Have you ever trusted too much? What did it cost you?

So, we are getting to the end of our second book and want to focus on the costs of trusting too much.  Yes, we think trust is important, but we are also trying to be balanced in our assessment.  Is it possible to trust too much?  Is there a cost of trusting too much?

The one story that comes to mind is one that is still not resolved for us.  Two years ago, our daughter Maggie had a cyst removed over her eyebrow.  She had had it almost since birth and it finally started to bother her so she asked to have it removed.  We had found a talented facial surgeon in Durham, Dr. Jelic, who had removed teeth from both Maggie and Jack so we asked him about her cyst (he was also a plastic surgeon) and he said that he could do it.  We had two sets of positive experience with him, so we had a basis to trust him and his work.

Dr. Jelic always has you go in a month or so early so that he can look at the patient and get the insurance approvals going.  On the day of the surgery, he came in to look again at Maggie and decided to modify the way he wanted to do the surgery.  Instead of taking the cyst off the eyebrow, he would go in through her eyelid (blepharoplasty) to minimize any potential scarring.  It scared me a little bit, but Maggie really wanted this procedure, so we went ahead.

Then, we waited for one hour, while his office manager supposedly called our insurance to get approvals.  We thought that they had done this on our previous visit, so I was a bit surprised, but of course, we wanted it covered, so we sat there for one hour while Maggie was nervous about the procedure.

One hour later, they took her in, and then she came out looking pretty bruised, if you have ever seen a blufferplasty.  I was beside myself.  All I could do for the next few days was pray that I had trusted this physician to do the right thing with my 14-year old daughter.

Then, a few weeks later, I call our insurance to find out what the hold up is in our getting reimbursed.  The insurance company told me that they didn’t know anything about this procedure, and that they had never received any pre-approval call.  It turns out we had sat in the physician’s office for one hour before an upsetting procedure being told they were getting pre-approvals, when in fact, they never did.  The cost of trusting this physician:  We were now out between $1000 and $2000 for this procedure.

We spent the next two years calling his office manager, writing him follow-up letters, and talking to our insurance.  Dr. Jelic was hoping to get Blue Cross/Blue Shield to do a retro-active approval.  They told me there was no way that they would do that, so I knew it was a lost cause.

In this case, I don’t think I can ever trust him again.  Even though he is a talented physician, he is not a good manager, nor is he someone who really has our best interests at heart.  It would not have been that hard for him to admit his mistake and made amends by giving us our insurance money back.  He refused to deal in good faith every step of the way.  When someone is not trustworthy in the small things, like honesty, admitting mistakes or even refunding $1000 in a very lucrative plastic surgery practice, it makes it is very, very disappointing.

Have you ever trusted too much?  What were some of the consequences?


Facebook’s Latest Security and Privacy Shortcomings Are the Last Straw

Update 10-18-10:

Here’s the latest from the Wall Street Journal:

Many of the most popular applications, or “apps,” on the social-networking site Facebook Inc. have been transmitting identifying information—in effect, providing access to people’s names and, in some cases, their friends’ names—to dozens of advertising and Internet tracking companies, a Wall Street Journal investigation has found.

The issue affects tens of millions of Facebook app users, including people who set their profiles to Facebook’s strictest privacy settings. The practice breaks Facebook’s rules, and renews questions about its ability to keep identifiable information about its users’ activities secure.

The problem has ties to the growing field of companies that build detailed databases on people in order to track them online—a practice the Journal has been examining in its What They Know series. It’s unclear how long the breach was in place. On Sunday, a Facebook spokesman said it is taking steps to “dramatically limit” the exposure of users’ personal information.

“A Facebook user ID may be inadvertently shared by a user’s Internet browser or by an application,” the spokesman said. Knowledge of an ID “does not permit access to anyone’s private information on Facebook,” he said, adding that the company would introduce new technology to contain the problem identified by the Journal.


