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A Little Side Hustle (Gwen Moritz Editor's Note)

Jeffery Moran leads PinPoint Testing, which offers blood testing and consulting services.

Eric Besson, a reporter at the Arkansas Democrat-Gazette, did some heavy lifting for his June 2 article explaining how the No. 2 administrator of the Arkansas State Crime Lab came to be selling tox-screening test kits to her own agency.

Cindy Moran, the lab’s assistant director, personally owns only 12% of the stock of PinPoint Testing LLC, which has been calibrating equipment and selling “ToxBox” screening kits to the Crime Lab — with and without the inconvenience of bidding — for the past couple of years. But it’s notable that Moran’s husband is the CEO of PinPoint, so the Moran household certainly has a vested interest in doing more business with the taxpayers who employ Cindy Moran.

I can’t begin to explain in this space all the mitigating and aggravating factors in what would seem to be an obvious conflict of interest. On Facebook, this relationship status would be “complicated.” But it’s notable that both the Crime Lab and the state Department of Finance & Administration recognized the conflict and made adjustments so that the Crime Lab could continue to buy Moran’s company’s product while Moran continued to collect her state salary.

For reasons I don’t understand, the Crime Lab doesn’t buy these toxicology screening kits directly from PinPoint. Instead, the contract is with a national supply company called Fisher Scientific, the sole bidder, which in turn agreed to supply PinPoint’s ToxBox product at the request of one customer — the State of Arkansas. But Fisher doesn’t actually stock PinPoint’s product; PinPoint ships directly to the Crime Lab.

Besson did yeoman work, but he was not able to find out how much of a cut Fisher takes for acting as middleman. However much it is, it’s pure waste. If it’s absolutely legal and ethical and in the state’s best interest for the Crime Lab to contract with a company owned by its assistant director, and if no bidding is necessary on the specific item being purchased, why pay extra for a middleman?

Every time I turn around there’s another example of a public servant who seems to be getting a little something extra. Sometimes they are straight-up crimes like those perpetrated by Jon Woods, the former state senator who, ironically, had a hand in making the so-called “ethics amendment” much more favorable to legislators than to taxpayers.

But sometimes they are deals, like the one between the Crime Lab and PinPoint, that feel just a little too cozy while apparently being completely legal.

A few years back, the College of Pharmacy at the University of Arkansas for Medical Sciences had an exclusive deal to license its technology to a company founded by a friend of the dean, at the dean’s suggestion, that then hired the dean’s husband. UAMS was supposed to earn royalties on profits, but — surprise! — there were never any profits after the employees got paid.

And it was all perfectly legal and in compliance with UAMS conflict-of-interest rules. It just wasn’t of any benefit to the public institution that developed and owned the asset that others were selling, and it didn’t pass the smell test with administrators at UAMS who didn’t have a direct interest in it.

Speaking of UAMS, how about that audit of its Myeloma Institute? As our Mark Friedman reported last month, employees spotted reg flags long before an audit discovered that a $29 million deficit had been building for nine years.

The official explanation is “accounting error,” but it seems to be the same accounting error over and over, under both former directors, Dr. Bart Barlogie and Dr. Gareth Morgan: The deficits were never entered in the financial statements at the end of each fiscal year. Convenient, no?

Here’s the part of that story that blew my mind: The audit was triggered by a decision to merge the Myeloma Institute into the UAMS Rockefeller Cancer Center, but that decision may have cost millions in donations.

Why? Staffers told the auditors that Dr. Morgan complained about the merger to at least one major donor, who then pulled his or her funding. Two other donors also cited the merger when reneging on their pledges.

Morgan seems to have wanted donors to pressure UAMS to leave the Myeloma Institute alone. I hope they might reconsider now. UAMS needed to bring all of its cancer programs under one administrative structure in order to get a National Cancer Institute designation, but the subsequent audit shows that Myeloma Institute really needed better oversight all around.

Email Gwen Moritz, editor of Arkansas Business, at and follow her on Twitter at @gwenmoritz.

