An update… of sorts…

Words don’t come easy — Paula Broadwell is sorry… sort of

This morning I watched with interest Ms. Paula Broadwell’s interview with WSOC in Charlotte (you can find the interview here, courtesy of ABC News.)

I wrote about Ms. Broadwell (here) in connection with a posting about the rampant corporate governance problems that appear to exists at the highest level of the United States military, with obscene privileges and perks being bestowed upon generals and with generals seemingly unable to avoid abusing their position for personal gain.

Ms. Broadwell, of course, was the biographer for General David Howell Petraeus — although it probably is more suitable to think of her as his hagiographer and although it may, in fact, show that Ms. Broadwell actually didn’t write the biography, leaving this menial task to Mr. Vernon Loeb while she was jetting around the world in corporate jets and staying in first class accommodations on the tax payers’ dime (or, as it may be hundreds of thousands of dollars.)

The corporate governance issue is the real story here, not the sleazy affair between General Petraeus and Ms. Broadwell, and really all that Ms. Broadwell had to do at this stage was to keep out of the lime-light, find a new job, and go on with her life, which, until today, is exactly what it appeared to the world that she was doing. But this is America, a country where any kind of limelight is better than living in obscurity with the masses, so Ms. Broadwell is at it again.

The interview is mostly unremarkable, consisting of the usual get-in-front-of-the-story apologetic confessional with religious, family-centric, and patriotic undertones. Except for one thing: Ms. Broadwell appears to not be sorry for the act itself, expressing, rather, regret about the fallout of being caught.

Simply put, she is not sorry for what she did. Instead she is sorry that she was caught and is now, mechanically, dealing with the consequences of being caught. This even comes through when she refers to the process that she is going through as “rehabilitation,” a term, which, as Ms. Broadwell, as a quasi-writer probably knows full well, implies that she somehow was the victim of an accident and that the primary goal is not healing, but, rather, to restore her to her former glory.

This trick, the embracing of the consequences without accepting the wrongness of the actions, is, I am sure, the key to Ms. Broadwell’s psychic make-up and is not consistent with someone who is going to spend the rest of her life volunteering and enjoying the privilege of having a forgiving husband. I don’t know Ms. Broadwell’s husband and the constraint that he is under, of course, but if I was him, I would brace myself for the next evolution of Ms. Broadwell.

I am sure we will hear more from Ms. Broadwell quite soon.

Update
In related news, Ms. Jill Kelley, the infamous so-so socialite who started the ball running on the Petraeus affair when she asked for protection from a potential stalker, generating a fire-storm that, until today, finally seemed to be dying out, appears to also be unable to let sleeping dogs lie.

However, whereas Ms. Broadwell was has taken the path of media exposure to find her way back — a good old fashioned approach in the United States, Ms. Kelley has chosen the more direct, but still time-honored, route, suing the Federal Bureau of Investigation, the United States Department of Defense, and — to top it of — the United States.

Her complaint, 1:13-cv-00825, filed on June 3rd, 2013, with her husband as a co-plaintiff, is generally available, courtesy of the Wall Street Journal (here) and tells a very long and perhaps interesting story (it involves what reads like a kidnapping story with Ms. Kelley being abducted in an FBI Sport Utility Vehicle) with an almost endless list of allegations.

At the core of the lawsuit, surrounded by demands for accounting and apologies, lies, of course, the to-be-expected demand for money:

B. award damages equal to actual and statutory damages sustained by the Kelleys under the Privacy Act pursuant to § 552a(g)(4)(a);
C. award Plaintiffs compensatory and consequential damages as proven at trial;
D. award Plaintiffs punitive and exemplary damages as the Court may deem just and proper to deter such future egregious conduct;

Reading the complaint, it would appear that the Petraeus matter has caused Mr. Kelley (evidently a “… successful real estate investor, community leader, liaison to the military
community in Tampa, and appointed consular official accredited by the U.S. Department of State …” with “… interests in medical research… ” and “… working on a book regarding the diagnosis of and treatment for cancer …” and an inventor of “… methods and apparatus for surgical anastomosis…”) and her husband considerable financial harm, including harm from derailing their successful real estate careers.

This would, I guess, be the same real-estate business and community leadership that Arian Campo-Flores, Julian E. Barnes, and Evan Perez wrote about on November 13th, 2012, in the Wall Street Journal:

The Kelleys, meanwhile, have battled creditors. Banks filed liens against a downtown Tampa office building they own, as well as their waterfront mansion, in May 2010, according to Hillsborough County court records. Both properties were under threat of foreclosure, according to the records. The current status of these actions couldn’t be determined.

A 2007 federal tax form filed with the Internal Revenue Service shows the Kelleys created a not-for-profit, the Doctor Kelley Cancer Foundation Inc., based at their home address. The document describes the group’s aim as to conduct research on “ways to improve the quality of life of terminally ill adult cancer patients.” The nonprofit’s tax filing says it raised just more than $157,000 that year, and expenses like travel, meals and entertainment, and legal fees accounted for about two-thirds of its spending.

We probably won’t know the details of this alleged economic harm since, as the complaint says: “Due to concerns regarding the property and privacy interests involved, and the potential for prejudice to the Kelleys from disclosure, those damages will be addressed in more detail under seal or pursuant to an appropriate protective order.”

Blending civil and military courts — General Sinclair grinds on

Meanwhile the court-case against General Jeffrey Sinclair grinds on with Mr. Paul Woolverton of fayobserver.com reporting that General Sinclair, who is facing a a variety of charges, including having an affair, forcible sodomy, using his rank to coerce, disobeying an order, engaging in an inappropriate relationship, possession of sexually explicit photos and movies in Afghanistan in violation of military orders, and using his government travel charge card for personal purposes, is attempting to delay or stave of his pending trial.

This matter, which I wrote about here and here and here, is another example of the kind of corporate governance issues that appear to be haunting the military. With the U.S. military being richer than ever before and combat increasingly being a traveling desk job, with availability of G-fives and luxury accommodations, it is not surprising that male senior officers increasingly find themselves in trouble related to females.