Update 5-22-10:

Here’s Peggy Noonan’s take in today’s Wall Street Journal:

Do you want anyone who can get your address on the Internet to be able to call up a photo of your house? If you don’t, that’s unfortunate, because it’s all there on Google Street View, like it or not. Facebook has apparently taken to changing its default settings so that your information—the personal news you thought you were sharing only with friends—is available to strangers and mined for commercial data. And young people will say anything on networking sites because they’re young, because no one has taught them not to, because they’re being raised in a culture that has grown more exhibitionistic.

Update 5-19-10:

Here’s the latest on this issue from the Wall Street Journal:

Privacy advocates have called on regulators to intervene. Some frustrated users, meanwhile, have created websites that highlight what they see as shortcomings in Facebook’s privacy controls.

The site’s privacy travails have rattled Facebook employees and put pressure on Mr. Zuckerberg, who has argued for years that its users should be more open with their information. He has at times over-ruled employees who argue Facebook should make more information private, by default, according to people familiar with the matter. He has instead pushed to offer tools so users can control their information, these people said.

In recent days, executives and other employees have hunkered down in Facebook’s Silicon Valley headquarters, debating how to address the backlash to two recently launched features.  Participants are discussing whether to implement new controls that allow users to conceal their profiles more universally, according to people familiar with the matter. Such tools would represent a big shift from Facebook’s current approach of giving users multiple controls for specific parts of their profiles, and are an option Mr. Zuckerberg has resisted. On Monday, rival MySpace said it would simplify its privacy settings by giving users the option to select one privacy setting for all the information in their profiles. MySpace is owned by News Corp., as is The Wall Street Journal.

Original Post 5-5-10:

I’m deleting my Facebook Account permanently. The last straw is the news reported in the New York Times about its latest security and privacy failure:

For many users of Facebook, the world’s largest social network, it was just the latest in a string of frustrations.

On Wednesday, users discovered a glitch that gave them access to supposedly private information in the accounts of their Facebook friends, like chat conversations.

Not long before, Facebook had introduced changes that essentially forced users to choose between making information about their interests available to anyone or removing it altogether.

Although Facebook quickly moved to close the security hole on Wednesday, the breach heightened a feeling among many users that it was becoming hard to trust the service to protect their personal information.

The issue is exactly one of trust.  Although it was fun to reconnect with old friends and keep up with current ones through this social medium, but it’s no longer worth the hassles or the risk.

See you here instead, or on Twitter!


Violating Trust Can Cost You Billions, Literally

We know that violating trust can often result in significant negative consequences:  emotional trauma, lost friendships, and even lawsuits.  Here’s evidence it can even cost real money, as in almost seven billion dollars.

PARIS — Jérôme Kerviel, the former Société Générale trader whose rogue dealings almost brought about the French bank’s demise, was convicted of breach of trust and other crimes Tuesday and sentenced to at least three years in prison.

Mr. Kerviel, 33, was also ordered to pay restitution of €4.9 billion, or $6.7 billion — the entire amount the bank lost in unwinding his trades in early 2008.

Mr. Kerviel was sentenced to five years, with two suspended, and barred for life from working in financial services. Wearing a dark suit, black tie and starched white shirt, he stood impassively while the verdict was read, betraying no emotion.

Caroline Guillaumin, a spokeswoman for Société Générale, said the damage award was a “symbolic” sum that the bank did not expect would be paid.

“But it is important, and we are satisfied, because it recognizes that the entirety of the bank’s losses are attributed to Jérôme Kerviel’s actions,” she said.

Mr. Kerviel’s lawyer, Olivier Metzner, said he would appeal immediately. “This judgment is totally unreasonable,” he said outside the court. “It suggests that the bank is not responsible for anything, that no system of control could have prevented this.”

Regardless of how the responsibility will actually be apportioned, this is a strong example that violating the trust that has been placed in us can result in life-long consequences.


Do you trust a boyfriend who wears a helmet yet offers you none?

I was driving to pick my kids up from school, when I drove past two kids on a motorcycle.  The driver was wearing a helmet, yet the young lady sitting behind him was not.  My first thought as a parent was, “I would hope my daughter would never entrust her life to a boy who would offer her a ride yet not offer her a helmet.”  How could this young lady trust him enough with her life if he was not willing to give her a helmet?

