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Steven Mintz, aka Ethics Sage, posted on October 28, 2016.
Steven Mintz, aka Ethics Sage, posted on October 28, 2016.
Closing our Eyes to the True Meaning of the Message
“Shooting the messenger” is a metaphoric phrase used to describe the act of blaming the bearer of bad news.
During a recent Congressional investigation, we learned that six former Wells Fargo workers were retaliated against for calling the bank’s ethics hot line about opening fake accounts. One such employee, Bill Bado, said he was fired eight days after sending an email in 2013 to HR about unauthorized accounts. Wells Fargo’s actions to suppress Bado’s claims violates the whistleblower protections under the Sarbanes-Oxley Act and Dodd-Frank.
Bado added during his testimony that he had been asked on several occasions to do things he knew were unethical. For example, his branch manager asked him to send out a debit card, “pin it,” and enroll customers in online banking – all without customers request or knowledge.
The kill the messenger syndrome is alive and well this campaign season. Hillary Clinton blames WikiLeaks, Russia, and Vladimir Putin himself for hacking DNC files and, most recently, the emails of John Podesta, chairman of the Clinton campaign. Blaming the Russians may be the right thing to do but we shouldn’t lose sight that the information disclosed is important to an informed electorate.
It appears Clinton used a “pay for play” approach to gain access to her while she was Secretary of State. Monies given to the Clinton Foundation gained access. Clinton hammers WikiLeaks for its actions and states consequences must be imposed. In her mind, WikiLeaks should be exposed under a kill the messenger reaction to the disclosures.
Donald Trump has been dealing with allegations of improper sexual comments and actions from ten women and counting. This reminds me of the Bill Cosby case. These women feared going public because of Trump’s power and influence. So, what does he do? Trump blames the women for disclosing actions he denies. It’s hard to believe so many women are lying. Trump would like to shoot these ten messengers. Yet, their actions have alerted the country to a potentially fatal flaw in his candidacy.
Then there is the infamous case of Edward Snowden. In June 2013, reporters at The Washington Post and the Guardian ran a series of stories about the U.S. government’s surveillance programs. Leaked top-secret documents showed that the National Security Agency was spying on American citizens.
At first, Snowden was treated like a pariah and the kill the messenger syndrome was in full force, including labeling Snowden as a traitor. With the passage of time many have changed their mind and lauded Snowden as it has become clear that privacy is a critical feature of an open society.
Snowden’s actions have led to a skyrocketing use of Web encryption and making our sensitive traffic more secure than ever before. Also, people are adopting better security habits: stronger passwords; better privacy settings, and more. A lot of good things have come from Snowden’s documents. Still, he should be held accountable for his actions.
Is Whistle-blowing a Moral Act?
Whistleblowers should be willing to pay the price for their disclosures if any laws have been broken. This raises the question: Is whistle-blowing a moral act? A noted expert in business ethics, Richard De George, has said that criteria establish the foundation for moral behavior to occur when contemplating whistle-blowing. He rejects the position that external whistle-blowing is always morally justifiable, and, he also rejects the position that external whistle-blowing is never morally justifiable.
De George’s position is that the whistleblower should have a moral motivation to engage in the act (i.e., to expose unnecessary harm, and illegal or immoral actions). In other words, the whistleblower has chosen to do the right thing because it is the right thing to do, not for notoriety or a financial reward. I believe in all the cases cited in this piece the whistleblowers acted morally.
The kill the messenger syndrome can lead an organization to develop a defensive posture when it comes to dealing with whistleblowers. The ethical standing of the organization morphs into what I call a counter-ethics culture. It harms the organization and disguises information that the public has a right to know.
Blog posted by Steven Mintz, aka Ethics Sage, on October 25, 2016. Dr. Mintz is Professor Emeritus from Cal Poly San Luis Obispo. He also blogs at: www.workplaceethicsadvice.com.
Tags: corporate culture, Edward Snowden, ethics sage, sexual harassment, shoot the messenger, Steven Mintz, Wells Fargo, whistleblower protection, whistleblowing, workplace ethics, workplace retaliation
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Message From John Stumpf, CEO of Wells: Do What I Say, Not What I Do
Wells Fargo is the poster child of an unethical company. We now know its employees opened more than two million unauthorized bank and credit card accounts to meet sales projections. It cost customers almost $2.5 million in fees. The actions of the bank can be attributed to an unethical corporate culture, as I have previously discussed in a workplaceethicsadvice.com blog.
On September 9, 2016, Wells Fargo agreed to pay a record $185 million fine for the actions of employees. The bank agreed to set aside $5 million to repay customers. In a letter to employees, CEO John Stumpf called employees’ actions “inconsistent with the values and culture we strive to live up to every day.” Seriously?