I don’t fully understand General Sinclair’s court strategy, but, for sure, it does not appear to consist of throwing himself on the sword and moving on. Perhaps the stakes are higher than they were for General Petraeus, for General John R. Allen, and for General William E. Ward, who all in some way or another were involved in inappropriate relationships and/or had expense issues that would make a commercial auditor’s head spin — and yet were able to somehow walk away from their exposed failings with their pensions intact and without facing prison charges.

I lament, unconditionally, General Sinclair’s refusal to commit seppuku, and, frankly, outside the issue of corporate governance, I don’t think he is worthy of press-presence, if you will, except to the extent that his prosecution can serve as an example for military personnel. However, I do find the way by which he is going about prosecuting his defense very interesting, blending classic civilian and criminal defense tactics with spin and public relations management in a military court setting, including the hiring of civilian representation. Certainly, the process as it has played out to date has somewhat altered my belief in the military court system as being infinitely more efficient then the civilian and criminal court systems.

We shall, I think, learn much from how this matter finally plays out.

Update
Although the expense is probably astronomical, General Sinclair may from a strictly economic standpoint very well be right in defending himself using civilian lawyers (I assume that he will be liable for civilian lawyers fees and expenses) simply because the economics involved are overwhelmingly positive.

As I had written in an earlier post (here,) for instance, General William E. Ward, who was found to — among many other things — having used military vehicles to shuttle his wife on shopping trips and to a spa and having used a five-vehicle motorcades when he traveled to Washington and who was required to pay up to $80,000 in restitution, at 63 years of age, can expect to collect millions from the United States tax payers over the next decade.

General Ward’s pension, and I remind the reader that this is the pension of a disgraced officer who was found to have grossly abused his position for monetary and non-monetary gains, is an astonishing $208,802 per year. This post-retirement income is totally out of whack, but it pales compared to that of General Petraeus who retired from the military with a pension of more than $200,000 per year, which he promptly supplemented with a significant salary from the CIA.

The real benchmark, however, is probably about to be set with Reuters reporting on May 30th, 2013, that KKR, the private-equity firm run by Henry Kravis and George Roberts has appointed former General Petraeus as chairman of the newly created KKR Global Institute.

This institute will, and I quote “… study the investment implications of global macroeconomic, social and geopolitical issues,” supporting “KKR’s investment teams in the diligence process, particularly in considering investments in new geographies.”

I am pretty sure that the General’s job will not be that of conducting analysis, but, rather, extending and managing KKR’s substantial client reach in private equity through the contacts that he has made in the Middle East region through his (taxpayer funded) career. Regardless of the what the real job is, however, I am pretty sure that the paycheck will approach or exceed $1 million per year and will carry with it substantial equity opportunity, virtually guaranteed to make him a double digit millionaire over a few years.

Certainly, this gives General Sinclair something to shoot for.

Another act of seppuku in the Committee on Finance — Max Baucus retires

In a strange twist it would appear that it is impossible to compel military officers, supposedly the individuals with the highest sense of integrity and honor, to commit seppuku, but perfectly possible to compel politicians, arguable the individuals with the lowest sense of integrity and honor, to do so.

In two recent postings (here and here), I expressed my complete surprise over the fact that pork — and lots of it — had entered into the American Taxpayer Relief Act of 2012 — probably the last place where pork should have appeared if elected senators and representatives had any decency or respect for the United States voters and tax payers.

In my view, the loading of this key legislation with pork by the members of the United States Senate Committee on Finance is perhaps one of the darkest blotches on the American political system, but from the way that the political establishment ignored the public’s uproar when the pork was revealed, it is clearly business as usual for politicians.

In my postings I had suggested that if the 19 members of the committee that voted for the putting forward of the Act (only 5 members voting against,) had any shame, they would have committed political seppuku (for the record — and lest we forget who thought it was acceptable to increase the tax burden on working families while granting tax credits to multi-billion dollar companies and interest groups — the committee members that voted for the veritable pork-barrel were Rockefeller, Conrad, Bingaman, Kerry, Wyden, Schumer, Stabenow, Cantwell, Nelson (by proxy), Menendez, Carper, Cardin, Hatch, Grassley, Snowe, Crapo, Roberts (by proxy), Thune, and Chairman Max Baucus.)

Of course, I was not expecting — at all — that these professional politicians would indulge me in this matter, and, as I wrote about in a previous posting (here) I was flabbergasted when Mr. Jay Rockefeller did exactly this, announcing his retirement from what is arguably the best paid and most perquisite loaded job in America. Well, actually, it was not really an act of sepukku, because it did not involve admission of guilt or statement of regret and had no immediacy (in a move typical for politicians, the resignation is structured as the act of not running for re-election,) but it is probably as close as you can get when dealing with a profession where balancing a lie is daily practice.

Coincidence? I would say so, but then lightening struck again when Mr. Jonathan Weisman of the New York Times reported that Mr. Baucus would not seek re-election.

I wrote about Mr. Baucus in a previous posting (here,) and it wasn’t pretty, so I will just let it go with wishing Mr. Baucus good riddance.

Needless to say, both United States Senators will keep their cushy pensions and retirement perks, but, still: Two down and 17 to go! Perhaps there is still some vestiges of honor in the United States Senate.

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Generals — Assisted Seppuku and Suicide

Seppuku – Suicide by Jill Kelley’s hand

SeppukuWashington Post reported today that General John R. Allen would be retiring.

As you may recall, the Pentagon’s Inspector General quite recently determined an investigation had concluded that General Allen had not violated military prohibitions against conduct unbecoming an officer in his communications with the apparently scheming (for what purpose, exactly, we will probably never know,) ingratiating quasi-seductress and so-so-socialite Ms. Jill Kelley in spite of these communications having been described as racy and flirtatious.

Generals and Generals
This posting refers to no less than four real-life generals and one fictive general (spoiler: General Jessep in A Few Good Men). Only two of the real-life generals, however, are military generals, although that does not make the other two real-life generals less important.

The general that we refer to here, the Inspector General for the Department of Defense, heads up the Department of Defense Inspector General function, the principal advisor to the Secretary of Defense in matters of Department of Defense fraud, waste, and abuse. She (it is currently a woman) has sweeping powers of investigation and is nominated by the President of the United States and confirmed by the United States Senate.