I don’t know enough about motorcycles or helmets, so I discovered that in Michigan, as in many states, both riders must wear a helmet.  It is especially true of riders younger than 17.  Considering that these two young people were leaving the high school near my home, I’m willing to bet they were both younger than 17.

This young lady was not only trusting this boy with her life, but she was trusting all of us to be careful drivers around both of them.


British Petroleum (BP) Continues to Reveal Mistakes and Poor Decisions in the Gulf of Mexico Disaster

Update 7-30-10:

Tony Hayward remains unrepentant about BP’s response to the disaster, as reported in today’s Wall Street Journal:

At the onset more than three months ago, Mr. Hayward was attacked for saying BP could contain the spill and prevent an environmental disaster. That, plus a series of other missteps and failed efforts to stop the runaway well, made Mr. Hayward a toxic symbol in the U.S. for the unfolding mess.

“I became a villain for doing the right thing,” Mr. Hayward said in the interview. “But I understand that people find it easier to vilify an individual more than a company.” He said he feels some of his comments, particularly “I’d like my life back,” were “wrong.”

Mr. Hayward made clear he wanted to stay, but decided it would hurt BP as its works to permanently cap the well, and repair the Gulf coastline and the company’s public image. “I didn’t want to leave BP, because I love the company,” Mr. Hayward said in the interview. “Because I love the company, I must leave BP.” Earlier this week, BP announced he would step down as its leader Oct. 1

He added: “In America, the road back will be long but I believe achievable when the whole truth of the accident finally emerges and the Gulf coast is restored….BP can rebuild faster in America without Tony Hayward as its CEO.”

Mr. Hayward’s comments were greeted with skepticism from BP’s critics. The CEO has undergone withering attacks in the U.S., most notably during a daylong grilling by lawmakers in Congress over the spill and cleanup efforts.

“Mr. Hayward should be less concerned about his vindication, and more concerned about what BP will do to end the victimization of families and businesses in the Gulf,” said Rep. Edward J. Markey (D., Mass.). “It will take years of continued commitment to the restoration of the Gulf before BP has the legitimacy to engage in historical revisionism.”

Update 7-25-10:

Now BP’s CEO is out of his job, according to the New York Times:

Tony Hayward, the embattled chief executive of BP, has agreed to step down and be replaced by Robert Dudley, the company’s most senior American executive who is now in charge of BP’s operations in the Gulf of Mexico, according to a person close to the company’s board.

BP Chief Executive Officer Tony Hayward, left, will be replaced by Managing Director Bob Dudley, right, if the company’s directors ratifies the agreement, according to a person close to the board.  Susan Walsh/Associated Press.
Robert Dudley.  Steven Senne/Associated Press

The change in leadership will be discussed by the board of directors on Monday and may be announced Tuesday if the board ratifies the decision. Mr. Hayward would probably be replaced in the fall, the person said, but a decision has already been made by mutual agreement between Mr. Hayward and senior BP management.

“It is in the best interest of the company to go forward with fresh leadership,” the person said.

Mr. Hayward, who has been running BP since 2007, is the first senior executive at BP to pay the price for the largest oil spill in the United States, after the Deepwater Horizon blew up on April 20. His handling of the crisis has infuriated Gulf Coast residents and government officials alike, especially after a series of public gaffes forced him to retreat from the spotlight.

Update 6-30-10:

As my colleagues at Competing Values have stated for years based on their extensive research and consulting, there are real tradeoffs when it comes to leading change.  One of those tradeoffs is cutting costs versus maintaining safety, as evidenced by BP as reported in today’s Wall Street Journal:

BP’s Texas City, Texas refinery, shown after a fire in 2004, was the site of a deadly explosion in 2005.
Associated Press

In an internal communication in early 2009, Neil Shaw, then-head of BP’s Gulf of Mexico unit, lauded Atlantis’ operating efficiency, saying it was “4% better than plan” in its first year of production. It was part of a success story that Mr. Shaw said had enabled BP to become the No. 1 oil producer in the Gulf.