Wells Fargo may have a set of values on paper but the bank doesn’t incorporate into the its daily activities. This is not the first rodeo for the bank. On April 8, 2016 Wells agreed to pay the U.S. government $1.2 billion for hiding most of its bad loans in the years leading up to the 2008 housing market crash. The bank admitted certifying thousands of subprime mortgage loans that were eligible for Federal Housing Administration insurance.
Why did the bank play fast and loose with the lending rules? The answer is the risk of loss was transferred to the U.S. government. This is another example of the “moral hazard” effect whereby one party takes a questionable action when the risk of loss can be transferred to another party.
Ethics is all about what we do when no one is looking. Wells Fargo thought it could get away with illegal actions because no one would notice. It didn’t count on some of its employees raising issues about bogus customer accounts.
During a recent Congressional investigation, we learned that six former workers were retaliated against for calling the bank’s ethics hot line about opening fake accounts. One such employee, Bill Bado, said he was fired eight days after sending an email in 2013 to HR about unauthorized accounts. Wells Fargo’s actions to suppress Bado’s claims violates the whistleblower protections under the Sarbanes-Oxley Act.
Wells Fargo admitted to firing 5,300 workers over the past few years for their actions in creating phony accounts. But, what should happen to the CEO of the bank? Some in Congress believe he should resign or be fired. Others claim the government should exercise the “clawback” provision in Sarbanes-Oxley that requires a disgraced CEO like Stumpf to repay executive compensation during the period of the fraud.
Last month the board of directors announced that Stumpf will lose his bonus and unvested stock awards in the amount of $41 million. The problem is since the stock options haven’t vested Stumpf can’t buy the stock right now and pay below market for the shares so only a paper loss exists.
The beat goes on for Wells Fargo. A week ago the bank was charged by the U.S. Justice Department with as many as 413 alleged violations of the Servicemembers Civil Relief Act because it unlawfully repossessed cars from hundreds of members of the military. The bank’s regulator, the Office of the Comptroller of the Currency, fined the bank $20 million for its transgressions that went on for a decade. So, now we learn Wells Fargo doesn’t have a heart or a soul.
Today we hear a lot about breaking up mega-financial institutions because they are too big to fail. Many in Congress would like to reinstate the Glass-Steagall Act that prohibited commercial banking institutions from engaging in investment banking activities. I doubt this is the answer because the banks will find other ways to broaden their services to customers who want one-stop-shopping for financial services.
Examples of irresponsible behavior occur all too often in business and these are not minor incidents. Whether it’s Wells Fargo or automobile companies like VW that sold thousands of diesel cars in the U.S. with software specifically designed to evade government pollution tests, corporate greed crowds out ethical behavior. Corporate social responsibility is easily tossed aside for the pursuit of profit. Top management does not “walk the talk” of ethics and then blames its employees who engage in the very actions the organization promotes.
I believe corporate compliance is a concept in name only. Many companies apply an “ethical legalism” philosophy that as long as an action is legal, it’s ethical. Still, I don’t want more government oversight because existing regulations haven’t stopped the continuing flow of despicable actions.
Ethics comes from within – the culture of a company and tone set at the top. The answer is for the board of directors to take a more active role in insuring compliance not only with regulations but the organization’s ethics code. It must be a proactive approach to ethics compliance and not based on what the CEO or CFO tells the board.
Public companies have an audit committee of the board of directors with one member a financial expert. I would add a requirement for a second member to be an ethicist and task that person with assessing whether the actions of the company are consistent with ethical behavior.
Blog posted by Steven Mintz, aka Ethics Sage, on October 11, 2016. Dr. Mintz is Professor Emeritus from Cal Poly San Luis Obispo. He also blogs at: www.workplaceethicsadvice.com.
Tags: clawback, corporate culture, CSR, ethical business practices, ethical legalism, ethics sage, John Stumpf, moral hazard, Steven Mintz, Wells Fargo, whistleblowing
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Debunking Trump’s Claim that Using the Tax Code to His Advantage Makes Him the Only Person to Reform It
Donald Trump reported a $916 million “net operating loss” on his 1995 taxes that allows him to deduct those losses against future taxable income for 15 years. This means through 2010 Trump may have paid little or no taxes. There is no way to know for sure how these amounts were spread out without Trump releasing his tax returns. But, it is undeniable that Trump used the tax laws to his advantage. He is legally within his rights to do so but the ethics of doing it can be questioned.
