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BALTIMORE
BUSINESS
R E V I E W
2020
A M A R Y L A N D J O U R N A L
Baltimore Business Review A Maryland Journal — 2020 Produced jointly by the CFA Society Baltimore and the Towson University College of Business and Economics Edited by Lijing Du, Ph.D., Jian Huang, Ph.D., Associate Professors Towson University, Department of Finance and Farhan S. Mustafa, CFA, Board Member CFA Society Baltimore Designed by Towson University Creative Services, Rick S. Pallansch, Director, Chris Komisar, Senior Graphic Designer For more information about the contents of this publication, contact the Towson University College of Business and Economics press contact, Jian Huang (410) 704-3547, or CFA Society Baltimore press contact, Robyn Osten (314) 650-8839. This publication is available online at www.baltimorebusinessreview.org All opinions expressed by the contributors quoted here are solely their opinions and do not reflect the opinions of CFA Society Baltimore, Towson University, Towson University College of Business and Economics or affiliates, and may have been previously disseminated by them on television, radio, Internet or another medium. You should not treat any opinion expressed in this journal as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of an opinion. Such opinions are based upon information the contributors consider reliable, but neither CFA Society Baltimore, Towson University, Towson University College of Business and Economics nor their affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. The contributors, CFA Society Baltimore, Towson University, Towson University College of Business and Economics, its affiliates and/or subsidiaries are not under any obligation to update or correct any information available in this journal. Also, the opinions expressed by the contributors may be short-term in nature and are subject to change without notice. The contributors, and CFA Society Baltimore, Towson University, Towson University College of Business and Economics or affiliates do not guarantee any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment discussed on this Web site. Strategies or investments discussed may fluctuate in price or value. You must make an independent decision regarding investments or strategies mentioned in this journal. Before acting on information in this journal, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser. 1219.1722
Message from the Dean 2
Message from the President 3
Regulation Best Interest: Higher Standards for Broker-Dealers,
Strengthened Protections 4
Michael P. Shaw, Esq.
Partner, Niles, Barton & Wilmer, LLP
Empowering Election Judges to Secure our Elections 8
Natalie M. Scala – Associate Professor,
Department of Business Analytics & Technology Management, Towson University
4
Josh Dehlinger – Professor, Department of Computer and Information Sciences, Towson University
Lorraine Black – Graduate Student in Supply Chain Management, Towson University
Saraubi Harrison – Solutions Architect, Amazon Web Services
Katerine Delgado Licona – Juvenile and Economic Crimes Unit,
Baltimore County State’s Attorney’s Office
Aikaterini Ieromonahos – Undergraduate Student in Law & the American Civilization,
Towson University
When Does A Good Investment Become a Bad Investment? 14
Niall H. O’Malley, MBA – Portfolio Manager, Blue Point Investment Management
From Digitization to Digital Transformation of Supply Chains 18
Tobin Porterfield – Associate Professor,
Department of Business Analytics & Technology Management, Towson University
Chaodong Han – Associate Professor,
Department of Business Analytics & Technology Management, Towson University
Former FDIC Chair Sheila Bair Is Optimistic About the Potential of
Technology to Improve Financial System, While Expressing Concern
About Non-Financial Debt Segment of the Market 22
Farhan Mustafa, CFA – Head of Investment Risk Management and
Head of Quantitative Investments, ClearBridge Investments
18
The Management of Interest Rate Risk: Are Maryland Banks Different? 28
Babu G. Baradwaj – Professor, Department of Finance, Towson University
Michaël Dewally – Associate Professor, Department of Finance, Towson University
Susan Flaherty – Professor, Department of Finance, Towson University
Yingying Shao – Associate Professor, Department of Finance, Towson University
The Effects of Civil Unrest on Education in Baltimore 32
Melissa A. Groves, Ph.D. – Associate Professor, Department of Economics, Towson University
Ryan Hor – Towson University ‘19
Student Survey Portfolio Analysis 36
Chris Breen – President, Towson University Investment Group
Jacob Piazza – Portfolio Manager, Towson University Investment Group
Zach Foertschbeck – Vice-President, Towson University Investment Group 36
Contributors 40
2 0 2 0 B A LT I M O R E B U S I N E S S R E V I E W
Message from the Dean
Towson University, College of Business and Economics
Dear Colleagues and Friends,
I’m excited and proud to share with you the eleventh issue of the Baltimore Business Review:
A Maryland Journal. As a joint effort between the faculty of the College of Business and
Economics (CBE) at Towson University and the Baltimore CFA Society, this journal leverages
the relative strengths of both organizations to create an outstanding resource that showcases
opportunities in Maryland and beyond.
SHOHREH A. KAYNAMA, CBE is committed to developing high quality and innovative programs and resources,
PH.D., The George connecting theory to practice in curricular, extra-curricular and research activities, and trans-
Washington University, 1991, forming students who will have a positive impact within Maryland and beyond.
is the Dean of the College
In this issue, you will see how our faculty’s research mirrors CBE’s mission. We are proud to
of Business and Economics
showcase two articles co-authored by faculty members and students—one develops train-
and Professor of Marketing
ing modules to empower election judges to identify and mitigate threats to voting systems,
at Towson University.
and the other evaluates the educational impact of civil unrest on children in Baltimore City.
Her research interests
include services marketing, You will also read about how Maryland banks manage their interest rate risks as well as a
e-Commerce/e-Business discussion on the digital transformation of supply chains for Maryland firms. Finally, we
solutions, marketing research, present an update from the Towson University Investment Group on portfolios they built
international marketing, and based on a student survey.
decision support systems in
I would like to express my appreciation to our editors and contributors to this issue of the
marketing. Her work has been
Baltimore Business Review. It is their generous contributions of time and effort that make
published extensively in many
this publication possible. We are delighted that you are joining us as readers, and as always,
credible journals (nationally
we look forward to hearing any feedback.
and internationally). She was
named one of the 2005 Top Best regards,
100 Women in Maryland
by The Daily Record and
is an honored member of
Shohreh A. Kaynama, Ph.D.