Early on June 5, 2008, a piece of steel tubing ruptured on BP PLC’s vast Atlantis oil platform in the Gulf of Mexico. The tubing was attached to a defective pipeline pump that BP had put off repairing, in what an internal report later described as “the context of a tight cost budget.”

The rupture caused a minor spill, just 193 barrels of oil, but BP investigators identified bigger concerns.

They found the deferred repair was a “critical factor” in the incident, but “leadership did not clearly question” the safety impact of the delay. The budget for Atlantis—one of BP’s most sophisticated facilities— was “underestimated,” resulting in “conflicting directions/demands.”

As investigators were questioning Atlantis’ lean operation, top executives were praising it.

In an internal communication in early 2009, Neil Shaw, then-head of BP’s Gulf of Mexico unit, lauded Atlantis’ operating efficiency, saying it was “4% better than plan” in its first year of production. It was part of a success story that Mr. Shaw said had enabled BP to become the No. 1 oil producer in the Gulf.

The budget squeeze on one of the British oil giant’s most challenging projects underscores a tension at the heart of BP under Chief Executive Officer Tony Hayward.

Until the April 20 explosion of the Deepwater Horizon oil rig in the Gulf, Mr. Hayward repeatedly said he was slaying two dragons at once: safety lapses that led to major accidents, including a deadly 2005 Texas refinery explosion; and bloated costs that left BP lagging rivals Royal Dutch Shell PLC and Exxon Mobil Corp.

A Wall Street Journal examination of internal BP documents, legal filings, official investigations and reports by federal inspectors, as well as interviews with regulators, shows a record that doesn’t always match Mr. Hayward’s reports of safety improvements.

Update 6-18-10 from the Wall Street Journal shows that BP’s CEO Tony Hayward’s apology and placing $20 billion of BP’s money into an escrow fund didn’t work:

[0617hayward02] Associated PressBP CEO Tony Hayward arrives on Capitol Hill June 17 to testify before the House Oversight and Investigations subcommittee hearing.

WASHINGTON—BP PLC Chief Executive Tony Hayward went to Capitol Hill to apologize for the disaster caused by his company’s gushing Gulf of Mexico oil well, and to absorb the blows as American politics requires when business leaders stumble into tragedy or scandal.

Mr. Hayward stuck to his plan. He sat for hours on Thursday, alone at a witness table, parrying questions from indignant members of the House Energy and Commerce Committee in a deliberate monotone.

Over and over, he said he wasn’t involved in the decisions preceding the accident and declined to speculate on causes until investigations were complete.

He soon found that $20 billion and an apology weren’t going to make his day better.

“The explosion and fire aboard the Deepwater Horizon and the resulting oil spill in the Gulf of Mexico never should have happened—and I am deeply sorry that they did,” Mr. Hayward said in an 11-page written statement.

Members of the House Energy and Commerce Subcommittee on Oversight and Investigations were having none of it. They grew increasingly frustrated as Mr. Hayward dodged specific questions aimed at pinning blame for the explosion on specific BP decisions and on him as the company’s leader.

Update 6-15-10 from the Wall Street Journal outlines how an excessive focus on cost-cutting may have contributed to the disaster:

WASHINGTON— BP PLC engineers made a series of cost-conscious decisions that ran counter to the advice of key contractors in the days leading up to the April 20 Deepwater Horizon rig explosion, according to documents released Monday by a congressional panel.

In one case, BP engineers decided on April 16 to use just six so-called “centralizers” to stabilize the well before cementing it, instead of 21 as recommended by contractor Halliburton Corp. according to BP internal emails made public by the panel.

In their letter, the lawmakers say that BP’s well team leader, John Guide, “raised objections to the use of the additional centralizers” in an April 16 email released by the panel. “It will take 10 hrs to install them…I do not like this,” Mr. Guide wrote.

The lawmakers cited another BP email as an indication that “Mr. Guide’s perspective prevailed.” A BP official wrote in an April 16 email: “Who cares, it’s done, end of story, will probably be fine.”

