28 September 2015

Corporate stupidity: It's only gotten bigger

The recent news about how Volkswagen gamed their vehicles' software for the diesel emissions tests has been distressing, even causing some serious discussion about whether the diesel engine market itself will survive. The fact that these engineers could devise such software was perversely brilliant, but such abilities could have been better used to work on solutions that could reduce NOx emissions, which was supposed to be the point.

I wish I could say that this type of behaviour is unusual, but it has always existed at one scale or another. Here are some interesting stories I've been told over the years.

Bankers and their ability to handle money

Leaving aside bankers' predictable habits of lending against the security of assets that are ready to tank (as when a real estate bubble is ready to burst), there are other instances that can really make you shake your head. Take in the mid-60s, when the Toronto-Dominion Centre was being constructed.

TD Centre View from Yonge and King

One contractor was given the job of finishing TD's executive offices, where the architect specified mirrored surfaces with bronze glass, which would coordinate with the outer skin of the buildings. To their dismay, the mastic used to bind the glass to the underlying substrate was tainted, which caused the mirrors' silvering to blotch and develop black spots  quite badly throughout the office layout. As the mastic had set, nothing short of dynamite could have removed it, so any resulting warranty repairs had the potential to render the contractor insolvent.

They were ready to face the music when TD's Chairman came to inspect how things were coming along. To their surprise, he exclaimed, "I don't like it! It's too dark in here. I want it all replaced with something lighter, and I don't care how much it costs!"

It was replaced, and, as extras in a contract always fetch higher margins, that year turned out to be that contractor's most profitable in years. They were still laughing about how that turned out twenty years later, when I first heard the story.

Misguided priorities of management

Something a little more in keeping with my line of work always has the capacity to surprise. For instance, auditors' standard practice has always included preparing a management letter at the end of an annual audit which gives points that they hope will be useful for the client. When a former boss of mine (who, alas, is now deceased) was still a hard-working CA for one of KPMG's predecessors, he was involved in an audit for Cochrane-Dunlop, which used to be one of the larger hardware distributors in Canada.

At the end of that particular year's audit, they had assembled quite a list of suggestions to help the company operate in a more tax-efficient manner. However, when they made their presentation, they could not help but notice that the Chairman's face was getting redder as time went on. He suddenly started shouting: "I completely object to what you are saying! I love this country, and I consider it my duty to pay as much tax as I possibly can to support it!" The audit team promptly hushed up, and the meeting wound up faster than they had planned.

Some subsequent history to note: Cochrane-Dunlop went bankrupt in 1987. Its industrial products division was sold to C.N. Weber (now known as Weber Supply), and the consumer products division (which had serviced Dominion Hardware, now part of PRO Hardware) was shut down. It makes you wonder what else there may have been that caused their priorities to be so fundamentally off base.

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