A net operating loss occurs when a taxpayer (individual or corporate) losses money in one year from a business activity. Since that taxpayer is not eligible for a tax refund in such cases, the taxpayer can carryback the loss and claim a refund for taxes paid the prior three years or carry it forward for 15 years to offset future taxable income. These were the rules in effect in 1995. Today the carryback is two years and the carryforward is for 20 years. The carryforward was extended in the aftermath of the financial recession where many businesses lost lots of money.
The purpose of the NOL is to “save” a business that has a down year(s) hoping it will become profitable in the future. On one hand it makes a lot of sense. If the business can survive as a result of the NOL provision, then it can hire and pay employees, make investors and creditors whole, invest in new business opportunities, and eventually turn a profit. In other words, the NOL does make sense on an economic level. There is no doubt it is a legal maneuver.
The problem is you and I wouldn’t be able to use the NOL absent a loss from a small business operation we own and report on our income tax return. NOL’s are typically triggered by businesses losses that pass through to the individual taxpayer owning the business. This is the case with the Trump Organization, a privately owned company.
The most ironic statement made by Trump is paying no income taxes makes him a genius. He stated that because he was able to use a “questionable” provision in the tax code to his advantage (some would call a tax loophole), he is the only one who can fix the federal income tax laws that favor the wealthy over middle class taxpayers. This is like saying Hillary Clinton is the only one who can fix the U.S. government’s outdated cybersecurity system because she used a personal server for government business; deleted emails; and, apparently, destroyed or had others destroy hard drives on computers.
The bottom line is just because something is legal it doesn’t mean it’s ethical, a concept known as ethical legalism. I’m not saying Trump should forego using a legitimate provision in the tax code. After all, you and I might be able to buy a home, take out a mortgage, and then deduct interest on the loan and real estate taxes paid. We have opportunities to lower our taxable income as well, although lower income folks probably don’t have the same opportunities. I believe the only way around the unfairness in our tax code is to level the playing field by instituting a “fair or flat tax.”
One problem with our current tax code is it offers many advantages for the rich in addition to the NOL. For example, if you own real estate as Trump does, you get to take a depreciation deduction for your property and reduce taxable income from the property. Most of us are locked out of tax advantages on real property owned because of a lack of investible money.
Trump typically lives on the edge of what’s legal and what’s ethical when it comes to things like name-calling and disparaging others. Shaming others is legal but unethical because it shows a lack of respect and lack of empathy. Bragging about using the tax code to his advantage is just as unethical from the perspective of Aristotelian ethics and the “golden mean.” The golden mean in philosophy holds that there is a desirable middle ground between two extreme behaviors: one of excess and the other deficiency. Boasting is one extreme and not taking credit for something you have done is the other. An ethical person accepts credit but exercises humility in doing so, a character trait we have yet to see in Donald Trump.
Blog posted by Steven Mintz, aka Ethics Sage, on October 6, 2016. Dr. Mintz is Professor Emeritus from Cal Poly San Luis Obispo. He also blogs at: www.workplaceethicsadvice.com.
Why Ethical Issues Arise in the Workplace and How to Deal with Them
The 2013 National Business Ethics Survey reported by the Ethics & Compliance Initiative found that 47% of employees observed misconduct at their organizations while 63% reported it. A weak ethical culture was blamed for 34% of the violations and 21% of employees experienced retaliation after reporting misconduct.
I am concerned that while misconduct is down overall from previous studies, a relatively high percentage of misconduct is committed by managers – the very people who should be establishing an ethical culture and providing ethical leadership. Workers reported that 60% of the misconduct involved someone with managerial authority from the supervisory level up to top management. Nearly a quarter (24%) of observed misdeeds involved senior managers. Also, workers said that 26% of misconduct is ongoing within their organizations and about 12% of wrongdoing was reported to take place company-wide.
These results are disturbing on many levels. First, if 50% of employees admit observing misconduct, then in all likelihood the real number is higher. The result is it becomes more difficult to instill an ethical culture in an organization. Second, with 60% reporting managerial involvement in misconduct it is challenging at best to establish an ethical tone at the top. These high levels of observed and reported misconduct raise questions about how an organization can improve its commitment to ethical behavior.
The key is to focus on managerial behavior. Top management must make it clear that violations of ethical policies will not be tolerated. Just as a parent models behavior for his/her kids to learn from, top management must demonstrate by their actions that they don’t just pay lip service to a code of ethics. Managers must be committed to making decisions in accordance with core values such as honesty, integrity, respect for others, taking responsibility for their actions and being accountable for them.
To be an effective, ethical leader, managers must learn how to spot ethical issues in their organization. Moreover, managers must learn how to raise ethical issues especially in gray areas. A key area is to look for rationalizations for unethical actions. Probing employee behavior entails looking out for signs that values have been compromised and corners have been cut by deviating from ethical norms. The rationalizations come in many forms.
