Companies with the highest percentage of female executives are, on average, 47% more profitable, 74% higher-performing on environmental, social and governance (ESG) factors, and 32% more transparent in ESG disclosure than those with the lowest, according to Foreign Policy Analytics’ groundbreaking Women as Levers of Change report. Through analysis of over 2,300 companies spanning 14 legacy industries around the world,  female corporate participation is benefiting businesses from the boardroom to the bottom-line. And, we offer solutions for engaging these male-dominated, legacy industries to increase gender diversity within their sectors.

The Economist writes:

When Bernie Madoff owned up to a $65bn Ponzi scheme in December 2008, it was not out of guilt. He knew the game was up. Three months earlier Lehman Brothers had imploded. The market meltdown sent clients clamouring to withdraw from his funds, leaving them depleted with many investors still unpaid. American regulators had not spotted the fraud, despite a tip-off years earlier. It was not them that did for Mr Madoff, but recession.

Booms help fraudsters paper over cracks in their accounts, from fictitious investment returns to exaggerated sales. Slowdowns rip the covering off. As Baruch Lev, an accounting professor at New York University, puts it, “In good times everyone looks good, and the market punishes you harshly for not keeping up.” Many big book-cooking scandals of the past 20 years emerged in downturns. A decade before the crisis of 2007-09 the dotcom crash exposed accounting sins at Enron and WorldCom perpetrated in the go-go late 1990s. Both firms went bust soon after. As Warren Buffett, a revered investor, once put it: “You only find out who is swimming naked when the tide goes out.” This time, thanks to a pandemic, the water has whooshed away at record speed.

Hell and low water

Much of the swimwear was already threadbare: a borrowing binge has strained many corporate balance-sheets. Some dirty secrets are beginning to come out. Take Luckin Coffee, which had expanded to take on Starbucks in China, attracting big-name investors like Blackrock and Singapore’s sovereign-wealth fund. On April 2nd the Nasdaq-listed Chinese chain announced an ongoing internal probe amid allegations that its chief operating officer and other employees may have fabricated over 2bn yuan ($280m) in sales. On April 14th Citron Research, a short-seller, accused gsx, a Chinese online-tutoring firm listed in New York, of inflating last year’s sales. In a statement gsx denied the allegations and said Citron’s report was misleading and “full of subjective maliciousness”.

These revelations have revived fears over the flaky corporate governance of Chinese firms listed on foreign exchanges, whose audits, conducted at home, China’s government makes it hard for outsiders to inspect. A gaggle of fraud-hunters like Citron and Muddy Waters, which outed Luckin, claimed numerous scalps after the first wave of such listings a decade ago. This time they are looking beyond China.

Blue Orca Capital, an Asia-focused fund targeting corporate “zeros”, expects opportunities to pop up in other emerging markets, Europe and America. “My entire career has been in a bull market,” says its founder, Soren Aandahl. “This is exciting.” Mr Aandahl is eyeing any firms with discrepancies between the amount of capital they need to raise and the cash their accounts say they are generating. Others are focusing on industries hit hardest by the pandemic, such as travel, entertainment and property.

Only a small minority of firms resort to outright fraud. Far more prettify profit-and-loss statements with accounting wheezes that fall in a grey area. This accounts for much of what John Kenneth Galbraith, an economist, called “the bezzle” and “psychic wealth”: gains that appear real but prove illusory.

In the bull market startups became masters of conjuring up novel metrics that flatter performance. WeWork’s “community-adjusted” earnings before interest, taxes, depreciation and amortisation (ebitda) transformed a hefty loss for 2018 under Generally Accepted Accounting Principles (gaap) into a profit. Illegal? No. A red flag? Absolutely. Many investors turned a blind eye because they bought into what Mr Aandahl calls “the myth in the shareholder list”: all would be well if other high-profile backers were on board (as with Luckin).

Non-gaap adjustments have spread like wildfire through corporate accounts, making it harder to discern what numbers reflect a firm’s true financial position. The average number of non-gaapmeasures used in filings by companies in the s&p 500 index has increased from 2.5 to 7.5 in the past 20 years, according to pwc, a consultancy. In credit agreements analysed by Zion Research Group, the definition of ebitda ranges from 75 words to over 2,200. gaap is far from perfect, but some of the divergence from it has clearly been designed to pull wool over investors’ eyes. One study found that non-gaap profits were, on average, 15% higher than gaapprofits.

