Recipes for the CFO: Who Cooked the Risk Books?

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Corporate Quote for the Day: "If you compete, don't cheat!" - Tish

In the world of Information Technology, protecting the inventions of the brilliant developers and engineers who are driving business successes behind the scenes is a tenet of our industry. When someone on a team threatens to compromise that principle, it's our duty to take steps to secure and protect the intellectual property of those inventors.

Many of you have lived the journey from CRT's to the PC, CRM to B2B; and from web services to electronic communications networks (ECN) with a passion others will never understand. Thirty years ago, imagining dark pool aggregators and alternative trading services (ATS) or advanced clearing operations was something joked about after watching Star Wars movies. You've lived all sides of this fascinating business as you moved your companies from archaic stockbroker workstations to modern day wealth management platforms; from back-office to middle office; and you cheered for that BPO during the ascent of straight-through processing!

The Six Sigma & CMM standards dedicated to execution services have moved to excellence in algorithms, sponsored access, smart order routing and beyond. The most seasoned among us, watched as the retirement of the tandem computing dinosaur gave way to the engineering wonders of UNIX workstations; until they were seamlessly superseded by NT. Three cheers for this delightful & never-ending ride!

Finally, virtual & cloud computing bursts on the scene to remind us that there are always dedicated professionals inventing, developing and creating solutions to help companies compete and execute business. Those customers who enjoy trading in multiple asset classes or who move goods between countries have information technology professionals to thank for inventing white board-to-execution solutions which have doubled the number of trading venues and markets they are able to access around the globe.

There are countless examples of these successes in product development, so here's today's plea:

If a leader in your company ever instructs you to infringe on the copyright privileges of another man's work (i.e. - that is if you're asked to copy proprietary computer programs or code, and/ or to steal trade secrets in any form to compete-like-a-cheat) - the only right answer is to run like hell to alert someone who has the authority to stop this request in its tracks.

Let me introduce you to a sales executive who - by cheating a competitor - taught all of us that it's always important to say something, if you see something. It was a bad day when the federal authorities raided the corporate headquarters of his employer - a respected market leader; what was particularily disturbing & disappointing is that a revered customer of this man had its offices raided too! What played out for the two years that followed was all thanks to the calculated actions & behaviors of a few. No employee population should have to go through this; never mind two seperate employee populations on the same day.

Employees in two states were evacuated from their offices by Federal Authorities who had arrived at their respective headquarters with guns drawn. Moving trucks backed into the buildings so they could remove everything the signed warrants & subpoenas gave them permission to take. Executives were ushered to interview rooms and to mobile sub-stations to answer questions. It felt like chaos for the 540 unsuspecting employees impacted, inconvenienced & shook up by these dramatic activities brought on by the determination, behaviors and executive mandates of a single sales executive looking for a fast commission. Equipment, tapes, documentation and other technologies were removed from the premises of the targeted facilities because of a serious complaint filed by a competing software services vendor in Federal Court.

Technical experts would later agree that the vendor's code had been stolen and reproduced. The sales executive's goal - in fact - was to infringe on the targeted vendor's copyrights and to willingly misappropriate trade secrets to meet some quota. He also instructed his employees to use their stellar influence and negotiation skills as well as their expense accounts to "inspire" employees at the customer site to help them execute this illegal plan. In the end, they convinced others to participate.

One evening after business hours, competitive intelligence was removed from a locked conference room at the customer branch where demo workstations had been set up for the vendor selection process. In short, copying the data code in question cheated the competitor. Perhaps, not a big deal to people who don't understand our business, but a very big deal indeed. It eliminated a legitimate opportunity for the IT team that created this market offering to benefit the competitive advantage it had worked so hard to create. After all, their ideas, research dollars, hard work and time had produced the winning solution in the first place.

The raids by the Feds, grand jury appearances, trial dates, finger-pointing, settlement term discussions among parties, people refusing to admit guilt, complex employee relations issues and amended complaints played out for over two years before a consent to judgement was agreed to. It was hard for the company to focus on much else and it was a difficult time for every employee forced to live with the consequences of these circumstances.

Those charged in this case used a defense which included blaming those employees at the branch who provided access and who helped to obtain and make copies of the materials at the heart of this case. The fact that no element of force was used during the breaking & entering at the customer site helped them. Unfortunately, an amended complaint would later arrive naming the client as a co-defendent in this copyright infringement case leaving the fate of $29 million in annual revenues and the technical solution for over 10,000 workstations hanging in the balance. Obviously, it was time to settle.

In the end, a confidential financial settlement along with an agreement to buy some of the petitioner's subsidiaries helped this case go away. Make no mistake - in this very public case - we're talking hundred of millions of dollars and client relationships ruptured forever. There were no winners.

Employees were terminated. Years later, the business unit in the middle of this scandal would be sold off in pieces... never to be heard from again.

But here's the problem with this outcome: The actual employees tied to this dismal chapter in corporate history were quietly dismissed and/ or shuffled out of these companies without a word. This put all of them - including the sales executive at the center of this case - inside the next unsuspecting company without anyone realizing that there was a direct & serious risk to their company tied to hiring them.

Since we have a responsibility to protect the revenues and assets of all companies, I suggest some kind of regulated system similar to the CRD System which tracks the U-4 & U-5 employment/ termination records of FINRA licensed employees in Fiancial Services. The mission is clear: to preserve the integrity of hiring processes tied to Global Information Technology because IT is - in fact - tied to every global financial transaction on the planet.

Perhaps, it should be called U-6 Deep-Six Compliance. How it would work: If IT personnel willingly use their skills and competencies to commit crimes or to take actions to compromise copyright laws, and/or to steal intellectual property, trade secrets, and proprietary systems from fellow professionals and competitors - there would be a process - rooted in law - which would prohibit them from working in the IT field and/or in any industry they intentionally worked to deceive or harm.

There are lots of legal settlements that play out in Financial Services. The infractions and crimes of the FINRA licensed people involved in such situations are always documented on U-4 & U-5 forms for all future employers to see. This kind of system needs to be duplicated in Information Technology.

The economic meltdown is reason enough to create a certified central authority to monitor & flag Information Technology professionals going forward. Perhaps some kind of Federal U-6 Deep-Six Officers Committee authorized to ban those trained in the IT industry altogether if necessary? Or - at a minimum we agree to ban people from those industries adversely impacted by actions intended to defraud others?

Of course, first we have to be focused on those cases already settled by the Federal Courts because they already know each person's role in these cases before settlement; then you'd have to create a legitimate mediation process so people could defend charges, etc...

Think about it: Does anyone have the names of all the revered Financial Engineers and/ or Quantitative Analysts who helped bring down Lehman or AIG? - Who are those people who took those jobs to cook the risk books?

Some of us know the names of honorable men and women who would not do this work. But few of us know the actual names of the employees who did. How can that be?

CEO Dick Fuld & AIG's Joseph Cassano were not the IT professionals behind the scenes creating the complex mathmatical formulas and designing the complex financial instruments which were built to hide the risk all companies had a fiduciary responsibility to mitigate. Where are all these people now?

How do you know you haven't already hired some of these integrity-challenged hires into your company? You don't because there is no system to protect you from them. So what do you think we should do about this complex recruiting challenge of our time?

You can write to Tish509@comcast.net to suggest solutions. Please contribute your ideas to this amazing challenge that does not have an easy answer - Thanks.

I promise to pass your professional opinion & suggestions to Governor Chis Christie in New Jersey & Mayor Bloomberg in NYC.

Best regards,
TishTrek