Later, we will refer to the the United States Postmaster General, the Chief Executive Officer of the United States Postal Service, whose office, as the Post Office Department, is older than both the United States Constitution and the United States Declaration of Independence and whose office until 1971 was a cabinet post. In 1971, the Post Office Department was re-organized into the United States Postal Service, a special agency independent of the executive branch, and was stripped of its cabinet role and its all-important part of the succession chain for the office of the President of the United States.

In a previous posting I have written about the Allen affair, which followed the Petraeus affair, the scandal of General David Petraeus, the former boss, or Shogun, if you like, of General Allen, and involved, again, Ms. Kelley. In my musings I complained that the military failed to take the opportunity to discipline General Allen, for, what was without a doubt, inappropriate behavior by a four-star general.

Mr. Rajiv Chandrasekaran of the Washington Post has reported that General Allen’s supporters:

… have described the investigation as overblown, arguing that Kelley had sought to ingratiate herself with several generals who have served at the U.S. Central Command headquarters in Tampa and that Allen’s responses to her, which involved words such as “sweetheart,” reflected nothing more than friendship.

Nothing? I hardly think that a four-star general referring to a flirtatious military groupie as sweetheart amounts to nothing more than a platonic friendship. Moreover, regardless of terms, for a four-star general to allocate any amount of time to a groupie is simply unacceptable.

Ironically, I had expressed my hope that General Allen would would follow General Petraeus’ example and commit seppuku, and he did — sort of… Well, no he didn’t. It’s complicated, really.

Evidently General Allen quit his job, securing, of course, his considerable pension and — I guess — enough of his honor to ensure that he get a cushy consulting gig with one of the lobby firms or the many, many companies that does business with the military, citing his wife’s health problems (an auto-immune disorder, I think.)

In my view, General Allen should have committed public seppuku immediately upon learning about the Petraeus affair, since he should immediately have realized that he was bound to be caught up in the slipstream of his boss’ strange three-way with Ms. Kelly and Ms. Paula Broadwell. That would have been the honorable thing to do, would have saved the military the expenses related to the investigation and his subsequent pension, and, most importantly, would have sent a signal that this kind of behavior is inappropriate for a career military man.

Actually, had General Allen been a traditionalist, he would have committed oibara, the traditional act of committing suicide at the death of one’s master, immediately upon learning about General Petraeus’ act of seppuku, but even I think that this might have been to ask too much.

We will probably never know what went down between Ms. Kelley and General Allen, but if it is anything close to what it looks like, turning around and attempting to resign without taking blame for the disgrace that he has brought on himself, the military, and his family is a strange act, bordering on cowardice — something that should be inconsistent with an old-school warrior such as General Allen. Using the wife as a shield is downright disgraceful and, to me, severely disappointing, since I had hoped that General Allen would raise about it all, much the same way that the fictive General Jessep did when he furiously declared “You can’t handle the truth!” in A Few Good Men.

We will never know, I think, whether the Pentagon and General Allen entered into a great bargain, whereby the Pentagon exonerated General Allen in return for his subsequent — after an appropriate interval — resignation, but one could certainly be excused for thinking that would be the case. If it was, then this is completely unacceptable behavior by the Department of Defense and the military, wasting tax-payer money and failing to set an example that appears to be needed.

To me, the bottom line is that the fact that General Allen allowed himself to end up in a situation where he could be disgraced is enough that he ought to have been dishonorably discharged, and if I had any doubt about this point, then this doubt was removed when he served up his wife’s illness as a get-out-of-jail card. Shame on him. At least General Jessep, who committed an act that — in my view — was less dishonorable — had the grace to go down in flames, rather than hide behind his family circumstances.

By the way, I think it is about time that Congress or the Federal Bureau of Investigations investigate Ms. Kelley. Whereas, as far as I know, no United States four-star general of the United States armed forces have ever been killed by enemy fire, Ms. Kelley has managed to kill off two in a very short time-span. As a minimum, we ought to find out what other officers she has been ingratiating herself with and offer these officers an opportunity to commit seppuku.

Suicide by FedEx’s and United States Congress’ hands

OLYMPUS DIGITAL CAMERAThe United States Postal Service, handily aided by the United States Congress after extensive lobbying by FedEx and UPS, has now entered into the next stage of its slow, systematic suicide.

As I wrote about in a recent posting, the United States Postal Service, an essential service and a corner-stone of democracy in much the same way that voting stations, public schools, public services, and libraries are, have slowly, but surely been maneuvered into a position where it now finds itself on the brink of extinction.

In my posting I wrote:

The emphasis of the lobbying [by FedEx in particular] has been on (1) ensuring that the postal service appear unprofitable through legislative change, (2) shifting the highly profitable business from the postal service to FedEx, (3) collecting as much money as possible from the postal service:

  • A decade of legislative changes have laid the foundation for piecemeal privatization of the postal service — most notably the Postal Accountability and Enhancement Act of 2006, requiring the postal service to prefund the health care benefits of future retirees — a burden not shared by government agencies or private enterprises, causing the postal service to swing to significant loss, including a $8.5 billion loss in 2010, and a $5.1 billion loss in 2011.
  • The postal service is required to use outsourced services for transportation, technology, and support, in spite of the fact that audits released by the United States Postal Service Office of the Inspector General has revealed that it would be more cost-effective for the postal service to perform these services itself. FedEx is the leading provider of such service to the postal service, collecting, for instance, $1.3 billion in year 2010.

CNN, which may be slow, but eventual will get there (unlike the early 90’ies where they could be relied on to get there first,) finally found it worthwhile to point this fact out, with Jennifer Liberto reporting that:

The key culprit for the Postal Service’s woes has been a 2006 congressional mandate requiring it to pre-fund healthcare benefits for future retirees. The USPS has been borrowing billions of dollars from taxpayers to make up for the shortfalls.

Unfortunately, the United States Postmaster General, Mr. Patrick Donahoe, has now fallen into the trap of responding to the lobby-driven congressional frenzy through cost savings — initially by stopping Saturday deliveries.

Although this approach may seem reasonable in much the same way that reducing social, firefighting, and police services would to an anarchist or sociopath, it will, of course, only accelerate the bleeding out as it will surrender the very important Saturday delivery market to FedEx and UPS, driving customers away, and further divert funds away from the United States Postal Service.

