“Teaching to the Test – Why Performance Management Fails in Education and the Corporation”

Last week, I attended a “Back to School Night” at my daughter’s High School. Parents were given the opportunity to meet their children’s teachers in ten minute class intervals.  During this speed dating with teachers, more than half of the teachers that evening spent a portion of our precious time together addressing the HSAs – the state of Maryland’s High School Assessment tests.  According to the State of Maryland’s webpage dedicated to the HSAs (2010), these tests are “four exams—one each in algebra/data analysis, biology, government, and English—that all students who entered 9th grade in or after 2005 must take and pass in order to graduate”(“What Are HSAs” section).

That evening, in one particular classroom – the biology lab, the teacher spent more than half of the time explaining the importance of the HSA. This was in sharp contrast to fond memories of my time spent in just such a laboratory in high school and college. Entering the room, I instantly recalled the joy of discovery in learning about the nature of life beyond my immediate sight and comprehension.  Even now, I still marvel at the process of cyclosis – the continual movement of protoplasm around the nucleus of a microscopic cell. Later, in adulthood, I would, to my own amusement, equate this to the travel of commuters in the Washington, D.C. area around its beltway, feeding regional commerce while maintaining the integrity of the cell itself – the commuter.

With the recent world premiere of the provocative film, “Waiting for Superman,” – an examination of the state of education in America and all the media and political buzz that has surrounded it, I was struck at this moment on how far we have strayed from the true value of education, replacing it with performance management techniques borrowed from corporate America.

Although the State of Maryland (2010) is quick to note that its HSA’s were in development long before the insidious “No Child Left Behind” legislation was passed in Congress, it is the fundamental goal of these tests to “set the achievement bar higher” that may be misguided. (“History”, 2010)

According to the Random House Dictionary, achievement “connotes final accomplishment of something noteworthy, after much effort and often in spite of obstacles and discouragements” (“Achievement”, 2010). Doesn’t that fit with our memories of school, particularly high school? Some subjects came to us easily, while others were nothing less than torture.  Add physiological and social development to these “obstacles” and we may agree that we did indeed “achieve” in school.

By the benefit of some extraordinary teachers and administrators who appreciated the joy of discovery within each student, I, myself, was shaped into a lifelong learner, who will, according to the Plano, Texas Independent School District:

§  accept and seek new challenges in learning.

§  identify purpose, define courses of action and follow through with a plan.

§  apply prior knowledge and processes to construct new knowledge.

§  access and utilize information from a variety of sources. (Plano, 2010)

Now, a bright light is being shined upon our failing school systems, locally and nationally. Upon harsh examination, within the cracks and crevices of neighborhood schools, we have come to realized what we secretly feared in the shadows – our educational system is broke and our children are not being well served.

In 2001, just three days after taking office, then President George W. Bush explained his vision for addressing our growing educational deficiencies by introducing his mandate that “no child be left behind” in America. This vision, according to the U.S. Department of Education (2004), became the framework for the now notorious NCLB Act of 2001 which promised to:

“Strengthen Title I accountability by requiring States to implement statewide accountability systems covering all public schools and students. These systems must be based on challenging State standards in reading and mathematics, annual testing for all students in grades 3-8, and annual statewide progress objectives ensuring that all groups of students reach proficiency within 12 years” (U.S. Department of Education [DOE], 2004)

Although Title I was enacted in 1965 to assure that disadvantaged communities and children would receive no less a better an education than their more affluent counterparts, it became about the money – federal dollars flowing into depressed communities and school systems. However, in deciding who exactly got the money, a metric needed to be established to award these substantial but finite Federal dollars. So, the government looked at the corporate model of performance management.

The U.S. Office of Personnel Management itself cites that, “Performance management is the systematic process by which an agency involves its employees, as individuals and members of a group, in improving organizational effectiveness in the accomplishment of agency mission and goals” (U.S. Office of Personnel Management [OPM], para 1). Later, OPM acknowledges that this process would “not conflict with the kinds of activities and actions practiced in effective organizations as a matter of course” (OPM, para 2).

Now let’s consider what makes an organization “effective” and the nature of corporate performance management itself. In his book, Field Guide to Consulting and Organizational Development, (2005) Carter McNamara, a leading authority in the field of Human and Organizational Development, offers that performance management “includes activities to ensure that goals are consistently being met in an effective and efficient manner” (McNamara, 2005) But, he also cautions that, “Although the practices and standards can be somewhat useful in getting some quick perspective on the quality of a particular function, you need to be careful about how you choose them and about how you draw conclusions from any comparisons”.  Therein is the crux of the matter. What do we measure and how do we measure it?

No one will argue that a student in elementary school should know their X-tables, be able to subtract, multiply and divide numbers and be able to read at grade level prior to graduating to high school. These are easy metrics, done by rote “after much effort and often in spite of obstacles and discouragements” as the definition of achievement suggests. It’s what happens next that is our failing.

