Ethics Sage

Californians Vote to Keep the Death Penalty

Cost considerations, Exonerations, and Finality for Victims Raise Concerns about Capital Punishment

On November 6, California voters rejected the latest attempt to repeal California's death penalty ending the hopes, at least temporarily until the next proposition comes out, of activists who saw this election as their best chance in 35 years to end capital punishment in the state.

With all ballots counted, voters rejected Proposition 34 by a margin of 52.8% to 47.2%. The defeat came even though recent polling showed concern growing over the cost of capital punishment and the punishment rarely being enforced.

Since 1989 California has sentenced two men to death who were later exonerated and released from prison. In 2011 and 2012 alone, five California men who were wrongfully convicted of murder but received lesser sentences were exonerated and released from prison.

California has executed just 13 convicts and its death row has ballooned to 726 inmates since 71 percentage of the electorate voted to reinstate capital punishment in 1978. No executions have taken place since 2006 because of federal and state lawsuits filed by death row inmates. According to a study by Loyola Marymount University and Loyola Law School, ending the death penalty would save the state $130 million annually.

Perhaps post-conviction DNA exonerations are not good enough reasons to end capital punishment. However, another consideration, I believe, is – the humanity of putting someone to death. I can understand the feeling of families that lost a loved one -- “an eye for an eye.” However, it is disconcerting to say the least that the process often drags on for years. Year after year those losing a loved one wait while appeals and other delays prevent the sentence from being carried out. The average time on death row ranges from about 10-20 years. There is no finality in the system. I can’t stand in the shoes of affected families but do feel, personally, that it would be better to know the convicted person would spend the rest of his/her life in jail without the possibility of parole.

Returning to California, Shujaa Graham was convicted of robbery and given a life-sentence in 1976. He was later blamed for the murder of a prison guard and put on death row.  Finally, after a fourth trial, he was acquitted of the murder - and his robbery conviction was also overturned.  He was released in 1981, a relatively short period on death row before exoneration. Since then - for 35 years - his mission in life has been to raise awareness about wrongful conviction.

"What has happened to me is over with and done," he said. "No one can bring those years back and no one can bring the psychological scars. No one can remove the physical scars.” His wife points out that he still suffers from abusive treatment and laments losing formative years of his life.

The death penalty not only fails as a solution to the problem of violence in the U.S. but, because of the excessive costs of implementation, capital punishment interferes with a spectrum of preventive programs that have been demonstrated to work well.

Throughout the U.S., police are being laid off, prisoners are being released early, the courts are clogged, and crime continues to rise. The economic recession has caused cutbacks in the backbone of the criminal justice system. In Florida, the budget crisis resulted in the early release of 3,000 prisoners. In Texas, prisoners are serving only 20% of their time and rearrests are common. Georgia is laying off 900 correctional personnel and New Jersey has had to dismiss 500 police officers. Yet these same states, and many others like them, are pouring millions of dollars into the death penalty with no resultant reduction in crime.

The exorbitant costs of capital punishment are actually making America less safe because badly needed financial and legal resources are being diverted from effective crime fighting strategies. Before the Los Angeles riots, for example, California had little money for innovations like community policing, but was managing to spend an extra $90 million per year on capital punishment. Texas, with over 300 people on death row, is spending an estimated $2.3 million per case, but its murder rate remains one of the highest in the country.

The death penalty is escaping the decisive cost-benefit analysis to which every other program is being put in times of austerity. Rather than being posed as a single, but costly, alternative in a spectrum of approaches to crime, the death penalty operates at the extremes of political rhetoric.

The death penalty is much more expensive than its closest alternative -- life imprisonment with no parole. Capital trials are longer and more expensive at every step than other murder trials. Pre-trial motions, expert witness investigations, jury selection, and the necessity for two trials -- one on guilt and one on sentencing -- make capital cases extremely costly, even before the appeals process begins. Guilty pleas are almost unheard of when the punishment is death. In addition, many of these trials result in a life sentence rather than the death penalty, so the state pays the cost of life imprisonment on top of the expensive trial.

Looking at the ethics of capital punishment, I close with a quote from Katherine Fullerton Gerould from her 1920 book, Modes and Morals. “Many of us do not believe in capital punishment, because thus society takes from a man what society cannot give.”

Blog posted by Steven Mintz, aka Ethics Sage, on November 16, 2012

E-Mails from Biographer to a Third Party Led to Petraeus’ Resignation

How should we Evaluate Patraeus’ accomplishments in light of his Affair?

What is it about middle age men and their libidos? First it was Bill Clinton. Then, John Edwards followed by Eliot Spitzer. Fit Tiger Woods in there. I could go on but you get the picture. The latest to fall from grace is General David Petraeus, the American former military officer and public official.

Patraeus served as Director of the CIA from September 6, 2011, until his resignation on November 9, 2012. Petraeus acknowledged in his announcement that he had shown "extremely poor judgment by engaging in an extramarital affair." You think?

The woman at the center of the extramarital affair that led to the resignation of Petraeus is a highly-accomplished, West Point graduate like Patraeus, author and anti-terrorist specialist who got to know the high-profile general, in part, by going running with him in Afghanistan.

Paula Broadwell met Gen. David Petraeus in 2006, when she introduced herself after he gave a speech at Harvard's Kennedy School, where Broadwell was working on a master's degree. She got to know the General thereafter and wrote a book about him: All In: The Education of General David Petraeus. The glowing biography was taken offline shortly after her name was linked to the scandal.

The sordid affair was uncovered by an FBI investigation of “harassing” e-mails sent by Broadwell to another woman reported to be Jill Kelley who was a "social liaison" to military bases in Tampa, Florida. That probe led agents to Broadwell's email account, which uncovered the relationship with the retired four-star general, who earned acclaim for his leadership of the wars in Iraq and Afghanistan.

When F.B.I. agents followed up on the complaint and began to examine Broadwells’ e-mails, they discovered exchanges between her and Petraeus that revealed that they were having an affair, according to several officials who described the investigation on the condition of anonymity. They also discovered that Broadwell apparently had acquired some classified documents, and considered whether Petraeus might be the source, one official said.

The F.B.I. investigators were not pursuing evidence of Petraeus’s marital infidelity, which would not be a criminal matter. But their examination of his e-mails, most or all of them sent from a personal account and not from his C.I.A. account, raised the possibility of security breaches that needed to be addressed directly with him.

The agents apparently concluded, however, that it was probably not Petraeus who had given them to her, and that there had been no major breach of security. No leak charges are expected to be filed as a result of the investigation.

President Obama praised the General in his announcement of the resignation on November 9. "David Petraeus has provided extraordinary service to the United States for decades. By any measure, he was one of the outstanding General officers of his generation, helping our military adapt to new challenges, and leading our men and women in uniform through a remarkable period of service in Iraq and Afghanistan, where he helped our nation put those wars on a path to a responsible end," Obama said. "As Director of the Central Intelligence Agency, he has continued to serve with characteristic intellectual rigor, dedication, and patriotism. By any measure, through his lifetime of service David Petraeus has made our country safer and stronger.”

The Patraeus-Broadwell matter raises the question whether his life’s-work should be judged by his military accomplishments, which are significant, or the fall from grace because of his extramarital affair. Normally, I am willing to forgive someone for such discretion. To do so I look for signs of true regret for one’s actions: (1) admit to the mistake willingly; (2) show true remorse for what you have done; (3) apologize to those you have harmed; and (4) promise to never do it again.

Patraeus may have met these requirements. Still, he was in a sensitive national security position that, in my mind, overrides these prerequisites of true forgiveness. Who knows what he told Broadwell? Who know what she might now try to pass on to others, most of who have no right to know about the inner workings of the CIA or its field operations?

Patraeus exhibited a severe lack of judgment, lack of common sense, contempt for the uniform, and disrespect for his family. I cannot forgive his actions under any circumstances. Putting aside the issue of remorsefulness, it’s important to remember that ethics is not judged by situational behavior or relative to one’s beliefs. Ethics rely on established standards of moral behavior in society, not to mention the military code of conduct. Patraeus violated these norms and as a leader in the military he dishonored the uniform and put into question his service to the country.

Patraeus should be held to a higher standard because of his position. My goodness, he presided over much of "the surge" period in the war in Afghanistan. Under other circumstances I might have forgiven him, but not when he potentially compromised sensitive military information by passing it along to Broadwell. It doesn’t matter whether he did or did not do so. He shouldn’t put himself in such a compromising position by having an affair with his biographer, writer, and someone who had the potential to taint his entire life’s work.

To quote the incomparable Forrest Gump: “Stupid is what stupid does.”

Blog posted by Steven Mintz, aka Ethics Sage, on November 12, 2012

THE PENN STATE SCANDAL REVISITED

A CONSPIRACY OF SILENCE

New charged filed on November 6 accusing three former Penn State administrators of engaging in a "conspiracy of silence" to cover up child sexual abuse allegations against Jerry Sandusky raise questions about whether iconic football Coach Joe Paterno could have been charged if he were still living.

If former President Graham Spanier, university Athletic Director Tim Curley, and former administrator Gary Schultz had been charged while Paterno escaped prosecution, the former administrators probably might have complained that the coach was getting special treatment.

WHY DO GOOD PEOPLE SOMETIMES DO THE WRONG THING

Those who have watched the case said the grand jury deliberations paint Paterno as an active participant in the conspiracy. "The reality is that he knew. He knew early on, and he chose to protect the image of the football program and to protect Penn State," said Jennifer Storm, an advocate for victims who has worked with two of the young men Sandusky molested when they were boys.

But Bruce Antkowiak, a former federal prosecutor, said that without knowing everything that state prosecutors in the case know, it's not fair to conclude that there was probable cause to charge Paterno. "Once the case is tried and all the evidence has come out, it might be possible to make that kind of retroactive assessment, but right now it's too difficult," Antkowiak said.

For me, this is a good time to review the facts of the Penn State scandal and raise ethical questions. I have no doubt there was a cover-up and Paterno was the primary participant. Based on my assumption, I raise the following ethical questions:

What motivates an otherwise ethical person to do the wrong thing when faced with an ethical dilemma? Why did Joe Paterno and leaders of Penn State University look the other way and fail to act on irrefutable evidence that former assistant football coach Jerry Sandusky had raped and molested young boys, an offense for which Sandusky is serving a 30-to-60- year sentence?

According to the independent report by Louis Freeh that investigated the sexual abuse, four of the most powerful people at The Pennsylvania State University including Spanier, Curly, Schultz, and Paterno, failed to protect against a child predator harming children for over a decade by concealing Sandusky’s activities from the Board of Trustees, the University community and authorities.

The Freeh report characterizes the inactions as lacking empathy for the victims by failing to inquire as to their safety and well-being in addition to which they exposed the first abused-child to additional harm by altering Sandusky, who was the only one who knew the child’s identity, of what assistant coach Mike McQueary saw in the shower on the night of February 9, 2001.

REASONS FOR UNETHICAL ACTIONS

The following explanations are given in the Freeh report for the failure of University leaders to take action to identify the February 9, 2001 child victim and for not reporting Sandusky to the authorities:

• The desire to avoid bad publicity by reporting the incident
• The failure of the University’s Board of Trustees to have reporting mechanisms in place to ensure disclosure of major risks to the University
• A President who discouraged discussion and dissent
• A lack of awareness of child abuse issues, the Clery Act that requires all colleges and universities that participate in federal financial aid programs to keep and disclose information about crime on and near their respective campuses
• A lack of whistleblower policies and protections
• A culture of reverence for the football program that is ingrained at all levels of the campus community

EXPLANATIONS FOR UNETHICAL ACTIONS

Former Penn State President Graham Spanier is quoted as saying in an interview about how the University worked that “honesty, integrity and always doing what was in the best interests of the university (italics added) was how everyone agreed to operate and …”we’ve always operated as a family. Our personal and social and professional lives were all very intertwined.

At Penn State a culture existed that placed the interests of the University, as perceived by its leadership, ahead of the interests of the abused children and the public trust. The tone that was set by Paterno and Spanier was one of the cover-up of potentially damaging information about the institution and its football program.

The culture of an organization should be built on ethical values such as honesty, integrity, trust, responsibility and accountability. While Penn State may have espoused to follow such principles, the reality was its actions did not match these stated goals of behavior.

ETHICAL BLIND SPOTS

Leaders of organizations who may be successful at what they do and see themselves as ethical and moral still cultivate a collection of what Max Bazerman and Ann Trebrunsel call blind spots. Blind spots refers to the gap between who you want to be and the person you actually are. In other words, most of us want to do the right thing – to act ethically – but internal and external pressures get in the way.

The authors attribute blind spots to the concept of bounded ethicality, that is, psychological processes that lead even good people to engage in ethically questionable behavior that contradicts their own preferred ethics. As in the Penn State situation, bounded ethicality comes into play when individuals make decisions that harm others even though that harm is inconsistent with these decision makers’ conscious beliefs and preferences.   

The moral of the Penn State saga is not to allow one’s loyalties to others and an institution get in the way of doing the right thing. The Penn State officials acted as if ethics is situational and in that situation it was more important to protect the image of the university than put an end to and prosecute child abuse.

A person who acts wrongly in one instance out of greed or self-interest forfeits the right to call him or herself an ethical person. That doesn’t mean all of us do the right thing all the time. But what it does mean is we aspire to do the right thing; we know the difference between right and wrong; and we act accordingly.

Blog posted by Steven Mintz, aka Ethics Sage, on November 7, 2012

Blind Runner: The Inspirational Story of Sami Stoner

Virtue and the Pursuit of Excellence

The ancient Greeks believed that happiness is the end goal of life in the sense of well-being, resulting from achieving excellence in the fulfillment of one’s function. Virtue is the way in which the fulfillment of happiness occurs and excellence achieved. One’s character and reasoning skills enables virtue to be achieved. Thus, the pursuit of excellence is a goal we all should strive to achieve in our life’s work and in daily encounters with others.

Recently, I saw a story on ESPN about a blind runner – Sami Stoner. Stoner’s story is inspirational and shows how much we can accomplish if we put our mind to it.  A legally blind 16-year-old, Sami traversed cross-country courses this season with her new guide dog, Chloe, and is believed to be the first high school athlete in her home state of Ohio to compete with an animal. Sami, a junior at Lexington High School, competed on the junior varsity cross country team.  

“I don’t run for time or place or anything, I just run because I love it, and I’m glad I can share my love of running with Chloe now.  She’s helped me so much.”

Having just completed her fourth year running cross country, Sami won a waiver from the state high school athletic association that allowed her to compete with a dog. The golden retriever puppy, who guides Sami through the crowded hallways at school, also takes her safely through the running trails of Ohio.

“She watches out for roots and she tries to pick the clearest path for me,” Sami said. “The ways she moves, I can feel it in her harness, so she has little ways to signal which way to go and what to do.”

At the starting line, Sami and Chloe stay back 20 to 30 seconds so Chloe doesn’t get spiked by another runner, but they usually pass other competitors by the first mile on the 5-kilometer (3.1-mile) course.

Running with just some peripheral vision is scary, Sami says. But Chloe is highly focused, which has helped Sami feel secure enough to improve her personal record to 29:53.

“There is still a little element of being terrified you’re going to fall flat on your face,” Sami says.

Sami began running cross-country in eighth grade, and by the end of that school year, her vision deteriorated and she became legally blind. She was found to have the untreatable Stargardt disease, which is similar to sight-robbing macular degeneration that affects older adults.

In high school, she worried she wouldn’t be able to compete, but teamed up with a friend, Hannah Ticoras, who ran alongside her as a guide.

“All I wanted to do was run, and running with Hannah gave me that opportunity,” says Sami.

But Hannah graduated at the end of Sami’s sophomore year.  Her mobility teacher thought she’d be a good candidate for a guide dog, and after a month of training over the summer, the Stoner family welcomed Chloe home in August.

Approaching life with uncommon verve despite her disability, those close to her say, Sami strives to be a positive role model for other visually impaired people, including a young girl she began mentoring recently.

“I just hope people learn that just because you have a disability or some kind of disadvantage that it’s not the end of the world,” says Sami, who has a 4.0 grade point average this year. “You can still do stuff, you just have to find a way of doing it.”

What makes one person achieve so much despite all odds against it? Can we imagine ourselves overcoming what Sami has had to overcome? If the answer is “no,” as I believe most people would say, then we should use Sami’s story as lesson to be learned and strive to be the best we can be at what we do. We should strive for excellence in everything we do. As Aristotle said:

We are what we repeatedly do. Excellence, then, is not an act, but a habit.

Blog posted by Steven Mintz, aka Ethics Sage, on November 2, 2012

Are Banks Finally Being Held Accountable for their Lax Mortgage Lending Practices?

Wells Fargo and Bank of America Sued for Faulty Mortgages

Have you lost thousands of dollars in retirement money due to stock market declines since the financial meltdown started in 2007? Is your mortgage underwater because lenders made ill-advised loans only to find risky homeowners defaulting on their mortgages? Well, you are not alone in your misery. The recent recession wiped out nearly two decades of Americans’ wealth, according to government data released in June, with ­middle-class families bearing the brunt of the decline.

The  Federal Reserve Bank said the median net worth of families plunged by 39 percent in just three years, from $126,400 in 2007 to $77,300 in 2010. That puts Americans roughly on par with where they were in 1992.

I have previously blogged about the failure of the U.S. government to hold mortgage companies accountable for their lax and even fraudulent mortgage-lending activities in the early part of the 2000s that ushered in a period of financial distress from which we still haven’t recovered. If you are looking for institutions to blame for our financial meltdown, look no further than the mega-financial institutions such as Banks of America and Wells Fargo.

On October 9 the government sued San Francisco-based Wells Fargo accusing the biggest U.S. mortgage lender of "reckless" lending and leaving a federal insurance program to pick up the pieces. The action, filed in federal court in Manhattan, is the latest use of the Federal False Claims Act against a lender accused of fraud against the government-backed mortgage insurer, Federal Housing Administration, which has historically backed loans to first-time buyers and those with low incomes.

The Federal False Claims Act has often been used as an effective legal tool because the government can collect treble damages if violations are proven. Back in February, Bank of America agreed to a $1 billion settlement of False Claims Act fraud allegations involving FHA-backed loans without admitting wrongdoing, and three other large banks have agreed to pay more than $490 million total in similar cases, each accepting responsibility for "certain conduct."

Wells Fargo's internal reviews identified more than 6,500 deficient loans it was required to report from 2002 to 2010, including more than 3,000 that were 60 days into default within the first six months, yet only reported about 300 of them to the department, allowing it to avoid repayment on about $190 million in benefits, according to the complaint.

Prosecutors are seeking "hundreds of millions of dollars" in damages on behalf of the FHA. The complaint alleges nearly a decade of misconduct dating back to May 2001. The lawsuit contends that Wells Fargo engaged in "regular practice of reckless origination and underwriting" of government-backed loans. The company said that more than 100,000 FHA loans met federal guidelines when more than half of them didn't, according to complaint.

The U.S. is also seeking compensatory damages for claims including breach of fiduciary duty, gross negligence and unjust enrichment for the insurance claims that the department has paid and expects to pay for mortgages wrongfully certified by Wells Fargo.

The lawsuit is the third federal mortgage-related case this year for Wells Fargo. The current complaint alleges that the bank knew that in at least half the cases those loans didn't meet federal requirements that would allow them to be insured by the government.

Wells Fargo denied the allegations in the complaint. In a statement in response to the charges, a company spokesperson said it acted in "good faith and in compliance" with federal rules. Many of the issues in the lawsuit had been previously addressed with federal agencies, the company also said. "The bank will present facts to vigorously defend itself against this action."

Wells Fargo is not alone in being sued by the government.  In February, the Bank of America  settled a $1 billion action brought by the U.S. attorney in Brooklyn that sought penalties over loans sold to the FHA. More recently, on October 24, federal prosecutors in New York filed a lawsuit against Bank of America, seeking at least $1 billion in damages for mortgage fraud.

According to the suit, after acquiring Countrywide Financial in 2008, Bank of America continued that firm's practice of rapidly issuing mortgages without safeguards that could have weeded out unqualified applicants, then sold the bad mortgages to the federal agencies Fannie Mae and Freddie Mac, sticking them -- and in turn U.S. taxpayers -- with heavy losses and foreclosed properties.

The collapse of the housing market goes far beyond just the people who lost houses and the federal agencies that ended up stuck with the tab for the bad loans.The results include steep decreases in home prices, underwater mortgages, a slim market for home sales, and fewer people now qualifying for loans. Nevertheless, I have to wonder whether banks truly have learned their lessons or will another catastrophe occur sometime in the future after the mortgage-meltdown-dust has settled.

I raise these questions because of the following story. Annette Alejandro  emerged from bankruptcy in April; she doesn’t have a job; and her car was repossessed in 2011. Still, after spending her days job hunting, she returned to her apartment in Brooklyn where, in disbelief, she sorted through the piles of credit card and auto loan offers that have come in the mail. “Even I wouldn’t make a loan to me at this point,” Ms. Alejandro said.

In the depths of the financial crisis, borrowers with tarnished credit like Ms. Alejandro were almost entirely shut out by traditional lenders. It was hard enough for people with stellar credit to get loans.

But as financial institutions recover from the losses on loans made to troubled borrowers, some of the largest lenders to the less than creditworthy, including Capital One and GM Financial, are trying to woo them back, while HSBC and JPMorgan Chase are among those tiptoeing again into subprime lending.

Albert Einstein’s immortal words sum up the recent trend of banks getting back into the risky mortgage-lending business. Einstein defined insanity as doing the same thing over and over again and expecting different results.

Blog posted by Steven Mintz, aka Ethics Sage, on October 29, 2012

Do we need more Regulation of Corporate America?: Romney vs. Obama

Is our Free-Market Economic System Morally Bankrupt?

Mitt Romney argues that business must be free to follow free-market principles unfettered by regulations such as the 2010 Dodd-Frank Financial Reform Act while President Obama believes regulation is needed to prevent another meltdown of our financial system such as the one that occurred five years ago. Who is right? The answer is both are right and that is why it is so difficult to know where the true answer lies to recent questioning of the capitalistic system such as we witnessed by the ‘Occupy’ movement.

Our free market economic system depends on the exercise of ethical behavior by corporate officials to provide for the public good. Absent decision making based on ethical values such as honesty, objectivity and integrity, and transparency the system cannot be trusted to allocate resources in the best interests of society. The root cause of such problems is the pursuit of self-interests to the exclusion of all others. The way it is supposed to work is corporate America would regulate itself and the government would stay out of its way – Romney’s position. Clearly, that has not worked for some time.

The financial crisis that started in 2007 resulted in large part from unethical conduct including making home mortgage loans when financial institutions knew (or should have known) that borrowers were not qualified – a fact that was ignored (or overlooked) so that these institutions could earn large fees from closing and other transaction costs. This scandal came on the heels of accounting frauds in the early 2000s at companies such as Enron, WorldCom, Tyco and Health South that shredded billions of dollars of shareholder wealth while top management pay packages at these companies were in the multi-millions and led to passage of the Sarbanes-Oxley Act of 2002. 

It is important to remember that Adam Smith connected ethics to economics. Smith came to his philosophy of economic behavior described in The Wealth of Nations through his view of moral behavior espoused in his first book, The Theory of Moral Sentiments. Smith, who is generally regarded to be the founder of free market economics, posited that rational self-interest informed by moral judgments based on fairness and justice would lead to promoting the best interests of society guided by the invisible hand of the marketplace. What is missing from the calculation of recent economic decision making is ethical decision making.

Corporate actions should be guided by the question: What are the rights of shareholders and other stakeholders and what are the obligations of CEOs and boards of directors to those parties? A case in point is multi-million-dollar severance packages. How is it in the best interest of shareholders for CEOs to walk away with multi-million severance packages? Perhaps the most glaring example of unfairness is the $130 million package given to Michael Ovitz in 2005, after he was fired as CEO of Walt Disney & Co. by Michael Eisner, the chair of Disney’s board of directors, just fifteen months after being hired. Notwithstanding the fact that the Delaware Chancery Court upheld the legality of the payment, boards need to be held ethically accountable for such actions.

The nature of the present economic crisis illustrates the need for departures from uncontrolled self-dealing for the good of society.  Smith had a diagnosis for this: he called such promoters of excessive risk in search of profits "prodigals and projectors,” an appropriate description of many of the promoters of credit swap insurances and sub-prime mortgages in the recent past. Yet, more government regulation is not the answer – Obama’s position. Recent efforts at financial regulatory reform may stem the tide in the short-run. However, in the long-run we should expect new and “creative” attempts at financial engineering to benefit the few to the detriment of the many. Unmitigated greed is not what Smith had in mind in writing “Sentiments.”

Do we need more corporate regulation? Yes, and the more important point is to investigate abuses and hold the perpetrators accountable for their action. I am heartened by the fact that on October 9 the U.S. government filed a civil mortgage fraud lawsuit against Wells Fargo & Co. According to the lawsuit, the Federal Housing Administration was compelled to pay Wells Fargo hundreds of millions of dollars in insurance claims on defaulted mortgages upon false certifications of more than 100,000 loans for FHA insurance, with the full knowledge that underwriters had failed to verify information directly related to the borrower’s ability to repay.

Manhattan U.S. Attorney Preet Bharara said, “As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance.” The suit against Wells Fargo has charges under the False Claims Act and under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.

The bottom line, however, is that ethical behavior cannot be legislated. It comes from within and a desire to do what is right for society and not to act solely in one’s own self-interests. Dodd-Frank, Sarbanes-Oxley, and other financial regulations are needed not so much because they will prevent, or even slow-down financial fraud. That won’t happen any time soon because our society has morphed into one where there no longer is a moral compass to guide our actions.

We need regulations to provide the ground rules with which business should be conducted in the public interest. We need regulations to punish the abusers of free-market capitalism – to hold them accountable for their actions. Finally, as a college professor who teaches ethics I know we need regulations to discuss in class the pitfalls of capitalism and exhort our students to act more responsibly after they graduate and join corporate America. The real meaning of corporate social responsibility is to contribute to the betterment of society by starting with the notion “do no harm” and then progressing to taking concrete steps to leave an ‘ethical footprint’ every step of the way and in all decision-making.

Blog posted by Steven Mintz, aka Ethics Sage, on October 26, 2012  

The Bigger they are, the Harder they Fall: The Lance Armstrong Story

What do Lance Armstrong and Michael Milken have in Common?

Barry Bonds, Roger Clemens, and now Lance Armstrong are superstars who reached the pinnacle of their sport only to be taken down by allegations of using performance-enhancing drugs. We know there are dozens like them yet to be exposed. We know it is wrong on many levels not the least of which is it compromises the level playing field that should exist in sports. The real questions are: Why did they do it? And, in the case of Armstrong: How should he be viewed in the public eye given the fact he has done so much good through his cancer-fighting foundation, Livestrong, and he, himself, successfully recovered from advanced testicular cancer that was first diagnosed in 1996?

