Corporate Boards Are Shirking Responsibility On #MeToo Crises

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Following the New Yorker article by Ronan Pharaoh accusing Less moon Ves of unrequested approaches to a variety of women over the past few decades, the board of CBS is meeting today. We're talking about the future of its leader, and there's a lot of questions about whether he will be removed what this does with CBS versus Viacom. Sherry Redstone is

the majority owner of CBS. Joining us now to talk about all this is Richard chamber As President and Chief executive officer of the Institute of Internal Auditors based in uh in, Florida. Richard, thank you so much for joining us. What do you think they're going to talk about in this meeting and what do you think they're gonna do? Well? Thanks thanks for having me on. You know it's always hard to know exactly how boards are going to respond

when these sorts of things happened. I know we've been looking at this from the Institute of Internal Auditors over the past few months, and the one thing that strikes us is just how often boards um sort of overlooks this risk. In fact, eighty five percent of the companies that we surveyed said that they just didn't consider sexual mis contic to be a top risk. And so it just all too often seems that when these uh, when these things happen, everyone sort of looks at each other

with a blank stare. Well. Mr Moonvess has said that many times in the past, perhaps he displayed behavior that people might not like, but that he never used his position to affect anyone's career. When when does an investigation of behavior that's disconnected from an actual job or position, When does that investigation cross the line? You know, I think what has to happen is, you know, when what's allegations are made and often there has a case here,

there multiple sides to the story. You know, at that point it's really too late for boards and for companies to uh take the reins and in terms of making sure that they have the right policies in place, the right procedures for investigating allegations of misconduct to meet those things have to be played in place well beforehand, and and the policies need to include how will investigation of allegations against senior executives to be handled? At what point

do they do they get elevated to the board. In fact, I would suggest anytime there's an allegation against the CEO, that the board or at least the chairman of the board is immediately made aware of it. So I think that a lot of it really comes down to sort of acknowledging and recognizing that this is a key risk that companies face and making sure you got all the

right controls in place to mitigate that risk. So, Richard, you raise an interesting point, which is, you know, how much should the board be aware of some of these allegations and some of these cultural issues that are emerging across a slew of companies. I mean, we're we're pinpointing CBS because that's where the news is, but you can pick a lot of other companies that have also been having uh ME to movement movements represented there. Should the

board be responsible? Should it be there their responsibility to go out and investigate some of the culture issues to make sure that things are on the up and up. Absolutely, to me, uh, you know, it's a shame that American boards are buying large shirking their responsibilities when it comes to oversight of this critical risk. They have an obligation, even even in in statutes in the US, they have obligations to maintain oversight of the way risks are managed

in a company. And there's no risk, as we're seeing from a lot of the headlines over the last few weeks, there's no risk that's greater than having a high profile allegation against senior executives of this nature. And so to me, the board, as part of its oversight of risk management, needs to monitor the culture of the company, and that starts with the tone at the top. How is the company? How is the tone in the company being set by

the senior CEO and senior executive. So the board absolutely has a responsibility, and I would tell you without equivocation that boards are by and large not fulfilling that obligation. Okay, So, Richard, given that, given the fact that CBS is that their board is now meeting, how able are they to actually handle this situation appropriately since they also are part of

the problem. According to you, well, I and I can't really speak to the CBS board because I don't know what accents they may have been taking along the way. I would say that whole boards need to have some kind of a sense of what is the what is the help of the corporate culture. There are lots of

ways they can gather that. One of the ways that we obviously recommend is to turn to the internal auditors of the company and ask the internal auditors to give them some kind of assurance about what UH controls are in place within the company to handle these kinds of allegations, what kind of UH codes of conduct or there, and what kind of mechanisms do people have to report allegations. And internal auditors are out there every day in you know,

under uncovering issues in the company. They usually have a pretty keen grasp of what the culture of the company is. And boards how the direct access to these folks, so they should be asking them what's going on, what kind of culture do we have? Because it's a little late. Once that culture, if it is toxic once, it really kind of tarnishes the company. It's a little bit late