Empire “Who’s Who of
Dean, College of Business and Economics
Women in Education.” In
addition, she is a member
of Network 2000 and serves
on the boards of SBRC, the
Academy of Finance (NAF),
Baltimore County Chamber
of Commerce, Better
Business Bureau of Greater
Maryland, Maryland Council
on Economic Education,
and the Towson University
Foundation.
2
Message from the President
CFA Society Baltimore
Dear Colleagues and Friends,
It gives me great pleasure to share with you the eleventh edition of the Baltimore Business Review.
This publication represents a critical partnership between the business and academic
90/0/65/3 80/30/0/0
communities
70/50/0/0 10/10/5/55
in
Baltimore and its surrounding metropolitan areas. CFA Society Baltimore is incredibility fortunate to
have a great partnership with the Towson College of Business and Economics to- TowsonU
PMS 202 make this
CBE Red world-class
- 0/100/61/43
publication possible.
This publication would not be possible with the help and support of our publication team. I want to
thank the editorial staff of Farhan Mustafa, CFA, from CFA Society Baltimore and Jian Huang and Top 10 Employers of
Lijing Du from Towson University. I want to also think the many contributors to this year’s edition CFA Society Baltimore
and to Rick Pallansch and Chris Komisar from the Towson University Creative Services team. Your Members
time and efforts are incredibly valuable.
T. Rowe Price
The CFA Society Baltimore originated in 1948 and currently serves over 750 members today. In a Brown Advisory
joint effort, the CFA Society Baltimore and its parent company, the CFA Institute, work to promote Stifel Financial
and advocate the principles of the CFA program. The society proudly leads the investment community PNC Financial
and other finance related communities by promoting the highest standard of ethics, education, and Legg Mason
professional excellence for the benefits of the entire community. In this publication, you can see the Morgan Stanley
list of the top ten employers of our society’s members. Wells Fargo
Aegon
In recent years, the CFA Baltimore Society has made concerted efforts to expand its outreach beyond
Bank of America Merrill
the investment community. Our vision for the society is to expand membership into other accounting
Wilmington Trust
and related finance professionals, including but not limited to, financial advisors, registered invest-
ment advisors, accountants, lawyers and actuaries. Membership to the CFA Society Baltimore is open
to all professionals dedicated to these standards and we welcome you to attend future CFA Society
Baltimore events.
The CFA Society Baltimore works hard to create informative education, networking and soft skills
training programs for our current and prospective members. We strive to provide content that is timely
and provide updates on current events in the financial services profession.
I hope you enjoy this publication and find its content engaging and thought provoking. As always, we
welcome your feedback and insights. To learn more about how CFA Society Baltimore can help support
your career and professional network, please visit our website or find us on social media.
Zachary C. Reichenbach, CFA, CPA/ABV/CFF
President, CFA Society Baltimore
3
Regulation Best Interest:
Higher Standards for Broker-Dealers,
Strengthened Protections for Investors
Michael P. Shaw, Esq.,
Partner, Niles, Barton & Wilmer, LLP
2 0 2 0 B A LT I M O R E B U S I N E S S R E V I E W
On June 5, 2019, the Securities and Exchange Com- 1. Duty of Care – Before making a recommendation to
mission (the “SEC”) approved a higher standard of a retail investor (as opposed to a corporate/ institutional
care for broker-dealers (“Brokerage Firms”) and their investor), a Broker is now required under Reg BI to
financial professionals (“Brokers”) when making a understand the risks and costs associated with a recom-
recommendation to an investor regarding a securities mendation and consider these factors in view of the
transaction. This new higher standard, referred to investor’s age, investment objectives, and risk tolerance.
as Regulation Best Interest or Reg BI, is intended to
The “Care Obligation” of Reg BI requires a Broker to
narrow the gap between the different standards of care
exercise reasonable diligence, care, and skill in making
that a Broker and an investment advisor (“Investment
the recommendation. This requires the Broker to under-
Advisor”) must abide by when making recommenda-
stand potential risks, rewards, and costs associated with
tions to an investor.
the recommendation, then consider those risks, rewards,
For more than two decades, Brokers have been held to and costs in view of the investor’s investment profile,
a suitability standard of care. In other words, a Broker’s and have a reasonable basis to believe that the recom-
recommendation to an investor has, prior to Reg BI, mendation is in the investor’s best interest. A Broker
been limited to an analysis of whether the Broker’s must consider reasonable alternatives, if any, offered
recommendation is appropriate given the investor’s by the Brokerage Firm in determining whether there
age, risk tolerance, investment objectives, and other is a reasonable basis for making the recommendation.
factors. Suitability was thought to be aligned with the And the Broker must not place his/her interests ahead
transactional nature of a Broker’s relationship with an of the investor’s. (Emphasis added.)
investor. Investment Advisors, on the other hand, have
2. Conflicts of Interest – Under Reg BI’s “Conflict of
been held to a fiduciary standard of care, which refers to
Interest Obligation,” a Brokerage Firm must have
a requirement to act in a client’s best interest. Because
written policies and procedures to identify conflicts of
investment advice is considered ongoing in nature and
interest, and the Brokerage Firms must enforce these
can cover a broad array of services, Investment Advisors
policies and procedures to address conflicts of interest.
have been deemed to be in a relationship with a client
that requires loyalty and trust, hence the need for a At a minimum, a Brokerage Firm is required to disclose
higher standard of care than the suitability standard.1 its conflicts to investors, such as the conflict that arises
Over time, the distinction between the services offered with respect to a Broker’s compensation. Some conflicts
by Brokers and Investment Advisors has become less can be avoided entirely, such as eliminating sales contests
clear, prompting the SEC to re-evaluate the applicable that may lead unintentionally to unnecessary transac-
regulatory regimes and to bring the standards of care tions in client accounts. Another example of a conflict
owed by these two groups of investment professionals that can be avoided is a Broker favoring the Brokerage
closer together. Firm’s proprietary products over other products that
may be more appropriate for the investor because of
The key tenet of Reg BI is that when a Broker makes
financial incentives offered by the Brokerage Firm to
a recommendation of a securities transaction or an
sell its products. In such cases, the Brokerage Firm’s
investment strategy involving securities to an investor,
policies and procedures must be reasonably designed
the Broker must: (1) act in the best interest of the inves-
to disclose any limitations in its product offerings and
tor at the time the recommendation is made; and (2)
associated conflicts, and to prevent the limitations
not place the financial or other interest of the Broker
from causing the Broker to place his/her or the Broker-
ahead of the interest of the investor. (Emphasis added.)
age Firm’s interests ahead of the investor’s. In general,
Reg BI has four components. A Broker is required to Brokers are required to eliminate conflicts of interest
comply with each component to remain in compliance wherever possible, and Brokerage Firms are required
with the regulation. The discussion below presents the to identify and address incentives that can lead their
key elements of these components, as described in the Brokers to put their own interest ahead of the investor’s.