For the record, neither Barry Bonds nor Roger Clemens has been convicted of using the drugs; Clemens was found not guilty of perjury; and Bonds guilty of obstructing justice. As for Armstrong, the Tour de France has indicated it would vacate all of his victories from 1999-2005 unless the decision is appealed by the International Cycling Union. 

Even Nike has had enough of Lance Armstrong. On October 17 the company announced its split with the cyclist even though it stood by Tiger Woods and Kobe Bryant after their sexual escapades. Nike’s statement explaining its decision was: "Due to the seemingly insurmountable evidence that Lance Armstrong participated in doping and misled Nike for more than a decade, it is with great sadness that we have terminated our contract with him.” Over the years, Nike paid Armstrong about $40 million for his endorsement.

With regard to Livestrong, Armstrong announced that he had stepped down as chairman of his cancer-fighting foundation so that the organization can focus on its mission instead of doping allegations against its founder.

Nike wasn't the only company to part ways with Armstrong. Trek, the company that supplied the bikes that he rode to seven Tour de France victories, severed ties as well. "Trek is disappointed by the findings and conclusions in the US Anti-Doping Agency (USADA) report regarding Lance Armstrong," the company said in a statement. "Given the determinations of the report, Trek is terminating our long-term relationship with Lance Armstrong.”

Armstrong strongly denies doping, but did not fight the USADA accusations through arbitration, saying he thinks the process is unfair.

Cheating is wrong on any level. It is dishonest; violates the public trust; and compromises the integrity of the person and the sport. There is no excuse for such behavior, only a rationalization such as everyone does it or a moral blindness in the sense that these athletes believe they are above the law.

Armstrong's inspiring story is a compelling one. He not only recovered from cancer that had spread to his lungs and brain but then won the world's best-known bike race. He helped the Livestrong foundation grow from a small operation in Texas into one of the most popular charities in the country. In 2004, the foundation introduced the yellow "Livestrong" bracelets, selling more than 80 million and creating a global symbol for cancer awareness and survivorship.

Armstrong’s story reminds me of another person who fell from grace – financier Michael Milken. Milken played a key role in the development of high-yield bonds, called “junk bonds,” during the go-go years of the 1980s. He earned the moniker of “Junk Bond King.” These bonds financed the merger boom during those years that coincided with the start of a telecommunications boom and an explosion of Internet users.

Milken was indicted on 98 counts of racketeering and securities fraud in 1989 as the result of an insider trading investigation. He reached a plea bargain with SEC to six securities and reporting violations but was never convicted of racketeering or insider trading. He was sentenced to ten years in prison and permanently barred from the securities industry. Milken’s sentence was influenced by testimony against him by Ivan Boesky, an arbitrager who had financed corporate takeovers and amassed personal wealth of more than $200 million. Boesky provided evidence against Milken to reduce his own sentence in an SEC case and received a meager sentence of 3.5 years and a fine of $100 million.

Milken has been called a philanthropist because since the 1980s he has funded research into cancer and other life-threatening diseases through the Milken Family Foundation and Milken Institute. Milken himself beat prostate cancer. (Where did he get the money to finance the Foundation, I wonder?).

How should we view Lance Armstrong in light of the doping charges? As with most wrongdoings, it’s the cover-up that gets you in the most trouble and not the crime (i.e. Nixon and Watergate). Does that mean if Armstrong had come out right away and admitted his failing and was remorseful the public would have accepted it and let it go at that? I believe the answer is “yes.” I’m not saying I would agree with this response to my hypothetical. Unethical (and illegal) behavior is wrong and should be punished regardless of the reaction of the offending party. However, forgiveness is a virtue that should influence our view of someone who sincerely admits a mistake and asks for it.

What might have Armstrong said to restore his image? Here is my take: “I started taking performance-enhancing drugs after my battle with cancer. I continued to take long after because it helped provide the strength to continue to compete in cycling. I was wrong. My actions were unfair to my competitors and the sport. I admit my mistakes and accept the punishment.”

Had Armstrong reacted this way he would have been viewed differently in the public eye. Yes, he still would have been stripped of his Tour de France titles. However, and most important, he would have retained his integrity and honor as a person. The moral of Armstrong’s story is that in the end all we have in life is our reputation for honesty and trustworthiness. It takes a long time to build a reputation of trust but not very long to tear it down.

Blog by posted by Steven Mintz, aka Ethics Sage, on October 22, 2012

 

 

Social Media, Ethics, and the Workplace

Managing the Workplace Ethics of Social Media

Online social media applications are quickly gaining the mindshare of company employees and changing just as rapidly.  With all the benefits that social media is bringing to the corporate world, a company faces numerous risks in its use, from misuse of company resources, to conflicts of interest and disparagement of others. Social media is a challenging topic because it crosses over so many ethics and compliance issues.  But like any other ethics and compliance topic, it must be proactively managed for a company to safeguard its reputation and provide its employees with the tools to manage their own personal and business activities.

For many companies, social media tools can provide new ways of connecting with potential and current customers, employees, suppliers and other stakeholders.  They offer companies the opportunity to speed up the pace of business, better establish the message that a company wants to convey, strengthen a company’s relationships with customers and others and further facilitate a continuous conversation about the business.

But social media when not well managed opens the door to numerous risks – breach of confidentiality, conflicts of interest, misuse of company resources, to name a few of the more obvious ones. A company without an initiative to effectively identify, assess and manage its approach to social media and its various tools not only loses out on its many opportunities they offer but faces numerous risks to and improper business practices and activities that may damage the business.  A program to harness these risks does not need to be onerous or intrusive, but it does need to be proportional to the company’s exposure.  Further, a company should expect the social media arena to continue to change both in technologies, their uses, business providers and ways social media impacts the business landscape.

The social media dimension is broad including:

• Communication, such as blogs, micro-blogs, social networking and events.
• Multimedia, including video, photography, music/audio sharing and presentation sharing and livecasting.
• Entertainment, for example, media platforms, virtual worlds and game sharing.
• Collaboration, like wikis, social news and bookmarking/tagging.

Company management may be familiar with some of the most prevalent applications – Facebook, Twitter, LinkedIn, YouTube, and MySpace – but how many know about Open Diary, Tumbler, BigTent, Wetpaint, Mixx, Vimeo, meetup.com, ccMixter, MouthShut.com, or Forterra? Chances are that a company’s younger employees know about many of these applications and more – and are actively using them. Further, as smartphones become more ubiquitous in the workplace, employees’ access to the Internet and its social media applications will speed up the media’s adoption – and create more difficulty for a company to monitor workplace use.

Currently, a number of U.S. laws and regulations are being applied to the media’s applications. Regulation FD responds to the communication of company financial or other key operational information outside of the company. Intellectual property laws address how employees may communicate a company’s IP across social media. FINRA, the securities self-regulatory organization, recently adopted a regulatory notice on use of blogs and social networking sites.  But companies should expect the legal and regulatory environment to continue to broaden around social media as its impact on the business world becomes better understood.

Each company needs to consider three ways in which social media can impact it. First, it needs to address how employees use social media for their personal, non-company use.  Second, it should consider how it and its employees use social media for the company’s business objectives. Third is the use of social media where a company needs to set rights and responsibilities for the non-employees it invites to engage in its social media activities.

A review of numerous companies’ social media policies³ indicates numerous risks that a company may face with employees’ use – whether for their personal or business purposes – of social media.

• Accessing social media, like Facebook, for personal use while at work.  Using a company computer, personal digital assistant or Smartphone to access social media, with risks of excessive bandwidth use, equipment ‘wear and tear’ or breakage, or access to improper social media (such as ‘adult’ or ‘hate’ sites). Using
• Using without permission the company name, logo, trademarks, copyrighted information or other intellectual property in blogs, discussion boards or other social networking sites that can infringe on the company’s rights to and control over these assets.
• Using one’s company email address or a username that refers to one’s employment with the company.
• Using a company computer, network, personal digital assistant or smartphone to access social media, with risks of introducing possible malicious software or other rogue applications, especially for social media that involves accessing or downloading files.
• Disclosing this information a) on discussion boards or in chat rooms, or b) as part of professional social networking activity though, not authorized to disclose it.
• Inappropriately discussing colleagues, customers, suppliers or other stakeholders or competitors with colleagues or individuals outside the company on discussion boards, in chat rooms or through blogs. 
• Posting or discussing others or displaying certain social media at work that can lead to claims of harassment.
• Conflicts of interest can take many forms and can cross with other forms of misconduct, from use of company resources, use of one’s work position and other personal interests that conflict with one’s duty to the company.
• Blogging or maintaining a website favorable to or critical of or posting information about an industry, company or related issues without disclosing one’s employment with an interested company.
• Serving in an outside professional role such as an expert on a topical discussion board that conflicts with one’s duty to his or her company.
• Maintaining a blog that accepts advertising from his or her company’s competition.
• Using instant messaging, a chat room, a discussion board or other social media to make recommendations or otherwise market to current or prospective customers, in violation of company policy (whether the message or the channel).
• Communicating critically about a competitor’s product or service on a discussion board and without disclosing one’s employment with a competing company.
• ‘Shopping’ a competitor by pretending to be a potential customer and misrepresenting oneself in doing so.
• Posting a false review about a competitor’s product or service.
• Posting personal information or about personal activities that leads one’s company, a recruiting company or others to believe that the individual is acting unprofessionally or otherwise inappropriately.  This situation can hurt the employer where the employee’s personal reputation is tarnished and so affects the individual’s business reputation.

Companies should establish clear policies and procedures with respect to the use of social media including: (1) clarifying the distinction between use of social media for company versus personal use; (2) monitoring and auditing of employee use; (3) assessing proper company use of social media; (4) compliance with laws and regulations; and (5) educating employee regarding proper and improper use of social media.

The ethical question about social media use in the workplace is whether the benefits of its use outweigh the security challenges. A key is to help people manage the fuzzy boundaries between their public/private and personal/professional lives. Social networking sites can be used in the workplace to collaborate and share ideas. However, sensitive company information might be transmitted to inappropriate parties creating a security risk. The confidentiality rights of the company may be violated and employee rights exploited. The latter must be managed for the benefits to outweigh the costs.

Blog posted by Steven Mintz, aka Ethics Sage, on October 16, 2012

The Ethics of Awarding Military Uniform Contracts to Prison Inmates

Is Federal Prison Industries Stealing Jobs?

It's hard to compete with workers willing to take pay as low as 23 cents an hour. Do I mean workers in Guatemala or Vietnam? No. I mean Americans in federal prisons.

Two American companies which make military uniforms are laying off hundreds of workers as the federal government decides to use prison inmates to make soldier fatigues. American Apparel currently charges $29.44 per uniform. The cost will increase by 15 percent when Federal Prison Industries (FPI) convicts begin sewing the clothing at a cost of $34.18 each. FPI also functions under the name UNICOR. The convicts are reported to receive between 23 cents and $1.15 per hour. That’s quite a markup for FPI. The ethical question is whether it is right to take work away from private industry to support a prison-based program with the government’s blessing?

Under the law, FPI receives preference for contracts up to a certain percentage, about 7%, before they have to compete against private industry. My concern is an item such as the army combat uniform is earmarked directly for FPI without competitive bidding. American taxpayers pay more for it, but the bottom line is each soldier is paying more for their uniform.

FPI currently operates approximately 80 factories with more than 13,000 convict workers. The correctional institute factories are not permitted to sell goods to the private sector. The law mandates that federal agencies buy the products, even when they are not the least expensive available option.

Critics accuse UNICOR which last year pulled in $900 million in revenue, of shifting its focus from the betterment of inmates to profits. Those profits, they allege, have largely come at the expense of small business which are already struggling to secure government work. A bipartisan group of lawmakers has proposed new rules that would change the way prison manufacturing companies do business, subjecting them to stricter standards that would lead to higher prices.

In my mind it is difficult to ethically justify the program when so many US businesses are suffering from the great recession. I recently read that Alabama-based American Apparel was forced to close one plant and downsize at others due to the loss of contracts to prison inmates, according to company spokesman and retired Air Force Colonel Kurt Wilson. A total of 190 employees had their hours cut, and 255 others were laid off this year.

Also, I can’t think of any other situation where the government awards a contract to a private company without competitive bidding. I don’t like the government picking winners and losers with respect to government contract work when the playing field is not level.

One way to justify the FPI program is that it teaches inmates a skill and aids in their adjustment back to society. Some claim it also can decrease crime because that skill will enable them to become productive members of society. I’ll withhold judgment on that claim until the program has had several years or so to follow inmates in the program who have subsequently been released back to society. However, I can’t help but wonder whether the adjustment “reason” is a rationalization for an unfair action that knowingly harms private companies making military uniforms.

It seems to me if we want to teach inmates a marketable skill it should start with computer skills. These are in great demand and are transferable to any numbers of jobs and occupations.

I can’t imagine what would be the uproar from the public if we were importing goods manufactured by prison labor in someplace like China? That leads me to my final point. How can we argue against outsourcing manufacturing overseas to countries like India and the Philippines when we insource manufacturing in the US to companies chosen by the US government and not by free-market principles? It seems to run counter to our capitalistic system that relies on non-interference by the government. You know the “laissez-faire” concept!

Blog posted by Steven Mintz, aka Ethics Sage, on October 9, 2012

Are U.S. Corporate Tax Rates Stifling 'Ethical' Behavior?

Are Lower Corporate Income Rates the Answer to Increased Economic Activity?

Given the focus on ‘paying your fair share’ of taxes this election cycle, I want to bring attention to the controversial issue of whether the U.S. corporation tax rate is too high, leading to the outsourcing of jobs overseas; motivating companies to set up shop abroad and; skirting U.S. taxes. If this is the case, are U.S. corporations following ethical practices or, more specifically, acting like socially responsible businesses. It seems an appropriate topic for my blog since the Presidential debates start tonight and it is a contentious issue between the candidates.

As you may know, the U.S. has the highest corporate tax rate in the world. The U.S. rate stands at 39.2% when both federal and state rates are included. The second highest is Japan with a 36.8% rate after lowering it from 39.8 this past April. We all know how Japan’s economy has been in a malaise in the last two decades. Perhaps high corporate tax rates are part of the reason.

In comparison, France has a 33.3% rate [and a top rate of 75% on individual income of more than €1 million ($1.25 million)]; the United Kingdom, a 26% rate, China, 25%, and, at the low end, both Canada and Germany with a 15% rate. Finally, Switzerland’s rate is 8.5%. Perhaps not coincidentally, Canada, Germany, and Switzerland have fared better during the Great Recession of the past five years than other countries.

Loopholes and other special treatment for different kinds of businesses mean that businesses in the United States pay an effective rate of only 29.2% of their income, which puts the U.S. below the average of 31.9% among other major economies, according to analysis by the Treasury Department. However, the effective rate is not known until tax deductions are determined and it doesn’t affect the decision whether to shift profits overseas or keep it in the U.S.

Should corporations act in a ‘socially responsible’ manner and pay the highest corporate tax? Our capitalist economic system relies on the belief that corporate managers should act in the best interests of shareholders. And, as noted economist Milton Friedman stated in a 1970 essay in the NY Times Magazine, the only social responsibility of business is to maximize profits to enhance shareholder wealth. Friedman believed the basic doctrine of "social responsibility" involves the acceptance of the socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce re­sources to alternative uses.

I believe the issue of social responsibility should be couched in the avoidance of taxes by U.S. businesses that keep their profits overseas. Under the U.S. tax system, corporate profits are not taxed until they are repatriated back to the states. Further, companies use a technique known as transfer pricing to shift more profits overseas to countries with low tax rates. Ireland is a popular destination for U.S. businesses with its low 12.5% rate. Essentially, parent corporations charge artificially low prices to overseas subsidiaries for goods shipped overseas thereby minimizing taxable income in the U.S. while those subsidiaries charge market prices for their sales to customers in overseas markets.

It has been estimated that the deferral of tax payments may be costing the U.S. Treasury $100 billion or more each year. Republicans contend that a lowering of the corporate tax rate would encourage U.S. businesses to repatriate profits and it could stem the tide of outsourcing jobs. There is no hard evidence to believe this to be so. However, I contend we are in desperate economic times in the U.S. and need to think outside the box to improve the economy.

My suggestion is to institute a lower rate of 15% to be competitive with other industrialized countries, and keep it in place for two years. If this leads to repatriated profits, higher taxes paid to the U.S. government, and the in-sourcing of jobs, then the 15% rate should be made permanent. If, however, U.S. businesses do not send their profits overseas and continue to outsource jobs, it means one or more of three things: (1) they are motivated by lower wage rates outside the U.S.; (2) they may feel stifled by the excessive regulatory system in the U.S.; and (3) they may truly want to be closer to their expanding overseas markets.

Corporate America reacts to incentives to maximize profits that can lead to higher personal income through bonus and other incentive compensation, and rising stock prices. There is nothing wrong with it. It is a part of our system. However, we must begin to initiate policies to reduce the growing number of people in poverty, bring more into the middle class, and do what is necessary to reverse years of stagnant growth that has lowered the overall income of far too many currently in the middle class. In my view this is an ethical issue, not one based on paying a “fair share” of the taxes. Corporations have an ethical obligation and social responsibility to do what it takes to improve the economic circumstances of all members of its community -- a community that depends on jobs and economic activity. Our society cannot prosper without an ever-expanding middle class and lowering of the poverty rate in this country.  

Blog posted by Steven Mintz, aka Ethics Sage, on October 3, 2012    

Butt Chugging and Binge Drinking Raise Questions of Personal Responsibility

Should the Minimum Drinking Age be lowered from 21?

The latest demonstration of irresponsible student behavior on college campuses is “Butt Chugging.” Yes, it’s as bad as it sounds.  For the sake of transparency, I need to define it, explain why it is done (Can there be a valid reason?), and point out the dangers along with the more popular practice on college campuses of “binge drinking.”

Butt Chugging has made its way into the Urban Dictionary – a Web-based dictionary of slang words and phrases. It contains over 5 million definitions. It is defined as “the act of ingesting alcohol through ones rectum…to increase the alcohol’s effect and the speed with which one becomes intoxicated.” You probably heard about the scandal on the campus of the University of Tennessee.

Early last Saturday, 20-year-old Alexander P. Broughton of Pi Kappa Alpha was brought to the emergency room and showed a blood-alcohol level thought to be “well over” .4, five times the legal limit, according to the Knoxville News Sentinel. The police officers went inside the Pi Kappa Alpha fraternity house where the butt chugging event took place and found several young males passed out in their bedrooms with “bags from wine boxes, some empty and some partially empty, strewn across the halls and rooms."

University of Tennessee police issued a dozen citations for underage drinking. The University of Tennessee suspended the fraternity chapter indefinitely.

I could say a lot about butt chugging but the best way to characterize it might be to point out that CNN reporter Anderson Cooper included it in his nightly “RidicuList.” Even the Deltas in Animal House didn’t act this way. They had more sense!!!

The most important issue is why students engage in the practice or the more common binge drinking. From my experience as a college professor I have found too many students are influenced by the ridiculous videos that often pop up on YouTube and images that can be seen nightly on a variety of reality TV shows. Often the butt chugging events are captured by cell phones and may even go viral. I found a variety of such videos with thousands of hits. I suppose students are looking for their 15 minutes of fame.

Too many students seem to be searching for a quicker, “better” way of making fools of themselves. If they could only channel their energies into studying math, science, and technology, perhaps we wouldn’t have to rely on immigrants to fill these key jobs that US students are unprepared – or unwilling – to fill.

Binge drinking is a much bigger problem on college campuses and may be the result of peer pressure and the stress that students feel to get good grades, graduate, and get (any) job. In a previous blog I wrote about the “boomerang generation.”

Binge drinking is commonly described as consuming five or more drinks in one sitting, more than once a week. According to a survey by The National Institute on Alcohol Abuse and Alcoholism (NIAAA), “approximately two of every five college students of all ages have reported engaging in binge drinking at least once.”

From a broader perspective, the NIAAA also points out that "every year approximately 5,000 people under the age of 21 die as a result of underage drinking. This includes 1,900 deaths from car accidents, 1,600 homicides, 300 suicides, and hundreds of other accidental deaths such as drownings, falls, burns."

Historically, states had a patchwork of laws, some restricting drinking to 21-year olds while others allowed it at 18 years old. President Ronald Reagan signed into effect the National Minimum Drinking Age Act (NMDAA) in 1984 to standardize the 21-year old requirement for all states. Many special interest groups promoted NMDAA. Perhaps the most influential special was Mothers Against Drunk Driving (MADD). MADD claims that the higher minimum legal drinking age has saved thousands (if not hundreds of thousands) of lives.

You may know of some parents who allow their kids to drink after turning 18 and before 21. The reason often given is since my son/daughter can join the military and fight in a war at 18, then s/he should be able to drink at 18. Another is if my kid can vote at 18 why not allow him/her to consume alcohol at that age? Some parents believe it will lead to more responsible alcohol-consumption practices down the road.

My feeling is as parents we need to set boundaries and stick to them. I also believe kids want boundaries and act more responsibly as a result in part because they come to believe their parents care about what happens to them. Learning to wait until 21 establishes those boundaries and, I believe, will lead to a sense of accomplishment for our youngsters once they make it to that age without consuming alcohol. This is an important lesson to learn in life – set a goal, stick to it, and celebrate your success.

I recall an incident on my college campus last year when a female student who engaged in binge drinking was raped. She barely remembered the incident or that she was unable to ward off her attacker because she was close to being unconscious as a result of her excessive alcohol consumption. I shudder to think how it will affect her life and future relationships.

Butt chugging, binge drinking, and underage drinking are serious problems that have significant potential to ruin the life of the individual engaging in those acts as well as others around them. All too many students engage in such behavior because they do not seem to understand that their actions have consequences. They approach life from a what’s in it for me or how will it make me feel perspective without thinking about how their actions might hurt others.

I’m concerned about the rationalizations put forth by some to lower the drinking age. I suppose it has become common place to identify problems these days by labeling them as disorders. Some have said those abusers of alcohol may suffer from "alexithymia." That is, they have troubles using words to help themselves feel better. They can talk easily and clearly about their feelings - but putting their feelings into words doesn't help them manage those emotions.

I don’t mean to belittle a disorder and recognize it may exist. I simply raise the following questions in closing: Don’t we have free will? Shouldn’t we learn to take control of our own lives and not have it defined by others? Isn’t it part of being a responsible person to control our desires, actions and behaviors and learn to do good for the sake of helping ourselves and others? Shouldn’t we take responsibility for our own actions?

I fear we have morphed into a society where all too many tend to blame others for their woes.

Perhaps Albert Einstein said it best so many years ago: “Man must cease attributing his problems to his environment, and learn again to exercise his will – his personal responsibility.”

Blog posted by Steven Mintz, aka Ethics Sage, on September 28, 2012

Should Students be permitted to Carry Guns on College Campuses?

Students Packing: iPhone 5; Apple iPad; Apple MacBook Air; and a Gun

The Wall Street Journal reports that at more college campuses across the country, students are winning the right to pack a gun. Many colleges have long been allowed to make their own decisions about whether students can carry firearms on campus, and most still forbid it. But gun-rights advocates working through the courts and state legislatures have managed to secure a significant expansion of gun rights at public universities. Gun-rights advocates argue that only state legislatures—and not colleges and universities—have the power to regulate guns under a legal doctrine known as pre-emption.

A major force behind the push to ease restrictions on guns on campus is an organization called Students for Concealed Carry. Started in the aftermath of the Virginia Tech shootings, the organization has grown to include chapters across the country, and it lobbies state lawmakers and school officials to allow people with proper permits to carry guns on campus.

David Burnett, the group's national spokesman and also a nursing student at the University of Kentucky, said he believes anyone who is responsible, law-abiding and trained should carry a gun. "If criminals knew that, they'd be more hesitant to attack".

I've never been a believer in the notion that the knowledge others' are packing a weapon might slow down the rising trend of violence on college campuses and on our streets. Violence begets more violence. We live in a violent society. It is depicted all the time on the internet, in video games, television, and in the movies. The answer is not to put guns in the hands of more citizens, although I do understand the emotional response of families devasted by killings that touch home for the need for "justice" to be served, albeit sometimes couched in the form of a revenge motive.

On March 6, 2012, undoubtedly motivated by the killing of 12 students and a teacher at Columbine High School in Littleton, Colorado on April 20, 1999, the highest court in Colorado struck down the University of Colorado's gun ban. And, the Oregon Court of Appeals ruled in September 2011 that the state's Board of Higher Education had no authority to prohibit weapons on college campuses.

In both cases, the courts declined to consider whether the Second Amendment empowers students to carry weapons on campus. Instead, they held that state laws largely removed the matter from universities' control.

Students are now permitted by law to carry guns on public campuses in five states—four more than two years ago. The movement to ease gun restrictions on college campuses gained momentum after the 2007 killings at Virginia Tech, with advocates arguing that students, if armed, would have been able to stop the shooter who left 32 people dead.

Until the carnage at Virginia Tech, the 1966 sniping rampage by Charles Whitman from the University of Texas’s Austin campus landmark 307-foot tower had remained the deadliest campus shooting in U.S. history. Whitman, a former university student, opened fire from the 28^th-floor observation deck, shooting people on the streets 231 feet below. Sixteen people were killed and another 31 were wounded before police killed him about 90 minutes later.

Other killings include on April 3, 2012, when a student at the small, private, Oikos University in Oakland, California allegedly killed seven people at the college's campus; the student told authorities he was upset with being expelled and had sought out a female college official who was not present.

Earlier on in 2008, a gunman opened fire in a lecture hall at Northern Illinois University killing five people and injuring 17 before turning the gun on himself.

As a college professor I am concerned about the possibility of my students packing a gun along with their electronic devices. I realize it is no laughing matter but my mind can’t stop obsessing on a student I once had who argued for ten minutes about a grade even though, after reviewing his paper, I refused more than once, to change it. He seemed to feel entitled to the higher grade even though he didn’t earn it. Or the student who stormed out of my office after I told him to study harder and party less after he smelled of alcohol in an office meeting.

I hate to think about it but might have those students threatened my life with the gun they were packing if California passed a concealed weapon law that permits college student to carry a gun on college campuses?

The answers to growing violence in our streets and on college campuses are complicated. The sad part is neither of the Presidential candidates appears to want to address the issue. To me it is one of the most important issues facing our nation. One sign of a civilized society is in solving problems through discourse and not violence. Have we become so de-sensitized to violence that we have forgotten the message that a civilized society that can no longer feel outrage, can no longer be civilized?

Blog posted by Steven Mintz, aka Ethics Sage, on September 25, 2012

Are Ethics Courses Failing to Produce Ethical Business People?

What is the Goal of Business Ethics Education?

As a professor who teaches ethics routinely in my Accounting classes, I was intrigued to read an article by Ray Fisman, a professor at Columbia Business School, and Adam Galinsky, a professor at Northwestern University, about why ethics courses fall short in business schools. My first reaction was it is no surprise to me. The purpose of teaching ethics to college students is not to make it less likely they will commit fraud or go along with it during their business careers. There is no way to guarantee that will happen or even expect the goal to be achieved. A more realistic purpose is to get students to develop and act on a set of values that enable them to speak out when wrongdoing exists so it doesn't go that far. There is a college curriculum that approaches the teaching of ethics in that way. It’s called Giving Voice to Values. The approach was developed by Mary Gentile.

