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Mon Jun 1, 2015, 07:14 AM

SEALs, CEOs, Milton Friedman, and Fraudulent Incentives

Posted on June 1, 2015 by William Black

I saw an intriguing squib in the Wall Street Journal about an article in the Harvard Business Review entitled “How the Navy SEALS Train for Leadership Excellence.” The article offers an, unintentionally, useful insight into the pathologies of elite business schools, their “leadership” faculty, and our elite C-suites.

The most interesting comment in the article is by Brandon Webb, a former senior SEAL sniper trainer.

“For training to work it has to be effective and incentives have to be in place (financial, personal growth, promotion, etc.) for training to be effective in the work place and in order to get employee ‘buy in,’” Webb notes. “I’m a big fan of economist Milton Fr[ie]dman… it’s as simple as creating alignment through incentives and that’s what we did by creating an instructor/student mentor program. The instructors had accountability (they would be evaluated on their student’s performance) which created the right incentive for them to pass.

The author of the article, Michael Schrage (a research fellow at MIT’s Sloan School of Business) and Webb miss the key implications of Webb’s observation for B schools, their students, and the CEOs whose interests they typically represent. The behavior the CEO will produce in “his” firm is created by the incentives that the CEO crafts. The employees will overwhelmingly “align” their behavior with the incentives crafted by the CEO. It is, therefore, “simple” for CEOs to create “accountability” by shaping the incentives to produce the behavior that the CEO desires.

in full: http://neweconomicperspectives.org/2015/06/seals-ceos-milton-friedman-and-fraudulent-incentives.html

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Response to Jefferson23 (Original post)

Mon Jun 1, 2015, 07:37 AM

1. It's kind of obvious. nt

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Response to bemildred (Reply #1)

Mon Jun 1, 2015, 07:48 AM

2. So calculating, isn't it. The OP gave me a chill..fuckers. n/t

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Response to Jefferson23 (Reply #2)

Mon Jun 1, 2015, 07:59 AM

3. You can't be too cynical. nt

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Response to Jefferson23 (Original post)

Mon Jun 1, 2015, 09:39 AM

4. Another popular student of Milton Friedman's used the incentive of mass murder

 

Pinochet was all about suppressing wages by torturing and massacring labor activists. It was a big incentive and ensured everyone did exactly as they were told. The only problem was hiding the bodies. When they started washing up on shore, it became a disincentive.

You got to love Milton Friedman lovers. They are all about the magical mystery of the hand of the market. Even when that hand is shooting out people's eyes.

By the way the New Economic Perspective misspelled Friedman. Maybe they did it on purpose?

This point from the article is very observant:

The critical points demonstrated by the fraud epidemics at our most elite financial institutions is that the incentive structures crafted by the banks’ controlling officers were:

Obviously perverse from the standpoint of the bank and/or its customers,

Pervasively perverse – perverse incentives were made widespread

Intensely perverse – the rewards to criminal and abusive conduct were large while honest conduct was punished and derided

Maintained despite internal reports that they were producing widespread abuse

Crafted in direct opposition to “best practices” developed in the trade and by scholars

Maintained despite external warnings that they led to pervasive abuses

A radical change from the historical compensation system that had far better aligned the interest of loan officers with the interests of the bank and its customers

All well put points.

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Response to fasttense (Reply #4)

Mon Jun 1, 2015, 10:43 AM

7. +1

*They are all about the magical mystery of the hand of the market. Even when that hand is shooting out people's eyes.

That is a painful truth.

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Response to Jefferson23 (Original post)

Mon Jun 1, 2015, 10:30 AM

5. Top management team characteristics and corporate illegal activity.

 

Daboub, A. J., Rasheed, A. M., Priem, R. L., & Gray, D. A. (1995). Top management team characteristics and corporate illegal activity. Academy of Management Review, 20(1), 138-170.

Homogeneity in Top Management Team (TMT) Characteristics

Social psychology research shows that similarity among group members is a major determinant of interpersonal attraction (Heider, 1958; Newcomb, 1956). This is true, not only of attitude similarity (Byrne, 1961; Newcomb, 1961) but also of similarity of personality (Griffitt, 1966) and economic similarity (Byrne, Clore, & Worchel, 1966).

~snip~

{Differential association theory} This sociological theory of crime was developed by Sutherland (1939, 1947) and later modified slightly by Sutherland and Cressey (1978). According to this theory, "crime" is defined as such by society. Some individuals live in accordance with these definitions; others do not. Those who do not are seen as "criminal" in that their definitions of acceptable behavior are deviant. An example of differential association would be a group of executives who have defined a regulatory agency, e.g., the EPA, as antibusiness and a hindrance to U.S. industrial competitiveness. Violation of EPA rules could then be viewed by them as patriotic and supportive of free enterprise.

~snip~

Members of age and/or tenure cohorts are likely to share experiences and have similar outlooks and values (Pfeffer, 1983; Wagner et al., 1984), facilitating groupthink and differential association. Useem and Karabel (1986) found that educational and social class backgrounds facilitate advancement to the top levels of management. They conjecture that this relationship results from the need for trust at the top levels of management: "one of the simplest ways for organizations to entrust decisions to the 'trustworthy' is for the already powerful to promote people most similar to themselves educationally and socially" (1986: 198).