Higher learning, despite its definition truly begins in high school, prior to college. It should really begin in high school classrooms when teachers and administrators ask students to now use what they have learned previously and to now think critically. In its paper “Critical Thinking: Literary Review” (2006) produced by the Office of Outcomes Assessment at the University of Maryland, University College, the authors cite Richard Paul’s position that “Critical thinking is inherently linked to effective learning. Being able to think about what one is learning while interpreting and making relations is an important part of the learning process (University of Maryland, University College [UMUC], 2005 and Paul, 2005).

So, as I sat in my daughter’s biology lab, listening to her teacher explain the importance of the HSAs rather than inform us of the scientific journey of discovery that our children would embark that year; I couldn’t help but think, “We’ve got this all wrong”. We’re teaching to the test. Worse yet, we’re teaching to the test because that’s how the money is awarded, without considering our students in the equation.

Along the way, we’ve somehow forgotten that a passionate teacher + the critically thinking, inquiring mind of a student = true achievement.

If you don’t you agree, consider as a model for success, one of the America’s corporate giants, Google. You know Google. Perhaps you use their search engine or have a Gmail account – all of which are free of charge. And yet, despite giving these things away, Google posted a profit of nearly 14 billion dollars in 2009.

Google’s founders, Larry Page and Sergey Brin say that they didn’t accomplish this by embracing performance management techniques when they formed their company, just great ideas.  They set out “to organize the world's information and make it universally accessible and useful” (“Corporate”, para. 1, 2010).

Along the way, according to Google, Page and Brin conceded that, “We set ourselves goals we know we can't reach yet, because we know that by stretching to meet them we can get further than we expected. Through innovation and iteration, we aim to take things that work well and improve upon them in unexpected ways” (“Ten Things”, #10, 2010).

Sounds like a good model for educational excellence as well as corporate prosperity, doesn’t it?

Let’s stop “teaching to the test” and teach our students how to investigate ideas. In a 2004 study, conducted by William A. Firestone, Lora Monfils and Roberta Y. Schorr of Rutgers University, their research suggests that when we teach to the test, “teachers feel more pressure, they respond with short-term test preparation and focus on more didactic instructional strategies”(Firestone, Monfils and Schorr, p.1). Conversely, says Firestone, et al. (2004) when a teacher feels that they are not compelled to do so, “. . . they are inclined to use more inquiry-oriented approaches and integrate test preparation with regular instruction” (p.1).

Let’s stop teaching to the test. If we do, no child will be left behind and instead of the U.S. lagging behind in academic achievement throughout the world, our nation and our children might just achieve greatness.

"A stranger in a strange land – commuting in America Traveling through space and cultures"

A stranger in a strange land – commuting in America

Traveling through space and cultures

Most every weekday morning at approximately 8AM, I make the commute from my home in Silver Spring, Maryland to my workplace in Columbia, Maryland.  Because I.R.S. tax forms require that I know this distance, I can tell you that it is 22 miles, one way.  Of course, necessity requires that I reverse my course at the end of the day, driving yet another 22 miles back home.

There are some variables to this journey.  I could not make this 35 minute, solo drive without a thermos of rich, comforting Columbian 7-11 coffee which is offered at the bargain price of $1.39.  So, after traveling a mere four miles from my home, I arrive at the oasis known to all, simply as 7-11. Here, every morning without waiver, I fill my thermos and interact with various Nigerians that keep the coffee pots brewing for me and other kindred souls. 

Once a week, I am required to alter my route so I may visit the rock-bottom priced Shell gas station to fill my miserly 13 gallon gas tank – with only a slight deviation to my normal route. Occasionally, and always on the return leg of my commute, I may motor my way in the off direction of the Costco for bulk supplies or to my favorite “mom and pop” hardware store to procure the necessary doo-hickey of which I find myself in need.

It is quite an interesting and textured landscape.  It represents 6 hours of my life weekly.  It is utterly fascinating.

One would think, quite naturally, that such a repetitive routine would become . . . well, boring.  That may be true for most, but not for me.  You see, I have always taken driving very seriously.  To be serious about one’s driving is to not only see, but to sense everything.  Yes, I take it very seriously.

So there I am, every weekday, motoring up and down Maryland Route 29, surrounded by other motorists, most of whom, thankfully are traveling in the opposite direction thereby making my commute all the more stress-free. Nonetheless, what I see and sense each morning and every afternoon causes me to continually pause and think.  Often I feel that I’m a stranger in a strange land.

James Poniewozik, a writer who grew up in Detroit said of Americans, “your car . . . is you. It expresses your aspirations, your taste, your social class and your virility (or your need to compensate for same)” (2004, para 1).

My car, by which I really mean truck, was chosen by me and my 11 year old son one Saturday as the perfect vehicle to go camping and haul stuff with.  It was to my eyes, fashioned with simple and elegant lines and was stingy with gas – gotta like that and then, gas was still relatively cheap. But, most of all, it was for me a “poor man’s” Chevy Suburban to which I aspired. But the Toyota Tacoma I purchased was deemed by the masses and industry experts as “reliable” and it was what I could afford.  That might be very telling.  Indeed, It expressed my “aspiration (within budget), taste, social class and virility”.

Now, imagine the diversity within which I am infused for those six hours every week.  Here’s the cast of the characters and the curiosities I encounter.