Gentile is a Babson College educator and consultant who draws on her business experiences to challenge the conventional notion of business ethics at companies and as taught in business schools. Dr. Gentile uses stories about the actions of exemplars to illustrate the kinds of values that enhance ethical behavior. Her goal is to help young people who want to stand up for their values when confronted with pressure imposed by a boss, customers, peers or shareholders to do the opposite.

I have found in my own teaching that students and young employees need a frame of reference to help make ethical decisions when faced with pressures to do otherwise. I emphasize that once you deviate from your values, it's just a small step down the proverbially ethical slippery slope and it becomes very difficult to regain the high ground later on if (and when) you realize your mistake of going along with or sanctioning wrongdoing in the first place.

Gentile’s approach is a good one because most college students know the right thing to do but have a difficult time doing it – expressing their thoughts and feelings -- because of their personal and organizational purposes are not aligned and pressures exist to deviate from ethical decision-making. Gentile starts with the premise that students do know the right thing to do but have trouble voicing their values. It’s one thing to say “I can’t go along with financial fraud”. It’s another to do something positive to prevent it from happening when your boss is pressuring you to do otherwise. In other words, to do something to voice your values in a way that changes behavior.

A useful approach to teaching business ethics is to help students identify the enablers and disablers of action. I ask students to think about the factors that would encourage them to take action on their values as well as those that discourage them. The goal is to develop a strategy to strengthen the enablers and counteract the disablers. Pressures such as a threatened job loss might lead to silence whereas a strong set of core values (i.e. integrity) should motivate students to speak up and use the enablers by taking the matter to higher-ups in the organization, assuming the CFO persists.

I have found that a useful perspective is to ask students to think about what might happen in the future if they go along with the CFO; use a long-term perspective in voicing values rather than focus on short-term gains. Some understand right away that they might be expected to go along with financial wrongdoing again in the future. Some realize top management can play the “gotcha” game down the road if, all of a sudden, they decide to act on their values but management reminds them of their past acceptance.

The bottom line is there is no way of knowing whether business ethics education has made a difference. A graduate of a prestigious school might commit fraud in the future, but it doesn’t mean business ethics has failed them or even all students. Organizational pressures and the culture of a firm can create barriers to ethical behavior. The key is to find a way to work through the obstacles and voice your values.

I’m asked all the time why I teach ethics and am challenged whether it is even possible to change one’s ethics by a college course. After all, some argue, ethics is formed at a very early age. I don’t dispute that but do point out that my goal is to get students to reflect on their actions in a safe setting so they can better develop the tools to deal with ethical challenges in the workplace. I am not a guarantor of ethical action.

Teaching ethics should not rely on having one college course in business ethics and that is it. I see the failure of business ethics education to be one of not integrating ethics into each course and each decision in business. When colleges rely on one course to teach ethics, they are not sending the message that ethics counts.  If they cover it in all courses and in the context of functional courses, then they send a completely opposite signal that it is an important part of every business decision.

I can teach business ethics – I know it from past experiences including grading papers, exams, and student presentations and papers on the topics. What I don’t know is whether students will really learn the lesson. Similarly, I can teach Intermediate Accounting to my students but I don’t know if they have truly learned the material and will be successful on the CPA Exam or in their accounting careers.

There is old African proverb: “It takes a village to raise a child”. It is quite appropriate to say that it takes an organization to raise an ethical employee.

Blog posted by Steven Mintz, aka Ethics Sage, on September 21, 2012

UBS $104 Million Whistle-blower Award Raises Ethical Issues

Motivation and Role in the Wrongdoing are Key to the Ethics of Whistle-blowing

Whistle-blowing creates ethical issues because the motivation and intention of blowing the whistle is the key to whether it is a courageous act or one undertaken for self-enrichment purposes. The case of Bradley Birkenfeld is a case in point. I’ve read several articles about the former UBS employee’s whistle-blower’s award and in none did I see a purpose for blowing the whistle. Compare that to the case of Cheryl Eckard, a quality-assurance manager at Glaxo, who had blown the whistle on the safety of products made in its Puerto Rico plant. As I have previously blogged, Eckard had a real concern about public health and safety and was willing to risk her job to live up to her ideals.

I have several concerns from an ethical perspective with respect to the UBS case. Motive is one and another is the process followed to gather and report the wrongdoing.

Birkenfeld was a former UBS banker who provided information on the firm's vast business of helping wealthy Americans hide their assets from the Internal Revenue Service. He has received a $104 million whistleblower reward, which his lawyers said was the largest in U.S. history.

Birkenfeld, began cooperating with U.S. authorities in 2007, while still at UBS. He provided prosecutors with detailed descriptions of the bank's efforts to promote tax evasion and confessed to running errands for rich clients, including one instance when he sneaked diamonds into the U.S. in a toothpaste tube. He wasn’t exactly an innocent ‘dupe’ in the fraud.

My guess is Birkenfeld started to cooperate in return for leniency for his role in the fraud. Not a very ethical position; more of a pursuit of self-interests approach to whistle-blowing. I am concerned that whistle-blowers implicated in the wrongdoing get away with a slap on the wrist while, at the same time, become millionaires for their whistle-blowing efforts.

There have been positive effects of Birkenfeld’s whistle-blowing. The case lifted the veil of Swiss bank secrecy that for decades had allowed wealthy people world-wide to evade taxes. UBS in 2009 agreed to turn over the names of more than 4,000 account holders who were U.S. taxpayers and pay $780 million to resolve a criminal case involving secret offshore accounts.

Since then, more than 33,000 U.S. taxpayers have confessed to holding undeclared overseas accounts and paid more than $5 billion in taxes and penalties.

It’s a good thing that controls are finally being put in place and enforced by the Swiss with respect to secrecy accounts. Alois Pirker, a research director at Boston consulting firm Aite Group, estimates that Swiss private-banking fees have fallen at least 25% in the past two years because foreign clients no longer see an advantage to stashing money there.

Unfortunately, other destinations are ratcheting up their efforts to draw money from the wealthy and mega-wealthy under the guise of secrecy. Pirker says wealthy Americans are moving funds to other tax havens, such as the Cayman Islands, Monaco and some Asian countries.

Birkenfeld pleaded guilty in 2008 to one count of conspiracy to defraud the U.S., a felony, and was given a 40-month sentence. He currently is in New Hampshire finishing his sentence in home confinement.

At his sentencing hearing, Justice Department official Kevin Downing said, "Without Mr. Birkenfeld walking into the door of the Justice Department in the summer of 2007, I doubt as of today that this massive fraud scheme would have been discovered by the U.S. government."

The $104 million award is 26% of the $400 million in tax paid by UBS to the IRS as a result of the 2009 settlement. The large-awards program pays between 15% and 30% of proceeds collected, which can be hard to determine.

The massive award, paid out last week to a felon still serving time, shows the lengths the agency now is willing to go to collect unpaid taxes, experts said. "If Brad Birkenfeld can get an award, then many company insiders will have no problem getting one," said Scott Knott, an attorney in Washington who specializes in tax whistleblower lawsuits. This is my concern as well and recent whistle-blowing legislation that was part of the Dodd-Frank Financial Reform Act may exacerbate the problem.

The law doesn't preclude paying money to convicted felons, as long as they didn't plan or initiate the evasion. I’m not sure how the planning criteria can be known short of a ‘smoking gun,’ such as an e-mail to that effect. Do we really believe someone like Birkenfeld would admit to planning the act? He certainly was complicit in carrying it out.

"The IRS encourages courageous actions," said Sen. Charles Grassley (R., Iowa), who sponsored the law. "An award of $104 million is obviously a great deal of money, but billions of dollars in taxes owed will be collected that otherwise would not have been paid as a result of the whistleblower information." This is an ends justifies the means approach to ethical reasoning and shows the lack of ethical sensitivity by Grassley. I’m also concerned about spying on one’s employer to whom employees owe a confidentiality obligation.

According to the Wall Street Journal, the IRS has collected more than $1 billion in taxes through whistleblower cases since the new program was launched targeting major offenders. Don’t get me wrong. I am not against whistle-blowing. I merely raise ethical issues as I might in a classroom discussion.

Oh, by the way, in case you are wondering, IRS whistleblower awards are fully taxable.

Blog posted by Steven Mintz, aka Ethics Sage, on September 17, 2012

Cyber ethics education

Teaching Young People about Cybercrime

In a recent Workplace Ethics blog I addressed the issue of cybercrime and how it affects us on a personal level and in business organizations. The purpose this blog is to look at the causes of cybercrime amongst our youngsters and cyber ethics education to address these issues. As with all ethics education, it should start at an early age, be continuous throughout one’s educational experiences, and be supported in the home.

New research has found that peer influence and low self-control are associated with juvenile cybercrimes, including computer hacking, online bullying, digital piracy, and viewing online pornography.

Criminologist Thomas Holt at Michigan State University and colleagues surveyed more than 400 middle and high school students and found that those whose friends committed cybercrime were more likely to do the same. Previous research tended to focus on college students rather than younger offenders.

Holt stresses the need for parents’ awareness of their children’s social circle and Internet activity. “It’s important to know what your kids are doing when they’re online and who they are associating with both online and offline.”

According to the study, published online in the American Journal of Criminal Justice on June 17, 2011, a lack of self-control is also correlated with cybercrimes in middle and high school students, but Holt said this aspect is harder for parents to deal with. “These are the more risk-taking, impulsive kids; they’re more likely to act on opportunity,” he explained. “So understanding your children’s potential for behavior is important as well.”

Holt said that parental-control computer programs can help, but he noted that children are often able to evade such software.

“It’s not just enough to have a Net Nanny,” Holt said. “Parents need to be more proactive with their kids and discuss these ethical dilemmas to using a computer, such as whether it’s right or wrong to steal music or to download something without paying for it.

I feel strongly that cyber ethics education is a must. Students tend to react more positively to discussing right and wrong behavior when they are personally invested. After all, it is difficult to discuss with youngsters the ethics of some Congressional representative; they can’t relate; they have no frame of reference. However, using computers to steal information or bully others is front and center in their consciousness.  

Dr. Marvin Berkowitz of St. Louis University conducted an analysis of the behavioral development factors that must be considered in searching for an optimal age range for instruction of cyber ethics. Dr. Berkowitz concluded that the 9-12 ages was a "very reasonable" age to target for a first time strategy of cyber ethics instruction. Several factors led to this conclusion. This age range is considered a "gateway" age and has been used by other groups to begin message delivery; e.g. substance abuse and sex education. Absent hard data on the age at which children actually begin to go on line, we can generally assume that by age 13 children have routine access to the Internet. The 9-12 ages is also the point in development where children begin to understand abstract values, for example, privacy rights, and can begin to evaluate the consequences of their actions. It is important to be able to think abstractly, particularly when working in a medium that is routinely described as "virtual."

Dr. Berkowitz explored seven issues that could be potentially addressed in a cyber-ethics awareness campaign. Dr. Berkowitz suggests that each cyber specific issue encompasses one or more "derivative" issues. For example, the cyber issue of computer hacking contains the derivative (or core) issues of theft, vandalism and privacy. Copyright issues contain the derivative issues of theft and ownership. Other cyber behavior problems can be dissected in the same way. It is important to identify these derivative issues as they are often dealt with in value, ethics and character education.

General character education has been found to have great preventive power, even when the specific issues in which they are contained are never discussed. Thus any discussion, formal or informal, of behavior, ethics and responsibility has the potential to develop core values essential to acceptable online behavior.

Technology is neither good nor bad, nor even neutral. Technology is one part of the complex relationships that people form with each other and the world around them. How we use the technology – for what purpose – is what determines whether it is used for good purposes or bad purposes. As in most things in life, it all depends on one’s attitude and beliefs about right and wrong. Albert Einstein once said: “Weakness of attitude becomes weakness of character.”

Blog posted by Steven Mintz, aka Ethics Sage, on September 12, 2012

Catch Me if you Can

The Harvard Fraudster

Perhaps you remember the Steven Spielberg movie, Catch Me if you Can, starring Leonardo DiCaprio, that told the story of Frank Abagnale, known for his history as a former confidence trickster, check forger, imposter, and escape artist. He became notorious in the 1960s for passing $2.5 million worth of forged checks across 26 countries over the course of five years, beginning when he was 16 years old.

Abagnale became one of the most famous impostors ever, claiming to have assumed no fewer than eight separate identities as an airline pilot, a doctor, a U.S. Bureau of Prisons agent, and a lawyer. He escaped from police custody twice (once from a taxiing airliner and once from a U.S. federal penitentiary) before he was 21 years old.

Abagnale served fewer than five years in prison before starting to work for the federal government. He became a consultant and lecturer at the academy and field offices for the FBI. He also ran Abagnale & Associates, a financial fraud consultancy company.  Like all too many criminals, he was rewarded for his criminal efforts by talking to others about how to avoid making the same “mistakes”.

On December 16, 2010, life imitated art when former Harvard student, Adam Wheeler, pleaded guilty to all 20 counts against him, admitting that he duped the Harvard admissions office and defrauded the University out of over $40,000 in grants and prizes.

Wheeler’s story seems to have been inspired by the movie. He committed larceny, identity fraud, falsifying an endorsement, and pretending to hold a degree. He was sentenced to 10 years’ probation and ordered to make restitution of $45,806 to Harvard University and to continue the psychological treatment that he had begun since his arrest.

Wheeler conceded that he dishonestly gained admission to Harvard by fabricating SAT scores, falsifying letters of recommendation, and forging high school and college transcripts. He also admitted to plagiarizing essays and a research proposal that earned him a Hoopes Prize, Sargent Prize, and Rockefeller research grant while he was a Harvard student.

It seems that Wheeler went one step too far in his quest to fool all of the people, all of the time, when he applied for a Rhodes Scholarship. He claimed to have a 4.0 average. He did not. His résumé said he had coauthored four books with a Harvard English professor. The professor he listed did not coauthor books with undergraduates, and college students, even at Harvard, typically do not have four advanced books to their credit by senior year. Wheeler also wrote that he was fluent in Old Persian, Classical Armenian, and “Old English”.

Wheeler just couldn’t keep away from playing the game. But the tale began unraveling during the interview process for the Scholarship, when a Harvard professor noticed inconsistencies and alerted administrators. Wheeler was expelled from the school and the criminal investigation was launched.

On November 11, 2011, Wheeler allegedly violated the condition of his probation that prohibits him from portraying himself as a Harvard student or claiming that he ever attended Harvard. Apparently, he submitted a resume to U.S. Green Data, Inc. that said he had attended Harvard. His attorney argued that he should not be sent to jail because he needed to be working and was emotionally “fragile”. [Lying and deceiving and covering-up will do that to you.]

The lawyer claimed that after Wheeler lost his job, he felt financial pressure to pay rent for his apartment and the $45,806 restitution to Harvard ordered by the court. Wheeler had only just found a new job—performing manual labor—a week ago before he was summoned to court for this alleged violation. According to his attorney, Wheeler was not a flight risk because he voluntarily appeared in court for sentencing and would return to court whenever he is called back. “Going to jail would be particularly harmful for Wheeler because his absence could cost him his job and return him to a precarious financial state”.

Fool me once, shame on you, fool me twice, three times, four and more, shame on the legal justice system.

On December 23, 2011, Wheeler was sentenced to one year in prison.

So what’s the lesson to be learned from Wheeler’s story? Sadly, it is that crime does pay. Here is a guy that broke virtually all the rules in the book for honorable behavior and took the pursuit of self-interest to a new (low) level.

Actually, I like his own assessment of his character in an e-mail sent to fellow Harvard students:

“My own, brief, assessment of my character is that I am sententious, crypto-tendentious, slightly pedantic with a streak of contrarianism, a fascination with any pedagogical approach to Shakespeare, and a decent sense of humor.”

Wheeler also remarked on his made-up time at MIT:

“At MIT I was, to put it poorly, suckled upon the teat of disdain. That being said (fortified by a reflexive snort), I was inspired thereby to apply to Harvard, where the humanities, in short, are not, simpliciter, a source of opprobrium”.

Who could argue with that logic? Who can understand what he said? And there’s the rub. The red flags were there but ignored.  A blatant faker like Wheeler should have been outed much sooner than he was.

The moral of the story is we have to be more vigilant in assessing the behavior of those around us because they can do real harm whether to institutions, such as Harvard, or to folks in our community. All we need do is think about the actions of James Holmes, who, during a midnight showing of “The Dark Knight Rises”, killed 12 and wounded 58. It appears he tried to reach out for help, and red flags existed, but those in the know found it easier to dismiss the warnings. It reminds me of the sex scandal at Penn State. The warnings signs were there but it was easier to hope the problem would go away than be proactive and avoid a disaster before it happens.

Blog posted by Steven Mintz, aka Ethics Sage, on September 7, 2012

The Role of Ethics in Religion

Can we be Ethical without being Religious?

A longstanding debate has been whether ethics plays a role in religion. Most religions have an ethical component. Ethics, which is a major branch of philosophy, encompasses right conduct and good life. It is significantly broader than the common conception of analyzing right and wrong. Ethics deals with ideas such as Right, Good and Duty and these concepts were discussed in ancient Greece by Plato and Aristotle in the 3rd & 4th Century BCE.

A central aspect of ethics is "the good life", the life worth living or life that is simply satisfying, which is held by many philosophers to be more important than traditional moral codes. The ancient Greeks called it eudaimonia or happiness. The ancient Greeks believed happiness was brought about by living one’s life in accordance with virtue – positive traits of character. Virtue in the highest sense, in an adult who has been brought up well, will not just involve good personal habits such as courage and temperance, but also friendship and justice and intellectual virtue. The essence of virtue is in the wholeness of the person brought about by integrity.

The influential philosopher, Immanuel Kant defended the idea of God as a basic requirement of ethics. We ought to be virtuous and do our duty, he said. Kant believed virtue should be rewarded by happiness, and it would be intolerable if it were not so. Since it's clear that virtue often does go unrewarded in the present life, Kant argued that the soul must be immortal. Virtue must receive its due recompense in a future life, and there must be a God guaranteeing that it is so rewarded. The existence of God and the immortality of the soul were what Kant called the postulates of practical reason - the assumptions without which, so he claimed, ethics and a moral life would not be possible.

Revealed religions like Zoroastrianism, Judaism, Christianity and Islam do prescribe some clear and unambiguous rules to follow. If their scriptures were authored or dictated by God, then the commands in them are God's own commands. They cannot be changed if human circumstances change or ethical ideas progress.

If religion has a role in moral decision-making, then what should be that role? In America, for many individuals, their religion is a centrally defining characteristic of who they are, such that they would be nearly incapable of making ethical decisions independently of their religious beliefs. 

Further, some of our most basic moral sentiments are directly connected to religious ideology.  For example, most people agree that things like murder and adultery are always wrong, regardless of circumstances.  Most major world religions echo these sentiments, and it can be argued that the ancient codes of conduct these traditions embody are actually the original source of our social intuitions.  At a minimum, we do seem to regard religion as a good source of basic moral guidance, making it unwise to argue that there ought to be no connection between religion and ethics.

The link between religion and morality is best illustrated by the Golden Rule.  Virtually all of the world’s great religions contain in their religious texts some version of the Golden Rule: “Do unto others as you would wish them do unto you”. In other words, we should treat others the way we would want to be treated. This is the basic ethic that guides all religions. If we do so, happiness will ensue.  

I’ve studied other religions and identified the following religious tenets that speak to the Golden Rule:

 

Religion          Expression of the Golden Rule                                                       Citation 

Christianity     All things whatsoever ye would that men should do to        

                              you, Do ye so to them; for this is the law and the prophets.              Matthew 7:1

Confucianism  Do not do to others what you would not like yourself.

                               Then there will be no resentment against you, either

                                in the family or in the state.                                                             Analects 12:2

Buddhism           Hurt not others in ways that you yourself would

                                find hurtful.                                                                                           Udana-Varga 5,1

Hinduism           This is the sum of duty, do naught onto others what you

                                 would not have not have them do unto you.                                  Mahabharata 5, 1517

Islam               No one of you is a believer until he desires for his brother

                            that which he desires for himself.                                                             Sunnah

Judaism           What is hateful to you, do not do to your fellowman.

                             This is the entire Law; all the rest is commentary.                           Talmud, Shabbat 3id

Taoism             Regard your neighbor’s gain as your gain, and your

                             neighbor’s loss as your own loss.                                                          Tai Shang Kan Yin P’ien

Zoroastri-        That nature alone is good which refrains from doing

anism                  another whatsoever is not good for itself.                                          Dadisten-I-dinik, 94, 5

 

Some people, especially religious people, say that there can be no morality without religion. They say that without God, ethics is impossible. In my religion, Judaism, a revealed religion, ethics or morality is the attempt to arrive at a view of the nature of human values, of how we ought to live and of what constitutes right conduct. In order to arrive at a view, it sets goals and assesses actions by the extent to which they further these goals, e.g. if happiness is a goal then the action which produces most happiness to all affected is the right one.
 
Revelation too, through the written and oral law, directs people to an understanding of the nature of human values, of how they ought to live and of what constitutes right conduct; such teachings and examples are scattered amongst various verses and sources.  Examples of such moral teachings are:-
 
You shall do right and good (beyond the call of duty)
Love your neighbor
Correct behavior between man and man
Discipline or training of character under the law
Piety beyond the law
The need to be respectful, earn a living; engage in learning and culture and so forth.
  
The role of philosophers is to accurately try to define and promote ethical concepts based upon logic and reason.  A religious person on the other hand, follows his or her code of conduct because he believes that it is proper behavior and reaction to the varying challenges and circumstances which arise during the course of life. 
 
I end with two quotes. The first is from Kant: “In law a man is guilty when he violates the rights of others. In ethics he is guilty if he only thinks of doing so.”

The second one sums up, I believe, the moral challenges of our time. Archie Carroll, a noted ethicist said: “As religion and faith are being driven out of the public square, the Judeo-Christian ethical foundations that have sustained our country since its beginning, are being lost and are being replaced with a humanistic amorality, a self-centered, pragmatic indifference that will ensure that our moral compasses will fail to point us in the right direction in the future.

Blog posted by Steven Mintz, aka Ethics Sage, on September 4, 2012

Sports Ethics

Gamesmanship Crowds Out Sportsmanship

Think about it. In the last month we’ve heard that the U.S. Anti-Doping Agency stripped U.S. bicyclist Lance Armstrong's seven Tour de France titles because of allegations that he used a performance-enhancing drug. Eight female badminton doubles players from South Korea, China, and Indonesia were disqualified from the London Olympics after trying to lose matches to receive a more favorable place in the tournament. The Badminton World Federation stated that it punished them for "not using one's best efforts to win a match" and "conducting oneself in a manner that is clearly abusive or detrimental to the sport." Major League baseball suspended one of its best players this year – S.F. Giants outfielder Melky Cabrera – for 50 games for using a performance-enhancing drug and attempting to cover it up by using a website to create evidence to support a claim that the outfielder inadvertently took the substance that caused a positive drug test.

This doesn’t even begin to identify the problem with ethics (or lack thereof) in sports. All of the above seem tame when viewed from the perspective of institutionally-driven unethical conduct in sports. I refer to the bounty scandal at the New Orleans Saints and the cover-up of child sexual abuse occurring at Penn State.

Ethicist Kirk O. Hanson points out that to understand the role ethics plays in sport and competition, it is important to make a distinction between gamesmanship and sportsmanship. Gamesmanship is built on the principle that winning is everything. Athletes and coaches are encouraged to bend the rules wherever possible in order to gain a competitive advantage over an opponent, and to pay less attention to the safety and welfare of the competition. Some of the key tenants of gamesmanship are:

• Winning is everything
• It's only cheating if you get caught
• It is the referee's job to catch wrongdoing, and the athletes and coaches have no
• inherent responsibility to follow the rules
• The ends always justify the means

Some examples of gamesmanship are:

• Faking a foul or injury
• Attempting to get a head start in a race
• Tampering with equipment, such as corking a baseball bat in order to hit the ball farther
• Covert personal fouls, such as grabbing a player underwater during a water polo match
• Inflicting pain on an opponent with the intention of knocking him or her out of the game, like the Saint's bounty scandal
• The use of performance-enhancing drugs
• Taunting or intimidating an opponent
• A coach lying about an athlete's grades in order to keep him or her eligible to play

All of these examples place greater emphasis on the outcome of the game than on the manner in which it is played.

A more ethical approach to athletics is sportsmanship. Under a sportsmanship model, healthy competition is seen as a means of cultivating personal honor, virtue, and character. It contributes to a community of respect and trust between competitors and in society. The goal in sportsmanship is not simply to win, but to pursue victory with honor by giving one's best effort.

Sports are an important part of the American psyche. We cheer for our heroes and feel disillusioned when they fail us by cheating to get ahead. We root for our favorite team and feel betrayed when they don’t give it their all.

Sports have huge impact people's lives, as they create unity, promote values and community pride. We have an unstated set of ethical standards in sports including fairness, integrity, responsibility, and respect. All the athletes, administrators, coaches, officials and supporters taking part in sport, must take the personal responsibility to ensure that the sport is fun and fair for everyone.

Morals, ethics and values are more than rules or laws. These are implied on duties or actions that one should take and help judge what is right or good for a person. If someone does not perform in that way, then their behavior is contrary to sports ethics.

One of the common problems of following morals and values in sports is that these differ from one player to another. It thus becomes an obligation of coaches, team captains and leaders to instill basic sports morals and ethics to their individual players and as a team. Most important, sports leaders should serve as a role model for players and walk the talk of ethics. Clearly, this did not occur when New Orleans Saints coaches put a price on the head of a player for the opposing team.

When you come right down to it, sports are mimicking what is wrong with society today. In the last few years we’ve witnessed the irresponsible actions of financial institutions that acted out of self-interest without regard to the interests of consumers. Local government officials accept payments from lobbyist groups and give preference to their needs and wants over what is good for the community. And who can forget the ineptitude of the General Service Administration (GSA) in its defense of the job it did assessing the General Services Administration’s ethics programs in 2010, the year in which GSA hosted a conference in Las Vegas that has recently become a scandal for the agency.

We need to do something about the lack of a strong ethic in sports before it is too late. In the last few years, countless ethical issues have arisen in the world of college sports. A series of scandals involving players receiving improper benefits and coaches involved in recruiting violations have challenged the integrity of college athletics, leaving many to wonder if sports are compatible with the goals of higher education.

Sports and competition create challenges to proper behavior at the earliest of ages. As pointed out by Hanson, every year millions of young boys and girls sign up to play in local youth sports leagues across the country. From hockey to Little League Baseball, many youth dream of one day playing under the lights, in a packed stadium, in front of thousands of screaming fans. We know that for most young people, that dream will never become a reality.