Fake It Till You Break It (Gwen Moritz Editor's Note)

Elizabeth Holmes, then the CEO of Theranos, appears at the 2014 Fortune Most Powerful Women Conference in Laguna Niguel, California.

The New York Times published an article last month headlined, “Why High-Class People Get Away With Incompetence.” I noticed a link to it on Facebook and clicked immediately because I had minutes earlier finished reading “Bad Blood: Secrets & Lies in a Silicon Valley Startup.”

Yes, I know I’m a year late in reading John Carryrou’s spectacular history of Theranos and its founder, Elizabeth Holmes. I thought I knew all I needed to know about a private blood-testing company that didn’t live up to the hype. But co-workers kept raving about it, with good reason. The story of Theranos is about human nature as much as it is about business or science or fraud.

The Times story was a report on a scientific study newly published in the Journal of Personality & Social Psychology. The study — actually four studies involving more than 150,000 people — confirmed over and over that people who occupy a relatively high social class are more confident in their skills, even if those skills are demonstrably no better than average.

Overestimating one’s own competence is not really the news here. The study’s authors repeatedly cited the work of social psychologist David Dunning, including his most famous findings written with graduate student Justin Kruger, “Unskilled and Unaware of It: How Difficulties in Recognizing One’s Own Incompetence Lead to Inflated Self-Assessments.” Popularly known as the Dunning-Kruger effect, the phenomenon of incompetent people overestimating their abilities is familiar to every manager who has ever had to evaluate employees.

What’s new in the study led by Peter Belmi, a professor at the University of Virginia’s Darden School of Business, is the consistency with which other people — complete strangers, even — interpret confidence as competence. People who are already relatively privileged project confidence in their own competence, which persuades other people, leading to even more opportunities.

Elizabeth Holmes, now awaiting trial on fraud charges, is a descendant of the founder of the Fleischmann Yeast Co., the foundation for one of the great American fortunes at the turn of the last century. Most of the money had been frittered away and her own father spent most of his career in government service (before a poorly timed stint with Enron). Still, the family history and wealthy connections allowed Holmes, who dropped out of college at 19, to found a biotech company that would attract nearly a billion dollars in startup capital.

Holmes was confident, and that was mistaken for competence by just about everyone. Her investors had last names like Walton and Murdoch. The (former) CEO of Safeway had so much faith in her description of instant on-site testing of single drops of blood that he spent $100 million preparing his stores for clinics that would never materialize. Her board of directors included Jim “Mad Dog” Mattis and former Secretaries of State Henry Kissinger and George Shultz.

They all believed her claims of technological breakthroughs and gave her every benefit of every doubt because they believed in her. Shultz’s grandson interned at Theranos, changed his major in order to be part of Holmes’ world-changing adventure and quickly realized that the technology didn’t exist. His attempts to blow the whistle resulted in estrangement from his grandfather and $400,000 in legal fees. So persuaded was Shultz of Holmes’ competence that he repeatedly took her side against his own grandson until the fraud was undeniable.

Carryrou, The Wall Street Journal investigative reporter who unraveled the Theranos hoax, addressed my burning question in the last paragraph of the epilogue to “Bad Blood”: “I’m fairly certain [Holmes] didn’t initially set out to defraud investors and put patients in harm’s way …. By all accounts, she had a vision that she genuinely believed in and threw herself into realizing.”

She certainly knew that her technology didn’t do what she claimed it did — not even close — but she adopted an extreme version of “fake it till you make it.” And that, as the new study shows, is a winning strategy for people whose social class conditions them for overconfidence in the first place.

Someone, possibly Mark Twain, explained why it took people like George Shultz so long to accept the truth about Elizabeth Holmes and Theranos: “It’s easier to fool people than to convince them that they have been fooled.”

If you were waiting for me to suggest other examples of a rich person’s confidence being mistaken for competence by people who then refused to accept that they had been fooled, you’ve done that work for me.

