Ethics Sage

Wal-Mart and Violations of the Foreign Corrupt Practices Act

Bribery and lack of Full Disclosure Evidences Unethical Behavior at Wal-Mart

Wal-Mart said last week that it spent $73 million on compliance with the Foreign Corrupt Practices Act (FCPA) during the first quarter of 2013. It had budgeted $40 million to $45 million. During its prior fiscal year, it spent $157 million for FCPA matters. It expects to spend $65 million to $70 million in the second quarter of 2013. The disclosures came during a conference call from Wal-Mart CFO Charles Holley to reporters.

The company has said it can't tell when its internal investigation of fraudulent payments by a Mexican subsidiary might end or when it will resolve the Department of Justice and SEC investigations. Wal-Mart started its internal investigation in 2011.

Last year, the New York Times reported in a Pulitzer Prize-winning story that the company's Mexico unit paid $24 million in bribes to speed up licensing and permitting for new stores. The paper said top managers in the U.S. covered up the bribery after learning about it.

During last week’s conference call, Wal-Mart said it spent $44 million on the investigation during the first quarter of this year and $29 million for a global compliance review, program enhancements, and organizational changes.

The details surrounding the Wal-Mart de Mexico bribery scandal include the stuffing of envelopes with cash handed off to mayors, bureaucrats and other government officials who wield the power to stand in the way of business. Wal-Mart is accused of not only participating in such bribery at its Mexican subsidiary, but also of sweeping it under the rug once it came to light.

On April 21, The New York Times published a lengthy article alleging that Mexico-based Wal-Mart officials participated in an ongoing bribery scheme several years earlier to achieve market dominance in the country, and that top executives had covered it up. The allegations are corroborated by internal company documents, according to lawmakers investigating the conduct.

A whistleblower -- a former Wal-Mart de Mexico executive -- informed a company attorney of the widespread practice via email in 2005. According to Reps. Elijah Cummings (D-Md.) and Henry Waxman (D-Calif.), who are investigating the allegations, Wal-Mart former general counsel Maritza Munich pressed the company to establish a stricter anti-bribery policy after being informed of the bribes. Munich recommended that a follow-up investigation look into "other potentially suspect transactions not yet identified." Three months after Munich resigned on Feb. 1, 2006, however, the new general counsel ended the investigation.

In its 10-Q form filed with the SEC on December 4, 2012, Wal-Mart admitted that the Company could be exposed to a variety of negative consequences as a result of the investigation into FCPA violations. These include:

• There could be one or more enforcement actions in respect of the matters that are the subject of some or all of the ongoing government investigations, and such actions, if brought, may result in judgments, settlements, fines, penalties, injunctions, cease and desist orders, debarment or other relief, criminal convictions and/or penalties.
• The shareholder lawsuits may result in judgments against the Company and its current and former directors and officers named in those proceedings. The Company cannot predict at this time the outcome or impact of the government investigations, the shareholder lawsuits, or its own internal investigations and review.
• The Company expects to incur costs in responding to requests for information or subpoenas seeking documents, testimony and other information in connection with the government investigations, in defending the shareholder lawsuits, and in conducting the review and investigations. These costs will be expensed as incurred.
• The Company has incurred expenses of approximately $48 million and $99 million during the three and nine months ended October 31, 2012, respectively, related to these matters. These matters may require the involvement of certain members of the Company’s senior management that could impinge on the time they have available to devote to other matters relating to the business.
• The Company expects that there will be ongoing media and governmental interest, including additional news articles from media publications on these matters, which could impact the perception among certain audiences of the Company’s role as a corporate citizen.

As a professor of accounting ethics I was intrigued by this disclosure. It seems ironic that Wal-Mart cares about “the perception among certain audiences of the Company’s role as a corporate citizen.” This from a company that has been investigated for other bribery situations and the finding in 2006 that it violated the underage child-labor laws in its factories abroad.

I also found it curious that Wal-Mart decided not to record a contingent amount for possible loss from the lawsuits and other legal actions. In its disclosure, Wal-Mart said: “The Company’s process of assessing and responding to the governmental investigations and the shareholder lawsuits continues. The review, inquiries and investigations are ongoing; and the Company cannot reasonably estimate any possible loss or range of possible loss that may arise from these matters. Although the Company does not presently believe that these matters will have a material adverse effect on its business, given the inherent uncertainties in such situations, the Company can provide no assurance that these matters will not be material to its business in the future.”

This is a classic narrow-minded view of materiality. In accounting a material event is not only one with a significant monetary impact on earnings, but also those with a significant qualitative effect on a company. That is where Wal-Mart falls far short of making an ethical disclosure about its bribery activities at Wal-Mart de Mexico.

Wal-Mart says it “can provide no assurance that these matters will not be material to its business in the future.” I never like negative statements of no assurance. Wal-Mart is looking at its own self-interest from an egoistic point of view and not the interests of its stakeholders – shareholders, creditors, employees, and so on. The Company’s statement includes no information on why the internal controls did not prevent or detect the illegal payments sooner. Major questions exist about corporate governance at Wal-Mart.

The Company needs to step up to the plate and be transparent about the bribery, violation of the FCPA, and possible long-term damage to the Wal-Mart brand. Some indication that the Company knows what happened was wrong would be nice rather than a ‘CYA’ approach. However, given my skepticism about corporate ethics, I never expect companies to act in an ethical mannerand once the cover-up is disclosed most companies rarely decide to fully disclose the details. History has taught us otherwise.

Blog posted by Steven Mintz, aka Ethics Sage, on May 21, 2013

Space Crooner Chris Hadfield Returns to Earth

A True Space Oddity and Inspiration to ALL -- Chris Hadfield

Astronaut Chris Hadfield, the first Canadian to command the International Space Station, is preparing to make the return voyage to Earth after almost five months in orbit.

Hadfield, along with flight engineers American Tom Marshburn and Russian Roman Romanenko, have boarded a Soyuz spacecraft for the journey home. It marks the first time Hadfield will come back from space in the Russian capsule — during his previous space missions, in 1995 and 2001, he travelled aboard one of the now retired space shuttles.

"Reviewing Soyuz procedures onboard, but I wanted to thank every person at the Cdn Space Agency," Hadfield tweeted earlier today. "Your work takes Canada into orbit. Be proud."

NASA mission control relayed that hatches between the capsule and the space station were reported closed at 3:50 p.m. ET. The capsule is now on autonomous power as the astronauts work their way through a pre-departure checklist.

Bob McDonald, the host of CBC Radio's Quirks & Quarks, said the astronauts and ground control will verify that everything in the capsule and space station is airtight.

'They have to make sure all systems are tight and clear before they actually let go of the space station," he said.

At 7:08 p.m. ET -- right about the time I am posting this blog -- the Soyuz will undock from the space station.

During his time aboard the International Space Station, Hadfield has been a popular Internet figure, doing a lot on social media channels and YouTube to promote space science. From chatting on the phone with William Shatner  to posting breathtaking photos of Earth to his Twitter and Tumblr pages to explaining why you can't cry in space, Hadfield has been a constant expression of the sheer joy of being in outer space.

Hadfield is an inspiration to all of us who can only dream of going to space. Whats more he produced this poignant cover version of David Bowie’s Space Oddity. He recorded the vocals and guitar while on board the International Space Station. Piano and other musical accompaniment were provided by folks down on Earth. The video itself is gorgeous, featuring some amazing shots of Earth through the windows of the space station as Hadfield sings Bowie’s famous tune.

ENJOY!

 

 

Blog posted by Steven Mintz, aka Ethics Sage, on May 13, 2013

Threats to Independence Raise Ethical Questions for the Big-Four CPA Firms

KPMG Faces Conflict of Interest Charges in Audit of JobsOhio

KPMG is at it again. In the most recent allegation of violating independence standards of the accounting profession, KPMG’s Columbus, Ohio office was auditing JobsOhio’s books while, at the same time, an out-of-state office of the firm was seeking $1 million in taxpayer money from JobsOhio for an unnamed client. As the state’s lead economic-development agency, JobsOhio is charged with recommending financial incentives for companies seeking to relocate in the state. On November 5, 2012, about the time that the audit was being conducted, KPMG was also listed on a sheet of eight pending grant commitments from the state for fiscal year 2013, one of which was for the unnamed client.

I will return to this case later on, but first a review of the recent insider trading charges against the firm. I have previously written about about insider trading at KPMG. In that case, KPMG resigned two audit accounts and withdrew its blessing on the financial statements of Herbalife for the past three years and of Skechers for the past two. KPMG withdrew its audit opinions, a serious step for any auditor, after concluding it was not independent because of alleged insider trading.

The KPMG insider trading case is a particularly egregious one because it involves an auditor tipping off a friend about stock of audit clients. Scott London, the KPMG auditor, did not trade in the stock himself but he did gain personal wealth (“unjust enrichment”) when his friend, Brian Shaw, used the inside information to trade in stock of Herbalife Ltd. and Skechers USA Inc. Shaw benefitted by $1.27 million on the trades. Shaw paid London $50,000 cash and gave him a Rolex watch.

Looking at the JobsOhio case, as KPMG was auditing JobsOhio's books in the fall of 2012 the firm also was seeking $1 million in taxpayer money from JobsOhio for an unnamed client. JobsOhio, the state's privatized development agency, said that the grant request was handled separately from and without the knowledge of the firm's auditing division.

The ethical problem for KPMG in the JobsOhio case is independence in appearance. This is an important requirement of an independent audit because factual independence is sometimes difficult to determine. Factual independence goes to the mindset of the auditor in approaching an audit with objectivity and professional skepticism. It is difficult to assess so appearances serve as a proxy in that regard.

JobsOhio denies any conflict of interest. Laura Jones, a spokeswoman for JobsOhio, said KPMG LLP's Columbus office conducted the audit, but the grant was sought by an out-of-state office. "The fact that KPMG serves JobsOhio and countless other businesses ... from the same office here in Columbus is not a conflict in our minds," she said, adding that “the state also monitors and ultimately approves taxpayer-funded incentives to companies.”

Most observers would probably conclude that the two offices of KPMG would never collude on their own to achieve some benefit for the firm. However, the more troubling issue is whether JobsOhio might perceive some pressure on them to provide financial incentives to the KPMG audit client perhaps to make it less likely that KPMG would point out problems with the JobsOhio audit, assuming any occur.

The accounting profession has strict independence standards to protect the public interest. Shareholders, creditors, and the beneficiaries of public funds rely on the honesty, trustworthiness, and responsibility of auditors to go the extra mile to ensure that the financial statements of entities that operate in the public interest are based on an independent audit – both in fact and in appearance.

KPMG is not alone in violating the most basic and cherished independence standards. As I have previously blogged, in 2010 Deloitte and Touche was investigated by the SEC for repeated insider trading by Thomas P. Flanagan, a former management advisory partner and a Vice Chairman at Deloitte. Flanagan traded in the securities of multiple Deloitte clients on the basis of inside information that he learned through his duties at the firm. The inside information concerned market moving events such as earnings results, revisions to earnings guidance, sales figures and cost cutting, and an acquisition. Flanagan’s illegal trading resulted in profits of more than $430,000. In the SEC action, Flanagan was sentenced to 21 months in prison after he pleaded guilty to securities fraud.

On January 7, 2013, the SEC announced it is investigating whether Ernst & Young violated independence rules by letting its lobbying unit perform work for several major audit clients. The SEC inquiry began shortly after Reuters reported in March 2012 that Washington Council Ernst & Young, the E&Y unit, was registered as a lobbyist for several corporate audit clients including Amgen, CVS Caremark, and Verizon Communications.

The problem for EY is that U.S. independence rules bar auditors from serving in an "advocacy role" for audit clients. The goal is to allow auditors to maintain some degree of objectivity regarding the companies they audit, based on the idea that auditors are watchdogs for investors and should not be promoting management's interests.

Finally, in December 2012, Thomson Reuters announced it signed a three-year contract with PwC, the company’s auditor, to provide use of the Thomson Reuters ONESOURCE Corporate Tax solution for China. PwC U.K. also uses this Thomson Reuters software for its tax clients. Business alliances between a company and its auditor are prohibited under U.S. and U.K. auditor regulations. Once again an independence violation exists because such arrangements create a “mutuality of interests” as a result of the business relationship between the auditor and audit client.

I am very concerned about the actions of KPMG in the JobsOhio case, Deloitte & Touche and KPMG insider trading scandals, EY serving as an advocate for an audit client, and PwC in becoming involved in a joint business relationship with an audit client. These relationships create threats to independence and taint the audit because of conflicts of interest.

The SEC needs to look into these matters, not just individually but collectively, and determine whether the Big-4 CPA firms have built adequate safeguards to protect audit independence and whether more stringent independence and ethics standards are needed to protect the public trust in the independent audit.

Blog posted by Steven Mintz, aka Ethics Sage, on May 7, 2013

Is stepping on a Sheet of Paper with the name Jesus an Expression of Academic Freedom?

Academic Freedom, Religious Beliefs, and Civility in the Classroom

Recently, I read about a self-proclaimed Christian instructor at Florida Atlantic University, Deandre Poole, who asked his students to write "Jesus" on a piece of paper and "Stomp on it."

The exercise was from a textbook manual and was designed to teach that "even though symbols are arbitrary, they take on very strong and emotional meanings." The instructor indicated that he would not have stepped on the paper if he had been asked.

I’ve been teaching at the university level for more than thirty years and have rarely heard of such a stupid and disrespectful exercise. I can’t figure out the point of the exercise.

Let’s assume one-half of the class stepped on the paper. So what? What does this indicate to the professor with respect to the academic learning experience? Does it mean those students believe anything goes in a college classroom in the name of freedom to inquire? Does it mean one-half of the students are not afraid of the instructor’s response to his exercise? Does it mean one-half of the students are anti-Jesus and his teachings?

It seems to me an intellectual discussion of what Jesus has meant to a large portion of the population of the world makes more sense. The instructor could have asked probing questions such as if Jesus is the son of God how could he allow what happened at the Boston Marathon or at Newton and so many other tragedies in our recent past? Is this a valid question to ask from an ethical point of view? If so, why is it proper to explore the ethical dimensions of horrific acts and our faith in a higher being? If not, what is the appropriate frame of reference for the discussion on a philosophical basis?

Ryan Rotela, a devout Mormon, refused, telling the professor, "With all due respect to your authority as a professor, I do not believe what you told us to do was appropriate.  I believe it was unprofessional and I was deeply offended by what you told me to do."

Rotela was suspended from class.  The university initially defended the professor, citing the lesson was intended to encourage a multi-faceted viewpoint and debate. Subsequently, the professor was put on administrative leave pending an investigation by the university.

Fay Voshell who holds a Masters of Divinity from Princeton Theological Seminary, reminds us that stomping on Jesus touches a sore nerve. Beginning in 1626, Japenese Christians were forced to stomp or spit on an image of Christ or Mary. The images, named fumie, became a means of identifying Christians and a method of forcing them to repudiate their faith.  Stomping on Jesus or Mary also became a prelude to torture and universal persecution.  One torture involved cutting off three fingers from each hand, leaving only the little finger and thumb.  Children as young as five were subjected to this mutilation. The idea was that Christians were worse than animals and therefore entitled to fewer digits than the beasts. 

Generally, however, if believers refused to stomp their feet on the fumie, they and their families were put to death by drowning or being burnt alive.  Some of the faithful were not up to martyrdom and went into hiding, utilizing special prayers asking forgiveness if they had capitulated to the Japanese government's demands they renounce their faith.  For the next 250 years, the persecution of Japanese Christians was so intense they were nearly all exterminated, along with the symbols of the faith.  To this day, the number of Christians in Japan remains very low.

The attempts to exterminate Christians and the images of their faith have a long and bloody history, and certainly have not been confined to pre-modern Japan. While persecution has remained a constant of Christian history since the time of Jesus and the apostles, iconoclasm, the concerted attempt to rid a given civilization of Christian religious images, has been a recurrent issue, especially during the eighth and ninth centuries. During that time period, imperial legislation of Byzantium attempted to bar the use of figural images.  Existing icons were destroyed by those who had a theory that sacred images were "graven images," and therefore idolatrous. 

The Florida Atlantic faculty is currently suggesting that the administration's handling of the situation has compromised the instructor's academic freedom. The question is where does academic freedom start and end and when does civility enter the classroom experience. I don’t think academic freedom is a license to experiment with tasteless and historically offensive actions. 

A healthy classroom engages students in a rich debate of ideas. It should not encourage students to perform symbolic gestures that ridicule the beliefs of others. Poole should apologize for his lack of civility and then continue his task of educating and enlightening his students.