That raises the question of what is the real role of youth sports in society? Is it only to recognize the select few destined for athletic greatness and to weed out the rest? Or is there an inherent value for youth in playing sports, even if a career ends in the third grade? If so, what is that value, and how can we it maximize it?

Blog posted by Steven Mintz, aka Ethics Sage, on August 29, 2012

Why Good People Sometimes Do Bad Things

Our Ethical Blind Spots Inhibit Ethical Behavior

In my study of ethical behavior I have come across many instances when otherwise good people do bad things. They may succumb to the pressure of a supervisor to go along with financial wrongdoing or they may defer to the judgment of others even though they are convinced of the right thing to do.

Ethical blind spots refer to the gap between who we want to be and the person we really are. Many researchers have studied the psychological processes that lead even good people to engage in ethically questionable behavior that contradicts their own preferred ethics. Bazerman and Tenbrunsel identify bounded ethicality as an explanation for the phenomenon when individuals make decisions that harm others and when that harm is inconsistent with these decision makers’ conscious beliefs and preferences.

We all deal with ethical challenges. Some of us may be better able to identify the ethical issues and take ethical action more than others. Take the case of Betty Vinson. In 1996, she took a job as a midlevel accountant at WorldCom, a company that had a meltdown caused by an $11 billion financial fraud. Asked by her bosses to make false accounting entries, Vinson balked -- and then caved. Over the course of six quarters she continued to make the illegal entries to bolster WorldCom's profits at the request of her superiors. Each time she worried. Each time she hoped it was the last time. At the end of 18 months she had helped falsify at least $3.7 billion in profits. Her rationalization was that the CFO and higher-level accountants who pressured her must have known the accounting was correct. She deferred to their judgment even though she questioned the entries from the beginning.

At her trial, Vinson admitted "I was very concerned about the order to make the adjustment." The fact is she was afraid to go against her superiors for fear of losing her job and not being able to support her family. On August 5, 2005, Vinson was sentenced to five months in prison and five months of house arrest for taking part in the telecommunications company's accounting fraud.

By all accounts, Betty Vinson was a good person who did a bad thing. She played on the high-school tennis team and translated her love of math into an accounting major at Mississippi College. She lived at home and spent the summers working in her father's typewriter shop. Shortly after she graduated in 1978, she married Tom Vinson, her college sweetheart. The Vinsons moved to a quiet, manicured neighborhood on the outskirts of Jackson, Mississippi. They attended their daughter's soccer games, took on home-improvement projects and played with Cupcake, their curly-haired mutt. In her spare time, Ms. Vinson taught Sunday school and devoured John Grisham novels.

When she joined WorldCom, it was a small long-distance company on the verge of becoming a star of the Wall Street telecom boom. Vinson developed a reputation for being hardworking and diligent. She was known as a loyal employee who would "do anything you told her," says a former colleague. Many nights after dinner, she would retreat to her den to work on WorldCom's books until nearly midnight. On vacations, she squeezed in some work on her laptop.

Vinson was a victim of what Bazerman and Tenbrunsel call bounded awareness. In other words, she placed arbitrary and dysfunctional bounds around her definition of the problem. Much of the reason for her “ethical blindness” came from systemic causes. WorldCom had a culture of getting the stock price up as high as possible. Top management wanted big bonuses and were insistent on meeting or exceeding Wall Street analysts’ financial projections. Superiors exerted immense pressure on Vinson and others to go along with the financial wrongdoing.

The key to ethical action in such situations is to remove the blinders and do what is right upon greater reflection. Vinson's story is a cautionary tale for good corporate soldiers everywhere who find themselves ordered to do something wrong. Saying that you were "just following orders" is not an excuse for breaking the law. As Vinson's experience at WorldCom shows, sometimes it's hard to tell right from wrong in the heat of a workplace battle. And when an employee's livelihood is on the line, it's tough to say no to a powerful boss.

Our ethical intentions are put to the test virtually every day as we encounter conflicts in our lives about how we should behave and thoughts of how we want to behave.  We believe it is inappropriate to go along with financial wrongdoing. We predict that we will not go along with it. Yet, something happens to alter the perception and reality. Self-deception allows us to behave self-interestedly while, at the same time, falsely believing that one's moral principles were upheld. The end result is that the ethical aspects of the decision fade into the background, the moral implications obscured.

Blog posted by Steven Mintz, aka Ethics Sage, on August 24, 2012

Pfizer Admits Bribery Overseas to Gain Business

Pfizer’s $60.2 Million Settlement under the FCPA Illustrates Ethical Lapses in Pharmaceuticals

On August 7, 2012, Pfizer agreed to pay the federal government $60.2 million to settle allegations that its employees bribed doctors and other foreign officials in Europe and Asia to win business and boost sales. The charges against Pfizer were brought under the Foreign Corrupt Practices Act (FCPA), which bars publicly traded companies from bribing officials in other countries to get or retain business.

The Securities and Exchange Commission said that Pfizer's overseas subsidiaries made illegal payments to health care workers in China, Italy, Russia, Croatia and other Eastern European countries. As early as 2001, Pfizer sales representatives tried to conceal the bribes by recording them as legitimate business expenses for travel, entertainment and marketing purposes, the agency said.

Pfizer subsidiaries in several countries had bribery so entwined in their sales culture that they offered points and bonus programs to improperly reward foreign officials who proved to be their best customers," said Kara Brockmeyer, chief of SEC's foreign enforcement division.

Pfizer's China operation created a point program that allowed doctors to purchase gifts based on points earned for prescribing Pfizer medications. In other cases, Pfizer would invite high-prescribing doctors to club-like meetings as a reward for choosing Pfizer products. (This sounds like the New Orleans Saints bounty hunter program that led to suspensions of coaches and players by the NFL).

The settlement includes alleged violations by Wyeth, the New Jersey-based drugmaker which Pfizer acquired in 2009. Wyeth gave up more than $17 million in profits, plus $1.6 million in interest. Pfizer agreed to disgorge $16 million in profits and interest of $10.3 million

As part of the settlement, Pfizer's HCP subsidiary agreed to pay $15 million to resolve similar bribery allegations with the Department of Justice. In addition to the settlement fee, the Pfizer unit agreed to a two-year deferred prosecution agreement.

New York-based Pfizer first disclosed the misconduct to SEC and Justice Department officials in October 2004, and “cooperated” with the government's investigation. Pfizer, the largest pharmaceutical company by sales, neither admitted nor denied the allegations.

Pfizer's general counsel, Amy Schulman, said of the settlement, "The actions which led to this resolution were disappointing, but the openness and speed with which Pfizer voluntarily disclosed and addressed them reflects our true culture and the real value we place on integrity and meeting commitments."

I take issue with the statement that the “voluntary” disclosure reflects Pfizer’s true culture. The government was already investigating Pfizer and a number of pharmaceutical companies dating back to about 2004.

The fact is the culture of pharmaceuticals seems to be a breeding place for illegal activity. I have previously blogged about the problem. For example, on July 2, 2012, a federal judge approved an agreement by British drugmaker GlaxoSmithKline to pay $3 billion for criminal and civil violations involving 10 drugs, the largest health care fraud settlement in U.S. history. GlaxoSmithKline pleaded guilty to promoting the popular antidepressants Paxil and Wellbutrin for unapproved uses.

Prior to the Glaxo settlement, the record-setting case involved Pfizer. It paid the government $2.3 billion in 2009 in criminal and civil fines for improperly marketing 13 different drugs, including erectile-dysfunction drug Viagra and cholesterol fighter Lipitor, the top-selling drug in the world for years. Pfizer was accused of encouraging doctors to prescribe its drugs with free golf, massages and junkets to posh resorts.

In May 2012, Abbott Laboratories settled for $1.6 billion over its marketing of the antipsychotic drug Depakote. And an agreement with Johnson & Johnson on June 11, 2012, the company agreed to pay up to $2.2 billion, including a criminal penalty portion of as much as $600 million, to settle U.S. investigations and lawsuits into abusive marketing practices involving the antipsychotic Risperdal and other prescription drugs.

What is about the culture in pharmaceutical companies that seems to create a breeding ground for illegal activity? Eight of the world's top 10 drugmakers have warned of potential costs related to charges of corruption in overseas markets, according to a Reuters examination of U.S. filings.

One reason is the executives that approve the payments never seem to be held to account whether through federal prosecution or by their companies. In the case of Pfizer, the SEC said the company payoffs were made “without the knowledge or approval of officers or employees of Pfizer, but the inaccurate books and records of Pfizer subsidiaries were consolidated in the financial reports of Pfizer.” I find this hard to believe. How can no one know about millions paid in bribes?

The culture of an organization sets the tone for the behavior of its employees. By ‘voluntarily’ disclosing the illegal payments, Pfizer is not acting with integrity. It was trying to head off an extensive government investigation that might have cost more to litigate than the $60.2 million paid to settle government charges of illegal payments under the FCPA.

Let’s not give Pfizer, or any other company for that matter, credit for disclosing an illegal activity that never should have occurred in the first place. It’s easy to confess in advance of the expected disclosure of an illegal act and make it seem as though the company is getting ahead of the problem. It’s an entirely different matter to prevent such activity from occurring in the first place.

Blog posted by Steven Mintz, aka Ethics Sage, on August 21, 2012

On line Dating Scams Spreading like Wildfire

How to protect yourself against on line Dating Scammers

The total number of single people in the U.S. has been estimated at 54 Million. The total number of people in the U.S. who have tried online dating is about 40 Million. The two largest on line dating services are eHarmony with 20 Million members and Match.com with 15 Million members. According to the Association of Psychological Science, online dating is now the second most common way people find one another. Introductions from friends and family are still the most popular methods for finding love, but online dating sites now surpass churches, fitness clubs and bars as meeting places for those seeking friendship or romance.

So it’s not surprising that recent reports of on line dating scams are causing consternation among singles looking for the right partner with whom to share their lives. On August 15, 2012, the Better Business Bureau issued a warning that complaints about on line dating services have increased by 108% in the past year. While the report covers the Chicago and Northern Illinois area, it does raise some important points that would-be-on line-daters should heed.

Steve J. Bernas, president & CEO of the BBB in the Chicago area cautions: "With matchmaking contracts, it's important to know exactly what you're getting into and what the service offers. Be sure to read all agreements, guarantees, and instructions before signing and be wary of vaguely worded provisions, exclusions or limitations which could pose a problem later."

The BBB offers the following advice to avoid dating scams:

• Know and recognize the red flags. Be wary if someone claims any of the following: to be in love right away, to be from the U.S. but traveling or working overseas, or to be a member of the military. Another red flag is if someone's profile lacks a photograph and/or information in their "About Me" section.
• Create a new e-mail account to be used just for online dating. The advantage of having a separate account is that you can filter information in your dating inbox and it doesn't become mixed with work or personal e-mails.
• Don't give out personal information online. It is not necessary to reveal any of the following on your online dating profile: full name, address, phone numbers, link to your Facebook page, work information or financial details. This information can be revealed later if you meet in person and develop trust. Avoid anyone who pushes you to disclose personal information.
• Talk on the phone before meeting in a public place. It can be easier to spot a fraud over the phone rather than online. If you decide to meet someone after the initial phone conversation, always meet in a public.

The anonymity of the Internet makes dating sites easy places for con artists to find victims, especially with so many people are willing to share personal information with strangers. But beware that scammers can set up fake profiles with legitimate online dating services. As a romantic relationship progresses, often for many months or even years, the communications usually leave the dating site and switch to personal emails. Victims receive pictures, which they are led to believe are of their new love interests, and the thieves tell elaborate stories about “their” families and personal lives. Most often none of their stories are true. The real people behind many of the fake profiles are Nigerian scam artists, and eventually the fake gentlemen and ladies come up with “emergencies” and ask for money.

A Lincoln, Nebraska woman recently reported to the BBB that she was a victim of a dating scam via Match.com. She had a 16-month online relationship with a man who told her that he was an American working in Nigeria on a construction job. He sent pictures of (supposedly) himself with (supposedly) his son and told her he was building an orphanage. He claimed he would be receiving a payment of $16 million for the project in the near future and he even said he planned to share $1 million of that with her.

How to Recognize a Scam Artist

The relationship may not be what you think, especially if your sweetheart:

• wants to leave the dating site immediately and use personal email or instant messaging
• claims love in a heartbeat
• claims to be from the U.S., but is traveling or working overseas
• plans to visit, but is prevented by a traumatic event or a business deal gone sour

Scammers also like to say they’re out of the country for business or military service.

What You Can Do About It

You may lose your heart, but you don’t have to lose your shirt, too. Don’t wire money to cover:

• travel
• medical emergencies
• hotel bills
• hospital bills for a child or other relative
• visas or other official documents
• or losses from a temporary financial setback

Don’t send money to tide someone over after a mugging or robbery, and don’t do anyone a favor by making an online purchase or forwarding a package to another country. One request leads to another, and delays and disappointments will follow. In the end, the money will be gone along with the person you thought you knew.

Relationship scams should be reported to the Federal Trade Commission, the FBI’s Internet Crime Complaint Center, and your state Attorney General. To access a list of possible scams, click on this link to the Fraud Aid victim advocacy website.

Blog posted by Steven Mintz, aka Ethics Sage, on August 17, 2012

Holding CEOs Responsible for Fraud at their Companies

Tyco & Kozlowski

You remember Dennis Kozlowski, the former CEO of Tyco International, who was convicted in 2005 of crimes related to his receipt of $81 million in purportedly unauthorized bonuses, the purchase of art for $14.725 million for his $30 million New York City apartment which included $6,000 shower curtains and $15,000 "dog umbrella stands," and numerous other diversions of company funds. Kozlowski's North Hampton, NH. estate was auctioned off for $4.135 million after he was sent to jail. It looks like something out of Hearst Castle.

Who can forget the $2 million spent for the 40th birthday party for his wife by flying friends and corporate hotshots to the Italian island of Sardinia for fun and games including a Roman toga party complete with entertainment by Jimmy Buffet. There was a board meeting on the last day of the week of fun and frolic, and Kozlowski billed Tyco for ‘only’ $1 million.

Kozlowski is a non-repentant individual who not only used company funds for personal reasons but told Morley Safer in a 60Minutes interview that he did nothing different than prior CEOs of Tyco. He was playing by the ‘book.’ Kozlowski’s approach to ethics is called “ethical relativism.” This is when a person believes ethical decision-making is relative to the situation. In other words, everyone is free to define his or her ethics in situations encountered based on the prevailing facts – and pressures – at the time. Most ethicists would scoff at the suggestion that I define my own ethics.

Ethics is based on certain immutable ideas that include a set of core ethical values to be followed in all situations. For example, honesty and truthfulness are core values. Once a person starts to lie, deceive, or cover-up past actions, that person begins the slide down the ethical slippery slope and oftentimes there is no turning back. I always encourage my students to tell the truth when they have made an error in judgment – admit it; be remorseful and promise never to do it again; and change your behavior to avoid repeating the mistake.

I was pleased to learn that on Friday, August 10, Tyco and Kozlowski reached a tentative settlement in litigation over compensation before he was convicted and jailed in 2005 for a massive fraud. The civil litigation was filed in 2002 in U.S. District Court in Manhattan. Tyco accused Kozlowski of fraud and breach of fiduciary duty. Two years ago, a judge found Kozlowski liable on most claims and a trial scheduled to start this week would have decided any damages owed to the company.

Kozlowski, who is in his mid-60s, was convicted in June 2005 of securities fraud, grand larceny and falsifying business records in New York State Supreme Court. A jury found that Kozlowski and former chief financial officer Marc Swartz stole $137 million from the conglomerate.

Kozlowski was sentenced to 8-1/3 years to 25 years in prison. The New York State parole board denied him parole in April.

Goldman Sachs & all the President’s Men

It’s high time we started to hold CEOs responsible for fraud at their companies. The buck should stop with those at the helm of these companies who knew, should have known,  and/or looked the other way while the fraud was committed. That is why I was dismayed to learn last week that the Justice Department won’t prosecute Wall Street firm Goldman Sachs or its employees in a financial fraud probe.

In a written statement, the department said it conducted an exhaustive investigation of allegations brought to light by a Senate panel investigating the 2008-2009 financial crisis. "The department and investigative agencies ultimately concluded that the burden of proof to bring a criminal case could not be met based on the law and facts as they exist at this time." But the department added that if additional or new evidence were to emerge, it could reach a different conclusion about prosecuting Goldman.

A Senate subcommittee chaired by Sen. Carl Levin in April 2011 found that Goldman marketed four sets of complex mortgage securities to banks and other investors but that the firm failed to tell clients that the securities were very risky. The Senate panel said Goldman secretly bet against the investors' positions and deceived the investors about its own positions to shift risk from its balance sheet to theirs.

The Obama administration is infested with people with ties to Goldman Sachs. Goldman was Obama’s biggest campaign contributor ($994,795) in 2008 and before that as a candidate to the Senate. Moreover, I can’t help but wonder whether ties to Robert Rubin, former co-Chairman of Goldman, head of Citicorp, and U.S. Treasury Secretary in the Clinton Administration, biased the decision. After all, protégés of Rubin include Larry Summers, Obama’s chief economic adviser and head of the National Economic Council, and Timothy Geithner, current Treasury Secretary and past president of the Federal Reserve Bank of NY.   

It’s ironic that the Democrats accuse Mitt Romney of being an unfeeling capitalist while crony capitalism is practiced by the current administration. We, the People, deserve better from our elected officials. To allow Goldman executives to escape unscathed by a scandal they were part and parcel of, is, quite frankly, an outrage.

Blog posted by Steven Mintz, aka Ethics Sage, on August 13, 2012

Voter Fraud: Real or Imagined?

Challenges to Voter ID laws Raise Questions about Voter Suppression

Claims of voter fraud by state attorney generals are on the rise. On August 1, 2012 the American Civil Liberties Union (ACLU) challenged Pennsylvania's new voter ID legislation alleging that "large numbers of registered voters in Pennsylvania will not have their votes counted on Nov. 6, 2012 because they will be unable to present an acceptable photo ID" and that the new photo ID law "will lead to elections that are no longer free and equal."

At the moment, the U.S. Justice Department is looking into the law, but Pennsylvania doesn't go through pre-clearance under the Voting Right Act like Texas and South Carolina are going through, two states where voter ID laws are being challenged.

The voter fraud issue in recent times goes back to 2008 when the U.S. Supreme Court recognized the threat posed by voter fraud and ruled that Indiana's photo ID requirement was a legitimate, non-discriminatory means of protecting the integrity of elections. The Supreme Court upheld Indiana's law despite no concrete evidence of fraud in Indiana's elections.

In South Carolina, the state claims that dead voters have been casting ballots in past elections and a voter ID law is necessary to prevent fraud.  Last year, South Carolina passed a voter ID law to require all voters to present a certain form of photo identification or be turned away from the polls. The Justice Department blocked that law a year ago for violating the Voting Rights Act’s prohibition on election laws that discriminate against minorities. An examination of the voting rolls by the State Election Commission appears to have turned up no evidence of fraud.  

In Texas, evidence of voter fraud abounds. In recent years, the Attorney General’s office has secured more than 50 voter fraud convictions. Those include a woman who voted in place of her dead mother, a political operative who cast ballots for two people, and a city councilmember who registered foreign nationals to vote in an election decided by 19 votes. Voter fraud is hard to detect, so the AG alleges cases like these are just the tip of the iceberg.

In 2011, Texas enacted a photo-identification requirement modeled after Indiana's. The Department of Justice rejected the Texas voter ID law on March 12, 2012, preventing it from taking effect.

A spokesman for the Texas Attorney General’s office claims that three-quarters of the cases involved election code violations classified as "illegal voting" – which includes acts such as voting more than once, impersonating a voter or voting despite ineligibility -- and "method of returning marked ballot," often meaning the defendant was accused of having someone else’s ballot.

In April 2012, Florida election officials were denied help by the federal government to confirm citizenship status (and voter fraud) for an estimated 180,000 illegal immigrants already registered to vote in Florida. The explanation seems to be that Florida’s Motor Voter Act of 1993 (which most states have in some form) prohibited even asking immigration status when an individual filled out their voter registration form while failing to require proof of citizenship.

Investigators are now looking into possible vote fraud in Hialeah, Fla., where at least 31 absentee ballots were collected by a suspected ballot broker in two separate instances in July 2012. Miami-Dade detectives questioned a Hialeah woman named Daisy Cabrera, who was found in possession of at least a dozen absentee ballots belonging to other voters. Some voters have told El Nuevo Herald that Cabrera filled out ballots for them in local elections - and offered to help the voter move up a public housing waiting list.

In the most bizarre case, in eastern Kentucky a major cocaine and marijuana dealer admitted to buying votes to steal elections. Kerry B. Harvey, U.S. attorney for the Eastern District of Kentucky, described a stunning vote-buying scheme that includes "very extensive, organized criminal activity, involving hundreds of thousands of dollars, and in many cases that involves drug money." Prosecutors say more than $400,000, part of it drug proceeds, was pooled by Democratic and Republican politicians over several elections, and spent to buy the votes of more than 8,000 voters, usually at $50 apiece.

There are reported cases of voter fraud but they appear to be isolated incidents. Still, if we can’t trust our election process 100% then how can we claim to be “The Shining City upon a Hill?” We are supposed to set an example for the rest of the world. We monitor elections in other countries to prevent election fraud. Our country cannot afford to have its election process tainted even by questionable allegations.

Voter fraud should become a major election issue because it goes to the very core of who we are as a people. Election fraud begets other kinds of fraud including kickbacks to government officials, financial fraud, credit card fraud, and so on. As a nation we need to “wake up and smell the coffee.” We have become a nation that places greed above all else; we’ve lost our moral compass. The sooner we admit to the problem, the sooner we can begin to heal the cancer that grows within us.

Blog posted by Steven Mintz, aka Ethics Sage, on August 8, 2012

What Motivates Medical Billing Fraud?

Medicare Billing Fraud Costs to Society

We all will need it at some time in our future. The costs keep rising and the loss to the government (i.e. we, the People) is staggering. Medical billing experts estimate that the U.S. Government loses 30 cents of every dollar earned from fraudulent practices and medical billing scams. You may recall that the Obama Health Care Reform Act that was signed into law on March 23, 2010, cited about $500 billion in Medicare fraud that is supposed to be recovered to help pay for the Act. I believe this is the tip of the iceberg.

Medicare's war on fraud went high-tech on August 1, 2012, with the opening of a $3.6 million command center in Baltimore that features a giant screen and the latest computer and communications gear. The idea is to have the tools to prevent the annual $60 Billion cost in Medicare fraud and recover as much as possible from the fraudsters. The government expects the system to eventually pay for itself, although as with most statements of this kind the glaring omission is how much is spent to run the system and pay the employees charged with its operation.

I’ve often wondered what motivates a highly-skilled and well-educated medical professional to commit Medicare fraud. These are reasonably well paid individuals who, supposedly, receive a great deal of self-satisfaction from doing their job well. Very few professions can match those benefits.

I believe there are a variety of factors involved including an indifference to ethical transgressions. I like to think of it as the absence of a moral compass or a compass that is not pointed true north. In my last blog I spoke of this phenomenon.

We all know people who seem to be amoral – but we expect medical professionals to be better than that. You know, The Hippocratic Oath historically taken by physicians, physician assistants' and other healthcare professionals swearing to practice medicine ethically and honestly.   

Alas, I am forced to conclude that physicians are no better or worse than the “average” American. Not all, of course, but way too many have morphed into greedy individuals who pursue self-interests above all else and rationalize unethical actions. Perhaps they feel entitled my low Medicare reimbursement rates to pad their billings, bill for nonexistent services, or perform and bill for unnecessary procedures. Unfortunately, the end result is we all pay higher health care costs to cover the over-billings for unsubstantiated Medicare services.

I’ve done a bit of research on actual cases of Medicare fraud and am alarmed at the lengths to which some medical professionals go in billing the government for fraudulent services. I describe just a few below to educate the reader about the extent of the problem.

Medicare fraud generally refers to willfully and knowingly billing medical claims in an attempt to defraud the Medicare program for money. Anyone found guilty of Medicare fraud is subject to exclusion from participation in the Medicare program in addition to fines and possibly imprisonment. Most Medicare fraud occurs in four areas:

1. Medical Equipment Never Provided The most common area of Medicare fraud is billing for Durable Medical Equipment (DME). DME refers to any medical equipment necessary for a patient's medical or physical condition. It includes wheelchairs, hospital beds, and other equipment of that nature. The provider will bill Medicare for equipment that the patient never received. Mobility scooters have been particularly popular for Medicare fraud schemes.
2. Services Never Performed In this instance, the provider bills for tests, treatment or procedures never performed. This can be added to the list of tests a patient has actually received and never be noticed. A provider may also falsify diagnosis codes in order to add on unnecessary tests or services.
3. Upcoding Charges Misrepresenting a level of service or procedure performed in order to charge more or receive a higher reimbursement rate is considered upcoding. Upcoding also occurs when a service performed is not covered by Medicare but the provider bills a covered service in its place.
4. Unbundling Charges Some services are considered all inclusive. Unbundling is billing for procedures separately that are normally billed as a single charge. For example, a provider bills for two unilateral screening mammograms, instead of billing for 1 bilateral screening mammogram.

Two examples illustrate particularly egregious behavior. On January 12, 2012, Jorge Pineiro pleaded guilty for his participation in a $25 million home health Medicare fraud scheme. Pineiro was a registered nurse who worked for ABC Home Health Care Inc. and Florida Home Health Care Providers Inc., two Miami home health care agencies that purported to provide home health and therapy services to Medicare beneficiaries. Pineiro and his co-conspirators operated ABC and Florida Home Health for the purpose of billing Medicare for expensive services that were not medically necessary and/or were never provided. The medically unnecessary services were prescribed by doctors, including, but not limited to, Pineiro’s co-defendant, Dr. Jose Nunez.

According to court documents, beginning in approximately June 2008, and continuing until approximately March 2009, Pineiro and his co-defendant nurses falsified patient files for Medicare beneficiaries to make it appear that they qualified for home health care and therapy services. Pineiro knew that the beneficiaries did not actually qualify for and did not receive the services. Pineiro and his co-defendant nurses described in nursing notes and patient files symptoms that were non-existent, such as tremors, impaired vision, weak grip and inability to walk without assistance. They included these symptoms to make it appear that the patients were unable to self-inject insulin and were homebound, thus appearing to qualify for home health care benefits under Medicare.

Lana Le Chabrier, a physician in Santa Barbara, California, was sentenced on July 12, 2012 to six and a half years in prison for conspiring to commit health care fraud. Le Chabrier was responsible for close to a million dollars in fraudulent billings submitted to Medicare and more than $400,000 in payments made on false claims. During the period of February 2006 through August 2008, Vardges Egiazarian, 63, of Panorama City, owned and controlled three health care clinics in Sacramento, Richmond, and Carmichael. Egiazarian and others recruited doctors to submit applications to Medicare for billing numbers. Le Chabrier assumed the role of co-owner and practitioner at the Richmond clinic, and claims were submitted to Medicare under her name for medical services purportedly rendered at the clinic.

