Constant's pations

If it's more than 30 minutes old, it's not news. It's a blog.

Monday, January 03, 2005

Buyer beware: US financial reporting system remains deeply flawed


It is interesting how communication works on the internet. A tool to quickly communicate. A method to present ideas. A place to display skills.

We share the latest installment. This note outlines why the spin about "Internet communication" is over-hyped, and can lead to great confusion. We see little need to engage in further dialog in-person.


1. Cancel plans to discuss issues in-person in MA. Travel arrangements need not be finalized, nor does any cash need to be expended on this effort. Contract effort cancelled.

2. Individuals with "Harvard Law School" on their C.V. now have a higher burden of proof during interviews and attorney screening. Not impressed with them.


We learned something. Even though a search engine provides as the "number one hit" something that seems, may not be.

  • Google searches produce misleading results

    Type in "Harvard law ethics blog," but the number one hit isn't the official site.

    The number one search for something really isn't.

  • The URL implies something

    You'd think if you saw this URL, that it might relate to something official:
    Even though this is the "number one hit" for Harvard Law School Blog ethics, the guy who writes in the blog isn't actually the official Harvard Law School Ethics blog guy. Wow, all this time, I thought otherwise:

  • When I see " e-mail the editor" I think, "This is the official editor at the Harvard Law School".

  • Interesting, he is listed in google as a mediator. How can someone be a "mediator" but make the following kinds of comments:

    Harvard Law Grad who has "Ethics" and "Editor" in his Blog Comment

    [Note to blog-reader: slowly drag your mouse over the text to see "other views" -- Embedded comments added, not part of the original message] ]

    Hello, CP, this is David Giacalone. What took you so long to respond to my Oct. 7th post that mentions you? Your analysis and your assumptions are so flawed on so many levels, that there is no logical way to respond, so I shall make a few comments that seem relevant:

    1) I am not a "Harvard" legal ethics blogger. I graduated in 1976 from HLS and happen to use their weblog server. I have no connection official or unofficial conncetion [stet] with Harvard Law School.

    2) You will not find any weblog that spotlights the inadequacies of our legal discpline [stet] system more than mine -- and that suggests real, practical improvements. Nor will you find such a more constant voice decrying lawyer misconduct.

    3) Federalization of attorney licensing seems to me to be politically impossible, as does meaningful lawyer regulation on the federal level. To wait for it to happen is to waste time that could be used fighting for meaningful regulation on the state level.

    4) The fact that one agency has promulgated a set of rules for lawyers who practice before it in no way means that federal licensing exists, nor that of federal regulation of lawyers exists.

    5) I know of no one who believes that there is a meaningful federal regulatory system in place, and I certainly never suggested that there was. So, what are all these strawmen that you are constructing?

    6) I'm sorry I wasted my time trying to explain things to someone who appears to want to rant and not to think.


    Someone may be listed as "mediator" but they may not understand where the client is coming from. Rather than listen, they may actually ask questions or make statements that do not make sense.

    It would appear as though there is a communication problem. Yet, the "expert" in mediation seems to be taking quite an interesting tactic. What's the statement about "strawman" and "not thinking"?

    The role of a mediator


    Basis of interaction

    "The Mediator’s Office is autonomous within the University."
    One factor we consider is whether there is consistency between the standards of conduct, actual practices, and written comments. Are the representations clear, consistent; or if there are apparent inconsistencies, are the issues amically resolved or does the fiduciary use belligerence? One SAS99 indicator for fraud is when a fiduciary has a belligerent attitude toward the clients.

    How can a "mediator" be independent, but list a university?

  • Intimidation

    We now turn to the other standard of conduct. Any individual who attempts to subvert or intimidate a party to a conciliation process or following the conclusion of a process victimises or threatens to victimise a party will be the subject of disciplinary procedures.

    Focusing on solutions

    Another criteria used is to assess how clearly terms are defined; whether the fiduciary attempts to shift the burden of proof from their work product to the question, concerns, and issues in the clients mind. Also, we note whether the fiduciary has even bothered to explore the issue.

    Do the following types of statements constitute intimidation:
    "So, what are all these strawmen that you are constructing"?
  • Resolution

    We further evaluate the steps taken to evaluate and resolve the issue. When a simple matter cannot be handled, it is more likely that more complicated issues will face greater cost and schedule variances, or require rework, cloer monitoring, or shifting to alternative sources of counsel.

    Has the mediator adequately introduce material that will resolve the issue?

    The mediator will assist the applicant in selecting an option to resolve their issue.
    Has the mediator attempted to understand the concern?

    The mediator will invite the applicant and the other party to participate in a series of meetings to assist them in arriving at their own outcome.

  • Let's consider the statement: "I'm sorry I wasted my time trying to explain things to someone who appears to want to rant and not to think."

    Paradoxical Thinking

    Another factor to evaluate the fiduciary is their clarity of thinking. In situations where the parameters are not well defined, do they seek to understand the issues; or are they more inclined to become belligerent with the client, going so far as to shift the work requirement to the client.

    If someone truly felt they were wasting their time, why would they bother responding?

  • Mediators as judges

    Communication skills

    One tool to evaluate fiduciaries is to examine their communication style, the clarity of their thinking, and the extent that they simply listen to the issues.

    Has the mediator made a judgment about one of the parties to the discussion?

    The mediator adopts the role of disinterested facilitator, a mediator does not make decisions or form judgements about an issue.
    A. Is this a presumption of a "hidden agenda": "So, what are all these strawmen that you are constructing?"

    B. Is this a commentary on "what one does not understand": "I'm sorry I wasted my time trying to explain things to someone who appears to want to rant and not to think."

