August 2007 Archive
August 6, 2007
The U.S. Senate passed with an overwhelmingly majority a new ethics law regulating the relationship between lobbyists and Congress.
This is a good thing because Congress recognized that it had a problem. Recognition of any problem is the first step in fixing it. Congress would really have to be blind not to recognize the problem after the Abramoff scandal!
However, as we know, new laws may not necessarily change the way people think or act. Laws often tell us what we can't do and imposes penalty for those that trespass them, but laws rarely tell us what we should do. We may have a right to do something that may not necessarily be the right thing to do.
Jim Lukaszewski, author of the soon to be published book Why Should the Boss Listen to You? The Seven Disciplines of the Trusted Strategic Advisor,says that after speaking with a dozen ethics officers about their greatest professional disappointments, they all agreed that it was the lack of integrity in the workplace. Furthermore, they all believed that the best compliance programs failed to prevent corporate and organizational unethical behavior.
There is a difference between complying with laws and regulations and adhering to values. A few years ago, a CEOs of a large company would tell his ethics officer: "Your job is to keep me out of trouble (or jail.)" Now, more and more, a CEO will say to his or her ethics officer, "your job is to tell me who I am or who I should be." We are slowly moving from compliance-based to value-based ethics.
For some integrity may seem to be an abstract concept. It really is not. The word integrity comes from the Latin 'integer', which means one, or entire. It means acting in consistence with one's values. It means not having two minds, such as saying something and doing another. According the Stanford Encyclopedia of Philosophy integrity is very closely connected with the notion of identity and character.
We are all concerned with the concept. We are being impacted by the integrity of others and our integrity or lack of it has an influence on the lives of those closely or even remotely connected to us.
In the recent purchase of The Wall Street Journal by Rupert Murdoch's NewsCorp, a committee was created to guard the "journalistic and editorial integrity" of the paper. The committee will (hopefully) resolve any disputes between the paper's editors and the new owner. The ultimate goal of the committee will be to preserve the identity and independence of the paper vis-à-vis the political views and financial interests of the owners.
In a way, integrity is doing the right thing (or at least what we believe is the right thing) when no one is watching or will ever know.
The great Rabbi Zusya from Poland once said:
In the world to come, I shall not be asked, "Why were you not like Moses?" but I shall be asked, "Why were you not like......Rabbi Zusya?"
Integrity is really about who we are (or ought to be) as individual or corporations and acting accordingly.
August 13, 2007
Gregory Reyes, the former CEO of Brocade Communication was convicted last week of conspiracy and fraud in connection with backdated stock options. He was the first defendant in backdating cases that did not settle with the government but went to trial and lost. Under the Federal Sentencing Guidelines, Mr. Reyes could face 20 years in prison and pay millions of dollars in fines. It is interesting to note that he did not personally profit directly from the backdating.
More than 200 U.S companies are under investigation for backdating, among them Apple Computers. One of the arguments used by defense attorneys is that the practice is so common that executives do not even know that it is wrong! In other words, "everybody does it" or "standard industry practice."
It may be an excuse but it is certainly not a justification.
Molly Ivins , a nationally syndicated columnist, says: "'Everybody does it' is my least favorite excuse. You can't find a mother who will let her 5-year-old get away with that."
In our society, there are a number of "practices" that were, not that many years ago, widely accepted, and now are perceived as unjust and totally abhorrent, such as such a slavery and child labor.
The Federal Sentencing Guidelines is clear that that the "standard industry practice" excuse is no longer accepted as a justification for questionable actions. If some unethical practices are indeed the standard, then we have to raise the bar.
Ethics is often about raising the bar, and going beyond what is strictly legal.
How can this be done?
Here are three suggestions:
1. Define your values, both as an individual and as a corporation.
2. Question your practices and processes to make sure they are not in direct conflict with those values.
3. If a conflict does exists, try to find an innovative and creative approach to resolving the conflict that will both meet your initial goals and not violate your values.
There are a number of magazines, websites and blogs, as well as ethics organizations that you may consult and that will help you think through the different issues you might face. I have listed a few below.
- Ethisphere Magazine - http://ethisphere.com/
- Shake that Ethics Brain Journal - www.shakethatethicsbrain.squarespace.com
- The Ethics and Compliance Officer Association - www.theecoa.org
- Society of Corporate Compliance and Ethics - www.corporatecompliance.org
- The Josephson Institute of Ethics http://www.josephsoninstitute.org
- Jeffrey Seglin ethics blog: http://jeffreyseglin.blogspot.com
It is never easy. None of us have always done or will always do "the right thing" because we are all humans and to err is human. (Errare Humanum Est.)