Email Gwen Moritz, editor of Arkansas Business, at and follow her on Twitter at @gwenmoritz.

Podcast Roundup (Gwen Moritz Editor's Note)

It’s time again for another episode of What I’m Listening To.

In the past couple of years I’ve become a slave to podcasts. I rarely listen to music in the car anymore. I have Bluetooth speakers in the bedroom and the kitchen and earbuds in my purse at all times. My husband is … a saint.

In past columns, I’ve recommended several, including Malcolm Gladwell’s “Revisionist History,” “Stay Tuned with Preet [Bharara],” and the first season of “Slow Burn,” a podcast about Watergate.

The second season of “Slow Burn,” several months old now, was almost as good. It explored the impeachment of Bill Clinton, which may not have played out exactly the way you think it did. The primary criticism I’ve heard of it locally is that host Leon Neyfakh seemed to have avoided talking to anyone from Arkansas, but that may be provincialism talking.

“The Daily Standard,” hosted by longtime talk radio personality Charlie Sykes, died a sudden death in December, along with The Weekly Standard, the staunchly conservative but Never Trump magazine founded by Bill Kristol and Fred Barnes. To my great relief, Sykes regrouped with an essentially identical podcast affiliated with The Bulwark, an online news site that became a gathering place for a number of Weekly Standard refugees.

For left-leaning politics, I get a weekly dose of “Political Gabfest.” (The most popular liberal podcast seems to be “Pod Save America,” but those people give me a headache.) I also like “FiveThirtyEight Politics” and “The Lawfare Podcast.”

I don’t live on politics alone, of course. The podosphere is full of management gurus and sales motivators, but I can’t seem to get interested in those. I have been fascinated by “Business Wars,” multi-episode explorations of infamous competitors — Netflix vs. Blockbuster, Nike vs. Adidas, Coke vs. Pepsi, etc. Thanks to “Business Wars,” I could probably hold my own in a discussion of Marvel vs. DC with an average 7-year-old.

“American Scandal,” like “Business Wars,” is produced by Wondery, one of the largest podcast networks, and they have a similar feel. Some “American Scandal” stories are business-related — the BALCO steroids scandal, the Exxon Valdez oil spill — but has also explored Iran Contra and a bizarre tale that was new to me, “The Hare Krishna Murders.”

True crime is a podcast staple, producing some of the earliest breakout hits like “Serial” and “In the Dark.” “Dirty John,” the story of a successful California businesswoman who married a criminal she believed to be a doctor, is worth a listen. It inspired a TV miniseries.

Overlong (or meticulous, take your pick) but worthwhile is a podcast called simply “Cold.” It recounts the disappearance and presumed murder of a young Utah mother who naively married into a toxic but strangely close-knit family. “Cold” has done a great service by encouraging victims of domestic abuse to get out.

Last week I followed a tweet to a single episode of a podcast I had never heard of. I’m not ready to recommend “behavioral finance expert” Daniel Crosby’s “Standard Deviations” in general, but his interview with business blogger Morgan Housel is worth an hour of your time, whether you are a CEO or a teenager.

The most practical takeaway: You don’t have to be a professional stock-picker to make good investment decisions. Dollar-cost averaging — that is, investing a set number of dollars on a regular schedule, regardless of market conditions — and low-cost index funds over a long period of time will put you in the top quintile of investors or better.

The most thought-provoking: A discussion of “the just-world fallacy,” which is the assumption that wealth is the result of effort or brilliance and poverty is the result of laziness or stupidity. Luck, good and bad, is a real thing.

Crosby and Housel discuss — as Malcomb Gladwell did in his book “Outliers” — the fact that Bill Gates, by sheer luck, had access to a mainframe computer when he was in junior high in the late 1960s. Bill Gross, the billionaire bond fund manager, started his business in time for interest rates to rise into the teens. Would he have the same success if he had started at 2%? Forbes has declared Kylie Jenner, at 21, the youngest self-made billionaire — if you define self-made as not inherited. But would she be a billionaire if she were not the half-sister of the infamous Kardashians?