The real answer, of course, is to get rid of the pre-funding mandate — a measure that is uniquely imposed on the United States Postal Service; to start charging junk-mailers reasonable rates; and to stop working with FedEx and UPS, its direct competitors. The most meaningful measure, immediately swinging the United States Postal Service from red to black, would be the immediate reversal of the pre-funding mandate, but that, unfortunately, would require politicians to stand up to the avalanche of lobby money — something that just ain’t going to happen.

So, the United States Postal Service does what it has to do, slowly draining its top line in order to reduce its bottom line. And, so, the postal creed, inscribed on the wall of the James Farley Post Office in New York City, will soon need to change to:

Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds — but lobbyists and United States Congress will

Of course, this annoyingly truthful inscription will only be temporary. Soon the illustrious James Farley Post Office, two full city blocks of eight acres of prime real estate in western Midtown Manhattan, will be named the Trump Pavilion, when Donald Trump and his daughter “saves” the historic building the same way they are saving the Old Post Office Pavilion in Washington, D.C., also prime real estate, by turning it into a hotel.

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The News — A little bit of this… a little bit of that

Mixing it up, this posting will not focus on one particular area, but rather touch on a variety of areas, ranging from contributions and feedback on the blog over Chinese espionage through to court martial for murder threats, infidelity, and forcible sodomy in the United States military. Variety rules!

General John R. Allen

General John R. Allen

General Allen was in the loop

In a previous posting I had written about General John R. Allen, an apparently prolific communicator, who got washed up in the sordid Petraeus affair, which, in turn, involved a hagiographer, an affair, corporate jetting across the globe, covert emailing, borderline-psychotic behavior by a maybe/maybe not tilted lover, and Ms. Jill Kelley, a Florida socialite that may or may not be broke, but certainly was suffering from a groupie affliction.

General Allen was reported to have exchanged a staggering 20,000 to 30,000 pages of e-mails and other documents with Ms. Kelley between 2010 and 2012, and, as I wrote, I was hopeful that:

“…the 20,000 to 30,000 communications would show to be a media exaggeration, because the alternative is unacceptable. That being said, the problem remain even if we are talking about 3,000 communications, reflecting a 10 fold-exaggeration. In fact, even if we are talking about 300 communications, I would question if a United States top-level military officer could reasonably interact 300 times with a (apparently rather indiscreet) socialite without it raising serious questions about his character.”

On January 22nd, 2013, Mr. Rajiv Chandrasekaran reported in the Washington Post that the Pentagon’s inspector general has cleared General Allen of wrongdoing following an investigation into whether he exchanged inappropriate e-mails with Ms. Kelley. The investigation was ordered by Defense Secretary Mr. Leon E. Panetta after review of the emails between Ms. Kelley and General Allen, some of which were described by senior defense officials as being racy and flirtatious.

Interestingly, Mr. Chandrasekaran, quoting a United States official, reported that the volume of communications were, in fact far less than the previously reported number, and that the “… content was not the sort of things you would print in a family newspaper.”

So, from a tax payer perspective I am glad that Mr. Allen communicated less than reported earlier, but I am disappointed that his communications to and from Ms. Kelley did, in fact, show to be …. well, inappropriate, and I am quite disappointed that he was not disciplined or, better yet, dismissed — an action that would have sent a clear signal to the rank of file of the United States military that this sort of behavior is not tolerated, particularly not when you are on the clock.

Perhaps General Allen can follow the example of his former boss, General David — his Shogun, if you will — who after getting entangled in the web of Ms. Kelley, chose to commit seppuku.

General Sinclair

General Sinclair

General Sinclair steps up

In my posting on November 16th, 2012, I wrote about the ongoing military Article 32 investigation against Brigadier General Jeffrey A. Sinclair, which include a litany of rather remarkable possible charges such as forcible sodomy, threats against victims’ careers, threats to murder a victim and her family, and the transfer of one victim to his unit in Afghanistan for what appears to primarily be sexual purposes.

In total General Sinclair appeared to be facing the potential of being charged with 26 violations of military law.

General Sinclair’s case was indeed referred to general court-martial with charges ranging from fraud to forcible sodomy and was scheduled for arraignment on January 22nd, 2013. In the arrangement General Sinclair appears to have been charged with eight cases of violating the Uniform Code of Military Justice and 25 specifications, allowing for a sentence of life in prison, to which he deferred entering a plea.

Details from the arrangement and a concurrent web-centric media blitz organized by General Sinclair through the PR agency MWW in New York — along the lines of the media blitzes first arranged by the Mr. Kenneth Lay, one of the Enron principals, and latest seen applied in the case involving Ms. Amanda Knox — was reported by Joe gould from the Army Times in a remarkably detailed and comprehensive article. The established web-site of General Sinclair tells a somewhat different story than the one told in mainstream media, with one of the victims, an army captain evidently having been more of a consensual star-struck lover (which turned aggressive when the affair started winding down) than a unwitting victim.

As I have said before, my interest in this matter is not in the sordid details of the case — which now appear to be even more sordid than what was first reported — but rather in the issue of corporate governance. While it is disturbing that the events that are laid out in the military case could occur at all, implying, of course an organization that has lost control of its principals, as perhaps best illustrated by General Sinclair himself, who, allegedly, said “I am a General, I’ll do whatever the f**k I want”, it is encouraging to see that the military is proceeding with the clean-up at a rapid clip and with a fair amount of openness.

What happens next? I don’t know, but I am staying tuned. Clearly in this case anything can happen.

Reuters scores a touchdown

7680417306_df87b76950_oIn these times of declining investigative journalism, Reuters has bucked the trend, following through with serious investigative journalism on some really interesting stories, and Reuters is rapidly becoming one of my preferred and trusted sources for news — something that I would never have guessed two years ago.

One of Reuters’ major hits in 2012 and 2013 has been the series of exposés of the questionable behavior of Chesapeake Energy Corp, its Board of Directors, and Mr. Aubrey McClendon, Chesapeake Energy Corp’s Chief Executive Officer.