Playing around with earnings and revenue-recognition metrics is this generation’s equivalent of dotcoms using bots and other tricks to boost “eyeballs” 20 years ago, says Jules Kroll of k2 Intelligence, the doyen of corporate sleuths. “When an area is hot to the point of overheated, there is a growing temptation to juice the numbers.” In an ominous sign, SoftBank, a Japanese technology conglomerate which bet big on WeWork and dozens of other startups, said this week that it expects an operating loss of ¥1.4trn ($12.5bn) in its last fiscal year.

Besides exposing old schemes, the pandemic is likely to give rise to new ones. When economic survival is threatened, the line separating what is acceptable and unacceptable when booking revenues or making market disclosures can be blurred. Mr Kroll reckons that “amid such massive dislocation, some will inevitably cheat.”

Bruce Dorris, head of the Association of Certified Fraud Examiners, the world’s largest anti-fraud outfit, says the effects of covid-19 look like “a perfect storm for fraud”. It may engender everything from iffy accounting to stimulus-linked scams as thousands of firms—including bogus applicants—hustle for help. One fraud investigator points to private-equity-owned firms as potential targets. “There are lots of them, they are highly leveraged and they may not qualify for bail-outs because they have deep-pocketed sponsors,” he says. That increases the temptation to resort to unseemly practices. The ebbing tide is likely to reveal plenty of corporate nudity. That will not stop some businesses from taking up naturism

Companies with the highest percentage of female executives are, on average, 47% more profitable, 74% higher-performing on environmental, social and governance (ESG) factors, and 32% more transparent in ESG disclosure than those with the lowest, according to FP Analytics’ groundbreaking Women as Levers of Change report. Through analysis of over 2,300 companies spanning 14 legacy industries around the world, we show how female corporate participation is benefiting businesses from the boardroom to the bottom-line. And, we offer solutions for engaging these male-dominated, legacy industries to increase gender diversity within their sectors

A variety of market challenges are straining the bottom lines of a host of legacy industries. Changing global market conditions are intensifying competition among long-time industry rivals, while innovative new entrants shake up established business models. Consumers, particularly millennials and younger generations, are becoming more health-conscious and increasingly factoring environmental, social, and corporate governance considerations into their purchasing decisions, demanding less-harmful products and more sustainable corporate practices. Together, these factors are pushing companies to improve productivity and efficiency while evolving their business models toward addressing today’s critical environmental, social, and health challenges.

Increasing gender diversity could provide a means to respond to such pressures and enhance competitiveness and profitability. FPA’s company-level analysis reveals that a higher percentage of women in executive management is associated with higher profitability. Interviewees detailed how women are leading their organizations down new revenue-generating paths, advancing innovation in inertia-prone industries, and increasing transparency to build stakeholder trust.

Charts created by the International Monetary Fund trace the early stages of the Coronavirus pandemic:

China was the first country to experience the full force of the disease, with confirmed active cases at over 60,000 by mid-February. European countries such as Italy, Spain, and France are now in acute phases of the epidemic, followed by the United States where the number of active cases is growing rapidly. In many emerging market and developing economies, the epidemic appears to be just beginning.

n Italy, the first country in Europe to be severely hit, the government imposed a national lockdown on March 9 to contain the spread of the virus. As a result, attendance in public places and electricity use have declined dramatically, especially in the northern regions where infection rates have been considerably higher.

The economic consequences of the pandemic are already impacting the United States with unprecedented speed and severity. In the last two weeks in March almost 10 million people applied for unemployment benefits. Such a sharp and staggering increase has never been seen before, not even at the peak of the global financial crisis in 2009.

.

Disruptions caused by the virus are starting to ripple through emerging markets. After showing little movement early in the year, the latest indices from purchasing manager surveys (PMIs) are pointing to sharp slowdowns in manufacturing output in many countries, reflecting drops in external demand and growing expectations of declining domestic demand. On a positive note, China is seeing a modest improvement in its PMI after sharp declines early in the year, despite weak external demand.

The modest improvement in economic activity in China is reflected in daily satellite data on nitrogen dioxide concentrations in the local atmosphere – a proxy for industrial and transport activity (but also the density of pollution as a by-product of fossil fuel consumption). After a steep decline from January to February during the acute phase of the pandemic, concentrations have increased as new infections have fallen, allowing China to gradually relax its strict containment measures.

The recovery in China, albeit limited, is encouraging, suggesting that containment measures can succeed in controlling the epidemic and pave the way for a resumption of economic activity. But there is huge uncertainty about the future path of the pandemic and a resurgence of its spread in China and other countries cannot be ruled out.