Blog posted by Steven Mintz, aka Ethics sage, on April 26, 2013

KPMG Insider Trading Scandal Damaging to the Reputation of the Accounting Profession

What Possesses an Audit Partner to Trade on Insider Information?

KPMG is embroiled in an insider trading scandal that concerns me because a pattern of such improprieties may be developing. In 2010, Deloitte and Touche was investigated by the SEC for repeated insider trading by Thomas P. Flanagan, a former management advisory partner and a Vice Chairman at Deloitte. Flanagan traded in the securities of multiple Deloitte clients on the basis of inside information that he learned through his duties at the firm. The inside information concerned market moving events such as earnings results, revisions to earnings guidance, sales figures and cost cutting, and an acquisition. Flanagan’s illegal trading resulted in profits of more than $430,000. In the SEC action, Flanagan was sentenced to 21 months in prison after he pleaded guilty to securities fraud. Flanagan also tipped his son, Patrick, to certain of this material non-public information. Patrick then traded based on that information. His illegal trading resulted in profits of more than $57,000.

The KPMG case is a particularly egregious one because it involves insider trading by an auditor of client stock. Scott London, the partner in charge of audits of Herbalife Ltd. and Skechers USA Inc., traded on inside information for personal gain.  KPMG resigned as the auditor of both companies after learning that London provided non-public information about the companies to a third party, who then used the information in stock trades. The firm fired London.  

In resigning the two audit accounts, KPMG said it was withdrawing its blessing on the financial statements of Herbalife for the past three years and of Skechers for the past two. KPMG stressed, however, that it had no reason to believe there were any errors in the companies' books. Both companies said they are moving to find new auditors.

In a statement that should raise red flags for all CPA firms that audit public companies, KPMG stated it had concluded it was not independent because of alleged insider trading. Independence is the foundation of the accounting profession and the cornerstone of an audit conducted in accordance with generally accepted auditing standards. The public (i.e., shareholders and creditors) relies on auditors’ independence, objectivity, and integrity to ensure that the audit has been conducted in accordance with such standards and that the financial statements are free of material misstatements.

I’m having a hard time understanding the stupidity and moral blindness of London in this case. Surely he knew of his ethical obligations. All audit firms supposedly have been carefully assessing independence in the aftermath of financial frauds in the late 1990s and early 2000s (i.e., Enron and WorldCom). Firms generally have quality controls in place to prevent compromises to audit independence.

Trading on insider information for cash and gifts is bad enough, and when done by an audit partner it is unforgiveable. Even more baffling to me is that the quid pro quo for passing along stock tips about clients to a friend for London was to receive cash and gifts in return. According to London, he received a discount on a watch, and the friend bought him dinners from time to time and on a couple of occasions gave him $1,000 to $2,000 in cash. A cynic might say he sold himself cheap.

So, what happens next? Both Herbalife and Skechers will need to have their financial statements re-audited, not an inexpensive proposition. Even though the companies were not at fault, the public may misunderstand and think the companies were complicit in the matter.

For KPMG, the insider trading investigation is a setback. The accounting firm has worked hard to rehabilitate its reputation after coming under scrutiny last decade in a wave of corporate accounting scandals and the firm’s role in the marketing of fraudulent tax shelters. KPMG paid large nine-figure settlements to resolve lawsuits related to accounting scandals at the drugstore chain Rite-Aid and Oxford Health Plans. In 2005, the firm paid a $456 million penalty to the government related to tax fraud.

I have to wonder whether insider trading by partners at Deloitte and KPMG portends a larger scandal on the horizon. It seems every ten years or so the accounting profession finds itself in a “pickle” and hauled before Congress to explain its actions. It is about that time following financial frauds at Enron, WorldCom and a host of other companies. I don’t know how to get the message across to those in the profession that every time such incidents occur, and now insider trading, the public loses patience with the profession and doubts begin to surface about whether the profession truly acts to protect the public interest.

Blog Posted by Steven Mintz, aka Ethics Sage, on April 12, 2013

The Ethics of Profit Repatriation by U.S. Multinationals

U.S. Companies Using Short-Term Loans to Avoid Taxes on Repatriated Cash

I have previously blogged about the use of transfer pricing techniques by U.S. companies to shift profits away from the U.S., which has the highest corporate tax rate (about 40%), to countries with lower tax rates such as Ireland (12.5%). As long as profits made overseas are not repatriated back to the U.S., those overseas profits remain untaxed by the IRS. Critics claim that a much lower tax rate (say, 15-20%) would encourage U.S. companies to bring the profits home in the form of investments and spur economic development and job growth.

Other countries have come to realize their corporate tax rates are too high. For example, Germany has reduced its rate from a high of 45% in 2008 to 15% today. The UK has gradually lowered its rate from 52% in 1981 to a projected 20% in 2015.

Repatriation is more than an economic issue; it has ethical overtones. It also highlights a practice used by some U.S. companies to skirt the repatriation law by taking the “trapped” overseas cash and providing loans to their U.S. parent companies. Under U.S. tax rules, a foreign subsidiary can lend funds to its parent without jeopardizing its untaxed status. Here is how it works:

• The loans have to be short term and can remain outstanding throughout a fiscal quarter as long as they don't cross beyond its end. If they do cross a quarter, they can remain outstanding for a total of 30 days. And that can be done for 60 days a year by any one foreign unit.
• If the borrowing is carefully set up to comply with IRS rules and U.S. auditing standards, the funds can be used over and over without incurring taxes.
• Companies are not required to disclose these moves, which makes it difficult to assess how many use them.

According to the Wall Street Journal, Hewlett-Packard (H-P) entities lent the parent about $6 billion in the year that ended in October 2010. For the 2011 fiscal year and through July 2012, the average outstanding balance of the alternating loans was $1.6 billion.

The sums rivaled H-P's borrowings in the commercial-paper market—the traditional source of big firms' day-to-day funds. Those averaged $1.9 billion over the 2011-2012 period.

More details of H-P's transactions have emerged since a 2012 hearing conducted by the U.S. Senate. The company said it told the Senate panel it used the alternating loans for all but 85 days of the 2011 and 2012 fiscal years. In a 2008 internal presentation, H-P called the loans "the most important source of U.S. liquidity for repurchases and acquisitions."

H-P spokesman Michael Thacker says H-P has "complied fully with all applicable provisions of the U.S. Internal Revenue Code, and auditor Ernst & Young has consistently reviewed and approved the accuracy of H-P's financials." The IRS has never raised concerns about the loan programs, he adds.

American concerns have long argued they should be allowed to bring back some of the estimated $1.7 trillion in profits they hold at their foreign subsidiaries, saying the money could be put to use in the U.S. The firms claim to be deterred by the huge tax liabilities they would incur under current IRS tax rates.

The U.S. is the only major economy that taxes its companies' overseas earnings. Those taxes aren't actually incurred until the money is considered to have been transferred to the U.S. parent, giving companies an incentive to maximize their earnings at foreign subsidiaries and keep them there indefinitely.

People on both sides of the debate argue the system doesn't work, creating perverse incentives that distort companies' balance sheets and deprive the U.S. Treasury of tax revenue. The short-term loans to avoid repatriation and taxes is the main example of the practice.

During the last Presidential election, business interests called for a “tax holiday,” in which American corporations would be allowed to transfer their foreign profits to their American bank accounts at a tax rate under 6 percent for one year. Such a holiday would raise revenues and create jobs in the U.S., according to the WinAmerica Campaign, a coalition of companies including Apple, Google and Pfizer.  

But the last time such a holiday was tried, in 2004, it raised less than $19 billion and did not substantially increase jobs. Most of the repatriated profits went to corporate shareholders, through dividends or stock repurchases.

Instead of a one-off holiday, some corporations — Caterpillar and Kimberly Clark, for example — have called for a permanent fix: a territorial system for taxing foreign corporate profits, as most industrialized countries use. In a pure territorial system, the profits of multinational companies based in the U.S. would be taxed only by the country in which the profit is earned.

But none of our major trading partners takes a pure territorial approach, for two good reasons. First, almost all countries impose domestic taxes on “mobile” corporate income — for example, investment interest or royalties that can easily be shifted from one country to another. Second, many countries still collect taxes on foreign profits of domestic corporations if those profits are earned in tax havens that collect little or no taxes, like Bermuda and the Cayman Islands. These havens violate the premise of the territorial system, which is that corporate profits are taxed somewhere in the world at a reasonable rate.

The ethical issue I raise is: Does a U.S. corporation have an ethical obligation to repatriate profits to the U.S. to pay their “fair share” of taxes and help to stimulate the economy in an increasingly competitive global economic marketplace?  The answer is not a simple one because we could argue about the ethics of having the highest tax rate in the world. We could also argue and debate whether the government uses its tax revenue in an ethical or socially-desirable manner to employee the unemployed, give opportunity to those wanting to improve their economic lot, and help stimulate our economy.

For me, it is time to lower the corporate tax rate to be more competitive with other countries and challenge U.S. companies on their claim to repatriate profits with a lower rate. Without debating how low is low enough to achieve the desired goal, we need to try harder to improve the economic status and wealth of the middle and lower-classes and repatriation with taxation is one way the goal might be accomplished. At least it is worth a try. If corporations do not repatriate with lower taxes but still find ways around their obligation, then they will be exposed for all to see the hypocrisy of their position.

Blog Posted by Steven Mintz, aka Ethics Sage, on April 1, 2013

IRS "Dirty Dozen" Tax Scams

Tax Scams and Scammers Cheat All of Us

The IRS issued it “Dirty Dozen list of tax scams" Tuesday, highlighting fraudulent schemes commonly committed by and upon taxpayers. The annual warning, released to coincide with tax filing season, emphasizes the most egregious schemes involving filing false returns or return items, but it also advises the unsuspecting about practices that prey upon the unwary and uninformed.

As you read thought the 2013 list, think about all the scams and scammers and how they cheat all of us who pay the correct amount of our taxes due and, while we may not agree with the way the government uses our tax dollars, we do see paying taxes as a civic responsibility.

1. Identity theft: The IRS spotlighted its measures, including its new Identity Protection we portal, to prevent and combat the growing problem of tax fraud involving stolen identities, which it called one of its top priorities. During 2012, the IRS prevented issuance of $20 billion in fraudulent refunds including those related to identity theft, up from $14 billion in 2011, it said. The IRS also noted that its identity theft enforcement sweep in January led to nearly 300 indictments, complaints, and arrests, on top of thousands of enforcement actions against identity theft tax fraud in 2012.

2. Phishing: The IRS again this year warned against fake electronic communications designed to obtain recipients’ information, reminding that the IRS does not initiate contact with taxpayers by email, text messages, or social media to request personal or financial information.

3. Return preparer fraud: In addition to suggesting taxpayers make sure paid preparers sign returns and enter their preparer tax identification number (PTIN), the IRS this year included information about using Form 14157, Complaint: Tax Return Preparer, to report abusive tax preparers.

4. Hiding income offshore: This warning also updated the number of participants in the IRS’s Offshore Voluntary Disclosure Program to 38,000 and its collections to $3.4 billion from the 2009 program alone (March 23, 2009, through Oct. 15, 2009) and $1 billion so far in “up-front” payments from the 2011 program (Oct. 16, 2009, through Sept. 9, 2011). In 2012, the program was extended indefinitely.

5. “Free money” from the IRS and tax scams involving Social Security: With fliers and advertisements “appearing in community churches around the country,” promoters of schemes promising refunds for returns with little or no documentation have enticed “unsuspecting and well-intentioned” victims, some of whom have spread the word to friends and relatives, the IRS said. One scheme falsely advises taxpayers to claim the American opportunity tax credit even if they have no current qualifying educational expenses.

6. Impersonation of charitable organizations: Some fraudsters have doubly victimized people hit by a natural disaster by claiming to be working on behalf of the IRS to help them claim a tax casualty loss but instead steal their financial and personal information. This replaced “abuse of charitable organizations and deductions” from the 2012 list.

7. False/inflated income and expenses: Exaggerating wage or self-employment income is a common ploy by some unscrupulous preparers to inflate refundable credits, including the earned income tax credit, by more than any additional tax.

8. False Form 1099 refund claims: One scheme involves issuing a bogus information return, often Form 1099-OID, Original Issue Discount, to the IRS. A refund is then claimed on a corresponding tax return. The IRS says this is based on the theory that “the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS.”

9. Frivolous arguments: The IRS maintains a webpage describing some of the more common and legally fanciful of these theories.

10. Falsely claiming zero wages: A Form 4852, Substitute Form W-2, or “corrected” Form 1099-MISC, Miscellaneous Income, is fraudulently filed to reduce or eliminate income on a legitimate information return. Sometimes it is accompanied by a frivolous argument regarding the income.

11. Disguised corporate ownership: The IRS said it works with state authorities to identify entities by which taxpayers underreport income, claim bogus deductions, and engage in other misconduct.

12. Misuse of trusts: The IRS said it has seen an increase in improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses.

As frequent readers of my blog know, I like to use famous quotes to make a point.

James Madison, the "Father of the Constitution," "Father of the Bill of Rights," 4th President of the U.S. stated the purpose of income taxation:

"The power of taxing people and their property is essential to the very existence of government.''   

A poignant statement that expresses a philosophy held by some today (whether you agree with it or not) dates back to 400 B.C. and was expressed by Plato, the Greek philosopher:

“Where there is an income tax, the just man will pay more and the unjust less on the same amount of income.” 

I leave you with a quote from Ben Franklin: “…but in the world nothing can be said to be certain except death and taxes."

Blog posted by Steven Mintz, aka Ethics Sage, on March 29, 2013

STUPID IS AS STUPID DOES: THE SAGA OF THE TSA

TSA TO ALLOW WEAPONS ON PLANES: SERIOUSLY?

Forrest Gump quotes are uncomplicated, basic and true. They are almost Zen-like in their simplicity. One of the best Forrest Gump quotes is "stupid is as stupid does" which may not be poetry or very deep, but it ends up being true and a more workable metaphor for life than the movie's tag line "life is a box of chocolates". The TSA has now given us a real-life example of stupidity at its stupidest.

As you probably heard by now, federal officials said they will allow passengers to carry small knives, golf clubs, hockey sticks and pool cues into the cabins of commercial jets. The policy change, which will take effect April 25, is being made to help align the list of prohibited items on U.S. flights with those of international carriers and cut the time passengers spend going through security screening. This is an example of using the lowest common denominator to set policy.

The TSA list of prohibited items will no longer include small knives with non-locking blades less than 2.36 inches (6 centimeters) long and 1/2-inch wide. Also removed from the list will be sporting equipment such as golf clubs, billiard cues, ski poles, toy bats and hockey and lacrosse sticks.

The TSA pointed out that other security measures are already in place to protect planes, including hardened cockpit doors, armed federal air marshals, armed pilots and crew members with self-defense training. It is nice to protect planes but what about we, the passengers, who may need help fending off the crazed golfer or hockey player sitting next to us?

The TSA can’t seriously believe that no danger exists to passengers by allowing these potential weapons on planes. Where has the TSA been these past few months while mentally and emotionally-challenged individuals have shot up schools, shopping malls, committed random acts of violence, and caused pain for all too many families?

Someone at TSA should explain to the American people how a small knife is less dangerous than a box cutter. A hockey stick can do great damage. What is to stop one passenger from pulling out his or her stick or club and pounding another passenger because that person is too loud or taking up too much space?

The phrase "blunt instrument" is used to describe a type of weapon that lacks a sharp point or edge. Examples of a blunt instrument include baseball bats, canes, rocks, and hockey sticks. Congratulations TSA for letting blunt instruments on planes.

Here is some interesting information for the TSA to consider as they (hopefully) reconsider this stupid change.

• Annual FBI crime statistics show that more people are killed with clubs and hammers each year than by rifles or shotguns.
• In 2011, there were 323 murders committed with a rifle but 496 murders committed with hammers and clubs.
• Michael Skakel lost a bid for freedom on October 24, 2012, since being convicted of beating Martha Moxley to death with his golf clubs.
• Hockey sticks are routinely used in hockey games to injure opponents on the ice.

Brandon M. Macsata, executive director of the Association for Airline Passenger Rights and a critic of airport security screening procedures, said he is not sure how the change will improve security or speed the screening lines at airports. I also can’t understand how the TSA believes the new rule will speed security lines and the boarding process. What will the airlines do when they realize after only one-half of the plane has been boarded, there no longer is any bin space because people are storing what will become fold-up hockey sticks and golf clubs manufactured specifically for ease of transportation on our planes?

Some family members of victims killed in the September 11 terror attacks said they are outraged by the TSA’s decision to let passengers carry pocketknives on planes. The change is an affront to all people of goodwill and it dishonors the memory of those who died on 9/11.