The most aggressive and therefore risky drivers are invariably the ones who drive vehicles worth at least four times as much as I paid for my truck. That seems very odd to me.  Don’t they have far more to lose should their risky behavior entangle them with another unarmed missile?  Perhaps, I think, as Poniewozik does that their motorized bubble is really a symbol of their virility and their actions need to mirror that. 

By contrast, I also see ordinary, “common man” types on foot, negotiating the grassy shoulders of the roadways as they make their way to the “express” bus stop.  Typically, these denizens are either Hispanic or African-American.  Any yes, there is an occasional Caucasian.  As I see and sense these individuals, I am thankful for my blessings.  I cannot imagine living within the suburban sprawl and having to depend on erratic public transportation in all seasons while my livelihood depended on it.  In truth, I could not do my job without, as they say in job advertisements – “a reliable vehicle”.  I reflect upon the affluence I have been afforded mainly through the sacrifices made by my parents – for them, education was everything.  Then of course there’s the matter of good, old fashioned hard work.

I also realize, despite these blessings, how easily it could have been me, navigating the path to the bus stop. The longtime slogan of General Motors was once, "It's not just your car, it's your freedom." And it's not just your freedom. It's your soul” (2004, para 1). Indeed.

On my drive, I notice the generations.  There are, as the Jewish would say in Yiddish, the “bubbulas” – the old people – the very old people, some of whom should no longer be driving.  I say this cautiously, as I myself am approaching bubbala status.  These individuals, in the winter of their years, tend to drive 15 or more miles per hour less than the flow of traffic and keep ultra safe, eight car length distances between themselves and the vehicle ahead of them.  Their depth perception is compromised as is their reaction time.  They drive extremely slowly. But, they are wise and prudent. 

Then there are the GenXers and the GenYs, not to mention the Millennials. These drivers scare me to death. They act without thinking – oblivious to possible outcomes.  They have animated cell phone conversations as their knees, steer a vehicle that is zipping through space and time at 60 mph or more.  Worse yet, they prefer to text message one another rather than converse.  This means that their weapon of mass destruction occasionally flies unmanned, traveling just as steady and straight as its suspension system will allow – a sort of auto-pilot. 

I wonder, as I observe drivers such as these, as to their benefactors.  Usually, I can imagine the possibilities, based on the make and model of their “ride”.  Parents tend to also pick “safe”, “reliable” and “practical” cars for their children.  When I observe these situations, I remind myself of my own foolish beginnings. 

Then there are “tricked-out” rods and their commanders.  Most always, the drivers of these vehicles are individuals of Hispanic or African-American features and combinations thereof. And yes, I do observe the occasional “good ol’ boy” pounding his rusting, cast-off truck up and down the byway.  His vehicle screams seer power, not looks!  The driver say by his choice of ride, I may not be pretty, but I can whoop your ass if you dare give me cause. 

Regarding the formerly mentioned groups, those Hispanic or African-American, I sense very distinct differences.  The Hispanic riders ooze machismo – it’s all about understated appearance.  This is despite the shinny, animated spinners on all four wheels.  They also seem to drive physically low to the ground with one shoulder dipped, and, above all else, with a forced, but casual nonchalance. 

Occasionally, when our eyes meet on the road, I sometimes sense evil. I do not feel in those moments that I am in some way profiling these drivers.  But, on these rare occasions, I sense from their glance a chilling darkness within their soul – the droopy, vacant gaze of distain.

 I’ll counterpoint these drivers with their bus walking counterparts.  In eyes of the latter, I most always in see a proud determination to complete their rounds – no matter the difficulty.  I’m reminded of my grandfather who hopped a steering vessel, departing from the harbor of Reggio di Calabria in Italy – striking out for America with little more than the clothes on his back and, at best, two lire to rub together. In his new homeland, he found himself walking to the coal mine in West Virginia six days a week until Black Lung laid him eternally to rest. But, not before fathering thirteen children, all of whom had the opportunity to attend college. 

The walkers, I understand.  The low riders I do not.  They seem to have too much for little purpose.  Perhaps it is my prejudice or proclivity, but the low riders never appear to be dressed for work.  Prejudice, admittedly, may taint my conclusion. Erika Prosper, the Director of Strategic Planning at Garcis360 Communica, based in Texas, says Hispanics indeed “value price and style above safety” and “58% of them are under 35 years of age” (2004, para 3). But most surprising to me is the statistic that, on average, a Hispanic buyer will consult “4.2 sources before purchasing a vehicle” (2004, para 6).  That is 3 times the national average. They devour knowledge. Even more telling, according to a survey conducted by American Demographics,  is the data that shows this group “associates quality of life with a new car” – how American!

For all the diverse groups, there exists a subset of a homogeneous blend of all cultures, generations and genders – the law breakers.  This is by far is the most depressing part of my commute. I am thankful for those who heeded their driving instructor, the DMV tester, the State Trooper and the Judge.  They obey the law either through fear, acquiescence or an acquired understanding that when many share their road, there needs to be a few conventions that keep us safe and sane. I place myself within this group because driving within the law is no less important than the Magna Charta or our own Declaration of Independence. Both prescribe rules to assure us of our freedom to do as we please with little fear.