for everybody to start acknowledging them that there were cultural issues. Richard, How does that happen when the president the chief executive of a company also happens to be the chairman of the board. That's the case at CBS. Well, that's why it's so I think that's why it's so powerful that internal auditors report to the audit committee, and the audit committees are shaired not by corporate executives but by independent

board members. And it's those independent board members who chair the board, the audio committee of the board, who have the responsibility to turn to internal audit to look at other sources, um to get the answers. In fact, the survey I mentioned earlier showed that nearly three quarters of corporate boards almost had made no move to bring in any experts or the internal auditors to look at sexual harassment misconduct risks. In the case of CBS, the chairman

of that board the audit committee is Gary Countryman. He's the former chairman of Liberty Mutual. Should they have a regular investigation or process to vet the chairman of the board or the chief executive for this very issue, Well, I would think there is there should be it again back to my back to my earlier point, I think audit committees have an ongoing responsibility to have the kind

of dialogue with internal audit. They have executive sessions, usually with the internal auditors with nobody else from the executive management around. They have an ongoing opportunity to probe these kind of areas, to ask these kind of questions. There should be a clear expectations set with the legal counsel of the of the company to make sure that any allegation are brought to their attention as they involve the

CEO or some other senior executives. To me, this is just a simple matter, not simple really, but certainly a matter of risk management. Companies face a litany of risks. To you know, we we we talked every day about operational risk, strategic risks, technology risk. This is another risk. And to me, smart boards, boards that are fully engaged in experting their responsibility will have the right risk management

in place. We've got to leave it there. I want to thank you very much Richard Chambers, chief executive of the Institute of Internal Auditors, on how CBS could handle accusations against chief executive and chairman less Moonvest. Getting ready for a back to school a shopping parents are faced, perhaps with a variety of new items. Everyone needs an ear phone holder as well as washy tape. Here to tell us more about the industry is Punamgyal, our senior

retail analyst for Bloomberg Intelligence. Punam what kinds of back to school shopping can we expect this season? Yeah? You know, I think the back to school season this year will be interesting. Estimates are for a down one percent top to present, depending on who's look, but I think consumers.

What I found very interesting is that apparel, you know, a key category for back to school, is going to see some momentum this year, which votes really well for the retailers that I cover department stores and apparel stores. And within that, I think Denham, which has made a strong comeback um, is going to be feeling that shar game. So people are going to be buying lots of genes as they head back to school. That's what we're seeing, Yes,

I mean that's what the sur ratio. Are they going to be buying them through Amazon or their local store? So sets questions. I think Amazon will get some of that share. If no matter where I look and how I look, Amazon has been growing it's private label business, especially in apparel. We saw that on Prime Day and I think we'll continue to see that over the course of back to school and even into holidays. But that said,

there are some very strong apparel players in Denham. When you look at, for example, American Eagle, I think you know that's one retailer that stands out and that will continue to do well in the standard genes Um category, which is forecasted to be up for point five percent for this year, and then Old Navy. When you look at Economy jenes Um at the lower price points UM, Amazon is probably somewhere in between those two, so I think they'll also continue to gain share, not more people

pay more for the same products this year. Will they see inflation at the store? I don't think so. No. While retailers would love to see inflation UM, but I think if you look at a like to like item, I don't think you'll see the price move up. That said, if you enhance the material UM, if there's more stretchability to it, if it's you know, better quality UM, then the price points there could go up from last year.

So when you tell when you start to think about what to expect for the back to school season, how much you're looking at the spending ability of consumers the economy. I mean, what sort of factors in for you. I mean, the economy definitely matters, right, because at the end of the day, if the consumer isn't feeling that they are in a healthy position to spend, you're going to see a pullback. I don't see that this year. I didn't

see that last year. Um. You know, we have consumer confidence still at near all time highs, unemployment rate as well, and the housing market queer frankly is still good. So um, we haven't seen consumers start to trade down or anything yet,

which helps back to school spending. That said, you know, last year, um, if you look back at three Q, which in retail it's August Tember October, August was very strong, which which encompassed most of back to school, so they're up against some very tough comparisons for just back to school. But then when you forward in the quarter into September October, it was very very weak last year if you recall the hurricanes and storms that we had and warm temperatures.