In a separate email, a BP drilling engineer complains to a colleague six days before the explosion that the well “has been [a] nightmare well which has everyone all over the place.”

The explosion and fire aboard the Deepwater Horizon rig in the Gulf of Mexico triggered a spill now estimated at 20,000 to 40,000 barrels a day.

Update 6-10-10 from the Wall Street Journal documents BP’s falling share price and BP’s reaction:


LONDON—BP PLC said Thursday it sees no justification for the collapse in its share price, even as the U.K. oil major admitted that the cost of the Gulf of Mexico oil spill has risen to $1.43 billion and U.S. politicians pushed for the company to assume even greater liabilities.

BP shares opened down 11% in London Thursday, taking the company’s value to a 13-year low, following a 16% fall in its U.S.-listed shares Wednesday. Shares, however, rebounded and were recently 3.8% lower at 377 pence ($5.48), on a slightly higher London market.

The company has lost almost £58 billion in market capitalization since the April 20 disaster, when an explosion aboard the Transocean Ltd. drilling rig Deepwater Horizon killed eleven men and triggered the massive oil spill.

Traders in credit default swaps, used to insure BP debt, were equally spooked. BP five-year CDS widened 1.95 percentage points from Wednesday’s close to 5.70 points, equivalent to junk credit, said Markit. BP still has an double-A credit rating.

“The company is not aware of any reason which justifies this share price movement,” BP said in a statement.

But ever-harsher rhetoric from the U.S. administration is worrying investors. There is immense political pressure for BP to halt dividend payments; the U.S. Justice Department said Wednesday it is investigating the company’s dividend plans. The Obama Administration also demanded that BP pay millions of dollars in salaries of oil-industry workers laid off because of the federal moratorium on deepwater drilling.

This 6-9-10 update from the New York Time’s Dealbook hypothesizes that BP could even declare bankruptcy eventually:

The idea that BP might one day file for bankruptcy, particularly as part of a merger that would enable it to cordon off its liabilities from the spill, is starting to percolate on Wall Street. Bankers and lawyers are already sizing up potential deals (and counting their potential fees).

Given the plunge in BP’s share price — the company has lost more than a third of its value since Deepwater Horizon blew — some bankers and analysts say BP is starting to look like takeover bait. The question is, who would buy BP, given its enormous potential liabilities?

Shell and Exxon Mobil are both said to be licking their chops. And already, flinty legal minds are dreaming up scenarios in which BP would file a prepackaged bankruptcy and separate the costs of the cleanup — and potentially billions of dollars in legal claims — into a separate corporate entity.

Update 5-28-10 from the Wall Street Journal:

In the minutes after a cascade of gas explosions crippled the Deepwater Horizon on April 20, confusion reigned on the drilling platform. Flames were spreading rapidly, power was out, and terrified workers were leaping into the dark, oil-coated sea. Capt. Curt Kuchta, the vessel’s commander, huddled on the bridge with about 10 other managers and crew members.

Andrea Fleytas, a 23-year-old worker who helped operate the rig’s sophisticated navigation machinery, suddenly noticed a glaring oversight: No one had issued a distress signal to the outside world, she recalls in an interview. Ms. Fleytas grabbed the radio and began calling over a signal monitored by the Coast Guard and other vessels.

“Mayday, Mayday. This is Deepwater Horizon. We have an uncontrollable fire.”

When Capt. Kuchta realized what she had done, he reprimanded her, she says.

“I didn’t give you authority to do that,” he said, according to Ms. Fleytas, who says she responded: “I’m sorry.”

An examination by The Wall Street Journal of what happened aboard the Deepwater Horizon just before and after the explosions suggests the rig was unprepared for the kind of disaster that struck and was overwhelmed when it occurred. The events on the bridge raise questions about whether the rig’s leaders were prepared for handling such a fast-moving emergency and for evacuating the rig—and, more broadly, whether the U.S. has sufficient safety rules for such complex drilling operations in very deep water.