  • Line of inquiry to arrive at understanding

    Analysis skills

    We further analyze the fiduciary on the basis of other criteria to include sound arguments, clarity of thought, and fluidity of thinking. Well-supported arguments win points, while vague statements and questions tend to undermine confidence there is a real effort to resolve an issue.

    Has the mediator fairly asked questions about the assumptions?

    "During the meetings the mediator encourages the parties to speak to each other, to ask clarifying questions and check each other’s assumptions about the nature of the dispute."
    Has the mediator attempted to clarify the specific issues?

    Has the mediator attempted to make statements that invoke dialog?

    Are the questions designed to evoke real information, or merely made on the presumption of something?

  • An atmosphere of good will

    Team Building Skills

    We next consider the fiduciary's ability to translate a problem into a viable solution with creative techniques, alternative methods to arrive at solutions, and other methods we might reasonably expect a fiduciary to employ to resolve the matter.

  • Has the mediator attempted to deal with substantive issues?

  • Is the following question one that attempts to engage in real dialog; or is it intended to provoke an explanation?

    "What took you so long to respond to my Oct. 7th post that mentions you?"
    Has the mediator outlined a series of criteria that would form an acceptable response?

  • What is the basis for the request?

  • Under what circumstances did the mediator engage in dialog?

  • Was there are clear, explicit binding agreement and consideration in exchange for the response?

  • Review

    We witness the meltdown of a blogger. Are we surprised why the efforts to create change within the system are slow and ineffectual?

    1. Caselaw

    You'll need to cite a specific document stating a requirement that bloggers must respond within X-time frame. Feel free to use Lexis in your caselaw search. Don't forget to use the proper notation.

    2. URL association

    If someone has "no connection" with something then feel free to explain why Google "when it searches for Harvard law school ethics law" arrives on your spot.

    3. Point of contention

    Feel free to outline your specific comments; showing how the original comments and concerns in the original blog entry deviated from the follow=on comments; and subsequent remarks.

    You are free to use Powerpoint in your presentation, however an agreement to disclose this information should not be construed as an agreement to engage in a contract for an enforceable consideration.

    Failing to demonstrate a clear deviation from the "original points" would tend to undermine the central points in the comments.

    4. Overall

    We are surprised by the contrast between [a] standards a reasonable person might come to expect of a mediator; and [b] the apparent statements that would, at first glance, contrast with the intent of the mediation guidelines.

    Feel free to discuss your comments in light of the mediation guidelines, and feel free to trace back to the original blog comments which outlined the original concerns. Again, because you are a Harvard graduate, we need not go into the details of how to find and search a particular blog entry.

    Perhaps the writer refers to something else contained within the blog. We have yet to understand.

    5. Disconnects

    There are federal regulatory entities in re attorneys. Please outline your view of the adequacy of the oversight system; the failures; and the specific comments and proposals and suggestions made to improve the system.

    Feel free to cite working papers, caselaw, conference notes, or other material you feel best supports your primary contentions. Again, you made excellent points, but we remain eager to review the specific links or documents you have that might support your positions.

    6. Requirements

    Feel free to outline your views of the federal oversight of the legal profession. Is your view along the lines of: [Pick one, some, or a combination]

    A. Federal legal oversight is not adequate;

    B. Federal rules are different than statutes;

    C. Federal rules governing attorney conduct are not adequate;

    D. Federal rules in the securities markets do not amount of official oversight;

    E. State level regulation of attorneys, although wanting, could not be improved by federal oversight;

    F. State level regulation of attorneys, although wanting, could be improved by federal statutes, rules, and regulations;

    G. Other.

    Is your view that CFR as promulgated is not binding and not enforceable in federal court?

    Feel free to discuss the administrative law issues in re a federal rule-requirement being clearly promulgated, but Congress failing to take action to ensure that rule is adequately enforced.

    Feel free to discuss rule 302e.


  • Is federal licensing required?

  • Is federal licensing desired?

  • If federal licensing is not practical, what alternatives exist to enforce the securities laws in re attorney-client consultations on financing issues, offshore accounts, and other instrumentalities [ala "Enron-Andersen offshore accounts."]

  • Lawyers as key players in the capital formation process

    Lawyers provide the necessary guidance for public filings to the SEC; and inter alia provide valuable negotiation strategies based on valuation and implied cashflows. If the problem [with legal oversight, enforcement, discipline at both the state and federal levles] is "so grave" and "unsolvable," why should the investing-public expose their capital to the US financial reporting and regulatory system?


    Overall, we find that the advocates for reform might be in need of some self-examination. We may no general or specific comments about specific individuals. Rather, we merely speculate that perhaps some have not really calibrated their comments to the audience.

    Indeed, someone who chooses to have this much anger and rage against someone who merely raises a point would seem to have some serious issues. We make no specific comment about their level of happiness as that is outside the scope of this discussion.

    However, let us look broadly at the notion of reform and oversight. Is the public inclined to believe there is a viable solution at hand when the proponents of the solutions appear to suffer from the very flaws they decry in others?

    We are not persuaded. Again, this is another case of those who arrive to solve the problem tend to engage in the very practices they decry in others: Missing the point; unresponsiveness; and poor service.

    In the end, it is the investing public who will make the decision where they allocate their capital.

    My concern is that the US financial reporting and regulatory system is not only flawed, but the major players in the reform effort are similarly incapable of intelligently making a coherent statement to the public they might otherwise seek support.

    Thus, we have another anecdote of why the United States, for all its glory, remains an unattractive investing climate. The personnel, although well educated, are unable to apply that education when it is most needed.

    The smallest thing says so much.

    Thank you for listening. I appreciate your taking the time to review my comments. Thank you for confirming the decision not to allocate funding to the US financial reporting and regulatory system. It remains flawed.

    Even those leading the charge to reform the system suffer from the same defects that would otherwise dissuade one from exposing capital.

    Buyer beware!