To say the TSA decision seems to be a poorly thought-out decision is an understatement. TSA now stands for "TOTALLY STUPID AGENCY!"

Blog posted by Steven Mintz, aka Ethics Sage, on March 8, 2013

A Governor's Attack on Academic Freedom

Governor Brown Insensitive to the Effects of Budget Cuts and Seeks to Control Academic Decision-Making

This blog first appeared as an article on February 18, 2013 in The Chronicle of Higher Education. It challenges California Governor Jerry Brown’s recent intrusion into the process of academic freedom. Gov. Jerry Brown's 2013-14 budget for California intrudes on academic freedom in a way that could harm the 23 campuses of California State University and the 10 campuses of the University of California—but the impact of his attempt to control academic decision-making threatens every public college and university in the country.

Putting aside for the moment the fairness of Brown's proposed $250-million increase for both the CSU and UC systems, and an additional $10-million to each one to develop online courses, the governor's budget attempts to dictate how the increased funds should be spent. That is a violation of academic freedom, the bedrock of colleges and universities.

Universities exist to promote the public interest, not to further the interests of individual professors, the institution as a whole, or, in this case, the governor of California. The public interest is not served by Brown's inserting himself into education decision-making.

Academic freedom fosters an independent academic voice and encompasses the conflict-of-interest issues that might impair impartiality. This conflict is between the goals of the governor in dictating how the increased funds should be spent and the wishes of the college administrators and faculty members who should be making the educational decisions.

Several statements by Brown on his Web site are troubling. "The people in the university are going to have to find a way to do the same thing with fewer growing resources," he says. What does he think we have been doing for the past five years? While it is true that tuition increases have been excessive and unfair to the students, they have been necessary to stem the tide of canceled classes, overly crowded classrooms, and good faculty members lost to institutions that actually have increased faculty salaries during the past five years. In the California state systems, we have seen no such increases and have endured a 10-percent cut in salary during one of those years.

Brown wants to tie financial support to the universities' ability to improve graduation rates and to graduate students on time. Fair enough. But such linkage is likely to lead to a decline in standards in order to "improve graduation rates," as has been the case in the elementary- and secondary-education systems.

Moreover, doesn't the governor know that virtually all colleges and universities in the state are subject to accreditation standards by, at a minimum, the Western Association of Schools and Colleges? Professional programs undergo a more specialized accreditation process as well, such as that of AACSB International—the Association to Advance Collegiate Schools of Business. Those organizations already look at graduation rates and the quality of programs, and are more qualified than the state to make such assessments.

The most intrusive demand by Brown is that universities expand their online courses to reduce costs and allow more students to get the classes they need to graduate. Once again the governor is placing quantity ahead of quality. Among the many questions involving online education is whether the same quality of education can be made available online as that available in the classroom.

What's more, the costs of developing and maintaining online courses may divert funds from other programs, lowering the quality of the educational experience of all students. The state spent $1.6-billion less on higher education in 2010-11 than it did 10 years earlier, according to the independent Public Policy Institute of California. While that decline is due in part to the recession since 2008 and to lower general-fund revenues, it also reflects changing state priorities. During the past 10 years, state support for higher education has fallen 9 percent, while that for corrections and rehabilitation services has increased 26 percent. Shouldn't we devote more funds to higher education, in the hope of developing skills among people who might otherwise get in trouble and wind up in our prisons?

I have taught in the California State system for 25 years, and it no longer resembles what once was among the best public-­college systems in the country. The facilities on many campuses have not been modernized, the failure to keep up with salary levels of comparable institutions has led to a brain drain, and the lack of funds has inhibited the development of programs to meet the needs of a changing world.

The irony is that faculty members have continued working as hard or harder to maintain the quality of education, despite overall declines in salaries and being asked to teach more classes with more students in technologically marginal classrooms.

State universities exist to serve the needs of young people who want to be educated and advance their position in life. They should provide a low-cost alternative to private colleges and universities, and should have faculty and staff members committed to excellence in education.

Part of the process of running a multi-campus system, such as CSU and UC, is to leave academic governance to local campuses. It does not matter whether the state universities are in California, New York, or Wisconsin—the principle is the same. Shared governance on each campus dictates that decisions should be made by the faculty and academic administrators of that campus and not by a government official.

California has the largest and most diverse state-run university systems in the country, and it often serves as a bellwether for other large state-university systems. Governor Brown is using the state's woeful budget situation to exact concessions from the University of California's chancellor and California State University's Board of Trustees, who are content to avoid further program and salary cuts in the 2013-14 academic year.

What happens in California does not necessarily stay in California, which is why faculty and staff members across the country should sit up and take notice of our governor's efforts to use a financial crisis to dictate academic policy.

Blog posted by Steven Mintz, aka Ethics Sage, on March 1, 2013

What is the Value of Ethics Education?

Are Universities Successfully Teaching Ethics to Business Students?

Last week I read an article on the failure of ethics education of business students to change the dynamic in the business world where the pursuit of self-interests trumps all else. We certainly have been through a decade or so of glaring unethical business practices at companies such as Enron and WorldCom, Bernie Madoff’s insider-trading scandal, and the financial meltdown of 2008-2010 from which we still have not recovered.

As a professor who teaches ethics I was struck by the reasoning given for the failure of ethics education. Some claim ethics is taught only in a separate course rather than integrated throughout the curriculum creating a perception in the minds of students that ethics is only important tangentially rather than as an integral part of business practice. I agree with this perspective but realize, having been an academic administrator for many years, the problem lies in not being able to get faculty from various business disciplines on board to incorporate ethics into their individual courses. Some feel unequipped to do so; others do not believe we should be “preaching” to college students.

I did some research on how ethics is taught to business students and their perspectives on business responsibilities and found some interesting results. Surveys conducted by the Aspen Institute, a think tank, show that about 60% of new M.B.A. students’ view maximizing shareholder value as the primary responsibility of a company; that number rises to 69% by the time they reach the program's midpoint.

There is nothing wrong with maximizing shareholder value – it is a basic tenet of capitalism. The problem lies when that is the only driver of corporate behavior to the exclusion of broader stakeholder approaches that would include customers, suppliers, and employees in the mix. Though maximizing shareholder returns isn't a bad goal in itself, focusing on that at the expense of societal interests can lead corporate decision-makers down the road of greed. By maximizing shareholder value, bonuses increase and stock options are worth more.

Some schools are experimenting with a more integrated approach. This fall, Boston University's School of Management will introduce a required ethics course for freshman business students, and is also tasking instructors in other business classes to incorporate ethics into their lessons. It may also overhaul a senior seminar to reinforce ethics topics.

"We need to hit the students hard when they first get here, remind them of these principles throughout their core classes, and hit them once again before they leave," says Kabrina Chang, an assistant professor at Boston University's business school, who is coordinating the new freshman class.

Another school with a serious attempt to teaching ethics to business students is Kansas State University. Kansas State has developed a Business Ethics Education Initiative designed to help strengthen business ethics education internationally, nationally, and locally. The goals include enhancing public awareness of the importance of business ethics coursework and identifying effective models of ethics education for relevant stakeholders. Without tying ethics to a business curriculum, "we are graduating students who are very myopic in their decision-making," says Diane Swanson, founding chair of the Business Ethics Education Initiative at Kansas State University.

Interestingly, K-State strives to achieve those goals through external and internal (campus) outreach activities, including affiliations with profit and not-for-profit organizations. I particularly like the stakeholder-influenced approach to business ethics education. It should be a two-way street between the college and greater business community to move the effort more towards the practical implications of business ethics education.

I could mention additional business ethics programs but the fact is the value of such programs is unclear. The whole issue of business ethics education has not been aptly dealt with by AACSB – International, the worldwide accrediting agency for business schools in colleges and universities. AACSB’s task force addressed this issue in 2004 and came up with what can best be described as weak and ineffective standards. I can tell you first-hand that business schools generally will not follow standards set by AACSB unless they are mandatory, and AACSB’s are not. Here are excerpts from the standards:

“While the task force does not prescribe a particular curriculum or course, it recommends that AACSB encourage its member schools and their faculties to renew and revitalize their commitment to ethical responsibility at both the individual and organizational levels. Schools should be encouraged to demonstrate this commitment throughout their academic programs, assessment processes, research agendas, and outreach activities.”

This is "academic-speak" for we do not want to hold the schools accountable for ethics education. AACSB's failure to set specific goals for business ethics education speaks volumes about the political pressure from accredited schools that were brought to bear on any new standards that require specific education. Academic administrators do not want to be tied down to a specific course of action or program; they want a more "flexible" approach. The result is a meaningless standard that fails to address the critical problems that face us today in graduating business students who become tomorrow's future abusers of the capitalist system because of narcissitic behavior.

So, what should be done about the failure of business ethics education over the years to stem the rising tide of corporate fraud and wrongdoing? I believe the emphasis of business ethics education has to change from teaching philosophical reasoning methods that rarely work in practice to a more values-based approach that emphasizes ethical leadership. Ethical leadership is a must in any discipline -- accounting, finance, information systems, management and marketing. Therefore, all college instructors should buy into the need to slant their teaching methods to incorporate leadership -- ethical leadership.

Blog posted by Steven Mintz, aka Ethics Sage, on February 12, 2013

 

How to Prepare for a Behavioral Interview

Behavioral Competencies Assessed by Employers through the Behavioral Interview

Behavioral based interviewing is interviewing based on discovering how the interviewee acted in specific employment-related situations. The logic is that how you behaved in the past will predict how you will behave in the future (i.e. past performance predicts future performance).

In a traditional interview, the potential employee is asked a series of questions which typically have straight forward answers like "What are your strengths and weaknesses?" or "What major challenges and problems did you face? How did you handle them?" or "Describe a typical work week."

In a behavioral interview, an employer has decided what skills are needed in the person they hire and will ask questions to find out if the candidate has those skills. Instead of asking how you would behave, they will ask how you did behave. The interviewer will want to know how you handled a situation, instead of what you might do in the future.

In a survey of 1,400 chief financial officers by Robert Half International, the following question was asked:

“Other than technical ability and willingness to do the job, what quality impresses you the most when hiring a candidate?”

The answers may surprise some as behavioral characteristics account for 92 percent of the responses:

•Honesty & Integrity 58%

•Enthusiasm 14%

•Communications Skills 12%

•Professional Appearance 7%

•Sense of Humor 1%

•Other 8%

Behavioral interview questions will be more pointed, more probing and more specific than traditional interview questions:

• Give an example of an occasion when you used logic to solve a problem.
• Give an example of a goal you reached and tell me how you achieved it.
• Describe a decision you made that was unpopular and how you handled implementing it.
• Have you gone above and beyond the call of duty? If so, how?
• What do you do when your schedule is interrupted? Give an example of how you handle it.
• Have you had to convince a team to work on a project they weren't thrilled about? How did you do it?
• Have you handled a difficult situation with a co-worker? How?
• Tell me about how you worked effectively under pressure.

Follow-up questions will also be detailed. You may be asked what you did, what you said, how you reacted or how you felt.

Keep in mind that you won't know what type of interview will take place until you are sitting in the interview room. So, prepare answers to traditional interview questions.

Then, since you don't know exactly what situations you will be asked about if it's a behavioral interview, refresh your memory and consider some special situations you have dealt with or projects you have worked on. You may be able to use them to help frame responses. Prepare stories that illustrate times when you have successfully solved problems or performed memorably. The stories will be useful to help you respond meaningfully in a behavioral interview.

Finally, review the job description, if you have it, or the job posting or ad. You may be able to get a sense of what skills and behavioral characteristics the employer is seeking from reading the job description and position requirements.

It's important to keep in mind that there are no right or wrong answers. The interviewer is simply trying to understand how you behaved in a given situation. How you respond will determine if there is a fit between your skills and the position the company is seeking to fill. The key is to listen carefully, be clear and detailed when you respond and, most importantly, be honest. If your answers aren't what the interviewer is looking for, this position may not be the best job for you anyway.

The Virginia Tech University provides useful questions for behavioral interviewees to prepare for the interview including:

Describe a time when you were faced with problems or stresses at work that tested your coping skills. What did you do?

Give an example of a time when you had to be relatively quick in coming to a decision.

Give me an example of an important goal you had to set and tell me about your progress in reaching that goal.

Describe the most creative work-related project you have completed.

Give me an example of a problem you faced on the job, and tell me how you solved it.

Tell me about a situation in the past in which you had to deal with a very upset supervisor or co-worker.

Give me an example of when you had to show good leadership.

At the end of the day the interview process is designed to see if a potential employee’s values and work ethic are a good fit for the company. Remember,

Technical gets you the interview, Behavioral gets you the job !

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

Does Everyone Lie?

Are we a Culture of Liars?

In the aftermath of the Lance Armstrong fraud perpetrated on the entire world we have to question whether everyone lies. Has it become so ingrained in our national psyche that lying has become the right way to behave?

I watched the Katie Couric interview a week ago Thursday and saw Manti Te'o commit a common lie. Katie asked whether he was truthful about his relationship with Lennay Kekua and Manti responded he never lied because whenever he was asked if he had ever met her, he skirted the issue. He admits to being less than forthcoming. But, a lie by omission is still a lie.

We say it is wrong to lie our kids and claim we don’t do it ourselves, yet lying is common, used to get out of tight situations, and part of the narcissistic behavior pattern that has enveloped Americans during the past twenty years or so. It has become part of our self-esteem – who we are and what we believe in. We live in a society where deception is thought of as nothing wrong. So what if we take advantage of others so long as it advances our own self-interests.

Liars think they have good reasons to lie, or good intentions. But the people being deceived don’t necessarily feel that way. I always tell my students that lying is wrong on many levels not the least of which is you are using people for your own personal gain. It goes against the basic “Golden Rule” that we should treat others the way we want to be treated. No one wants to be lied to so why should we lie to others?

On a practical level once we begin to lie or cover-up, we begin the slide down the proverbial ethical slippery slope where one lie leads to another and we struggle to get our story straight and consistent when we are questioned about our actions. This is the classic way police detectives catch criminals. They ask them to repeat their stories many times and in different ways to respond to probing questions. It’s hard to remember the initial lie and subsequent cover-ups, but not so with truthful statements.

"People do it because it works," said Robert Feldman, dean of social and behavioral sciences at the University of Massachusetts in Amherst and a leading researcher on the psychology of lying. "We get away with lies all the time. Usually they're minor: 'I love your tie.' 'You did a great job.'

“The reality is, people lie all the time — ‘I love the report you gave,’ for instance — and tell you what you want to hear. Most of us lie, and most of us don’t get caught. If others hadn’t come forward, I’m sure Lance Armstrong still be living the lie.”

According to Feldman, Bill Clinton is a prime example of a public figure who lied to protect himself — by denying he had sexual relations with White House intern Monica Lewinsky — and later, after confessing, reclaimed some vestige of his credibility and moral standing. Clinton is now one of the country’s most admired public figures, if by no means universally beloved.

The popular television show House features a character who always tells people “everyone lies.” The statistics seem to bear this out. A variety of studies have been conducted about lying. One that was published in the Journal of Basic and Applied Social Psychology found that during a 10-minute conversation between two strangers, 60% lied at least once. Those liars told an average of two to three fibs.

According to a 2012 Gallup poll, 43 percent of Americans rate the country’s state of moral values as “poor,” and 73 percent indicate it’s getting worse. Dishonesty, deception, and integrity (or lack thereof) are part of the problem, respondents said, along with loss of religious faith and a breakdown in family structure.

Moral philosopher and author Sissela Bok, whose books include “Lying: Moral Choice in Public and Private Life,” agrees that lying is prevalent throughout this society and others, often starting with small steps and at a young age. Step by step, the lies can build to what seems like the point of no return.

From a liar’s perspective, “You’re very optimistic about not getting caught,” adds Bok. “Also, you think you have good reasons to lie, or good intentions. But the people being deceived — investors, public citizens, whoever — don’t necessarily feel that way.”

So ask yourself whether you, too, lie all the time. Do you tell people what they want to hear rather than the truth? Do you deceive by obfuscating the truth?  Do you lie by omission?

Here are five common forms of lying in serious matters:

• The potential worker who lies on his/her resume to get a job or get ahead
• The husband who says he is working late when he is having an affair
• The worker who takes long-term disability for a serious injury, only to be found puttering around the golf course
• The guy who says his car broke down because he is late for work
• The dog who ate your homework.

Lying has become endemic to our society. Perhaps the best way to deal with it is to assume whatever a person says to us when questioned about a serious matter that the opposite is true.

Blog posted by Steven Mintz, aka Ethics Sage, on February 1, 2013

Should the Monday After the Super Bowl be a Holiday?