Then there is this sub-set – the lawless, careless and dangerous.  They are the ones you cannot, ever, ever trust.  If one comes upon them, they should turn the other way or give way immediately.  These motorists are the ones, who despite the roadside warning that the lane is ending, will with unyielding determination, disregard their civic duty to “yield the right-of-way” and nearly collide with another rather than surrender the supreme position in the food chain.  And, yes, these individuals most often steer vehicles worth almost as much as a house. Their hair is superbly coiffed and their eyes steely.  Avoid them. 

Likewise, the vehicle coming up fast from the right and to the rear of your vehicle – “damn the torpedoes, full speed ahead!” Despite your gracious, flashing signal, acknowledging that they may have “your” lane; they will accelerate even faster to slip by you on the deadly right – otherwise known as the blind-spot. I could go on, but this class of non-citizen is sufficiently evident and easily identifiable.

But it’s not all driving.  Remember the “oasis” – the 7-11?  Here is a place where drivers cast off their mechanized extensions of steel and become all too human again. 

The simple and routine act of pulling into a parking space in front of the store triggers enlightenment.  That waxed and ultra -shinny SUV?  Why is it parked at the curb?  It’s a fire lane.  Truth be told, if there were a fire, I’m confident the SUV’s driver will be the 1^st to hop in his vehicle and pull away.  It is rather the nature of this selfish act which confounds me.  Resting one’s larger than life vehicle at the curb makes it all the harder for others to come and go from their designated parking spaces.  I think drivers such as these are either oblivious or they couldn’t care less.  If they’re oblivious, there’s hope. They may learn.  If they couldn’t care less, what else don’t they care about?  Should someone fall on a subway track, would they be the last person to act – not even to alert the staff?  Likewise, would they pocket money given to them in error by a clerk just as mean, old Mr. Potter did in the film, It’s a Wonderful Life?  I think “yes”, they would.  I would not be comfortable sitting at the same dinner table with individuals such as these.

In the store, however, my spirit is always renewed.  The store is owned by a franchisee who is Nigerian.  It appears that all of his staff is Nigerian as well.  I may not be scientific for me to draw the conclusion that “all Nigerians” are nice if not exceeding gracious.  But, based on my morning routine, this is the conclusion I’d be compelled to make without any dissenting information to the contrary. 

There are three men and two women within that store that are constant.  Each speaks English relatively well to various degrees, but each is fluent in kindness.  Unlike most associates in a retail store, when one of them asks me “how are you?” they refuse to continue until I assure them that all is well and that I am fine.  It’s not just a courtesy.  It’s genuine interest.  Or, so I choose to believe. 

In my goings and coming from this place- all within the space of five minutes or less, I see the iHOP waitress or member of the wait staff hustling across the adjacent parking lot and into the store. At first, I thought it odd.  If one works at a restaurant, why would one need to go into a 7-11?  Then, I watched and observed – for a pack of smokes, a packet of Tylenol or a bottle or two or more mini bottles of “5 Hour Energy” drink.  Again, I recall my Italian grandfather who literally worked himself to death. I understand. 

I can also see as I exit the store in approach my truck, the column of full sized Verizon trucks making their turns onto the road.  Freshly dispatched from an unseen warehouse nearby, they ramble down the service road like an army off to the battlefield.

Occasionally, there’s a homeless person standing on the outside of the building, near the front door with no particular purpose or urgency.  Sometimes, on line, I notice someone ahead of me, one with so little, who is “boxing” their dream with the next draw of the lottery.  And, sometimes, an old woman, disheveled and scattered fumbles through several envelopes, all bound tightly with rubber bands, to extract the coinage need to purchase a donut.  It’s all there – in the world market, my 7-11.

Leon Mandel said that, “the car is the lens through which we see the world. No bad lens, no bad way to see the world”.  I mostly agree.  If it were not for my pondering mind, I might be better able to embrace the non-judgmental notion that “we are what we are” – without good, without bad.  We are all doing, hopefully, the best we can.  This is the world that I observe as a stranger in a strange land on my journey up and down the highway called Route 29 in the counties of Montgomery, Prince Georges and Howard, each located in the state of Maryland within the United States of America on the planet earth of the Milky Way.

“Spring – when all things bloom: Madoff‘s fertile soil.”

The handwriting was on the wall, ten long years before the Madoff Ponzi scheme unraveled – the largest investment fraud in Wall Street history. In 1999, one of Madoff’s competitors, Harry Markopolos, did the math and notified the SEC of his findings – Madoff’s “split-strike conversion strategy” didn’t add up. No one listened. If that wasn’t enough, in 2005, even the SEC’s own New York branch chief, Meaghan Cheung voiced her concerns. Still, no one listened.