Update 5-27-10 from Miguel Bustillo of the Wall Street Journal:

KENNER, La.—More details emerged Wednesday about a disagreement between employees of rig operator Transocean Ltd. and oil giant BP PLC over how to begin shutting down the well just hours before it exploded in the Gulf of Mexico last month.

Douglas H. Brown, Transocean’s chief mechanic on the Deepwater Horizon rig, said key representatives from both companies had a “skirmish” during an 11 a.m. meeting on April 20. Less than 11 hours later, the well had a blowout, an uncontrolled release of oil and gas, killing 11 workers.

Mr. Brown said Transocean’s crew leaders—including the rig operator’s top manager, Jimmy W. Harrell—strongly objected to a decision by BP’s top representative, or “company man,” over how to start removing heavy drilling fluid and replacing it with lighter seawater from a riser pipe connected to the well head. Such pipes act as conduits between the rig and the wellhead at the ocean floor, and carry drilling fluid in and out of the well.

Removing heavy drilling fluid prior to temporarily sealing up a well and abandoning it is normal, but questions have emerged about whether the crew started the process without taking other precautionary measures against gas rising into the pipe.

It wasn’t clear what Mr. Harrell objected to specifically about BP’s instructions, but the rig’s primary driller, Dewey Revette, and tool pusher, Miles Randall Ezell, both of Transocean, also disagreed with BP, Mr. Brown said. However, BP was in charge of the operation and the BP representative prevailed, Mr. Brown said.

“The company man was basically saying, ‘This is how it’s gonna be,’ ” said Mr. Brown, who didn’t recall the name of the BP representative in question.

Would a female CEO and more female executives at BP do a better job?  Here’s a provocative but thoughtful take on it by fellow U-M Ph.D. alum CV Harquail.

Original Post 5-26-10:

British Petroleum (BP) continues to reveal an array of poor decisions and mistakes that will require significant efforts on its part to repair the trust with the American public its has destroyed.  According to Stephen Power in today’s Wall Street Journal today:

Oil giant BP PLC told congressional investigators that a decision to continue work on an oil well in the Gulf of Mexico after a test warned that something was wrong may have been a “fundamental mistake,” according to a memo released by two lawmakers Tuesday.

The document describes a wide array of mistakes in the fateful final hours aboard the Deepwater Horizon—but the main revelation is that BP now says there was a clear warning sign of a “very large abnormality” in the well, but work proceeded anyway.

The rig exploded about two hours later.

The congressional memo outlines what the lawmakers say was a briefing for congressional staff by BP officials early Tuesday. Company representatives provided a preliminary report on their internal investigation of the April 20 disaster, which killed 11 workers and continues to spill thousands of barrels of oil daily into the Gulf of Mexico.

According to the memo, BP identified several other mistakes aboard the rig, including possible contamination of the cement meant to seal off the well from volatile natural gas and the apparent failure to monitor the well closely for signs that gas was leaking in, the congressmen wrote in their post-meeting memo. An immense column of natural gas, erupting from the oil well, fueled the fireball that destroyed the rig.

BP is simply repeating a pattern from its Texas City oil refinery disaster, in which 15 died and 180 were injured.

Rutgers sociologist and disaster expert Lee Clarke also discusses how BP’s failure to do proper scenario planning and worst-case prevention contributed to the current disaster.

Toyota Destroys Customers’ Trust and Potentially Billions in Market Value as Well

Update 4-14-10:

Toyota will now be halting sales of one of its Lexus SUVs due to rollover concerns raised by Consumer Reports, according to the Wall Street Journal:

Toyota Motor Corp. said Tuesday it will temporarily halt the sale of a Lexus sport-utility vehicle after Consumer Reports magazine raised safety concerns about it.

The move was another blow for the Japanese car maker, which is trying to repair its image after a series of safety recalls. Consumer Reports issued a rare “don’t buy” recommendation for the Lexus GX 460, saying the SUV could roll over in certain situations.