In a series of stinging special reports developed and published during the 2012 calendar year Reuters reported, among other things that:

… Chesapeake plotted with Encana, its top competitor, to suppress land prices in the Collingwood shale formation in Northern Michigan, a matter that is the subject of investigations by both the state of Michigan and the Department of Justice… [and that] McClendon had arranged to personally borrow more than $1 billion from EIG Global Energy Partners, a firm that also is a big investor in Chesapeake [and that the loans] … arranged through McClendon’s personal shell companies, were secured by his interest in company wells [and that] McClendon is allowed to take up to a 2.5 percent stake in every well Chesapeake drills under a controversial program called the Founders Well Participation Program (FWPP) [and that] McClendon had partially owned and helped run a secretive $200 million hedge fund to trade in the same commodities Chesapeake produces.

And that is only a subset of the Chesapeake/McClendon affair exposed by Reuters in a remarkable act of journalistic courage and doggedness.

Finally, this week, it was announced that Mr. McClendon was leaving, an act that, according to Reuters, was structured as termination without cause, handily allowing Mr. McClendon to reap substantial benefits, including, as reported by Reuters today, $11.7 million in cash over four years, and, as reported by Reuters on Wednesday, January 30th, 2013:

“…total compensation of about $47 million… [including]… restricted stock awards already given to McClendon that have a value of $33.5 million …… [and] including personal use of corporate jets that could be worth up to $1 million over four years … [and continued use of] Chesapeake accounting services.”

It should be noted that the the use of accounting services and the corporate jet are not trivial matters. According to Reuters:

“… a Chesapeake unit handling such services for McClendon had six company employees, occupying a building on the edge of the campus. Known as “AKM Operations,” after his initials, it served as the hub for managing McClendon’s personal interests in Chesapeake wells, from assessing their value to filing court paperwork documenting his ownership. … Internal 2010 flight logs show the CEO took 155 business charters at a cost of $2.25 million and 75 personal flights worth an estimated $850,000 … These included family vacations to Europe and the Bahamas.”

Amazing. As a fairly seasoned investor, I would have have expected that Mr. McClendon would be terminated for cause and be entitled to nothing or, in the alternative, should have reached a compromise with the Board of Directors whereby he resigned, giving up all his perks, compensation, and incentives (yet again my expectation of honorable seppuku is not met.)

Effectively, this decision amounts to the Chesapeake Board of Directors giving millions of investors’ money to a disgraced employee. Perhaps, they have not learned from the Jack Welch affair, and perhaps it ought to be the Board of Directors members who should be terminated for cause.

New York Times ticks off the Chinese

New York Times is, of course, one of the leading investigative journalism organizations, having, among other things, dug into Walmart’s criminal behavior in Mexico. In January, however, New York Times applied its investigative skills breaking a fantastic story involving themselves.

I think it is now undisputed that the Chinese government for years has run and continue to run a comprehensive, institutionalized military and corporate espionage program (I actually had the opportunity to first-hand get a glimpse of the scope of this program when I visited the United States Patent Office years ago,) — a program that increasingly has migrated to the cyber-space. Likewise, I think that it is undisputed that Chinese government officials for years have enriched themselves at their fellow citizens’ expense.

In a new twist, however, it appears that the Chinese government uses its cyber-spying program to protect its corrupt officials. As reported by Nicole Perlroth of the New York Times on January 30th, 2013, Chinese hackers have attacked The New York Times over a four month period, infiltrating New York Times’ computer systems and getting passwords for its reporters and other employees, starting in October of 2012, and coinciding with:

… the reporting for a Times investigation, published online on Oct. 25, that found that the relatives of Mr. Wen Jiabao, China’s prime minister, had accumulated a fortune worth several billion dollars through business dealings.

Evidently, the hackers tried to cloak the source of the attacks by using United States universities as gateways for the attacks, and the attacks were conducted through an initial installation of malware, which was identified by computer security experts as a specific strain associated with computer attacks originating in China. Moreover, the computer secutiry experts were able to determine that the attacks started from the same university computers used by the Chinese military to attack United States military contractors in the past.

Attack on American news media companies that have reported on Chinese leaders and corporations is not news, by the way. According to the New York Times:

Last year, Bloomberg News was targeted by Chinese hackers, and some employees’ computers were infected, according to a person with knowledge of the compny’s internal investigation, after Bloomberg published an article on June 29 about the wealth accumulated by relatives of Xi Jinping, China’s vice president at the time. Mr. Xi became general secretary of the Communist Party in November and is expected to become president in March. Ty Trippet, a spokesman for Bloomberg, confirmed that hackers had made attempts but said that “no computer systems or computers were compromised.”

In a typical case of bureaucratic double-speak and application of the maxim that the best defense is an offense, the Chinese government did not deny the espionage, choosing instead to throw dung on the New York Times, as reported by Ms. Perlroth:

Asked about evidence that indicated the hacking originated in China, and possibly with the military, China’s Ministry of National Defense said, “Chinese laws prohibit any action including hacking that damages Internet security.” It added that “to accuse the Chinese military of launching cyberattacks without solid proof is unprofessional and baseless.”

This use of government resources to protect personal interest and hinder investigation into corruption is, of course, a logical extension of the corruption itself, which, after all, at its very core, is a question of misappropriation of government resources, and, so, it is almost mundane. What is much more interesting is that it illustrates just how far the Chinese system will go to protect its principals from any scrutiny, which makes you wonder if any means are off-limit. In the most extreme case, for instance, would China invade, say, Vietnam, if Vietnamese journalists engaged in a serious investigative journalism around Mr. Jiabao’s or Mr. Jinping’s business dealings?

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Pearl Harbor and 9-11 — Teaching your enemy how to fight

Today, December 7th, 2012, is the 71st anniversary of the infamous day in 1941 when Dai-Nippon Teikoku Kaigun, the Imperial Japanese Navy, attacked the United States’ Navy’s Pacific fleet anchored at Pearl Habor.

The strike itself, referred to as Operation Z during its planning phase, conducted over 90 minutes, and principally aimed at the Pacific fleet’s capital ships, involved 408 aircraft launched from six aircraft carriers that had traversed approximately 4,000 miles of the Pacific Ocean without being discovered in spite of the fact that the volatility of the United States and Japan was clearly appreciated by the United States military and the fact that Pearl Harbor was recognized by the United States’ Navy as a potential target for hostile carrier air power.