In fact, Le Chabrier never treated a single patient at the clinic. Clinic patients, almost all of whom were elderly and non-English speaking, were recruited and transported to the clinics by individuals who were paid according to the number of patients they brought to the facilities. Rather than being charged a co-payment, the patients were paid for their time and the use of their Medicare eligibility, generally $100 per visit. False charts were created stating that each patient received comprehensive exams and a broad array of diagnostic tests. Few of these tests were ever performed, none were performed based on any medical need, and clinic employees filled out other portions of the charts using preprinted templates. Some clinic employees admitted to performing various tests on themselves, and placing the results in patient files.

Fraud is endemic in our society. It infects the business world including financial institutions, the health-care services profession, and our government. The total costs of fraud to society are difficult to determine. I believe it ranges in the trillions, not billions, and certainly not millions. Imagine if we had that money to pay off our national debt. Imagine if that money were returned to the taxpayer to stimulate the economy. Imagine if we lived in a society where people followed their inner voice rather than ignore it. We can hope, we can dream, but in the end “it takes a village” to raise a society that is led by a moral compass pointing due North.

Blog posted by Steven Mintz, aka Ethics Sage, on August 4, 2012  

Let Your Conscience be Your Guide…Or Not

Conscience, Moral Compass, and Ethical Behavior

I’ve blogged about it before – the lack of a moral compass. I’ve spoken out about fraud in our society. Business fraud contributed to financial meltdowns in the early 2000s because top executives in companies such as Enron and WorldCom played fast and loose with the accounting rules while auditors looked the other way. It happened again in the 2007-2008 period when some of the largest financial institutions granted risky mortgages and allowed for unclear/misleading statements in home mortgage loans. Fraudulent medical billings, the topic of my next blog, has infected the Medicare program and cost society anywhere from $600 billion, an amount estimated in the Affordable Health Care Act (Obamacare), to trillions of dollars. And, of course, some politicians use their office for personal gain while others accept bribes and kickbacks. Do they all lack a moral compass?

A moral compass is generally thought of as, "Anything which serves to guide a person’s decisions based on morals or virtues."  The common understanding is one’s conscience. Most of us from an older generation remember the phrase “Let your conscience be your guide.” An interesting side note about this statement is it appears prominently in Disney’s story of Pinocchio. I’m always amazed how we can learn so much about ethics from literature. Now, some might now consider Pinocchio literature but it does illustrate how the movies and television used to be a force to promote good behavior rather than today’s emphasis on offensive behavior, immature attitudes, and just being a jerk.

For those of you who have forgotten the famous exchange in Pinocchio, here it is:

“Well it's a good thing you didn't get to wrapped up in it" Jiminy Cricket said walking her home; Pinocchio had already gone home after his game with the other boys ended and asked Jiminy to take his sister home.

"I know Jiminy" Gizela said "I don't wanna end up like my brother" she said "like you told me."

"Don't worry Gizela that won't happen to you" he said." “Just let your conscience be your guide"…

Jiminy started to dance while twirling his umbrella

"When you get in trouble and you don't know right from wrong

Give a little whistle!"…

"When you meet temptation and the urge is very strong, give a little whistle! Give a little whistle!"

Gizela started to dance along

"Take the straight and narrow path" she sang. "And always let your conscience be your guide" he sang. 

Now, most people know that their actions should be guided by their conscience.  Some take this to mean, "I think this is right," or, "I think this is what I should do."  Some take it to an even easier level and say things like, "I need to listen to my heart," or, "I need to follow my heart." 

But, here is the problem with that mind-set. Everyone is doing what they think is right (or at least seemed right to themselves), but the underlying action is not necessarily guided by moral values.

The problem is one of formation, which results in orientation.  If one’s conscience is not properly formed, then it will not point (or orient) you in the correct direction.  Hence, the analogy of conscience to a compass – it must be properly oriented.  If a compass is not pointing to true North (or the markings on the compass indicate that the needle is off-North), it doesn’t matter how closely it is being followed – you are still going to go the wrong way, and the longer you continue in that wrong path, the more wrong you will be.

So essentially, our conscience already knows right from wrong, much like a child already has the instinct to walk – however, the conscience must be strengthened by act of the will/mind to follow what is right, and not just what is felt. 

The concept of morality is also relatively simple at its absolute core. It denotes conduct or duties based on what is right and wrong. Morality is considered to be the basis of character and is wrapped around ethics.

But while both the concept of a moral compass and the definition of morality are simple and clear, the concept of what constitutes morality is not. One person’s moral compass may not point in the same direction as another’s as far as right and wrong conduct and belief are concerned.

I always tell my ethics students that there is a difference between knowing the right thing to do and doing it. Our conscience guides us but it is our inner strength of character, or virtue to the ancient Greeks, that leads to moral action. The moral values that enable such action include truthfulness, trustworthiness, fair-mindedness, and integrity.

I always have a goal in mind when I lecture to my students. It is to get them to the point where they know the right thing to do before being faced with an ethical dilemma. It’s often too late, after the fact, to do the right thing because pressures build up by external forces to go along with wrongdoing. In other words, it is our inner conscience that drives to act one way or another informed by moral values and a desire to do the right thing not because of any personal gain but, instead, because it is the right thing to do.

Blog posted by Steven Mintz, aka Ethics Sage, on July 31, 2012

Ethics of using Eminent Domain to Seize, Restructure Underwater Mortgages

What is 'Public Use' in the Context of Seizing Private Property?

Last Friday an opinion editorial I wrote was published in the Pacific Coast Business Times. Given the interest in the topic, at least out here in California, I decided to post it on my blog.

Eminent domain refers to the power possessed by the state over all property within the state, specifically its power to appropriate property for a public use.

Generally, when a unit of government wants to acquire privately held land the government attempts to negotiate the purchase of the property for fair value. If the owner does not want to sell, the government files a court action to exercise eminent domain, and serves or publishes notice of the hearing as required by law. In the state of California, the eminent domain process can only be stopped if the proposed taking does not meet the requirements for public purpose or public necessity.  

On July 5 it was reported that officials in San Bernardino County, and in the cities of Fontana and Ontario, are considering using eminent domain to seize and restructure underwater mortgages and help struggling homeowners. The idea is to acquire the mortgages of distressed homeowners and restructure them in a way that allows the borrowers to stay in their homes.

As might be expected, banking and housing groups are not on board. They are concerned that forced restructuring through eminent domain could lead to big losses for the investors in these home loans and a loss of confidence in the ability of the cities to repay debt in the future. Seizing mortgages in this way would result in losses for public pension plans, 401(k) plans and individual investors who bought the individual loans as part of a packaged group of securities known as collateralized debt obligations. You remember these securitized assets that were at the forefront of the 2008 financial meltdown.

Two important ethical issues exist in using the eminent domain process to help one group of homeowners and not others. The first is the problem of moral hazard whereby the costs of risk-taking are passed along to other parties. The second is basic fairness. Is it fair to help out a group of people who got in over their heads or who no longer have the ability (or desire) to meet their obligations? What about homeowners who did the right thing? There are many homeowners who are living up to their obligations and making mortgage payments even though their mortgages far exceed the fair market value of their property.

The use of eminent domain rewards irresponsible behavior, even if caused by events out of the control of the benefited party. It sets a bad precedent that the government will be there to help you if economic conditions create challenges that otherwise would be met. It is unfair to others who play by the rules.

The use of eminent domain to refinance underwater mortgages is an ethical slippery slope. Where does it stop? Why not use it to pay off automobile loans and prevent repossession? Why not restructure student debt to relieve the burden of years of loan repayment?

There is a reason we live in a free market economy. We believe in letting the marketplace resolve issues of supply and demand for housing. We should also learn from the past and acknowledge that various affordable housing programs have not worked to stem the tide of foreclosures and underwater mortgages. The real problem is stagnant economic growth.

The U.S. Constitution states that “No person shall be… deprived of… property, without due process of law; nor shall private property be taken for public use, without just compensation.” The key is to define ‘for public use’. Public use is generally thought of as having a public benefit such as seizure to develop infrastructure. The eminent domain action being contemplated by San Bernardino county officials benefits one group of people and might lead to the loss in value of homes for those who have played by the rules.

The free-market solution to the housing dilemma is for banks to work with their customers to restructure debt. We should not expect the banks and investors to sit idly by and watch the government intervene in the process. The eminent domain solution is more akin to socialism than capitalism.

Blog posted by Steven Mintz, aka Ethics Sage, on July 26, 2012

Can We Make Sense Out of a Senseless Act?

Dark Knight Massacre Raises Important Questions about Society

It was a dark night at midnight on July 20 when James Eagan Holms shot up a movie theatre in Aurora, Colorado killing 12 people and wounding 58 others, with 11 in critical condition. The killer brought four guns — two semi-automatic pistols, an assault-style rifle and a shotgun — to the movie theater and used the emergency exit to retrieve them from his car along with his helmet, body armor and a gas mask. At first he was just a silhouette, taken by some in the audience for a stunt that was part of one of the summer's most highly anticipated films. Shortly thereafter he used gas canisters to create a fog-effect, sprayed the ceiling to terrorize the patrons, and then proceeded on with the massacre. Can we make sense out of this senseless act?

My first reaction is to say what I have believed for several years that we have a sick society. How else can we explain 27 mass killings in the U.S. since 1982 (a mass killing is when 5 or more people are killed). How else can we explain the senseless murders yesterday in Aurora? Or, six dead and 18 others wounded on January 8, 2011, including U.S. Representative Gabrielle Giffords, at a public meeting held in a supermarket parking lot near Tucson, Arizona. Or, the Fort Hood shooting that took place on November 5, 2009, when U.S. Army Major Nidal Malik Hasan killed 13 people and wounded 29 others -- the worst shooting ever to take place on an American military base. Or, the April 16, 2007 mass murder at Virginia Tech when Seung-Hui-Cho shot and killed 32 people and wounded 17 others -- the deadliest shooting incident by a single gunman in U.S. history. Or, the Beltway murders that took place during three weeks in October 2002 in Washington, D.C., Martyland, and Virginia. Ten people were killed and three other victims were critically injured in several locations in sniper attacks by John Allen Muhammad and Lee Boyd Malvo. Or, the Columbine massacre on April 20, 1999 when two senior students at Columbine High School in Colorado went on a shooting spree in which 12 students and one teacher were murdered and 21 students were injured.

By definition we can’t make sense out of these senseless, random acts of violence. The only explanation is we have a sick society. Yes, these are isolated incidents. But, violence has become endemic in our society. It is glorified in the movies, on television, and in video games such as ‘The Walking Dead,’ a PlayStation favorite. That video has been rated M for mature audiences and begins with a warning: Blood and Gore and Intense Violence.

Some might tell you murders are down across U.S. cities. I don’t buy it because I have no confidence in the statistics used to make that claim. Regardless, how can we explain that in 2012 through July 19 the Chicago murder rate is up 31 percent from last year, with 289 Chicagoans killed?

Our ethical challenges as a supposedly civil society go deeper. In the Dark Night Massacre two young parents brought their three-month old child to the midnight showing. How can we explain it other than to say we have too many irresponsible parents who place their selfish needs over common sense and the welfare of their child? How can we make sense of the senseless death of two young children this past May in Texas and Missouri after their parents “accidentally” left them all day in hot vehicles.

It says a lot about our culture that when James Eagan Holms entered the Aurora theatre many patrons who saw him in what appeared to be SWAT-type clothing seemed to believe it was part of the movie experience and somehow connected to the performance. Have we become so inundated with images of violence as to be unable to distinguish what is real from what is not real?

We will talk about it, dissect it, analyze how it can happen, and ruminate about the senselessness of the act. Then, time will pass, as it has before, and it will be forgotten except by those directly touched by the tragedy at the Aurora movie complex.

Will the presidential candidates discuss it? Perhaps, but only from the perspective of gun control. Gun control is important but not the answer to senseless violence. The bad guys will always find a way to acquire weapons and do bad things and there are many conscienceless sellers out there who place profit above all else.

I have blogged about it many times before. The first step in reversing the effects of a disease is to recognize that one exists. It won’t happen. We are oblivious as a nation to the fact that we are a sick society. We are told these tragedies are rare. We are told that less than one percent of homicides in this country involve five or more victims. What we aren’t told is that a major cause of the decline of the Roman Empire was a decline of morals and the sadistic cruelty towards both men and beasts in the arena.

Blog posted by Steven Mintz, aka Ethics Sage, on July 21, 2012

The Hole in the Moral Ozone is Getting Bigger

Rationalization for Cheating by Kids Bolsters the Theory of Moral Blindness

The Theory of Moral Blindness holds that some people are unable to form an awareness of others’ thoughts; that their actions do not consider consequences on others. Moral blindness implies an irresponsible, self-serving nature. It means to act in a manner without conscience.

We have a cheating society. Reports last week from New York City officials indicate that 70 students at the prestigious Stuyvesant High School had been involved in a cheating scheme in June. During a foreign-language exam on June 18, the principal confiscated a cell-phone from a student who was texting messages to fellow students. Using data found on the student's phone, a subsequent investigation uncovered additional cheating during previous tests, including three Regents exams.

Students rationalize cheating in a variety of ways including: (1) everyone does it; (2) we are just reflecting what goes on in the business world; (3) the standards at our school and competitiveness causes us to cheat; (4) the schools let us get away with cheating; and (5) we are expected by our parents to get into an elite college such as MIT and Brown. Notice how in each case someone else is blamed and the students do not accept responsibility for their actions; many seem surprised when (and if) they are held accountable.

At Stuyvesant, all 70 students have to retake the exam. It was reported that the student whose phone was confiscated and was at the center of the cheating network faces possible suspension and may have to transfer to another school by fall. This is supposed to be the just punishment for cheating? The students get to do it over again – and that’s it? I can add number six to my list that the punishment is extraordinarily light or nonexistent.

Last January I blogged about Sam Eshaghoff, a Great Neck Long Island student, who officials said was paid to take the SAT test for dozens of other kids. Eshaghoff accepted up to $2,500 from each of the other students to take their tests using easily manufactured fake IDs. His scam came crashing down in fall 2011, when he was arrested for criminal impersonation and fraud. Eshagoff is now at Emory University.

The Josephson Institute of Ethics issues a biennial Report Card on American Youth’s Values and Actions. The 2010 Report Card reports on the survey of 43,000 high school students in public and private schools. A majority of students (59 percent) admitted cheating on a test during the last year, with 34 percent doing it more than two times. One in three admitted they used the Internet to plagiarize an assignment.

I think back to my days in high school and wonder how and why things have changed. Sure, cheating went on in a ‘low-tech’ manner. Some students brought in crib sheets; wrote answers on their hands; and looked at other students papers. One difference is the cheaters felt bad after getting caught rather than somehow entitled to cheat. Another difference is one’s parents would remind us of the shamefulness of our actions. The punishment might have been no after school activities for a period of time; no television; no friends over or leaving the house other than for school. You can bet the school would treat the matter more seriously than occurs today.

It’s convenient to blame the problem on technology. Cell phones are tiny and one student can easily text another for an answer and will do so even though the school has a policy against cellphone use. After all, you don’t become a cheater in the first place and then worry about rules that probably won’t be enforced by the school anyway.

Unethical actions abound from using steroids in sports to gain an edge, to cheating on one’s spouse for self-gratification, to fudging an expense report to receive a higher reimbursement, to using technology to gain a competitive advantage, and the list goes on. These actions all have one thing in common. They reflect the widening of the hole in our moral ozone and spreading disease of moral blindness that has infected us for years and now threatens our ability to remain a civil society.

Blog posted by Steven Mintz, aka Ethics Sage, on July 16, 2012

Bank Financial Fraud Goes Global

The LIBOR scandal infects Global Financial Markets

Last week it was disclosed that Barclays, a 300-year-old British bank, rigged the LIBOR rate. The LIBOR is a borrowing rate set daily by a panel of banks for ten currencies and for 15 maturities. The most important of these, three-month dollar LIBOR, is supposed to indicate what a bank would pay to borrow dollars for three months from other banks at 11am on the day it is set. The dollar rate is fixed each day by taking estimates from a panel, currently comprising 18 banks, of what they think they would have to pay to borrow if they needed money. The top four and bottom four estimates are then discarded, and LIBOR is the average of those left. The submissions of all the participants are published, along with each day’s LIBOR fix.

Many financial institutions, mortgage lenders and credit card agencies set their own rates relative to (and typically higher than) LIBOR. The LIBOR is among the most common of benchmark interest rate indexes used to make adjustments to adjustable rate mortgages. So, it affects virtually all people around the world and the scandal described below threatens to infect the global financial system if left unchecked.

Over the past week strong evidence has emerged in documents detailing a settlement between Barclays and regulators in the U.S. and Britain that employees at the bank and at several other unnamed banks tried to rig the number time and again over a period of at least five years. Investigations by regulators in several countries, including Canada, America, Japan, the EU, Switzerland and Britain, are looking into allegations that LIBOR and similar rates were rigged by large numbers of banks. Corporations and lawyers, too, are examining whether they can sue Barclays or other banks for harm they have suffered. That could cost the banking industry tens of billions of dollars.

As many as 20 big banks have been named in various investigations or lawsuits alleging that LIBOR was rigged. The scandal also corrodes further what little remains of public trust in banks and those who run them. Still, the fraud is bigger than just LIBOR manipulation.

A second sort of LIBOR-rigging has also emerged in the Barclays settlement. Barclays and, apparently, many other banks submitted dishonestly low estimates of bank borrowing costs over at least two years, including during the depths of the financial crisis. In terms of the scale of manipulation, this appears to have been far more egregious—at least in terms of the numbers. Almost all the banks in the LIBOR panels were submitting rates that may have been 30-40 basis points too low on average. That could create the biggest liabilities for the banks involved.

As the financial crisis began in the middle of 2007, credit markets for banks started to freeze up. Banks began to suffer losses on their holdings of toxic securities relating to American subprime mortgages. With unexploded bombs littering the banking system, banks were reluctant to lend to one another, leading to shortages of funding system-wide. This only intensified in late 2007 when Northern Rock, a British mortgage lender, experienced a bank run that started in the money markets. It soon had to be taken over by the state. In these febrile market conditions, with almost no interbank lending taking place, there were little real data to use as a basis when submitting LIBOR. Barclays maintains that it tried to post honest assessments in its LIBOR submissions, but found that it was constantly above the submissions of rival banks, including some that were unmistakably weaker.

At the time, questions were asked about the financial health of Barclays because its LIBOR submissions were higher. Back then, Barclays insiders said they were posting numbers that were honest while others were fiddling theirs, citing examples of banks that were trying to get funding in money markets at rates that were 30 basis points higher than those they were submitting for LIBOR.

Regulators around the world are concerned that global financial markets may have been rigged by a large number of banks. The list of institutions that have said they are either co-operating with investigations or being questioned includes many of the world’s biggest banks. Among those that have disclosed their involvement are Citigroup, Deutsche Bank, HSBC, JPMorgan Chase, RBS and UBS.

The U.K. Serious Fraud Office (SFO) opened a criminal probe into the attempted rigging of interest rates that led to a record fine against Barclays, adding to pressure on banks already under investigation by regulators around the globe. (As a side point, I never could understand why, in certain countries, large scale frauds ware distinguished from tamer ones by having the “Serious Frauds Office” do the investigation. It seems to me all frauds are serious on their face.)

Politicians including Chancellor of the Exchequer George Osborne and Opposition Labour leader Ed Miliband called for a criminal probe after Britain’s second-biggest bank was fined $451 million two weeks ago in the UK and U.S. for submitting false LIBOR rates. Chief Executive Officer Robert Diamond and Chief Operating Officer Jerry Del Missier resigned over the scandal.

The SFO joins the U.S. Department of Justice in criminally investigating how derivatives traders and rate submitters colluded to rig interbank offered rates. The U.K. Financial Services Authority is seeking civil penalties against banks and has said its criminal powers don’t include Libor rigging.

As part of the U.S. and U.K. settlements, Barclays admitted rigging the LIBOR as well as Euribor, its equivalent in euros, as early as 2005. In testimony to the British Parliament last week, Diamond apologized and said 14 Barclays traders were involved.

Citigroup Inc., Royal Bank of Scotland Group Plc, UBS AG, ICAP Plc, Lloyds Banking Group Plc and Deutsche Bank AG are among the firms regulators are investigating. About 18 banks are surveyed as part of the process of determining LIBOR rates.

The bottom line is now global interest rates and the global financial system is coming under attack. If we can’t trust that system, then the global transfer of money may be in doubt. In the US, we have our own problems with the financial system. Now, we have to consider the LIBOR-rigged rate problem to determine how, and to what extent, it has affected the actions and performance of US banks. US regulatory authorities should investigate as quickly as possible to assure investors the scandal has been controlled.

Blog posted by Steven Mintz, aka Ethics Sage, on July 14, 2012

GlaxoSmithKline Fraud Leads to Settlement of Whistle-blower Lawsuits

Health Care Fraud a Growing Problem

On July 2, 2012, a federal judge approved an agreement by British drugmaker GlaxoSmithKline to pay $3 billion for criminal and civil violations involving 10 drugs, the largest health care fraud settlement in U.S. history. GlaxoSmithKline pleaded guilty to promoting the popular antidepressants Paxil and Wellbutrin for unapproved uses.

Prior to the Glaxo settlement, the record-setting case involved Pfizer Inc., the world’s biggest drugmaker. It paid the government $2.3 billion in 2009 in criminal and civil fines for improperly marketing 13 different drugs, including erectile-dysfunction drug Viagra and cholesterol fighter Lipitor, the top-selling drug in the world for years. Pfizer was accused of encouraging doctors to prescribe its drugs with free golf, massages and junkets to posh resorts.

In May 2012, Abbott Laboratories settled for $1.6 billion over its marketing of the antipsychotic drug Depakote. And an agreement with Johnson & Johnson on June 11, 2012, the company agreed to pay up to $2.2 billion, including a criminal penalty portion of as much as $600 million, to settle U.S. investigations and lawsuits into abusive marketing practices involving the antipsychotic Risperdal and other prescription drugs.

Government officials said in the original complaint against Glaxo that the company promoted Paxil as safe for children and adolescents, even though the U.S. Food and Drug Administration (FDA) hadn’t approved it for those patients and the company’s clinical trials raised concerns about an increased suicide risk.

Prosecutors had charged that the drugmaker promoted Wellbutrin for unapproved uses that included treating attention deficit disorder, bipolar disorder, obesity, sexual dysfunction and anxiety when it wasn’t shown to be safe and effective for those uses.

The company also admitted that it failed to report to the government some safety problems with Avandia. In 2010, the diabetes drug was restricted in the U.S. and banned in Europe after it was found to sharply increase the risks of heart attacks and congestive heart failure.

I have previously blogged about the GlaxoSmithKline case in the context of a whistleblower lawsuit brought against the company. In October 2010 it was reported that Cheryl Eckard, a quality-assurance manager at Glaxo who had blown the whistle on the safety of products made in its Puerto Rico plant, had been fired as a result of what the company called a “redundancy” related to the merger of Glaxo Wellcome and SmithKline Beecham a couple of years before. Of course, the suspicion was that Eckard was fired because she refused to go along in a cover-up of the quality assurance and compliance problems at the plant.

Eckard filed a federal lawsuit against Glaxo under the U.S. False Claims Act. The law prohibits people or businesses from defrauding the government, and provides incentives for people who suspect wrongdoing to come forward. Lawsuits are typically filed confidentially and the Justice Department determines whether the case has enough merit for it to take over. If the Justice Department is successful in recovering money – usually through a settlement – the whistleblower is generally entitled to receive from 15% to 25% of the award. Cheryl Eckard won $96 million as part of an initial $750 million penalty against Glaxo.

Last week it was announced that the company had settled lawsuits from claims made by four employees of GlaxoSmithKline, including a former senior marketing development manager for the company and a regional vice president, who tipped off the government about a range of improper practices from the late 1990s to the mid-2000s.

Prosecutors said the company had tried to win over doctors by paying for trips to Jamaica and Bermuda, as well as spa treatments and hunting excursions. In the case of Paxil, prosecutors claim GlaxoSmithKline employed several tactics aimed at promoting the use of the drug in children, including helping to publish a medical journal article that misreported data from a clinical trial.

A warning was later added to the drug that Paxil, like other antidepressants, might increase the risk of suicidal thoughts in teenagers. Prosecutors said the company had marketed Wellbutrin for conditions like weight loss and sexual dysfunction when it was approved only to treat major depressive disorder.

They said that in the case of Avandia, whose use was severely restricted in 2010 after it was linked to heart risks, the company had failed to report data from studies detailing the safety risks to the FDA.

The Glaxo settlement is the latest in a string of settlements related to pharmaceutical companies that put profits ahead of patients. In recent years, the government has cracked down on drugmakers’ aggressive tactics, which include marketing medicines for unapproved uses. While doctors are allowed to prescribe medicines for any use, drugmakers cannot promote them in any way not approved by the FDA.

The actions against pharmaceutical companies raise serious questions about the safety of medicines that are increasingly marketed to, and taken by, children and adolescents. It is a problem that should not be tolerated and threatens the health of young people in the US.

I have to wonder about the business ethics at companies like GlaxoSmithKline. I went online to look at its code of conduct. Here it is:

 

GSK Code of Conduct   �    GSK Staff must always  act with integrity  and honesty  and must protect  the Company’s public  image  and  reputation   in  relationships   with  customers,   competitors,   suppliers, business partners and staff. �    GSK Staff must promptly raise any concerns about possible unethical or illegal conduct. GSK will investigate  all genuine concerns and take appropriate  action, while maintaining confidentiality and protecting reporting individuals from retaliation. �  GSK Staff are expected to be free from actual or potential conflicts of interest that might influence, or appear to influence their judgment or actions when performing their corporate duties on behalf of GSK. The employment of a close relative within a reporting line or the existence of a personal relationship within a reporting line is a conflict of interest.

�    GSK’s reputation and the respect of those who deal with GSK must not be put at risk by Staff acceptance of any entertainment, gifts or favors intended or perceived by others to influence their business judgment.

�    Communications with external audiences, i.e., Investors and the Media, should be managed through appointed company spokespersons to minimize risk to GSK’s reputation.

Why do we have this policy? GSK is committed to the highest standards of conduct in all aspects of its business.

 

The actions of Glaxo violate just about every provision of its code. Unfortunately, all too many companies look at their code as a piece of paper that serves as a PR document and then it is filed away never to be seen again.  A code of conduct should be a living document that guides the actions of company employees and top management. Ethics training is essential to inform employees of the importance of the code and the ethical expectations in the workplace.  An effective code requires oversight including management involvement, a hot line and whistle-blowing procedures. Most important is for top management to set the proper ethical tone by their actions and to “walk the talk” of ethics.

Blog posted by Steven Mintz, aka Ethics Sage, on July 10, 2012

 

What to do if you are a Victim of Financial Elder Abuse

Elder Fraud a Growing Problem

In Tuesday’s blog I talked about elder fraud and recounted the fraud perpetrated against Jim and Miriam Parker who lost nearly $200,000 of their retirement savings to a fraud scheme. In this blog I look at the techniques used against seniors and what can be done to prevent and report elder fraud.