So we think the opportunity for retail and three que back to school will be good, But the real opportunity is going to come in the latter half if temperatures are cooler than they were last year and we don't have as many storms. I'm just a little bit more on denom. Does each item if it has more holes and rips, doesn't cost more? Sometimes Yes, Um, depends on where you're shopping, you know, um in premium genes yes,

and standard genes Uh. I'd say the rips don't necessarily dictate the price, but the fabrication of the denom does. So if there is more stretchability, fits softer, yes, it'll cost more. Then why would American Eagle, for example, be offering thirty off if you buy three pairs of genes? Is it just because their cost is so low that off still means that making a decent an amount of money. Yeah. You know, most of those formation promotions are typically built in,

so I wouldn't consider them last leading. Yet if you saw seventy percent off, I would be a little concerned, or even fifty percent off. So I think those are built in, and it's really just to drive the customer into the store and hoping that they also transact into adjacent categories, whether they pick up a top while there there are something else that built the basket. I honestly say, pim.

There have been some advertisements that are sheer parity, where you basically have these genes that are are all holes except for a couple of lines of denim, and they cost like two hundred dollars. There's one post I'm thinking of particular, and it was widely widely mocked online. Yes, the look on your face does say it all. Tim, Well, maybe there's a market for patches, all right, there's got to be more than apparel, right, I mean, are we

going to see big spending on technology? Yes? Absolutely. I mean that's always a key category, whether it's laptops, you know, I've had iPhones, whatever it maybe um shoppers needs back

to school for flies. Those are definitely top categories. If I look at just a survey that we pulled up and it was done by Deloitte, you know, total back to school spending the estimate twenty seven point six billion dollars, the lion shares, apparel fifteen billion dollars, Computer and hardware to your Technology UM point and electronic gadgets add up to anywhere near three point seven and two point eight, So you're looking at about six billion dollars starting to

talk about real money. Put Hum Goyle. Thank you so much for being with us. Put Him Goyle. See your US retail analyst for Bloomberg Intelligence, Pimm. Do you buy clothes online? No? I don't really do a lot of buying well, and you're the one who accuses me. I'm not actually buying enough things, you know at my stage, and there's no it's it's not an option. I don't know. It's hit or miss for me. I mean there have been some big wins, but some big seven and a

half billion that's what they're predicting for. That's what Putnam says for spending for back to school and a half billions. A lot of pencils. So as the US housing market heating up or slowing down, here to talk with us is Logan Motor Shami, senior loan officer for a MC Lending. Thank you so much for joining us. Logan. It's really been an interesting couple of months for the US housing market.

We got a bunch of negative data or sort of seeming to paint the market with a pessimistic brush and then today we got this good report at US petting home sales increased for the first time in three months. So can you be just sort of take a step back, take stock? Where are we with the US housing market right now? The US housing market looks exactly perfect where

it should be today. Um. I think the problem we have here is that we have an institution of housing and housing economists that have told the story that we have record breaking demand vocifer strong, and all we need is more inventory and once more inventory comes, sales will grow. What we saw an existing home sales last week was

inventory rows, sales are down. This is the same thing that happened in now We've got twice now in the cycle where we were told we have record breaking demand, but inventory rises and demand doesn't fall through with it. So it's confusing and people get nervous because we're later in the cycle. Home prices are rising, so people just want to make sure that you know, they're not, you know, in a situation where prices are going to collapse, and that's not going to be the case in this cycle either.

So I think the extreme housing bowls and extreme housing bears are going to be terribly frustrated for the upcoming years because I truly believe they're not correctly reading the data right and because of that, it creates confusion instead of instead of a housing cycle that looks exactly where it should be. Okay, well, logan, well, based on your reading of the data, what do you conclude and help Lisa out here give us a little picture into the future.