Super Bowl Monday and Work Ethic

Perhaps you have heard there is a petition circulating to send to President Obama to make next Monday, the day after the Super Bowl, a national holiday.

" Declare the Monday following the Super Bowl a national holiday" is the brain child of the Fantasy Football site, 4for4.com. Here is the petition:

“In 2012, an estimated 111 million American citizens watched the Super Bowl, making it the most- viewed television braodcast in history and one of the largest location-independent gatherings of American people to date. 

We at 4for4.com Fantasy Football petition the Obama Administration to consider  declaring the Monday following Super Bowl Sunday a national holiday. By doing so, the Obama Administration can promote camaraderie among the American people, keep the streets safer for our children on Sunday night and Monday morning, promote a productive workplace when work resumes on Tuesday, and honor the most popular event in modern American culture.”

Now, the fact that a Fantasy Football site initiated the petition detracts from the seriousness of the effort since there can be no doubt Fantasy Football hopes the PR effort leads to more sign-ups for its newsletter, betting, and other self-promoting activities. Nevertheless, the fact that many Americans have already signed the petition and more are seriously considering it speaks volumes about the declining ethical values in our society.

The rationale typically given to have Super Bowl Monday as a holiday is that people do not want to go to work after eating and drinking for four hours on a Sunday -- so let's make the Monday after the Super Bowl a national holiday. I suppose given our work-ethic-challenged society many already call in sick that Monday while others are unproductive at work. Still, that doesn’t mean we need to set new lows for work effort and caring about the quality of work one does in the workplace.

One important ethical value is the pursuit of excellence. Having a national holiday after the most watched show of the year elevates laziness and the declining work ethic in our society to new heights (or lows!). When sports gets priority over keeping the engine of economic development and capitalism going even for one day, we have morphed into selfish society of the first order.

Glassdoor.com surveyed employees asking what the Super Bowl does to the workplace the Monday after the game. They found:

• 20% of employees say that employee morale is typically better in the office the day after the Super Bowl.
• 22% of employees notice, however, that the Monday following the Super Bowl is commonly a less productive day than usual.
• 8% of employees plan to take the day off following the Super Bowl.
• 9% of employees plan to take the Monday off as a vacation day.  
• 3% of surveyed employees admit that they plan to call in sick the day after the Super Bowl.

Glassdoor.com also asked employees if their employers offer any type of perks for the Monday after the Super Bowl. Several employees said that they are either allowed to work from home or use the Monday as a flex day. Another employee noted that their weekly Monday morning meeting gets bumped until later in the day on the Monday after the Super Bowl. Other survey respondents said that their employers buy breakfast for employees on the Monday after the game.

In a broader survey that illustrates laziness in society, two-thirds of U.S. workers who call in sick at the last minute do so for reasons other than physical illness, according to the findings of the 17th annual CCH Unscheduled Absence Survey. CCH is a leading provider of human resources and employment law information and services.

Is worker absenteeism a problem for business in general? Yes, according to the 2007 CCH Survey. It found that while 34 percent of people call in sick to work at the last minute due to “personal illness,” 66 percent are taking time off to deal with personal or family issues.

“Most people today are juggling the demands of busy personal and professional lives, and are trying to do their very best in both places,” said CCH Employment Law Analyst Pamela Wolf. Employers, however, have failed to make significant headway against the costly absenteeism problem that takes billions of dollars off the bottom line for U.S. businesses. The nation’s largest employers estimate that unscheduled absenteeism costs their businesses more than $760,000 per year in direct payroll costs, and even more when lower productivity, lost revenue and the effects of poor morale are considered.

The CCH Survey also found that for many employers, it’s no surprise when employees are likely to be no-shows. More than two-thirds (68 percent) report finding a discernable pattern in unscheduled absences, with 37 percent of organizations reporting the most noticeable pattern is people calling in sick on Mondays and Fridays, followed by 17 percent recognizing the most noticeable pattern occurring around holidays such as Christmas or the Fourth of July and 13 percent reporting their most noticeable pattern of unplanned absences occurs during flu and hay fever seasons.

Our country runs the risk of falling behind China as the world’s largest economy. We need to get serious about the importance of staying competitive in an increasingly globalized world economy with countries like China chomping at the bit to overtake us as the world leader.

You can bet the Chinese government has not declared a national holiday for the day after the country’s national Ping Pong Championship.

Blog posted by Steven Mintz, aka Ethics Sage, on January 28, 2013

Transocean Settlement of Deepwater Horizon Spill and Ethical Responsibility

Transocean Settles with US Government

On January 3, Transocean whose floating Deepwater Horizon oil rig blew out in 2010, causing a massive oil spil in Gulf of Mexico agreed to settle civil and criminal claims with the federal government for $1.4 billion.  

The Deepwater Horizon exploded, burned and sank in April 2010. Eleven men were killed and millions of gallons of oil flowed into the Gulf of Mexico and fouled the shores of coastal states. The well, known as Macondo, was owned by British oil giant BP, which settled its own criminal charges and some of its civil charges in November for $4.5 billion.

While this settlement resolves the government’s claims against Transocean, that company and the others involved in the spill still face a civil case, which is scheduled to begin in February in New Orleans. Stephen J. Herman and James P. Roy, lawyers who represent the steering committee of plaintiffs in the cases, said that Thursday’s settlement did not change the case, and that the plaintiffs thought that BP, Transocean and Halliburton “will be found grossly negligent” at trial.

In a deal filed in federal court in New Orleans, a subsidiary, Transocean Deepwater, agreed to one criminal misdemeanor violation of the Clean Water Act and will pay a fine of $100 million. Over the next five years, the company will pay civil penalties of $1 billion, the largest ever under the act.  Under a law passed last year, 80 percent of the penalty will be applied to projects for restoring the environment and economies of Gulf States.

As part of the criminal settlement, Transocean also agreed to pay the National Academy of Sciences and the National Fish and Wildlife Foundation $150 million each. Those funds will be applied to oil spill prevention and response in the Gulf of Mexico and natural resource restoration projects. The agreement will be subject to public comment and court approval. The company agreed to five years of monitoring of its drilling practices and improved safety measures.

The company announced in September that it had set an “estimated loss contingency” of $1.5 billion against the Justice Department’s claims.

The multistate trial over claims in the Deepwater Horizon cases that have not been settled are scheduled to begin in February.

BP continued its longstanding argument that the accident, in the words of the spokesman Geoff Morrell, “resulted from multiple causes, involving multiple parties,” and that other companies had to shoulder their share of the blame. This attitude continues BP’s approach of trying to lay off blame to other parties. Whatever happened to the buck stops here?

Looking back at was has happened since the spill, federal inspectors do share much of the blame for not catching safety problems before they got out of hand. on December 2, 2010 the staff of the presidential commission looking into the Horizon Deepwater oil spill issued a report critical of the way federal inspectors handled their role in dealing with what has become the largest oil spill in U.S. history.  While some safety experts investigating the causes of the spill lay blame on human error, it goes much deeper than that and reflects the general malaise in the way federal agencies oversee such activities. As I see it, the causes of the spill can be attributed to the following factors: (1) poorly trained inspectors; (2) lack of resources to adequately oversee and inspect oil rig operations; (3) failure of inspection procedures to keep up with the advanced technology of oil rigging operations; (4) starting salaries for college graduates that pale in comparison to what Engineering school graduates make ($47,448 versus $94,000); (5) a failure of management to devote the resources necessary to prevent oil spills and a cutting corners mentality as was the case with BP; (6) and, perhaps, the most significant cause, the conflict of interests that exists between inspectors and their managers and oil industry executives who develop social ties with the inspectors and pressure them to not look as closely as they should at potential problems.

Looking at the ethics of the matter, I believe the root cause of the BP oil spill was an attitude that has become pervasive in our society that we don’t have to look to closely at oversight because the worst won’t happen. Let’s just go through the motions, document what we have found, and move on to the next assignment. The failure of savings and loan institutions in the late 1980s and early 1990s and the meltdown of financial services companies starting in 2008 can be blamed partly on regulator incompetence or at least, indifference to the possible crises that could arise in the institutions being regulated. In other words it is a failure of work ethic.

Also, it is a lack of ethics in the sense of failing to exercise a reasonable level of care in doing one’s job that contributes to disasters happening such as the Horizon Deep Water Oil Spill. We must get back to pursuing excellence in whatever we do, accepting responsibility for our actions, and being accountable. BP has not learned that lesson as yet. I guess they feel the dozens of commercials they have funded about how clean the coast now is and “come on down” statements from representatives of Alabama, Florida, Louisiana and Mississippi have satisfied its corporate social responsibility and mitigates its horrific response to the Horizon disaster.

Blog posted by Steven Mintz, aka Ethics Sage, on January 7, 2013

Forget the Fiscal Cliff; we have fallen off the Moral Cliff

Starting a Dialogue to Stem the Tide of Mass Killings in the U.S.

What a disconcerting sight it was last Friday on December 14, 2012, as we watched dozens of school children at Sandy Hook Elementary in Newtown Connecticut marching with hands on the shoulders of their classmates being led away from the school and to safety by their teachers. Adam Lanza, a 20-year-old former student at the school, killed his mother, a teacher’s assistant at the school, at her home and then proceeded to kill 20 children, and six adults at the school while shooting over 100 rounds of ammunition. Early reports describe Lanza as an honors student, and was called "remote" and "one of the goths" by classmates.  A law enforcement official said he may have had a personality disorder.

We have seen it before. We have agonized about mass killings in our country all too many times. The year of 2012 will go down as the most violent with respect to mass killings.  Just a few days earlier on December 11, we watched in horror the aftermath of a lone gunmen, 22-year-old Jacob Tyler Roberts, going into an Oregon shopping mall and killing two, seriously wounding another, after getting off at least 60 rounds of ammunition.

On October 21, three people were killed in a Milwaukee area salon including the estranged wife of the suspected gunman, Radcliffe Haughton, a 45-year-old former Marine. He targeted his wife and killed two other women along the way.

Another mass killing took place on September 27 at a manufacturing factory in Minneapolis when 36-year-old Andrew J. Engeldinger killed five and injured 3 more just days after losing his job of twelve years at the plant.

On August 5, 40-year-old Wade Michael Page killed 6 and injured 3 at a Sikh temple in Wisconsin. Page was a member of a Neo-Nazi skinhead group.

To complete this year’s awful record of mass killings, on April 2, 43-year-old One L. Goh killed 7 and wounded 3 at Oikos College in Oakland, California. Goh One L. Goh, was reportedly bullied and mistreated at his nursing school program at the small Korean Christian nursing program at the College.

The shooting at Sandy Hook Elementary School was not the worst in terms of numbers of people killed in a mass murder. That “honor” goes to Seung-Hui Cho who shot and killed 32 people and wounded 17 others  at Virginia Polytechnic Institute in Blacksburg, Virginia  on April 16, 2007. The Sandy Hook killings did surpass the mass murder on April 20, 1999 at Columbine High School outside Littleton, Colorado when two senior students, Eric Harris and Dyle Klebold, massacred 12 students and one teacher and injured 21 others.

In virtually all of these cases the killer or killers took their own lives after the killings. In  other words they seem to have viewed the mass murders as a way to make a statement about how badly they had been treated whether it was losing a job, bullying, or some other perceived wrong-doing, and wanting to go out “with a bang.” It also appears in most, if not all cases, the killers were mentally disturbed. I don’t mean mentally disturbed because they committed such heinous crimes. That goes without saying. They were mentally disturbed with respect to having an anti-social personality disorder perhaps accompanied by depression and social anxiety.  One question is whether such mental problems could have been diagnosed in advance and treated early on.

There are no easy solutions to the growing problem of mass murders in the U.S. Yes, stricter gun laws might help and should be enacted. I don’t think our founders passed the Second Amendment right to bear arms knowing, or anticipating, the killing of one or more citizens by another in non-self-defense situations and as mass murders. The Constitution is a living, breathing document and should change as societal values change. That is why we needed the Fifteenth Amendment to the Constitution that  prohibits each government in the U.S. from denying a citizen the right to vote based on that citizen's "race, color, or previous condition of servitude” and the Nineteenth Amendment giving women the right to vote.

I provide the following five suggestions in the interests of starting a meaningful dialogue on how to stem the rising tide of senseless violence in the U.S. that destroys the innocent lives of its victims and forever changes the lives of those left behind. Of necessity, these suggestions target the schools where all too many killings have occurred and where the mental disorders of the mass murders might first appear below the surface ready to simmer to a boil and spill over to the detriment of our civilized society.

1. All schools starting with K through 4/5 should incorporate a module on personal responsibility and civic duty into their curricula. I do not mean as part of social studies or other topical program. The module should be stand-alone and deal with issues such as impulse control, anti-bullying, and outreach organizations that a troubled person can turn to for help. We need to get back to teaching why each of us has a responsibility as citizens of this country and how to be contributing members of society.
2. Mandatory psychological evaluation for all school children starting with middle school. In a sense this would be a follow-up to the education in K through 4/5 and to diagnose potential problem kids at the earliest possible age. This will mean more highly skilled counselors in schools; it will cost money; but the potential payback in terms of reduced violence and innocent lives saved outweighs those costs.
3. All schools should have an airport-style security screening for guns and other weapons for all who enter the school premises including children and adults. At Sandy Hook Elementary, the school  had a video surveillance system whereby visitors had to be buzzed in, but that did not stop Adam Lanza from gaining access presumably because he was known to the school. Some will say the security checkpoints infringe on our Constitutional rights – the 4^th Amendment right against unreasonable search and seizure. Well, I say so be it. Again, the founders could not have anticipated the violent nature of our society and use of uncontrolled arms to kill other citizens for no reason whatsoever.
4. Training for teachers and others who interact with young people to spot the red flags that someone may have psychological problems and/or is being bullied. The training should emphasize what to look for in troubled children and young adults; what to do once the signs have been identified; and how to develop early-stage intervention programs.
5. Start a national conversation on this problem. I hear about it from time to time from well-respected psychologists such as Dr. Drew. But, once the dust settles it seems the issue is put on the back burner. We need to sensitize all Americans to the problem and how parents and other care-givers can spot early signs of a troubled child or teenager. We need to develop specific outreach programs to deal with all aspects of the issue.

These are just ideas to get the ball rolling on creating a national dialogue on “Personal Responsibility and Mental Health Outreach.” I hope my suggestions are considered seriously and prompt responses and other suggestions to stem the tide of mass killings in the U.S.

Blog posted by Steven Mintz, aka Ethics Sage, on December 15, 2012

 

Toyota’s Past Ethical Challenges: Signs of an Ethical Collapse

Is it Ethical if it is Legal?

In her book The Seven Signs of Ethical Collapse Marianne Jennings analyzes the indicators of possible ethical collapse in companies and provides advice how to avoid impending disaster. She starts with a description of ethical collapse saying it "occurs when any organization has drifted from the basic principles of right and wrong." She points out that "not all companies that have drifted ethically have violated any laws." According to Jennings, "When an organization collapses ethically, it means that those in the organization have drifted into rationalizations and legalisms, and all for the purpose of getting the results they want and need at almost any cost." I agree because there is a difference between following the law and being ethical in business. A good example is how Toyota mishandled its problems with the shift gears on its 2002 Lexus sedan.  It has been ten years since the incident and a good time to look back at the ethical failings at Toyota.

Five months before the new 2002 Lexus ES hit showroom floors, the company's U.S. engineers sent a test report to Toyota City in Japan: The luxury sedan shifted gears so roughly that it was "not acceptable for production."

The warning was sent to Toyota Executive Vice President Katsuaki Watanabe on May 16, 2001. Days later, another Japanese executive sent an e-mail to top managers saying that despite misgivings among U.S. officials, the 2002 Lexus was "marginally acceptable for production." The new ES went on sale across the nation on October 1, 2001.

In years to come, thousands of Lexus buyers would discover firsthand that the vehicle's transmission problems, which caused it to hesitate when motorists hit the gas, or lurch forward unintentionally, were far from fixed.

The 2002-2006 ES models would become the target of lawsuits, federal safety investigations and hundreds of consumer complaints, including claims of 49 injuries. Toyota was fined a record $16.4 million for delays in notifying federal safety officials about defects that could lead to sudden acceleration.

Internal Toyota records reviewed by the L.A. Times show that the automaker sought to cut costs by limiting the scope of repairs. "The objective will be to limit the number of vehicles to be serviced to those owners who complain, and to limit the per-vehicle cost," a Toyota staff attorney wrote in an August 15, 2005, memo explaining the automaker's legal defense strategy.