A common rationalization that I have observed is to claim it’s someone else’s responsibility. This is true when an employee feels he/she is just following orders of a superior. Another is to pass it off as no big deal, a kind of materiality test for ethical conduct. Here, managers must make it clear that even a “minor” deviation from policies is cause for alarm because it could portend greater problems and lead to more serious misconduct down the road.
Some managers rationalize unethical actions by claiming it is standard practice in the organization. Dennis Kozlowski, the infamous former CEO of Tyco who rationalized his theft of $150 million from the company,” stated in an interview with Morley Safer of 60 Minutes that he wasn’t doing anything different than was done by his predecessor.
Culture is often seen as abstract and difficult to measure. Documents such as a statement of values, a credo, and ethics code means nothing unless top management models ethical behavior in every action taken and decision made. Moreover, there must be consequences for unethical behavior and rewards for employees who have acted in accordance with prescribed ethical standards much like employees should be rewarded for meeting or exceeding production goals.
A report by the SHRM Foundation titled “Shaping an Ethical Workplace Culture” describes an ethical workplace culture as one that gives priority to employee rights, fair procedures, and equity in pay and promotion, and that promotes tolerance, compassion, loyalty and honesty in the treatment of customers and employees. The reason is when employees respect the rules of conduct and feel fairly treated by management, the employees begin to trust managers and internalize the company’s values as their own. Once that happens, ethics becomes embedded in the workplace culture.
In my blog tomorrow posted on workplaceethicsadvice.com I will address some of the common ethical issues in the workplace and how managers can best deal with them in order to effectively defuse tensions that can build up and eventually explode if untreated.
Blog posted by Steven Mintz, aka Ethics Sage, on October 4, 2016. Dr. Mintz is Professor Emeritus from Cal Poly San Luis Obispo. He also blogs at: www.workplaceethicsadvice.com.
Tags: ethical business practices, ethical culture, ethical leadership, ethics and compliance, ethics sage, NBES, Steven Mintz, tone at the top, workplace ethics, workplace retaliation
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Differences in Ethical Values Between the Two Countries
I just returned from several days in Japan and noticed a marked difference in how Japanese people carry themselves in public and ethical values that differ from those in the U.S. Traveling in Japan one notices right away how respect is deeply ingrained into all segments of society starting with the traditional bow of the head, a sign that a person is important to the Japanese. It is very noticeable in shops and on public accommodations including traveling their excellent subway system and by rail and bullet trains. For years we in the U.S. have debated the need for high-speed rail transportation but, like so many other quality of life issues such as fixing a crumbling infrastructure, the problem has been kicked down the road over and over again.
In America, respect is earned, not given, and even then one may not be respected because many in U.S. society seem to be oblivious to the civilities that make for a friendly and warm society. It’s an internal feeling, not one created by words but by actions.
It was interesting to note the divide in Japanese society. The older generation appears to be insular. The younger generation is more outgoing, a fact that clearly has been influenced by American tastes and fashion. The Japanese youngsters use their electronic devices on trains and in the streets much as do Americans. I have to wonder what the level of stress is between the generations in Japan.
The underlying cultural value in Japan is to respect the group: family structure; work group; and so on. Imagine you work for a company and your work team discovered that one member was involved in a bad practice, even fraud. In Japan this is not likely to be exposed because the needs of the group outweigh the needs of the individual. If one person is outwardly embarrassed in Japan it reflects negatively on everyone. In order to “save face,” such criticism would not be voiced to outsiders. In the U.S., individualism is more highly valued than collectivism so individuals might come to believe they should not be punished for the act of one person in the group. The implications for workplace productivity and getting things done is significant.
Another example of differences in society is the way Japanese baseball games are played and the role of those in attendance. It was quite fascinating to watch the organized cheering sections for both the home and visiting teams as they shouted out their praise in unison. You would never hear a Japanese person using offensive language as they cheer whereas in the U.S. it’s quite common to hear s_ _ k and f_ _ k.
The word “ugly American” took new meaning for me when a U.S. fan pushed a Japanese fan out of the way and snatched a foul ball from him. I wanted to apologize to all of Japan when I saw what was the epitome of incivility.
The most fascinating thing to watch at baseball games is during the 7th inning stretch when the home team fans let go of inflated balloons at the same time. Just look at this picture and you’ll see why collectivism wins out in Japan.
Finally, the streets in Japan are spotless. The Japanese go so far as to clean the restrooms in shops during the day and mop the floors to make for a more enjoyable experience. When was the last time you saw this in the U.S?