SEC’s Final Rule in Release No. 34-86031:
Finally, the policies and procedures must be reasonably
designed to identify and eliminate sales contests, sales
quotas, bonuses, and non-cash compensation that are
based on the sale of specific securities or specific types
2 0 2 0 B A LT I M O R E B U S I N E S S R E V I E W 5
of securities within a limited time period. (Emphasis In conjunction with approving Reg BI, the SEC also
added.) approved and now requires that both Brokers and
Investment Advisors, at the beginning of an investor
3. Disclosure – Reg BI now requires Brokerage Firms
relationship, provide an investor with a Customer
to disclose the fees they charge, the type and scope of
Relationship Summary (Form CRS) to allow the inves-
the services they offer as well as any limitations on
tor to compare one financial professional’s services to
those services, any conflicts that exist, and whether
those of another. Form CRS must contain a summary
the Brokerage Firm provides ongoing monitoring of
of the services offered, fees charged, costs, conflicts of
an investor’s account.
interest, standard of conduct, and disciplinary history,
Under Reg BI’s “Disclosure Obligation,” a Broker if any, of the firm and its financial professionals.
must provide certain prescribed disclosures before or
at the time of the recommendation about the recom-
mendation and the relationship between the investor
and the Broker. These disclosures must include: (a) The Attorneys General
that the Broker is acting in a broker-dealer capacity in seven states and the
with respect to the recommendation; (b) the material
fees and costs that apply to the investor’s transactions, District of Columbia have
holdings, and accounts; and (c) the type and scope of filed a lawsuit against
services to be provided, including any material limita-
tions on the securities or investment strategies that may
the SEC in federal court
be recommended to the investor. Additionally, Brokers in an effort to block
must disclose all material facts relating to conflicts
of interest associated with the recommendation that
implementation of
could benefit the Broker, such as conflicts associated Reg BI
with proprietary products, payments from third parties,
and compensation arrangements. (Emphasis added.)
4. Compliance – Brokerage Firms are required to develop, In promulgating Reg BI, the SEC also provided guidance
maintain and enforce policies and procedures to comply on two areas of federal securities laws that have led
with Reg BI. to some confusion. First, the SEC clarified the federal
fiduciary duty that an Investment Advisor owes to
Under Reg BI’s “Compliance Obligation,” a Broker
a client under the Investment Advisers Act of 1940
must establish, maintain, and enforce policies and
(the “Advisers Act”). Second, the SEC clarified the
procedures reasonably designed to achieve compliance
long-standing exemption that applies to a Broker who
with Reg BI. The SEC does not intend a Brokerage Firm’s
provides advice to an investor that is considered “solely
compliance with Reg BI to create new and potentially
incidental” to the brokerage transaction, and where the
duplicative records for each recommendation to an
Broker does not receive special compensation for that
investor. Rather, the SEC believes that Brokerage Firms
advice. Now, according to the SEC’s new interpretation
should be able to explain in broad terms the process
of “solely incidental,” the advice provided by a Broker
by which the firm determines what recommendations
must be “reasonably related to the broker-dealer’s
are in an investor’s best interest, and to explain how
primary business of effecting securities.”
that process was applied to a specific recommendation
to the investor. The SEC is not, however, mandating Reg BI and Form CRS became effective on September
that Brokerage Firms create and maintain a record of 10, 2019. The SEC’s new interpretations of the federal
each such determination. fiduciary duty and “solely incidental” also became
effective on that date. The SEC has, however, extended
the enforcement date of Reg BI and Form CRS until
June 30, 2020 to give Brokerage Firms time to modify
their compliance programs.
6 2 0 2 0 B A LT I M O R E B U S I N E S S R E V I E W
This article has evaluated the components of Reg BI, versus a recommendation from an Investment Advisor.
and the effect that this new regulation will have on
For its part, the Securities Industry and Financial
Brokerage Firms and their Brokers. But what about
Markets Association (SIFMA), which represents the
investors? Will investors be able to discern any notice-
broker-dealer, banking, and asset management industry,
able difference that Reg BI brings about in a Broker’s
believes that the obligation under Reg BI to eliminate
recommendations? Certainly, investors who pay close
or mitigate conflicts of interest provides even greater
attention to disclosure documents will be aware of the
protections for investors than is required under the
new Form CRS that Reg BI requires a Broker and an
fiduciary standard that applies to Investment Advisors.
Investment Advisor to complete and provide to the
investor. For most investors, however, Reg BI will not While proponents and opponents of Reg BI are deeply
lead to any noticeable change in the way that a Broker divided over whether Reg BI will enhance or diminish
or an Investment Advisor makes a recommendation. protections for investors, where these two sides agree
This is not to say that Reg BI will not have an impact on is that investors have been confused over the different
investors. The four obligations that a Broker must satisfy standards of care that apply to Brokers and Investment
to comply with Reg BI – Disclosure, Care, Conflict of Advisors when providing recommendations to investors.
Interest, and Compliance – will impact investors by Will Reg BI clear up this confusion? Unfortunately, the
raising the standard of care and due diligence required adoption by the SEC of this new standard (best interest),
of a Broker in making a recommendation in a way which essentially builds on the current standard (suit-
that goes well beyond that which is required by the ability), will likely continue to cause confusion for of
suitability standard of care. investors trying to understand how it differs from the
fiduciary standard that applies to Investment Advisors.