Pearl harbor - December 7, 1941

Pearl harbor – December 7, 1941

Tactically, the strike was a success, causing 2,386 American fatalities and 1,139 American wounded, 18 ships sunk or run aground, and 188 aircraft destroyed and 159 damaged against Japanese losses of 64 fatalities and one captured, 29 aircraft lost, and 74 aircraft damaged.

Strategically, however, the attack was a failure, failing to achieve its two objectives: (1) the destruction of the Pacific fleet, causing at least a two year set-back in American ability to operate against Japan in the Pacific Ocean, and (2) the issuance of a severe blow to American morale, sufficient to discourage Americans from committing to an extended war with Japan.

In fact, due to the Imperial Japanese Navy’s inability to locate and sink any of the Pacific fleet’s three carriers and its complete lack of attempt to strike against United States submarines and submarine facilities at Pearl Harbor, the United States had retained intact the one group of capital ship and a substantial submarine force, which combined would enable the United States to project naval and air power across the Pacific Ocean, and the attack galvanized the American public

Perhaps Admiral Hara Tadaichi said it best when he summed up the situation by saying that:

“We won a great tactical victory at Pearl Harbor and thereby lost the war”

1919 – 1925 — Learning from the United States

The ultimate outcome of the attack and the resulting war between the Allied forces and Japan is, of course, well known today. What is less known and understood is that the Imperial Japanese Navy in 1941 was rated as the third most powerful navy in the world. Moreover, because of its emphasis on carriers as capital ship above battle ships, its related development of high-grade aircraft, and its unique situation of being a one ocean-navy, the Imperial Japanese Navy was, de-facto, the most powerful navy in the world.

From a military historical viewpoint the Japanese focus on carriers is exceptionally interesting. It was caused by a number of factors, including a case of unintended consequence of the Washington Naval Treaty, also known as the Five-Power Treaty, which severely limited naval construction, particularly impacting battleship construction and tonnage. Whereas the Italian, British, French, and American navies responded to the restriction of the treaty by cramming more goods into smaller packages, the Japanese Navy focused on building carriers.

In an odd twist of fate, the innovation of carrier-based naval warfare originated from the United States with Major General Billy Mitchell’s tireless lobbying for air power to be a predominant force of war on par with united entirely in an independent air force equal to the United States Army and United States Navy, culminating in a powerful demonstration of air power through the sinking of the ex-German World War I battleship, Ostfriesland, and obsolete United States battleships Alabama, Virginia, and New Jersey in the period immediately after World War I, starting in 1919.

Hōshō

Hōshō

The sinking of the ships of the prestigious class of battle ships by relatively inexpensive and technologically primitive aircraft with limited range and armament would so offend and threaten the United States Navy that it failed to invest adequately in a carrier force until immediately before the outbreak of World War II.

The Imperial Japanese Navy on the other hand took notice of the much publicized American tests and, recognizing that it had been provided with a tool to defeat the United States, which could be applied in a manner consistent with its doctrine of kantai kessen, whereby Japan’s naval enemies would be drawn into and defeated in a decisive naval battle near the Japanese home land, accelerated its carrier fleet development, starting with the development of the Hōshō, the first purpose-designed aircraft carrier in the world. Ultimately, in 1941, the Imperial Japanese Navy would have a carrier fleet second to none.

Rear-admiral Alfred Thayer Mahan

Rear-admiral Alfred Thayer Mahan

Interestingly, kantai kessen, the Decisive Battle Doctrine of the Imperial Japanese Navy, stipulating that an enemy of Japan — principally the United States — would be drawn into a decisive battle near the Japanese homeland after first having been reduced in force (or bled, if you will) while traversing the Pacific Ocean, originated with Alfred Thayer Mahan, a Rear-admiral in the United States Navy, whose teachings also influenced the United States Navy, causing the development of War Plan Orange, calling for the massing of an American fleet in California, followed by cross-Pacific Journey, a decisive surface fleet battle with the Imperial Japanese Navy somewhere near Japan and a subsequent blockade of the Japanese homeland.

The Imperial Japanese Navy had fully embraced kantai kessen after the Russo-Japanese War in the years 1904 and 1905, where the Russian Navy’s Baltic fleet, after having sailed 18,000 nautical miles, were virtually annihilated in the Tsushima Straits, losing eight battleships and all but of the remaining part of the fleet except three vessels and incurring more than 5,000 casualties against negligible Japanese losses. However, opposition to the doctrine within the Imperial Japanese Navy grew in the 1930ies, as the full impact of submarine and naval aviation became clear to naval planners, and — ironically — the doctrine only survived because of the existence of War Plan Orange, which, of course, in itself had become obsolete — although it was not yet recognized as such.

And, so, in line with rear Rear-admiral Mahan’s theory, which stipulated that the objective of the weaker opponent in the struggle would be to delay the decisive battle for as long as possible, the Imperial Japanese Navy in 1941 set out to delay the United States Navy’s massing of surface ships by destroying its principal fleet at the Hawaiian islands, and, subsequent to the Pearl Harbor attack, limited its submarine and carrier elements to a role of defense and harassment rather than the much more appropriate role of an aggressor, which the United States Navy would impose.

As it happens, the United States Navy would prevail — principally because it in the aftermath of the Pearl Harbor attack took a hard look at it Mahanian doctrine and discarded it in favor of a leapfrogging doctrine whereby the American forces would move from island group to island group, slowly choking Japan’s industrial production and paralyzing its navy.

1983 – 1992 — Learning from Lebanon

This chain of events, whereby the United States with its elaborate system of checks and balances, extensive transparency, and powerful and unrestricted press would provide its principal enemy with information about how to best strike against it would be repeated again and again through the years, including the period from February 26th, 1993, through January, 2001, where information about the short-coming of the Khalid Shaikh Mohammed Ali Fadden financed bombing plot against the North Tower of the World Trade Center in New York City would, unbelievably, be voluntarily and amply available to extremist groups across the globe.

The 1993 bombing of the World Trade Center followed a well-established formula of using trucks as crude, but effective delivery mechanisms for large amounts of explosives, as, for instance, it had been done in Beirut in 1983, where two trucks, holding a combined equivalent of more than 12,000 pounds TNT of explosives, leveled one four story building and seriously damaged another, eight story building.