If we assume that TMTs make decisions that have an impact on organizations, and that among those decisions is the decision to behave illegally, the processes through which decisions are made are important in understanding corporate illegal behaviors. For example, Kriesberg (1976) developed implications for effective corporate crime-reduction policies using Allison's (1971) models of decision making. Kriesberg argued that the rational actor model produces "corporate lawbreaking {that} results from purposeful, consistent acts of the corporate entity" (1976: 1106); the organizational process model produces criminal behavior "because existing SOPs mandate or allow illegal action" (1976: 1113); and the bureaucratic politics model produces illegality through "the interests and influences of individuals, not entities" (1976: 1121)

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Response to OnyxCollie (Reply #5)

Mon Jun 1, 2015, 10:36 AM

6. Yikes..it looks like Sociopaths R Us.

Off topic, you have the best pet photo, ever..that dogs smile is priceless. Cracks me
up every time.

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Response to Jefferson23 (Reply #6)

Mon Jun 1, 2015, 11:03 AM

8. Sociopaths R Us.

 

RENEWING AMERICA’S PURPOSE
Policy Addresses of George W. Bush
July 1999 – July 2000

Defense: A Period of Consequences
The Citadel
Charleston, South Carolina
September 23, 1999

I will encourage a culture of command where change is welcomed and rewarded, not dreaded. I will ensure that visionary leaders who take risks are recognized and promoted.


Guantánamo torturer led brutal Chicago regime of shackling and confession
http://www.theguardian.com/us-news/2015/feb/18/guantanamo-torture-chicago-police-brutality?CMP=share_btn_tw

In a dark foreshadowing of the United States’ post-9/11 descent into torture, a Guardian investigation can reveal that Richard Zuley, a detective on Chicago’s north side from 1977 to 2007, repeatedly engaged in methods of interrogation resulting in at least one wrongful conviction and subsequent cases more recently thrown into doubt following allegations of abuse.

Zuley’s record suggests a continuum between police abuses in urban America and the wartime detention scandals that continue to do persistent damage to the reputation of the United States. Zuley’s tactics, which would be supercharged at Guantánamo when he took over the interrogation of a high-profile detainee as a US Navy reserve lieutenant, included:
• Shackling suspects to police-precinct walls through eyebolts for hours on end.
• Accusations of planting evidence when there was pressure for a high-profile murder conviction.
• Threats of harm to family members of those under interrogation used as leverage.
• Pressure on suspects to implicate themselves and others.
Threats of being subject to the death penalty if suspects did not confess.

When Zuley took over the Slahi interrogation in 2003 – his name has gone widely unreported – he designed a plan so brutal it received personal sign-off from then-US defence secretary Donald Rumsfeld.


The disappeared: Chicago police detain Americans at abuse-laden 'black site'
http://www.theguardian.com/us-news/2015/feb/24/chicago-police-detain-americans-black-site?CMP=share_btn_tw

Alleged police practices at Homan Square, according to those familiar with the facility who spoke out to the Guardian after its investigation into Chicago police abuse, include:

Keeping arrestees out of official booking databases.
Beating by police, resulting in head wounds.
Shackling for prolonged periods.
Denying attorneys access to the “secure” facility.
Holding people without legal counsel for between 12 and 24 hours, including people as young as 15.
At least one man was found unresponsive in a Homan Square “interview room” and later pronounced dead.

The secretive warehouse is the latest example of Chicago police practices that echo the much-criticized detention abuses of the US war on terrorism. While those abuses impacted people overseas, Homan Square – said to house military-style vehicles, interrogation cells and even a cage – trains its focus on Americans, most often poor, black and brown.

Unlike a precinct, no one taken to Homan Square is said to be booked. Witnesses, suspects or other Chicagoans who end up inside do not appear to have a public, searchable record entered into a database indicating where they are, as happens when someone is booked at a precinct. Lawyers and relatives insist there is no way of finding their whereabouts. Those lawyers who have attempted to gain access to Homan Square are most often turned away, even as their clients remain in custody inside.


Bad lieutenant: American police brutality, exported from Chicago to Guantánamo
http://www.theguardian.com/us-news/2015/feb/18/american-police-brutality-chicago-guantanamo

“From what I was told, General Miller thought he was the greatest thing since sliced bread,” Couch said. “Miller was amazed at the information he was getting. So apparently Zuley ratcheted up these techniques, with the backing of Miller, to go up the chain of command for approval.”

~snip~

Miller retired from the Army in 2006. He has disappeared from public view after invoking his right against self-incrimination when called as a witness in an Abu Ghraib-related trial that year. Emails seeking comment about Miller’s relationship with Zuley bounced back, and a spokesperson for the US Southern Command, which oversees Guantánamo, did not know how else to contact him.

~snip~

As the military intensified its treatment of Slahi, the FBI and Fallon’s task force, uncomfortable with torture, pushed back. But the military took full control of Slahi’s interrogation. On July 1, 2003, Miller approved a “special projects status” request for Slahi from the Defense Intelligence Agency, with Zuley placed in charge. By August 13 of that year, Rumsfeld personally signed off on the Slahi interrogation, already under way.