As with any new regulation, Reg BI has had its detrac-
tors. Public interest groups, including the Consumer Where Reg BI and the Advisers Act share something
Federation of America, the Financial Planning Coalition, in common, it is that they were each created using a
and others, believe the SEC did not go far enough in principles-based approach to regulation. Therefore, the
raising the standards for Brokers. These groups urged determination whether a Brokerage Firm or a Broker
the SEC to create for Brokers a fiduciary duty similar to has violated Reg BI will require the same analysis in
the fiduciary duty that applies to Investment Advisors. determining whether an Investment Advisor has vio-
Applying the fiduciary standard to Brokers, however, is lated the Advisers Act — an analysis of the facts and
fraught with insurmountable challenges. For one, the circumstances of the alleged violation. As with any
broker-dealer model is based on commission compensa- new regulation, the challenge that Regulation Best
tion, the sale of proprietary products, and conducting Interest presents for Brokerage Firms and Investment
principal trades (i.e., trading from the Brokerage Firm’s Advisory Firms (with respect to Form CRS) will be in
own account). Reg BI addresses such inherent conflicts drafting policies and procedures to comply with this
by requiring that they be disclosed to investors. new regulation.
Additionally, the Attorneys General in seven states and References:
the District of Columbia have filed a lawsuit against 1
See SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180 (1963).
the SEC in federal court in an effort to block imple-
mentation of Reg BI. These state, and D.C. argue that
in issuing Reg BI the SEC exceeded its authority under
the Administrative Procedure Act by failing to follow
the mandate of the Dodd-Frank Wall Street Reform
and Consumer Protection Act, which authorized the
SEC to conduct rulemaking that would harmonize the
standard of conduct between Brokers and Investment
Advisors. In their lawsuit, the states and D.C. contend
that Reg BI undermines investor protections provided by
the Advisers Act and increases investor confusion over
the standards of conduct that apply when an investor
receives an investment recommendation from a Broker
7
Empowering Election Judges to Secure our Elections
Natalie M. Scala Saraubi Harrison
Associate Professor, Department of Business Analytics Solutions Architect, Amazon Web Services
& Technology Management, Towson University
Katerine Delgado Licona
Josh Dehlinger Juvenile and Economic Crimes Unit, Baltimore County
Professor, Department of Computer and Information State’s Attorney’s Office
Sciences, Towson University
Aikaterini Ieromonahos
Lorraine Black Major in Law & the American Civilization, Towson
Graduate Student in Supply Chain Management, University
Towson UniversityIntroduction and Motivation Our research takes a “see something, say something”
The use of electronic voting equipment in the United approach and develops training modules for Election
States’ elections has been commonplace since the early Judges to identify and respond to potential cyber, physi-
2000s, with the idea first introduced by the Help America cal, and insider threats that may emerge during early
Vote Act of 2002 (US EAC, 2018). The introduction of voting and on Election Day. The training empowers
electronic voting equipment was, in part, a response to Election Judges to mitigate emerging security issues or
the punch-cards controversy in the 2000 Presidential elevate them for proper assistance. Security issues that
Election and the subsequent Bush v. Gore court pro- may emerge at a polling place must be immediately rem-
ceedings. The cybersecurity issues related to electronic edied, as elections cannot be redone or rescheduled. An
equipment became of widespread concern during the election has one chance to correctly and securely record
2016 Presidential Election, with a report and congres- votes; the confidence in, and health of, our democracy
sional testimony by Special Counsel Robert S. Mueller, depends on election integrity.
III confirming that the Russian Federation took sweeping
and systematic actions, in violation of United States Threats and the Maryland Process
criminal law, to interfere in the election (Helderman and We partnered with the Harford County Board of Elec-
Zapotosky, 2019; Mueller, 2019). Although evidence tions in Maryland to develop training modules. All
does not point to equipment and voter records actually counties in Maryland employ the same process and use
being compromised, the Department of Homeland the same equipment during early voting and on Election
Security revealed that 21 states, including Maryland, Day, and polling places are arranged into the following
were subject to cybersecurity attacks on their voting general sections or stations: check-in, voting booths,
registration files or public election sites by the Russian scanning unit, provisional voting, and disabled access.
Federation (Horwitz, Nakashima, and Gold, 2017). Maryland uses a paper ballot on which voters indicate
The Senate Intelligence Committee also concluded that their choice by filling in bubbles with pen marks; those
election systems in all 50 states were targeted by Russia ballots are then counted at the polling place using an
in 2016 (Sanger and Edmonson, 2019). optical scanner. The ballots are then retained in bins
under the scanner as a paper trail. Various Election
Our ongoing, funded, and student-centered research Judges are assigned to each station, and a Chief Elec-
takes a unique systems approach to elections security tion Judge oversees the entire polling location. Threats
and specifically considers potential cyber, physical, and may emerge at any station at a polling place. Threats
insider threats to an election. Cyber threats can exist may evolve from accidents or honest mistakes made by
regardless of an active Internet connection; physical voters and/or Election Judges, or threats may emerge
threats involve tampering with equipment; and insider from those interacting with the process with malicious
threats stem from human interactions with the process intent. The developed modules train Election Judges
(Price, et al., 2019). This approach distinguishes our to recognize that a threat may be present and equips
research from existing literature, which generally focuses them with the actions to take to mitigate the threat. The
only on cyber threats. We further differentiate from exist- modules also review proper equipment usage, in an effort
ing research by focusing on local polling places; most to avoid an Election Judge inadvertently becoming an
existing research is at the state level. We consider varied insider threat through honest mistakes and improper
sources of threat and consider polling places, because use of equipment. Examples of threats that may occur
those places are where the public actually interacts with at a polling place are outlined in Price, et al. (2019);
the voting process. The experience the public has at a that paper identifies 25 potential vulnerabilities to the
polling place drives overall confidence in voting integ- Maryland election process, even though no evidence
rity. For example, if voters have positive experiences at exists that those vulnerabilities were previously com-
a polling place, they may feel confident in the voting promised in an election. Other related sources of risk in
system. However, if the polling place was disorganized or elections security, categorized into cyber, physical, and
equipment malfunctioned in front of voters, for example, insider threats, are discussed in Locraft, et al. (2019).
they may not feel confident their votes were accurately
recorded. Thus, it is crucial that not only are the actual
security and integrity of votes maintained during early
voting and on Election Day, but also the public has a
positive and affirming experience at the polls.