Financial fraud is the fastest growing form of elder abuse. Broadly defined, financial elder abuse is when someone illegally or improperly uses a vulnerable senior's money or other property. Most states now have laws that make elder financial abuse a crime and provide ways to help the senior and punish the scammer.

Elder financial abuse is tough to combat, in part because it often goes unreported. Many elderly victims are often too confused, fearful, or embarrassed by the crime to report it. One recent study reported by Consumers Digest estimated that there are at least 5 million cases of this financial abuse in the United States each year, but law enforcement or government officials learn about only 1 in 25 cases.

Frauds and thefts against the elderly by people they know and trust are surprisingly common. Examples cited by the Justice Department and other sources include stealing money; cashing checks without permission; transferring the ownership of property; committing identity theft; "borrowing" funds without intending to repay; and denying services to the elderly person – even medical care – to pocket the money.

Friends and relatives also have convinced senior citizens to add their name onto bank accounts, living trusts or wills (perhaps as the sole beneficiary) or grant a power of attorney (giving total control over the person's financial affairs).

Signs of Financial Fraud against Elders

Seniors and their loved ones should be very suspicious if they notice any of the following:

• A relative or caregiver becomes extremely interested in the elderly person's financial affairs.
• A caregiver is reluctant to spend money on necessary medical treatment.
• Someone prevents the elderly person from talking on the phone or doesn't pass along phone messages.
• There are unauthorized withdrawals from checking or savings accounts.
• The caregiver claims that some money is "missing." Or, there are new or recently changed legal documents, such as wills or "powers of attorney" that give this other person rights to conduct transactions.

A recent study by the American Association of Retired Persons (AARP) highlighted characteristics of people older than 50 that make them easy targets for financial abuse. In general, they: expect honesty in the marketplace, are less likely to take action when defrauded, and are less knowledgeable about their rights in an increasingly complex marketplace. And as people over 50 are more likely to be home than their younger neighbors, they are often within easy reach of devious telemarketers and home solicitors.

Scammers target elders that they perceive to be vulnerable -- those that are isolated, lonely, physically or mentally disabled, unfamiliar with handling their own finances, or have recently lost a spouse.

The scam artists often pose as trustworthy helpers. They can be strangers, such as telemarketers and tradespeople, or have a relationship with the targeted victim, such as friends, family members, doctors, lawyers, accountants, and paid or volunteer caregivers. Abusers who are family members often have money troubles that may be made worse by unemployment, gambling, or substance abuse problems.

Common Financial Schemes

Financial scams perpetrated against older people include a broad range of conduct. Here are some common examples.

Telemarketing or mail fraud. The U.S. Department of Justice estimates that dishonest telemarketers take in an estimated $40 billion each year, bilking one in six American consumers -- and the AARP claims that about 80% of them are 50 or older. Scammers use the phone to conduct investment and credit card fraud, lottery scams, and identity theft. Scammers also use the phone to sell seniors goods that either never arrive or are worthless junk.

Getting unauthorized access to funds. In "Sweetheart Scams," alleged suitors woo older people, convincing them that love and care are their motivations for being included on bank accounts or property deeds; the suitors usually disappear along with the property.

Charging excessive amounts of money. Smooth-talking scammers first convince seniors that they need some goods or services and then overcharge them -- often hiding the high cost in extravagant schemes involving interest and installment payments. This tactic is often used for products that many older people might find essential to their quality of life, such as hearing aids and safety alert devices.

Selling bogus items. In the "Rock in a Box" scam a senior is sweet-talked into buying an item, such as a new color television, at a bargain price, that comes in a box that's suspiciously sealed. What the box actually contains is a well-padded rock.

Getting money or property through undue influence or fraud. Many seniors have been duped into parting with their homes or other property because a scammer convinces them it is for their own good. In one infamous case, three officials from the Detroit-based Guardian Inc. were found guilty of embezzlement and fraud after selling a client's house for $500 -- to the mother of a company officer. The company also collected excessive fees from its wards, sometimes as high as 70 percent of their Social Security checks.

Using fraudulent legal documents. Many scammers cloak their actions in legal authority, procuring a power of attorney or will or other legal document giving them access to a senior's property. They get seniors to sign these documents by lying to, intimidating, or threatening the seniors.

Faking an injury scenario. In this situation, a scammer claims to have a connection to law enforcement and tells an elder that a child or other close family member has been seriously injured or is in jail. The scammer then convinces the senior to give him or her money for medical treatment or bail.

Offering false prizes. A good example of this is the "You have won the lottery" scam operating out of Canada. In this scam, thousands of older people were bilked into believing they became wealthy overnight, but had to wire money in "fees and taxes" before they could collect the grand prize. In another version of this scam, con artists tell an elder that he or she has just won a huge cash prize, but needs to send in some money -- usually in money orders -- to free it up from customs officials. This is what happened to the Parkers.

What to do to protect yourself and Loved Ones

The National Fraud Information Center (NCL) provides tips about how to identify common scams and avoid telemarketing fraud. In addition, NCL has information about identity theft, how to get off marketing lists by signing up for the national “do not call” registry at 888-382-1222, and how to protect your personal privacy.

To better understand legal rights for seniors, the National Center on Elder Abuse (NCEA), has prepared a report which focuses on four components of the legal system: the state and criminal justice system, federal investigative and regulatory agencies, the civil legal system, and the victim witness assistance network. Professionals from each system describe challenges they face in handling financial abuse cases and made recommendations for improving each system's response. To view, click here to download it from the NCEA web site.

Other resources include AARP’s website, the Journal of Elder Abuse & Neglect which has one issue is solely devoted to elder financial abuse [(Volume 12 Number 2 (2000)], and. A/PACT: Aging Parents and Children Together. This video is produced by AARP and the Federal Trade Commission and focuses on consumer fraud, daily money management, alternatives to guardianship, and so on.

Fraud against the elderly is a cowardly and despicable act that takes advantage of a vulnerable group of people, and it is one that violates every ethical standard imaginable. Unfortunately, it is likely to continue and grow over time because of our aging population. The fact that we have lost our moral compass as a society feeds into the fraud.

Blog posted by Steven Mintz, aka Ethics Sage, on July 7, 2012

Elder Fraud

Fraud Schemes Bilk Elderly out of Savings

This is the first of a two-part blog on elder fraud. Part two will be posted on Saturday.

CNN Money reported the results of a study last week that senior citizens have been getting swindled out of billions of dollars a year, and the trend is only getting worse.

The majority, or 84%, of experts who deal with financial fraud of elders -- including financial planners, medical professionals and social workers -- have noticed an increase in financial abuses this year, according to a survey released by nonprofit organization Investor Protection Trust.

About 58% of the 762 respondents reported that they encountered investment fraud or financial exploitation of seniors "quite often" or "somewhat often." And 96% of experts said elderly fraud is a serious problem.

Meanwhile, research from insurance provider MetLife has found that Americans over the age of 60 lost about $2.9 billion to financial abuse in 2010 -- up 12% from the $2.6 billion lost in 2008.

About half of that fraud was perpetrated by complete strangers, while family, friends and neighbors accounted for about 34% of financial abuse, according to the report. In many cases, fraudsters stole seniors' Medicare or Medicaid benefits -- resulting in losses of $38 million in 2010.

Childhood actor, Actor Mickey Rooney, now in his 90s, elevated the profile of the problem earlier this year when he won a restraining order against his stepchildren. He claimed they used intimidation to get access to his money and later told Congress how that can happen to a vulnerable senior.

According to the Richard Cordray, director of the Consumer Financial Protection Bureau, "Many seniors have routines, and their predictable patterns make them easier targets for predators. They can be lonely or overly trusting, and we now have many methods by which perfect strangers can communicate with them, often anonymously or posing as someone they are not."

A MetLife Mature Market Institute study also found that elderly women are nearly twice as likely to be victims as men. The majority are between 80 and 89 years old, lived alone and were dependent on some sort of help around the home or with their health care. Caregivers are often in a position where they can easily take advantage of seniors, especially if they have access to their finances, said Cordray.

Most elderly victims of financial abuse don't report fraud because they are either too ashamed, don't realize they are being duped until it's too late to get their money back, or their adult children fail to recognize the problem in time to intervene.

The case of Donna and Jim Parker illustrates how easy it is to scam seniors. The couple ended up on what people in the industry call the "sucker list" perhaps because of donations to some group. Then the scammers proceeded to "reload" them. You've won this multimillion-dollar lottery, they'd say. All you need to do is send us money to cover taxes, and we'll send you your prize.

So on Dec. 8, 2004, Miriam Parker – then 80 – drove herself to the Wal-Mart down the road to send a MoneyGram to Montreal, Quebec.

And so, over a series of calls, Howard Clark – a man with a warm voice who called her "dear" and "sweetheart" – had learned enough personal information about Miriam to convince her that he was the family's ticket to riches.

Other MoneyGrams followed. Then, on Jan. 12, 2005, Miriam sent a Federal Express package to a "Mr. Stewart" on Papineau Street in Montreal. Inside, as instructed, was a magazine with $12,550 in cash sandwiched between its pages.

By May 2005, the Parkers had blown through their savings. They had tapped into their home equity line and had maxed out several credit cards. They were running out of things to give.

Unwittingly, their children had contributed to the problem. When Miriam asked Donna for a $7,000 loan, the daughter thought little of it.

Through most of their marriage, Charles Parker had taken care of the couple's finances. But in 1989, shortly after his retirement, he suffered a heart attack. That was followed by colon cancer. As her husband's health declined, Miriam stepped to the fore.

Faced with mounting debt – and clinging to assurances that a big payday was coming – she was determined to right their financial ship. That's when she became a "money mule." Clark told Miriam that she'd been "hired" by the Canadian sweepstakes company.

On May 5, 2005, a package from Bloomingdale, N.J., containing $8,275 in cash arrived at the Parkers' home. Others followed and in about a week, Miriam Parker would receive and repackage $60,000 in cash for delivery to Mr. Stewart.

Sometimes, there would be two stacks of bills tucked into magazines. The smaller pile was Miriam Parker's "commission."

Howard said she wasn't to tell her children about their dealings. But the kids had already become alarmed by changes in their mother's behavior.

During visits, her son, Jim, noticed that Miriam would race him to the phone, then prevent him from listening to the conversations.

And then there was the need for loans. When Donna asked what for, her parents were evasive.

When the children finally persuaded their mother to get a credit report, the news was jaw-dropping. Their thrifty parents were nearly $200,000 in debt.

The daughter went to the state Attorney General's Elder Fraud Unit. In April 2006, sitting around the family table, the door-bell rang. A FedEx driver handed Jim a crinkly envelope. He knew without opening it what was inside and turned it over to Kirkman, manager of the Elder Fraud Unit in the Attorney General’s office.

When authorities opened the envelope, they found an old issue of Martha Stewart Living magazine. It contained $5,725 in cash from a Visalia, Calif., widow.

Kirkman called a contact at Federal Express, who ordered a stop on deliveries and pickups at the Parker home. But the crooks just switched to United Parcel Service.

And now, in addition to money, they were delivering and picking up car tires and custom rims, and laptop computers worth thousands of dollars — all purchased by other elderly victims.

Ultimately, with the help of the Royal Canadian Mounted Police, a visit was paid to Dave Stewart. The Jamaican native acknowledged accepting numerous packages from the American lady on behalf of a man whom he knew as "Roger." Stewart said he was paid $100 per package. Professing ignorance of any illegal activity, Stewart agreed to cooperate.

Howard, meanwhile, gave Miriam a new address to which she should forward items. On Aug. 17, 2006, laptops valued at more than $7,200 arrived from Hayward, Calif. She sent them to a "Joseph Reid" in Montreal. Parcels kept coming.

In December 2006, the Parker kids persuaded their parents to grant Donna a limited power of attorney. A month later, she accompanied them to the credit union, where they took out a 30-year, $179,000 mortgage on their home.

The scam unraveled when the FBI ran a sting operation on Howard.

In Raleigh, North Carolina, a federal grand jury handed up a 35-count indictment against Clar, whose real name was Clayton Atkinson, and two co-defendants – Dave Stewart and Jamaal McKenzie, aka "Joseph Reid." The three were charged with one count each of conspiracy and interstate transportation of stolen property, seven counts of wire fraud and 26 counts of mail fraud.

In my next blog I will address the issue of what seniors can do if they feel targeted by elder fraud.

Blog posted by Steven Mintz, aka Ethics Sage, on July 3, 2012

 

Should Soda Sizes be limited by Government?

A Healthy Body Can Lead to a Healthy Mind

Following the lead of New York City, Cambridge, Massachusetts is considering limiting the size of sodas and sugar-sweetened beverages in city restaurants.

Cambridge Mayor Henrietta Davis proposed the idea at the City Council’s meeting on June 18, saying she brought the idea forward because of the health risks posed by consuming too much soda.

“In addition to being an obesity threat, soda is one of the contributing factors to an increasing rate of diabetes and heart disease amongst younger people,” Davis said.

Davis said the change she had in mind is similar to that recently proposed by New York City Mayor Michael Bloomberg, which would impose a 16-ounce limit on any sugary bottled or fountain drink that contains more than 25 calories per 8 ounces that is served at restaurants, delis, and movie theaters.

The New York City proposal would not affect diet soda or any drink that is at least 70 percent juice, or half milk or milk substitute.

In this blog I raise the question whether the government has the right to prevent its citizens from consuming soda of any kind in any quantity they want including taking advantage of free refills. On the one hand there is no doubt that obesity is a problem in society and scary with respect to obese youngsters. Research has increasingly pointed to sugary beverages as a prime culprit in the nation’s obesity epidemic.

Public health is being threatened by rising diabetes and heart disease rates among younger people and that’s why New York and Cambridge is looking at taking extreme measures such as limiting choices of those who can’t or won’t moderate their own behavior for their own good and that of society.

Beverage and restaurant ­industry leaders say restrictions on the size of sugary drinks are misguided. They believe other outlets exist and there is no effective way to limit the intake of potentially health-threatening-surgery drinks.

To me a person has a right to put whatever they want into their bodies. If we start to limit the ability of youngsters to drink Coca-Cola or other sugary drinks, where does it stop? What about fast food intake? A new study in the Journal of Health Economics found that the U.S. spends more than $190 billion a year on medical costs associated with obesity.

Corporate Accountability International and Dr. Nicholas Freudenberg of The City University of New York have released a report that addresses the rising epidemic of diet-related disease. The report, Slowing Down Fast Food: A policy guide for healthier kids and families, documents ways in which city and county policymakers can address the toll that diet-related disease is taking on their municipalities and on their communities’ health. It offers specific solutions to curb a primary contributor to the problem – the overconsumption of fast food and the ubiquitous marketing of fast food to children.

It seems to me the health hazards of consuming fast food are much greater than a “Big Gulp” at Seven Eleven. For children, over-consumption of fast food can lead to type-two diabetes, asthma, and liver disease. Adult-onset problems include stroke, cardiovascular disease, and cancer. Why don't we limit the size of a "Big Mac" or "Whopper"?

The bottom line is parental involvement and education in our schools through health and nutritional programs are the best ways to address the problem of obesity in our youngsters. If parents don’t care, or are obese themselves, then they might buy the 40-ounce soda for their kids.

The sad reality is schools have had to cut nutritional and sports programs that can make a difference because of budget constraints and other priorities. Just as ethics education is important to create a generation of responsible adults, so is health and sports programming (not to mention the arts). Education should address the whole of the individual. A healthy body can lead to a healthy mind.  

Can it be done? Yes and the Texas “fitnessgram" program is proof that health and fitness education can work. The Texas program mandates daily physical education and annual fitness tests for the state's 2.4 million kids ages 8 to 18.

The idea was proposed in part to help combat the state's troubling childhood obesity rates, but this first-of its-kind study also set out to prove physically fit kids make for better students - and the results are in. After the first year officials say Texas school kids are performing better on standardized tests. And as fitness rates rose, absentee rates dropped, and so did reports of discipline problems.

And there is a direct correlation between more cardiovascular activity and better grades. At the top performing schools - where at least 90 percent of the kids pass the state assessments tests - 80 percent of the students are fit. And at the poorest performing schools? Only 40 percent make the fitness grade. Texas officials believe the harder they can push the kids to become more physically fit, the harder the kids will push themselves in the classroom.

Sometimes it’s the kids leading the parents to become more fit. In the embedded video link,   you can watch (after the obligatory advertisement that precedes it) the inspiring story of twelve-year-old Mason Harvey who was teased in school for being overweight until he turned his life around, losing 85 pounds in one year. CBS reporter Byron Pitts interviews Harvey about his own success story and how it motivated him to promote awareness for childhood obesity.

Perhaps not surprisingly programs like Texas’ fitnessgram and Mason’s story gets little news coverage. I suppose media outlets don’t think the public is interested in what might work to curb childhood obesity and focus instead on the problems – not possible solutions.  

Blog posted by Steven Mintz, aka Ethics Sage, on June 30, 2012

Are we raising a Generation of Educational Dummies?

A Culture of Incompetence

You’ve heard it before. The test scores and skill level of U.S. students today is abysmal. Results of a global education survey in December 2010 show U.S. high school students come in 26th out of 65 places worldwide in combined scores for math, science and reading tests. The Organization for Economic Co-operation and development (OECD) Program for International Assessment (PISA) suggests that while America lags, Asia soars: Out of the top 10, eight are in the Asia-Pacific region -- led by Shanghai and Hong Kong in China, Singapore, South Korea and Japan. The rise of education in Asia is no accident. It reflects deliberate policies and long-term investments that recognize the centrality of quality education to a nation's economic growth.

Does that mean if we throw more money at the problem the scores of U.S. students will rise? No. It goes a lot deeper than to say teachers are underpaid; classrooms are too full; funding is lagging. There is no question that recent cuts in education budgets in many states have led to a declining education experience. But the problem goes much deeper. It goes to the core of the value-system that now exists in the U.S. that has infected our school children. We have a value system that rewards outrageous behavior by focusing media attention (social/news) on it and knowingly or unknowingly encouraging young people to act out in the same way.

How else can we explain the attention paid to the likes of Charlie Sheen? Have you seen his new commercials about being under house arrest? What about You Tube videos that glamorize stupidity by giving those who post on it their 15 minutes of fame? Then there is reality TV that depicts incivility and we see it in politics all the time such as when a reporter interrupts the President before he can finish a statement.

Today’s high school kids would rather text and surf the Internet for entertainment than buckle down, study the books, and advance their intellect. The hard sciences and math are not valued for the discipline they teach as was the case years ago. Where will we get the leaders in these fields for the future growth and development of our country and will we ever be able to catch up with the Chinese? I don’t think so because the problem goes much deeper.

On June 20, 2012, a Gallup poll was released that shows confidence in America’s public schools has hit a record low, with only 29 percent of respondents expressing “a great deal” or “quite a lot” of confidence in them. The number is down 5 percentage points from last year, and represents a 4 percent decrease from the previous low of 33 percent in 2007 and 2008.

It’s true that the declining confidence in America’s public school system follows a year of budget cuts across the country that have forced the elimination of jobs in the education sector, student transportation and after-school programs. Parents nationwide have also been vocal in expressing their frustration with excessive standardized testing and “teaching to the test.” Some place the blame on President George W. Bush’s “No Child Left Behind Program” for teaching to the test rather than developing the skills needed for success in the 21^st century. But the problem goes much deeper.

A survey of business executives released on February 13, 2012 from medium and large companies across the country shows they believe a growing skills gap combined with drastic increase in college tuition and fees could have negative effects on the American economy. The survey Hiring and Higher Education was conducted by Public Agenda, a research organization focused on public engagement and national problem-solving, and the Committee for Economic Development, an organization of business leaders and university presidents, which focuses on addressing economic and social issues. The executives said education and the workforce is often the first response they give when asked about keeping the U.S. competitive and innovative, and they don’t feel comfortable with the state of either.

What it boils down to is the “mismatch” between what the system is producing and what the economy needs. While other countries produce more science, technology, engineering, and math graduates, the U.S. might be producing “too many liberal arts graduates.” All types of graduates in general lack the skills employers seek: character, interpersonal skills, motivation, and work ethic, and many come with a very undesirable quality: entitlement. Many are incapable of writing a coherent memo, of having a professional conversation, and of dressing appropriately for the workplace.

So, there we have it. Today’s youth do not want to put in the time and effort with their studies to develop the globally-competitive-skills needed to keep America the leader in innovation and advancement in technology and the sciences. The work ethic that made this country great for about 250 years no longer exists. The problem is one of character and immaturity fueled by social media, television, and the movies.

Can we turn things around before it is too late and we find ourselves lagging not only Asian economies but emerging ones such as in the former Soviet Union? I think that train has left the station. Our politicians seem to have no clue and continue to debate old solutions to continuing problems with our education system. The first step in recovery is to admit you have a problem and that hasn’t happened as yet. The discussion is at the margins and not with the core problem of the lack of a work ethic.

Blog posted by Steven Mintz, aka Ethics Sage, on June 25, 2012

Ethics Education About the Harmful Effects of Bullying

The Golden Rule and Bullying

Recent bullying-related studies suggest there is a strong link between bullying and suicide. Many parents, teachers, and students learn the dangers of bullying and reach out to help students who may be at risk of committing suicide. Though too many adults still see bullying as "just part of being a kid," it is a serious problem that leads to many negative effects for victims including a damaged self-image, a loss of self-confidence and, in the extreme, suicide.

The most recent victim of bullying was Kenneth Weishuhn who, after telling classmates at South O’Brien High School in Paullina, Iowa last winter that he was gay, began to receive voicemail threats on his cellphone. Kenneth had to endure ant-gay slurs and harassment that got so bad that teachers had to stand guard in hallways. On April 15, Kenneth hanged himself in the garage of his home.

The statistics on bullying and suicide are alarming:

• Suicide is the third leading cause of death among young people, resulting in about 4,400 deaths per year, according to the Center for Disease Control. For every suicide among young people, there are at least 100 suicide attempts. Over 14 percent of high school students have considered suicide, and almost 7 percent have attempted it.
• Bully victims are between 2 to 9 times more likely to consider suicide than non-victims, according to studies by Yale University
• A study in Britain found that at least half of suicides among young people are related to bullying
• 10 to 14 year old girls may be at even higher risk for suicide, according to the study above
• According to statistics reported by ABC News, nearly 30 percent of students are either bullies or victims of bullying, and 160,000 kids stay home from school every day because of fear of bullying

Bully-related suicide can be connected to any type of bullying, including physical bullying, emotional bullying, cyber-bullying, and sexting, or circulating suggestive or nude photos or messages about a person.

Some of the warning signs of suicide can include:

• Showing signs of depression, like ongoing sadness, withdrawal from others, losing interest in favorite activities, or trouble sleeping or eating
• Talking about or showing an interest in death or dying
• Engaging in dangerous or harmful activities, including reckless behavior, substance abuse, or self injury
• Giving away favorite possessions and saying goodbye to people
• Saying or expressing that they can't handle things anymore
• Making comments that things would be better without them

The question I deal with in this blog is how best to deal with bullying not from the perspective of the person who has been bullied. It’s quite clear that talking to that person and getting counseling and, perhaps, medical help is warranted. It’s also quite clear that schools need to develop tough policies on bullying and hold the bullies accountable for their behavior. As for the target of bullying, people who are thinking about suicide should be proactive and talk to someone right away. They should talk to a parent, sibling, trusted friend and, most important, the school counselor. They can also call a free suicide hotline, such as 1-800-273-TALK (8255).

In a positive sign, more and more schools have adopted a zero tolerance on bullying. Some state lawmakers are even willing to criminalize the behavior. Unfortunately, many young people do not consider the consequences of their actions before acting so I have my doubts about the effectiveness of legal consequences.

I believe education is a must if we are ever to stop bullying in schools and outside the classroom. It must be targeted to include ethics education to help stem the tide of bullying? After all, a sound program of ethics education should be taught in schools even without a past history of bullying. Ethics education at a young age can teach young people values such as respect, responsibility, accountability, caring, compassion, and empathy – all essential characteristics of an ethical person.

Bullying education is not any different from other types of ethics education. The discussion should focus on the rights of the bullied, that is, freedom to be whatever a person wants to be without derision or harmful behavior targeted against that person. We may not like what a person stands for or how one acts, but that person has a right to be that way and as long as the behavior doesn’t harm another, it should be respected and accepted.

Bullying education should teach young people to examine those harms – to the bullied, the family and the school – so that bullies learn that their actions have consequences. A good tool is a video such as the movie “Bully”. It illustrates the harmfulness of bullying and how communities are getting together to stop it. It should be shown to parents as well as to school children, and no age is too young to start the ethics education.

In ethics we teach the universality of one’s actions. It is based on the Kantian categorical imperative that we should act in ways that we would want others to act in similar situations for similar reasons. In other words, we wouldn’t want to be bullied so we should not bully others. It goes back to the Golden Rule: Treat others the way you want to be treated.

Blog posted by Steven Mintz, aka Ethics Sage, on June 19, 2012

The Ethics of “Whiskey Plates”

Privacy Rights vs. the Good of Society

One of the benefits of teaching ethics is I often have discussions with my students about issues that I would not otherwise think of. One such case relates to a paper submitted by my one of my students, Sarah Boudaghians. The paper deals with the ethics of “Whiskey Plates”. I start with some of Sarah’s thoughts and then add my own later on.

About one-third of all drivers convicted of driving while under the influence of alcohol are repeat offenders. The statistics from the National Highway Traffic Safety Administration shows that driving under the influence of alcohol has been a problem for repeat offenders in the U.S. for years. As a way to deter these arrests, various states have begun trying to enact legislation to require a special license plate after an offender’s driving privileges are restored. The plates have been coined “Whiskey plates” or “Party Plates” but others are calling them a scarlet letter.

Ohio was the first state to use the “Whiskey Plates”. The plates are required for one year from the date of offense or until the violator's driver's license is fully reinstated, whichever is longer. Judges have had the discretion to use the “Whiskey Plates” since 1967 but judges rarely utilized the plates. However, in 2004 the plates became a mandated punishment by state law to all DUI offenders.

Some other states that currently require these plates are Minnesota and Georgia, though the duration of usage is different for each state. Minnesota, an early adopter of such a law, uses the letter "W"—hence the term "whiskey plate"—on a plain white background.

The idea behind the plates comes from the idea behind the Scarlet Letter. The goal is to embarrass the offender enough so that the plates will be a deterrent for those thinking of driving under the influence. Supporters of these laws claim they can help law enforcement be on the lookout for potential repeat offenders as well as providing other drivers on the road notice of a potential hazard.

As with most emotionally-charged issues there are many points of view. Extremists believe people who drink and drive should not be able to drive at all, for a certain probationary period, after they have been arrested. Sympathizers believe these plates bring an unfair stigma to those who are attempting to make up for their past actions. One of the important aspects of this problem is there is no proof that these plates are preventing repeat offenders from getting behind the wheel.

