Why Jamie Dimon And Jon Corzine Couldn’t Find Their Money

Tom Groenfeldt

Jamie Dimon and the London Whale are playing a key role in Pamela Pec Cytron’s  marketing campaign for Pendo Systems, although probably not by choice.

The CEO of JPMorgan Chase and the London trader who lost $6.2 billion for the bank have become a leading example of inadequate controls in banking. CEO of Pendo Systems, which provides enterprise-wide  multi-currency accounting for financial institutions, Cytron has gotten into the habit of pointing to current headlines to make her point that even the most sophisticated international financial services firms don’t know their positions. Her presentation about Pendo Systems includes a copy of a clipping from The Wall Street Journal story from May 18, 2012:

‘“On April 30, associates who were gathered in a conference room handed Mr. Dimon summaries and analyses of the losses,” The Wall Street Journal reported. “But there were no details about the trades themselves. ‘I want to see the positions,” he barked, throwing down the papers, according to attendees. ‘Now I want to see everything.’”

“Jamie Dimon said all he wants are his positions, but he can’t get them because they are all over the bank,” explained Cytron, who says Pendo System’s BasisPoint could have delivered all the detail with a single query.

She also directs people to the YouTube clip of Jon Corzine, CEO at MF Global, telling a Congressional panel “I simply do not know where the money is or why the accounts have not been reconciled.”

Congress being made up of Congressmen and Congresswomen, no one thought to ask why the CEO of a financial industry leader handling billions a day didn’t know where the money was.

Cytron has an explanation for the lack of financial  information that Dimon and Corzine confronted — their companies have been using systems that were developed in the 1980s, or earlier.

That was a period of innovation, she notes. It brought the launch of Windows 1.0 and Apple’s Macintosh personal computer. It was also the time of Lady Gaga’s  birth. Windows, Apple and Lady Gaga have moved on since then, but the securities accounting systems remain pretty much the same.

The client/server systems were revolutionary at the time. Mainframe systems were displaced by PC-based and mid-range systems such as Portia, InvestOne, CAMRA, PAM, Axyis, HiPort, Eagle Global Plus and Dimension. Initially all focused on a geographic or business line silo for banking, insurance, wealth and investment management.

Relatively quickly many of the older industry standard firms that sold mainframe accounting systems disappeared, said Cytron, who is betting that the industry is ready for another major shift. Today’s incumbent systems, she said, were developed in another era, a time when processors were slower, storage was far more expensive than it is today and the investment world was less global.

“We built BasisPoint when technology was catching up with financial services requirements.” It is all Microsoft and built around Microsoft SQL Server.

“We made bets on SQL, cheaper storage and faster processing. At the time people said our approach would never work, but we made those bets in the design and they paid off.”

With Pendo, all of a firm’s data can run on a single database, so the next time Dimon, or the CEO of AIG, needs positions, the staff won’t have to go to multiple databases and then reconcile different accounting practices around the world.

“If I go back to 2010, 2011, 2012 I can find article after article on global accounting, the lack of innovative fund accounting systems. AIG had nine investment accounting systems — five versions of PAM and four of Portia and the valuation swing on the same asset could be double digit basis points because they were all running in separate instances.”

The Pendo system is also date agnostic.

“We don’t do processing at a system level, we do it at the lowest level, so nothing causes you to shut down the system. If you are based in the US and running in Asia, you wouldn’t have to shut the whole system down to update one geography. It can update tiers independently,” she explained.

“From an accounting perspective, you have to bring in indicative data such as market data, corporate actions and prices. In other systems it is a system-wide process; they shut down for an overnight run. We have 8 tiers of hierarchy so you can bring in prices at the lowest level — the fund — and close that level down without affecting anything else.”

Unlike current systems, Pendo can work in three currencies, so a fund buying Japanese equities on an American market can enter the price in Australian and American dollars and Japanese Yen. The critical advantage is that by is simultaneously storing, processing and displaying that data, it offers a single bird’s eye view of these levels by basis, by industry and by issuer while applying regional rules.

Unfortunately for her, she launched Pendo just as the financial services system came crashing down in 2008. The industry needs new accounting systems but it continues to muddle along with systems that have failed, often dramatically.

Look at the London Whale, she suggests. Why didn’t Mr. Dimon ask why it took so long to get the firm’s exposure?