In statements to the Times, Toyota Motor Corp. officials said they followed industry practice for notifying customers about repairs. The documents released show that Toyota repeatedly tried to solve the lurching problem by modifying the car's computer software. But Toyota rationalized the problem by saying that the Lexus ES issues concerned "drivability" and were not related to the sudden-acceleration problems experienced in other vehicles.

In an August 3, 2005, e-mail to a superior, then-Toyota staff attorney Dimitrios Biller described a meeting he had with the then-head of Lexus in the U.S., Bob Carter, on whether to notify ES owners about a new software update. "Bob is opposed to the idea of sending such a letter out to all owners of all 2002 to 2005 ES 300 and ES 330 vehicles because a substantial majority of these people are satisfied with their vehicles," Biller wrote. "Once they become sensitized to the hesitation and/or lurching, they will become 'dissatisfied' Lexus owners."

Two weeks later, Biller wrote a memo indicating that Toyota's "objective will be to limit the number of vehicles to be serviced to those owners who complain, and to limit the per-vehicle cost."

Toyota sent the letter to the 3,000 customers "who have actually complained about the performance of the transmission" in their cars, the documents show. In its statement, Toyota said that issuing a technical service bulletin "versus direct notification to customers" is "commonplace for addressing issues such as this" and is a practice used by other manufacturers.

Notice all the rationalizations for unethical conduct offered up by Toyota. The company made the same mistake dozens before it had made, including the Ford Pinto in 1970 that is the classic example of ethical legalism taught in all business ethics classes. What Ford and Toyota failed to do was to admit the mistake right away instead of rationalizing its compliance with existing saftey standards and correct the problem. Of course, the Lexus is still a popular car and the Toyota brand does not seem any the worse off for its ethical crisis. Still, I have to wonder about the culture at a company that includes the following statement in its code of ethics while reacting to a crisis in the opposite fashion: “honor the language and spirit of the law.”

Blog posted by Steven Mintz, aka Ethics Sage, on December 7, 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

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  

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

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

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

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

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

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

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

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

 

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

 

 

 

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

 

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

New Orleans Saints Bounty Program: The Tip of the NFL Ethical Iceberg

Bounty Program: Who is Being Held Accountable?

Are you interested in being paid $1,500 for a “knockout” in which an opposing football player is unable to return to the game, and $1,000 for a “cart-off” in which opponents are carried off the field? Did you know payments double or triple during the playoffs? It’s all true. What I find so astounding is the league is just now finding out about such practices by the New Orleans Saints. My guess is other teams do the same although they are obviously more subtle about how they implement sanctioned violence against one’s competitors.

Last week the National Football League suspended New Orleans Saints coach Sean Payton for a year without pay for his role in the team’s bounty program, which promised money to players if they knocked opponents out of games. The unprecedented punishment was a stunning blow to one of the N.F.L.’s most recently successful and long beloved teams, but also a strong message about how seriously the league takes the threat to player safety. That’s the party line. There is more to the story and the bottom line is that the NFL has shirked its responsibilities to provide for the safest and healthiest environment for players for years.

Some of you may be too young to remember David Duerson, a former four-time Pro Bowl safety and member of the 1985 Super Bowl champs Chicago Bears. Duerson was found dead at his Florida home on February 17, 2011. The Miami-Dade County medical examiner reported that Duerson died of a self-inflicted gunshot wound to the chest. He sent a text message to his family saying he wanted his brain to be used for research at the Boston University School of Medicine, which is conducting research into chronic traumatic encephalopathy (CTE) that is allegedly caused by playing pro football. On May 2, 2011 researcher neurologists at Boston University confirmed that Duerson suffered from a neurodegenerative disease linked to concussions.

On December 22, 2011, Jamal Lewis, Dorsey Levens and two other former NFL players say in a federal lawsuit that brain injuries have left them struggling with medical problems years after their playing days ended. Some 12 former football players, including former New Orleans Saints receiver and four-time Pro Bowler Joe Horn, filed a lawsuit against the NFL about its concussion policies, saying there was widespread pregame use of an anti-inflammatory drug that could put someone with a head injury at increased risk.

A group of seven players, including former Chicago Bears Super-bowl winning quarterback Jim McMahon, accused the league of training players to hit with their heads, failing to properly treat them for concussions and trying to conceal for decades any links between football and brain injuries. Later in the month, another group of 18 former NFL players sued the league and helmet makers over head injuries suffered during their careers. To its credit, the league now penalizes "leading-with-your helmet hits."

Earlier, in July 2011, 74 former players sued the NFL, claiming the league intentionally withheld knowledge of the damaging effects of concussions for 90 years.

The NFL’s response about hiding their knowledge of potential quality-of-life issues was: “Any allegation that the NFL intentionally sought to mislead players has no merit. It stands in contrast to the league's actions to better protect players and advance the science and medical understanding of the management and treatment of concussions.” Seriously!

First of all, the NFL did nothing to protect players until highly-publicized medical catastrophes occurred such as what happened to Dave Duerson. In that respect the NFL’s response has been similar to Major League Baseball’s initially turning a blind eye to the use of performing-enhancing drugs. Even after public disclosure in infamous cases such as Mark McGwire, Sammy Sosa, and Rafael Palmeiro, it took a long time for MLB to develop a valid drug-testing program. As for the NFL, it took a long time to come to the table with a plan to better protect players including quarterbacks who are susceptible to multiple concussions.

Let me return to the Saints “bounty hunter” program. The NFL suspensions included one year for Coach Sean Payton, the banning of General Manager Mickey Loomis for eight games, and indefinitely barring former assistant coach Gregg Williams for running the bounty program that paid players for injuring opponents.

The punishment for Williams is not severe enough. He should be banned for life from the NFL. As for Payton, he and the Saints should have been fined a lot more than the miserly $500,000. This compares to the lowest salary paid to an NFL player in 2011 of $295,000, and those are third-stringers.

The Saints owner, Tom Benson, should demonstrate integrity and send a clear signal that such violence will not be tolerated in the Saints organization and fire Payton. While Williams is mostly to blame, Payton had to know (or should have known) what was going on. What ever happened to “the buck stops here?” Joe Paterno came to understand that he should have taken action when he had the chance in the same way Payton should have as soon as he learned about the program.

We live in a violent society and the violence has worked its way into sports. We live in a cheating culture and cheating has found its way into sports. We live according to a pursuit of self-interests mentality and it has infected sports. Just ask Bill Belichick, coach of the New England Patriots, who was caught videotaping opponents defensive signals. Just ask Sean Payton. Both of these coaches have brought shame to the great cities they represent. Both have tainted their Super Bowl victories. Both have been guilty of taking and/or tolerating actions that lowers the ethics in sports to yet another low level.

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

Academic Freedom and the Commercialization of Universities

The Ethics of Corporate-University Partnerships

I have previously blogged about "The Selling of American Universities". In this blog I examine the ethics of university-corporate partnerships in the biotechnology and pharmaceutical industries.

The depressed economy in the U.S. coupled with federal deficits, lack of state funding, budget cutbacks for higher education, and inadequate funding for specialized programs at universities, has led to increasing solicitation of outside sources of funds by universities. With chronic budget deficits, university administrators are under intense pressure to become more entrepreneurial. Industry and corporate interests are responding by infusing significant amounts of money into universities, often attached to various conditions and expectations. As a result, conflicts of interest can and do exist between supporting the donors’ interests and doing the right thing for the university, faculty, and the students.

Last Tuesday Wall Street Journal reporter Hannah Karp wrote about the University of California at San Francisco being the first school to get a partnership with Pfizer Inc. -- worth up to $85 million over five years. Faculty and students will work alongside Pfizer's top scientists and use the company's resources. Pfizer gets access to any breakthroughs that come from the shared research. Susan Desmond-Hellmann, chancellor at the UCSF advocates getting closer with the industry in order to spark new ideas, fund research, access high-tech equipment and speed medical advances to patients.

There is no denying that a close partnership between a major pharmaceutical company with world class scientists and research facilities and a top notch medical school such as UCSF with highly-educated scientists can have major benefits with respect to discovering the next best drug to fight cancer and other diseases. However, potential conflicts can arise as a result of the close ties. For example, what happens if Pfizer expects UCSF as an institution, and its researcher/faculty members as individuals, to support Pfizer in ways that impinge on academic freedom? Are faculty members expected to take positions that obligate them to support Pfizer pharmaceuticals over competing products in research studies and classroom discussions?

Academic freedom is a core value in universities that provides an environment of free inquiry and autonomy to faculty over their work, independent of conflicting interests. This freedom includes the dissemination of ideas or facts that may be undesirable or inopportune to university administrators, political parties, authorities, and corporate sponsors. In principle, academic freedom allows for the dissemination of knowledge in research and teaching, without the fear of reprisal in the form of dismissal, harassment or repression.

The American Association of University Professors’ 1940 Statement of Principles  on Academic Freedom and Tenure states that universities exist to promote the public interest, and not to further the interest of the individual professor or the institution as a whole [or, of course, any commercial sponsor]. Promoting the public interest depends on the free search for truth and its free elucidation. Academic freedom applies to teaching and research. Freedom in research is fundamental to the advancement of truth, while freedom in teaching is fundamental to the protection of the rights of the teacher in teaching and of the student to freedom in learning.

The reality today is that university administrators, who have significant decision-making powers, proactively seek large corporate sources of funding. The enticement of such funding and/or pressure and threats from commercial sponsors and university administrators may cause, or give the appearance of causing, some academics to compromise their academic values while other academics may experience retaliation for upholding these values.

One example comes from the University of California at Berkeley where professor of microbial biology, Ignatio Chapela, an outspoken critic of Berkeley’s commercial ties to the biotechnology industry, was denied tenure in 2003, despite overwhelming support for his tenure application by faculty colleagues in his department, as well as unanimous approval by a five-member university ad hoc committee. His application was rejected by a third committee, which included a faculty member who served on the advisory committee for the University of California-Novartis deal, which gave the Swiss pharmaceutical corporation and producer of genetically engineered crops exclusive licensing rights to approximately one third of the Plant and Microbial Biology Department’s research discoveries in exchange for a payment of $25 million.

Chapela’s disputed research found that genetically-engineered corn had infiltrated native maize in Mexico. The denial-of-tenure decision was linked to his role as a leading opponent of the Novartis deal, with an independent review by Michigan State University researchers concluding that there was little doubt that the deal played a role in the denial of tenure. After enduring years of criticism, UC reversed its decision and granted tenure to  Chapela.

One of the problems with the growing trend toward commercialism in today’s universities is that it exacerbates the already growing trend of placing increased emphasis on bringing in funds through grant-related research projects and placing commercial arrangements, without considering the ethics of such activities. For example, accepting funds from commercial interests may lead to compromising objective decision making if, for example, the commercial supporter (i.e., a corporation) expects that in return for the funding the university will slant its curriculum in a way that portrays the corporation in a more positive light than might occur absent the financial support.

Universities must take care not to jeopardize their role as independent disseminators of knowledge and information in the name of raising badly needed funds. Commercial relationships with biotechnology and pharmaceutical companies are quite common. I am not advocating ending all such relationships. I am advocating that universities should have independent bodies in place to evaluate whether such relationships pose a threat to academic independence and, if so, appropriate measures should be taken to prevent compromising the public interest in the name of pursuing the self-interests of faculty/researchers and the university.   

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

Communitarianism as a Solution to our National Divide

Virtue and Communitarianism as the Antidote to Modern Capitalism

I posted a blog last week about our inalienable right to pursue happiness and how virtuous behavior enables us to achieve that goal. One definition of virtue, based on the Aristotelian concept of dispositions or tendencies, is to be able to act in a certain way for a certain reason – for the good of man and to advance society. Virtue enables us to live rightly. Virtue requires us to not only act in particular ways, but to feel in particular ways and to act according to right reason. Traits of character such as honesty, integrity, and trustworthiness enable a person to act with virtue. Integrity is the whole of virtue in that it calls for principled behavior and the courage to not give in to pressure to do something other than what brings oneself inner happiness.

We develop virtue over time and with practice. An honest person becomes honest because he or she acts honestly in all behaviors. Lying in one instance can lead to a cover-up in the next and a gradual descent down the proverbial “ethical slippery slope.” A person becomes trustworthy because they are consistently reliable and tells the truth. To be an ethical person you can’t pick and choose when to be honest; when to act with courage; and when to do the right thing.

Our society is a community that seeks the inalienable rights of life, liberty, and the pursuit of happiness. We are a society of laws and hold up justice as the cornerstone of our legal system because it is essential to bring about liberty. The Aristotelian sense of community praises the inner goods of a life well led through virtuous behavior. We should strive for that inner feeling of having done a good thing; helped people to advance their circumstance; acted responsibly; and engaged in principled behavior.

One problem in society during the past thirty years is we have lost sight of the inner goods and focused on external goods as the road to happiness. We pursue our self-interests without due regard for the interests of others – a basic breakdown in the community that is (was) America. Our goal is to be rich, become famous, obtain power, and influence others not through virtuous behavior but by one’s position or lot in life. Throw in starring in one’s own reality TV show and you basically have an inner glimpse into the soul of America in the decade of the 2000s. Doing right has been replaced by self-gratification. Some would say we have become a nation of narcissists.

We have come to a turning point in our nation’s history. Do we continue to go down the road of hedonism that began in the 1960s when the mantra was to “do your own thing.” Or, do we follow the path of virtue and communitarianism espoused by Amiatai Etzioni to counteract the “me-first” attitude of the 1980s.

Communitarianism can establish a common ground between liberals and conservatives, thus bridging the continual divide in our country. It emphasizes the connection between the individual and the community. The movement works to strengthen the ability of all aspects of the community including the families and schools in order to introduce more positive values. In addition, it aims to get people involved in positive ways in all levels of the community and ensure that society progresses in an orderly fashion.

I have written many times before on the decay of capitalism as envisioned by Adam Smith who thought of it as a moral system. The reason is the emphasis on individualism over communitarianism – the personal good over societal good. Individualism is the view that each individual (but only individuals) has, and should regard herself as having, moral significance and inalienable rights. Communitarianism is the view that communities also have moral significance and certain rights. Modern capitalism has morphed into the belief that by acting in one’s self-interest, all benefits will trickle down throughout society. I challenge anyone to prove this to be the case.

In reflecting on the problems of capitalism today I am reminded of something once said by Gandhi: “Capitalism as such is not evil; it is the wrong use that is evil.”

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

Johnson & Johnson Records a $3.3 Billion Charge for Product Liability

Lawsuits over Risperdal Marketing at Johnson & Johnson Continue to Raise Questions about Ethics at the Company

Johnson & Johnson announced this week that it has recorded pretax charges and special items totaling $3.3 billion for the fourth quarter of 2011 in order to provide a reserve for probable losses from product liability lawsuits. The pending lawsuits are attributable to misleading marketing practices and manufacturing-quality lapses.

I have previously blogged about product deficiency and ethics questions at Johnson & Johnson with respect to issues such as: quality control-failures at manufacturing plants of subsidiary McNeil Consumer Healthcare that led to recalls of the popular over-the counter drug Motrin; baby shampoo that allegedly includes the potentially cancer-causing chemical methylene chloride; lawsuits concerning its subsidiary DePuy Orthopaedics and the metal-on-metal hip implants that were found to shed minute metal particles into a patient’s bloodstream over time; and suits by women who have suffered serious injury and disfiguration claiming that vaginal mesh manufactured by J&J subsidiary Ethicon caused them life-altering complications. In today’s blog I deal with what may be the worst ethical lapse at J&J -- its marketing of the antipsychotic medication Risperdal.  

Risperdal is an "atypical antipsychotic". It works by changing the effects of chemicals in the brain. Risperdal is used to treat schizophrenia and symptoms of bipolar disorder (manic depression). It is also used in autistic children to treat symptoms of irritability. In the latter case questions have been raised whether the company received approval from the federal Drug Administration (FDA) to market the drug for use by children. Other states have brought lawsuits against J&J for marketing agreements to promote the drug.

On January 9, J&J, which has already lost judgments of almost $660 million over the marketing of its Risperdal, went to trial facing a demand by Texas for damages of more than $1 billion. State Attorney General Greg Abbott said J&J’s Janssen unit paid state officials to get Risperdal on approved drug lists, marketed it for unapproved uses to children and the elderly, and lied about its safety and effectiveness. The case in state court in Austin was filed by a whistle-blower, Allen Jones, an ex-investigator for the Pennsylvania Office of Inspector General.

A jury weighing only the claim that the company downplayed the drug’s risks awarded Louisiana $257.7 million in 2010. A judge in South Carolina last year ordered J&J to pay $327 million over Risperdal sold in the state. The Texas suit may result in the largest-ever false-claims verdict, said Patrick Burns of the advocacy organization Taxpayers Against Fraud in Washington. J&J and its Janssen unit, which sold Risperdal, deny any wrongdoing.