I came to respect the Japanese culture even more last Monday, the “Respect for the Aged Day.” It’s a public holiday where families get together to honor the older generation. In the U.S. we tend to ignore the needs of the aged, even in our own families. In Japan the family takes care of their parents in their old age, whereas in the U.S. we sometimes send our parents to assisted living facilities to live out the remaining years with a stranger caring for them.
America can learn much from the Japanese. I do not believe their approach to societal ethics could ever work in the U.S. Still, I have to wonder whether a more orderly society in America would create a higher quality of life for all our citizens.
Blog posted by Steven Mintz, aka Ethics Sage, on September 27, 2016. Dr. Mintz is Professor Emeritus from Cal Poly San Luis Obispo. He also blogs at: www.workplace ethics.com.
Ethical Organizations Should Value Employees as an End in Itself, Not a Means to an End
The ethical leader understands that positive relationships are the gold standard for all organizational effort. Good quality relationships built on respect and trust—not necessarily agreement, because people need to spark off each other—are the single most important determinant of organizational success. The ethical leader understands that these kinds of relationships germinate and grow in the deep rich soil of fundamental principles: trust, respect, integrity, honesty, fairness, equity, justice and compassion.
Early last century the German philosopher and theologian, Martin Buber, described these successful relationships as “I-Thou” relationships, in which people recognize the intrinsic worth and value of others and treat each other with sincerity and respect. In the language of the 18th century German philosopher, Immanuel Kant, this is the principle of always treating the other person as an end and never merely as a means to serve your own personal interests. The ethical leader moves and acts in a world of I-Thou relationships, where in any situation, to the fullest extent possible in the circumstances, the intent is to honor and respect the worth of the other person.
In this way the ethical leader embraces the act of service as described by Robert Greenleaf in his concept of “servant leadership.” The effective leader acts as a servant to others engaged in the enterprise, not in any sense of inferiority, but as one who empowers others to achieve success by focusing on right action. The ethical leader understands the truth of our interconnectedness to each other, and that it is through our willingness to serve each other that we release our combined energy and potential to benefit the greater good of which we are all a part.
The Importance of Ethical Leadership
Fostering positive relationships provides benefits at three levels of organizational life. It is important to the individual as he or she comes to work every day and engages in activities that can fall anywhere along a spectrum from rewarding and fulfilling to disempowering, toxic and debilitating. No less in need of empowering ethical relationships is the team, large or small, formal or informal, project-focused or maintenance-oriented—in every case it depends on supportive relationships among team members. Finally, the organization as a whole with vast spans of communication and disparate areas of responsibility needs a bonding agent to make people feel they are making a unique and valuable contribution to the whole. Ethical leadership across all three levels nourishes the relationships that empower human enterprise.
Linda Fisher Thornton, in her book, 7Lenses: Learning the Principles and Practices of Ethical Leadership, contends that the key to having an ethically run company is employing morally upstanding leaders. Thornton offers practical advice on the most important actions leaders can take to integrate ethical conduct into their organizations, including:
Benefits to the Organization
The key to developing ethical leaders is to focus on developing ethical competencies including: acting with honesty and integrity; being reliable and dependable; being true to your word; being willing to make mistakes; taking responsibility and clean up after messes; and empowering others to assume leadership roles when vacancies exist in the organization.
An ethical organization is a community of people working together in an environment of mutual respect, where they grow personally, feel fulfilled, contribute to a common good, and share in the personal, emotional and financial rewards of a job well done. There is a shared understanding that success depends on a constellation of relationships, both internal and external, not all of which are under the organization’s control, but which it can influence through the way it operates from a platform of ethical principles.
Blog posted by Steven Mintz, aka Ethics Sage, on September 22, 2016. Dr. Mintz is Professor Emeritus from Cal Poly San Luis Obispo. He also blogs at: www.workplace ethics.com
Costs and Benefits of Uber versus Taxicabs
Is it possible that the Uber ride-sharing app is worth between $60 billion and $70 billion as has been reported? Can Uber’s market valuation be higher than that of the automobile companies that make the cars its drivers use? To put it into perspective, Ford and Honda are worth about $60 billion, while GM has a market value of around $55 billion. Yes, the valuation seems ridiculous but so did Facebook’s $104 billion market value the day it went public in May 2012. Four years later, Facebook is now worth about $300 billion.
What are the costs and benefits to society and our economy of having Uber, Lyft and their drivers roaming the streets of our cities and waiting for a call to pick up passengers and drive them to their destination? What are the displacement effects? What might these trends portend for the long-run?