Y. J. Fanusi, a former CIA officer and current senior fellow at the New American Center for Security writes: On March 2, the U.S. Department of Justice indicted two Chinese nationals for allegedly laundering cryptocurrency on behalf of North Korea. The laundering scheme ferreted away part of almost $250 million worth of virtual currencies stolen from a cryptocurrency exchange in 2018 by the North Korean-affiliated Lazarus Group. Through elaborate software programming, the two Chinese nationals, Tian Yinyin and Li Jiadong, converted much of the stolen cryptocurrency into regular currency at Chinese banks.

The case exemplifies how cryptocurrency obfuscation tools and techniques are likely to play a growing role in financing threats to U.S. national security. As U.S. adversaries get more acquainted with blockchain technology, their hostile cyber operations are likely to rely increasingly on cryptocurrency activity. And rogue states are likely to become more innovative in using cryptocurrencies as they try to dampen the impact of U.S. economic sanctions.

A three-step formula for illicit finance is revealed: steal from exchanges, launder the digital currency and convert the tokens into real cash—hack, launder and cash-out.

The first step involved tactics familiar to anyone who has attended a basic cybersecurity awareness orientation. The Lazarus Group hackers tricked an employee of an unnamed exchange into clicking on an email that downloaded malware onto the employee’s computer. That malware gave the hackers remote access to the computer, allowing them to steal the private digital keys that controlled the exchange’s cryptocurrency wallets. They then withdrew $234 million worth of cryptocurrencies and sent them to digital wallets controlled by the Lazarus Group.

Next, the hackers sought to launder the funds by moving the crypto into wallets that would appear unrelated to the hacking. Most cryptocurrency transactions are visible for anyone to follow by browsing the online public ledger of transactions—the blockchain. Since they had a clear connection to the hacking, the Lazarus Group could not directly sell the stolen tokens for cash at most cryptocurrency exchanges. Instead, operatives in North Korea set up accounts at a variety of exchanges, using doctored photos and fake, non-North Korean identity documents. The hackers then transferred the stolen crypto using a programming script that moved the funds automatically through hundreds of newly created digital wallet addresses and eventually into North Korean-controlled accounts at the exchanges. Some of these funds were delivered to cryptocurrency exchange accounts held by Tian and Li, who spent the next several months doing additional laundering before finally converting crypto to cash.

The cash-out step was also multilayered. Tian and Li ran an unregistered cryptocurrency trading operation, converting stolen cryptocurrency into fiat currency and transferring it to customers in exchange for a fee. From July 2018 through April 2019, they traded with customers on various peer-to-peer exchange websites and opened up accounts at multiple Chinese banks to deposit their earnings from these trades. At one U.S.-based exchange, Tian transacted over 8,000 times, trading bitcoin for $1.4 million in iTunes gift cards. Overall, the pair made thousands of deposits into their Chinese bank accounts and laundered more than $100 million worth of ill-gotten crypto traceable to the Lazarus hack.

This laundering scheme probably posed no technical challenge for North Korea. The open-source software programs the hackers used to create thousands of digital wallets in minutes are freely available online. These wallets are called “unhosted” or “non-custodial” wallets because they are not controlled by any exchange and cannot be blocked or shut down by a third party. Unlike the wallets used at exchanges, there is no need to provide any ID to acquire them. They are truly pseudonymous instruments.

And the scheme was likely cost efficient. The Lazarus group funded part of their broader cyber operations with the hacked cryptocurrencies. Using funds sent to their unhosted wallets, the operatives paid in bitcoin for website hosting, domain names and virtual private networks. Those services supported additional phishing campaigns, allowing the hackers to create fake websites that delivered malicious code to other exchanges—a vicious cycle of laundering and hacking.

As the North Korean case highlights, two things enable cryptocurrency laundering: easy access to unhosted wallets and the existence of cryptocurrency exchanges around the world with lax anti-money laundering (AML) measures.

Unhosted wallets pose an even thornier challenge. The ability for parties to transact digitally without a financial intermediary is the primary breakthrough of cryptocurrency technology. Unhosted wallets lower the barrier to financial services, bringing financial inclusion to unbanked and underbanked populations—though there is little data to support this assertion. Ultimately, financial authorities cannot realistically ban open-source software, so the current regulatory framework targets the on and off ramps where people cash out: cryptocurrency exchanges. Regulators tolerate the loophole of unhosted wallets because—for the time being—crypto has minimal purchasing value unless converted to fiat currency.