In examining Markopolos’ original mathematical findings, Utpal Bhattacharya, professor of finance at Indiana University’s Kelly School of Business explained, “If the standard deviation is too low and the mean too high, something is wrong” (Levisohn, para. 5). Clearly, something was wrong, very wrong for Madoff’s investors.  What allowed it to “go wrong” was the fundamental failure of the investors to do their own due diligence. While many look for those to blame and there are many, ultimately the primary fault lays with both the individual investors as well as the feeder fund managers. But, let’s examine the culpability of the individual investor first.

“If it seems too good to be true, it probably is”

Greed is seductive. Madoff’s Ponzi scheme was an utterly bold and brilliant “get rich quick” scheme perpetrated on mostly affinity investors – the Jewish community who shared the opportunity to invest in the Madoff Funds with only their most deserving friends by word of mouth. Indeed, the seeds of Madoff’s deception were planted well below the rich soil of greed from the onset.  Madoff counted on that.

Madoff understood the frailty of human nature and was well versed in the workings of several of humankind’s deadliest sins, including, greed itself. He knew that “getting yours” not only appealed our basest of natures, it also facilitated secrecy among his investors.  That “if I share this with you, there’ll be less for me” mentality helped Madoff keep the lid on his scheme.

So, who is really to blame? In the majority, individual investors certainly knew that the Madoff Fund was “too good to be true.” Most could not have amassed their wealth without understanding some basic economic principles such as “return on investment” or ROI. Madoff Funds, according to the bogus statements issued by Madoff’s stealth accounting firm, Friehling & Horowitz, attested that the funds were consistently yielding a return far beyond any another.  But, very few cared enough to question why that was – after all, “I’ve got mine”.

Had they cared enough, they would have done the math as Markopolos did and challenged the “certified” results.  Better yet, if one is putting their life savings or nest egg at risk, wouldn’t it be prudent to have an independent and impartial accounting body confirm that it all was indeed as good as it seemed?  If they had, they would have uncovered a three-person accounting firm issuing statements for a 50 billion dollar company who contrary to law was not reporting to the government and had not had an independent audit in 15 years.  Ignorance, it would appear, is bliss.

“From the heavens falls the rain”

That leaves us with the feeder funds managers.  These managers helped to globally nourish the soil with copious amounts of liquid cash on behalf of their investors, most of which were all too trusting.  Were the funds managers duped as well or were they complicit in their own greed?

Let’s examine some fundamentals.  A business is unashamedly in business to make a profit. This is often, but not always, accomplished by the corporate entity providing a product or service of value to its customer – say managing a fund for individual investors. Now that seems straightforward, doesn’t it?  Well, no, not always.  If a company’s primary objective is make a profit, does that mean it can be accomplished at any cost?  The answer is most always, “yes” unless doing so clearly breaks the law.

“Summer – a season of harvest: The Madoff feeder funds”

What is important to understand is that a hedge fund manager will most always receive a luscious commission on behalf of his firm for placing their company’s investor’s money within a “feeder fund” such as Madoff’s. Therein lays a conflict of interest.  Unlike a private investor who buys into a fund for a price expecting a modest return on their investment, a fund manager makes money at least two different ways. As such a decision must be made. And, it is a crucial one. It is either ethical or unethical.

In such a situation, a fund manager or his corporation may choose to receive a lush commission, (if not a kick-back) from a monster feeder fund as well as the modest commissions from their individual investors for investing such funds – it all about the money.  Or a fund manager or his corporation may choose to accept a more modest commission from a vetted feeder fund that has also proven “due diligence”. Then the fund manager can prudently invest monies on behalf of their investors while also making modest commissions and fees from the individual investors.

According to the financial gurus at investorwords.com, a feeder type fund is one “which invests solely through another fund, known as the master fund. Shares are sold to investors through the feeder fund, but are invested through the master fund.” Although slightly convoluted, that is indeed quite simple.  However, the Madoff fiasco has called to question several fundamental regulatory, legal and ethical issues which are not so easily explained.

For this and other reasons, it is often difficult to assess the disparity between the accountability of an individual vs. the corporation. Herein lies the adage, “Who’s guarding the hen house?” or better yet, “Let the buyer beware”.

The Madoff Ponzi scheme could not ever have amassed so much damage without the full support of fund managers throughout the world.  This complacency, or worse yet complicity, allowed billions of dollars to disappear before everyone’s eyes.  Some notable players such as J. Ezra Merkin and Walter M. Noel, Jr. are just a few with these fiduciary responsibilities who seemed more interested in management and incentive fees for themselves and their companies than fulfilling their obligation to their clients.

The Supreme Court of the State of New York in their indictment of Merkin and his oversight of his particular feeder fund, The Gabriel Capital Corporation, summed up the ethical collapse succinctly:

J. Ezra Merkin betrayed hundreds of investors who entrusted him with their savings by recklessly feeding their funds into the largest Ponzi scheme in history, while falsely claiming he actively managed their funds. Merkin held himself out to investors as an investing guru, collecting more than $470 million in management and incentive fees from his Ascot, Gabriel and Ariel funds. In reality, Merkin was but a master marketer, his efforts substantially directed only at convincing investors—including many charities—to invest in his funds. Merkin’s deceit, recklessness, and breaches of fiduciary duty have resulted in the loss of approximately $2.4 billion. 2. Merkin’s Ascot funds, Ascot Partners, L.P., and Ascot Fund Limited (together, “Ascot”) were formed in 1992 to be, and always were, “feeder” funds that entrusted Bernard L. Madoff with virtually all of their assets.

