Ethics Sage

Empathy is missing in Society Today

Ethics Requires Us to Feel What Others Feel Before Acting

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

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

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

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

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

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

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

Creepy Facial Recognition App Raises Privacy Concerns

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

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

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

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

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

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

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

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

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

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

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

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

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

Ethics and Social Responsibility go Hand in Hand

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Six-Year Old Boy Suspended for Sexual Harassment

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Moral Blindness

Why Good People Sometimes Do Bad Things

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

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

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

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

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

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

Treat Others the Way We Want to Be Treated.

Respect the Rights of Others.

Never take an Action that Does More Harm than Good.

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

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

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

Financial Reporting Practices of Chinese Companies Investigated by SEC

Can We Trust Financial Reports of Chinese Companies?

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

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

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

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

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

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

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

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

 

Good Leaders Model Underlying Core Ethical Values in Decision Making

What Does it Take to be a Good Leader?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Enron Redux

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Abramoff, PACs, and Campaign Financing

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

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

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

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

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

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

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

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

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

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

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

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

What is the Basis for Ethical Decision-making?

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

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

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

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

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

(A)       The influence of religious writing and interpretations.

(B)       The influence of philosophical thought.

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

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

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

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

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

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

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

        What does the law require of me?

        What do ethical standards of behavior demand of me?

        How should I act to conform to both?

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

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

GSA Misuses Funds and Improperly Awards Contracts

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

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

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

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

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

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

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

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

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

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

Groupon Restatement of Earnings a Cause for Concern

The Signs are there: Market Stability at Risk

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What is Civility?

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

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

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

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

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

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

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

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

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

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

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

TebowMania in New York

Will Tebow-ing Play Well in NYC?

The headline of the NY Daily News last Sunday read: “Newest NY Jet Tim Tebow paints the town green on Broadway: 'Wicked' time as quarterback takes in his first Broadway show”

Does this mean his every move will be followed, analyzed, and commented upon in print? I can just see it now:

• Tebow goes grocery shipping at a vegan supermarket
• Tebow caught eating a burger and fries at the Burger Joint inside Le Parker Meridien Hotel
• Tebow prays at Christian City Church in Manhattan
• Tebow caught entering Temple Emanu-El without a yarmulka

This is getting ridiculous people. Tebow is not any different from you or me except that he knows how to play football – quarterbacking aside. There is no doubt that he is an outstanding athlete. That’s why the NY Jets wanted him. His particular skill set and athletic ability open up possibilities on the field including the wildcat formation.

How unusual is it that the other sports mania in recent times just recently occurred in NYC when Jeremy Lin emerged as something of a cult hero after catapulting to stardom as the New York Knicks point guard. Linsanity swept the city like few events before it. What do Tebow and Lin have in common? They both have openly discussed their evangelical faith.

Personally, I don’t get it. What is the big deal that he bows down after a touchdown pass and gives thanks? I’ve seen players pray on the sideline. There are prayer gatherings after a game to give thanks. It must be that Tebow speaks openly about his faith.  Perhaps some people are afraid of it. Their sons and daughters might seek to be like Tebow. I can think of worse role models for young people to emulate.

Critics have pointed out that God does not take sides in football games and to inject God’s name as a form of thanks after throwing a touchdown pass minimizes what God really stands for – it is with the poor; with the down and out; it is with those seeking forgiveness.

However, I did some research and found this quote from Psalm 121 (‘The Lord is Thy Keeper’) of The Holy Bible: King James Version:

“I will lift up mine eyes unto the hills,

            from whence cometh my help.

My help cometh from the LORD,

            which made heaven and earth”.

When viewed in this context I have to believe Tebow is being a good Christian. Now I’m not Christian, and I teach ethics but it is without a religious slant other than to say much of religious thought comes from the biblical passage:  "Do unto others as you would have them do unto you." By extension, The Golden Rule calls on us to treat others the way we want to be treated – with respect, compassion, kindness, fairness, honesty, and so on.

I tell my students that it does not matter what are your religious beliefs. But, believe in something; believe that it matters what you do and say while on this Earth; know that your actions have consequences and how you treat others triggers those consequences; and embrace the notion that we should strive to leave this Earth a better place than when we arrived.

Tebow demonstrated great character at the news conference this past Monday that introduced him to NY media. When asked about his role on the Jets given Mark Sanchez is the starting quarterback, Tebow said: "However I can help the team, however I can make a difference, however they can use me, I'll be open to it and work as hard as I can every time I step on the field. I will give my whole heart and soul to being the best Jet I can possibly be in trying to help this team win football games."

One thing even Tebow’s most ardent critics can’t fault him for is his charity work.  In addition to his missionary work with orphanages in the Philippines, he regularly brings sick children to his games through his foundation. Tebow brought Joey Norris, a young boy with cancer, to the playoff game against the New England Patriots, and where the Broncos suffered what he called a devastating loss.

“I was extremely disappointed,” Tebow said. “But I still have a kid who is fighting for his life, and I have a choice to make. I can choose to sulk and feel pity after this loss and this disappointment. I can choose to try to go invest in him and try to encourage him and make him smile and be a part of his life. That really changes your perspective as a young man and as an athlete.  For me to try to invest in him, he helped me more than I helped him on that night.”

There is an old expression: "The true measure of a man is how he treats someone who can do him absolutely no good." When applied to Tebow we can see how he fits the mold of a good role model for youngsters striving to be...well, the next Tim Tebow.

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

KONY 2012: Doing the Right Thing

Is there Hope for Victims of Joseph Kony and Other Victims of Unspeakable Crimes in Africa?

We can question the motives of filmmaker Jason Russell in making the film KONY 2012 and how donated funds have been used by the non-profit organization, Invisible Children. We can question his use of mostly white people to tell the uniquely African story of child kidnappings, abuse, forced sexual slavery, coerced mutilations of children’s faces, and forced killings even of one’s parents. We can question the relative simplification of a complicated story that extends beyond Ugandan borders. However, what we cannot dispute is the emotional effect of the twenty-seven minute film that went viral since it first hit You Tube on March 6, 2012, with more than 84 million viewers to date. We cannot dispute it is the right thing to do to bring the matter to the collective consciousness of the entire world.

If you haven’t heard of it, you haven’t been on Facebook or Twitter within the last two weeks. The social media attention that this issue has gotten since its release has shocked everyone, including the producer himself. Perhaps that explains Russell’s recent mental breakdown ("reactive psychosis") following scores of interviews and international attention never before seen.

The twenty-seven minute video can be viewed on You Tube. It is well worth your time given the educational and (anti-) humanitarian story of a man and has actions that led to his being named the world’s worst criminal by the International Criminal Court.

Joseph Kony is the head of the Lord’s Resistance Army, a Ugandan rebel group that has abducted an estimated 66,000 children since 1986 to become soldiers in his army. Kony kidnaps the children and enlists them into the LRA. He forces them to commit atrocities not in the name of a cause but to retain and gain more and more power by driving the population to fear him even more than death itself.

KONY 2012 was released by The Invisible Children group to raise awareness of the criminal acts of Joseph Kony. As stated on their webpage, Invisible Children’s mission is to use “film, creativity and social action to end the use of child soldiers in Joseph Kony’s rebel war and restore LRA-affected communities in Central Africa to peace and prosperity”. Three young filmmakers had traveled to Africa in search of a story, and came back with a documentary that aired in 2005 on the invisible children of the Lord’s Resistance Army. However, very little attention was paid to the story until the video.

U.S. involvement was minimal until Invisible Children urged the government to take action. In May 2010, President Obama signed the Lord’s Resistance Army Disarmament and Northern Uganda Recovery Act. Not much happened until November 24, 2010 when Obama sent a document to Congress to acquire more money for the cause. As of October 14, 2011, Obama deployed 100 U.S. military advisors to assist, train, and offer intelligence to the Ugandan forces to help combat the LRA. This is not a military action by the U.S. but one of technical assistance in part to find Kony in the jungle so he can be brought to justice. It is the right thing to do – the humane thing to do.

Current efforts are to publicize the story and plight of Ugandan children including making the Invisible Children visible for the whole world to see the atrocities committed in the name of Joseph Kony. Invisible Children are targeting 20 culture-makers (Hollywood types) and 12 power-makers (with influence on governmental affairs) to lend their name and help spread the word.

Invisible Children wants to make Kony even more famous in the U.S. by having young people plaster their neighborhoods with posters featuring Kony’s picture. At sundown on Friday, April 20, the organization is urging young people to gather together and work all night putting up posters. They have printed hundreds of thousands of posters in preparation for the event. The organization believes once people find out more about what Kony has done then justice will prevail.

The story of Joseph Kony and the Invisible Children is played out endlessly in other African countries. While attention should be focused on the plight of Ugandan children forced into unspeakable acts we must not forget other struggles and atrocities. Most recent are the ethnic clashes between the Murle and Lou Nuer tribes in the world’s newest nation, South Sudan. Fighting continues in the Jonglei region of South Sudan, where battles have claimed thousands of lives since the country gained independence from Sudan in July 2011. According to the United Nations, more than 300,000 South Sudanese were displaced due to internal violence last year.

Then there is Joshua Milton Blahyi, once dubbed to be one of Liberia’s most feared warlords, who was responsible for the killing of nearly 20,000 people during Liberia’s 14-year civil war. Recently he converted to Christianity and proclaimed to be an evangelist, traveling the nation as a preacher and asking for forgiveness from those whom he had hurt in the past. A film documentary was made of his past, “The Redemption of General Butt Naked,” and asks the question whether a transformation so great can ever occur and how will we know it is real.

Africa has been a troubled region of the world for many years. Millions have died in the Democratic Republic of the Congo (formerly Zaire) during the conflict between warring rebel militias and the national army as they vie for control over the country’s vast mineral wealth and control of slaves, many of whom are women and who are forced to work in the mines and into a life of sexual slavery.

Who can forget the Rwandan Genocide and the 1994 mass murder of an estimated 800,000 due to ethnic strife between the minority Tutsi, who had controlled power for centuries, and the majority Hutu peoples, who had come to power in the rebellion of 1959–62 and overthrown the Tutsi monarchy.

Is there hope for Africa to become more peaceful and end the bloodshed formed by many years of ethnic and tribal conflict? One place to look for a useful perspective on the issue is the Prime Minister of Malaysia, Datuk Seri Dr Mahathir Mohamad, who made an impassioned plea for an end to inter-religious strife in his country. Speaking at the official opening of the 11th General Assembly of the World Evangelical Fellowship in Kuala Lumpur on May 4, 2011, Dr Mahathir said that once started, religious disputes often lead to violence over several generations.

"Intolerance breeds injustice. Injustice invariably leads to rebellion and retaliation, and these will lead to escalation on the part of both making reconciliation almost impossible. It would appear that during times of stress, despair and frustration, people become increasingly irrational, and they do things, which they never think they are capable of. And so we see hideous brutality perpetrated by the most gentle people.”

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

Facebook's Dirty Laundry

Facebook Follows Ethically Inappropriate Actions in Moderating Online Content

On March 2, 2012, The Telegraph brought attention to one of the worst jobs in the digital world. While the Facebook content most users see is innocuous, this is not by chance. Facebook is richer and more populous than many countries, and keeping it sanitized requires a small army of content moderators to strip the site of the darker side of humanity.

With around four billion pieces of content shared daily, Facebook has come to rely upon a system whereby photos or posts may be flagged by regular users as unsuitable. Gawker  notes that this results in a deluge of “porn, gore, racism, cyberbullying, and so on” that must be reviewed for international legality and compliance with the site's terms of use. While removing unsavory content on a site that does not claim to be a forum for unrestricted speech may not seem problematic, the way in which it is being done should be a source of concern.

With a market capitalization upwards of $75B, established digital prowess, and a legion of strategists and legal advisers, one would expect Facebook to have a sound process established for dealing with the unpalatable content that comes to attention, yet this does not seem to be the case. Despite the relatively low number of moderators required to police its content, estimated at around 800 to 1,000, Facebook uses the outsourcing company oDesk to have this work haphazardly carried out by laborers in developing countries for a miserly $1 an hour.

oDesk is a company with a global job marketplace  and a series of tools targeted at businesses that hire and manage remote workers.  Moderators follow guidelines to determine if flagged content should be ignored, deleted, or escalated, which refers to sending it to a Facebook employee in the U.S. who will report it to authorities if necessary.

Even though someone must do the dirty laundry, the brazen manner in which Facebook conducts its moderation process is worrying. New moderators must be proficient in English and they receive basic training by oDesk, but they use their personal, unsecured computers at home, no criminal checks are believed to be in place, and they are given nearly unfettered access to user information for determining the “context” of flagged content. This leads to a horrifying situation: unscreened laborers are flooded with grotesque material that can erode their mental health.