The influential nonprofit magazine already had suspended its recommendations for eight Toyota models recalled in January for sticky-accelerator concerns. In certain conditions, the gas pedal in those models is slow to return to idle.

Update 4-13-10:

Now a feud between family and non-family executives has emerged at Toyota, as individuals blame one another for the quality and safety debacle, according to the Wall Street Journal.

Update 3-11-10:

Human error may contribute to a large percentage of unintended acceleration incidents, according to this op-ed in today’s New York Times by Richard Schmidt:

I looked into more than 150 cases of unintended acceleration in the 1980s, many of which became the subject of lawsuits against automakers. In those days, Audi, like Toyota today, received by far the most complaints. (I testified in court for Audi on many occasions. I have not worked for Toyota on unintended acceleration, though I did consult for the company seven years ago on another matter.)

In these cases, the problem typically happened when the driver first got into the car and started it. After turning on the ignition, the driver would intend to press lightly on the brake pedal while shifting from park to drive (or reverse), and suddenly the car would leap forward (or backward). Drivers said that continued pressing on the brake would not stop the car; it would keep going until it crashed. Drivers believed that something had gone wrong in the acceleration system, and that the brakes had failed.

But when engineers examined these vehicles post-crash, they found nothing that could account for what the drivers had reported.

By the way, we finally received our own recall notice late last week for our 2009 Toyota Camry Hybrid.

Update 2-24/10:

For a different take on the Toyota crisis, which compares it to the Audi unintended acceleration fiasco of the late 1980s, which turned out not to be a defect at all, here is Holman Jenkins of the Wall Street Journal editorial.

Update 2-9-10:

The bad news keeps on coming for Toyota, including the newly announced recall of 2010 Priuses and some Lexus models.  Last weekend’s Wall Street Journal had a terrific feature story, too, on how Japan’s national culture contributes to the secretive corporate cultures of firms such as Toyota.

Update 2-2-10

Here’s the latest on this total fiasco as reported by the Wall Street Journal:  all Toyota hybrids are now being investigated.

We can hardly be considered biased against the Japanese automakers, even though we both used to work for GM.  We’ve put our money where our mouths are over the years, and own a 2006 Honda Civic Hybrid and lease a 2009 Toyota Camry Hybrid.  I love my Honda (Karen doesn’t like it).  Karen likes her Camry, and it’s been a good sedan to transport our kids and take on vacations.  Nonetheless, I’m darn glad we leased the Camry, as we’ll be turn it back to Toyota when the lease is up based on the company’s horrific response to its defective brake system/electronics.  The news gets worse every day for the largest automaker in the world, and it’s not over yet, according to the Wall Street Journal:

Toyota Motor Corp.’s quality crisis deepened Tuesday, as U.S. regulators accused the company of dragging its feet on fixing defective gas pedals and threatened civil penalties and further reviews of Toyota products.

The move means that Toyota’s efforts to address its biggest-ever safety and public-relations mess are far from over. Last week, the administration indicated it had no issues with how Toyota had responded to the sudden-acceleration reports, which led the company to recall about six million vehicles and have been linked to at least five fatalities.

“While Toyota is taking responsible action now, it unfortunately took an enormous effort to get to this point,” Secretary of Transportation Ray LaHood said Tuesday in a statement. “We’re not finished with Toyota and are continuing to review possible defects and monitor the implementation of the recalls.”

Mr. LaHood said Transportation Department officials flew to Japan in December to meet with Toyota executives and remind the company “about its legal obligations.” The agency, he said, “followed up with a meeting at DOT headquarters in January to insist they address the accelerator pedal issue.”

The  highly respected journalist, Forbes magazine columnist, and one of my favorite writers on the automotive industry, Jerry Flint, had this to say:

Toyota‘s accelerator problem is the costliest car safety issue–and corporate disaster–in automotive history. It certainly dwarfs the sudden acceleration issue that hit Audi long ago, or the Firestone tire problem that destroyed the sales of Ford’s Explorer or those long-ago issues that created Ralph Nader’s book, Unsafe at Any Speed.