The bombs applied in Beirut were powerful and although unsophisticated in some ways they were exceptionally sophisticated in other ways, for instance creating a create fuel-air and thermobaric effect through the use of compressed gas cylinders and applying a layer of concrete covered with a slab of marble to direct the blasts upward, and certainly they were effective, and, so, it is not a surprise that the mastermind behind the 1993 World Trade Center bombing, Ramzi Yousef, would believe that a similar approach could bring down the North Tower of the World Trade Center.

World Trade Center North Tower garage after bombing in 1993

World Trade Center North Tower garage after bombing in 1993

Fortunately for the tens of thousands of workers in the North and South Tower on 12:17:37 p.m., EST, on February 26th, 1993, Mr. Yousef was not a structural engineer, and although he was assisted by Iraqi bomb maker Abdul Rahman Yasin, and managed to create a complex and very powerful, 1,310-pound bomb from a urea nitrate main charge surrounded by aluminum, magnesium, and ferric oxide particles complemented by three tanks of bottled hydrogen (the bomb had an explosion velocity of 15,000 feet per second,) and had strong notions of structural strengths and weaknesses (he intended to place the truck in a location in the North Tower that would ensure that the North Tower would fall onto the South Tower, collapsing them both,) he did not fully understand the structural strength of the World Trade Center, which was far superior to that of the structures in Beirut.

… and, so, the towers did not fall.

1993 – 2001 — Learning from America

Unfortunately for the the tens of thousands of workers in the North and South Tower on September 11th, 2001, Mohamed Atta, an al-Qaeda operative, and Khalid Shaikh Mohammed Ali Fadden would benefit from the press-coverage following the 1993 bombing and the subsequent public trials in 1997. From this press coverage and the public trial, anyone could first learn that the towers’ structure made the truck-based approach unlikely to work and that new security measures were in place that in all probability would make it impossible to get a truck in position again.

World Trade Center on September 11, 2001

World Trade Center on September 11, 2001

More importantly — and rather unfortunately — one could learn that one way to attempt to achieve the same objective would be to fly wide-body jets, loaded with 10,000 gallons of jet-fuel into each tower at a speed approaching 600 miles per hour.

From post-1993 discussions one could gather that even if the enormous amount of kinetic energy released in such impacts (in excess of 4.5 billion feet pounds of force — or more than 6 million kilojoules — for fligh United Airlines 175, which hit the North Tower) was not sufficient to bring a tower down, the misting of 10,000 gallons of jet fuel, burning at up to 980 degrees Celsius, might very well do the job, and, as a minimum, would cause extensive damage and casualties.

One could even have learned that the towers were designed to have asbestos insulation on the columns, to delay any melting of the steel, allowing the columns to continue to bear their loads for up to four hours of serious fire, but — unfortunately — environmental concerns had caused the World Trade Center towers to be construction with non-asbestos based — and presumably inferior — insulation for the columns on floors 65 and above.

… and, so, the towers fell.

Business Implications

There are many business lessons to be learned from the attack on Pearl Harbor on December 7th, 1941, and the attack on the World Trade Centers in 1993 and 2001. Principally, we can learn how dangerous it is to share information freely with the market — and, therefore, with your competitors, how a competitor will adapt if we allow the competition to drag out too long, and how a well thought-out whole-sale abandonment of one business strategy in favor of another can entirely shift the balance of power from our competitors to us.

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Generals Galore — The world IS watching

On November 12th I wrote a posting (here) about the emerging Petraeus-Broadwell affair which has since then continued to unfold like a slow-motion train-wreck, taking at time bizarre and unexpected twists and turns.

In my previous posting I indicated that the behavior exhibited by General David Howell Petraeus and Ms. Paula Broadwell is totally understandable when viewed through the prism of human instincts, but at same time is totally unacceptable when viewed through the prism of corporate governance (as my friend Marc Fagan likes to say “Totally understandable… completely unacceptable.”) Indeed, as I pointed out in my posting, the issue has a lot to do with lack of corporate governance coupled with an extreme elevation in status in strictly hierarchical organizations, and, for such organizations, abuse of corporate resources for personal gains is to be expected and needs to be combated actively. Most significantly, I suggested that the most efficient — and probably only effective — way to combat abuse on the highest level of the corporate ladder is to simply removing the incentives for abuse, scrapping, for instance, company cars, corporate apartments, and corporate jets. Simply put, removing the toys, makes it less likely that the children will get hurt playing with them.

The military is an arch-typical hierarchical organization, and as such I was not surprised (although I was, of course, disappointed) that the activities of two other generals would come to the surface over the last week.

My interest in this matter is primarily related to the corporate governance issues, and so I will ignore the bizarre twist with FBI-agent-cum-wannabe-whistleblower Frederick Humphries and, mostly, ignore the equally bizarre background of Jill Kelley, a Tampa resident that appears to have run a paper-charity; appears to have attempted to squeeze Adam Victor, a New York businessman, out of $80 million by promising to be able to leverage some level of access to General Petraeus; appears to have spent an abnormal amount of time attempting to ingrain herself with men from the military leadership, and, according to Amy Gardner of the Washington Post, also appears to have had a marked interest in visiting the White House, having lunched at the White House mess twice.

I will also ignore the on-going and increasingly publicized military Article 32 investigation against Brigadier General Jeffrey A. Sinclair, which include a litany of rather remarkable possible charges such as forcible sodomy, threats against victims’ careers, threats to murder a victim and her family, and the transfer of one victim to his unit in Afghanistan for what appears to primarily be sexual purposes.

In total General Sinclair appears to face the potential of being charged with 26 violations of military law, and, although most of them certainly relates to a near-complete failure of corporate governance, including, for instance, a charge of claiming more than $4,000 worth of charges for personal travel as military business and a charge of deleting emails during the investigation, the murder-threat and forcible sodomy charges cast the entire issue in a different light (note that in law forcible sodomy is most often defined as the sexual interaction involving the genitals of one person and the anus or mouth of another, against one’s will, regardless of gender,) and, so, I will not comment further on this issue except to note that, if proven, these charges against General Sinclair may simply show what happens if the excesses of chief executives are not stopped early on, and, therefore, the case against General Sinclair really is as much an issue about the credibility of the military’s approach to corporate governance.