For example, Amine Derkaoui, a 21-year-old man living in Morocco, went public with his experience as a Facebook moderator in February. He found the job humiliating and exploitative, adding that “the job itself was very upsetting – no one likes to see a human cut into pieces every day.” His experience is hardly unique; educated workers in Asia, Africa, and Central America hired through oDesk describe being shaken by the frequent exposure to pedophilia, necrophilia, beheadings, suicides, animal or child abuse, fighting, racism, violent threats, and other troubling content.

Moreover, disgruntled moderators have all the information they need to blackmail users over content they posted (even privately), can easily leak intimate material on the web, may harvest illegal content such as child pornography for redistribution, and can even frame innocent users by escalating falsified content. As if this wasn’t bad enough, the New York Times reports that moderators in the U.S. have struggled to get safeguards for mental health, so it is unlikely those being paid pittance are offered counseling as part of the job.

One of my ethics students provided the following ethical analysis of Facebook’s current moderation practices using utilitarianism and “Rights Theory.” A table exploring the key benefits, harms, and rights for the primary shareholders is presented below:

Facebook
Benefits	Moderation provides a clean outward image. Removing and reporting certain content helps ensure legal compliance in some jurisdictions.
Harms	Inadequate program oversight could pose a significant legal liability. Greater awareness of the program’s details could tarnish the corporate image. Knowingly transferring content that has been identified as illegal, such as child pornography, internationally from the moderators back to Facebook almost certainly conflicts with laws, treaties, and other sources of binding regulation.
Rights & Duties	To operate efficiently to the extent that laws are followed.

 

Facebook Users
Benefits	A minimum of filth provides a sanctuary from darker areas of the internet. Human review of flagged content helps avoid unwarranted content removal.
Harms	Facebook's secretive moderation practices leave most users in the dark. Even content that has been posted “privately” is vulnerable to being leaked on the internet or used for blackmail, and users can easily be framed by the moderators.
Rights & Duties	Regardless of the terms of service, to have their privacy respected when they have a reasonable expectation of it, such as after having marked content as “private.” To know what happens with their self-generated content, including who has access to it. For user-generated content to not be arbitrarily deleted from baseless flagging by users. To have personal information protected through reasonable security policies.

 

Moderators
Benefits	Income is being offered in parts of the world where the pay is competitive even given the nature of the job. The flexible working arrangement is good for students.
Harms	By having illegal content such as child pornography on their personal computers, they are placed in a very precarious legal situation. Their mental health may deteriorate from being subjected to an endless stream of unsettling content, and counseling or mental health monitoring policies may not exist.
Rights	To not be taken advantage of by being placed in a legally-vulnerable situation. To not have their mental health stressed without adequate safeguards.

By following the utilitarian approach and comparing the harms and benefits, at a first glance the current moderation program can be seen to have clear benefits despite the significant harms. However, closer examination reveals that, without fail, every one of the harms identified could be mitigated through more responsible moderation methodology, ultimately rendering Facebook’s current practices deplorable. It is unlikely that it would cost more than $5M annually to have a domestic moderation program in which all activity is carried out on secure company computers and is carefully audited and logged for inappropriate moderator behavior, all employees are screened for criminal histories, and counseling as well as periodic mental health assessments are provided. By having the questionable content stay on company computers, this would also avoid nearly all of the potentially illegal aspects of the current approach.

Facebook does not fare any better under the “Rights Theory” approach. The current approach may operate outside the law, in which Facebook does not have the right to use it and many of the rights of Facebook’s user’s moderators are not respected.  Facebook has obligations to these moderators as agents of the company to provide a safe workplace environment.  

In conclusion, Facebook appears to have chased profitability while sliding down the proverbial ethical slippery slope.

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

Self-Employed Eligible for Unemployment Benefits: Ethics and Moral Hazard Considerations

Should the Self-Employed be Eligible for Unemployment Benefits?

From time to time I write an opinion editorial for the Pacific Coast Business Times. The following Blog was posted on March 9.

On Feb. 22, President Obama signed into law H.R. 3630, the Middle Class Tax Relief and Job Creation Act of 2012, a bill that is estimated to cost $150 billion.

Most people are familiar with the payroll tax cut extension provision through December 31, 2012 that lowers the workers’ payroll tax obligation from 6.2 percent to 4.2 percent. Many know about the change in requirements in the unemployment benefits program, including weaning some of the 3.5 million current recipients off federal jobless benefits. It would eventually cap the maximum duration of benefits at 73 weeks, instead of 99, depending on a state's jobless rate. Americans out of work the longest and in the hardest-hit states would be shielded from most of the cuts. What few Americans know, however, is the bill provides unemployment benefits for self-employed workers.

The Startup Technical Assistance for Reemployment Training and Unemployment Prevention (STARTUP) Act alters the rules governing the unemployment insurance program to allow recipients starting their own small businesses to collect their unemployment without the added burden of searching for other full time work.

Current unemployment insurance rules require recipients to be actively searching for and willing to accept suitable work. Self-employment assistance (SEA) allows a small number of those same recipients who want to start their own businesses to maintain their benefits while they build their companies. Allowing entrepreneurs the ability to focus on building their businesses instead of looking for other work just to keep their unemployment benefits increases their likelihood of success. Would-be entrepreneurs must have a valid business plan to receive SEA but will also be eligible for job training opportunities to further increase that likelihood of success.

H.R. 3630 allows for a one-year program totaling $35 million which is both authorized and appropriated, guaranteeing that the funding will be used to foster small business growth. Several states like Oregon and Delaware already offer similar programs to qualified unemployed. The provision in the payroll tax and unemployment insurance or UI extension agreement would expand that opportunity to promising entrepreneurs nationwide.

The bill would allow the long-term unemployed to take advantage of the program. Currently, SEA participants are not eligible to use the program during extended or emergency unemployment periods, which have been extended to 99 weeks in many states. Instead, SEA is only available for the first 26 weeks of unemployment. The STARTUP Act allows an unemployment beneficiary to use 26 weeks of funds for self-employment assistance at any point during their eligibility. The bill would also incentivize every state to offer the program, providing technical assistance from the Labor Department and authorizing $35 million in state grants over the next three years to establish, implement, improve, and administer the programs.

One of the bill’s sponsors, Representative Ronald Wyden (D-OR) is quoted as saying: “Starting a small business is a full time job.” It takes time and sweat equity to make a business successful which the current unemployment rules don’t provide. With the unemployment rate remaining high, there is a great deal of talent sitting on the sidelines vying for too few jobs. Self-employment assistance allows the most industrious of those people to maintain their unemployment insurance benefits while building businesses that could take even more people off of the UI rolls.” Please answer this question, Representative Wyden: How will we identify “the most industrious of those people”?

The economic rationale for the self-employed assistance program includes: (1) it will get some unemployed off the public doll; (2) it helps to foster a spirit of entrepreneurship; and (2) it will assist small businesses to hire Americans thereby reducing the number of unemployed. This rationale relies on the long believed notion that small businesses are the creators of new jobs and engines of future economic growth.

I agree with the rationale but question what happens in the real world and whether the cost of yet another level of bureaucracy creates more costs than benefits to society. How will it be determined that an unemployed, would-be self-employed individual, is eligible for the expanded benefits program? The notion that “Would-be entrepreneurs must have a valid business plan to receive SEA… and be eligible for job training opportunities to further increase that likelihood of success” is problematic. What is a valid business plan? It seems that states would need to hire additional, better-trained workers to assess the skills of SEA beneficiaries.

These are just a few questions that should have been fully addressed before the SEA provision was adopted. But, like many flawed pieces of legislation such as Obamacare, the Congress tends to act first, answering questions later, and let the chips fall where they may. Do we really want an additional state bureaucracy on top of the federal layer at a time when state and federal deficits are spiraling out of control?

There are many ethical issues to consider. First and foremost is: Do the added costs of administering and monitoring the new program exceed the benefits to society of providing unemployment assistance to the unemployed --- self-employed wannabes? This is similar to many issues we face with respect to trying to be a compassionate society while recognizing our moral obligation to future generations not to provide them with a bankrupt country.

To carve out a new group of UI recipients, no matter how well intended, opens the door for other exceptions that can create an ethical slippery slope. Moreover, moral hazard risks exist because the tendency may be to look to become unemployed in order to use the 26 weeks to create one’s own business. In this way the provision may unknowingly lead to questionable behavior that raises doubts about a person’s work commitment and increases the emphasis on the pursuit of one’s self-interest without regard to the possible costs to society. In other words, the behavior of the would-be unemployed person may change as a result of the availability of the SEA provision in that the risk of being unemployed during the 26 week period shifts to the government. – and taxpayers like you and may will be picking up the tab.

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

Allen Stanford: A Ponzi Schemer from the Madoff School of Fraud

What makes Ethically-Challenged People do Bad Things?

So how does a once prominent financier find himself convicted of an $8 billion dollar Ponzi scheme? Just ask Bernie Madoff, the former chairman of NASDAQ, who set the standard for avarice. In March 2009, Madoff pled guilty to 11 federal felonies and admitted to turning his wealth management business into a massive Ponzi scheme that defrauded thousands of investors of about $65 billion.

In early 2009, Stanford became the subject of several fraud investigations, and on February 17, 2009, was charged by the SEC with fraud and multiple violations of U.S. securities laws for alleged massive ongoing fraud involving $8 billion in certificates of deposit. Last week the jury that convicted former Texas tycoon R. Allen Stanford of operating a massive Ponzi scheme found that there was sufficient evidence that $330 million in frozen foreign bank accounts he controlled was money he stole from investors, clearing the way for U.S. authorities to go after the funds.

I sometimes wonder how successful businessmen (I’ll leave out women because none seem to have mastered the art of a Ponzi scheme) become so greedy as to use and abuse friends, colleagues, and even family members for their own financial gratification. I’m convinced they must be narcissists who have become self-delusional and blind to the harm they have caused to others. They are lacking in empathy; care only about themselves; feel no guilt or shame for their actions; and have illusions of grandeur.

Stanford was involved in one of the largest incidents of fraud against investors since the fraud that involved Bernie Madoff. Stanford's personal fortune was once valued at $2.2 billion. Still no match for Madoff who is supposed to make restitution of $170 billion partly by having Irving Picard, the trustee charged with unwinding the Bernie Madoff fraud, file about 1,000 lawsuits worth some $100 billion against individuals and companies accused of profiting from Madoff's scheme including multibillion-dollar lawsuits against  mega financial firms JP Morgan, UBS and HSBC. These “clawback” lawsuits include NY Mets owners Fred Wilpon and Saul Katz and associated individuals and firms, who allegedly received $300 million from the scheme.

During a six-week trial, prosecutors told how Stanford, 61, repeatedly raided the bank he owned in Antigua, Stanford International Bank, using it as his "personal ATM." He bought a castle in Florida for one of his girlfriends and his oldest daughter lived in a million-dollar condominium in Houston. He wore custom-made suits, lived in luxury homes and on a yacht in the Caribbean and bankrolled a $20 million prize for an international cricket tournament. In short, he was from the Dennis Kozlowski school of creep-ism. You may recall that Kozlowski, the former CEO of Tyco International, 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.

The government's star witness in the Stanford case, former aide James Davis, testified that he and Stanford faked documents and made up financial reports to calm investors and fool regulators. They funneled millions of dollars from Stanford International Bank to a secret Swiss bank account that Stanford tapped for his personal use, Davis testified.

Prosecutors said Stanford lied to investors from more than 100 countries, telling them their funds were being safely invested when instead he used the money to fund a string of failed businesses, bribe regulators and pay for luxuries such as yachts and private jets. His attorneys portrayed Stanford as a visionary entrepreneur who made money for investors and conducted legitimate business deals. Seriously?

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

Regulators are Considering Forcing Companies to Change their Auditors

Is Mandatory Auditor Rotation a Good Thing?

Auditor rotation has been recommended by many years as a way to cut down on the cozy relationship that develops between an auditor and the client. Given that independence, objectivity, and integrity are cornerstone ethical values in accounting, it does make sense to change auditors every so often. In the past a five-year rotation has been suggested.

This is too short a period of time because it takes a few years to become familiar with the client’s systems. Audit firms invest much time and effort in the learning process. They should be able to benefit from their time and expertise with respect to servicing a client and earning audit fees. It seems to me ten years might work better. After all, it can be a good thing if new auditors take a fresh look at a client’s financial results every ten years.   