2 0 2 0 B A LT I M O R E B U S I N E S S R E V I E W 9Design of Modules devices are primarily used to assist disabled voters
We created a training module for each of the five general with marking their choices on their ballots, although
stations at a Maryland polling place. Specifically, the all voters are welcome to use the marking device. We
modules created are for electronic pollbooks, voting also created a module for Chief Judges, as they have
booths, the scanning unit, provisional voting, and ballot unique responsibilities to oversee and manage the entire
marking devices. Electronic pollbooks are digital records polling location. Each module has four main training
of all registered voters and are used to verify voters at sections: equipment use, cyber threats, physical threats,
the check-in station. Voters mark their paper ballots and insider threats. Self-assessment questions are at the
in voting booths. The scanning unit reads the marked end of each section, and a user must correctly answer
bubbles on ballots and records votes. Provisional voting each question to move on to the next section. Users
is reserved for voters whose registration cannot be receive a Certificate of Completion upon completion
confirmed at the check-in station. Ballot marking of the entire module. As an example of module design,
Figure 1 provides a screenshot from the cyber threats
section of the electronic pollbooks module.
As noted in Price, et al. (2019), a cyber threat may
be related to phones used on-site containing existing
malware or other cyber-related concerns. Thus, the
electronic pollbooks module addresses that threat by
instructing Election Judges not to use their cell phones
or any other electronic device while at the polling loca-
tion. Similar approaches are taken in all modules for
each type of threat. Furthermore, the equipment section
identifies proper handling and use of equipment before,
10 2 0 2 0 B A LT I M O R E B U S I N E S S R E V I E Wduring, and after the polling place is open. Considering Goals and Conclusions
threats over time (before, during, and after) supports The goal of these training modules is to empower Elec-
other research we have in development that takes a tion Judges to identify and mitigate threats that may
Markov chain approach to assess overall threat and emerge at a polling place during early voting or on
risk (Price, et al., 2019; Locraft, et al. 2019). Educat- Election Day. Harford County Election Judges partici-
ing Election Judges on equipment use should help to pate in in-person training in the months leading up to
mitigate against threats that may emerge from mistakes an election. However, the in-person training currently
and improper handling. Equipment use may also address does not include training on cyber, physical, and insider
more nuanced threats, such as a lack of synchroniza- threats outside of active shooters. Therefore, we advise
tion between multiple pollbooks that, if persisting, may that the online modules to be administered two to three
indicate malfunctioning or compromised equipment. weeks prior to Election Day or Early Voting so that
Election Judges can have a refresher on how to use the
equipment as well as an opportunity to gain knowledge
Election Judges are our on identifying and mitigating potential threats. In some
first line of defense to the Maryland jurisdictions, such as Baltimore City and
Prince Georges’ County, hiring Election Judges on the
security of our elections.
day of the election is not uncommon. In those cases,
Our training modules a poll worker has no previous training before having
instill self-efficacy in access to and interacting with the process. As a result,
we advise day-of hires to interact with the module
Election Judges and before beginning their work. In that scenario, an Elec-
Chief Judges regarding tion Judge can have a basic introduction to equipment
use along with the crucial cyber, physical, and insider
identifying and mitigating threat awareness training.
cybersecurity threats. Election Judges are our first line of defense to the security
of our elections. Our training modules instill self-efficacy
in Election Judges and Chief Judges regarding identify-
Module Deployment ing and mitigating cybersecurity threats. Knowing that
To deploy our modules, we use the established Security Election Judges are equipped to address threats if they
Injections@Towson e-learning system (Taylor & Kaza, occur at a polling place and that they clearly know how
2011). The Security Injections@Towson project has to handle the voting equipment should increase the
developed an ecosystem of over 50 teaching/training public’s confidence in and improve their experience at
modules that introduce cybersecurity in computing polling places. Managing cyber, physical, and insider
classes; each module is packaged and hosted within the threats enable the integrity of votes to be maintained
system. Our library of training modules, along with a throughout the entire process.
supportive ecosystem of materials and resources for
election officials will be housed on the project website. We are currently conducting a follow-up study to assess
The Security Injections@Towson project is increasingly the degree to which Election Judges learn about equip-
recognized as a model for introducing secure coding ment use and cyber, physical, and insider threats from
in lower-level programming classes. As of 2019, over interacting with the training modules. The study employs
360 faculty, across 221 institutions, including 91+ pre- and post-tests to assess learning. Preliminary results
community colleges and several high schools, have show, with statistical significance, that Election Judges
completed more than 3,100 cybersecurity modules do learn and become aware of threats and mitigations
(Cyber4All, 2019). We anticipate similar accessibility while interacting with the modules.
and opportunity for use by counties and Election Judges
pertaining to our training modules.
2 0 2 0 B A LT I M O R E B U S I N E S S R E V I E W 11These modules will be used by Harford County during References
the 2020 Presidential Election cycle. We encourage all Cyber4All. (2019). Security Injections Home. Retrieved from https://
cis1.towson.edu/~cyber4all/index.php/security-injections_home/
Maryland counties and cities to adopt these modules
Helderman, R. S., & Zapotosky, M. (2019). The Mueller report:
as part of their poll worker training. Together, we can
Presented with related materials by The Washington Post. New
ensure the security of our elections. York: Scribner.
Horwitz, S., Nakashima, E., & Gold, M. (2017, September 22).
Acknowledgments DHS tells states about Russian hacking in 2016 election. The
Washington Post. Retrieved from https://tinyurl.com/HorwitzEtAl
Towson University’s School of Emerging Technologies
and the BTU Initiative partially funded this research Locraft, H., Gajendiran, P., Price, M., Scala, N. M., & Goethals, P.