I had my first encounter with Uber during a recent trip to New York City. What I found is the quality and efficiency of the drivers varied depending on the level of service. I will never use an Uber pool car again. It’s no fun to be in the middle of three passengers in the back seat of a Camry, two of whom could have been football players. Our “tour” through the city to drop the two off before me took one hour for a 15-mile trip and traffic was moderate.
I also wondered whether Uber drivers have background checks, undergo training, are covered by insurance, use their own cars, and so on. I learned that background checks are done, although to what extent I am not sure. I am told their cars have to be inspected and training is provided. Again, I doubt the training is extensive but had no problem with my drivers other than a few ‘short stops’ and near misses, a given when driving in NYC. Uber drivers use their own cars or can rent/lease cars as well through an Uber-driven exchange leasing program or from rental companies like Hertz and Enterprise. As for insurance, it seems as though this is up to the drivers.
There is a story on the Internet of an Uber driver who was hit by an uninsured motorist only to find out Uber wouldn’t cover any of his costs, even though the accident was not his fault because his insurance policy didn’t cover accidents caused by uninsured drivers. A word to current and future Uber drivers: Ask Uber about insurance coverage and check with your insurance company to avoid such occurrences before you start driving for the company.
It has been reported that Uber is taking millions of Manhattan rides away from taxis. In fact, NYC Mayor Bill de Blasio tried to impose a cap on the number of its for-hire cars operating in the city ostensibly because of concerns about traffic congestion. Data provided by FiveThirtyEight indicates that traffic congestion has not worsened because Uber drivers are replacing cabs in the center of the city and supplementing them in the outer boroughs.
According to the New York City Taxi and Limousine Commission, during the six-month period from April 2014 through September 2014, pickups in the city increased 3 million. My guess is two years later that amount had doubled as taxi-drivers continue to feel the socioeconomic effects of the convenience of calling Uber.
In the long run the movement to a call-for-ride program are enormous. Might there be a day where residents of cities like NYC ditch their cars entirely because of the ease of calling for a ride and the expense of keeping a car in large cities? What might that do to the automobile industry in the U.S? Could it be that traffic will decline and congestion reduced because a smaller number of people use cars? If the same level of displacement occurs and increases year-over-year, what will happen to taxi drivers? Perhaps many would wind up driving for the Ubers of the world.
What about land use? A major reduction of cars brought into and/or used by drivers living in the city means that we no longer would need so many parking facilities, which frees up land for other uses. Moreover, pollution effects due to the combustion of a fossil fuel, a process that emits gasses and affects the environment, would be lessened.
Uber and Lyft are manifestations of a changing technology and the level of comfort and ease for Millennials. These folks are already well connected with the digital world and best placed to respond to the opportunities it provides. Just imagine what the Uber vs. taxicab relationship might be in five or ten years; it is not far-fetched to think taxi drivers will become a dying breed, at least in large cities.
As with most issues, California is a bellweather state. The California Labor Commission recently ruled that an Uber driver is an employee and not an independent contractor. The long term effects of this ruling are significant for Uber. Uber had argued it did not exert any control over the driver, but the Labor Commission said Uber is “involved in every aspect of the operation, from vetting drivers and their vehicles to setting rates for trip fares.” Uber’s arguments that it just matches passengers and drivers fell on deaf ears.
Adding fuel to the fight between Uber and the regulators, in March 2016 a former Uber driver in San Diego successfully applied for unemployment benefits. Patrick Ely, the driver, was part of a group of drivers who filed a complaint against Uber for those benefits and won their case when the California Employment Development Department recognized Ely as an employee and granted him unemployment benefits; independent contractors do not qualify. If other states rule as California has done, then Uber drivers will be better protected but the costs of forced-participation in the unemployment pool may negate one of Uber’s competitive advantages.
In short, Uber is a mixed blessing. It cost less than taxi rides; the experience may be more pleasant; and it plays into our technologically-driven society. However, we have an ethical responsibility to consider the long-term socioeconomic effects as well.
Blog posted by Steven Mintz, aka Ethics Sage, on August 30, 2016. Dr. Mintz is Professor Emeritus from Cal Poly San Luis Obispo. He also blogs at: www.workplaceethicsadvice.com.
Tuition-Free Public Education vs. the Importance of Developing a Work Ethic and Grit
Last week presumptive Democratic nominee, Hillary Clinton, stole a play from Bernie Sanders’ playbook and proposed that public higher education be offered tuition free to all who are from families with incomes of up to $125,000. Estimates are that about 80 percent of American families would be able to avoid tuition at public colleges and universities. Clinton’s plan would start with students from families earning up to $85,000 a year and gradually lift the income threshold until it reaches $125,000, which the campaign said would happen by 2021.
