assumed that the fundamental desire for more is for lower goods, such as wealth, rather than for higher ones, such as God. Greed thus represents misordered concupiscence: the placing of a lower good over a higher one. Such greed is thus desire in excess to what the object deserves. According to Business Ethics for Dummies, the Merriam-Webster Dictionary defines greed as “a selfish and excessive desire for more of something than is needed” (p. 316). The desire is thus sordid in that it is selfish and excessive, regardless of the object being desired or any beneficial consequences for others.

Undoubtedly, the basic desire for more can be directed to many objects. According to Business Ethics for Dummies, people can be greedy “for power, status, influence, or anything else they desire in excess” (p. 316). One might ask whether a desire for God can possibly be selfish and in excess.

Augustine, for instance, writes of his yearning for God as though a lover pining after a beloved. His language evinces an obsession of sorts, hence possibly capable of excess. “You are my God, and I sigh for you day and night,” Augustine declares in Confessions (7.10.171). “You have sent forth fragrance, and I have drawn in my breath, and I pant after you. I have tasted you and I hunger and I thirst for you. You have touched me and I have burned for your peace” (Confessions, 10.27.254-55). If it is the limitless nature of the desire for more that is responsible for Christianity’s long-held aversion to greed, then what of Augustine’s sighing and burning for God?  If Augustine’s higher passion is akin to lust, is not selfishness and excess possible? Augustine’s more may be higher, but it is still more, and he wants the object without limit.

To be sure, God is without limit, being omnipotent and omniscient as well as omnipresent, so it could be argued that a desire for God can be unlimited without being excessive (given the nature of the object). If so, Augustine’s sublimated eros being directed to God can be carved out as an exception and labeled as “holy greed” to distinguish it from the commercial “reasonable greed” that issues in economic growth and jobs. The nature of the object and beneficial consequences are the respective justifiers of these two manifestations of greed. However, this path of carving out exceptions can lead to greed itself being deemed good in itself.

I contend that the desire for more is troubling even if the desire evinces a proclivity to vindicate more and more of itself. In being selfish and subject to excess, the desire for more can be said to resemble an addiction, regardless of the object and unintentional beneficial impacts on others.

In terms of excess, the desire innately sets aside any possible restraints such as a desire for equilibrium (e.g., “enough is enough!”). Furthermore, in being self-centered, the desire warps one’s perception to enable still more. For instance, something just ascertained is suddenly viewed as a given, and thus to be augmented rather than accepted as sufficient. If the amount gained had been a good deal, this is taken for granted as an even better deal is sought. Hence, the desire does not diminish out of a sense that enough has been gained. Lest a declining marginal utility arrest the desire in terms of consumption, still more is desired in terms of savings either because 1) you can never be certain that you won’t be able to use the still more or 2) the addiction to more is too captivating. The question is perhaps whether the human desire for more is itself subject to declining marginal utility as a motivation.  Does one become tired of feeling it or is it self-perpetuating?

Even though the desire is innate and self-perpetuating, it need not dominate a person’s motivation and behavior. I suspect that the key to setting aside the desire for still more is seeing it for what it is—that is, being able to recognize it as one is in its grip. A person noticing the cycle can instantly see that the good deal one has just achieved as sufficient. In other words, once the desire is recognized, a bracketing counter-motive can be applied. The promise of freedom from the otherwise all-consuming desire for more is superior to even “reasonable” and “holy” greed.  

Source:

Norman Bowie and Meg Schneider, Business Ethics for Dummies (Hoboken, NJ: Wiley, 2011).