Let’s look at the recent past. Companies that ran into trouble in the financial crisis—Lehman Brothers, AIG and GM, for example—were with their auditors for decades without obvious benefit to investors. And regulators are increasingly worried that being overly-friendly with clients erodes auditors’ independence. In August James Doty, the head of the Public Company Accounting Oversight Board, (PCAOB) suggested forcing companies to rotate audit firms after a set (and as yet undefined) period.

According to Audit Analytics, a research firm in Sutton, Mass., 30% of the 1,000 leading U.S. companies have used the same firm to audit their books for at least a quarter-century. Fully 11% have used the same audit firm continuously for 50 years or more. Eight companies haven't changed auditors in at least a century; the last time any of them hired a new accounting firm, William Howard Taft was in the White House.

The PCAOB has asked whether long tenure might lead to complacency. Late last year, the board sought opinions on whether it should require listed companies to rotate their accounting firms every few years. The last of those 611 public comments came in to the PCAOB last month. An overwhelming 94% were opposed to term limits.

Auditors say it helps to know their clients’ business intimately. The Big Four accounting firms—PwC, Deloitte, Ernst & Young and KPMG— agree that forced rotation will impair audit quality. PricewaterhouseCoopers and Deloitte pointed to studies casting doubt on whether changing auditors improve financial reporting. Ernst & Young said that some clients have threatened to hire a different firm if E&Y didn't bless a dubious decision—which E&Y refused to do. KPMG said it evaluates the judgment and ethics of each partner at least once every three years.

As for the PCAOB, James Doty, chair of the Board, recently said: "We know from our own inspection reports that there is a problem." Without independence, it's unlikely you're going to get skepticism or a healthy look for disconfirming evidence."

This certainly was the case before Sarbanes-Oxley because not one of the accounting frauds in the late 1990s and early 2000s that led up to the Act were reported by the external auditors. In fact, peer review reports indicated the firms were doing just fine.

The problem, says Howard Schilit, an accounting expert at Financial Shenanigans Detection Group in Key Biscayne, Fla., is simple: "When you're an auditor who's trying to protect a long-term relationship, you have to suck up to the client, and the client knows it."

Since floating the idea last August about mandatory rotation, the PCAOB has received 620 letters, about 20 times the normal amount, with most warning of unintended consequences if rotation is passed.

Chief among the critics are auditors, who warned rotation would raise audit costs and hurt the quality of audits as new audit firms got up to speed. Board audit committees also complained about rotation, saying it would usurp their choice over auditors, a responsibility given them by the Sarbanes-Oxley Act. And financial officers at some large companies said they might have trouble finding a new auditor at all because of the shortage of firms with necessary industry expertise.

John Biggs, former chair and CEO of the mega-retirement fund TIAA-CREF, testified in favor of rotation during hearings on audit reforms that became part of the 2002 Sarbanes Oxley Act. Rotation was left out of Sarbanes-Oxley Act in lieu of other measures to shore up auditors’ independence, such as making board audit committees rather than company managers responsible for hiring audit firms.

In Biggs’ view, the recent financial crisis shows those reforms may not be doing the job. He wrote:

“The financial collapse of 2008-2009 certainly suggests that public confidence still needs to be restored in the financial management of our banking institutions. In particular, investors have to wonder about the independence and professional skepticism of the auditing profession.”

While many have criticized sloppy underwriting by banks and securities firms and rating agencies’ lack of skepticism, they were not alone, Biggs wrote.

“Shouldn’t there have been some skeptical auditors, of say, triple-A valuations of CDO’s (collateralized debt obligations) based on sub-prime mortgages?”

Many audit committees have become more diligent about assuring the independence of their auditors since Sarbanes-Oxley was passed, Biggs said.

If rotation is not found acceptable, regulators should at least require that companies disclose how long they have had the same auditor in annual proxy statements sent to investors, he said.

This makes a great deal of sense to me. Transparency is always a good thing. I would think the accounting profession would embrace this proposal if for no other reason than to rebuild trust in the public arena.

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

The Ethics of Using Dolphins to Detect Underwater Mines

U.S. Navy May Use Mine-Detecting Dolphins to Keep Open the Strait of Hormuz

The threat of Iran closing the Strait of Hormuz has reached a fever pitch with U.S. officials warning Iran's supreme leader that such moves would cross a “red line” provoking a U.S. response. Iran could block the strait with any assortment of mines, armed speed boats or anti-ship cruise missiles but according to Michael Connell at the Center for Naval Analysis, “The immediate issue [for the U.S. military] is to get the mines.” To solve that problem, the Navy has a solution that isn't heavily-advertised but has a time-tested success rate: mine-detecting dolphins.

"We've got [MK 6] dolphins," said retired Adm. Tim Keating in an interview with NPR. Navy-trained dolphins would come in handy. They are astounding in their ability to detect underwater objects. Their skills are so precise that it takes six years to fully train the mammals. This three-minute video demonstrates just how the mine-detection process works. There is a 10-second promo so be patient.

The invasion of Iraq was the last time the minesweeping capability of dolphins was widely-touted. "Dolphins - - which possess sonar so keen they can discern a quarter from a dime when blindfolded and spot a 3-inch metal sphere from 370 feet away -- are invaluable minesweepers."

When this was an issue in 2003, lobbying for the rights of dolphins was much more politically sensitive given that scores of U.S. men and women were being sent into battle. "We're not going to second-guess the Navy at a time of war," said Naomi Rose, a marine mammal scientist with the Humane Society. "But we don't support the use of marine mammals for military use." Critics emphasize that it is not a matter of placing the lives of animals above those of troops. But they question the ethics and wisdom of using wild animals to ensure safe passage through hostile waters. Back when the dolphins were first used, petitions were sent to the U.S. Defense Department protesting the use of dolphins. Still, the practice continues ten years later and has become a staple of the Navy.  

In 2010, the Seattle Times reported that the Navy has 80 bottlenose  in the San Diego Bay alone. They are taught to hunt for mines and drop acoustic transponders nearby. According to a report in 2003, the dolphins only detect the mines. Destroying them is left up to the Navy's human divers. Still, the mammals are large enough to detonate a live mine, a prospect that doesn't delight animal rights groups. 

Tom LaPuzza, a spokesman for the San Diego-based Space and Naval Warfare Systems Center, cast aside the skepticism about how the dolphins were treated: “By nature, dolphins are naturally reliable and trustworthy animals that seem to enjoy pleasing their human handlers.” Following their release into the ocean for missions, "they come back to the handler, the trainer ashore or on a ship.” LaPuzza’s insensitivity to the ethics of using the dolphins in this way is quite alarming. 

The ethical issues are clear: Is it “right” to use animals that are not able to consent to their use for such a dangerous purpose? Dolphins do have rights under The Marine Mammal Protection Act of 1972. The Act prohibits the capture of wild animals from U.S. waters and it regulates standards of fair treatment. However, the Navy is exempt from the Act. One has to wonder whether this is the case because of the perceived strategic need for the dolphins in times of conflict.

An ethical reasoning approach that was used in a classroom analysis by my ethics students* in a case presentation is to weigh the harms and benefits of using dolphins to detect underwater mines. A utilitarian approach might identify the following benefits:

• Dolphins cost less to train and deploy than human divers
• Dolphins are better at detecting mines than human counterparts
• The use of dolphins can save millions of dollars because it limits damages to Navy ships
• Dolphins can help save thousands of lives
• The deployment of dolphins in strategic areas can serve the public good such as keeping the Strait of Hormuz open

The costs of using the dolphins are more difficult to assess. For example, what is the cost of taking dolphins out of their natural habitat and using them for a dangerous, self-serving purpose? Also, the dolphins can be injured or killed while “carrying out their duties.” Beyond that the costs to society include:

• Mines can be accidentally bumped by the dolphins causing harm to the mammals
• There is a lack of transparency about the Navy’s use of dolphins to detect mines; full disclosure is a basic ethical principle as the public has a right to know
• Little data exists on dolphin casualties

Not surprisingly, animal rights groups such as People for the Ethical Treatment of Animals (PETA) object to the use of dolphins for mine-sweeping purposes. In 2003 when dolphins were dispatched to the Persian Gulf to locate underwater mines, PETA activists were outraged, claiming that the animals had not volunteered their services and were unwittingly placed in grave danger. PETA claimed the dolphins don't realize the tasks they are being taught to perform are life and death. True enough and it may seem like a game to the dolphins as they are rewarded with lots of fish to eat after performing well during drills.

The bottom line issue here is why can’t Navy divers be equipped with the same underwater sonar capabilities as the dolphins? After all, if we are going to fight a war shouldn’t we be willing to use our troops in the battle? Some might say it is no different than using drones to hunt out and kill the enemy. However, drones are not living, breathing beings.

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

*Thanks to those students for their contribution: Evan Kilbourne, Taryn Kirkwood, Katie Kobayasi, Ben Lis, Melissa Mallett, and Aida Mustacich

Ethics Sage -- Expert on Ethics Issues

Press Coverage and Speaking Opportunities

I am a frequent speaker on ethics matters and am called upon from time to time to develop training materials in ethics and serve as an expert witness. To keep interested parties and my readers informed, I have prepared this post of some of the opinion editorials I have written and interviews by media outlets.

I write a monthly opinion editorial column for the Pacific Coast Business Times. One of my first columns was on the role of corporate America in the emerging class warfare and whether capitalism is a moral economic system. My last blog was on the ethics of whistle-blowing.

I also have been interviewed for my expertise in ethics by the San Gabriel Valley Tribune (city ethics), the online publication The Grio, (the ethics of capital punishment), and the New York Times (workplace ethics).

From time to time I am invited to make presentations on ethics issues and lead group discussions. Finally, I  write courses for BISK education that provides continuing education in ethics for CPAs, and I continue to produce published research in a variety of areas in business and societal ethics. My textbook, Ethical Obligations and Decision-Making in Accounting, is in its second edition and will be revised next year.

I am excited to report that I will be spending three months in Melbourne, Australia during the fall term at La Trobe University while on sabbatical leave from Cal Poly. My goal is to look at ethics from an international perspective, develop case studies in international business ethics, and expand my blog writing to a global audience.

More to come...

Press Notice published by Steven Mintz, aka Ethics Sage, on March 2, 2012

 

 

Michael Douglas says Gordon Gekko was wrong -- greed is not good

Do the Rich Act More Greedy than those Less well-off?

You may have heard that Michael Douglas came out earlier this week and confessed that greed is not so good after all. Some believe that two memorable lines from the 1987 movie “Wall Street” helped usher in an era of self-serving behavior by investment fund managers that led to the economic collapse in 2008 -- Greed is good and greed is right.

So, what are we to make of the fact that Douglas who played Gordon Gekko, a corporate raider who cheated innocent investors out of their savings in the original movie and 2010 sequel, has discovered the error of his character’s ways? No doubt it is a reaction to the difficult economic times and massive decline in wealth due in large part to the greedy actions of corporate managers and Wall Street investment bankers. But, in the real world do the rich act greedy in their own personal dealings or is it just play-acting portrayed in the movies?

A new study shows that while the poor might seem to have the most reason to cheat and steal, the rich are more likely to be dishonest. In a series of experiments, University of California at Berkeley researchers showed again and again that upper-class individuals were more prone to unethical behavior than people from more deprived backgrounds, according to the study published in the Proceedings of the National Academy of Sciences.

Paul Piff, a doctoral candidate and the study's lead author, says he was surprised at how little incentive it took to get high-income people to cheat.

In one study, for example, people were asked to play a game of chance online. The 195 volunteers were told that a die would be rolled for them five times and that the participants with the highest scores from the five rolls would get more credits toward a drawing for a $50 Amazon.com certificate. The researchers also told the volunteers to keep track of their own scores.

But Piff and his colleagues had designed the game so all players would end up with a score of 12. As it turns out, “the upper socio-economic status people were way more likely to report a score above 12,” says Piff. “It was fairly remarkable. You wouldn’t think that people reporting incomes of $150,000 per year and up would be so motivated to win this prize.”

In another study, the researchers asked 108 volunteers to fill out a survey online. Along with questions about their backgrounds, the volunteers were asked to imagine that they were employers who needed to hire someone at the lowest salary possible. In the hypothetical, they would get a bonus if they negotiated a low enough salary. The job was one that would last just six months.

Then they were asked what they would do if a candidate came in who was willing to work for less if he could be guaranteed the job would last two years. “Thus, if participants (acting as employers) were honest about the six-month limit of the job, chances are they wouldn’t be able to negotiate a very low salary,” Piff says. In this scenario, the wealthier participants were more likely to act unethically to get a reward.