As the Wall Street Journal reported Dimon initially played down an April 6 report in the paper calling the London’s trader’s position as a tempest in a teapot. The paper later reported that as the losses grew, Dimon on April 30 demanded to know the bank’s positions. It took weeks from the time the problem was identified to determining its size.

Bloomberg has reported that the bank may release its internal report on the loss and that Dimon could see his bonus slashed.

Yesterday the U.S. U.S. Office of the Comptroller of the Currency and the  Federal Reserve will require JPMorgan to improve its controls and risk management and the FSA in London may also be looking at some enforcement action, according to Bloomberg.

Cytron is frustrated that the repeated crises have not led to an examination of the root cause.

“Every major problem has some hint of accounting in them. What feeds all these systems is the underlying positions, but they continue to try to fix the problem from the top.

“Jamie Dimon has been the most respected person on Wall Street,” she added. “Because of the way lines of business are structured, you have these silos of information. Why hasn’t anything happened since 2008 when these problems nearly took down the world economy? We need systems that make positions transparent in a single database and then tag them to exposures in a mutual fund, bonds or a hedge fund so if you want to see the accounting position you can get it across different types of holdings. If the industry doesn’t fix their problem, someone is going to fix it for them with more regulation.”

Accounting data is held in the back office, which has none of the glamor or profitability of the trading operations. Regarded as a cost center, it typically receives little investment and less attention Even in the JPMorgan blowup, attention has focused on risk management and controls, not on the fact that the bank apparently could not determine its losses for several weeks.

With Pendo Systems, Cytron said, users can see the positions in real-time.

When firms ask her how long the nightly run is on BasisPoint she explains that the system operates in real-time. Unlike older systems that have to run overnight reports for users to get at the data, BasisPoint supports real-time queries. One mid-size insurance company which had 600 reports looked at the way BasisPoint works and concluded it could get by with just 30 reports, all of which were already in Pendo, since the rest of the information was always available by query rather than requiring IT to run a report. In fact, 40 percent of the firm’s reports hadn’t been touched in 10 years.

The incumbent systems work with a single cost basis. Although they do multi-cost basis through reports which can incorporate the various internationally recognized accounting standards –  Japanese GAAP , US GAAP, IFRS or Australian Tax — older systems don’t provide online real-time financial impact analysis by basis. Obtaining the data granularity required to feed risk, compliance or management reporting tools is cumbersome and requires a tremendous amount of manual intervention, Cytron said.

“They were build eons ago when memory and fast storage were expensive.

Pamela Pec Cytron, CEO of Pendo Systems

Cytron said that BasisPoint’s most exciting feature — excitement is all relative when you’re talking about accounting systems — is the application’s cancel and rebook feature.

“If you have an error in December and missed a paydown on your bond from February, you have to fix that. In every single system, you have to go in and manually unwind all the paydowns and corporate actions and then rebuild them. Since it is all done manually it takes a long time to fix it and it is prone to error. We show how with one transaction you cancel and rebook and you see all the lot level detail and fix it.”

Existing accounting systems were built from the individual accounts, not the individual positions. Moving to  system based on positions requires a huge mind shift, she said. But if you have granular data you can do mark to market and historical costs, International Financial Reporting Standards or U.S. GAAP, handle bonds or equities, domestic or Asian or European.

More than just a mind shift, the move requires courage, or demand by regulators. Legacy systems might be clumsy and expensive to operate, but they are familiar and reliable.

“Everything that surrounds accounting is massive. The integration is massive since an accounting system could be connected to thousands of feeds.

Moving a core system is expensive and time-consuming, not to mention scary — the reason very few top tier banks have replaced their core systems. (See my story on CBA and Nationwide.)

Pendo proposes a deliberate migration by moving new business to BasisPoint in a cloud utility and then slowly transferring existing data and finally shutting down the legacy system.


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13 Scary Statistics On Employee Engagement [INFOGRAPHIC]

Jacob Shriar

There is a serious problem with the way we work.

Most employees are disengaged and not passionate about the work they do. This is costing companies a ton of money in lost productivity, absenteeism, and turnover. It’s also harmful to employees, because they’re more stressed out than ever.

The thing that bothers me the most about it, is that it’s all so easy to fix. I can’t figure out why managers aren’t more proactive about this. Besides the human element of caring for our employees, it’s costing them money, so they should care more about fixing it. Something as simple as saying thank you to your employees can have a huge effect on their engagement, not to mention it’s good for your level of happiness.