And there will be a great cost: incentives to get customers buying Toyota’s again when the problems have been solved at the factory; money to keep the wounded dealers alive, and money to pay for the recall work. We’re probably talking about a cost in the billions–not millions–counting those incentives. That’s money that won’t go to developing new models, new hybrids, new electric cars. And we’re not talking about the lawsuits, which will go on for years.

I may be wrong, and I do prefer my Honda over Karen’s Toyota, but I can’t believe that Honda would act in the same poor manner in which Toyota has.  Honda in my opinion is a nicer, and in this case, definitely more trustworthy car maker.


Cyber Warfare Demonstrates Vulnerability to Disgruntled Employees

This was from today’s Wall Street Journal:

WASHINGTON — Cyberspies have penetrated the U.S. electrical grid and left behind software programs that could be used to disrupt the system, according to current and former national-security officials.

The spies came from China, Russia and other countries, these officials said, and were believed to be on a mission to navigate the U.S. electrical system and its controls. The intruders haven’t sought to damage the power grid or other key infrastructure, but officials warned they could try during a crisis or war.

“The Chinese have attempted to map our infrastructure, such as the electrical grid,” said a senior intelligence official. “So have the Russians.”

But protecting the electrical grid and other infrastructure is a key part of the Obama administration’s cybersecurity review, which is to be completed next week. Under the Bush administration, Congress approved $17 billion in secret funds to protect government networks, according to people familiar with the budget. The Obama administration is weighing whether to expand the program to address vulnerabilities in private computer networks, which would cost billions of dollars more. A senior Pentagon official said Tuesday the Pentagon has spent $100 million in the past six months repairing cyber damage.

Overseas examples show the potential havoc. In 2000, a disgruntled employee rigged a computerized control system at a water-treatment plant in Australia, releasing more than 200,000 gallons of sewage into parks, rivers and the grounds of a Hyatt hotel.

Clearly, the Federal Government needs to be more vigilant about cyber security threats, but companies need to do so as well.  The days are over when a disgruntled employee might simply steal some important company records.  We are all now more vulnerable to those who would seek to do us harm.


Who trusts first?

One of the topics we cover in our book is that in order for trust to develop, someone has to trust first.  Parents trust children to drive safely or do chores well and then give them more responsibility, which in turn helps children trust their parents.  Supervisors trust employees to perform well and then employees trust their supervisor in looking out for their best interest.

This is the most interesting turn of trust I have heard of in awhile–a shopkeeper trusts his customers so much that he leaves the store open and asks them to pay what they owe–without him there.  This truly is trust because the shopkeeper is making himself vulnerable to others, expecting them to consider his interests, but knowing that they might not.

Can you think of an instance where you put yourself out there first to trust?  Has it paid off for you?


Diversify Your Assets Before Downsizing Takes Them Away

In our published research on how to downsizing effectively and in ways that preserve morale, one of the issues we didn’t think about tackling was the need for individuals to diversify their pensions and other savings well before any downsizing effort took place.  I guess we just assumed that people diversified their savings as part of a general financial risk management strategy.

Well, based on the number of articles I’ve been reading lately, it appears that many people, including supposedly financially savvy ones, haven’t been doing this, including at Citigroup:

Don’t invest too much money in your employer’s stock. If you want to know why, look at Citigroup.

The troubled bank has just this week announced another 53,000 layoffs.

Thousands of those workers have lost a large slice of their savings, as well as their job, thanks to the 85% collapse in the bank’s stock price over the past two years.

Citigroup, like so many banks and other big companies, paid many of its workers partly in shares. It did so with good intentions: To motivate them, and to give them a piece of the rock.

Instead they’ve lost billions. And many suffered further, because they had to pay hefty income taxes when they got the stock. Today their shares may actually be worth less than the taxes they paid.

Consider for a moment: That’s like paying a marginal tax rate of more than 100% on your income… just before losing your job.


Given the fact that well over a million people are downsized each year, and for 2008 it looks like a lot more than a million people will lose their jobs, it makes sense more than ever to diversify your pension and savings, or what’s left of them.