Piff suspects that a combination of factors, including greed and a heightened sense of entitlement, are what spur the wealthy to cheat. While there are examples of rich people who are especially generous such as Warren Buffet and Bill Gates, money seems to have a deleterious effect on ethics in most cases, Piff says.

Now that I’ve explained some of the test procedures and findings, let me tackle the problem of greed in our society. I do believe we have morphed into a greedy, self-serving society. I have blogged about this issue many times before. It has become routine for people to think of themselves first and then, oftentimes only after already acting, to think about how their actions affect others.

I believe the cause of greed that is endemic in our society can be traced back to the 1960s, well before Gordon Gekko came on the scene. It was the era of the hippie movement fueled by the mantra to “do your own thing.” Hippies were not concerned with the way they were viewed by conventional society. This may sound good in principle but doesn’t work very well in practice because we are accountable to others. We do have a civic duty to act in ways that improve society by enabling others who may be less fortunate to get ahead.

Does this mean that the 1%ers are uncaring, greedy, and indifferent to the plight of others as many in the “Occupy” movement would have us believe? Some criticize Presidential hopeful Mitt Romney for just such behavior. For example, about a month ago he responded to a question about helping the poor by saying: "I'm in this race because I care about Americans. I'm not concerned about the very poor. We have a safety net there. If it needs repair, I'll fix it."

In theory there is nothing wrong with Romney’s message. He is, after all, a businessman first and his answer reflects a business approach. Unfortunately, it is lacking in compassion. This is a valid reason to criticize Romney and, I believe, what is behind the results of the Cal Berkeley study.

Perhaps the most interesting aspect of the study results is an online preference poll conducted by MSNBC after reporting the story. By no means are these results indicative of the entire population of the U.S. However, it is quite curious to have solicited the following responses.

Do you think rich people are more likely to cheat, steal or cut you off in traffic?

• Yes (71%). How do you think they got rich in the first place?
• No (4%). In my experience, rich people aren't less ethical than the poor.
• Not sure (25%). I think it depends on the person, not on the tax bracket.

I, myself, would have answered “not sure.” I do not stereotype people. There are good people and not so good people of all shapes and sizes. Goodness is an end result sought by those who act out of virtue and includes having empathy for others.

There is an old proverb that dates back to the Cherokee tribe of Native Americans, who said “Don’t judge a man until you have walked a mile in his shoes”. Nelle Harper Lee, an American authoress, was seemingly inspired by the saying of the Amerindians in her book “To Kill a Mockingbird,” where she wrote

“You never really know a man until you understand things from his point of view, until you climb into his skin and walk around in it.”

This is the most challenging part of being an American today. We have lost touch with those who are less fortunate than us; those who are struggling to make ends meet during the most trying times; and those who need a gentle push to help pull themselves up by their bootstraps.

Blog posted by Steven Mintz, aka Ethics Sage, on March 1, 2012

Fraud at Chinese Companies Raise Questions of Transparency and Oversight

SEC Brings Charges against Ming Zhao, chairman of Puda Coal Inc., and its former CEO, Liping Zhu

I have previously blogged about ethical problems in Chinese Businesses and financial reporting practices that bring into question the trustworthiness of accounting and financial reporting practices by Chinese companies. In particular, a massive fraud at Longtop Financial, a popular Chinese software company raises doubts about whether and when China will be accepted as playing by the free market rules that depend on financial accuracy and transparency.

Additional problems have been identified by federal regulators after filing civil fraud charges on February 22 against the chairman and the former CEO of a Chinese company, accusing them of duping people to invest in a coal company that was an empty shell.

According to the Associated Press, The Securities and Exchange Commission announced the charges against Ming Zhao, chairman of Puda Coal Inc., and its former CEO, Liping Zhu. The SEC said they conspired to “loot” and sell the company’s main asset, a coal mining firm.

Puda Coal’s stock traded on the New York Stock Exchange from September 2009 to August 2011. The SEC said Zhao and Zhu raised money from U.S. investors in two public stock offerings during which time they stole and sold the company’s assets before they raised more than $100 million from public investors in the United States.

Because Zhao and Zhu failed to disclose their moves in regulatory filings, the investors were unaware that Puda Coal no longer owned the coal mining firm and was a shell company with no business operations, the SEC said in a lawsuit filed in federal court in Manhattan.

Their “massive fraud ... wiped out hundreds of millions of dollars in shareholder value,” George Canellos, director of the SEC’s New York regional office, said in a statement.

The agency also alleged that Zhao and Zhu obstructed its investigation of Puda Coal, forging a letter from a large Chinese state-owned financial firm attesting that the coal company’s investors weren’t harmed by the sale of the mining firm.

The SEC is seeking unspecified fines and restitution from Zhao and Zhu, and a ban against them serving as officers or directors of any public company.

There have been troubles at several other Chinese companies, most of which went public in the U.S. through a back-door procedure known as a reverse merger that doesn’t require an initial public offering. A private company can access the public markets by buying a shell company that is already listed.

The most interesting aspect of the Puda Coal case is how easy it turned out to be to discover the fraud. It was basically spelled out in documents that were publicly available in China months before American and Canadian investment banks, advised by major law firms, raised the money from investors. But it appears no one bothered to look — not the underwriters and not the auditors.

“They charge a lot for due diligence,” says the man who uncovered the fraud, Dan David, a 43-year-old money manager from Skippack, Pa. “But they don’t do it.”

What the documents showed was laid out last week by the S.E.C. Puda’s principal asset was a coal mining company, Shanxi Puda Coal. But in 2009, chairman Zhao transferred that interest from Puda to himself. The next year, he sold a controlling interest in it to Citic.

Puda, which had gone public in the US through a merger with a shell company in 2005, did not disclose those crucial facts when, in February 2010, it raised $12.8 million selling stock to American investors, in an offering underwritten by Brean Murray, Carret & Company of New York and Newbridge Securities of Fort Lauderdale, Fla. In December 2010, a $100 million share sale was underwritten by Macquarie Capital, a Canadian firm, and Brean Murray. Investors in that offering paid $12 a share for stock that now trades for about 25 cents.

The fraud blew up last spring. On Friday, April 8, Mr. David posted his analysis on his Web site, GeoInvesting, and a similar analysis was posted on the Web site of Alfred Little, a firm that had a reputation for spotting Chinese frauds. That analysis was unsigned, but it was written by Andrew Wong, the head of the IFRA Group, a Hong Kong research firm.

“In contrast to most of the other Chinese frauds, where the business was not real, this was a profitable company that the chairman just stole,” Wong said in an interview last week. He said he had looked into the company after David asked him to review his own research.

“Incredibly,” Wong wrote in his report, “Puda’s auditor, Moore Stephens, failed to catch this theft of an entire company that is clearly documented in government ownership filings that any lawyer can obtain directly from the source.” In July, Stephens quit as the company’s auditor and said its previous audits could not be relied on.

The company’s audit committee investigated the allegations, and eventually concluded they were accurate. But there was contradictory statement by Zhao who in April produced a letter, ostensibly from Citic, saying that it had not purchased the company, and sought to reassure investors by saying he was considering taking the company private at $12 a share. Eventually, Citic said the letter was false, and the company said Mr. Zhao had admitted forging it.

The readily available documents were filed with China’s State Administration for Industry and Commerce, known as S.A.I.C., showing transactions affecting the filing companies. Chinese companies must publish lists of all their subsidiaries, and it is necessary to check filings by all the subsidiaries.

The Chinese authorities appear thus far to have shown no interest in bringing charges against the men named by the S.E.C. and, according to David, the Chinese government was restricting access to some S.A.I.C. filings and asking why people they were interested in a certain company, a fact that has scared some investigators who fear reprisals.

A basic requirement of investment markets is for investors to have a reasonable confidence that they are not being defrauded, and — if it turns out they are — that the government will seek to punish those responsible. It is quite clear to me that businesses in China have failed to establish a corporate governance system that prevents fraud from occurring and fully discloses it when it does occur. For those of you who are considering investing in Chinese companies to take advantage of their economic boom I can only offer two words of advice – caveat emptor.

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

Gap Between Rich and Poor Widens

Will the Younger Generation Survive the Economic Downturn?

I have previously blogged about the wealth gap in the U.S. in the conext of the "occupy" movement. A recent study by the Pew Institute provides evidence of this disturbing trend.

The wealth gap between younger and older Americans has stretched to the widest on record, worsened by a prolonged economic downturn that has wiped out job opportunities for young adults and saddled them with housing and college debt.

The typical U.S. household headed by a person age 65 or older has a net worth 47 times greater than a household headed by someone under 35, according to an analysis of census data recently released. The 47-to-1 gap in net worth between old and young is believed by demographers to be the highest ever, even predating government records.

While people typically accumulate assets as they age, this gap is now more than double what it was in 2005 and nearly five times the 10-to-1 disparity a quarter-century ago, after adjusting for inflation.

The analysis by the Pew Research Center reflects the impact of the economic downturn, which has hit young adults particularly hard. More are pursuing college or advanced degrees, taking on debt as they wait for the job market to recover. Others are struggling to pay mortgage costs on homes now worth less than when they were bought in the housing boom.

The report casts a spotlight on a government safety net that has buoyed older Americans on Social Security and Medicare. "It makes us wonder whether the extraordinary amount of resources we spend on retirees and their health care should be at least partially reallocated to those who are hurting worse than them," said Harry Holzer, a labor economist and public policy professor at Georgetown University who called the magnitude of the gap "striking."

The median net worth of households headed by someone 65 or older was $170,494. That is 42 percent more than in 1984, when the Census Bureau first began measuring such data broken down by age. The median net worth for the younger-age households was $3,662, down by 68 percent from a quarter-century ago, according to the Pew analysis.

Because the Pew report examines households at the midpoint of the economic scale, it does not delve deeply into changes occurring at the top and bottom of the distribution. A new census measure shows the poverty rate to be higher than previously known — about 15.9 percent for Americans 65 or older, compared to the official 9 percent rate reported last September. Working-age adults ages 18-64 also saw increases in poverty — from 13.7 percent to 15.2 percent.

Nancy LeaMond, an executive vice president of AARP, noted that older Americans spend a disproportionate share of their income on out-of-pocket medical care, compared to other groups. "Millions of older Americans today continue to struggle to make ends meet," she said. "Many older Americans do own their homes, but plummeting housing values — along with dwindling savings, stagnant pensions and prolonged periods of unemployment — have taken their toll."

In all, 37 percent of younger-age households have a net worth of zero or less, nearly double the share in 1984. But among households headed by a person 65 or older, the percentage in that category has been largely unchanged at 8 percent.

While the gap in net worth has been widening gradually due to delayed marriage and increases in single parenting among young adults, the housing bust and recession have made it significantly worse.

For young adults, the main asset is their home. Their housing net worth dropped 31 percent from 1984, the result of increased debt and falling home values. In contrast, Americans 65 or older were more likely to have bought homes long before the housing boom and thus saw a 57 percent gain in housing net worth even after the bust.

Older Americans are staying in jobs longer, while young adults now face the highest unemployment since World War II. As a result, the median income of older-age households since 1967 has grown at four times the rate of those headed by the under-35 age group.

Social security benefits account for 55 percent of the annual income for older-age households, unchanged since 1984. The retirement benefits, which are indexed for inflation, have been a consistent source of income even as safety-net benefits for other groups such as low-income students have failed to keep up with rising costs.

Paul Taylor, director of Pew Social & Demographic Trends and co-author of the analysis, said the report shows that today's young adults are starting out in life in a very tough economic position. "If this pattern continues, it will call into question one of the most basic tenets of the American Dream — the idea that each generation does better than the one that came before," he said.

Other findings:

— Households headed by someone under age 35 had their median net worth reduced by 27 percent in 2009 as a result of unsecured liabilities, mostly a combination of credit card debt and student loans. No other age group had anywhere near that level of unsecured liability acting as a drag on net worth; the next closest was the 35-44 age group, at 10 percent.

— Wealth inequality is increasing within all age groups. Among the younger-age households, those living in debt have grown the fastest while the share of households with net worth of at least $250,000 edged up slightly to 2 percent. Among the older-age households, the share of households worth at least $250,000 rose to 20 percent from 8 percent in 1984; those living in debt were largely unchanged at 8 percent.

The Pew survey is a wake-up call for our elected officials that social security and Medicare must be fixed, and sooner rather than later. We are not likely to emerge from the recent economic downturn anytime soon. I believe it will take at least another five years to be anywhere close to where we were before the 2008 meltdown. That would mean a ten-year period of slow or no growth accompanied by a continued loss of jobs overseas, dependence on unreliable foreign sources of oil, and an appetite for war that seems to send our brave soldiers to the most troubled areas of the world with little chance to make a sustainable difference in how those countries are run or the quality of life for the population.