Similarly, in Massachusetts, Walter M. Noel, Jr., who founded the Fairfield Greenwich Group, was acknowledged by Diana B. Henriques in the New York Times as having a “gilded resume and a family linked by marriage to wealthy investors in Europe and Latin America . . .” (Henriques, para. 12). Mr. Noel and his company netted over $450 million in fees and incentives alone. In the end, the State of Massachusetts struck a deal with the Fairfield Greenwich Group and settled for a mere $8 million and dropped the fraud charges.  By my math – that’s not bad for “a day’s work” if ethics is not an issue.

However, let’s be clear about the implicit responsibilities of fund managers such as these. As stated by the Oppenheimer Funds corporate website, the key fiduciary responsibilities of a plan sponsor (a.k.a Fund Manager) include executing “all fiduciary responsibilities with the care, skill and diligence of a ‘prudent’ person acting in a similar capacity; make fiduciary decisions in the sole interest of participants and beneficiaries.” Clearly this was not done in the case of Mr. Merkin nor Noel.  It is well acknowledged that Madoff’s firm had not performed an external audit of its finances in 15 years. They had the responsibility to know that and to avoid a fund such as this one. Even some of the “big boys” – KPMG, PricewaterhouseCoopers, BDO Seidman and McGladrey & Pullen failed to explore beyond the surface.

In her article, “How to Spot the Next Bernie Madoff”, Laura Cohen cautions all investors to look for a third part custodian and to vet the accountants. Madoff investors received statements from Madoff Securities accounting firm rather than from their fund manager.  Red flag.  Who’s managing my money exactly? Or, who am I paying to manage my money?

More to the point, as mentioned earlier, Madoff Securities hired/created a three person firm, Friehling & Horowitz, housed in a strip mall to do their accounting.  And again, let’s do the math and a gut check. 50 Billion dollars in funds accounted for by just three individuals. Is that even humanly possible?  Big red flag.

Often times, in the ways of the “street,” if a company doesn’t like the reports the accountants are issuing, they will just find another accountant.  However, a company that has had far too many accountants may be a tell tale sign that the company may be one that ethical accountants cannot stomach. Madoff solved that problem by creating his own accounting firm. Buyer Beware.

 “The Fall – the 2nd season of harvest and deceit: The Government and Madoff”

Edmund Burke, the English philosopher said, “The only thing necessary for the triumph of evil is for good men to do nothing.” All along the way some good and otherwise decent men and women failed to do what was right or failed to do anything at all. When we cannot as a society rely upon the frailties of human nature, we look to a greater community – our government to help keep individuals and corporations in check.

Most can recall the recent action of the peanut processor in Atlanta that knowingly shipped salmonella tainted peanuts which resulted in at least 8 deaths and sickened more than 529 other Americans. If this company, the Peanut Corp. of America, seems too insignificant to interpret the ethics of a corporation, let us recall that the American-as-mom’s-apple-pie corporation,Sara Lee, was indicted in 2001 for knowingly selling listeria tainted meats that killed 15 people.  For this, the corporation was charged with a misdemeanor and fined a mere $200,000. Does that seem equitable considering the loss of life?  By contrast, should an individual point a loaded shotgun towards another and accidently pull the trigger, would not the person with the shotgun be charged at the very least with felony manslaughter for the death of the other? Most often, yes they would and they would also be vulnerable to a civil suit on behalf of the bereaved family. For this and other reasons, it is often difficult to assess the disparity between the accountability of an individual vs. the corporation. Herein lies the adage, “Who’s guarding the hen house?”

Despite Madoff’s esteem among his peers in the financial world – Madoff was a former chairman of NASDAQ – he clearly operated without morals, ethics or regard for the law. Yet, how often does an individual garner immortality by having an official SEC exception named for him?  In this case, Madoff lobbied the SEC to open their minds and allow him a new way to trade securities in the management of funds, he was after all acknowledged as a “market-structure expert” (LUCCHETTI, para 14).  The SEC finally said “OK” and this became known as the “Madoff Exception”.  Is it so difficult to imagine how reluctant junior investigators might be to press this immortal regarding the activities of Madoff, his advisory business or his separate Bernard L. Madoff Investment Securities? And could this explain why the SEC failed to heed the warning of one of its own, Meaghan Cheung? How could she possibly know better than the revered Madoff? In the end, in a final cruel blow, it was the SEC who pushed her in front of the news cameras and “under the bus” to explain to the public why the SEC had not uncovered the scheme.

On December 15, 2008, Kara Scannell (2008) of the Wall Street Journal observed that “though [Madoff] was gathering investors' money and choosing how it was invested, he wasn't a registered investment adviser until 2006. Some people described his business as a hedge fund, but he didn't create a formal fund into which investors could put their money” (Scannel, par. 6).  So, how could that happen?  Again, was the “Street” and the SEC confused by the “Madoff Exception”?  On any other matter, these types of anomalies would have been a big red flag to anyone without the attachment of Madoff’s name.