Jones probed allegations that the chief pharmacist for the state’s mental health office had received payments from pharmaceutical companies. He sued Texas in 2004, his last year in the Pennsylvania job. Jones determined in his probe that Janssen had “engaged in a fraudulent scheme that included payments to at least one Texas state official” to ensure that Risperdal was included as a preferred drug in the state’s Texas Medication Algorithm Project, known as TMAP, he said in court papers.

“Janssen had made payments to Texas and other state officials to facilitate the exportation of TMAP to other states, including Pennsylvania,” Jones said. He sued under a Medicaid-fraud law similar to the federal False Claims Act. It allows a whistle-blower to share in any settlement money or damages.

Texas claims that Janssen and J&J paid four state health officials $340,000 to promote Risperdal, inducing them to breach their duties to the state. “J&J sent the four leaders of TMAP around the country to promote TMAP, and, in the process, Risperdal,” David Rothman, a state expert, said in a pretrial report.

With respect to off-label uses, allegations include that J&J marketed Risperdal for the treatment of medical conditions for which it hadn’t received regulatory approval after clinical trials. It was allegedly sold for use by children and the elderly, according to Texas officials. Texas alleged that Janssen began promoting prescriptions for children as soon as the drug was being sold without any approvals by the FDA for such use.

“They had their sales people out calling upon doctors as early as 1994 who saw no adult patients, who saw only children”. One psychiatrist in north Texas who treated only children was called by Janssen sales people 96 times. There was no FDA-approved indication for any use in the child and adolescent population from December 1993 to October 2006, Texas said in its complaint.

Johnson & Johnson needs a change in leadership and the board of directors must play a more active role in overseeing the company’s product quality processes and the marketing of pharmaceutical products. It is sad to see how low the company has fallen on the ethics scale. The reputation it built in handling the Tylenol poisoning incident in 1982 has been all but forgotten. What’s worse is the company seems to have forgotten the values in its own Credo that made it a model for business ethics. They include the statement:

“We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality”.

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

Who is telling the Truth in the Republican Debates?

Is Civility in Society a Lost Art?

From time to time I post the same blog on both of my websites for maximum exposure and, hopefully, comments on my blogs. Today’s blog is one of those occasions.

Civility. We hear so much about it today. But what is it? Some would say it is showing good manners. Others might add it is being respectful of others. I like to go back to The Golden Rule for guidance on how to define civility. If each of us simply asked our inner voice whether we would like to be treated the way we were about to treat someone else, we could have a more civil society.

I find more and more that civility in the workplace is no longer a given. Some of the emails I get are downright offensive. Some of those who send me emails just want to vent about a particular issue.  I have no problem with that but the language used to express one’s opinion should conform to societal norms.

Maybe that is the problem. We no longer act in accordance with these norms. I find many people don’t even know what they are. I find more and more people seem to believe that ethics is whatever they want it to be, a method of reasoning known as ethical relativism. If that were true then each of us could define what it means to be honest, trustworthy, have integrity, be a responsible person, and how to treat others fairly.

In my classes I go back to George Washington in teaching civility. Washington, by age sixteen, had copied out by hand, 110 Rules of Civility & Decent Behavior In Company and Conversation.  They are based on a set of 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.” The underlying ethical value of respect is to treat others fairly.

I was watching the interviews with Republican candidates and the debate Monday night from South Carolina with an eye toward assessing the fairness of the statements made by the candidates. There were way too many to mention in this blog but one stands out in my mind. It was a comment made by Newt Gingrich when asked about the truthfulness of an advertisement made by the PAC (supposedly not associated with him). I heard the same comment verbatim made by the person who created the PAC.

The comment was in response to a question about the truthfulness of parts of the PAC advertisement that were highly critical of Governor Romney during his time at Bain Capital. Gingrich and the PAC-man (sorry) said the PAC was going to submit a series of questions to Governor Romney to assess whether the statements the PAC made about Romney’s experiences at Bain Capital are accurate. What? The PAC thinks it is proper to say something critical about another candidate’s record and then check their facts with that candidate after the veracity of the pro-Gingrich advertisement has been challenged? Think about it. This is reverse ethics at its worst.

I don’t know about you but I am tired of the debates, and another one is scheduled for tomorrow night. Yet, I seem to be drawn toward watching the debates. Perhaps it is because it is the ultimate in reality TV. Perhaps it is because I keep waiting for one of the candidates to talk about the decline in civility and ethics in our society. Perhaps tomorrow night will be the night. Then again, I said the same thing on Monday night.

Blog posted by Steven Mintz, aka Ethics Sage, on January 18, 2012

Teacher-Student Sex Raises Ethical Questions

Is it ever acceptable for a teacher to have sex with a student?

I just read an article by Brady Mallory that reports about a middle school teacher in Pierre, South Dakota, George Sazama, who admitted to having sex with a 17-year-old high school girl three times.  According to the complaint, this happened on three separate occasions at his home while the 53 year old's wife was away for the weekend. Sazama was placed on paid administrative leave last fall after the school superintendent received a tip from someone in the community. He resigned in December.

Perhaps you heard the story of Stacy Schuler, a popular Ohio high school gym teacher, who was sentenced to four years in jail last October after a judge rejected her insanity defense and convicted her on 16 counts of sexual battery for sleeping with her former students. Schuler had sex with five former students, some of whom were football players, at the school in suburban Cincinnati, where she taught since 2000. During her trial, Schuler's lawyers defended her actions with explanations ranging from her vegan diet, the use of the antidepressants, blackouts from alcohol and even irritable bowel syndrome, claiming it rendered her unable to determine right from wrong.

Who can forget Debra Lafave, a reading teacher at a middle school in Florida, who was arrested in June 2004 on charges of having sexual intercourse with a 14-year-old boy? During Lafave’s trial her defense attorney stated that she was too pretty to go to jail, saying "to place Debbie into a Florida state women's penitentiary, to place an attractive young woman in that kind of hellhole, is like putting a piece of raw meat in with the lions." Lafave’s attorney claimed insanity on behalf of his client and cited bipolar disorder.  Ultimately, Lafave pleaded guilty to two counts of lewd and lascivious battery, and received three years of house arrest, seven years’ probation, and was forced to register as a sex offender.

One of the more famous, or should I say infamous, cases of teacher sex with a student is that of Mary Kay Letourneau, the former Seattle school teacher, who was imprisoned from 1997 to 2004 for having sexual intercourse with her 13-year-old student, Vili Fualaau. Letourneau gave birth to two of Fualaau’s children while incarcerated. After her release from prison, she married her former student and took his name.

In each of these cases the arrested teachers violated the ethical bond that must exist between teacher and student. The teacher has a position of trust and any action to take advantage of it is unethical. It doesn’t matter whether the under-aged child consents to the sexual activity. I believe it doesn’t even matter if the student is of the age of consent. Any sexual contact between a teacher and student is wrong.

Teachers are entrusted with having the good judgment, maturity, and professionalism to not act on sexual impulses toward students that may exist because of the daily contact, individual help with schoolwork, and mentoring position they hold. Teachers should be role models to their students and not abuse that relationship.

In reflecting on teacher-student sex, I can’t help but think about the Penn State case where Jerry Sandusky, the former defensive coordinator, allegedly raped a 10-year old boy in the Penn State locker room and abused many others. Assuming these allegations are true, as appears very likely, Sandusky not only abused his position of trust but brought physical and mental harm to the boys he abused.

What was going on in the minds of these teachers who took advantage of their positions to harm students? What motivates them to act out sexual fantasies without the self-restraint that is expected of all of us in society, not only teachers?

The foundation of ethical behavior is the Golden Rule to treat others the way you want to be treated. However, that is not enough because one could argue in the aforementioned cases that the perpetrators would have been happy to have been sexually approached by their abusers in the same way they abused these kids.

In ethics, the Golden Rule is a starting point to develop the ethical reasoning skills that enable a person to treat others with honesty, integrity, respect, caring, and trustworthiness to name a few virtues. To do so means that we must develop the moral motivation and wisdom to act in a way that we know is the right thing to do. This comes from having the moral courage to resist pressures and temptations to act otherwise. Each one of us has it within ourselves to be a moral person, but some of us can't see past our own egoistic needs. A basic requirement of ethical behavior is to consider how your actions might affect others before treating them in a certain way. For the abusive teacher such a thought never crosses their mind.

If I were a psychologist I might label such behavior, in the tradition of Casey Anthony, as narcissistic. Narcissism is a personality disorder characterized by the need for admiration and a lack of empathy for others. Narcissistic people are extremely self-absorbed, insensitive to others' needs, and indifferent to the effects of their own egocentric behavior.

As a college professor I am well aware of my ethical responsibilities to my students. In fact, we discuss these issues at the first class meeting. As educators we must "walk the talk" of ethics to positively influence the moral development of our students. As noted historian, journalist, novelist and educator Henry Brooks Adams once said: "A teacher affects eternity; he can never tell where his influence stops." 

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

Building an Ethical Corporate Culture

Ethics Compliance Program and Whistle-blowing Provisions

I have previously blogged about the corporate ethics and the increase in regulations and new laws imposed on businesses in recent years including the Sarbanes-Oxley Act and Dodd-Frank Financial Reform Act. In an ideal world we would not need such stifling regulations and corporate America would be free to pursue their own self-interests while improving the income levels and job opportunities for our citizens. Undoubtedly, the capitalist ethic works in the vast majority of cases. As in so many situations in life, however, it is the few fraudsters who can spoil it for the vast majority who attempt to play by the rules of the game and try to do the right thing.

In this blog I examine what makes for an ethical corporate culture. It starts with the “tone at the top”. Top management (i.e., CEO, CFO) must set an ethical tone that makes it clear to those in the organization that the rules must be followed, regulations adhered to, and identified best practices should have an ethical component. It’s not enough for top management to set an ethical tone, they must be supported by a diligent board of directors and audit committee that oversees corporate operations and financial reporting to ensure everyone plays by the rules and ethical standards are being followed.

Congress passed legislation known as the Federal Sentencing Guidelines in 1984 that sets rules for uniform sentencing policies for individuals and organizations convicted of felonies and serious (Class A) misdemeanors. According to the guidelines, an ethics and compliance program can help to mitigate the penalties imposed under the Law. Here are some key elements that can help to create the kind of ethical culture to protect a company from the actions of a “rogue” employee.

• Willingness to seek ethics advice
• Receipt of positive feedback for ethical conduct
• Employee preparedness to handle instances of misconduct
• Management can be questioned without fear
• Incentives, support, and encouragement to follow ethical standards
• Questionable means of conduct are not rewarded
• The organization encourages ethical conduct
• Employees believe organization is ethical

As pointed out in a study by the Ethics Resource Center, a strong ethical culture develops when the following elements are present.  

• Ethical Leadership: “tone at the top” of an organization and belief that leaders can be trusted to do the right thing
• Supervisor Reinforcement: individuals directly above the employee in the company hierarchy set a good example and encourage ethical behavior
• Peer Commitment to Ethics: ethical actions of peers support employees who “do the right thing”
• Embedded ethical values: values promoted through informal communication channels are complementary and consistent with a company’s official values

Today, it is not unusual to find a top-level management official with the title of Ethics Compliance Officer who oversees compliance and enforcement of the code of ethics. Many believe that an ethics hot line and encouraging a whistle-blower protection program is an essential part of building an ethical culture. In fact, both the Sarbanes-Oxley Act and Dodd-Frank include protections for whistle-blowers and Dodd-Frank even includes what has been called a whistle-blower’s “bounty” provision.

I have mixed feelings about paying whistle-blowers to come forth with information about their company that might lead to a monetary reward. At a minimum, whistle-blowers should take their concerns up the chain of command and try to resolve their concerns internally. With respect to external whistle-blowing, there is a confidentiality obligation that employees have to employers, and non-disclosure agreements may exist that tie the hands of employees who contemplate contacting external parties.

Nevertheless, I believe the test should be whether more good than harm would come from blowing the whistle on corporate wrongdoing. After all, investors may be harmed by fraudulent financial statements; the public may be harmed by environmentally unsafe practices; and the company may be following discriminatory practices. Utilitarianism (weighing harms versus benefits) is an accepted approach to corporate decision-making as long as the rights of stakeholders are not violated in the process of calculating the effects of proposed actions.

Above all else, whistle-blowers must be motivated by righting a wrong and doing the ethically appropriate thing, and not by greed, revenge, or other selfish motive.

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

Are Business Ethics Improving or Declining?

NBES Survey about Ethics in Business Shows Mixed Results

The Ethics Resource Center recently issued its 2011 National Business Ethics Survey (NBES) and the results are mixed. Here are some of the major results reported in its Executive Summary.

• The percentage of employees who witnessed misconduct at work fell to a new low of 45 percent.  That compares to 49 percent in 2009 and is well down from the record high of 55 percent in 2007.

• Those who reported the bad behavior they saw reached a record high of 65 percent, up from 63 percent two years earlier and 12 percentage points higher than the record low of 53 percent in 2005.

• Retaliation against employee whistleblowers rose sharply.  More than one in five employees (22 percent) who reported misconduct say they experienced some form of retaliation in return.  That compares to 12 percent who experienced retaliation in 2007 and 15 percent in 2009.

• The percentage of employees who perceived pressure to compromise standards in order to do their jobs climbed five points to 13 percent, just shy of the all-time high of 14 percent in 2000.

• The share of companies with weak ethics cultures also climbed to near record levels at 42 percent, up from 35 percent two years ago.

The encouraging news is that instances of misconduct have declined in the workplace. I attribute this to stronger internal controls put into place in response to the Sarbanes-Oxley Act and increased attention given to building an ethical culture. Also, it is quite common for companies today to have a code of ethics, ethics training programs, and a top-level management official to oversee compliance with laws and regulations.

The rest of the results are not so encouraging. It appears that instances of bad behavior are on the rise; pressure to compromise one’s values has increased; and retaliation against whistleblowers rose sharply. It’s no wonder more companies have a weak ethical culture according to the 2011 survey when compared to past surveys. The weak economy and competitive global business environment may have something to do with these troubling results.

I was somewhat surprise that more employees have a negative view of their supervisors’ ethics: 34 percent in 2011 versus 24 percent in 2009. One explanation is that workers often perceive the ethics of those around them as weaker than their own. Another is that pressure in the workplace to compromise one’s standards typically comes from top to bottom.

The kinds of misconduct in the workplace are all on the rise. Here is the NBES analysis.

TYPE OF MISCONDUCT                           2009       2011        INCREASE

Sexual harassment                                    7%         11%            4%

Substance abuse                                        7%         11%            4%

Insider trading                                            1%          4%             3%

Illegal political contributions                     1%          4%             3%

Stealing                                                        9%         12%            3%

Environmental violations                             4%          7%             3%

Improper contracts                                      3%          6%             3%

Contract violations                                      3%          6%             3%

Improper use of competitor's information  2%          5%             3%

Health or safety violations                         11%        13%            2%

Anti-competitive practices                          2%          4%             2%

The results with respect to ethics identified by active social networkers reflect the growing use of Internet websites to engage in improper conduct. Workers who spend 30 percent or more of their work day participating in various social networking sites report far more negative experiences of workplace ethics. As a group, they are almost four times more likely to experience pressure to compromise standards and about three times more likely to experience retaliation for reporting misconduct than co-workers  who are less active with social networking.  They also are far more likely to observe misconduct. Meanwhile, active social networkers differ from co-workers in their more tolerant attitudes toward a number of questionable workplace behaviors.   For example, half of active social networkers say it is okay to keep a copy of confidential work documents for possible use in future jobs, compared to 15 percent of non-networkers who believe such behavior acceptable.  In addition, by a five-to-one margin, networkers differ from colleagues in saying it is acceptable to do a little less work to compensate for cuts in benefits or pay.

Finally, instances of reporting specific misconduct in the 2011 survey run the gamut: reporting stealing or theft; insider trading; illegal political contributions; falsifying expense and time reports; violating terms with customers; financial statement fraud; and workplace issues such as a hostile work environment and sexual harassment.

Unfortunately, it appears that businesses have a long way to go to create a truly ethical organization environment. It starts with the tone at the top, as my next blog will address.

Blog posted by Steven Mintz, aka Ethics Sage, on January 11, 2012

 

 

Has Andrea Jung Been Treated Ethically by Avon Products?

Longest-serving Female CEO to Continue as Executive Chairman of Avon

You may have heard by now that Avon Products CEO Andrea Jung, the longest-serving female CEO currently in the Fortune 500, will depart as CEO of the company but stay on as executive chairman thereby dividing the two roles. There has been a great deal of criticism of her decision to stay on for at least two years as executive chairman.