If the U.S. continues down the same path we’ve been on since Bush invaded Afghanistan and Iraq and corporate American and Wall Street took greed to an unfathomable level, then I fear this country may become susceptible to an infiltration by groups that want to destroy the American dream. Where are our politicians on these important issues? Where is the discussion and debate in the current election cycle? I’m still waiting.

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

Have Mortgage Giants been held Accountable in the $25 Billion Foreclosure Settlement?

Mortgage Fraud Exposed: Subprime Loans, Fraudulent Foreclosure Practices and Robo-Signings

The month of February has seen darks days for the largest mortgage companies in the U.S. Federal and state officials on February 9 announced a landmark $25-billion agreement with the nation’s five largest mortgage servicers to settle investigations involving foreclosure abuses and try to stabilize the housing market.

The deal would give $17 billion in relief to current homeowners, mostly by reducing the amount of principal they owe on their mortgages.

An additional $5 billion would be paid in cash to California and more than 40 other states as restitution for foreclosure paperwork problems, commonly referred to as robo-signing, and other improprieties by the servicers in the foreclosure process. Officials said hundreds of thousands of homeowners would probably get $1,700 to $2,000 each under that part of the deal -- an amount hardly sufficient given the agony they suffered due to mortgage fraud.

About $1.5 billion of the $5 billion would be distributed directly to people whose homes were foreclosed on from 2008 through 2011.

In addition, the five servicers – Bank of America Corp., JP Morgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. (formerly GMAC) -- agreed to spend about $3 billion to refinance about 1 million existing mortgages, most of those likely to be for homeowners whose properties are worth less than they owe on their loans. These five banks handle payments on more than half the nation's outstanding 27 million home loans and therefore have been at the center of the servicing and foreclosure abuses the settlement is supposed to end.

The $3 billion is the amount the servicers would lose on the refinancings, not the total amount of principal to be written down, which officials expect will be much larger. And as part of the deal, $1 billion will come from one of the servicers to settle other outstanding claims.

Federal and state officials will try to get another nine large mortgage servicers to sign on to the settlement, which could increase the deal to $30 billion.

Before you jump for joy and proclaim “Finally, the mortgage giants are being held accountable for their misdeeds that fostered in a period of despicable mortgage lending practices related to subprime loans and rob-signing foreclosures,” consider that the banks are not really putting up $25 billion. The only cash the banks are paying is a combined $5 billion, including $1.5 billion to compensate borrowers whose homes were foreclosed on from 2008 through the end of last year – in some cases without due process -- with the rest going to the federal and state governments to pay for regulatory programs. Most of the balance is in mortgage relief for stressed or underwater mortgage holders, including principal reductions, refinancings and other modifications.

Something else to consider is that many of the loans destined to be modified under the settlement aren't even owned by the banks, but rather by investors — the banks just collect the checks. The banks had long ago sold off millions of mortgage loans as mortgage-backed securities to unwitting investors such as pension funds, 401(k) plans, insurance companies and the like — parties that did not themselves engage in any of the wrongdoing covered by the settlement. Other investors such as Goldman Sachs are not so innocent because they sold off their holdings as securitized investments to third parties unaware of the risks.

Subsequent to the February 9 agreement, it was announced on February 17 that Citigroup has agreed to pay $158.3 million to settle U.S. civil claims that it defrauded the government into insuring thousands of risky home loans made by its CitiMortgage unit.

That settlement is unique in that it resolves claims under the federal False Claims Act against the bank, and arose from a "whistleblower" lawsuit brought by Sherry Hunt, a CitiMortgage employee in Missouri.

The United States joined the civil fraud case, which raised claims under the False Claims Act, a federal law designed to recover money taken from the government by fraud, and discourage further wrongdoing. Whistleblowers can receive up to 25% of settlement amounts in such cases.

Citigroup agreed to pay the $158.3 million to settle. Hunt said her share will be $31 million.

In settling, Citigroup accepted responsibility for conduct alleged in the complaint, dating back to 2004, admitting that it had misled the government into insuring risky home loans, according to settlement papers filed in U.S. District Court in New York. Investigators said the misconduct lasted for more than six years.

The civil fraud case is part of a crackdown by the Department of Justice against lenders it believes contributed to the housing crisis by originating risky home loans that should not have been made, insured or sold. That’s good news but I have to wonder whether it is too little, too late. Why in the world have these mega-institutions been allowed to get away with mortgage fraud for so long? After all, the first signs of such behavior were in 2008. Cynics would say that the delay was due to political factors. Realists say that the reason for action now is that the Obama administration can claim it is cleaning up the mess brought on before the President took office.

The ethical issues abound in the mortgage fraud scandal. In my view the most important is whether the American public should trust the banks and investment houses, such as Bank of America and Citigroup, to act as responsible corporate citizens. What about the Goldman Sachs' of the world that enabled the bad behavior by purchasing mortgage-backed securities and then re-selling them as securitized assets to unwitting investors left holding the bag.

To whom do these financial institutions owe ultimate allegiance? Is it to their shareholders who are mainly interested in maximizing their wealth? Is it to the homeowner who expects these institutions to act in the public good? Or, is it to the greedy interests of top managers, which seems to be the case and was the motivating force for improper lending practices that led to the financial meltdown? These are important questions and ones best left to a future blog.

Blog posted by Steven Mintz, aka Ethics Sage, on February 20, 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

Should Colleges Teach a Course on the Occupy Movement?

What is the Value of a Separate Course on the Occupy Movement?

Last week Chicago’s Roosevelt University announced it is now offering a class on the recent Occupy Wall Street movement, allowing students to enroll in an up-to-date political science course that tries to examine the protest campaign that has spread across the US and the globe.

Jeff Edwards, an associate professor of political science and an expert in social movements, will instruct students with a curriculum that he says will examine essays and articles about the Occupy movement, including pieces penned by the protesters themselves. In New York, demonstrators launched the Occupied Wall Street Journal. In the nation’s capital, it was the Occupied Washington Post. Protest hubs in both cities have been raided by law enforcement, but nearly five months in the movement appears to "still have legs".

“It is exciting and timely to look at a movement as it unfolds in its early years,” Edwards says on the Roosevelt website. To watch the movement grow, he says that his students will attend General Assembly meetings of the Occupy Chicago protests, in addition to studying text that examine the ties between corporate greed and inequality in America.

I’m all for teaching about corporate greed and inequality in America and the original goals of the movement, but those goals have since been co-opted by other groups with their own agendas. Lately we have been witnessing disruptions and even violence at events that occupiers don't like with messages they don't agree with. The occupiers claim it is an exercise in civil disobedience. The problem is oftentimes there is nothing "civil" about their behavior.

From a professorial point of view I have to ask: Wouldn’t it be more pedagogically sound to teach about corporate greed and inequality in America in the context of the study of capitalism as a moral system according to Adam Smith or Ayn Rand’s objectivism?

So far 32 students have signed up for Professor Edwards’ class, Political Science 390, Special Topics in Political Science: Occupy Everywhere. He discusses the objectives of the course in an interview with CNN. In the video a student is asked whether she believes the “Occupy Movement” is as important to society as the civil rights movement and the sexual revolution. Of course the answer is “yes”. This really overstates the importance of the movement that started with the best of intentions to criticize greed in corporate America and the Wall Street banks that brought on the financial meltdown in 2008. Recently the movement has morphed into providing a platform for all kinds of grievances including the need to expand social programs.

Equating the Occupy Movement with other movements that have promoted equal rights for all citizens regardless of color or gender also belittles these humanitarian struggles that have advanced our nation as a civil society and provided lasting change. How can we possibly equate a movement that started just a few months ago with seminal events such as the civil rights movement and the sexual revolution? In the video Professor Edwards is asked whether he thinks the course he is offering will be offered five years from now. He answers “I think so”.

The question is how can a university agree to offer a course that purports to represent a movement based on thinking it still will be offered in five years? How can a university squander resources on teaching something that really should be discussed in a broader course that examines a variety of opinions and in a historical context?

Over the past few years colleges and universities have been pushing the envelope further than ever before in order to teach something that may be of deep personal interest to a professor but that takes us further and further away from our core values and historical beginnings, all in the guise of being relevant to today’s student body. You may recall hearing about the course in Human Sexuality that was taught at Northwestern University by Michael Bailey. If you missed that one the course gained national attention when Professor Bailey invited students to witness a live sex act between a woman, her boyfriend and another woman in a campus building.

I suppose some professors believe that an in-your-face approach to teaching will gain the attention of today’s students who have become accustomed to viewing offensive behavior on You Tube or on reality TV. Perhaps some professors believe such an approach to teaching is necessary to garner student interest in what they teach. However, the real challenge for a professor is to teach societal core values that are main-stream to American culture in a historical context, in a thought-provoking way, and in an intellectually stimulating manner.    

According to Professor Edwards, part of the course readings are the occupy newsletters and social media. How can a college course be offered with such a dearth of epistemological support for its very being? As I thought about this question from a college professor’s perspective I had to wonder what was next. How about a course on the Tea Party? Hasn’t it done as much or more than the Occupy Movement to influence thought especially during this election cycle?

Then again if cooler minds prevailed the Occupy movement would be discussed in a course that addresses the original Tea Party – you know in Boston. Remember that one on December 16, 1773? The one that spawned the American Revolution and led to the mantra: No taxation without representation. Do we even teach about it anymore? The incident remains an iconic event of American history, and other political protests often refer to it. I wonder if Professor Edwards even mentions it in his “Occupy” course.

Blog posted by Steven Mintz, aka Ethics Sage, on February 13, 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

Republicans Ready to Obstruct Obama’s Housing Plan

John “no can do; no way” Boehner Exemplifies Ignorance and Insensitivity of Republicans

Speaker of the House John Boehner (R-OH) reacted negatively (no surprise there) and insensitively (less of a surprise) to the news that President Obama is proposing new legislation that would expand on a refinancing plan announced last October by directing federal mortgage giants Fannie Mae and Freddie Mac to allow refinancing for mortgage-holders even if their homes are underwater by any amount. But the plan could not be offered to homeowners with mortgages privately held by banks. The new legislation would allow those homeowners to refinance as well, with the associated costs covered by a fee on major lenders.

Boehner criticizes the plan because “none of the president’s previous proposals to help the housing market has worked.” That may be true and the Obama administration is to blame. However, what Boehner doesn’t seem to get is the current proposal is designed to help homeowners with underwater mortgages that have been making their monthly payments on time and are up to date. While previous plans also were designed to help homeowners with underwater mortgages, the loan-to-house-value was limited to 125%. That covers only a small percentage of homeowners who have watched while home values have tanked during the past four years.

I am one of those with a loan-to-house-value greater than 125%. My FICO score is above 800. Yet, I can’t refinance and take advantage of historically low interest rates because of the arbitrary loan-to-house value limitation of the current program.

Homeowners like me have played by the rules whereas other targeted plans to help homeowners were designed to help those in foreclosure by reducing the principal so it becomes a “freebie” for the homeowner, or lower the interest rate. These folks have not played by the rules because they missed payments or just decided not to make them yet these are the folks helped by current government mortgage assistance programs. The problem here is most of these homeowners have gone through or are at the door of foreclosure and in no position to continue to make mortgage payments even after loan modification.

Speaker Boehner, I ask whether you have ever heard of “moral hazard?” Moral hazard occurs when a party protected from risk behaves differently than it would if it were fully exposed to the risk. It arises because an individual or organization does not take full responsibility for its actions so that the consequences of bad behavior do not befall on that party. Instead, responsibility passes to another party (the banks; the public) that covers the cost of the risky behavior. The recent bailout of troubled homeowners in foreclosure is an example of moral hazard.

Why should a homeowner who can stop making payments and modify their loans continue to make the payments? In fact, there is a whole new cottage industry that has been created to help such homeowners skirt their responsibilities. The best known is “Strategic Default.”

Homeowners like me are not asking for a bailout or loan modification. We simply ask for fairness – a subject that is anathema to Republicans. We simply ask to be able to refinance our underwater mortgages without being told by Fannie or Freddie that we can’t because the loan-to-home value is greater than 125%. We simply ask to be able to take advantage of today’s historically low interest rates just like homeowners in foreclosure.

I believe President Obama missed the boat to turn around the economy in the first few months of his administration with regard to housing because programs were developed to help those who, at best, would be in a marginally better position to pay their mortgages on time. Moreover, whatever money they saved on monthly payments after loan modification was probably used to keep them out of any future foreclosure situation. That doesn’t help to stimulate the economy and provide the necessary boost  through an improved housing situation. What’s worse is it simply delays the foreclosure process that is needed before home values can start to recover.