Maybe the next time you hear the phrase "Everybody does it" you may want to reply, "not everybody!"
August 21, 2007
The world's largest toy company Mattel recently announced that it was recalling 19 millions toys sent from China. It is the largest recall in its history. The toys were found to have lead tainted paint. The recall could cost the company as much as 30 million dollars.
The Chairman and CEO did the right thing in his decision to recall and he did it immediately. He also went public and was honest when asked if this was the last recall. He answered "I can't promise, no system is perfect and we want be shy about future recalls, if necessary."
Who is to blame for this disaster? Manufacturers? Contractors, and sub contractors? The quality control inspectors? We don't know yet but most likely we will find that more than one party will be found responsible.
Professor Prakash S. Sethi, former ethics advisor at Ruder Finn and now professor at Baruch College, has been an advisor to Mattel for many years on working conditions in Mattel's factories. He says: "everyone is going to be found with lots of dirty laundry." He adds: "there is something to be said about the pressure that American and European and multinational companies that put on Chinese companies to supply cheap products. The operating margins are razor thin, so you really should not be surprised that there is pressure to cut corners."
Accidents don't happen in a vacuum. In any investigation and analysis of a catastrophe, we most often discover that the disaster resulted from an unfortunate chain of multiple errors. These errors are often the result of wrong decisions. Robert E. Mettelstaedt. Jr. in his book "How to Avoid Catastrophe in Your Business" makes the point that all disasters, such as Enron, the Titanic and Firestone Tire, have in common a string of mistakes, also called the Mistake Chain that lead to the catastrophe.
A catastrophe, can, very often be prevented if at any point in the chain of events, someone makes the correct decision. Ethics is very often about making the right decisions in a given situation.
We may sometimes feel that we are just a small gog in a wheel and mistakenly believe that our decisions, because of how small they appear to be, don't count in the overall picture. We should never underestimate the impact of the decisions we make and our responsibility.
As William McFee once wrote:
Responsibility is like a string we can only see the middle of. Both ends are out of sight.
August 28, 2007
The subprime mortgage loan crisis has been on the forefront of the news lately and has provoked an international financial crisis. According to Inside Mortgage Finance approximately one-third of mortgage loans belong to the subprime category. The recent increase in defaults is what has caused the crisis.
According to Habitat for Humanity, 95 million people in the U.S. have a housing problem. That represents approximately one-third of the nation.
Debt is at the very heart of the way we do business and plays a central role in our economy.
The U.S., has the highest consumer debt in the Western world. It has reached a staggering level of $ 2.17 trillion, according to the Federal Reserve and represents more than $20,000 per U.S. household.
Credit cards can mask the reality that one is spending real money. Studies have shown that people are less likely to buy (or spend) when using cash. Clarke, the Webmaster at Ruder Finn, told me the following anecdote: When she was 18, she decided to buy a pair of Chanel ballet flats -- shoes that cost $500. She did not want to purchase them with her credit card because, although she paid her own bill, her mother might see the statement and know she was spending her money frivolously. She had saved enough money baby-sitting to afford them, but once in Bergdorf Goodman, with the $500 cash in her hand and looking at the shoes, she just could not do it!
The question for a consumer before a purchase often is, "Can I afford it, because my credit is good and I can pay the interest on this purchase?" When it really should be, "Can I afford it because I have money in the bank?" According to the National Housing Institute, millions of households are stretched so thin that they are just two paychecks away from homelessness.
A higher salary often means improving one's lifestyle and that translates into more spending instead of savings. Sometime ago, I spoke with an executive in his late fifties, working for a large U.S. corporation. Although he has a very high salary and has for many years, he told me that he could not afford to retire!
What are the values and ethical consideration involved in the issue of personal debts?
I can think of three:
1. Responsibility in spending, making the right decision between what is necessary and what is superfluous? We also have to take responsibility for our own financial situation.
2. Wisdom in making provisions for the unexpected and difficult times that may lie ahead, as well as for eventual events such as retirement.
3. Honor in the will (and intention) to pay back creditors at some point. After all, a debt is a promise to return the money borrowed.
The poet Henry Wadsworth Longfellow inspiring words can guide us:
He looks the whole world in the face for he owes not any man.