Learning from USMA

I served in the U.S. Army (Field Artillery branch) for nearly five years, and spent 39 months with the 25th Infantry Division in Hawaii (tough duty, but someone had to do it). During that time I worked with several West Point graduates (I obtained my commission through ROTC), and recall learning the "cadet honor code":

A cadet will not lie, cheat, steal,

or tolerate those who do

There's a great lesson here, is there not, and a great example for us all to follow?

An article in yesterday's WSJ ("Weitz Firm Got Rival's Database, Suit Says," by Dionne Dearcey) spoke of a lawsuit filed by a former employer for Weitz & Luxemberg, Joseph C. Maher, who claimed Weitz had "a cache of files from a competitor [Waters & Kraus] that allegedly could be used to earn millions of dollars." These records were supposedly brought to the firm by a former W&L employee of the competitor, who had joined Weitz. We have no way to know at this time where the truth lies, but if Maher's allegations are found to be true, why would a law firm hire someone who stole records from their prior firm? (Please, no lawyer jokes)

We had a conversation recently with someone about the GIPS® (Global Investment Performance Standards) portability rules, which require:

1. Substantially all of the investment decision makers to be employed by the new or acquiring firm (e.g., research department staff, portfolio managers, and other relevant staff);
2. The decision-making process to remain substantially intact and independent within the new or acquiring firm; and
3. The new or acquiring firm to have records that document and support the past performance.

 (See ¶ I.5.A.8, Global Investment Performance Standards. 2010)

In most cases, managing to meet the first two requirements is a lot easier than meeting the third. And so, what is a person to do to get the records, especially if they are leaving in less than an ideal way?

Well, if they are a CFA charterholder, stealing the records would be considered an ethics violation; but what if they aren't a charterholder, can they steal them? Of course they can; who's to stop them (unless they get caught or sued, of course)? But would that not still constitute an ethics problem?

Last year The Spaulding Group adopted a Standards of Practice, based on the CFA Institutes's, and appointed both a Chief Ethics Officer (John Simpson, CIPM) and Assistant (Jed Schneider, CIPM, FRM). And we made the decision that we will not accept a verification client if we suspect they obtained their historical records through some improper means. Yes, it is tempting to copy records in order to achieve compliance; but such action says something about the character of the individual(s), and we would prefer not to include them among our clients. We encourage all GIPS verifiers to adopt a similar rule. As USMA (United States Military Academy) proclaims, "...or tolerate those who do." And we won't.