L. (2019). Sources of risk in elections security. Proceedings of the
and module creation. The authors would especially like 2019 IISE Annual Conference. Retrieved from https://tinyurl.com/
to thank the Office of Civic Engagement and Social LocraftEtAl2019
Responsibility at Towson University for their support Mueller III, R. S. (2019). Former Special Counsel Robert S. Mueller,
of the follow-on learning assessment study. The authors III on the Investigation into Russian Interference in the 2016 Presiden-
tial Election. U.S. House of Representatives Committee Repository,
would also like to thank Cynthia Remmey and the https://docs.house.gov/meetings/IG/IG00/20190724/109808/HHRG-
Harford County Board of Elections team for their 116-IG00-Transcript-20190724.pdf
ongoing support of and engagement in this research. Price, M., Scala, N. M., & Goethals, P. L. (2019). Protecting Mary-
land’s voting processes. Baltimore Business Review: A Maryland
Journal. Retrieved from https://www.cfasociety.org/baltimore/
Documents/BBR_2019%20Final.pdf#page=38
Sanger, D. & Edmonson, C. (2019, July 25). Russia targeted elec-
tion systems in all 50 states, report finds. The New York Times,
https://www.nytimes.com/2019/07/25/us/politics/russian-hacking-
elections.html
Taylor, B., & Kaza, S. (2011, June). Security injections: modules
to help students remember, understand, and apply secure coding
techniques. In Proceedings of the 16th annual joint conference on
Innovation and technology in computer science education
(pp. 3-7). ACM
United States Election Assistance Commission. (2018). Help
America Vote Act. Retrieved from https://www.eac.gov/about/help-
america-vote-act/
12 2 0 2 0 B A LT I M O R E B U S I N E S S R E V I E WCONGRATULATIONS,
CFA CHARTERHOLDER ®
CLASS OF 2019!
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in 2019 and joined our community of 168,000
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2 0 2 0 B A LT I M O R E B U S I N E S S R E V I E W 13When Does A Good Investment
Become a Bad Investment?
Niall H. O’Malley, MBA
Portfolio Manager, Blue Point Investment ManagementA good investment becomes a bad investment when it Figure 1: Reported Earnings vs Buyback and Dividends S&P 500
becomes evident to the buyer that they overpaid. This
concept applies not only to individual investors, but 1,400
also in the case of share buybacks, when a company $Billions
overpays for shares. Typically, share buybacks are 1,200
used by a company to return earnings to shareholders.
1,000
The shareholders who do not sell the company shares
benefit from having a greater share of the earnings, or
800
a bigger slice of the pie. Two disturbing trends are that
increasing numbers of share buybacks do not represent 600
the return of reported earnings or overseas cash and
many publicly traded companies have been taking on 400
2014 2015 2016 2017 2018
huge amounts of debt to finance share buybacks when
their shares are at record valuations. Reported Earnings Buybacks and Dividends
Quite simply, when a company overpays for shares, Source: S&P Global
it destroys shareholder value. The value destruction
becomes greater when a company borrows money to
finance the share buyback, since the company must also
pay interest on the debt used to buy back the shares.
Further, the increased debt compromises the compa-
ny’s financial flexibility. Economic downturns and/or
unforeseen events challenge companies in unexpected
ways, which make financial flexibility and balance sheet What is Causing Differences
equity an important asset. When a company artificially
in the Capital Market?
increases earnings per share by decreasing the number
In the U.S., equity market valuation levels have dra-
of shares outstanding, it is called financial engineer-
matically exceeded economic growth since the 2008
ing. Many companies have used financial engineering
financial crisis. Are these valuation levels sustainable? At
to mask declining sales, including IBM, which had
first blush it would appear to be: The sustained expan-
declining sales for 20 consecutive quarters, but showed
sion of the U.S. business cycle is the longest on record
earnings per share as up every quarter due to massive
since World War II. What is different with this business
share repurchases.
cycle versus earlier business cycles? A critical distinction
What motivates a company’s management team to is that after the Second World War, the U.S. used fiscal
destroy financial flexibility and engage in debt financed policy to create the Eisenhower freeway system, and
share buybacks? The answer may be that some of manufacturers produced goods for a world that needed
the legislative changes following the 2008 financial to rebuild. During the current business cycle the inverse
crisis have had unintended consequences. The Dodd- has occurred: U.S. fiscal policy to invest in outdated
Frank Act enacted in 2010, requires a say-on-pay vote infrastructure has remained untapped, and domestic
for public companies giving proxy adviser firms like manufacturing has struggled to grow. The current
Institutional Shareholder Services significantly greater business cycle is different in another unprecedented
influence. Institutional Shareholder Services recom- way: It is driven almost exclusively by monetary policy.
mended that 50% of equity awards for management be The Federal Reserve bought fixed income securities by
performance based. The performance goals for senior printing trillions of dollars. Equities became a beneficiary
management are tied to shareholder returns with little of printed money, since it meant there was more money
emphasis placed on balance sheet strength. chasing equity securities. Central bank quantitative
easing has pushed interest rates to record lows. This
has caused the cost of debt to be lower than the return
on equities. Public company management teams are
arbitraging return advantage created by record low
interest rates and pocketing hefty performance awards.
2 0 2 0 B A LT I M O R E B U S I N E S S R E V I E W 15Figure 2: McDonald’s Whopper of Negative Equity S&P 500 Buyback and Dividends
Over the Past Five Years
20,000 In three of the last five 5,000
years, buybacks and dividends
$Billions exceeded reported earnings
$Billions for the S&P 500. The 2017
15,000 4,000
tax reform legislation lowered corporate income taxes
10,000 and permitted overseas3,000 cash to be repatriated, dramati-
cally increasing buybacks and dividends in 2018. What
5,000 2,000
is troubling – as seen in the table on the previous page
0 - is that in 2015 and 2016 1,000buybacks and dividends also
exceeded reported corporate earnings in the S&P 500.
-5,000 0
This means company management teams are consum-
-10,000 ing more company resources
-1,000 then they produce. The
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 201
reported earnings per share are not sustainable.
Reported Earnings Buybacks and Dividends Total Equity Reported Earnings B
Companies Draining their Balance
Source: FactSet Data Sheet with Operations in Maryland
Three companies draining their balance sheets and
creating negative shareholder equity with operations
Figure 3: There is a Cavity in Colgate Palmolive’s Equity
here in Maryland are McDonald’s, Colgate Palmolive,
and Home Depot. Negative equity is when a com-
5,000 pany’s liabilities are greater
20,000 than their assets, which
$Billions $Billions
4,000
means shareholder equity has a negative value. Share
15,000
repurchases are not the only reason negative equity can
3,000
occur. Negative equity10,000
can also occur when a company
2,000 writes down the value of an acquisition. While there
are other sources of negative
5,000 equity, for the purposes
1,000
of this article the focus is on the discretionary actions
0 of management that create 0 negative equity.