Clinton’s proposal is counter-productive on so many levels that I don’t know where to start. First and most obvious, it would be up to each state to decide whether to provide tuition-free education to public colleges and universities and, if so, would it be limited to residents. As we have seen in other situations, if a state decides not to provide tuition-free education “mandated by” the federal government, then the government might choose to step in through executive action and take away federal funding from non-compliant states.
How would states make up for the lost tuition revenues if they enacted free education to public colleges and universities? Out here in California it would create havoc to enact a tuition-free education model because millions are collected each year from residents and non-residents. The chart below shows annual amounts. When we use four years as a standard for the 33 state institutions and two years for the 113 community colleges, these amounts add up quickly. Moreover, these amounts have been increasing each year for many years because of reduced state funding in the aftermath of the great recession.
California Community College (CCC)
California State University (CSU)
University of California (UC)
But the loss of millions in tuition to state governments is not the most important issue from a societal perspective. The most important concern is that a tuition-free education system robs young people of the life-altering experience of learning how to study and work at the same time in order to pay for tuition and the concomitant benefit of developing a strong work ethic.
Developing a strong work ethic is essential in today’s global economy. American graduates are competing with an increasingly better-prepared group of foreign students in areas such as technology and science. I have previously blogged about the stagnant scores on achievement tests of American students in math and science when compared to foreigners from many countries. I have observed that a strong work ethic is a contributing factor to the differential.
I have also previously blogged about the new buzzword making the rounds to explain the key ingredient in building a successful experience whether it be in education, the workplace, or in meeting life’s challenges. It is Grit. Angela Duckworth defines grit as passion and perseverance for very long-term goals. Grit is having stamina. Grit is sticking with your future, day in, day out, not just for the week, not just for the month, but for years, and working really hard to make that future a reality.
So, Duckworth believes that grit is the secret sauce that drives success. It is more important than both talent and intellect. Grit when combined with effort (work ethic) builds the strength of character to succeed in school and the workplace. People with grit get off the floor when they are knocked down, dust themselves off, and try harder the next time. It is an iterative process and can’t really play out to its fullest without the challenges in life that develop grit including working, if necessary, to pay for college costs. In the end, the lessons learned will far outweigh the extra effort required to gain a college education.
Ethically speaking, as the saying goes, there is no free lunch. Someone has to bear the cost and risk. It may even be those who are the recipients of a free college education because taxes may have to be raised to make up for the lost tuition revenues in state coffers.
Is it ethically appropriate for citizens with no kids to be taxed at a higher rate or pay more in taxes to help educate youngsters of other citizens? One could make the argument that it builds a stronger society and better develops the social responsibility instincts of the beneficiaries of free tuition because many could now get a college education when they might not have been able to before. All this is true but the issue being ignored is moral hazard.
Moral hazard is a situation in which one party gets involved in a risky event (i.e., goes to college even though no desire exists to do so) knowing that it is protected against the risk and the other party will incur the cost. It arises when both parties have incomplete information about each other, especially the recipient's work ethic, grit, and good old fashioned stick-to-itiveness.
So, what's the answer to rising tuition? For starters, the cost of college debt is too high. Interest rates on existing debt should be restructured and reduced for new debt. The Federal Stafford Loan has a fixed interest rate of 6.8%, more than twice the rate on many other forms of debt. The Federal PLUS loan has a rate of 7.9%. Private loan rates are even higher. These rates should be cut by at least 50%.
But, let's not deprive college students of the benefits of burning the candle at both ends and learning how to develop the determination to see a project through to its natural conclusion even in the face of extreme sacrifice. Today, most businesses and professions expect this quality of grit informed by a strong work ethic.
Blog posted by Steven Mintz on July 12, 2016. Dr. Mintz is Professor Emeritus from Cal Poly San Luis Obispo. He also blogs at: www.workplaceethicsadvice.com.
Cost-Benefit Analysis Can’t Hide Unethical Behavior by Car Companies
Finally, an agreement with German car maker Volkswagen AG. On June 28, the automaker agreed to spend up to $14.7 billion to resolve federal and state civil allegations of cheating on emissions tests and lying to customers. The company has admitted that it rigged diesel vehicles using a "defeat device" to pass emissions tests.
VW’s “Defeat Device”
VW allegedly equipped its 2.0-liter diesel vehicles with illegal software that detects when the car is being tested for compliance with EPA or California emissions standards and turns on full emissions controls only during that testing process.
"During normal driving conditions," the Department of Justice (DOJ) said, "the software renders certain emission control systems inoperative, greatly increasing emissions." The defeat device resulted in cars that met emissions standards in the laboratory but during normal driving conditions emitted up to 40 times EPA-compliant levels.