The infographic that we put together has some pretty shocking statistics in it, but there are a few common themes. Employees feel overworked, overwhelmed, and they don’t like what they do. Companies are noticing it, with 75% of them saying they can’t attract the right talent, and 83% of them feeling that their employer brand isn’t compelling. Companies that want to fix this need to be smart, and patient. This doesn’t happen overnight, but like I mentioned, it’s easy to do. Being patient might be the hardest thing for companies, and I understand how frustrating it can be not to see results right away, but it’s important that you invest in this, because the ROI of employee engagement is huge.

Here are 4 simple (and free) things you can do to get that passion back into employees. These are all based on research from Deloitte.

1.  Encourage side projects

Employees feel overworked and underappreciated, so as leaders, we need to stop overloading them to the point where they can’t handle the workload. Let them explore their own passions and interests, and work on side projects. Ideally, they wouldn’t have to be related to the company, but if you’re worried about them wasting time, you can set that boundary that it has to be related to the company. What this does, is give them autonomy, and let them improve on their skills (mastery), two of the biggest motivators for work.

Employees feel overworked and underappreciated, so as leaders, we need to stop overloading them to the point where they can’t handle the workload.

2.  Encourage workers to engage with customers

At Wistia, a video hosting company, they make everyone in the company do customer support during their onboarding, and they often rotate people into customer support. When I asked Chris, their CEO, why they do this, he mentioned to me that it’s so every single person in the company understands how their customers are using their product. What pains they’re having, what they like about it, it gets everyone on the same page. It keeps all employees in the loop, and can really motivate you to work when you’re talking directly with customers.

3.  Encourage workers to work cross-functionally

Both Apple and Google have created common areas in their offices, specifically and strategically located, so that different workers that don’t normally interact with each other can have a chance to chat.

This isn’t a coincidence. It’s meant for that collaborative learning, and building those relationships with your colleagues.

4.  Encourage networking in their industry

This is similar to number 2 on the list, but it’s important for employees to grow and learn more about what they do. It helps them build that passion for their industry. It’s important to go to networking events, and encourage your employees to participate in these things. Websites like Eventbrite or Meetup have lots of great resources, and most of the events on there are free.

13 Disturbing Facts About Employee Engagement [Infographic]

What do you do to increase employee engagement? Let me know your thoughts in the comments!

Did you like today’s post? If so you’ll love our frequent newsletter! Sign up here and receive The Switch and Shift Change Playbook, by Shawn Murphy, as our thanks to you!

This infographic was crafted with love by Officevibe, the employee survey tool that helps companies improve their corporate wellness, and have a better organizational culture.


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Supply Chain Fraud: The Threat from Within

Lindsey LaManna

Supply chain fraud – whether perpetrated by suppliers, subcontractors, employees, or some combination of those – can take many forms. Among the most common are:

  • Falsified labor
  • Inflated bills or expense accounts
  • Bribery and corruption
  • Phantom vendor accounts or invoices
  • Bid rigging
  • Grey markets (counterfeit or knockoff products)
  • Failure to meet specifications (resulting in substandard or dangerous goods)
  • Unauthorized disbursements

LSAP_Smart Supply Chains_graphics_briefook inside

Perhaps the most damaging sources of supply chain fraud are internal, especially collusion between an employee and a supplier. Such partnerships help fraudsters evade independent checks and other controls, enabling them to steal larger amounts. The median loss from fraud committed
by a single thief was US$80,000, according to the Association of Certified Fraud Examiners (ACFE).

Costs increase along with the number of perpetrators involved. Fraud involving two thieves had a median loss of US$200,000; fraud involving three people had a median loss of US$355,000; and fraud with four or more had a median loss of more than US$500,000, according to ACFE.

Build a culture to fight fraud

The most effective method to fight internal supply chain theft is to create a culture dedicated to fighting it. Here are a few ways to do it:

  • Make sure the board and C-level executives understand the critical nature of the supply chain and the risk of fraud throughout the procurement lifecycle.
  • Market the organization’s supply chain policies internally and among contractors.
  • Institute policies that prohibit conflicts of interest, and cross-check employee and supplier data to uncover potential conflicts.
  • Define the rules for accepting gifts from suppliers and insist that all gifts be documented.
  • Require two employees to sign off on any proposed changes to suppliers.
  • Watch for staff defections to suppliers, and pay close attention to any supplier that has recently poached an employee.

About Lindsey LaManna

Lindsey LaManna is Social and Reporting Manager for the Digitalist Magazine by SAP Global Marketing. Follow @LindseyLaManna on Twitter, on LinkedIn or Google+.