In addition to using stress positions, sleep deprivation and auditory bombardment against him, Zuley intended to make Slahi think he was taken somewhere else, somewhere more dangerous for him. He would be placed on a boat, and taken around the bay to disorient him, though they would never actually leave Guantánamo. Dogs would be used during the transport, Zuley wrote in a memo uncovered by a Senate committee, to “assist developing the atmosphere that something major is happening and add to the tension level of the detainee.”


Daboub, A. J., Rasheed, A. M., Priem, R. L., & Gray, D. A. (1995). Top management team characteristics and corporate illegal activity. Academy of Management Review, 20(1), 138-170.

Ermann and Lundman (1987: 8) suggested that organizations can produce deviance in at least three ways: (a) the structures of large organizations may limit the information and responsibility of position holders and thus reduce control; (b) organizational elites can indirectly initiate deviant actions by establishing particular norms, rewards, and punishments for members at lower levels; and (c) elites can consciously initiate deviant actions and use hierarchically linked positions to implement them. The first source of deviance corresponds to the "authority leakage" (Vaughan, 1983) that results from organizational size and complexity. The other two sources ultimately reside in top management. Even when top management does not explicitly decide to behave illegally, it usually establishes the norms and reward systems that shape the ethical conduct of subordinates. Thus, top managers may actively direct and participate in, or may enable and passively acqueisce to, illegal activities (Kriesberg, 1976). When a corporate illegal activity comes to light, top management usually disowns any knowledge of it. In many cases, however, top managers can "arrange patterns of reporting so that they cannot find out (or at least, if they do find out, they find out in such a way that it can never be proved)" (Stone, 1975: 53). Clinard and Yeager (1980) found that, even though most executives charged with criminal antitrust violations were middle managers, the senior management of most corporations involved knew about the illegal activities. Gross (1978: 71) concluded that "persons who will engage in crime on behalf of the organization will most likely be the officers of the organization, its top people."


Court in Abuse Case Hears Testimony of General
http://www.nytimes.com/2006/05/25/us/25abuse.html?_r=3&oref=slogin&oref=slogin&

FORT MEADE, Md., May 24 — Testifying at the court-martial of a dog handler accused of abusing prisoners at the Abu Ghraib prison in Iraq, Maj. Gen. Geoffrey D. Miller said Wednesday that he never suggested that dogs be used to intimidate prisoners during interrogations in Iraq.

~snip~

Since the disclosures in April 2004 of extensive abuse of prisoners at Abu Ghraib, sometimes involving dogs, the question of who was responsible for interrogation procedures has remained a subject of debate.

~snip~

In nearly an hour on the witness stand, General Miller offered new details of his trip to Iraq, which has been depicted as importing harsh interrogation techniques from Guantánamo. He said he recommended that military dogs could be used to help with "custody and control" of detainees at the prison.

~snip~

General Miller said he believed that the dogs "were very effective in assisting detention staff in maintaining custody and control."


From Abu Ghraib: The dog at the bottom of the picture is a Belgian Malinois.
[URL=.html][IMG][/IMG][/URL]

My dog is a Belgian sheepdog (Groenendael). From an Iron Maiden-inspired birthday card I made, here's an example of a really big smile:

[IMG][/IMG]

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Response to OnyxCollie (Reply #8)

Mon Jun 1, 2015, 11:10 AM

9. You should think about that post as an OP in GD..it is relevant as GW's brother, as you know,

expects American voters to accept him as a viable candidate. Not that anyone here
will vote for him, yet the criminality is ever present today and a good reminder.

That birthday card is hilarious..awesome.

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Response to Jefferson23 (Reply #9)

Mon Jun 1, 2015, 11:23 AM

10. It's part of a larger work which uses primary documents, peer-reviewed scholarly journals,

 

and many, many quotes from the actors involved to demonstrate that the Iraq war, domestic surveillance, torture, the US Attorney scandal, and the 2000 - 2006 elections were all part of one big conspiracy between government and the petromilitary industrial complex.

Right now, it's nearly 500 pages long.

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Response to OnyxCollie (Reply #10)

Mon Jun 1, 2015, 11:59 AM

11. Damn, that is fantastic...if you ever post it, it will be appreciated..that much I know.

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Response to Jefferson23 (Reply #11)

Mon Jun 1, 2015, 12:18 PM

12. It needs a lot of editing for readability and copyright requirements,

 

plus there's much to add (the anthrax attack, the GSA and the Hatch Act, and a comparison between actions after 9/11 and the Japanese internment), so it'll be a while.

There's also the concern that I'll be sending up a signal flare before the Eye of Sauron.

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Response to OnyxCollie (Reply #12)

Mon Jun 1, 2015, 03:02 PM

13. lol one can't be too careful these days.

Sounds really great though.

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Response to Jefferson23 (Original post)

Mon Jun 1, 2015, 03:39 PM

14. show me how someone is paid, and you can predict how they'll behave nt

 

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