Remember, Harry Markopolos, who did the math, saw the handwriting on the wall and notified the SEC in 1999 that Madoff’s “split-strike conversion strategy,” didn’t add up?  Much later, Markopolos would recall that he made this calculation in less than “five minutes”. For him, it was so simple, almost child’s play. Why couldn’t the SEC see it as well?  Was Harry Markopolos just recast by the SEC as the wolf in contemporary retelling of Aesop’s classic sour grapes story? What could he possibly see in less than five minutes that the SEC could not for nearly ten years afterwards? Ungodly greed and deceit may be the answer. It appears the SEC is not able to scan the playing field for that. Or, worse yet, as with others, the SEC had a conflict of interest.

Nonetheless, according to the United States of America, citizen investors shouldn’t need private citizen or fox to sound the alarm.  It has that covered – The U.S. Securities and Exchange Commission.  According to the agency’s website, its mission “is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”  Sounds almost simple, doesn’t it?  Yet if one remembers or reads why it was created in the first place, the Madoff disaster seems all the more puzzling.  The SEC was born out of an earlier disaster that is chillingly all too familiar to the one before us now. Or, in the SEC’s own words:

Tempted by promises of "rags to riches" transformations and easy credit, most investors gave little thought to the systemic risk that arose from widespread abuse of margin financing and unreliable information about the securities in which they were investing. During the 1920s, approximately 20 million large and small shareholders took advantage of post-war prosperity and set out to make their fortunes in the stock market. It is estimated that of the $50 billion in new securities offered during this period, half became worthless (SEC, para. 14)

Even the sum of money involved seems as if it was foretold by Nostradamus - $50 Billion.  Isn’t that the same estimate of what Madoff “controlled himself?  Yes, and that’s conservative.  So, how is it that one man, singularly responsible for a minimum of $50 billion investor dollars escapes the eye of the institution dedicated by Congress to prevent such things?  That is the $50 billion dollar question.

Even Meaghan Cheung an upper level manager with the SEC’s New York City bureau, would have her findings dismissed by her superiors. Could it have anything to do with the fact that since 1991 Madoff and his wife have contributed about nearly a quarter of a million dollars to federal candidates, parties and committees? Or, was it incidental as in at least one case, where an SEC investigator was re-tasked in her investigation of Madoff by her superior who latter marries into the Madoff family. One hopes not. The SEC report steadfastly denies it.

On December 15, 2008, Kara Scannell (2008) of the Wall Street Journal observed that “though [Madoff] was gathering investors' money and choosing how it was invested, he wasn't a registered investment adviser until 2006 – a clear violation of the Investment Advisers Act of 1940. Some people described his business as a hedge fund, but he didn't create a formal fund into which investors could put their money” (Scannel, par. 6). Again, was the SEC confused by the “Madoff Exception” or was it something else?

Mark Skousen, writing for the conservative magazine Human Events said in December of 2008 that the number one lesson to have learned from the Madoff case is that you “can’t count on the federal government, especially the SEC”.  He offers that many within the SEC will migrate in their careers to the same investment establishment that they once eyed like hawks. Or more to the point, author Aaron Knapp recalls American history. In his three part article, “The SEC Fiddled While Rome Burned” he aptly recalls the question posed to FDR in appointing Joseph P. Kennedy as the first chairman of the SEC who was himself a former stock speculator if not a rogue. Roosevelt replied, “Takes a thief to catch a thief.”

The real insight might come from Allen Sloan who explained this mystery in a way that most Americans can understand – through baseball. He said, “You’re likely to get caught if you run a few inches outside the baseline, because regulators are set up to catch that. But run so far out that you’re playing on a whole different ball field? You can get away with that if you’re enough of a financiopath, and your luck holds.”

The SEC cannot be held up to an ethical light as they have failed a far simpler test – their mission, chartered by Congress to protect the investor. No matter in which ballpark one stands, a home plate unprotected, dooms the home team.

“The Winter of our Discontent: The aftermath of the Madoff Affair”

“Now is the winter of our discontent

Made glorious summer by this son of York;

And all the clouds that low’r'd upon our house

In the deep bosom of the ocean buried.”

                         (Shakespeare, Act 1, scene 1, 1–4)

Can we believe as Richard III does in Shakespeare’s historical play that the bad times are now behind us? Let us not be so foolish.  The Bard himself was well aware of and recounted often in his works the folly of men and women, even those considered “good”.

The desolate fields of security traders lay barren by Madoff’s nuclear winter of deceit stand barren as a reminder that greed and its ally, deceit, has the ability to bury us.

One would hope that this living parable played out on the world stage will serve as a cautionary tale to all investors to always do their own due diligence before investing with anyone, no matter how luminous they may appear.

Furthermore, accountants of every kind and fund managers alike must know that Sarbanes-Oxley has guaranteed them a prison sentence in the United States, thus making deception a high stakes game.