Some former board members fear that her continued presence would make it hard to attract a new leader. According to Wall Street Journal reporters Hannah Karp and Joann Lublin, James Preston, once one of Jung's closest mentors, took the unusual step of writing a letter to the board two days after the shake-up. He criticized Jung's leadership, stressed that departing CEOs should step aside and called on the board to replace her with someone with deep experience in the direct-selling world.

"I have long held the belief that once a CEO leaves that position, he or she should make a 'clean break' and not question or second-guess the actions of his successor," wrote Preston, who ran Avon from 1989 to 1998. "I have held true to that belief, even though in recent years I have become increasingly concerned—and saddened—by the declining fortunes of the company."

Fred Hassan, Avon's independent lead director, defended having Jung remain executive chairman for two years after the new CEO arrives. "Given the specific nature of the company and the specific nature of the board, we have very strong confidence that we can make this transition work”.

Ms. Jung was lauded by investors for her management of Avon during the early part of her tenure but more recently she has come under fire for generating poor results. The board last month succumbed to the growing criticism after Avon reported a disastrous third-quarter earnings report, tossed out its sales targets as unreachable, and said it faces a pair of SEC inquiries. The company's stock is down about 40% this year.

Avon has been the subject of an SEC investigation since 2008 for possible violations of the Foreign Corrupt Practices Act including bribing officials overseas. The inquiry began with Avon’s operation in China and has now spread to a number of other countries where its beauty products are sold, a $10 billion annual business. The SEC is looking into “travel, entertainment, gifts, use of third-party vendors and consultants and related due diligence, joint ventures and acquisitions, and payments to third-party agents and others.” Still, no action has been taken against the company by the SEC.

Historically, from a corporate governance perspective, it has not been uncommon for the same person to wear both hats – chairman of the board and CEO. After all, the CEO needs to sit on the board to answer questions about a company’s operations and explain recent actions and those going forward. It is also true that recently it has become more common to split these roles in the aftermath of the accounting frauds at companies such as Enron, WorldCom, and Tyco and the passage of the Sarbanes-Oxley Act. Indeed, the New York Stock Exchange requires such independence-inducing action.

In 2004, only 27% of the companies in the S&P 500 had split the roles of chairman and CEO between two individuals.  In 2011, 40% of the S&P 500 companies have appointed a separate board chairman to serve alongside the CEO on the board.  Furthermore, about a fifth of all S&P 500 companies now have an independent board chairman, up from under a tenth in 2004. This trend may have accelerated in part because the SEC and the Dodd-Frank Act now require public companies to explain to investors their reasoning behind either appointing an independent chair or allowing the CEO to handle both jobs in the boardroom.

In evaluating the ethics of the treatment of Andrea Jung we must recognize that Jung is no slouch. In addition to being the longest-serving female CEO currently in the Fortune 500, she also sits on the boards of Apple and GE.  Prior to joining Avon, Jung was executive vice president of Neiman Marcus and senior vice president, general merchandising manager, for I. Magnin. In other words she knows about women beauty products.

Jung joined Avon in 1994 as the company's president in its product marketing group. She became president of global marketing in 1996 and executive vice president/president of global marketing and new business in 1997. She has been on the company's board of directors since 1998. In November 1999, Jung was promoted to chairman and CEO.  

I have to question James Preston’s criticism of his successor at Avon. Preston served as Chairman of the Board from 1989 to May 6, 1999, and Chairman and CEO from 1989 to June 1998. The fact that Jung will continue as executive chair may be nothing more than a useful way to smooth the transition. It has also been reported that Jung wants to help identify a qualified woman to take on the role of CEO. I can understand her position given the nature of the products sold by Avon.

Let’s also recognize that while women have made some progress in assuming CEO roles in corporate America, they still have made little progress in breaking the glass ceiling on corporate boards of directors. Jung may have a spotty record of success but there is no denying the decline in profits and stock price is a reflection of our continued economic woes and it’s no surprise that women’s beauty products have been significantly affected during the decline.

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

Cyberbullying on the Internet

How to Deal with Cyberbullying

I have written several blogs about cyberbullying. Cyber bullies seek to gain gratification from the psychological harm to others by embarrassing, provoking, and tormenting the target of their rants.  Cyberbullying occurs in our schools, in the workplace, and most recently, through the Internet. The effects on the bullied can be life-threatening including suicide. The Internet provides the perfect forum for cyber bullies because of it anonymity, ease of provocation, and the ability to go viral in a matter of minutes.  

Cyber bullies get a perverse sense of satisfaction (called gratification) from sending people flame mail and hate mail. Flame mail is an email whose contents are designed to inflame and enrage. Hate mail is hatred (including prejudice, racism, sexism, and “sexual orientation-ism”).  

My question is why has bullying in general and cyber-bullying in particular become such a problem? I’m convinced it reflects the general breakdown in civility and ethics in our society. The mantra today seems to be “Rudeness Rules.” The word respect is more often attached to the expression “give me my props” than to deferential behavior towards those in authority positions. I can’t tell you how many times I have heard from my ethics students that respect must be earned, not given simply because of one’s position. Does that mean we shouldn’t respect President Obama simply because he is the President of the U.S? I hope not.

It used to be that each of us had an inner voice, called our conscience that made us stop and think twice before saying something we might regret later on. We considered the consequences of our actions before we did something we might regret at a later date. Cyber bullies have no conscience. In fact, they are cowards preying on the vulnerable and trying to bully in a way that they won’t get caught for their actions.

According to Bully Online, the objectives of bullies are power, control, domination, and subjugation. They get a kick out of seeing the bullied person react. It doesn't matter how you react, the fact they've successful provoked a reaction is, to the bully, a sign that their attempt at control have been successful. After that, it's a question of wearing you down. The more your try to explain, negotiate, conciliate, and otherwise fend-off the criticism, the more gratification they obtain from your increasingly desperate attempts to communicate with them. It is simply adding fuel to the fire.

So, what should you do if you, a family member, a loved one, co-worker or friend is being bullied? First, don't respond, don't interact and don't engage. The bully is trying to goad you into action. This is not as easy to do as it sounds. It's a natural response to want to defend yourself, and gain the respect of the bullier. As they say in New York: fuhgetaboutit! That type of reaction encourages more bullying and may widen the circle of bullies.

Next, keep all abusive emails. Create a new folder, perhaps called "Abuse", and move hate mail and flame mail into this folder. You don't have to read it. When the time comes to take action, this folder of hate mail and flame mail is your evidence. As Bully Online points out: “Bullies, especially cyber bullies, are obsessive people and if their account is closed down you may start receiving mail from another address. This can later be compared to the abusive emails you've already received to identify the perpetrator. You'll find the same words, phrases and strategies occurring.”

Third, inform authority figures of what is going on. You need to establish a record of complaints. For schoolchildren this may mean getting your parents involved. Even though the bullying may take place outside of school limits, the school should be informed. Increasingly, state laws are requiring schools to set policies against bullying and deal with reported events. For workers it may mean informing the appropriate person in the organization, perhaps in Human Resources, that you have been the target of bullying.

Lastly, become informed of your rights. There are many helpful websites such as Bully Online that have useful information about what to do if you believe you are being bullied. I provide advice to those who believe they are being bullied through both of my websites: Ethics Sage aand Workplace Ethics Advice. The latter includes a form to use to send questions directly to me. I deal with them on an anonymous basis.

Don’t forget to never take the bait of a bullier. Bullies feel gratification when the have provoked a response. It means they have been successful in getting under your skin. Any response you send via e-mail or by other means is bound to be used to fuel the flames of hatred. Your friends will still be your friends, and if they go over to the “dark side,” then they weren’t true friends to begin with.

Finally, as hard as it sounds I advise you to take the “ethical high road” and stay above the fray. Talk to your parents or co-workers if you are being bullied in the workplace; create a record (file) of emails and bullying events; speak to a trusted adviser; and, remember, you are better than the bullier.

Blog posted by Steven Mintz, aka Ethics Sage, on December 29, 2011

 

What Ever Happened to Ethics at Johnson & Johnson?

Lawsuits over Johnson & Johnson Products Raise Questions about Ethics at the Company

Let’s go back to the fall of 1982, when seven people in the Chicago area collapsed suddenly and died after taking Extra-Strength Tylenol capsules, manufactured by McNeil Consumer Healthcare, a subsidiary of Johnson & Johnson, which had been laced with cyanide. This was the first known case of product tampering. J&J faced an immediate crisis with little guidance to go by except the company’s Credo. According to the company, it was this aspirational document that helped them to manage the crisis in an ethical manner.

Following disclosure of the tainted product, J&J swiftly removed the product from the shelves of supermarkets, provided free replacements of Tylenol capsules with the tablet form of the product, and made public statements of assurance that the company would not sell an unsafe product. The company became a model for how to handle an ethical crisis. What was in this Credo that so powerfully dictated the actions of the company? Well, here is the key statement as I see it

“We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality”.

This is an impressive statement and even more impressive reaction to a crisis situation by J&J. In fact, I have used the company’s response to the Tylenol poisoning as an example of ethical behavior. Now I must ask myself:  What Ever Happened to Ethics at Johnson & Johnson?

Fast forward to 2010 and 2011 and let’s look at recent legal challenges to the safety of products made by J&J.

1.      On December 21, 2011 it was announced that Johnson & Johnson, the world’s largest health products company, must defend a lawsuit claiming it misled investors about quality control-failures at manufacturing plants that led to recalls of the popular over-the counter drug, Motrin. Allegedly, top executives made misleading statements about details of the recalls leading to stock losses after the true reasons for the recalls became public. McNeil Consumer Healthcare has been facing numerous lawsuits as studies link Motrin to increased risk of severe allergies such as Stevens Johnson Syndrome (SJS), and Toxic Epidermal Necrolysis.

2.      Earlier in 2011, a lawsuit filed by a group of consumers alleging Johnson & Johnson’s baby shampoo includes potentially cancer-causing chemicals was allowed to go forward, according to federal court Judge Dennis Cavanaugh. The Judge based his decision to let the lawsuit proceed on the presence of a single chemical ingredient found in the shampoo: methylene chloride, which is banned by the Food and Drug Administration for use in cosmetics.

3.     In January 2011, it was announced that J&J might have to shell out up to $1 billion for lawsuits concerning its subsidiary DePuy Orthopaedics and the metal-on-metal hip implants that were found to shed minute metal particles into a patient’s bloodstream over time. Lawsuits over the ASR implant have piled up across the country, accusing DePuy of manufacturing a defective product, failing to warn patients and doctors of problems with the implant and negligence in designing, manufacturing and selling the product. (How does this square with its Credo?)

It is worth noting that J&J hiked its product-liability reserves to $570 million at the end of 2010 and allotted $280 million for medical costs of patients directly affected by the recalled hip implants.

4.      Women who have suffered serious injury and disfiguration have filed suit against J&J subsidiary Ethicon, claiming that vaginal mesh manufactured by Ethicon caused them life-altering complications. Upon investigation, a number of doctors and scientists have concluded that J&J Ethicon vaginal mesh and bladder slings do not meet reasonable safety standards.  The FDA issued Public Health Notifications regarding the use of vaginal mesh products to treat pelvic organ prolapse and stress urinary incontinence in October 2008, in February 2009, and in July 2011.   

The FDA received a total of 2,874 reports of vaginal mesh complications and injuries from January 1, 2008 to December 31, 2010.  Many of these reports concerned products manufactured by Ethicon. Lawsuits brought against the company by women claim that they were not adequately warned of the serious and often permanent injuries that may be caused by the vaginal mesh.

How can the culture of a company change 180 degrees? J&J has gone from a highly respected manufacturer of safe consumer products to one that either has shoddy quality control practices and/or ignores the warning signs of possible product defects. In any case, the company’s Credo apparently no longer guides its actions. Unfortunately for the doctors, nurses and patients, mothers and fathers that use J&J products, they no longer can rely on the safety of products manufactured by J&J and its subsidiaries.

Blog posted by Steven Mintz, aka Ethics Sage, on December 26, 2011

 

Bullying and a Culture of Incivility

The Ethics of Workplace Bullying

Does incivility lead to bullying? According to a survey commissioned by the Workplace Bullying Institute and carried out by Zogby International, the workplace is increasingly characterized by incidents of incivility and bullying, and this may be part of a general societal trend, exacerbated by tough economic times.

A startling 37% of American workers--roughly 54 million people--have been bullied at work according to the a 2007 survey. The consequences of such bullying have spread to families, and other institutions and cost organizations reduced creativity, low morale and increased turnover. According to the Institute, 40% of the targets of bulling never told their employers, and of those that did, 62% reported that they were ignored.

The survey also indicates that almost 50% of the U.S. workers report they have experience or witnessed some kind of bullying--verbal abuse, insults, threats, screaming, sarcasm or ostracism. One study by John Medina showed that workers stressed by bullying performed 50% worse on cognitive tests. Other studies estimate the financial costs of bullying at more than $200 billion per year.

And bullying is not restricted to male bosses. Cheryl Dolan and Faith Oliver, writing in the Harvard Business Review, report that because women now comprise 50% of the workforce, woman-on-woman bullying is being reported.

The question still remains: Why Now? Why is Bullying occurring at dizzying speeds today? What is Being Done to Protect the Innocent from the Aggressors?

The recent economic downturn, with layoffs and financial pressures on managers to perform may have exacerbated the bullying problem. Research conducted by Wayne Hochwarter and Samantha Englehardt at Florida State University concluded that "employer-employee relations are at one of the lowest points in history," with a significant decline in basic civility.

Is bullying a reflection of a general decline in civility? In poll after poll, Americans have voiced concern over the erosion of civility. According to a poll by Weber Shandwick, 65% of Americans say the lack of civility is a major problem in the country and feel the negative tenor has worsened during the financial crisis and recession.

I believe bullying is just a “natural” extension” of the breakdown of civility in society. I have blogged about this problem before. To be a civil person requires treating others with respect. It harkens back to The Golden Rule that we should treat others the way we would want to be treated. No one wants to be bullied and experience the indignities that go along with such behavior toward another person.

I also believe bullying is on the rise in society because of the decline in ethics in our society. I’ve blogged about this problem many times in the past. Ethical people treat others with respect, caring, empathy, and fairness. Civility and ethics go hand in hand. Those who violate accepted standards of behavior typically are oblivious as to why bullying is wrong in the first place. They may have been bullied at home or in school and have come to believe it is accepted practice. Some in the workplace who bully others believe it is a way to get what they want. The bullied will stay out of that person's way to avoid a confrontation which can not be won.

If you have a problem with bullying in your organization, I recommend a training program to discuss the problem and the protocols in the company to report bullying. Workers must feel comfortable reporting such behavior in a non-judgmental manner. Here is the link to a video posted on You Tube that depicts, in a comedic way,   

workplace bullying that makes it ideal for a workplace discussion.

If you are being bullied in the workplace and want advice, you can submit a question that will be handled anonymously by me and I will respond within one day.

Blog posted by Steven Mintz, aka Ethics Sage, on October 21, 2011

Social Media Governance

Framework to Deal with the Use of Social Media

Nothing short of a revolution in online communication and social media has been occurring over the last few years. The movement has gone beyond being an information security challenge and become a genuine governance issue. Boards of directors must take notice of these new challenges, identify oversight responsibilities, and develop the appropriate policies and procedures to protect the integrity of company data and make sure the use of social media is consistent with the company’s values. In this blog I look at what can be done to get ahead of the situation.

Social media are no longer just social— these tools are commercial, and they are becoming a key element of business strategy. From engaging customers in real time, to adding sales channels, to enhancing market research, companies are discovering many ways to take advantage of social media.

Social media brings many advantages including getting one’s message out to potential customers, promoting brand, and communicating with stakeholders. But for all their advantages, social media also bring inherent risk, even to those companies not actively using them—e.g., threats to confidential information or intellectual property, reputational risk and the potential for regulatory infractions, to name a few. As a result, it is critical that management develop and maintain a clear-cut governance framework as a central part of its social media development initiatives.

The work time use – and/or misuse – of Facebook, MySpace, LinkedIn, Twitter and YouTube is a management and human resources issue; data leakage through these channels is a compliance and, potentially, a competitiveness issue; and the risks to confidentiality, availability and integrity of information is an information security issue. But social media may also have a significant role to play in how the organization communicates with customers, partners, suppliers, potential employees and stakeholders. Social media have an increasingly important part to play in corporate marketing strategies, whether in brand development or product positioning.