VW will spend up to $10.03 billion for a consumer buyback and lease termination program. The program covers nearly 500,000 model year 2009-2015 2.0-liter diesel vehicles sold or leased in the U.S. The settlements resolve claims that VW violated the Federal Trade Commission Act through deceptive and unfair ads for “clean diesel” vehicles. Similar claims by California were also part of the settlement. VW will also spend $4.7 billion to mitigate pollution from the cars and invest in green vehicle technology.
VW’s settlement is certainly good news for the driving public and is a first step in regaining the trust of American consumers. The next step is for the company to resolve federal criminal liability. According to Deputy Attorney General Sally Yates of the DOJ said the DOJ's criminal investigation "remains active and ongoing."
The Ongoing Saga of Corporate Irresponsibility in the Auto Industry
What is it with the automobile industry? When will they learn their lesson? How many times is the driving public’s safety going to be placed at risk for greedy car companies that either hide damaging information about car safety and/or ignore it even when it is brought to light? These are irresponsible actions and not just limited to VW. VW, like many other car companies, have lost sight of their corporate social responsibilities.
At about the same time as the VW incident, General Motors agreed to pay $900 million to resolve a federal criminal investigation of ignition-switch flaws linked to at least 124 crash deaths and the recall of 2.59 million cars. So far, no individuals have been criminally charged in the GM case, but prosecutors have said the probe is continuing. In an earlier case concerning cars that allegedly accelerated spontaneously, Toyota reached a $1.2 billion settlement with the Justice Department, the largest-ever U.S. criminal penalty for a car company until the settlement with VW.
I could go back to the 1960s and rehash the Ford Pinto debacle when crashing testing at low speeds determined that the gas tanks regularly ruptured and the cars could be engulfed in flames causing accidents or deaths. This case is important because it helps to understand the mindset of a car company when analyzing whether defects should be fixed. In the Pinto case, the company did a cost-benefit analysis as follows:
Based on this analysis and other considerations, including not being required by law to change its product design, Ford decided not to change the placement of the fuel tank. (Back in the 1960s the gas tanks were routinely placed behind the license plates).
Ford's risk-benefit analysis relied only on act-utilitarian reasoning, an approach that ignores the rights of various stakeholders. A rule-utilitarian approach might have led Ford to follow the rule: “Never sacrifice public safety.” A rights theory approach would have led to the same conclusion, based on the reasoning that the driving public has an ethical right to expect that their cars will not blow up if there is a crash at low speeds.
Star Trek Loses Yelchin Because of an Auto Defect
As a fan of Star Trek, I was particularly distressed to learn two weeks ago that gear shifting problems in a 2015 Jeep Grand Cherokee led to the untimely death of Star Trek actor Anton Yelchin. Yelchin, known for playing Chekov in the rebooted series, died June 19 after his vehicle pinned him against a mailbox pillar and fence at his home.
A government investigation into confusing gear shifters like the one in the SUV that crushed and killed Yelchin found 266 crashes that injured 68 people. Investigators also found 686 consumer complaints about the shifters and said that Fiat Chrysler received negative customer feedback shortly after the vehicles went on sale. The company also appeared to violate basic design guidelines for vehicle controls with the shifters, according U.S. National Highway Safety Administration.
Yelchin’s Jeep was among vehicles recalled in April due to complaints from drivers who had trouble telling if they put the transmission in "park" after stopping. Many reported the vehicles rolled off after the driver exited.
The vehicles now sound warning chimes and alert messages if the driver's door is opened while the engines are running and the cars are not in park. Fiat Chrysler now urges customers to set parking brakes before exiting their vehicles, and to follow instructions in owners' manuals and information cards that were mailed by the company. This is all well and good but the warning chimes should have been present in the affected vehicles all along as they are in most other vehicles.
Trust but Verify
Trust is the basis for good business. If the driving public cannot trust that their cars will operate safely under all conditions, then the guilty company’s should be punished. Irresponsible behavior is unacceptable, especially in an industry where people’s health and welfare – and very life – is at stake. Auto companies should not be allowed to rationalize unethical behavior by utilizing a flawed-reasoning approach to decision-making about how to deal with car defects as Ford did in the Pinto case. There is no price to put on a human life. There is no way to justify decisions made under the guise of risk-based analysis that makes a company blind to the ethical consequences of selling unsafe cars to an unsuspecting public.
Blog posted by Steven Mintz on July 5, 2016. Dr. Mintz is Emeritus Professor from Cal Poly San Luis Obispo. He also blogs at www.workplaceethicsadvice.com.