Those of us patiently waiting during the past four years for some help know that the money we save on our monthly payments will be used in large part to stimulate the economy and the economic effect will be ten times greater than heretofore. We are the ones who have paid our monthly mortgages on time and will use the money to buy things. You know, maybe do that home remodeling project long delayed and help create jobs in housing and construction. Maybe we’ll buy a new flat screen TV or computer and provide jobs in the private sector.  Isn’t that what we need to jump-start the economy? We are the ones who will do it because we have the financial wherewithal to continue making our mortgage payments without government assistance.

The Republicans have become so blinded by their desire to defeat President Obama that they have lost touch with average Americans. They think they know what is best for us, but it seems to me they are more concerned with things like the banks having to absorb the money lost by administering the new housing program by paying a fee. Their raison d'être is to beat Obama without regard to how their intransigence harms the average American.

The mind set of Republicans reminds me of an old Zen saying:  “If you understand, things are just as they are; if you do not understand, things are just as they are.”

Blog posted by Steven Mintz, aka Ethics Sage, on February 6, 2012

“Big Brother” Google to Impinge on Personal Privacy

Google Policy on Sharing Information is Unethical

By now you have heard that Google has developed a plan to link user data across its email, video, social-networking and other services as it consolidates more than 60 privacy guidelines it had for products into one master privacy policy. In a move criticized by some as a massive invasion of privacy, the changes will piece together information from Gmail to YouTube to the Google Plus social network.

Gizmodo, the technology website, called the new policy the end of Google’s ‘don’t be evil’ motto because it reversed the company’s previous promise to give customers “meaningful and fine-grained choices” over how their personal information was used. I call it eerily Orwellian-like circa 2012, some 28 years after George Orwell’s Big Brother fictional character in his novel 1984 that has entered our collective psyches.

The new policy means that things you could do in relative anonymity today will be explicitly associated with your name, your face, your phone number come March 1. Google might share this information with online service providers. The company has written to users to describe the new policy as creating a “beautifully simple and intuitive” experience on its sites.  You be the judge.

Imagine if you spend an hour signed in to a Google account searching the Web for skateboards and the next time you log into YouTube, you might get recommendations for videos featuring Shaun White, along with ads for his merchandise and the nearest place to buy them. Now imagine this happening with every choice you make.

I believe Google’s announced policy is unethical practice because allowing consumers to opt-out should be a basic tenet of ethical business practices for internet provider with respect to sharing information. Moreover, the company must ensure that the ways it uses data help users without revealing sensitive information.

Lawmakers seem to agree as evidenced by the response to Google’s new policy: "We believe that consumers should have the ability to opt-out of data collection when they are not comfortable with a company's terms of service and that the ability to exercise that choice should be simple and straightforward.” The lawmakers asked Google for details about how the privacy settings could affect people with Android phones, which require users to sign into their Google account.

Lawmakers have previously considered the idea of new privacy legislation to set restrictions on Internet companies to protect consumer information, although no legislation is expected to pass until Google responds to questions raised by members of the House of Representatives by mid-February.

The motivation for Google to establish its sharing policy now is, at least in part, in response to a Federal Trade Commission report Protecting Consumer Privacy in an Era of Rapid Change that was issued in December 2010. The FTC studied privacy issues and concluded sharing policies should not be prohibited. Having blessed such practices, the FTC has given the green light to companies like Google to establish such data gathering policies.

In its report the FTC points out the two sides of the issue. On the one hand consumers want greater transparency, a simplified process to exercise choice over how their information is collected and used, and to ensure that business take privacy-protective measures as they develop and implement systems.

At the other end are those who believe the government should not restrict the exchange and use of consumer data in order to preserve the substantial consumer benefits made possible through the flow of information. They claim the use of consumer data not only helps to fund a variety of personalized content and services, but also allows businesses to innovate and develop new products and services that offer consumers convenience and cost savings.

To me this is an example of a powerful lobbying group getting its way because its influence vastly exceeds that of those who would protect the public interest.

By now you may be wondering how Google gathers information about you and your habits. Of course there is the personal information you provide. Then there is the information it derives from your use of device-specific use such as search queries. So far, so good but Google also will collect and store information on your daily calendar, telephone numbers you have called, GPS signals sent by a mobile device, and, most troubling, device event information such as crashes, system activity, hardware settings, browser type, browser language, the date and time of your request and referral URL. If you are interested, Google provides a more thorough explanation on its website.

Even scarier to me is how Google might use the information collected. Here are some examples:

• To offer you tailored content – like giving you more relevant search results and ads.
• If other users already have your email, or other information that identifies you, Google may show them your publicly visible Google Profile information, such as your name and photo.
• Google may combine personal information from one service with information, including personal information, from other Google services – for example to make it easier to share things with people you know.
• Google may process your personal information on a server located outside the country where you live.
• Google may collect and process information gathered from GPS signals sent by a mobile device.
• Google may also use various technologies to determine location, such as sensor data from your device that may, for example, provide information on nearby Wi-Fi access points and cell towers.

I do not think it is a coincidence that Google announced its new policy shortly after reporting its 2011 fourth-quarter earnings results that showed the company’s average revenue per click fell 8 percent from the previous year. Google shares have fallen about 10 percent since the report. What better way to improve these numbers then by establishing a new policy that impinges on personal liberties and choices we might make in order to enhance advertising revenues.

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

What is meant by Life, Liberty, and the Pursuit of Happiness

Virtue is the Key to True Happiness

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are life, liberty, and the pursuit of happiness. These three aspects are listed among the "unalienable rights" or sovereign rights of man.

This, the second sentence in the Preamble of the Declaration of Independence, has been called one of the best-known sentences in the English language. It remains to this day the most profound, self-evident, and—to sovereigns everywhere, the most gut-wrenching—sentence ever penned and declared by the citizenry of any country.

Most people agree about the meaning of life and liberty. In one sense life gives us the freedom to pursue happiness. However, disagreement exists over what is meant by the phrase “pursuit of happiness.” I address this issue because of the increased attention placed on the question of how should one go about pursuing happiness in the current Republican primary cycle.

When the Founders spoke of the right to pursue happiness, what they meant, according to Newt Gingrich, was the right to pursue "wisdom and virtue, not hedonism." Rick Santorum's interpretation is that, “Happiness is not enjoyment or pleasure. Happiness means to do the right thing — to do not what we want to do, but what we ought to do.” Putting these two explanations together one might say that in pursuing happiness we should do so in a reasoned way; in a manner motivated by an inner sense that it is the right thing to do -- the right way to behave -- and not solely for our own self-gratification. 

Contrast this explanation with Ayn Rand’s Objectivism that holds the right to pursue happiness protects the individual’s ability to live for her own sake, rather than for the sake of society. It is based on the idea that the pursuit of one's self-interest is one's highest moral purpose.  This belief has been identified with the capitalist ethic that by pursuing one’s own interests the result will be benefits for all in society.

I believe that the pursuit of self-interests notion embedded in modern capitalism is largely responsible for the 2008 financial meltdown whereby financial institutions made home mortgage loans to unsuspecting buyers not qualified for such loans and then sold off a basket of loans as a collateralized debt obligation thereby transferring risk to another party. Why should have commercial and investment banks care about the qualifications of a home buyer when they knew at the end of the day risk would be transferred to some other party?

The ancient Greeks had a very different perspective on happiness. Aristotle spoke about achieving eudaimonia, which is roughly translated into happiness.

Eudaimonia is not an emotional state; it is more about being all that you can, fulfilling your potential. The idea is that by living in a way that reaches your full potential you bloom or flourish and so display the best version of you that you can be. This meant striving for "arete," which loosely translated means excellence or virtue. So, for the ancient Greeks, leading a virtuous life would lead to happiness.

For Aristotle the act of living in balance and moderation brought the highest pleasure. Not in the action itself, but in the way of life. It is this way of life that would lead to the greatest long-term value rather than just a passing amusement. A modern illustration would be the difference between earning a high income, but spending it all and living in more moderation and having great wealth that will last you and provide security.

By virtues, Plato meant developing positive traits of character that would enable one to achieve true happiness. Wisdom, courage, temperance, and justice were the cardinal virtues according to Plato.

I teach ethics and emphasize to my students the explanation of classical Greek virtue espoused by the philosopher Alasdair MacIntyre. He believed that the exercise of virtue requires “a capacity to do the right thing in the right place at the right time in the right way.” One’s judgment in making these decisions comes from those dispositions (tendencies) that enable choices to be made about what is good for people and by holding in check desires for something other than what will help achieve this goal. For MacIntyre, virtues such as truthfulness and trust, justice, courage, and honesty would direct one’s actions in the betterment of society.

Given the challenges facing our society, each of us must remember that it is one’s actions that lead to true happiness. We gain the ability to act morally through knowledge and reason. We make deliberate choices that move us toward achieving happiness but should do so through virtuous behavior that advances society, not self-indulgent behavior.

As we watch the race for the Republican nomination unfold let us not forget that we have responsibilities to others in a civil society. Our actions affect others and it is through virtuous behavior that we achieve the end goal of happiness.

Let me conclude with a quote from Thomas Jefferson:

"Self-love . . . is the sole antagonist of virtue, leading us constantly by our propensities to self-gratification in violation of our moral duties to others."

Blog posted by Steven Mintz, aka Ethics Sage, on January 30, 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 Killing the Homeless?

Homelessness Problem is a National Disgrace

Three weeks; four homeless dead; and the police have no idea why. Apparently, not any more. According to Orange County DA Tony Rackauckas, the 23-year-old suspect and Iraq war veteran Itzcoatl Ocampo was a thrill seeker who took pleasure in killing his victims. "He gets a thrill out of it," Rackauckas said. "This is a serious, vicious killer who went out there intentionally going about killing people and terrorizing a whole area."

Ocampo, a 23-year-old former Marine, allegedly killed four homeless men in the Orange County, California area in a two-week period of time. The first of the four victims, James McGillivray, 53, was found on Dec. 20 outside a shopping center in Placentia. The second, Lloyd Middaugh, 42, was found eight days later on the Santa Ana River Trail in Anaheim, and the third, Paulus Cornelius Smit, 57, was found behind the Yorba Linda library on Dec. 30.

The fourth victim was John Berry, a Vietnam War veteran who had stayed in the area for years, sometimes sleeping on a bench beside a river bed or, on rainy nights, in the shopping center where he was killed.

Why target the homeless? This is a question I ask myself all the time. What kind of morally-challenged individual picks on the most vulnerable in our society for their own gratification? The fact that Ocampo apparently dealt with homelessness himself suggests to me that he may have been lashing out at his own predicament by killing others with the same afflictions.

Homelessness is at a critical stage in this country especially with respect to homeless veterans. In a previous blog I pointed out that according to the National Coalition for the Homeless there are between 130,000 and 200,000 homeless people living on the streets of the wealthiest country in the world on any given night, and between one fourth and one-fifth of all homeless are veterans.

The news gets worse for the homeless. According to The National Center on Family Homelessness one in every 45 American children are homeless. That totals roughly 1.6 million kids. Children experiencing homelessness:

• Are sick four times more often than other children.

• Homeless kids have four times as many respiratory infections; twice as many ear infections; five times more gastrointestinal problems; and four times more asthma.

• They go hungry at twice the rate of other children yet have high rates of obesity due to nutritional deficiencies.

• Homeless kids have three times the rate of emotional and behavioral problems compared to non-homeless children.

Out here in LaLa land, some of us still don’t believe what happened in October 2005. Police officers from outside L.A. were observed “dumping” their unwanted mentally ill homeless on the city streets. Apparently, this inhumane “dumping” at the doors of social service organizations already short on staff and funds has been going for years. The reason given is that the cities outside L.A. don’t have the services to serve the homeless, so they travel miles outside their municipal jurisdictions and ‘dump’ them in the downtown area.

According to recent reports, the number of homeless on any given night in Los Angeles County has reached 100,000. The County of Los Angeles is now the homeless capital of the U.S., surpassing the total homeless in New York City, Chicago, and San Francisco. The homeless population of L.A. County is larger than the entire population of the city of Santa Monica.

Housing to provide the homeless with a warm place to sleep and food to eat exists in most communities. They may be homeless shelters, halfway housing, day shelters, and other forms of supportive housing. The problem is all too many homeless can’t find their way to such assistance and many feel ashamed having to use it.

One successful program that has been operating since 1988 in Fairfax, Virginia, is FACETS. FACETS seeks out and identifies people who are living on the streets or in the woods with the goal of helping them stabilize and ultimately move into housing. They also connect the homeless with medical and dental resources. Not surprisingly there is two-month waitlist for families to enter a Fairfax County homeless shelter so groups such as FACETS are critical to help treat the problem.