And despite a 477 page report perfunctorily explaining why it did not do its job, the SEC itself still has plenty of explaining to do and bridges to mend with its citizens who were guaranteed safe passage through financial currents such as these.

In the end, one must acknowledge that we will never be immune to humankind’s frailties, the government cannot protect the citizen investor and the investor sometimes believes that there’s “easy” money to be made.  In all cases, whether by the hands of others or our own, we are deceived.

“John F. Kennedy – A charismatic leader of his time”

If one remembers the presidency of John F. Kennedy or reads accounts of it, there is a phrase that is inextricably tied to his legacy. It is said that John F. Kennedy was a “charismatic leader”, right for the times.

Just what is charisma? How does it apply to leadership? And why can it be so effective? To answer these questions in context, let’s look backward in time.

Under a crisp October sky in 1957, Americans looked skyward with trepidation as bright light streaked across the heavens.  It wasn’t a star or meteor; it was the Russian satellite Sputnik. And, to many, its appearance signaled the beginning of the end for America – surely a Soviet invasion would soon follow.  American was chilled to the bone and in the throes of fear.

Still worse, six years later, also in October, Russian missiles were staging in Cuba, just 97 miles from American shores. This period in American history and for the world itself is marked, as one it’s most dire.  And, yet, America had all it needed in a charismatic Senator from Massachusetts who would preside over this gave period and inspire us to prevail over our collective fears.  His name was John F. Kennedy – 35^th President of the United States and just the right leader for the time if not all times.

It is said that when a society faces fear, it looks towards a charismatic leader for redemption. Such a leader can persuade the masses to believe that they can persevere. It is what they need the most and what a charismatic leader provides.

The Nature of Charisma and its Meaning

The Webster dictionary states, “charisma” means “a personal magic of leadership arousing special popular loyalty or enthusiasm for a public figure” (Webster, 2008).  The derivation of the word is from the Greek, charizesthai, which translates as “gift”.  Truly a charismatic leader is a “gift” to many. Further, According to Dr. John C. Maxwell,

“Leaders who have this special ability share four things in common: They Love Life – they celebrate and embrace it; They Value the Potential in People – they actually believe in them; They Give Hope – all of us are reluctant optimists, needing just inspired leadership to help us believe again; and, lastly, They Share Themselves  - they embrace the power of inclusion.”

The Charismatic Qualities of JFK

John F. Kennedy became our youngest President at the age of 43.  He inherited an America poised on economic collapse, bereft with social unrest and faced with mounting external threats from the Soviet Union. Despite these challenges, Kennedy was a man of vigor – he loved life.

He had distinguished himself as a student at Harvard University, in battle during World War II as a commander of a PT boat and in prose as the Pulitzer Prize winning author of Profiles in Courage. He loved to sail in Massachusetts Bay and would play touch football with his siblings and other family members no matter the occasion or location.  With his same vitality he championed the arts as an expression of the hopes and dreams of all people. As The Washington Post noted in its agreement to name the nation’s new cultural center after Kennedy, its editorial offered that he “was the embodiment of life and vivacity”. (Meersman, 1980).

Kennedy, by his nature valued the potential of people.  Despite long standing racial divides, Kennedy committed himself and his administration to “revolution of human rights”. (White House, 2008). He oversaw the rise of the civil rights movement and embraced it. He enacted civil rights legislation and had his brother, Bobby, assure its enforcement as the Attorney General. Foremost, he believed in people and the notion that ordinary people could make a difference in communities both at home and abroad. With his Alliance for Progress and the Peace Corps, he “brought American idealism to the aid of developing nations”. (White House, 2008). During his brief three year term in office, cut short by an assassin’s bullet, he led the longest sustained expansion of American infrastructure and employment since World War II.

However, of all the challenges America and the world itself faced in the early 60’s, none was direr than the seemingly inevitable nuclear annihilation spawned from our conflict with the Soviet Union – the USSR. The Russians, first in space and advancing rapidly in their technology were clear about their disregard for America and its society.  Their Chairman and leader, Nikita Khrushchev made the mission of the Soviet Union clear, announcing to America as early as 1956 “we will bury you”.(Time, 1956) While there may have been an issue with translation from Russian to English, it had become clear that the Soviet Union had grand designs in their global view of the world. That same year, Kennedy was a senator from the state of Massachusetts and the Vice Presidential nominee of the Democratic Party.  Although he would not be elected President for another four years, he was listening.

This would be the pivotal moment for John F. Kenney and for America.  What America needed was strength and courage.  Mostly, however, it needed a charismatic leader who could give them hope when none was warranted.

Stephen R. Covey author of several seminal works on the nature of leadership said, "Through years of study, teaching and working with people all over the world, from all walks of life, I have determined that leadership is: Communicating to people their worth and potential so clearly that they come to see it in themselves. It is the influence we have with others to help them discover their own voice, to find their own purpose, to make their unique contribution, and to release their potential, that truly defines leadership." (Khan, 2005).  This was echoed more than a century previous by Benjamin Disraeli, the renowned nineteenth century British statesman and Prime Minister who said, "The greatest good you can do for another is not to share your riches but to reveal to him his own."