“All three of those individuals … were very smart and very talented and they deserve to be treated as successful people and viewed as successful people who put in a tremendous amount of effort, and that effort had a contribution to their success,” Housel said.

“But we should not pretend that it was just their effort. There were these elements that were outside their control … And, just as important, it’s true for the majority of poor people as well.”

Email Gwen Moritz, editor of Arkansas Business, at and follow her on Twitter at @gwenmoritz.

At What Price? (Gwen Moritz Editor's Note)

An Uber taxi pick-up point awaits travelers at the Rajiv Gandhi Airport in Hyderabad, India.

I have a love-hate relationship with Uber. Uber technology is fantastic. I travel by air a few times a year, and I love being able to call for a ride and to pay with my phone. I love having a receipt in my email, and I love having a paper trail in case anything goes wrong. (And I’m always sober enough to match the license plate on the app with the license plate on the car before climbing in.)

But when I think about patronizing Uber as a company, I feel a little creepy. The original management seems to have been a club of horrible people who created a horrible corporate culture, and I don’t feel good rewarding horrible people. There is also a lingering question over whether the drivers — the indispensable providers of customer service — are being paid fairly.

While I trust the pay issue will eventually work itself out, Uber’s more immediate problem is the fact that it loses money. And while losses are not unusual in startups, Uber is now 10 years old and has such name recognition that Uber has become a verb like Google. And it is gaining more competitors in a market that will soon be saturated. Will having more ride-sharing options make any of us more likely to need a ride, or will ride-sharing become a commodity in which price is the primary differentiator?

When Uber took its stock public earlier this month, the share price dropped from the initial ask of $45 to as low as $36.08 during the second day of trading. As The New York Times reported last week, Uber’s market value had been estimated in the $120 billion range by both Morgan Stanley and Goldman Sachs as recently as last September. The $75.5 billion market capitalization contemplated by the $45 IPO price was already a deep psychological discount, and the market thought that was too aggressive.

So what is Uber stock worth? Like everything else, including the service it delivers, it’s worth what people are willing to pay.

For someone who never has to make pricing decisions — those are made above my pay grade at Arkansas Business Publishing Group — I spend an inordinate amount of time thinking about prices. Pricing has got to be the most difficult decision most businesses must make. What is the sweet spot where you can cover your costs plus enough profit to make the undertaking worth the effort and risk while still being perceived as a fair value for your customers?

When your costs increase, how much of that can you pass along to your customers before they start to drift away? Last week, Walmart CFO Brett Biggs warned that higher tariffs on imports from China will mean higher prices for his customers, and I heard from a Twitter user: “Because, heaven forbid they take a cut in profits.”

But Walmart’s profit margin for its most recent fiscal year — net income of $6.67 billion on revenue of $514.4 billion — was 1.3%. That’s mighty thin in the first place, and you can be sure it wasn’t Walmart’s idea to sock Chinese imports with big new tariffs.

Apple, which also imports from China, enjoyed a 22% profit margin in fiscal 2018 — nine times Walmart’s net income on barely half its revenue. But pushing the price of the iPhone to four digits has cut into sales by discouraging consumers from upgrading as frequently, so now Apple is in a pickle. Even if the management determined that its premium brand could afford to start discounting, JPMorgan analysts estimated last week that President Trump’s latest tariffs will add 14% to the price of an iPhone — unless, of course, Apple and/or its suppliers absorb some or all of the additional costs.

I recently purchased a used car, and I’d rather stab myself in the eye. I knew which functions were vital (starting with towing capacity since boat season is upon us), and I knew which models met my needs, and I knew my budget. But I am resigned to the fact that I’ll never know whether I got the best price I might have. Ultimately, the car was worth what I was willing to pay for it, which was enough for the seller to turn loose of it.

I sometimes envy a friend who works from home and determined that it was cheaper all around to sell his car and call an Uber whenever he needs to run an errand.