About three months ago I started to become involved in the homeless issue after reading a disturbing story in the Detroit Free Press that a homeless vet named Charles Duncan, 42, was beaten with a baseball bat and dragged behind a pickup truck on in Corktown, Detroit's oldest neighborhood. Steve J. Diponio allegedly told police he was tired of homeless people sleeping near his house. He pleaded not guilty on December 3 to the attack on Duncan.

I think it’s unfortunate that so little time has been devoted to the homeless problem in the current election cycle. Perhaps it has become that “dirty little secret” that Republicans won’t address. Let’s hope President Obama raises the issue because it is affecting more and more of our citizens every day. How many of us have seen people begging for money, sleeping in the streets, or wheeling a shopping cart with their worldly possessions?  

As a society, what are our ethical obligations to take care of the homeless and, especially, homeless veterans who made the ultimate sacrifice for our country? Let me put it this way: A wise man once said every society is judged by how it treats it's least fortunate amongst them.

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

Message to Newt: Character Counts

Newt was the First Speaker to be disciplined for Ethical Wrongdoing

It’s not about his affairs or alleged request for an open marriage. It’s not even about his book deal in 1983 when he established a limited partnership to pull together about two dozen of his biggest campaign contributors to finance his book. Nor is it about other charges of alleged misuse of official resources including using staff and office equipment to develop the manuscript. Don’t get me wrong. These are moral and ethical lapses.

For me, questions about Newt Gingrich’s character center on the improper use of official resources in preparation of a college course. This lapse in judgment deals with the ethical responsibilities of a college professor. It is near and dear to my heart as a professor who teaches ethics. Moreover, it is the only one of eighty-four ethics charges filed against former Speaker Gingrich that he admitted to and for which he was sanctioned. Gingrich is the only House Speaker to resign as a result of an ethics investigation by the House.

Gingrich's rollercoaster ride as a Presidential candidate and remarkable comeback win last night in South Carolina can be attributed to his in-your-face style of debating that includes attacking the elite media. This is exactly what many Republican voters want. The reason is we have become a divided country. We live in a time with an "us against them" mentality; the 1%ers versus the 99%ers.

Given that Gingrich may be the winner of the Republican nomination in 2012, I must raise the question whether such a person should become President of the U.S. Have we slid so far down the ethical slippery slope that one’s character no longer counts in picking a leader of the free world?

Last Friday, Politico posted the several-hundred-pages-long, four-part House Ethics Committee report on the charges against Newt Gingrich from his days in Congress. The report details numerous alleged ethical violations including the misuse of official resources in preparation of a college course "Renewing American Civilization" during 1994-1995. The report is good reading if you are an insomniac.

There were eighty-four ethics charges filed against former Speaker Gingrich during his term. I focused on Part 3 of the report that dealt with the college course. Following an investigation by the House Ethics Committee, Gingrich was reprimanded and required to reimburse the House $300,000 for its investigation expenses. Gingrich acknowledged in January 1997 that "In my name and over my signature, inaccurate, incomplete and unreliable statements were given to the committee".

The House Ethics Committee concluded that inaccurate information supplied to investigators represented "intentional or ... reckless" disregard of House rules. Special Counsel James M. Cole concluded that Gingrich violated federal tax law and had lied to the ethics panel in an effort to force the committee to dismiss the complaint against him. The full committee panel did not agree whether tax law had been violated and left that issue up to the IRS.

Gingrich’s ethical lapses exemplify the persistent problem in politics of using one’s position of power to gain favored treatment with an individual or organization. In this case Gingrich sought to personally benefit from an improper relationship with the Progress and Freedom Foundation that provided financial support related to the course.

In ethics we call this egoistic behavior because the offending party (Gingrich) failed to consider how his actions might affect other stakeholders including Congress as an institution and the American people. An egoistic like Gingrich acts purely out of self-interest. Perhaps this isn’t surprising in Gingrich’s case because he appears to have a “grandiose” ego as evidenced during the Presidential debates.

Gingrich’s major ethical failing is that he had a conflict of interests in using a tax-exempt entity in support of his college course; he also used official government resources for the same purpose. He violated the public trust in using the people’s money for his own selfish interests. The fact that he tried to cover up his actions is nothing new in politics.

Newt is a hypocrite. Going back in time to 1987, and somewhat ironically, Gingrich led the charge against Representative Jim Wright, when he accused the Speaker of ethics violations. Gingrich claimed that Wright had violated House rules in his dealings with a Texas developer and in the manner by which he had profited from sales of a book. Gingrich won a major coup in 1989 when the House Ethics Committee formally charged Wright with sixty-nine ethics violations and Wright resigned from the House. Guess who succeeded Wright?

Should character play a role in choosing a Presidential nominee? I don’t think personal issues should make the difference between supporting and not supporting a candidate. As many have pointed out, Gingrich asked for forgiveness for his extra-marital affairs and he claims to have seen the light. Even hardened criminals are given a second chance after serving time for their crime.

However, character should be an important consideration when a politician abuses his office for personal gain; when a politician lies in an ethics committee investigation; and when a politician hypocritically goes after other politicians when he, himself, is similarly flawed. It’s not only the Jim Wright situation that concerns me but let's not forget that Gingrich led the charge in the House during the 1998 impeachment hearings of President Clinton, all the while he was having his second extramarital affair with his to-be-third wife, Calista.

People who criticize others for the same behavior that they engage in are, in my opinion, not worthy of the public trust because they act as though there are two sets of rules – one for themselves and one for everyone else.

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

US Supreme Court Declines to Hear Cyber-bullying Case

What is the Solution to Regulating Student Cyber-bullying Attacks?

The US Supreme Court on Tuesday declined to take two cases involving three separate incidents involving free speech protection for public school students on the Internet.  In all three cases students were punished for posting obscene and derogatory information on students or school officials by using their home computers.

In one "cyber-bullying" case, a female high school student in West Virginia was punished for posting crude and insulting information in 2005 about another female student on a fake page on the MySpace social media site.

A US Circuit Court of Appeals ruled in July 2011 that officials at Musselman High School could punish the perpetrator without violating her free speech rights because they could reasonably believe that those comments would create a disruption at school.

In a separate case, Blue Mountain School District v. Snyder, two students from Pennsylvania -- one a high-school senior, the other an eighth grader -- were punished for opening parody MySpace profiles of their principals in 2005 and 2007 respectively.

In one fake profile the principal was depicted as a sex-crazed pedophile, while the other that the principal was gay and used drugs.

A federal appeals court in Pennsylvania ruled in June 2011 that the students not be punished because that interfered with their rights to free speech, because the posted information did not disrupt school activities.

The justices give no reasons when they decline to consider a case. However, the denial of certiorari in the two student internet speech case seems to muddy the waters in that the US Circuit Court of Appeals held that schools could punish students for offensive Internet postings while the federal appeals court sided with the free speech rights of such students.  It is indeed unfortunate the Supreme Court chose not to hear the case because cyber-bulling is the most serious problem today in our schools.

On May 7, 2010, the Pew Institute reported the results of its Research Center Internet & American Life Project. Pew found that 32% of online teens have experienced one of the following forms of online harassment: private material such as text or email forwarded without permission; receiving threatening messages; someone spreading a rumor about them online; and someone posting an embarassing picture of them online without permission.

Four cases of cyber-bullying that led to suicides stand out in my mind. On October 7, 2003, 13-year-old Ryan Patrick Halligan of Vermont hung himself in his bathroom after he had been bullied online. Ryan had been taunted and insulted about his allegedly being gay.

In July 2008, Sycamore, Ohio, high-school graduate Jessica Logan hung herself in her bedroom after nude photos sent to her boyfriend were sent to other high school girls after they broke up. The girls were harassing her, calling her a slut and a whore. Her death illustrates the dangers of sending sexually explicit messages or photographs, primarily between mobile phones (sexting).

On March 21, 2010, popular 17-year-old soccer star Alexis Pilkington of New York took her life following vicious taunts on Facebook. Pilkington’s popularity and success in soccer seems to have created a level of jealousy that prompted the cyber-bullying comments.

On September 19, 2010, 13-year-old Seth Walsh of Tehachapi, California hung himself from a tree in his backyard. Tehachapi Police Chief Jeff Kermode said investigators interviewed some of the teenagers who allegedly taunted Seth for being gay and concluded no crime was committed. The chief told radio station KGET several of the taunters broke down in tears while being questioned and said they wished they had tried to stop the bullying.

Like most states, California has been adding laws to the books to protect the bullied. An existing law that gives school officials the right to suspend or expel a student for bullying another student over the Internet or by other electronic means has been updated to include bullying others through social networking websites. The bill, AB 746, sponsored by Assemblywoman Nora Campos (D-San Jose) and signed into law by Governor Brown, goes into effect on January 1, 2012.

Perhaps this is the answer to the problem, that is, to let each state decide how to regulate cyber-bullying activity. However, when it comes to vulnerable school children, I just can’t help but feel that a national standard is necessary to avoid a situation where a student in one state can post anything and everything about another on the Internet whereas it is a crime to do so in another state. When the health and safety of young people are at stake there needs to be a national standard that creates a national value system and societal ethic.

Blog posted by Steven Mintz, aka Ethics Sage, on January 19, 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

 

 

KPMG Disclaims an Audit Opinion on Chinese Company

Ethical Culture of Chinese Businesses Raise Doubts about Financial Reports

Chinese-style western capitalism has been spreading to virtually every continent as China seeks to form joint ventures in Africa, South America, and elsewhere to ensure reliable access to needed natural resources to feed China’s hunger for economic growth and development. In recent years it has spread its “currency reserve wings” into the US through Chinese state-owned and private enterprises. The question for the investing public is whether Chinese financial statements can be relied on and, correspondingly, whether Chinese businesses can be trusted as they flex their economic muscle. A good example of the perils of outright trust is Sino-Forest Corp., a Chinese company that was charged with allegations of accounting abuses and fraud, burning investors including John Paulson, the billionaire whose hedge fund said in June it lost $468 million on Sino-Forest.

I have previously addressed the growing questions about Chinese accounting principles and the reliability of the financial statements produced by state-owned and private enterprises. I called it "The Dark Side of Chinese Capitalism". I've also looked at regulation of Chinese companies doing business in the US. In this blog I look at a recent event where the Big-4 international accounting firm, KPMG, withdrew from the audit of a Chinese company because it couldn't trust the information provided for those reports.

Just last week it was announced that after issuing a “disclaimer of opinion” with respect to China Forestry Holdings’ financial statements for the year ended December 31, 2010, KPMG has opted not to stand for reappointment as the company’s auditor. KPMG resigned as auditors of the Company as of January 5, China Forestry disclosed to the Hong Kong Stock Exchange.

First, let me dispense with a disclaimer of opinion. According to generally accepted auditing standards, an auditor should not issue such an opinion unless the firm has been unable to gather a sufficient amount of credible evidence to support the numbers in the financial statements prepared by company management. KPMG’s disclaimer “was due to the irregularities we identified during our audit and limitation in the scope of our work,” KPMG told the company in a letter.

Scope restrictions are a valid reason for a disclaimer. I’m more concerned about the former – irregularities found during an audit. My concern is not so much from an audit opinion perspective but whether the ethical culture of Chinese companies is such that American investors should follow the old adage when contemplating investment in Chinese companies – “buyer beware”.

Returning to China Forestry, the company describes itself as “one of the three largest, privately-held, naturally regenerated and plantation forest operators in China”. On its website, it claims to own and operate more than 171,000 hectares of forest land in Yunan and Sichuan provinces. It reported a loss of RMB2.7 billion (US$429 million) in 2010, in the report that KPMG issued a disclaimer of opinion.

The company admitted that for the 2011 financial year, KPMG asked that “a number of other matters will need to be resolved”. These are verification of the ownership and valuation of plantation assets, valuation of lease prepayments, valuation and ownership of inventories of logs and related sales and purchase transactions, and estimation of payables for plantation assets and taxation matters. In other words, the accuracy and reliability of all company financial statements are in doubt. China Forestry had apparently not come through on these demands, resulting in KPMG’s decision to resign.

When I look at the way Chinese companies are run I am not surprised by the increasing level of disclosure of financial wrongdoing. I find that Chinese companies have not built a strong ethical base in their state-owned and private companies. Chinese companies are not used to being questioned about what they do and why they do it because they existed so long under the Chinese communist system where the government ran the businesses. Moreover, secrecy is an important value in Chinese society so their perspective is to disclose as little as possible about a company’s financial status. Contrast that with the full disclosure notion for US companies and you can see why there is what I call a “believability GAP” in Chinese financial reports.