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The Future Of Supplier Collaboration: 9 Things CPOs Want Their Managers To Know Now

Sundar Kamak

As a sourcing or procurement manager, you may think there’s nothing new about supplier collaboration. Your chief procurement officer (CPO) most likely disagrees.
Forward-thinking CPOs acknowledge the benefit of supplier partnerships. They not only value collaboration, but require a revolution in how their buying organization conducts its business and operations. “Procurement must start looking to suppliers for inspiration and new capability, stop prescribing specifications and start tapping into the expertise of suppliers,” writes David Rae in Procurement Leaders. The CEO expects it of your CPO, and your CPO expects it of you. For sourcing managers, this can be a lot of pressure.

Here are nine things your CPO wants you to know about how supplier collaboration is changing – and why it matters to your company’s future and your own future.

1. The need for supplier collaboration in procurement is greater than ever

Over half (65%) of procurement practitioners say procurement at their company is becoming more collaborative with suppliers, according to The Future of Procurement, Making Collaboration Pay Off, by Oxford Economics. Why? Because the pace of business has increased exponentially, and businesses must be able to respond to new market demands with agility and innovation. In this climate, buyers are relying on suppliers more than ever before. And buyers aren’t collaborating with suppliers merely as providers of materials and goods, but as strategic partners that can help create products that are competitive differentiators.

Supplier collaboration itself isn’t new. What’s new is that it’s taken on a much greater urgency and importance.

2. You’re probably not realizing the full collective power of your supplier relationships

Supplier collaboration has always been a function of maintaining a delicate balance between demand and supply. For the most part, the primary focus of the supplier relationship is ensuring the right materials are available at the right time and location. However, sourcing managers with a narrow focus on delivery are missing out on one of the greatest advantages of forging collaborative supplier partnerships: an opportunity to drive synergies that are otherwise perceived as impossible within the confines of the business. The game-changer is when you drive those synergies with thousands, not hundreds of suppliers. Look at the Apple Store as a prime example of collaboration en masse. Without the apps, the iPhone is just another ordinary phone!

3. Collaboration comes in more than one flavor

Suppliers don’t just collaborate with you to provide a critical component or service. They also work with your engineers to help ensure costs are optimized from the buyer’s perspective as well as the supplier’s side. They may even take over the provisioning of an entire end-to-end solution. Or co-design with your R&D team through joint research and development. These forms of collaboration aren’t new, but they are becoming more common and more critical. And they are becoming more impactful, because once you start extending any of these collaboration models to more and more suppliers, your capabilities as a business increase by orders of magnitude. If one good supplier can enable your company to build its brand, expand its reach, and establish its position as a market leader – imagine what’s possible when you work collaboratively with hundreds or thousands of suppliers.

4. Keeping product sustainability top of mind pays off

Facing increasing demand for sustainable products and production, companies are relying on suppliers to answer this new market requirement.

As a sourcing manager, you may need to go outside your comfort zone to think about new, innovative ways to collaborate for achieving sustainability. Recently, I heard from an acquaintance who is a CPO of a leading services company. His organization is currently collaborating with one of the largest suppliers in the world to adhere to regulatory mandates and consumer demand for “lean and green” lightbulbs. Although this approach was interesting to me, what really struck me was his observation on how this co-innovation with the supplier is spawning cost and resource optimization and the delivery of competitive products. As reported by Andrew Winston in The Harvard Business Review, Target and Walmart partnered to launch the Personal Care Sustainability Summit last year. So even competitors are collaborating with each other and with their suppliers in the name of sustainability.

5. Co-marketing is a win-win

Look at your list of suppliers. Does anyone have a brand that is bigger than your company’s? Believe it or not, almost all of us do. So why not seize the opportunity to raise your and your supplier’s brand profile in the marketplace?

Take Intel, for example. The laptop you’re working on right now may very well have an “Intel inside” sticker on it. That’s co-marketing at work. Consistently ranked as one of the world’s top 100 most valuable brands by Millward Brown Optimor, this largest supplier of microprocessors is world-renowned for its technology and innovation. For many companies that buy supplies from Intel, the decision to co-market is a strategic approach to convey that the product is reliable and provides real value for their computing needs.