Email Gwen Moritz, editor of Arkansas Business, at and follow her on Twitter at @gwenmoritz.

Better Read Than Dead (Gwen Moritz Editor's Note)

To my way of thinking, the Arkansas Gazette died in 1991 at age 172. Wehco Media, the company that published the Arkansas Democrat, bought the Gazette’s assets — including the name — but did not buy the company. The Arkansas Democrat-Gazette’s celebration last week of the Gazette’s 200th anniversary, then, would have rankled me more had I not been so eager to share any cause for celebration in the daily newspaper industry.

Just days earlier, in fact, I had reacted with cautious optimism to the news that The Advocate, a Pulitzer Prize-winning newspaper based in Baton Rouge, had purchased New Orleans’ venerable Times-Picayune. I was optimistic because The Advocate promised to restore seven-day-a-week print editions to the Big Easy. (The Times-Picayune has been printing just three days a week since 2012.) Then I heard that the entire Times-Picayune staff — 161 people, including 65 journalists — had been given 60 days’ notice, although an unspecified number are likely to be hired by the new owners.

Just another day in the newspaper business, which appears to be the first industry to starve to death at a time when consumer demand for its product has never been greater. Think about it. You want the latest news, and you want it how and when you want it. And whether you realize it or not, most news reporting is still being done by employees of traditional newspapers. Even the biggest news you see on TV or hear on the radio is often reported first by newspapers — even if the news first appears on their websites.

And while it may seem like we are being inundated with more news than ever before, the truth is we’re merely seeing news from far-flung sources that weren’t readily available in the pre-internet age. (We’re also seeing a lot of opinion that looks like news as well as genuine fake news — outright lies designed to deceive — that can also seem convincing.) Employment in newsrooms of all kinds — newspaper, television, radio, digital — declined by 23% between 2010 and 2017, according to the Pew Research Center, from 114,000 to 88,000.

But it’s really worse than that sounds: While the number of newsroom jobs declined by about 26,000, newspaper newsrooms lost some 32,000 jobs — a 45% loss in just seven years. The difference was made up by growth in the still-small number of digital newsroom employees (from 7,000 to 13,000).

Newspapers are in a death spiral: More people are getting their news online, which would be fine — better than fine, since it does not have to be printed or delivered — if online advertising had similar value to print advertising. But it doesn’t, not even close. The glut of online advertising depresses the value so that it is literally pennies on the dollar compared with print advertising, and even print ads become less valuable as the subscriber base shrinks. But there’s no relief from the cost of printing and sending a carrier down every street to deliver fewer and fewer papers. And while journalists have never been expensive — believe me — we do not work for free.

Walter Hussman, owner of the Democrat-Gazette, is one of the sharpest newspaper operators in the country. He beat Gannett in a legendary newspaper war, and he was smarter than almost anyone else about the folly of giving away valuable, costly news for free. I don’t know if his gamble on iPad subscriptions will pay off, but I wouldn’t bet against him.

There are definitely advantages to online news. It is searchable and shareable and always in your pocket. But there are also underappreciated advantages to ink-on-paper news:

► You can be sure you saw every story that might interest you. On the infinite web, you just never know.

► You like print ads. Print advertising is often beautiful, and it never irritates you. You don’t have to wait for a print ad to end — or for the two most beloved words on the internet: “skip ad.” It never jumps up in the middle of what you were reading, nor does it start talking at you. If the product interests you, you can linger over the ad and absorb the details — even the fine print. If the product doesn’t interest you, you just turn the page.

Business journals were the stepchildren of the local newspaper industry when I stumbled into this line of work in the early 1990s. With weekly production cycles and interview subjects who were unreachable after 5 p.m. anyway, it was a good fit for a working mother.

I had no idea that the internet would upend the news world order. It was nothing but pure luck that I ended up in the most stable niche, thanks to the loyal support of the business audience.

And I do mean thanks.

Email Gwen Moritz, editor of Arkansas Business, at and follow her on Twitter at @gwenmoritz.