-1,000 Ten years ago, McDonald’s
-5, 000 had over $14 billion in
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 201
shareholder equity. Today, shareholder equity is less
Reported Earnings Buybacks and Dividends Total Equity than zero. McDonald’s long-term debt, which is increas-
Reported Earnings B
Source: FactSet Data
ingly used to finance share buybacks, has grown by over
$31 billion which has helped crowd out shareholder
equity. McDonald’s liabilities exceed its assets, which
means shareholder equity at the end of 2018 stood at
a negative value of -$6.2 billion. While McDonald’s
share price has hit new highs, the negative equity value
creates genuine questions about sustainability, since the
balance sheet already has substantial negative equity.
Management is borrowing from the future financial
strength of the company to finance today’s performance
goals. Overpaying for share buybacks is a real risk.
Ten years ago, Colgate Palmolive had over $3 billion
in shareholder equity. Today, shareholder equity is less
than $200 million. Colgate Palmolive’s long-term debt
has grown by over $3.5 billion which has helped crowd
out shareholder equity. Colgate Palmolive has a sky-
high return on shareholder equity, but that is due to so
16 2 0 2 0 B A LT I M O R E B U S I N E S S R E V I E Wlittle shareholder equity to begin with - less than 2% of Figure 4: Home Depot’s Home Improvement Equity is Negative
assets. Like McDonald’s, Colgate Palmolive’s manage-
ment is borrowing from the future financial strength
20,000
of the company to finance current performance goals.
$Billions
Ten years ago, Home Depot had almost $20 billion in 15,000
shareholder equity. Today, shareholder equity is less than
10,000
zero. Home Depot’s long-term debt has grown by over
$18 billion which has helped crowd out shareholder
5,000
equity. Home Depot’s liabilities exceed its assets, which
means shareholder equity at the end of 2018 stood in 0
the red with a negative equity of -$1.8 billion. The
4 2015
Home 2016
Depot share 2018
2017
price has hit a number of all-time
2019
-5, 000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
highs, partially created in part by management’s choice
to deplete the company’s
Buybacks and Dividends Total Equity balance sheet. Management Reported Earnings Buybacks and Dividends Total Equity
Source: FactSet Data
is borrowing from the future financial strength of the
company to facilitate performance goals.
Conclusion looks for sustainable trends that support sustainable
There is a growing disconnect between the growth rate growth. The growing debt levels associated with share
in earnings per share for companies and the reported buy backs that exceed reported earnings are troubling,
earnings growth rate. Share buybacks are materially and the elevated levels of share buybacks may not be
altering the earnings per share growth rates, which in a good investment.
turn raises questions about sustainable growth. Each
Resources
of the companies cited have strong cash generation, https://corpgov.law.harvard.edu/2014/10/02/what-has-happened-
but the share buybacks in excess of reported earnings to-stock-options/
are not sustainable. While this article focuses on the https://www.institutionalinvestor.com/article/b1dfj9g9mfnqxb/
troubling growth in negative equity, it important to Share-Buybacks-May-Be-Bad-Just-Not-for-the-Reasons-You-Think
remember equity is a residual measure. Arguably the https://thesoundingline.com/dividends-and-buybacks-now-larger-
than-total-reported-earnings-for-the-entire-sp-500/
most important measure of a business’s strength is the
https://www.theatlantic.com/magazine/archive/2019/08/the-stock-
ability to generate cash from operations.
buyback-swindle/592774/
Managers have a responsibility to find the lowest cost of https://www.cmgwealth.com/wp-content/uploads/2017/03/docu-
financing, but excessively low interest rates are creating ment_1072753661.pdf?mod=article_inline
an unhealthy over-indulgence in debt as low-cost debt https://www.wsj.com/articles/where-have-all-the-public-companies-
gone-1510869125
is used to replace higher cost equity. The distortions
https://www.cfo.com/credit-capital/2019/10/imf-warns-of-19-tril-
created by record low interest rates are increasingly dis- lion-corporate-debt-risk/
torting corporate balance sheets. Manager performance https://fortune.com/2019/08/22/ge-stock-buybacks-financials/
goals are further contributing to the incentive to use
debt. Taken together, share buybacks have been one
of the most powerful forces driving share prices higher.
Too much of anything eventually becomes a negative.
The purpose of this article is to discuss a negative trend
that compromises financial flexibility in these and other
companies using debt to fund share buybacks and boost
share price. General Electric could have fixed its own
problems if it had maintained balance sheet flexibility
rather than spending over $53 billion to buy back
shares at higher valuations in the decade prior to 2017.
From an active management perspective, Blue Point
2 0 2 0 B A LT I M O R E B U S I N E S S R E V I E W 17From Digitization to Digital
Transformation of Supply Chains
Tobin Porterfield
Associate Professor, Department of Business
Analytics & Technology Management, Towson University
Chaodong Han
Associate Professor, Department of Business
Analytics & Technology Management, Towson University
2 0 2 0 B A LT I M O R E B U S I N E S S R E V I E WThe global economy runs on supply chains. Global Management Review, 2019). These implementations of
supply chains move products, services, information digitization often provide strong ROI and fast payback
and financials between upstream suppliers, manufac- for organizations by quickly cutting processing costs.
turers, logistics providers, wholesalers, and retailers Process-oriented automation and information sharing
to downstream customers. Ideally, an efficient global have become competitive imperatives where organiza-
supply chain should operate seamlessly across national tions must convert in order to survive.
borders, company boundaries and internal organiza-
tional functions. The reality, however, is that supply Digitalization
chains operate in silos and each player focuses on opti- Digitalization is the process of employing digital tech-
mizing their own operation, making true optimization nologies to transform business operations across internal
of the entire supply chain nearly impossible. Emerging and external boundaries. The focus is not on efficiency by
technologies have the potential to break down those lowering costs, but on outcomes that transform business.
siloes and help improve communication and collabora- These technologies are end-user driven, adaptive to the
tion across firm and functional boundaries. However, changing landscape and they facilitate collaboration.