Legal and regulatory activity surrounding crypto and illicit finance will likely grow in the coming years as U.S. adversaries rely increasingly on cryptocurrency operations to fund threats.

This nexus among cryptocurrencies, state-sponsored cyber operations and U.S. national security has also surfaced with other adversaries. Russian military intelligence officers laundered and spent $90,000 worth of crypto to support their cyber operations and information warfare during the 2016 U.S. presidential election.

National security officials must get smarter on cryptocurrency for the U.S. to combat the money laundering typologies emerging on blockchains rather than in banks. This means training analysts on blockchain technology and getting them acquainted with developments in the crypto space. And financial regulators will have to continually assess whether exchanges are effectively managing the risks from unhosted wallets. If they do not manage them, new regulatory frameworks may be needed to plug crypto’s regulatory gaps. This could involve developing guidelines for how much exchanges can interact with unhosted wallets. But any new rules need not be conceived by regulators in isolation. Blockchain proponents should also innovate to create products that advance the promises of this technology while mitigating the risks from bad actors. As the recent indictments show, U.S. adversaries are working creatively to exploit the loopholes. The U.S. needs to bring its A-game to meet this emerging threat.

As a Senator and expert on banking, Elizabeth Warren has provided an indispensable oversight to government and banking activities.  It is not surprise to find her at the forefront of the massive spending proposed to combat the corona virus in the US.

Before Elizabeth Warren was a senator from Massachusetts and a Democratic presidential candidate, she ran the Congressional Oversight Panel that was in charge of overseeing the $700 billion Troubled Asset Relief Program (TARP) bailout that Congress approved after Wall Street crashed in 2008. In that capacity, Warren, then a Harvard law professor, kept a close watch on where the money was going and crafted public reports that disclosed that the Treasury Department had overpaid $78 billion for assets it bought from failed banks and that large chunks of the money were not being used well.

Last month, Congress passed a $2 trillion coronavirus bailout and assistance bill, and it contains a $500 billion fund from which the Trump administration, at its sole discretion, can dole out money to big corporations in distress. What’s the best way to monitor this flow of billions? Warren, no surprise, has some ideas.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, Warren  notes, has four overall parts: sending money to hospitals and other health care facilities, expanding unemployment benefits, providing assistance to small businesses, and establishing what she agrees is a $500 billion “slush fund” for large corporations. There is also money in the bill for education, food security, and state and local government responses to the crisis.  Donald Trump and his administration may use this money to “reward their political friends and punish their political enemies.”  Warren points out, “I spent a lot of time in the negotiations [over the bill]…to try to get at least some curbs on how the money is spent and some oversight. Republicans basically said this is going to be the price of getting money to our medical providers, getting money to people who are unemployed, getting money to small business: ‘You guys are going to have to go along…with this slush fund for giant corporations.’”

The oversight provisions in the measure do include a special inspector general for pandemic recovery, who will track all loans and expenditures made from the $500 billion fund, and a congressional oversight commission, similar to the one Warren ran years ago, which will monitor this spending and evaluate its impact. But Warren points out the commission will only be as strong as its members, who have yet to be appointed:

When Warren was the cop on the bailout beat, she generally had the support of a Democratic Congress and the Obama administration. That won’t be the case this time around. Trump has already said he has the right to block the new special IG from sharing information with Congress and the public. And the CARES Act contains no provisions that allow any outside review of expenditures or loans before Treasury Secretary Steven Mnuchin okays them. Whatever he (or Trump) decides, goes.

In this environment—with a president hostile to transparency and accountability—what can be done to cast sunlight onto Mnuchin handing out $500 billion in taxpayer dollars to big companies?

Warren recommends: 1. Be consistent in talking about this every single day. We can’t let this just drop off the radar screen. Remind people the slush fund exists.  2. Dig into individual pieces and tease out whatever information we can. 3. Shout about any bad examples that turn up. Point out this is taxpayer money, money that could have been used for personal protective equipment or health care professionals…money that could have been used to help small business and to help people who are unemployed.

With no clawbacks allowed the only recourse is to jump on every piece of information that comes out because that influences the next decision that gets made. The only restraint is “public opinion.

Warren’s tips essentially boil down to this: pay attention, pay attention, pay attention  Use crowdsourcing oversight.

W-T-W.org welcomes any comments and suggestions to create crowdsourcing oversight.