Purchase applications are at cycle highs. We've had year over year growth every week. Basically, cash buyers are faulting as a percentage of sales. So because of that, you're going to need more mortgage demand to get growth from these levels. This is the same thing kind of what happened last year as well. We're kind of a flat to negative sales trends, but purchase applications are still only as so we're not we're not bearing some very strong economic cycle

where builders have to build out more homes. So the inventory channels from the builders are actually looks pretty pretty in line. Because new home sales are still growing, they're actually better than than than I anticipated. So it's just a very slow and steady housing cycle. So there's there's not this There shouldn't be this very extremembarrassed theme with the data that came in last week, or an extreme bullish theme for all the data that has been out

here for years. With housing, it's just a very slow and steady housing cycle. But it confuses people when they see inventory increased year over year and demand go down. And I think that's I think that's the miscommunication with the housing community to the public because the public was always told if we get more inventory, sales will take off, and twice now in the cycle it has not happened.

Look in your uniquely positioned to give us insight and how much the increase in mortgage rates has affected demand for home loans. What has it been like. Well, even today, purchase applications are up the year over year, so we can we can assume that higher mortgage rates with higher home prices might impact the rate of growth of housing. But this isn't like was very evident mortgage rates rose late, purchased applications were down year over year from the majority

of the year. We don't see that this year. So today, even now, higher mortgage rates have not impacted stay else in the sense that, uh, we're creating a negative trend. But it's impacting I would say, the rate of growth out here. But also it's harder to move up when you're when interest rates are higher, you know, and I know there's a lockdown rate theory, but higher home prices make it harder for the move a buyer to buy that expensive house. And we see this in the housing

tenure data. That housing tenure is at all time highs right now. And this is a situation why builders aren't building more homes. They know there's a massive amount of supply that is out there that is cheaper, smaller, and has a geographical advantage over them. So one thing that I'm trying to understand, perhaps some of the confusion is stemming from a bifurcation in the US market where certain big cities that enjoyed massive booms in their housing markets

are seeing uh sort of market slowdowns. I mean, I'm thinking, for example of San Francisco, do market, but you're starting to see a plateauing and dipping in prices, and certainly in New York. How much is that part of the narrative. Here's here's here's the interesting. This is what I could see in SoCal and I even took a bunch of photos of price reduction homes. What I saw in June and July was aggressive selling prices from real estate agents

and these homes drawn for thirty days and more. And it's late July, and if you need to sell the house before the you know, the school the school time it comes in, you saw aggressive price cuts, you know, as I saw price cuts of four or five, six, seven percent even to sell the house. Okay, So there is limits to what you could put onto the marketplace. And that's what I'm seeing this summer, is that you saw aggressive selling prices, thinking that it would just be

soaked up because inventory is monthly supply. Is that near cyclothes And it didn't happen. And then you know, the sales are delayed out because the price cuts are coming in and most likely that all the buyers will pick it up then. But that is what I That was what I'm assuming is going is what we're seeing in other places, that there's limits to how much price increases

you could get out of the house. Logan just quickly, and I just want to mention you've got a great website, Logan, your Financial Truth website where you put out your economic and housing predictions. Just twenty seconds. Would you change anything that you've described earlier this year? Absolutely not. It looks perfect Because I talked about existing home sales will be flat and negative, but inventory will increase and people shouldn't panic about that. That was my exact line I used

UH in there. This is uh. This year looks exactly correct, and new home sales are actually still outperforming my sales estum. I though I was only looking for two to five percent growth, were a little bit higher than that. Median sales prices falling. That is actually a good thing. That means lower home prices are coming in the market. We've got to leave it there, but thanks very much for

being with a slogan Matsa Shami. He is the senior loan officer for a MC Lending, giving us his perspective on housing data, more good applications, and the housing market. Joining us now in studio Car Wreca Donna, chief US economist for Bloomberg Intelligence. Carl, gotta ask you about Kansas City and Esther George, head of the Kansas City FED. You're shaking your head. You're giving me this smile. This means Esther George is going to vote, isn't she? Yes?