There are alternatives to requiring people who have served their time to have a license plate that somehow indicates they have been convicted of a DUI offense. One alternative is interlock devices. An ignition interlock device is an in-car Breathalyzer. The driver blows into a device the size of a mobile phone and if a measurable amount of alcohol is detected, the car won't start.  The Center for Disease Control concluded that the ignition interlock devices reduce re-arrest rates by 67%. Not only do the devices prevent re-arrests, they also prevent deaths. New Mexico's 6-year-old law requiring ignition interlock devices for all convicted drunken drivers, including first-time offenders, is credited with a 35% reduction in drunken-driving deaths. Arizona, with a similar law, has reduced drunken-driver deaths by 46% since 2007.

Some offenders have complained that the whiskey plates affect their ability to get and keep a job. In one situation a man Lester Compton called the plates “embarrassing” and said at best he has been jeered, at worst he has lost a couple of jobs in his independent contracting business.

Another example of family members being embarrassed was the story of a man who received the whiskey plates and was required to put those plates on all of his family’s vehicles. This particular family ran a daycare center with five vans for picking up children. As you might imagine, the parents of the children at the daycare were upset.

The ethical issue here is the privacy rights of an individual versus the good of society. According to our laws, once a person has served the crime for which he or she is committed they are supposed to be given an opportunity to make something of themselves and live a “normal” life.

There are exceptions such as the Sex Offender Registry” website of the FBI and various states that require those convicted of certain sex offenses and/or crimes against children to register as a Sex Offender. It’s out there for all to see and in all likelihood their lives will never be the same. We tend to sanction the invasion of privacy rights in this case because of the most heinous of crimes committed against those who can’t stand up for themselves. We believe society benefits when all in a community are aware that a past sexual offender is in their midst.

Should we apply this logic to DUIs? After all, they may have seriously injured or killed someone in the commission of their crime. If I were a parent of one of those affected, then I’d probably support the whiskey plates. I imagine it would have the whole-hearted support of Mothers against Drunk Driving (MADD).

On the other hand, people, especially young people, often act impulsively – get into a car and drive while under the influence. In that case does the punishment (whiskey plates) fit the crime or is it over the top?

This is not an easy question to answer because of the understandably high emotions that run ramped on both sides. My concern is where does it stop?  Why not require rapists to have special license plates? After all they have committed what might be considered the second most heinous crime on another person.

It’s an ethical slippery slope once you start requiring one group of offenders to have special plates. In this case I think the rights of the individual outweigh whatever good there is to society of having whiskey plates especially since alternative measures can be taken.

Blog posted by Steven Mintz, aka Ethics Sage, on June 12, 2012

Doing the Right Thing after You’ve Decided What is the Right Thing to Do

Values-based Decision Making

Assume you are the controller of Nuts & Bolts Company and are approached by the chief financial officer about $100,000 costs incurred related to the acquisition of a new machine to be used in the production process. Since these costs are essential to get the assets in place and ready for use, you tell the CFO that they should be capitalized (added to the asset account) and depreciated over the lifetime of the equipment. The CFO tells you that’s not going to happen and the costs should be expensed against income this year because the newly-hired chief executive officer wants to reduce profits for the remainder of the year by as much as possible.

In a reversal of what is normally to be expected, that is, to always increase profits whenever possible, you ask why? It seems the CEO was hired as a turnaround artist on September 1 of the year and he figures no one will blame him if another $100,000 is added to the loss to be reported for the year. Basically, you are borrowing expenses from the future (i.e. depreciation) to further reduce reported losses in the current period thereby improving operating results down the line. We even have a name for it in accounting – “The Big Bath Theory”. The company already is losing money this year so why not make it look worse since you won’t be blamed in the first four months of your tenure as CEO. And then you look better going forward.

This has happened before and in a big-time way at Sunbeam Corporation. Back in June 1996, Sunbeam hired Al Dunlap to turn around the company after a series of annual losses. Dunlap manipulated the financial results to show greater losses in the year he was hired by accelerating the recording of expenses that would have hurt the bottom line in 1997 had he followed generally accepted accounting principles. After being named CEO of Sunbeam Corporation in June 1996, Al Dunlap brought about dramatic change in the firm’s reported financial performance. In 1996, Sunbeam reported a loss in excess of $200 million --- followed the next year by net income of almost $110 million. We call this “managed earnings.”

Let’s go back to the original example. You are the controller and are asked to go along with the financial manipulation. What would you do? You know the CFO and CEO have views opposing your view of the proper accounting. Your next step should be to go to the board of directors and discuss the matter even though you are internally blowing the whistle on wrongdoing. In fact, if you are a certified public accountant this is exactly the step required by the profession’s ethical standards. Your goal should be to enlist the help of the board whose responsibilities include, through its audit committee, to oversee the proper functioning of the financial reporting system.

The board may not support you because they feel beholden to the CEO for their position or otherwise have conflicts of interest. It may not happen for you in this instance, but you should try to convince the board anyway. Let’s face it by going above your superiors you already have risked your job. However, you have kept faith with your values and it will be easier for you to do the right thing if similar situations occur down the road. Ethics is not easy and it takes practice to develop the skill.

Values-based decision-making requires that we incorporate core values into the decision-making process. You know what the CFO is asking you to do is wrong. There is no doubt about it. However, the hard part is to act on your beliefs and stand up to the pressure to deviate from accounting norms. It takes real leadership skills to pull it off. Leadership and the accompanying core values are rooted in who you are and what matters most to you. When you truly know yourself and what you stand for, it is much easier to know what to do in any situation. It always comes down to doing the right thing and doing the best you can.

It takes a person of integrity and strong character to stand up to your superiors. On the surface you may think to do so would violate your loyalty obligation to the organization. Not so. You may be seen as disloyal to your superiors. However, loyalty in an organization requires that we look at the bigger picture and decide what’s best for the organization and its stakeholders. No one gains by manipulating earnings to make one period look better than another. Typically this leads to further manipulations to maintain or increase the higher earnings level in the second and subsequent years. The shareholders are deceived into thinking the same or better results will continue whereas ultimately the scheme will fall apart when the company runs out of ways to manipulate earnings.

Three critical core values are required in values-based decision making. These values can help you to do the right thing after you’ve realized what the right thing to do is. Here they are:

Gather all the ammunition you can to support your position

• In accounting this means to understand and be ready to explain the implications of the premature expensing on reported results and its effects on shareholders and other stakeholders.

Be prepared to discuss shared values with your superiors

• The company most likely has a code of ethics and possibly a values-based vision statement. Use it to convince your superiors the intended action goes against these values. Play up the need to establish an ethical organization culture.

Think in the long-term and not for short-term gain

• Most corporate managers have a short-term perspective and that’s why earnings are manipulated early on. You should point out the possible long-term negative effects of decision-making based on a short-term-gain perspective.

Perhaps most important is to realize you are not alone. Try to enlist outside support by contacting other professionals who can objectively discuss your position. After all, if others would do the same thing as you in similar situations for similar reasons then your decision has universal appeal -- an essential element in ethical decision-making.

Blog posted by Steve Mintz, aka Ethics Sage, on June 5, 2012

 

 

 

Empathy is missing in Society Today

Ethics Requires Us to Feel What Others Feel Before Acting

Empathy can be defined as vicariously perceiving or feeling the experiences and emotions of another person. It incorporates feelings of caring, concern, and consideration as integral to the ethical value of empathy. The following well-known expression describes a perspective on empathy:  'Walk a mile in my shoes'. This means that you should try to understand someone before criticizing them. In other words an empathetic person tries to feel what another is feeling, rather than feeling for that person – which is sympathy.  

I’ve been thinking about empathy lately because I’ve become fed up with the political discourse in our country that has been exacerbated by the current presidential cycle. I sometimes listen to what pundits say about the other side on both the left and the right. Each side believes they have a monopoly on the direction the nation should take during the next four years. Each side believes it has the best interests of the country at heart. Each side believes the other side is made up of creepy people with scary ideas. As with most issues, each side is somewhat right and mostly wrong. I don’t object to what they say, but I do object to how it is said. The debate takes place in a derisive manner that is designed to tear down the other side.

The candidates themselves are no better. We hear about ‘vulture capitalism’ and ‘socialism,’ -- a loaded word at best. The hyper-critical comments fly fast and furious. Rather than try to understand the opponent, Obama and Romney look for ways to criticize their opponent. This doesn’t help the country. This doesn’t suggest solutions to our problems. All it is designed to do is make the other person look bad. What kind of ethics is this? Label it any way that you want; the bottom line is the candidates care more about their perceived image than doing the right thing for the nation. I suppose it shouldn’t be surprising given the explosion in realty television the past ten years or so. Perhaps it is time for a new show – ‘Politics Gone Wild’.

On a grander scale, I’ve always believed men and women are wired differently with respect to empathy. The ‘ethics of care’ has been associated with women. I don’t know that I would go so far as to say women have cornered the market on empathy. On the other hand, I’ve read the seminal book by John Gray, Men are from Mars, Women are from Venus. Gray asserts that men complain that if they try to offer solutions to problems that women want to talk about, women do not necessarily want to find solutions but only want to talk about these problems. In other words, they want empathy, caring, and consideration for their feelings. This reminds me of one of The Seven Habits of Highly Effective People described by Stephen R. Covey: ‘Seek first to understand, then to be understood’. It would great if both Obama and Romney read this book before political debates. It might raise the level of discourse to never-before-seen heights.

I recall a dialogue in a book I once read but, unfortunately, I can’t remember who said it. It is apropos to the discussion and, I believe, a guiding thought to incorporate empathy and, indeed, ethical behavior in all that we do; in all that we say; and in all that we feel:

Watch your thoughts; they become words.
Watch your words; they become actions.
Watch your actions; they become habits.
Watch your habits; they become character.
Watch your character; it becomes your destiny.

Blog posted by Steven Mintz, aka Ethics Sage, on May 29, 2012

Creepy Facial Recognition App Raises Privacy Concerns

SceneTap Scans Patrons and Transmits Age and Gender Information in Real-Time

You’re single and looking for someone to meet so you go to one of the bars in your home town. You decide to use a new app to scan the faces of patrons in the bars in the downtown area to determine the ages and genders of customers in the bars. You then check your smartphone for real-time updates on the crowd size, average age and male-to-female mix to decide whether the scene is to your liking. Then, you pick out the bar that best suits your needs and off you go to mingle with the crowd. Is it fact or fiction?

It is happening right now. On May 17, the Austin, Texas-based makers of SceneTap launched an app that can do just that. The app doesn't identify specific individuals or save personal information. SceneTap's ability to guess how old people are and whether they're men or women relies on advances in a field known as biometrics. A camera at the door snaps your picture, and software maps your features to a grid. By measuring distances such as the length between the nose and the eyes and the eyes and the ears, an algorithm matches your dimensions to a database of averages for age and gender.

SceneTap’s CEO Cole Harper claims that the app doesn't invade patrons' privacy because the only data it stores is their estimated ages and genders and the time they arrived - not their images or measurements. My question is how long will it be until the information does become personalized, available to the highest-bidder, and yet another area of our privacy invaded?

Whether the company's promises are true or not, it opens the door to a situation where when any camera-equipped smartphone will have the ability to recognize faces with a click of the virtual shutter. The threat to privacy from an app like SceneTap depends not just on what's being stored but how easily the system could be manipulated to invade our privacy, whether by a hacker or under a court order.

I have asked myself the question: Why is SceneTap doing it? I guess the company hopes advertisers will pay to gain access to the data and then use it to promote their own products to a target audience. The problem is customers become part of a user base and are not customers anymore.

SceneTap is already in use in six other cities across the U.S., including Chicago and several college towns. It became part of the California bar scene in San Francisco ostensibly to give potential customers another way to interact with the business. The launch was met with severe criticism by the local media, somewhat unexpected in a city that has a reputation for anything goes. Some bars refused to use the system even though they had agreed to do so. They feared the backlash from customers who rightly felt their privacy would be invaded and they had no chance to “opt-out” as is done by many other social media personal data-gathering websites.

I wonder where all of this will lead. In April, Facebook started using facial recognition to suggest the names of friends who appeared in newly uploaded photos. You can opt out of tagging, and only friends would be able to tag each other in albums. Facebook has a history of acting first and then asking for permission later. Its new face-recognition feature seems harmless on the surface but could morph into a serious threat to the privacy of our (visual) data. And, as usual, some Facebook users will like the convenience of the new features so much that they will forget the privacy trade-off altogether, or just choose not to worry about it.

The SceneTap app and Facebook facial recognition are unethical practices because there is no provision for informed consent in advance prior to using the features. How would you like it if the Department of Motor Vehicles sent information about the car you drive – make, model and year – to all major car manufacturers? Just imagine what might happen.

And now Google just revealed plans to link user data across its email, video, social-networking and other services. The changes will piece together information from Gmail to YouTube to the Google Plus social network. Imagine if you spend an hour signed in to a Google account searching the Web for downhill skiing equipment, the next time you log into YouTube, you might get recommendations for videos featuring Bode Miller, along with ads for his merchandise and the nearest place to buy them.

However, this could also apply to searches relating to sensitive topics such as – well, the bar scenes you frequent in your home town.

Blog posted by Steven Mintz, aka Ethics Sage, on May 23, 2012

Social Responsibilities of a U.S. Company Doing Business Abroad

Ethics and Social Responsibility go Hand in Hand

Should use companies adhere to U.S. standards of health and safety in the workplace of a foreign supplier? Or, is the old adage true: "When in Rome, do as the Romans do."

Corporate social responsibilities come from ethical obligations including acting responsibly and being accountable to the stakeholders of an organization, including employees, and practicing full disclosure. Transparency is important as is adhering to relevant laws and regulations. A code of ethics provides support for these ethical obligations.

It is in this light that I was intrigued to learn that a major Apple Inc. supplier agreed to change its labor practices following an outside audit of its Chinese factories by the global nonprofit organization -- the Fair Labor Association. It found widespread breaches of work rules including 60-hour work weeks in violation of the FLA code and Apple’s own standard, and other health and safety violations. The investigation of manufacturer Hon Hai Precision Industry Co., known as Foxconn, is the latest to document workers-rights violations in Apple's supply chain.

It is worth noting that the audit was at the request of Apple. However, Apple launched the initiative not out of a sense of social responsibility but in response to recent concerns over labor practices and reported abuses in the Chinese factories of its suppliers. In other words, Apple was not concerned about the disgraceful working conditions until it created negative publicity for the company.

Foxconn, with 1.2 million Chinese employees, is one of China’s largest employers and a major supplier of Apple. It assembles an estimated 40 percent of the smartphones, computers and other electronic gadgets sold around the world. Foxconn’s decisions set standards other manufacturers must compete with.

Evidence gathered from news reports and other sources indicates that 17 Foxconn workers have killed themselves. What had seemed to be a series of isolated incidents has become a worrisome trend. When one jumper left a note explaining that he committed suicide to provide for his family, the program of remuneration for the families of jumpers was canceled.

Reports from inside the factories warned of “sweatshop” conditions and allegations of forced overtime came to life. Foxconn and its partners—notably Apple—found themselves defending factory conditions while struggling to explain the deaths. Some saw the Foxconn suicides as a damning consequence of our global hunger for low-cost electronics.

In a plant in Wuhan, central China's Hubei province, up to 200 workers from the Microsoft Xbox production line of Foxconn, staged a strike. They were not demanding sleek new gadgets, but simply decent pay in return for making them. To drive their point home, they had threatened to kill themselves by jumping off a building.

The Foxconn suicides that started in 2010 are due to oppressive work conditions that include standing for eight hours or more without a break. One worker said that he constantly wanted to drop something on the floor so he could bend down to pick it up while working. Due to the long hours standing, if he had the chance to lie or squat down on the floor, it would be the most enjoyable moment during the work day so he could get the chance to rest.

Foxconn has been criticized for running "blood and sweat" plants in China. Plants depend on workers’ being at assembly lines six or seven days a week, often for as long as 14 hours a day. In one instance where Foxconn makes computer cases for Acer, a Taiwanese computer company, workers all had blisters and the skin on their hands was black. The factory was also really choked with dust and no one could bear it. Such facilities have made it possible for devices to be turned out almost as quickly as they are dreamed up.

In February, following a prolonged period of criticism about the working conditions, Foxconn raised wages for its Chinese workers by 16 to 25 percent according to a report by Taiwan's Central News Agency. In the Shenzhen plant, which has been the initial production location for Foxconn since 1988, the basic wage will be raised to no less than 2,200 Chinese Yuan (about $348) a month from 1,800 ($285) Chinese Yuan. Before the series of wage hikes, the basic salary in the Shenzhen complex stood at 900 ($138) Chinese Yuan three years ago.

By bowing to such demands, Foxconn has conceded that employees and consumers have gained a sway once possessed only by Chinese bureaucrats and executives at the global electronics firms that hire Foxconn to build their products. For the system to genuinely change, Foxconn, its competitors and their clients — which include Apple, Hewlett-Packard, Dell and the world’s other large electronics firms — must convince consumers in America and elsewhere that improving factories to benefit workers is worth the higher prices of goods.

This is the way capitalism is supposed to work. As nations develop, wages rise and life theoretically gets better for everyone. China has been slow to realize the changing landscape even though it is promoting a more western style of capitalism albeit state controlled. The question is whether the Chinese government and business leaders are ready for the change. My guess is if it occurs at all, it will happen grudgingly at best.

The question raised earlier was should U.S. companies like Apple apply the same standards of workplace health and safety as expected in the U.S., or do they rationalize a lower set of standards in the name of cultural differences? Some argue that Apple is providing a service by hiring many Chinese workers that might otherwise be unemployed and/or be forced to live the life of a peasant. After all, the Chinese worker is not used to more advance working conditions and the government is in no hurry to adopt them.

The bottom line is if China wants to move toward a western model of capitalism it should adopt western-style working conditions as the norm that protects worker rights and not react in a knee-jerk fashion only after well-publicized incidents of attempted suicide. With greater profits come greater social responsibilities to contribute to the betterment of society.

Blog posted by Steven Mintz, aka Ethics Sage, on May 17, 2012

Six-Year Old Boy Suspended for Sexual Harassment

Application of Sexual Harassment Laws Run Amok: Whatever Happened to Common Sense?

Perhaps you have heard that a six-year old Aurora, Colorado elementary school student has been suspended for three days after quoting this line from an LMFAO song: "I’m sexy and I know it."

"I only just said the song," D’Avonte Meadows told Scripps Denver station 7NEWS. "I’m sexy and I know it."

Forms from the school indicate the first-grader was suspended for sexual harassment, which the school district's discipline code says has "negative affects of the learning or work of others."

D’Avonte said he and the girl were standing in the lunch line when he used the song lyric.

"I could understand if he was fondling her, looking up her skirt, trying to look in her shirt. That, to me, is sexual harassment," said Stephanie Meadows, D’Avonte’s mother. "I’m just, I’m floored. They’re going to look at him like he’s a pervert. And it’s like, that’s not fair to him."

The response of the school district illustrates the inability of some people in authority to use common sense. The incident made led me to recall the pat-down of a 4-year old child at the Wichita, Kansas airport on April 26. In that case the grandmother of the 4-year-old girl became hysterical during a security screening at the airport after the child was forced to undergo a pat-down. The child's grandmother said that her grand-daughter initially passed through security without incident. The girl then ran over to briefly hug her grandma, who was awaiting a pat-down after tripping the alarm, and that's when TSA agents insisted the girl undergo a physical pat-down. Really? Where was the common-sense approach to the incident? Did the TSA believe the girl had somehow gotten a weapon between the time of the original pat-down and when she went to hug her grandma?

Returning to the Colorado incident, the bewildering response to criticism of the school district’s action says it all: "Aurora Public Schools is committed to providing equitable learning for all students. We have policies and protocol in place to prevent any disruption to the learning environment. Due to privacy laws, we are unable to discuss appropriate disciplinary consequences about a specific student," wrote Paula Hans, media relations specialist for Aurora Public Schools.

To be fair I should point out that the boy had discipline troubles before when he quoted the same line from the same song to the same girl, this time "shaking his booty" near the girl’s face. He met with the school’s assistant principal after that incident and his mother told her son not to shake anything in the girl's face again. "I’m going to definitely have to sit with him and see if he understands exactly what the song means,” she said.

One reaction to the incident is that Colorado State Sen. Linda Newell sponsored a law (Senate Bill 46) that would require schools districts to include components within their discipline code such as peer mediation, as an alternative prior to suspension or expulsion. I’m not sure about the peer mediation. Is the goal to get 6-year olds to judge the behavior of other 6-year olds? If so, I don’t think the kids are old or mature enough to handle those responsibilities.

The ethical question is who is to blame for the incident and school district reaction? For me it is the boy’s mother and I say that based on the following comment: “Her son doesn't know the meaning of sexual harassment and it's the second time he has gotten in trouble for quoting.”

Talking about the song’s lyrics is not the answer especially if it is only designed to explain how lyrics of a song should not be taken literally and turned into action.  That is a good lesson to be learned but it doesn’t go far enough. It seems to me good parenting dictates a sit-down after the first incident to explain the importance of maintaining one’s distance from another party, to not make them feel uncomfortable, and the importance of not making comments that some may take to be out of line if not “sexually-motivated.”

As for the school district, it has the responsibility to deal with the matter in a way that promotes respectful behavior. The labeling of a 6-year old as a sexual harasser is not the answer. Six-year olds are not morally mature enough to understand the consequences of their actions. That doesn’t mean the boy should be excused for what he did. But, isn’t there a school counselor who could handle the matter internally? Why not treat the situation as a teachable moment for the 6-year old and others in the school?

Blog posted by Steven Mintz, aka Ethics Sage, on May 8, 2012

Moral Blindness

Why Good People Sometimes Do Bad Things

The noted moral psychologist James Rest developed a Four-Component Model of Moral Development that identifies four essential characteristics of moral behavior. If we examine the model, we can see why good people sometimes do bad things. I'm talking about people who would otherwise act ethically but for pressures either self-imposed (i.e., desire to be a "team player" even though you are asked to do something you know is wrong) or imposed by an outsider (i.e., a superior who threatens your job if you don't go along with something you know is wrong).

In order to make an ethical decision and act ethically, the first step is to identify that an ethical issue exists for you, or what Rest called ethical sensitivity. This is not so easy since many people who want to do the right thing -- try to do the right thing -- do not realize they are involved in an ethical situation. I tell my students a good perspective is that you are faced with an ethical issue whenever your actions affect others. These are the stakeholders potentially affected by what you do or do not do. It is a matter of ethics how you treat them (remember "The Golden Rule"). If you treat others with respect, caring and empathy, fairness, and with honesty and trustworthiness, then you are sensitive to the ethical issues. Since Accounting is my field a good analogy is to recognize that the financial statements must be accurate and reliable to protect the position of shareholders and creditors.

Once the ethical issues have been identified, the next step is to apply moral judgment to reason out what is the most ethical action to take. We should consider how our actions affect others using ethical reasoning methods such as harms and benefits (Utilitarianism) and not violate the rights (Rights Theory) of others. It would be wrong for an accountant or auditor to go along with materially misleading financial statements because it violates the rights of shareholders and creditors to receive accurate and reliable financial information. These stakeholders make decisions based on the information so it must be in accordance with generally accepted accounting principles and be transparent.

It is not enough to have the skills to reason out what is the most ethical action. Rest points out that ethical intention must follow ethical reasoning to turn decisions into action. In other words, do you want to be an ethical person? Do you want to do the right thing? Let's be honest, not everyone is concerned about whether they make an ethical choice/decision. Some people don't care -- John Edwards is a good example. Others believe they won't get caught so they ignore ethics. I believe Tiger Woods works well here.  Also, you can pick any one of a number of corporate executives involved in financial fraud at Enron, WorldCom, and so on.

Even the desire to do the right thing and act ethically is not enough because of the pressures previously mentioned. Young people get caught up in giving in to peer pressure and they go along with something they know is wrong. In accounting, a supervisor (i.e., Chief Financial Officer) might pressure an accountant (i.e., Controller) to go along with materially misstated financial statements. The accountant knows his or her job may be on the line. An expected promotion may be withdrawn or a demotion forthcoming unless that person agrees to manipulate the statements or at least be silent about it.

So how can an otherwise ethical person combat these pressures and follow through with ethical judgment and action? The key is integrity. Integrity is an ethical value that summons up the courage to take an ethical action despite pressures to do otherwise. It means we have the courage to act in accordance with our principles which should be to:

Treat Others the Way We Want to Be Treated.

Respect the Rights of Others.

Never take an Action that Does More Harm than Good.

I could go on but you get the point. Ethics is not easy. Being committed to your values takes moral strength. The key is not to take the first step down the proverbial ethical slippery slope. Once we agree to be silent; to go along with wrongdoing; and go along to get along; then we have begun the slide and it becomes very difficult, should we gain a conscience, to turn around to reclaim the high road.

I leave you with something said by W. Clement Stone, a businessman, philanthropist, and self-help book author: "Have the courage to say no. Have the courage to face the truth. Do the right thing because it is right. These are the magic keys to living your life with integrity."

Blog posted by Steven Mintz, aka Ethics Sage, on May 3, 2012

Financial Reporting Practices of Chinese Companies Investigated by SEC

Can We Trust Financial Reports of Chinese Companies?

It's déjà vu all over again as the famous philosopher Yogi Berra once said. The Securities and Exchange Commission in the U.S. has sued yet another China-based company and two of its executives, charging them with lying to investors about the value of the company's assets and how it used $120 million in proceeds from its initial public offering on the Nasdaq. In a complaint filed on April 23, the S.E.C. also charged that the chairman of the company, SinoTech Energy, secretly siphoned $40 million from the company's account at the Agricultural Bank of China last summer.

I have previously blogged about accounting and ethics problems at Chinese companies such as Longtop Financial. The legal action against SinoTech, an oil field services company de-listed by the Nasdaq in January, is the latest example of a continuing crackdown on accounting fraud and other financial crimes at Chinese companies listed in the United States. The S.E.C. also charged 11 investors in AutoChina International, including a senior executive and director, with market manipulation. The Commission also secured a court order freezing the assets of six Chinese citizens and an offshore holding company after accusing them of insider trading in the shares of Zhongin Inc, a pork processor based in China.

In its complaint against SinoTech, the S.E.C. charges that the company “grossly overstated the value of its primary operating assets,” including hydraulic drilling equipment. The company claimed in its listing document it would spend $120 million on such equipment, but the Commission found that it bought less equipment than it said it would, lied about the equipment it did buy and overstated the value of its purchases by nearly fivefold in its financial statements.

The S.E.C. alleged that the chief executive, Guoqiang Xin, 47, and the former chief financial officer, Boxun Zhang, 35, were behind the equipment purchasing fraud. In addition, the Commission accused the company’s chairman and controlling shareholder, Qingzeng Liu, 50, of stealing $40 million from a company bank account and lying about it to investors.