The San Francisco Federal Reserve looks at Uncertainty and evaluates its impact on the economy.

Uncertainty is a fact of life. Long-term economic decisions are challenging because they often have long-lasting consequences and require people to make some pre-commitments. Once these decisions are made, they can be costly to reverse. For example, when people buy a house, they need to make an assumption about their future employment status and whether they will have the means to make mortgage payments. Similarly, when a business contemplates investing in a new product line, the manager must make assumptions about the strength of the economy several years ahead and how much consumers will be willing to pay for that new product. When times are uncertain, households and businesses may postpone consumption and investment decisions until they have more clarity about what lies ahead.

One indicator of uncertainty is the Chicago Board Options Exchange Volatility Index, or VIX, which measures investors’ perceptions of the 30-day-ahead volatility of the S&P 500. The VIX daily series has spiked several times since 2007. It jumped to its previous record high in November 2008, in the midst of the global financial crisis. The VIX also shot up in the fall of 2018 during a tense period of trade negotiations between the United States and China. Most recently, the COVID-19 pandemic and uncertainty about its negative impact on the world economy have ramped up the VIX to levels surpassing but comparable to those during the 2007 – 2008 global financial crisis.

In theory, heightened uncertainty can raise unemployment because a job match represents a long-term employment relationship and hiring decisions are costly to reverse. When uncertainty rises, employers may choose to wait and see before filling new positions, contributing to higher unemployment. At the same time, heightened uncertainty also reduces consumer spending because households choose to increase saving for precautionary reasons, for example, in case they lose their jobs. The decline in consumer spending reduces aggregate demand, further raising unemployment in addition to pushing inflation down.

These theoretical predictions are supported by empirical evidence. Figure 2 traces out the average statistical effects of an uncertainty shock on the three macroeconomic variables in the model. Each panel shows the average as a solid line, with shading indicating a 90% certainty that the average falls within that area. Following a sudden rise in uncertainty, the unemployment rate shown in panel A rises over time, reaching a peak effect roughly one year after the impact. Similarly, panel B shows that the inflation rate falls persistently for about six months before starting to rise again. The interest rate  falls quickly, reflecting monetary policy easing in response to the uncertainty shock.

The combination of a rise in the unemployment rate – that is, a decline of economic activity – and a fall in inflation suggests that uncertainty affects the economy in a way similar to a reduction in aggregate demand (Leduc and Liu 2016). Thus, through uncertainty, the COVID-19 pandemic has important demand-side effects in addition to the supply-side effects such as supply chain disruptions and labor shortages.

Policy responses to supply-side effects often involve a tradeoff because supply disruptions typically push up both unemployment and inflation. If the Fed reduced interest rates to offset the rise in unemployment, it would risk further increases in inflation. Alternatively, if the Fed raised interest rates to stabilize inflation, it would risk amplifying the rise in unemployment.

In contrast, monetary policy can more easily offset the impact of a decline in aggregate demand, since cutting interest rates helps reduce unemployment and simultaneously raises inflation. Thus, demand shocks do not introduce difficult tradeoffs between the Federal Reserve’s maximum employment and price stability objectives. The decline in the interest rate following an increase in uncertainty reflects the fact that the Federal Reserve has historically attempted to offset the demand-like impact of uncertainty by cutting short-term interest rates.

Using our estimated model, we can assess the likely magnitude and duration of the macroeconomic effects of the current uncertainty spikes associated with the COVID-19 pandemic. In particular, an uncertainty shock that boosts the VIX to a level comparable to that observed in the past few weeks raises the unemployment rate by about 1 percentage point in roughly 12 months. The same uncertainty shock would reduce the inflation rate by about 2 percentage points in about six months. In turn, monetary policymakers would be expected to rapidly bring the policy rate down to the effective lower bound, as was indeed the case when the Federal Reserve cut its federal funds rate in March.

Conclusion

In addition to the tragic human toll, the COVID-19 pandemic will severely reduce economic activity as nonessential retail and other business activity is curtailed and social distancing policies and quarantines force people to stay home. The negative impact on the economy can be further amplified and prolonged by rising uncertainty. Our estimates suggest that the spikes in uncertainty triggered by the COVID-19 pandemic will contribute to a protracted increase in unemployment and a significant decline in the inflation rate in the United States. The Fed’s decision in March to cut the federal funds rate to a near-zero level can partly cushion these demand-like effects resulting from the more uncertain environment.