This issue comes to the forefront when it is considered that there is no minimum punishment or sentencing guidelines in the military court system, and, therefore, General Sinclair, if convicted, can face punishment ranking from none (he can get convicted but not punished) over forced retirement (also, effectively, amounting to no punishment) and dismissal through life in prison, and, so, the military has a unique opportunity to, for better or worse, signal to its rank and file how important an issue corporate governance really is.

With all this being said, let’s take a look at the two generals whose behavior have come our attention over the last week.

General John R. Allen

General John R. Allen

General Allen – Hardcore general and communications addict

First General John R. Allen, the U.S. Marine Corps general who replaced General David Petraeus as commander of ISAF (International Security Assistance Force) and U.S. Forces Afghanistan (USFOR-A), a really big deal, and was on the line to be confirmed for the position as commander of EUCOM (United States European Command), an even bigger deal, came to the forefront when the Associated Press reported that, for reasons that may never come to light, General Allen, a professional soldier with an excellent education, a stellar battle record, an ancestral story of military service, and strong links to the White House, appear to have exchanged a staggering 20,000 to 30,000 pages of e-mails and other documents with Ms. Kelley between 2010 and 2012.

Now, I am not at all interested in whether Ms. Kelley and General Allen was communicating for mundane or romantic reasons. What I am, rather, is staggered by the amount of materials communicated between these two characters. Giving General Allen and Ms. Kelley full latitude, assuming that we are dealing with the minimum number of pages and the maximum number of days, we would be talking about 20,000 page of communications exchanged over 1,095 days, equivalent to more than 18 pages of communication per day… every day… for three years.

Assuming, for instance, that each communication took three minutes to read or write, a fairly conservative measure, I think, this amounts to General Allen spending one solid hour per day communicating with Ms. Kelley… every single day… for three years.

How that is possible and what one could possible talk about in such verbose manner, I don’t know, but certainly I have to assume that the sheer volume of communications would require Mr. Allen to spend a not-inconsiderable amount of his working day on communicating with Ms. Kelley.

And that is a problem in itself. If we put a person on the payroll and assign them a task, we should be able to reasonably expect him or her to dedicate all their allocated time to resolving the task, and not dedicate any amount of time communicating with people such as Jill Kelley. And, so, we are back to the issue of corporate governance and the need for increased oversight when we deal with individuals higher on the corporate ladder, rather than the decreased vigilance that appear to be the norm.

I am hopeful that the 20,000 to 30,000 communications will show to be a media exaggeration, because the alternative is unacceptable. That being said, the problem remain even if we are talking about 3,000 communications, reflecting a 10 fold-exaggeration. In fact, even if we are talking about 300 communications, I would question if a United States top-level military officer could reasonably interact 300 times with a (apparently rather indiscreet) socialite without it raising serious questions about his character.

General William E. Ward

General William E. Ward

General Ward — From exotic vacations to retirement via demotion

The second General to make the headlines was William E. Ward, the former head of United States Africa Command, another big deal.

General Ward, in a bizarre case of corporate idiocy, remained on active-duty for 17 additional months after his retirement pending the outcome of a special investigation related to excessive use of taxpayer money while stationed in Africa.

This week it was reported by Associated Press that after the 17 months investigation, General Ward was finally stripped of one of his star, meaning that his retirement would be not as that of a four-star general (a really big deal, and, also, corresponding to $30,000 increase in retirement pay compared to the retirement pay of a three-star general.)

The outcome of the investigation, as perhaps best summarized by Lolita C. Baldor of the Associated Press, was spectacular, detailing excessive abuse, lying, and using tax-payer resources for the benefit of himself and his wife:

“A report by the Defense Department inspector general found that Ward used military vehicles to shuttle his wife on shopping trips and to a spa and billed the government for a refueling stop overnight in Bermuda, where the couple stayed in a $750 suite. The report detailed lengthy stays at lavish hotels for Ward, his wife and his staff members, and the use of five-vehicle motorcades when he traveled to Washington.

The report also said Ward and his wife, Joyce, accepted dinner and Broadway show tickets from a government contractor during a trip during which he went backstage to meet actor Denzel Washington. The couple and several staff members also spent two nights at the Waldorf Astoria hotel.

Other charges were that Ward often extended his overseas trips — particularly those to the U.S. — for personal reasons, resulting in “exponential” increases in costs.

Although the report included responses from Ward to a number of the allegations, investigators often found records and statements that contradicted his explanations. At one point, Ward defended the Bermuda layover, saying that it came up on short notice, which is why his security team had to stay there longer. The report found records showing that the layover had been planned for at least four days in advance.

A common theme running through the report was Ward’s insistence that his wife travel with him at government cost, even though it was often not authorized and she performed few official duties. It said he also routinely stayed in high-priced suites in luxury hotels rather than in standard rooms or less expensive locales.”

Clearly, this is an example of corporate leadership running amok, and it would be in everyone’s interest to severely punish General Ward. Interestingly, however, in a twist not uncommon in the corporate world, after literally having been nailed for stealing money from the tax-payers for years, General Ward was still allowed to retire with close to to $208,802 a year in retirement pay, although according to Tom Vanden Brook of USA TODAY, he would be expected to pay more than $80,000 in restitution for using military planes and staff for personal business.

Even through he may have to fork up $80,000, at 63 years of age, General Ward can expect to collect millions from the United States tax payers over the next decade and, so, ultimately, he will serve as a text-book example of failed corporate governance and a sterling example to future military leader of how much abuse you really can get away with.

The World is Watching — Blogging as a barometer

As I said in the beginning of this posting, my interest in this matter is primarily related to corporate governance. However, I would be remiss if I did not note that the Petraeus-Broadwell affair is sure to further negatively affect the world’s view of the United States and the United States military, which, frankly, is already not so hot.

I am reminded of this fact in a very direct way, with my previous Petraeus-Broadwell related posting having attracted readers from, among other places, Asia and the Middle East. Over the last three days, for instance the posting attracted readers from Portugal, Argentina, Tanzania, Pakistan, Sweden, Australia, the United States, Peru, the United Kingdom, Yemen, Bahrain, Israel, and Egypt.

The world is watching…. And what it sees ain’t pretty.

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