Organizations that embrace social media increasingly recognize that they need a coherent, comprehensive approach, an approach that ensures clarity about corporate policy, identifies roles and responsibilities, and provides appropriate training to individuals supported by guidance and practical tips for effective use of these media. They need, in other words, a governance framework that contains board-level guidance about the role of social media in the business strategy, which ensures that roles, responsibilities and resources are allocated, that risks are identified and controlled, and that appropriate business objectives are achieved.

The international accounting firm of KPMG examined the role of audit committees in ensuring that management (often spearheaded by marketing and closely supported by legal/compliance and information technology) has in place a social media governance framework that effectively addresses the range of internal and external risks, and that it is designed to keep pace with the rapid speed at which this area is evolving.

To address this challenge the firm identifies five areas of focus for audit committees:

• Can management demonstrate an understanding of how the use of social media is evolving and impacting the business—and the associated risks? This would include how social media impacts marketing strategy; advertising and communications strategies; workforce effectiveness; information protection; reputation risk; and legal/regulatory risk; and how effective are social media monitoring controls?
• Is someone actively monitoring the major social media networks to identify potential problems and opportunities? How does the company monitor the use of social media tools and its role in the enterprise risk management process? How does the company decide when to react to potential reputational issues being discussed in various social media—and, when needed, how does the company respond?
• Do we have a single, clearly defined policy regarding employee use of social media both on the company’s enterprise technology and employees’ personal devices? Employee use of social media raises a variety of issues unique to the company, including employee commentary on company matters and workplace conduct, the protection of the company’s intellectual property rights (logos, registered phrases, developing products, business plans), information privacy, proper use of company devices to access external social media sites, and the company’s right to monitor employee postings on those sites. What training on the use of social media is provided employees?
• Does the company’s social media governance framework define how the company’s message will be managed through use of social media for marketing and communications? Protections should be in place to prevent employees from becoming unsupervised spokespeople for the company. Investor relations and marketing/ communications should play a central role to monitor the use of social media and by whom. Questions to ask: Do we have formal guidelines for all market-facing organizations? Do we have procedures for message approval so that key constituents (e.g., legal/regulatory, and marketing/communications) can have timely input?
• How do we monitor compliance with the company’s social media policy? Who is responsible for enforcement of the policy? Internal audit may have a central role to play, focusing particularly on the adequacy of controls around the key risks posed by the use of social media, and auditing the adequacy of the company’s social media governance framework, including employee adherence to the policy—and the effectiveness of employee training.

Social media governance was at one time dismissed as an idea that something as individually-based as social media might be governed.  Now, it’s an essential step for forward-looking organizations. Boards should no longer be asking if social media will be used by the company; instead they should be asking for transparency in how social media are being used and managed across the enterprise. An effective social media governance policy should become part of the ethical culture of an organization.

Blog posted by Steven Mintz, aka Ethics Sage, on October 12, 2011

 

 

 

 

 

 

Internet Ethics

Internet Code of Ethics: Privacy Rights and Intellectual Capital

Ethics deals with standards of human conduct that direct the behavior of individuals and groups. These standards, in turn, are developed by the society within which the individual or group exists. Since the Internet allows access to individuals and groups from a wide and complex range of societies and backgrounds, the ethical standards of the participants can vary widely. However, in order for the users of the Internet community to be able to interact productively through communications and commercial transactions, it is necessary for the community to develop a common set of ethics or standards of human conduct that governs their behavior. In other words legal and ethical standards need to be created to keep up with the pace of technological change. This is especially necessary since those who are interacting are doing so in a virtual community where they cannot see or meet each other physically. Without a common ethical framework, no trust can develop between those interacting, and the Internet will then fail as a medium for interaction.

Questions about appropriate use, ethical and legal responsibilities can be grouped as follows:

• protection of intellectual property
• prevention of fraud
• protection of freedom of expression versus problems of defamation
• protection of privacy
• control of Internet indecency versus free speech

Several groups are trying to develop guidelines for a common ethical framework for the Internet. One examples of such a guideline on the web is given below and is taken from the Internet Advertising Bureau website:

The IAB strongly endorses the view of the Division Advisory Panel of the National Science Foundation Division of Network, Communications Research and Infrastructure which, in paraphrase, characterized as unethical and unacceptable any activity which purposely:

(a) seeks to gain unauthorized access to the resources of the Internet,

(b) disrupts the intended use of the Internet,

(c) wastes resources (people, capacity, computer) through such actions,

(d) destroys the integrity of computer-based information, and/or

(e) compromises the privacy of users.

An examination of these guidelines for ethics on the Internet indicates that they address many of the areas that involve legal implications as well as ethical ones. It is often true that what is illegal is also unethical. However, the opposite is not always true: what is unethical may not always be illegal. For example, it may be considered unethical to sell information regarding your customers to another agency but it may not necessarily be illegal.

Ethical behavior seeks to go beyond legal requirements to ask questions such as: Is it what is best for all concerned and not just for myself? Would I want someone else to do the same thing to me?

It can be seen that ethics is much more difficult to pin down than legality, and is much more a personal decision. This is all the more reason for technology professionals in the computer industry to set high ethical standards and to act in a way that its actions and the basis for them are clear to all concerned. One approach to accomplishing this is to have a clearly stated set of guidelines for the organization that addresses general issues, as well as specific issues prone to ethical problems, and make sure that both employees and customers are familiar with.

Blog posted by Steven Mintz, aka Ethics Sage, on October 7, 2011

 

Culture Wars and American Exceptionalism

Who is Winning the Culture War?

The term “culture wars” dates back to a 1991 book by academic James Davison Hunter who argued that cultural issues touching on family and religious values, feminism, gay rights, race, guns, and abortion had redefined American politics. Going forward, bitter conflicts around these issues would be the fulcrum of politics in a polarized nation, he theorized. The culture war (or culture wars) has come to mean in America the battle for the very soul of the American experience. Progressives want more social justice meaning the government should expend more resources to take care of its neediest of citizens even if it means increasing the national debt. The conservatives backed by the Tea Party want cuts in the very programs that progressives want to expand. Progressives would raise income tax rates on the richest Americans. I agree in principle but can’t support the low $250,000 cut-off point. You are not rich if you make $250,000 a year – at least not out here in California. I could live with a $1 million and above base amount for higher taxes. Conservatives would respond by saying these people earned their money and shouldn’t be taxed at a higher rate, and the Conservatives warn such a tax policy would dry up investment capital and dampen the entrepreneurial spirit. I don’t believe that. I don’t want to believe that because if that were true it would speak volumes about the lack of civic virtue and sense of one’s responsibility to the country that gave so many the opportunities to get rich. Moreover, I detest the kind of threats coming from the right about stifling growth and continued high unemployment unless they get their way and taxes are not only not raised on the richest but even lowered for individuals and corporations.

I don’t think President Obama’s recent proposals to add another $500 billion to our national debt in the hopes of “stimulating” the economy will work. It’s nice to give businesses a credit for hiring the unemployed but once they are hired the company is committed to paying salaries and benefits while being (perhaps) stuck with an under-achieving, under-producing employee. After all, if that employee were a good worker isn’t it possible that he or she would have already found a job? Sure, the loss of a job could be due to economic circumstances. It can also be due to a lack of skills or, more important, a questionable work ethic.

And there is the problem in my opinion. As I have blogged about so many times before, there has been a steady decline in the work ethic in America over a number of years. It corresponds to changes in the national psyche that began in the 1960s when the mantra was to “do your own thing.” Young people took it to heart and some became narcissistic in their behavior. We have morphed into a no consequences, entitlement society over the years, and that does not contribute to the work ethic. I believe businesses are not hiring as they otherwise might because, for the most part, they are happy with their current employees’ work ethic and fear taking on someone who goes against that grain and may even infect the workplace with values that place self-interest ahead of the interests of the organization.

So who is right (no political statement intended) in the culture wars? Both sides are wrong. We need to build a new spirit of hard work; a culture where ethics is valued and inappropriate behavior scorned; and a sense of personal responsibility for what happens to each of us. While some politicians are addressing these issues at the margin, their message gets lost because these views are always in the background while political posturing and the “gotcha game” is front and center. This is not the recipe for an economic recovery and what’s worse is it bodes poorly for the true American spirit or what has come to be known as “American Exceptionalism.”

Blog posted by Steven Mintz, aka Ethics Sage, on September 12, 2011

Psychological Effects of Workplace Bullying

What to Do if You Are the Target of a Workplace Bullier

Workplace bullying refers to repeated, unreasonable actions of individuals (or a group) directed towards an employee (or a group of employees), which are intended to intimidate, degrade, humiliate, or undermine, or which create a risk to the health or safety of the employee(s) including physical and emotional stress. The psychological effects can be devastating.

You may recall one of the first incidents that created a national awareness of the dangers of workplace bullying and bullying in general. The headline reported that a Missouri woman was found guilty of misdemeanor crimes in a “MySpace” cyber-bullying case linked to a 13-year-old girl’s suicide. According to prosecutors, the woman conspired with her young daughter and a business associate to create a fictitious profile of a 16-year-old boy on MySpace to harass Megan Meier, apparently in an effort to humiliate Megan for saying mean things about her daughter. The “boy” sent flirtatious messages to Megan, but then abruptly changed to a very harsh tone, telling her “The world would be a better place without you.” After receiving that message, Megan hanged herself with a belt in her bedroom closet. According to prosecutors, the woman knew that Megan suffered from depression and was emotionally fragile.

I have previously blogged about the problems related to cyber-bullying that affects dozens of young people in our schools. Workplace bullying often involves an abuse or misuse of power. Bullying behavior creates feelings of defenselessness and injustice in the target and undermines an individual’s right to dignity at work. Bullying is different from aggression. Whereas aggression may involve a single act, bullying involves repeated attacks against the target, creating an on-going pattern of behavior. “Tough” or “demanding” bosses are not necessarily bullies as long as they are respectful and fair and their primary motivation is to obtain the best performance by setting high yet reasonable expectations for working safely.

According to the Workplace Bullying Institute, a nonprofit research and training organization, workplace bullying is not an unusual problem: About 50% of the U.S. workforce reports either having been bullied by someone at work or having witnessed someone else being mistreated, according to a survey of 4,210 American adults that WBI conducted last year. Examples of bullying include: (1) unwarranted or invalid criticism; (2) blame without factual justification; (3) being treated differently than the rest of your group; (4) being sworn at or threatened; (5) exclusion or social isolation; (6) being shouted at or humiliated; (7) excessive monitoring or micro-managing; and (8) being given work unrealistic deadlines. 

In terms of gender, WBI reports that women appear to be at greater risk of becoming a bullying target, as 57% of those who reported being targeted for abuse were women. Men are more likely to participate in aggressive bullying behavior (60%), however when the bully is a woman her target is more likely to be a woman as well (71%).

With some variations, the following typology of workplace bullying behaviors has been identified. The Institute also has identified 25 tactics used by the bulliers.

1. Threat to professional status - including belittling opinions, public professional humiliation, accusations regarding lack of effort, intimidating use of discipline   or competence procedures
2. Threat to personal standing - including undermining personal integrity, destructive  innuendo and sarcasm, making inappropriate jokes about target, persistent teasing, name calling, insults, intimidation.
3. Isolation - including preventing access to opportunities, physical or social isolation, withholding necessary information, keeping the target out of the loop, ignoring or excluding
4. Overwork - including undue pressure, impossible deadlines, and unnecessary disruptions.
5. Destabilization - including failure to acknowledge good work, allocation of meaningless tasks, removal of responsibility, repeated reminders of blunders, setting target up to fail, shifting goal posts without telling the target.

The U.S. is well behind other countries in introducing legislation to protect those bullied in the workplace including Australia, Canada, Sweden and the United Kingdom.  Unlike sexual harassment that became an official workplace offense in 1980 when the Equal Opportunity Commission issued regulations defining sexual harassment and stating it was a form of sex discrimination prohibited by the Civil Rights Act of 1964, no such legislation exists for bullying.  Even though comprehensive workplace bullying legislation has not been passed by the federal government or by any U.S. state, since 2003 many state legislatures have considered bills and as of April 2009, 16 U.S. states have proposed legislation. One excellent resource for additional information on workplace bullying is the website of Bully Free at Work.  

Blog posted by Steven Mintz, aka Ethics Sage, on September 7, 2011

Workplace Bullying

What to Do if You Are the Target of a Workplace Bullier

This is the first of a two-part series on bullying. This blog, which was originally posted on my Workplace Ethics blog, deals with workplace bullying. My next blog will deal with Cyber-bullying.

Workplace Bullying refers to repeated, unreasonable actions of individuals (or a group) directed towards an employee (or a group of employees), which are intended to intimidate, degrade, humiliate, or undermine, or which create a risk to the health or safety of the employee(s) including physical and emotional stress. The purpose of this blog is to help you identify whether you are the target of a bullier. If so, you should act immediately. This blog provides some resources to use to resolve the issues and stress it can cause in the workplace. The longer you wait to deal with the issue, the more difficult it becomes to achieve a successful resolution of the matter because the negative treatment becomes endemic to the workplace culture and other employees accept it as part of the group dynamic.

Workplace bullying often involves an abuse or misuse of power. Bullying behavior creates feelings of defenselessness and injustice in the target and undermines an individual’s right to dignity at work. Bullying is different from aggression. Whereas aggression may involve a single act, bullying involves repeated attacks against the target, creating an on-going pattern of behavior. “Tough” or “demanding” bosses are not necessarily bullies as long as they are respectful and fair and their primary motivation is to obtain the best performance by setting high yet reasonable expectations for working safely.

If you believe you are the target of a workplace bully, speak to the person doing the bullying. Similar to sexual harassment in the workplace, an issue I have addressed before, the first step with bullying is to make your feelings known that it is unwanted and unwelcome behavior. While you know it can negatively affect workplace performance, I recommend you not mention that to a supervisor because it might be held against you if the matter gets out of control and a workplace demotion or firing needs to be “justified.” While talking to other employees may seem to be a logical step, be careful who you choose to discuss the matter with as that person might be pressured by the bullier down the road to tell the latter's side of the story. What should you do? Be sure to keep a log to record when each incident occurred; what was said or done in response to it; and your feelings on the matter. It is a good idea to give a copy of the log to a trusted advisor who can independently attest to the facts down the road if that becomes necessary. This is similar to the protective step I recommend for a whistle-blower.

According to the Workplace Bullying Institute (WBI), a nonprofit research and training organization, workplace bullying is not an unusual problem. About 50% of the U.S. workforce reports either having been bullied by someone at work or having witnessed someone else being mistreated, according to a survey of 4,210 American adults that WBI conducted last year. Examples of bullying include: (1) unwarranted or invalid criticism; (2) blame without factual justification; (3) being treated differently than the rest of your group; (4) being sworn at or threatened; (5) exclusion or social isolation; (6) being shouted at or humiliated; (7) excessive monitoring or micro-managing; and (8) being given work unrealistic deadlines. 

In terms of gender, WBI reports that women appear to be at greater risk of becoming a bullying target, as 57% of those who reported being targeted for abuse were women. Men are more likely to participate in aggressive bullying behavior (60%), however when the bully is a woman her target is more likely to be a woman as well (71%).

With some variations, the following typology of workplace bullying behaviors has been identified. The Institute also has identified 25 tactics used by the bulliers.

1. Threat to professional status - including belittling opinions, public professional humiliation, accusations regarding lack of effort, intimidating use of discipline   or competence procedures
2. Threat to personal standing - including undermining personal integrity, destructive  innuendo and sarcasm, making inappropriate jokes about target, persistent teasing, name calling, insults, intimidation.
3. Isolation - including preventing access to opportunities, physical or social isolation, withholding necessary information, keeping the target out of the loop, ignoring or excluding
4. Overwork - including undue pressure, impossible deadlines, unnecessary disruptions.
5. Destabilization - including failure to acknowledge good work, allocation of meaningless tasks, removal of responsibility, repeated reminders of blunders, setting target up to fail, shifting goal posts without telling the target.

The U.S. is well behind other countries in introducing legislation to protect those bullied in the workplace including Australia, Canada, Sweden and the United Kingdom.  Unlike sexual harassment that became an official workplace offense in 1980 when the Equal Employment Opportunity Commission (EEOC) issued regulations defining sexual harassment and stating it was a form of sex discrimination prohibited by the Civil Rights Act of 1964, no such legislation exists for bullying.  Even though comprehensive workplace bullying legislation has not been passed by the federal government or by any U.S. state, since 2003 many state legislatures have considered bills and as of April 2009, 16 U.S. states have proposed legislation. One excellent resource for additional information on workplace bullying is the website of Bully Free at Work.

Blog posted by Steven Mintz, aka Ethics Sage,, on August 17, 2011