digitization of some business processes based on certain Current examples include Artificial Intelligence (AI)
technologies may not be sufficient; a systematic digital / Machine Learning (ML), Robotic Process Automa-
transformation of business processes and organization tion (RPA), Internet of Things (IoT), Blockchain, and
structures is needed to optimize the entire supply chain. collaborative cloud technologies (e.g. Slack, Monday,
Fleep, Workzone, Smartsheet, and Asana). These are
Digitization not big-bang, big-bucks, one-shot technology imple-
Digitization is the application of technologies to mentations. To be successful these technology solutions
make processes more efficient and it is the first step in need to support the needs of the end-user in ways that
transforming an organization. In a business context, will create new business opportunities.
digitization simply means the removal of paperwork
and conversion of analog information (handwritten, Artificial Intelligence/Machine Learning
typewritten, faxed, and voice data) into digital forms AI/ML technologies allow organizations to extract mean-
(email, messaging, PDF, chat, and databases), resulting ingful information from the overwhelming plethora
in improved efficiency and performance. of data available to support decision making. Sifting
through millions of data elements to adjust pricing
We experience the benefits of digitization when we place
strategies in real-time is now possible. In finance, AI can
an order on Amazon and receive an email confirma-
detect patterns in data to identify fraudulent transactions.
tion from the seller that includes a link to UPS with
Weather data, traffic patterns, and demand surges can
the tracking number. A simple click on the tracking
be integrated to improve lead time and delivery esti-
number retrieves information from UPS on the status
mates. When computers can “learn” the logic used by
of our delivery. Digitization has bridged companies
humans to interpret data and make decisions, selected
and technology platforms allowing us unprecedented
tasks can be automated for faster decisions 24/7. AI has
access to information which improves visibility and
the potential to transform the health care industry as
transparency.
well and a few AI-based tools have been approved by
Internally companies have implemented enterprise regulators for use in real hospitals and doctors’ offices.
resource planning systems (ERPs) that integrate dis-
parate operations (sales, warehousing, purchasing, Robotic Process Automation
accounting, human resources, and finance) on a single RPA technologies are not platform specific so they
platform that allows real-time access to information allow end users to identify routine processes that can
supporting improved decision making. be automated regardless of the systems on which they
According to Rich Sherman who has helped develop run. Mundane tasks like time sheet entry, data extrac-
the SCOR model, “Digitization removes the time tion, and data input can be partially or fully automated
delay in communicating variability across the supply such that the data is extracted by the bot and emailed
chain. Digitization gives people more time to respond to the person for a decision.
to change. It removes latency from the supply chain.
That’s the real value of digitization” (Supply Chain
2 0 2 0 B A LT I M O R E B U S I N E S S R E V I E W 19Internet of Things Digital Transformation
IoT brings together data from our internet-connected Organizations have already made great strides in moving
devices. For a business, this can support the tracking processes from analog systems to digital platforms. That
of a shipment from the time it leaves the shelf to its strategy has been effective in reducing transaction costs
arrival on the customer’s doorstep with scanners and and improving processing speed. But digitization alone
devices detecting and sharing information throughout will not necessarily create a sustainable competitive
the process. Logistics routing decisions can be improved advantage. To get ahead and stay ahead, organiza-
real-time based on congestion data from phones, auto- tions must look to flexible and dynamic technologies
mobiles, toll booths, and roadside devices. IoT is used that transform business by generating unique ongoing
to track inventory, equipment, containers, and machine competitive advantages that harvest the power of our
capacities to improve asset utilization, customer service, data and the creative juices of our workforce.
information visibility, and reliability.
These implementations are often driven by a virtual
workforce. They require tools to support collabora-
Blockchain
tive work which requires changes in a business model
Blockchain technologies allow information to be distrib-
and may lead to new revenue and value-producing
uted without being compromised. Altering of the data
opportunities. This involves a strategic mandate to
can be detected by others in the network resulting in
transform the end to end business model with a focus
improved reliability of the data while increasing trans-
on the customer. Digital transformation has profound
parency and visibility. In supply chains where multiple
implications for all businesses and their supply chains,
players provide data into the process, blockchain creates
including the acquisition of digital skills which has
a playing field where all participants can view the data
now become a prerequisite for individual, industry,
but none can alter the data without detection. This is
and regional success.
already finding application in the global food supply
chain where traceability and accountability related Global companies headquartered in the Baltimore region
to contamination are critical. In a typical global food have been active in developing and utilizing cutting-
supply chain, all participants – growers, suppliers, pro- edge technologies to achieve competitive advantages
cessors, distributors, retailers, regulators, and consumers in their respective landscapes.
– can gain permissioned access to known and trusted
Using IBM Research AI for Product Composition, Hunt
information regarding the origin and state of food from
Valley-based spice giant McCormick is able to “explore
farm to table. This can enable all stakeholders of the
flavor territories across the globe more quickly and
supply chain to utilize a secured blockchain network
efficiently, utilizing technology to extract key insights for
to trace a contaminated product to its source quickly
millions of data points across sensory science, consumer
to ensure safe recall and removal from store shelves.
preference and flavor palette”, according to CEO Mr.
Kurzius (McCormick & Co., 2019). In 2019 McCor-
Collaborative Technologies mick launched its first AI-enabled product platform,
The virtual workforce demands technologies that “ONE,” with a set of initial one-dish Recipe Mix flavors
support their dynamic and disparate work locations. including Tuscan Chicken, Bourbon Pork Tenderloin,
These technologies provide file sharing, communica- New Orleans Sausage and Glazed Salmon.
tion, and coordination by integrating cloud storage,
cameras and microphones, project management tools, McCormick also joins other food producers and dis-
messaging, and email applications. First to allow work tributors, including Dole, Driscoll’s, Golden State Foods,
to be completed efficiently in a distributed environment Kroger, McLane Company, Nestlé, Tyson Foods, Uni-
but second to create an environment where a diverse lever, and Walmart to further champion blockchain as
workforce can collaborate. New adaptations of these an enabling technology for the food sector (Fortune,
technologies are released on a daily basis and they 2017). McCormick understands that food safety issues
operate wherever people want to work on whatever such as cross-contamination, the spread of food-borne
devices people prefer. illness, unnecessary waste and the economic burden of
recalls can be costly without timely access to informa-
tion and traceability. It is time-consuming to identify
20 2 0 2 0 B A LT I M O R E B U S I N E S S R E V I E WYou can also read