Thursday, December 26, 2013

Connecting the Dots: Zuckerberg on Facebook

Why did Mark Zuckerberg unload $2.3 billion of his Facebook stock? The complete answer likely involves more than meets the eye, at least relative to what business reporters and editors had to say publically. What is not said is itself a story worth publishing. Beyond Zuckerberg’s stratagem, what the media doesn’t say might be more significant that what has made it through the filters.
Part of the answer concerning Zuckerberg’s sell-off involves his need for cash to pay taxes that would be due from his exercising an option to purchase 60 million Class B shares. This move likely implies a belief that Facebook stock would not go much higher.  Had Zuckerberg strongly believed at the time that Facebook was yet to cash in on advertising revenue beyond that which the market had already factored into the company’s stock price, the CEO would not have exercised the options in expectation of a wider spread. Even with the taxes coming due, the billionaire could probably have found an alternative way to come up with the cash. 
Like a deer frozen in an oncoming car’s headlights, the media did not analyze Zuckerberg’s motives beyond his public statements. Instead, the herd animals let themselves be led along, prancing in tracks of positive correlation. This concept essentially means that two things tend to occur together. For instance, we see umbrellas on rainy days. This does not mean that umbrellas cause rain, or that rain rather than manufacturing causes umbrellas. To assume causation from two things tending to occur at the same time is to commit what David Hume calls the naturalistic fallacy. Just because two things happen at the same time does not mean that one caused the other.
So the media’s report that Zuckerberg’s stock sale and exercise came as the CEO was donating $1 billion worth of shares to the Silicon Valley Community Foundation to “boost his philanthropic efforts in education,” and Facebook was selling 27 million shares to raise an expected $1.46 billion for general purposes is simply positive correlation; causation cannot be assumed.[1] In other words, we cannot conclude that Zuckerberg decided to sell off a chunk of his stock and exercise an option because he had decided to donate some stock and Facebook was raising more capital. In other words, the additional information conveniently provided does not get us any closer to a full answer. Worse yet, Zuckerberg and his PR staff might have been throwing the media a tantalizing, and thus distractive, bone. One reporter took the bait, writing that with cash and marketable securities of $9.3 billion as of September 30, 2013, Facebook may not have needed another $1.46 billion.[2] Off reporter’s radar screen was the possibility that Zuckerberg had designed his philanthropy and the company’s additional stock offering as luring camouflage that would use even criticism of his company to keep the eye off his own trades and especially what they imply about his view of the company’s future. That shares of Facebook dropped only 1% to $55.05 in trading on the news suggests that investors were swallowing what Zuckerberg and the media were serving as dessert.
What of the market insiders? Were they also biting? As John Shinal puts it, “More important, insiders have detailed knowledge of a public company’s near-term prospects and thus are in a better position to know when to sell.”[3] I suspect that “people in the know” may have connected the dots. Two months earlier, a poll revealed that as the most important social media site for teenagers, Facebook fell from 42% in the autumn of 2012 to 23% a year later.[4] Can we suppose this poll somehow missed Zuckerberg’s attention? The media certainly did not connect the dots.
The theory behind my analysis is not financial; rather, I consider Mintzberg’s theory of the organizational lifecycle to be more revealing in this particular case. The theory suggests that just as empires rise and fall, so too do companies. Once past their peak, a “hardening of the arteries” sets in.
The organizational lifecycle. When Zuckerberg decided to sell a block of shares and exercise options, he already had a picture of Facebook already on the downward slope without much chance of revitalization. Image Source: www.sourcingideas.blogspot.com
 
The aging (i.e., a decreasing willingness or ability to adapt to a changing environment, and increasing dead weight internally) can be delayed as the downward slope bides its time; but like entropy as a final destination, the end is inevitable for humans and our organizational artifices. I suspect that Zuckerberg had come to view his company as past its prime, given the leading indicator shown in the poll. If I am right, the game has already changed to keeping the illusion alive long enough for the Facebook insiders to get out under the black shimmering cover of the Styx.

 



[i] Scott Martin, “Zuckerberg’s in Mood to Sell,” USA Today, December 20, 2013; John Shinal, “Facebook Shares May Underperform,” USA Today, December 20, 2013.
[ii] John Shinal, “Facebook Shares May Underperform,” USA Today, December 20, 2013.
[iii]Ibid.
[iv] Bianca Bosker, “Facebook’s Rapidly Declining Popularity with Teens in 1 Chart,” The Huffington Post, October 23, 2013.