6. Suppliers get to choose their customers, too

Increased competition for high-performing suppliers is changing the way procurement operates, say 58% of procurement executives in the Oxford Economics study. Buyers have a responsibility to the supplier – and to their CEO – to be a customer of choice. When the economy is going well, you might be able to dictate the supplier’s goods and services – and sometimes even the service delivery model. When times get tough (and they can very quickly), suppliers will typically reevaluate your organization’s needs to see whether they can continue service in a fiscally responsible manner. To secure suppliers’ attention in favorable and challenging economic conditions, your organization should establish collaborative and mutually productive partnerships with them.

7. Suppliers can help simplify operations

Cost optimization will always be one of your performance metrics; however, that is only one small part of the entire puzzle. What will help your organization get noticed is leveraging the supplier relationship to innovate new and better ways of managing the product line and operating the business while balancing risk and cost optimization. Ask yourself: Which functions are no longer needed? Can they be outsourced to a supplier that can perform them better? What can be automated?

8. Suppliers have a better grasp of your sourcing categories than you do

Understand your category like never before so that your organization can realize the full potential of its supplier investments while delivering products that are consistent and of high quality. How? By leveraging the wisdom of your suppliers. To be blunt: they know more than you do. Tap into that knowledge to gain a solid understanding of the product, market category, suppliers’ capabilities, and shifting dynamics in the industry, If a buyer does not understand these areas deeply, no amount of collaboration will empower a supplier to help your company innovate as well as optimize costs and resources.

9. Remember that there’s something in it for you as well

All of us want to do strategic, impactful work. Sourcing managers with aspirations of becoming CPOs should move beyond writing contracts and pushing PO requests by building strategic procurement skill sets. For example, a working knowledge in analytics allows you to choose suppliers that can shape the market and help a product succeed – and can catch the eye of the senior leadership team.

Sundar Kamak is global vice president of solutions marketing at Ariba, an SAP company.

For more on supplier collaboration, read Making Collaboration Pay Off, part of a series on the Future of Procurement, by Oxford Economics.


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Do You Hear The Voice Of Your Customer?

Maria Morais

Try to find a company where customers bring something else other than cash, credit, or points in loyalty cards. You won’t find much. – John S. McKean

While most companies seem to have a good grasp of what “voice of the customer” means and its importance, there seems to be a big challenge around the cultural shift that the voice-of-the-customer strategy requires in order to be truly effective.

The main reason why companies don’t implement a customer-centric strategy is because they assume that they are in charge.

  • Companies give promotions to their customers;
  • Companies produce products that customers really want;
  • Companies collaborate with their customers in social channels;
  • Companies “target,” “acquire,” “manage,” and “retain” customers as if they were not able to manage their own wills.

The thinking behind all this mentality dismisses customers’ individual differences and customers’ real ability to contribute.

Many of us expected the balance of power between companies and customers to shift with omni-channel retail, but in fact companies are less involved with their customers thanks to big data, analytics, business intelligence, and programmatic marketing.

Collaboration doesn’t mean engagement

If the company is in charge, by creating methods of engagement, predicting behavior, and controlling the customer experience, the customer is not more than a number that belongs to a group of other similar “variables.” How can you really hear the voice of your customer with all this noise around you?

Improving technology to satisfy companies is not a substitute for direct knowledge voluntarily given by customers. Over the coming years customers will be emancipated from systems that were built to control them, and customer relationship management (CRM) will finally die as a software category.

Looking beyond CRM

Information mining is a key phase in any voice-of-the-customer strategy, and ethnographic methods have been proven to be the most efficient for customer-centric innovation rather than the usual quantitative methodologies. Companies need systems that aggregate raw data from all touch points affecting decision making in real time. This type of initiative typically has a significant upfront investment before measurable benefits can be realized, but even knowing that digital transformation is moving much more rapidly in some industries than in others, no one can afford to wait much longer.

Companies that invest in their customers now are the ones that will see the biggest profits in the future. The voice of the customer is rapidly evolving along with anything connected via the Web, and customers will completely stop sharing their voice with companies that simply follow legacy approaches and are obsessed with statistical inferences.

It’s time to change; it’s time to inspire your customers

Take our e-commerce self-assessment to see how you can deliver the omni-channel experience.

Learn how Technopolis is delivering a superb omni-channel shopping experience to its customers.

Find out more about the omni-channel customer experience in the SAP eBook Digital Disruption: How Digital Technology is Changing Our World.


About Maria Morais

Maria Morais is Customer Engagement and Commerce Retail Lead at IBM GBS. You can follow Maria Morais on Twitter @ceumorais.

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