She will be voting in the absence of San Francisco FED having a replacement for John Williams, who moved to was the president at the San fran FED, who was now the president at the New York FED. And what's a little bit of of musical chair I mean esther George is known as pretty hawkish. More than pretty hawkish, she is one of the most resolute hawks on the committee. So uh, A one vote can't can't slave the committee.

So you know, I don't think this materially will change the discussion for economics UH and policy setting at the effect, but nonetheless it will be a hawkish voice who counts as a vote, not just not just an opposition. Carl U. There is an enigma wrapped in a mystery, wrapped in a paradox in the economic models. Right now, we have the US administration, the President and his his staff talking about sustained three percent growth in the US possibly more.

You hear a lot of bullish talk. You also hear a lot of bullish talk from investors who are looking at the fundamentals seeing incredible earnings. And then there is the pessimism. And the pessimism is so pervasive where do you fall on this. What's the right narrative right now? I think we got two wrapped up in the notion of new normal economic growth coming out of the Great Recession. Because of the economy was so sluggish for so many years, a lot of folks started to say, well, this, you know,

this is where we're stuck going forward. Uh. So I think that was excessive pessimism. Uh. That being said, I don't think that, you know, sustained growth that three or four percent is really a viable option for the US economy. Either you can hit those types of growth figures for a short period of time. Uh. Sometimes if hll you know, have the perfect storm of economic contributions like we saw

in Q two, you get it. Also, if you uh cut taxes enough and basically embark on deficit spending, you can also get sustained pick up, but only for a short, medium time period and ultimately you have to pay the piper. So I think what we're seeing now is the economy is improving given where we are in the cycle. It's not just a consumer story anymore. Businesses are spending, but sustained growth in the three to four percent territory just not in the cards. So we're gonna get a rate

hike in September. Any other rate hikes from the Fed this year, that's going to depend on economic performance in the back half of the year. Now what we saw, you know, four point one percent growth in Q two. My team is forecasting growth to moderate it about two point eight percent in the back half of the year.

So if you're growing at two point eight percent, your unemployment rate is four percent or just a little lower inflations running at two percent, that seems like it would augur for the Fed to continue on this gradual path of normalization. But I suspect financial conditions, rather than economic performance, are going to be the determinant of that potential fourth

rate HiPE, which will come up in December. And so as we look at financial conditions, we have a FED balance sheet that's tightening, the dollar has been appreciating significantly, the yield curve is very flat. I suspect these financial considerations will actually lead the FED to pause at that December meeting, rather than purely looking at the economic data. If you look at the economic data, it's a green light. If you look at the financial data, it's flash and yellow.

Why would they not look at the economic data. Well they're looking at both. No, I know, but why would they? Why would they? They will look at the economic data in isolation. Right, They're very concerned about the potential implications of a flat yield curve, but they keeping they'll invert it and wait forgetting you for just a second. We got the report from Caterpillar today, right talk Karen neuble

Heart Bloomberg Intelligence said this is great. I mean, things are really good, and they're raising prices and those price increases are probably going to stick. You notice that in the transportation industry, prices are increasing. Can't find truckers. Is there an opportunity for the Federal Reserve to get ahead of the curve here and actually go ahead with these rate increases? The Fed doesn't want to get ahead of the curve. They want to move with the data. But

you need to look at forward looking data. So it's not the economy is doing at the moment four percent growth. It's what you're expecting the economy to do over the next couple of quarters that really matters. And I suspect we're going to get a clue a little bit later this week. And while the main focal points are the FED meeting and the Job's Report on Wednesday and Friday, respectively. What could be more important is the Manufacturing I s M, which is out on Wednesday, and within that we have

new export orders. We've had a dramatic appreciation of the dollar over the last couple of months, and that could be the beginning of a down draft or a period of weakness in the back half. Kadona, chief US economist for Bloomberg Intelligence. Always well done, actually, Bloomberg Economics. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm

on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.