SinoTech Energy raised $167.8 million in an initial offering on the Nasdaq in November 2010. The company caught the attention of regulators after it was criticized last August in a negative report. The company’s auditor, Ernst & Young Hua Ming, resigned in September.

Many questions exist about Chinese accounting principles and the reliability of the financial statements produced by state-owned and private enterprises.  Questions continue to be raised about the value of those statements to investors looking to obtain a piece of the growing Chinese economic pie. For the most part, accounting rules are ignored; financial disclosures lacking; and transparency seems to be a word not in the disctionary of Chinese companies.

An important point is that China must play by SEC rules if it is to audit affiliates of US companies that are subject to inspection by the Public Company Accounting Oversight Board and if Chinese companies are to list their stock on U.S. exchanges. All foreign c companies that list stock in the US are subject to such inspections. China should not be treated any differently. If China wants to be a key player and become a force in the international financial markets, then it must learn to play by the rules of regulators outside their own country even if it seems to run counter to cultural norms whereby such regulations and inspections might be interpreted as demonstrating a lack of trust in Chinese management.

Blog posted by Steven Mintz, aka Ethics Sage, on April 27, 2012

 

Good Leaders Model Underlying Core Ethical Values in Decision Making

What Does it Take to be a Good Leader?

I recently read a book From Values to Action: The Four Principles of Values-Based Leadership by a professor at Northwestern University’s Kellogg School of Management. He believes leadership must be rooted in who you are and what matters most to you. When you truly know yourself and what you stand for, it is much easier to know what to do in any situation. It always comes down to doing the right thing and doing the best you can.

Mary Gentile who advocates for a values-based approach to leadership asks: How to you know your inner self and what drives you to make decisions? How do you know your decisions are the right ones to make? She believes values-based leadership starts with identifying the values that drive you to do what you do. Values and ethics overlap in the sense that values are underlying core beliefs that influence the decisions we make. The difference is the term ethics generally refers to a code of conduct that establishes rules for acceptable behavior. However, values are only ethical values when they deal with right and wrong behavior.

I may value having power, fame, and wealth but that doesn’t mean these are ethical values. They are underlying beliefs that drive me to succeed, perhaps at all costs, and achieve my goals. Now, if I act honestly, with integrity and trust, fair-mindedness, responsibility and accountability, then I can say that ethical values drive my actions. The goal of leadership in an organization is to get employees to buy into the values that are set by top management. Most important, good leaders must model values-based decision-making to enforce their importance to the organization.

Gentile’s approach known as Giving Voice to Values is a new way of thinking about and teaching business ethics that focuses on pre-scripting and rehearsal for action that addresses issues such as: “How to speak up when you know something needs to be addressed perhaps because some issue contradicts ethical values such as honesty, respect, responsibility, fairness and compassion. Gentile’s approach takes as a given that the person at the center of a decision already has already decided what is the ethical choice. What that person needs to do next is “give voice to her values” and follow-up ethical choices with ethical action.

Core values don’t change like the wind blowing from east to west; north to south. Values are part of underlying ethical principles such as: (1) Treat employees, suppliers and customers with respect; (2) Be candid in all your dealings with stakeholders;  (3) Accept responsibility for your actions; (4) Be accountable for your decisions; and (5) Maintain your integrity in the face of countervailing forces. The values-based approach of Gentile helps in this regard. Creating an ethical corporate culture is the key to enabling those values, as I have blogged about before.

Core values provide the underlying foundation for values-based leadership in an organization. I believe a good leader identifies and clarifies the values of the organization; explains how they should impact decision-making; holds employees to these values in carrying out their responsibilities; and rewards values-based decision-making. Why not include it in the performance evaluation system? It may take more time and effort than to simply say a manager receives a bonus based on divisional sales or profitability. But, isn’t it more important how those goals were achieved rather than that they were achieved?

A basic ethical tenet is that “the ends do not justify the means.” How we get to our goal is just as important as the goal itself. If we use and misuse people; if we treat them unfairly; if we pressure them into taking actions that are motivated by greed and not in the best interests of the stakeholders of the organization (i.e. investors, creditors, employees, suppliers and customers), then we are following values driven by the pursuit of self-interest, a form of decision-making known as egoism, and not one that respects the rights of others.

Value based leadership is as much a management philosophy as it is an execution practice. As leaders, you want to encourage employees to buy into the underlying core values of your organization. The journey begins by identifying, explaining, and providing examples of values-based leadership.

Warren Bennis, who is widely regarded as a pioneer of the contemporary field of Leadership Studies, once said: “The most dangerous leadership myth is that leaders are born -- that there is a genetic factor to leadership. This myth asserts that people simply either have certain charismatic qualities or not. That's nonsense; in fact, the opposite is true. Leaders are made rather than born.”

Gentile believes the all-important question for ethical leaders is how we voice our values—skillfully, tactically, persuasively, thoughtfully.

“The emotional proclamation, spoken in anger or frustration, is often accusatory, ill timed, and uncomfortable for the audience. But in my conversations with individuals who have found ways to express their values effectively in the workplace, they tend to do their homework; to provide face-saving outs for the listeners; to raise issues early and often; to gather allies; to research both good and bad exemplars and to generate alternatives. In other words, they approach a question of ethics the same way they approach making the case for any other business decision.”

I couldn’t agree more. The problem comes when the organization’s values do not coincide with those of the decision-maker. In that case we must learn to stand up for our values (“give voice) because if we don’t then actions may be taken that are harmful to others; inconsistent with our core beliefs; violate the rights of others; and/or just plain unethical. Once we start down the road of compromising our values rather then giving voice to them, it’s just a short trip down the proverbial “ethical slippery slope” and it becomes very difficult to reverse course and head for the high ground because your employer can then play the “gotcha” game with you.

Blog posted by Steven Mintz, aka Ethics Sage, on April 25, 2012

Skilling’s “Honest Services” Argument Fails in the US Supreme Court

Enron Redux

You remember the Enron failure. It ushered in a sustained period of financial statement fraud where earnings restatements totaled in the billions. It has been estimated that financial statement fraud caused a decrease in market value of stock of approximately 500 to 1,000 times the amount of the fraud so that, for example, a $10 million fraud might cause a $5 billion loss in market value.

The perpetrator of the Enron fraud was Jeff Skilling, the former CEO of Enron. Skilling blessed the off-balance sheet, special-purpose entities (SPEs) set up by its financial wizard, Andy Fastow. This maneuver enabled Enron to keep billions of debt off its Balance Sheet and shift it to the entity. Many of these entities were shells set up to hide debt. In return for cash received by Enron from bank loans made to the SPEs, these entities agreed to accept unwanted assets on Enron’s books.  In some cases Enron even recorded a gain on the exchange thereby boosting income because the cash received from the SPE was greater than the book value of Enron’s asset transferred to it.

On October 23, 2006, Skilling was sentenced to 24 years and 4 months in prison and fined $45 million. That means he wouldn’t get out until 2030. By then he’d be 74 years old.

Skilling has filed a serious of appeals of his sentence. On April 3, 2008, Skilling’s defense attorney argued with government prosecutors that Skilling’s trial and the conviction itself was based on “honest services fraud” that he said did not apply to Skilling.

Honest services fraud refers to a 28-word sentence of 18 U.S.C. Section 1346 (the federal mail and wire fraud statute), added by the US Congress in 1988, which states: "For the purposes of this chapter, the term, scheme or artifice to defraud includes a scheme or artifice to deprive another of the intangible right of honest services."

The statute has been applied by federal prosecutors in cases of public corruption as well as in cases in which private individuals breached a fiduciary duty to another. In the former, the courts notably have been divided on the question of whether a state law violation is necessary for honest services fraud to have occurred. In the latter, the courts notably have taken differing approaches to determining whether a private individual has committed honest services fraud – a test based on reasonably foreseeable economic harm and a test based on materiality.

The statute, which has been a target of criticism, was given a narrow construction in the case of Skilling v. United States. In order to avoid finding the statute to be unconstitutionally vague, the Court interpreted the statute to only cover "fraudulent schemes to deprive another of honest services through bribes or kickbacks supplied by a third party who ha[s] not been deceived."

Skilling’s basic argument was that even though he committed illegal financial maneuvers, he did so in order to save the company and did not profit from it. This sounds to me like a “delusional” defense approach.

On January 6, 2009, the US Court of Appeals for the Fifth Circuit affirmed Skilling’s conviction, but vacated the sentence and remanded for resentencing. I believe there were procedural errors in the original trial that led to the decision.

On October 13, 2009, the Supreme Court agreed to hear the appeal. A key question was whether the federal “honest service” fraud statute required the government to prove that Skilling’s conduct was intended to achieve “private gain” rather than to advance the interest of his employer, and, if not, is the statute unconstitutionally vague.

Let’s not forget our Enron history. On May 25, 2006, Skilling was found guilty of conspiracy, insider trading, making false statements to auditors, and securities fraud. It seems to me Skilling’s motivation for the fraud was both to advance the company’s interests and increase his own individual wealth. It’s a common theme that ran throughout the many frauds at the time including Enron, WorldCom, Tyco, and Global Crossing.

On April 16, 2012, the Supreme Court left intact Jeffrey Skilling’s conviction for leading the Enron Corp. accounting fraud, refusing to grant a second hearing to the imprisoned former chief executive officer. Let’s hope it stops right here and right now. Skilling should accept responsibility for his actions and not look for loopholes in the law to escape serving his sentence. He was a main contributor to the fall of the 7^th largest company in the US back in 2001.

A long time ago Sophocles, one of three ancient Greek writers of tragedy said: “It is a painful thing to look at your own trouble and know that you yourself and no one else has made it.”

Blog posted by Steven Mintz, aka Ethics Sage, on April 20, 2012

 

Abramoff, PACs, and Campaign Financing

Abramoff is Out of Prison Just in Time to Witness the Buying of the Presidency

Last week it was reported that Jack Abramoff, the former lobbyist, businessman and movie producer who was indicted on charges of fraud, conspiracy and tax evasion after an extensive corruption investigation, will give a talk on ethics at The University of Texas at Austin on May 2. "You Don't Know Jack! A Conversation with Jack Abramoff” will be held at the AT&T Executive Education & Conference Center on the UT campus.

Abramoff, who served four years in federal prison after pleading guilty, will discuss the importance of ethics in government, as well as personal ethics as they relate to his own experiences. He will describe the pitfalls he didn’t see, what he didn’t do, how he came to the point of making only bad choices and how he came to realize his mistakes and work through them.

I don’t know about you but I have a problem with a convicted fraudster going on the speaker’s circuit and making money by telling listeners why and how s/he did what they were convicted of doing. It’s worse when that person gives advice on how to spot fellow-fraudsters. Perhaps it’s just me but the only way in my mind of justifying a speaking engagement for a fraudster is to donate the speaker’s fee to a worthy cause. On that comes to mind is The Association of Certified Fraud Examiners.  This is a group of well-trained accountants, auditors, lawyers and investigators who examine incidents of fraud and provide expert information on the causes and results of such actions, and how to prevent and detect fraud in an organization.

Abramoff has the dubious “distinction” of having been involved in the most widespread influence-peddling scandal to date. On September 4, 2008, he was sentenced to a four-year term in federal prison for mail fraud, conspiracy, and tax-evasion charges stemming from an influence-peddling scandal in Washington, D.C. Lawmakers, lobbyists, Bush administration officials, congressional staffers, and businessmen got caught up in the Abramoff public corruption probe including former Ohio Representative Bob Ney (R-GA) who was sentenced to a 2 1/2 year prison term for taking bribes from Abramoff.

Abramoff was released from prison in June 2010 having been confined since November 2006. I guess he received four months off his sentence for good behavior. Perhaps he gave seminars in prison and counseled prisoners on the errors of their ways.

Abramoff has been trying to regain the notoriety he once had by establishing a promotional website and he began to charge for giving talks about corruption in Washington with titles like "How Lobbyists Shape Your Industry" and "Can Congress be Fixed?" Abramoff also made the rounds on talk shows like "Hannity," "60 Minutes," "The Early Show" and "Piers Morgan Tonight" in an attempt to rebrand himself as a whistleblower against corruption. He has a Facebook page and game app called "Congressional Jack," and a feature film called “Casino Jack.” The movie tells the story about how a band of amoral lobbyists and ideologues bought and sold favors from a slew of influential Republicans.

How timely it is that Jack’s lobbying entanglements seem to have ushered in an era of sanctioned influence peddling in Washington, D.C. During the past several months we watched as Political Action Committees (PAC) were used to influence the outcome of primary elections. Critics of Mitt Romney claim he paid for and bought the Republican nomination for President through the operations of his PAC.

We can thank a 2010 Supreme Court decision, Citizens United v. Federal Election Commission. In the case, a bitterly divided court ruled 5 to 4 that the government may not ban independent political spending by corporations, as well as labor unions and other organizations, in candidate elections. The decision and subsequent court rulings led to tens of millions of dollars in donations -- often by wealthy individuals, of as much as $5 million at a time -- to super PACs supporting candidates in the Republican primaries.

We now live in a political campaign environment where there are no limits on how much cash can be raised and spent by anonymous donors seeking to influence elections and legislation. It is a world that would suit the old Jack Abramoff quite well. The 2012 presidential election is almost certain to be the most expensive in history, as the two main candidates set lofty fundraising goals and money floods in to “super PACs,’' independent political committees that have been supercharged by a series of court decisions.

The sad fact is that millions of Americans go hungry every night while politicians and their PACs and Super PAC’s spend outrageous amounts of money to influence a contest that is supposed to pick the next President of the US, a person who should represent all the people.

Blog posted by Steven Mintz, aka Ethics Sage, on April 16, 2012

What is the Basis for Ethical Decision-making?

Ethical Standards, Values, and Moral Judgment the Keys to Ethical Behavior

Most people think they know what ethics is. However, from my experience that knowledge is limited to statements such: Knowing the difference between right and wrong. Ethics is much deeper because it is diffi­cult to judge what may be right or wrong in a particular situation without some frame of reference. 

The term ethics is derived from the Greek word ethikos which itself is derived from the Greek word ethos, meaning custom or character.   In philosophy, ethical behavior is that which is “good.”  The field of ethics or moral philosophy involves developing, defending, and recommending concepts of right and wrong behavior.  These concepts do not change as one’s desires and motivations change.  They are not relative to the situation.  They are immutable.

In a general sense, ethics (or moral philosophy) addresses fundamental questions such as: How should I live my life? That question leads to others such as: What sort of person should I strive to be? What values are important? What standards or principles should I live by?

Ethics must be based on accepted standards of behavior.  For exam­ple, in virtually all societies and cultures it is wrong to kill someone or steal property from someone else.  These standards have developed over time and come from a variety of sources including:

(A)       The influence of religious writing and interpretations.

(B)       The influence of philosophical thought.

(C)       The influence of community (societal) values.

Ethics deals with well-based standards of how people ought to act.  Ethics does not describe the way people do act.  It deals with the way people should act. Ethical people always strive to make the right decision in all circumstances.  They do not ration­alize their actions based on their own perceived self-interests.  Ethical decision-making entails following certain well established norms of behavior. The best way to understand ethics may be to differentiate it from other concepts.

Values are basic and fundamental beliefs that guide or motivate attitudes or actions. Values are concerned with how a person will behave in certain situations whereas ethics is concerned with how a moral person should behave.  A person who values prestige, power, and wealth is likely to act out of self-interest whereas a person who values honesty, integrity and trust will typically act in the best interests of others.  It does not follow that acting in the best interests of others precludes acting in one’s own self-interest.  Indeed, the Golden Rule prescribes that we should treat others the way we want to be treated. 

Being ethical is not the same as following the law.  While ethical people always try to be law-abiding, there may be instances where your sense of ethics tells you it is best not to follow the law.  These situations are rare and should be based on sound ethical reasons. Here’s one example:

Assume you are coming home from the store one day and see a fast moving fire approach your neighbor’s house. You notice that the neighbor’s car is in the garage. The garage door entrance to the house is locked as is the main entrance. You bang on the door and no one answers. You call the neighbor on your cell phone and no one answers. You don’t think there is enough time to call the fire department ten miles away before serious damage is done to the house. What would you do next and why? If you break into the house to save your neighbor, you have broken the law. However, you have acted out of concern for the safety of your neighbor in a life-threatening situation thereby acting ethically.

Benjamin Disraeli (1804-1881), the noted English novelist, debater, and former prime minister, said that, “When men are pure, laws are useless; when men are corrupt, laws are broken.” A person of good will honors and respects the rules and laws and is willing to go beyond them when circumstances warrant.  As indicated by the above quote, such people do not need rules and laws to guide their actions.  They always try to do the right thing. On the other hand, the existence of specific laws prohibiting certain behaviors will not stop a person who is unethical (e.g., does not care about others) from violating those laws. Just think about a “Ponzi” scheme such as the one I previously blogged about whereby Bernie Madoff duped others to invest with him promising huge returns that, unbeknownst to the investor, would come from additional investments of scammed investors and not true returns.

Ethical people often do less than is permitted by the law and more than is required.  A useful perspective is to ask:

        What does the law require of me?

        What do ethical standards of behavior demand of me?

        How should I act to conform to both?

An ethical society is one that values a commitment to do the right thing regardless of personal costs. It’s not an easy standard to live by but one worth pursuing.

Blog posted by Steven Mintz, aka Ethics Sage, on April 12, 2102

GSA Misuses Funds and Improperly Awards Contracts

Wasteful GSA Spending and Contract Procurement Policies to be investigated by Congress

What in the world is the General Services Administration thinking? After all the fraud, misuse of funds and downright unethical actions that caused the financial meltdown in 2008, along comes the GSA with its own brand of greed and stupidity. GSA Administrator Martha N. Johnson resigned last Monday and two of her senior deputies have been fired in the wake of the agency’s recent spending scandal.

The GSA inspector general’s report, which strongly criticizes the agency for excessive spending on clowns, mind readers and lavish parties during a training conference just outside Las Vegas, claims that officials awarded a $58,808 contract to a large audio and visual services firm, Royal Productions, when federal regulations require contracts of such size be reserved for small businesses.

The inspector general also said the agency violated federal rules by neglecting to publish a solicitation for the contract on the government’s list of Federal Business Opportunities and by providing Royal Productions with a competing bidder’s quote — thus allowing the company to present a winning offer. This is ethics 101. The bidding process must be above board and confidential. It didn’t help matters from an ethical perspective that the agency paid roughly double what the contract outlined for the company’s employees’ hotel rooms, according to the report.

The contracting accusations focus on a problem that some say has been crippling the nation’s small businesses for more than a decade. “The diversion of small-business contracts to large corporations has gone on for a dozen years, and the only thing the government has done in response is remove the transparency,” Lloyd Chapman, president of the American Small Business League, said in an interview, later adding that the procurement review system available to the public has become increasingly difficult to use in recent years.

The federal government has a stated goal of awarding 23 percent of contract dollars every year to small businesses. However, Chapman pointed to his group’s recent analysis of government data that showed that 72 of the 100 companies receiving the highest amount of federal small-business contracts in 2011 were firms that exceeded the Small Business Administration’s size standards for small companies.

“Anytime you take a sample of what the federal government is doing and anytime you take a look at small-business contracting in almost any federal agency, what you find is money going to the biggest companies in the world,” he said.

In October, the SBA’s inspector general published a report acknowledging that small-business contracting was the agency’s most serious management and performance challenge. Specifically, the report stated that “procurement flaws allow large firms to obtain small business awards and agencies to count contracts performed by large firms towards their small business goals.”

Congress plans to hold hearings on the claims of wasteful spending against the GSA. No doubt it will be a waste of time without significant consequences for the perpetrators of the bad judgment and fraudulent activities of the GSA. I have seen this movie before and know how it will end.

Blog posted by Steven Mintz, aka Ethics Sage, on April 9, 2012

Groupon Restatement of Earnings a Cause for Concern

The Signs are there: Market Stability at Risk

You may have heard that Groupon restated its “earnings” to reflect a larger fourth-quarter loss after failing to set aside enough money to account for customer refunds. Groupon’s stock has been falling since it revealed last Friday that it was revising its first quarter earnings to reflect a larger than expected loss. With its past accounting problems, some of which I have previously blogged about, Groupon is now a prime target for shareholder lawyers who believe the company may be liable for the losses investors have suffered since Friday. The stock is currently down about 12% and falling.

Groupon’s restatement increased the company’s fourth-quarter losses from $42.7 million to $64.9 million, more than a 50% increase in the reported loss. Moreover, the company had $500 million revenue last year so the amount of restatement is significant, or material as accountants would say.

According to Groupon’s accountant, Ernst & Young, the accounting error came from a “material weakness in its internal controls”. This means other transactions may be at risk since poor controls in one area tend to cause problems elsewhere. More important, the internal control problems raise questions about the management of the company and its corporate governance.

The red flags have been waving even before the company went public last year. In preparing its IPO, the company used a financial metric it called “Adjusted Consolidated Segment Operating Income”. The problem was that figure excluded marketing costs, which make up the bulk of the company’s expenses. The net result was to make Groupon’s financial results appear better than they actually were. After the SEC raised questions about the metric — which The Wall Street Journal called “financial voodoo” — Groupon downplayed the formulation in its IPO documents.

Groupon’s latest restatement is partially a consequence of the “Groupon Promise” feature of its business model. The company pledges to refund deals if customers aren’t satisfied. Because it has been selling those deals at higher prices lately — which leads to a higher rate of returns — it needs to set aside larger amounts to account for refunds — something it hasn’t been doing. It’s another example of Groupon failing to accurately account for a part of its business that reduces its financial performance. That shouldn’t inspire investor confidence.

In an updated filing with the SEC, Groupon said it is working to “remediate the material weakness,” in its internal financial reporting controls, and will hire “additional finance personnel.” But it warned: “If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results.”

In a statement, Groupon tried to put a positive spin on the whole matter. “We remain confident in the fundamentals of our business, as our performance continues to highlight the value that we provide to customers and merchants,” said Groupon Chief Financial Officer Jason Child.

This is right out of the Enron playbook when former CEO and chair of the board of directors, Ken Lay, stood in front of a meeting of employees, many of whom bought Enron stock for their 401-Ks, and touted the viability of the company’s unusual business model that had served Enron so well for so long albeit because of falsified financial statements.

Groupon's latest missteps, combined with its previous accounting issues, call into question whether the start-up was ready to be a public company that has to produce reliable financial reports, said Sandra Peters, head of financial reporting policy for the CFA Institute, which represents chartered financial analysts who work with individual investors.

"It really demonstrates, for an IPO, were they really ready to go?" she said. "Did they have the financial systems, did they have the processes and procedures in place?"

Similar concerns were echoed by people who track the company on Wall Street. "It's going to definitely unsettle a lot of investors," said Ken Sena, an analyst covering Groupon for Evercore Partners.

What is the lesson to be learned from Groupon’s experience? It is that we are vulnerable once again to a market meltdown because there are many companies like Groupon that want to cash in on Google’s phenomenal stock growth since its IPO. A better economic outlook and rising stock market are heating up the market just weeks before Facebook's highly anticipated IPO.

Congress, meanwhile, is lessening restrictions on IPOs in an attempt to make it easier for younger companies to raise money. Where have we heard this before? Was it when the Congress repealed the Glass-Steagall Act that had served the market so well by preventing commercial and investment banks from combining? Let’s not forget that the repeal in the law ushered in a period of over-selling in the market and, ultimately, the financial meltdown of 2008.

Let’s also not forget that famous line from Albert Einstein about insanity. Einstein defined insanity as “doing the same thing over and over again and expecting different results.”

Blog posted by Steven Mintz, aka Ethics Sage, on April 5, 2012

What is Civility?

Lack of Respect is the Root of Cause of Incivility in Society

The word ‘civility’ shares an etymological root with the idea of ‘citizenship’ on the one hand, and of ‘civilization’ on the other. The first sense of civility, reflecting the link to the concept of citizenship, is found in the idea of ‘civic behavior’. Political theorist John Rawls argues that political legitimacy must be based on public reason. As such, ‘the ideal of citizenship imposes a moral, not a legal, duty—the duty of civility—to be able to explain to one another . . . the principles and policies they advocate and vote for’.

If we look at the Republican nominating process of choosing a candidate to run against President Obama, it is difficult to see any evidence of civil discourse. Civility in this sense requires that we listen to others with fair-mindedness and accord them the respect they deserve. Ah, but there is the rub.

I have blogged before about the issue of civility and pointed out that by age sixteen, George Washington had copied out by hand, 110 Rules of Civility & Decent Behavior in Company and Conversation. They are based on a set or rules composed by French Jesuits in 1595. The first rule is:  'Every Action done in Company, ought to be with Some Sign of Respect, to those that are Present.'

For those directly engaged in politics, this means listening to others, being tolerant of views other than one’s own, and recognizing that the principle of ‘shared governance’ must be put ahead of one’s own ideological claim. In other words, a civil society depends on the ability of its leaders to look beyond self-interest and make decisions based on what is best for the country. Given that Democrats and Republicans typically have different views on this matter, the fact is compromise is the basis for having a civil society because it involves listening to others and recognizing one side or the other cannot always get what it wants but, in the interests of the country, a middle ground must be found.

One June 22, 2010, Weber Shandwick, Powell Tate and KRC Research released new research that explores the state of civility in America. The survey asked 1,000 American adults to express their views about the tone and level of civility in government and traditional and social media. Here are some of the results: (1) two in three respondents believe civility is a major problem while three in four believe the problem has gotten worse; (2) three in four said the financial crisis and recession made the level of civility in America worse; (3) just one in four expect civility to improve while one in three think it will get worse; (4) not surprisingly, the government and politics were identified as having the least civil discourse and a majority characterized America’s high schools, talk radio, and Hollywood celebrities as uncivil.

Have you checked out You Tube lately? More and more we see video clips of teenagers attacking one another and there seems to be a marked increase in girls getting involved in the mayhem. I suppose such actions were the motivation for the Oxygen network developing a television program called Bad Girls Club that is in its sixth season.

The big question is why does society reward bad behavior? Does each of us secretly wish we could do the same thing and have such public exposure? Of course, it’s hard these days to do the right thing and wind up with your own television show. The public doesn’t want to see it and network executives give the public what they want. Or, is it the other way around? People who act responsibly and accept the consequences of their actions typically are not the kind of people who seek out notoriety for their good acts. They do it because of an inner voice or conscience that tells them it is the right way to behave.

I see no hope for civility becoming the norm in American life so long as our leaders act uncivil. Incivility in public discourse seems to create a divide in how talk radio deals with important issues facing the nation. One side or the other makes fun of their opponents; dissects every last word to find a gaffe; and even exaggerates the opposing views to the point of distortion if not outright lying. Incivility then creeps into every day life such as cutting people off on a roadway, shoving others to get to the head of a line, cursing in public and other forms of uncivil behavior.

Civil discourse was an important value to our founding fathers. Perhaps Ralph Waldo Emerson said it best: "There can be no high civility without a deep morality."  

Blog posted by Steven Mintz, aka Ethics Sage, on April 2, 2012