In the US and all western-style capitalist nations, internal controls are the bedrock of accurate and reliable financial reports. In China, the notion of internal controls has yet to take hold as questions of management about their controls can meet with stares of mistrust about the motives of an auditor who questions the believability of the financial statements.

The next great financial scandal may be waiting in the wings with respect to financial statements by Chinese businesses. In a sense the expansion of capitalism and potential for greed is one step ahead of developing and enforcing rules to prevent such occurrences and creating the kind of ethical culture that helps to prevent fraudulent financial reporting.

Blog posted by Steve Mintz, aka Ethics Sage, on January 9, 2012

Financial Statement Fraud at Olympus

Japanese Cultural Values May Have Enabled the Cover-up of Fraud

Most financial statement frauds extend for about 3-5 years before someone blows the whistle, the company makes a mistake, or it all catches up with them as the house of cards that built the fraud collapses. Not at Olympus Corporation, the Japanese maker of cameras and medical imaging equipment, where the fraud lasted more than two decades.

The Olympus fraud has a real life whistle-blower – Michael C. Woodford – the newly appointed president and CEO at the time of the fraud. It is quite unusual for the top manager to blow the whistle on his company’s fraud; kudos to Woodford for doing the right thing.

It turns out the motivating factor for the fraud was an effort to make the company’s books accurate — at least in terms of its balance sheet — that led to the suspicious transactions noticed by Woodford. He thought they showed theft from the company by its chairman, and he confronted him. Instead, the chairman had only tried to clean up an accounting mess without damaging the reputation of Olympus. The chairman felt there was no need to tell Woodford about what had happened because the fraud was finally behind the company when Woodford took the job.

New York Times reporter Floyd Norris points out that a report by an investigating committee shows that two changes in accounting rules, one caused by the Enron scandal, eventually led to the collapse of the scheme. It shows that KPMG AZSA, the Japanese affiliate of the international accounting group, failed to notice what was going on for years but finally did complain about the somewhat clumsy transactions intended to put the losses on Olympus’s books. Ernst & Young Sjin Nihon, a Japanese affiliate of that network, was brought in and did sign off.

The scandal also highlights the controversy over mark-to-market accounting. The Financial Accounting Standards Board (FASB), the U.S. accounting standard-setter, started to require it for some financial instruments in 1997. However, the fraud had begun seven years earlier so covering up the losses was easy. One reason is took so long to uncover the fraud was  at the time accounting rules in Japan, as well as in other countries, allowed investments to be carried at cost. Theoretically, there should eventually have been a write-down to a lower market value, but there never was.

At Olympus, it appears the company held at hope that with additional risky investments, the losses could somehow be made up. They were not. Over time, the company tried securities speculation and private equity investing in promising start-up companies. It didn’t work and eventually the losses grew to more than $1 billion.

Olympus seems to have been content to sit on the losses until 1997, when accounting rules required some investments had to be marked to market. To hide the fraud, the company developed a plan to “sell” the losing investments, at original cost, to shell companies (off-balance-sheet-entities) set up by Olympus for that purpose. The sales were financed with loans from banks, which received cash from Olympus to secure the loans. Under lenient accounting rules at the time, those shell companies did not have to be consolidated with Olympus, so the losses could remain hidden. These rules were tightened after the Enron fiasco.

The plan was to phase out the losses, either by more investments or through overpriced acquisitions, with the extra cost of the acquisitions going to the off-balance-sheet-entities to make them whole. That was done through a variety of means, one of which was retaining the shell companies as high-priced investment advisers. The “cost” would appear on the company’s balance sheet as good will, and eventually written off. When that was done, the balance sheet would show an accurate value for Olympus.

From 1999 to 2003, Olympus managed to get out of some losses, or at least to convert them to good will. No one outside the company was the wiser. KPMG, the auditor, did not notice, the committee report says, in part because some of the information it received was false.

However, in 2003 the FASB changed the rules for off-balance-sheet entities controlled by sponsoring entities (i.e., Olympus) so that these entities would have to be consolidated on the sponsor’s books and losses could no longer be hidden. One of Olympus’ ways to manufacture phony profits was to “sell” assets to the off-balance-sheet entities it controlled, and to book profits on those sales. That technique was negated by the new rules.

In Japan, the rules changed in 2007 and the fraud started to unravel. The off-balance-sheet-entities would have to be consolidated. Olympus had until March 31, 2008, the end of its fiscal year, to clean up its books. Efforts to continue to hide the fraud fell apart when in April of that year Woodford became president and chief executive in September. He was told to not worry about such history, but he did. With the assistance of PricewaterhouseCoopers, he unraveled the transactions but not their purpose, and concluded that company money was being stolen. He confronted the chairman and was fired. He forced an investigation, which resulted in the December 2011 report.

The report says the top officers of Olympus knew what was going on throughout and that new presidents always accepted the decisions made by their predecessors. It does not say why Woodford evidently was not told, but some have speculated that it was some combination of not trusting a foreigner who had not worked in Japan and a belief that, with the balance sheet now reflecting reality, there was no need to involve him.

On December 20, 2011 -- nearly two months after Woodford blew the whistle -- Japanese authorities raided the company’s headquarters in Tokyo, emerging several hours later with boxes of documents. The company’s stock market value had already dropped by 50 percent. Foreign investors had started to question the culture of old-style Japanese companies that attempt to thwart disclosures of negative information.

The eventual Olympus salvage plan could be a Japan-wide effort. Last week, the Nikkei business daily reported that Olympus might issue about 100 billion yen (about $1.3 billion) in new preferred shares, and that Japanese technology companies like Fujifilm or Sony might be possible buyers. Those two companies, though, denied that any such investment was in the works.

Top Olympus executives acknowledged in November 2011 that the company had conducted a decades-long effort to cover up $1.7 billion in investment losses in a global scheme that sparked public investigations on three continents. Last month, Olympus acknowledged some of the losses in five years’ worth of revised statements. Three executives implicated in the scheme have left the company. But the rest of the Olympus board has been scrambling to retain control. Backing them are the country’s biggest banks, which have significant influence over top Japanese corporations, serving as major lenders and as major shareholders.

The ethics lesson to be learned from the Olympus affair is that a lack of underlying ethical values trumps full disclosure even in the post-Enron era of transparency. In fact, underlying cultural values such as secrecy may continue to rule the day in countries like Japan that seem to place not “losing face” ahead of ethical values such as full disclosure and the rights of investors and creditors to be fully informed about both good and bad financial dealings.

Blog posted by Steven Mintz, aka Ethics Sage, on January 6, 2012  

SAT Cheating Scandal Is a Low Point in High School Student Ethics

Cheaters Cheat, Honest kids are Harmed, and the Reliability of the SAT is Questioned

Perhaps you saw the 60 Minutes segment last Sunday about Sam Eshaghoff, the Great Neck Long Isalnd, New York, student, now at Emory University, who officials said was paid to take tests for other kids. You can watch a one-minute snipet from the show by clicking on the CBS video in the above link.

In the interview with Alison Stewart, Eshaghoff rationalized his unethical actions with statements like this one:

“My whole clientele were based on word of mouth and like a referral system”. A kid who has a horrible grade-point average, who, no matter how much he studies is going to totally bomb this test”. By giving him an amazing score, I totally give him … a new lease on life. He’s going to go to a totally new college … be bound for a totally new career … new path in life”.

First of all, how can someone who uses so many “totally” words in a sentence be so smart that other kids pay him to take the SAT for them? I’m totally baffled by it. 

Here is more from the interview with our anti-hero who admitted to hearing the notion that deserving students are being left out of those colleges as a result of his fraud.

 “[I] really wasn’t displacing somebody … I feel confident defending the fact that [my clients] getting into the schools that they ended up getting into didn’t really affect other people”. [He] regrets the shame his arrest caused his family and says “if he could start over, he never would have done it”. [Yeah, right. They all say that after being caught].

Eshaghoff accepted up to $2,500 from other students -- per student that is -- 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.

Later in the interview program Stewart asked Kurt Landgraf, the president of the Educational Testing Service (ETS) that administers the SAT, whether it is easy to cheat on the SAT. Landgraf said “no”. All I can say is OMG! He needs to get his head out of the sand.

Landgraf admitted to discovering 150 impersonators last year who, like Eshaghoff, simply manufactured an ID to take the test for others. I figure if he admits to 150, the real number is closer to 1,500. He said that three million students take the SAT every year. His organization spends $11 million on SAT test security annually. I don’t know about you but his blasé attitude worries me. This is the guy who is in charge of SAT security and he dismisses at least 150 cheating incidents as being immaterial to the overall reliability of the Exam.

It seems to me even one cheat is one too many. We’re talking about basic ethical standards. Honesty is a virtue. Trustworthiness is an essential value in a test like the SAT. Fairness to other students who take the test using their own skills is compromised by the cheats. How would you like it if your son or daughter was denied admission to their college of choice because someone got in as a result of Eshaghoff’s fraudulent results?

You may be wondering how Eshaghoff pulled off the scam. He simply made a high school ID; one of six forms of identification accepted at SAT testing centers. Here is another pearl of wisdom by Eshaghoff:

A school ID is what? Like what is that? It's like, it's some colors with literally a name and picture on it. So what I would do is, I took the template from my high school ID, pasted my picture on top of it, and whatever person's name whose test I was taking, I would have their name and date of birth on it. And it was really as easy as that.

Like wow, is all I can say, Sam. Seriously? I can’t believe it is so easy to cheat on an exam that is so widely used by colleges and universities. As a college professor I am shocked by this incident.

The investigation of the cheaters is ongoing. As of last November, at least 35 students remained under investigation; several had been charged. Criminal defense attorney Robert Gallo who represents one of the charged students made one of the more ethically-challenged comments about this incident. He admitted to being stunned at the ongoing court action. “The student that I represent went on with his life on the supposition that this matter was behind him.” Gallo said, adding that his client is currently in college.

How do we make sense out of the whole Eshaghoff cheating affair? Some blame parents for putting too much pressure on their kids to get into the best schools. Others blame peer groups and the pressure, especially in a wealthy community with high achieving parents like Great Neck, NY, to get into Ivy League Schools. I blame Eshaghoff and the kids who hired him to cheat. They need to accept personal responsibility for their actions. How will they learn that there are consequences for violating the rules, breaking the law, and acting immorally if they are not punished?

Oh, and in case you are wondering, a perfect SAT score is 2400. Eshaghoff scored between 2140 and 2220 for the students. Over the course of nearly three years, he took the SAT over and over again, consistently scoring in the 97th percentile or higher for the students he called his "clients."

Blog posted by Steven Mintz, aka Ethics Sage, on January 4, 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

 

Is it Ethically Proper for Asian Students to Lie on Their College Applications?

Asian Students Discriminated Against in College Admissions

Let me say up front I am putting the issue of affirmative action aside for the purpose of this blog which is to evaluate the ethics of college admission policies that discriminate against Asian students.

Perhaps you’ve heard about Lanya Olmstead who was born in Florida to a mother who immigrated from Taiwan and an American father of Norwegian ancestry. Ethnically, she considers herself half Taiwanese and half Norwegian. But when applying to Harvard, Olmstead checked only one box for her race: white.

“I didn‘t want to put ’Asian’ down,” Olmstead says, “because my mom told me there’s discrimination against Asians in the application process.” For years, many Asian-Americans have been convinced that it‘s harder for them to gain admission to the nation’s top colleges.

Studies show that Asian-Americans meet these colleges’ admissions standards far out of proportion to their 6% representation in the U.S. population, and that they often need test scores hundreds of points higher than applicants from other ethnic groups to have an equal chance of admission. Critics say these numbers, along with the fact that some top colleges with race-blind admissions have double the Asian percentage of Ivy League schools, prove the existence of discrimination.

The way it works, the critics believe, is that Asian-Americans are evaluated not as individuals, but against the thousands of other ultra-achieving Asians who possess a work ethic second to none. (It is well known in academic circles that Asian students work hard, spend long hours studying, and strive for excellence in most everything they do).

I have previously blogged about the decline in the work ethic of American students. All too many prefer to play games with their iPhones, text or tweet their friends and family, or watch videos and programs on their laptops. Entertaining oneself has replaced working hard for the sake of working hard – to achieve more and to advance society.

Let’s return to the dilemma of Asian students. Amalia Halikias is a Yale freshman whose mother was born in America to Chinese immigrants; her father is a Greek immigrant. She also checked only the “white” box on her application.

“As someone who was applying with relatively strong scores, I didn’t want to be grouped into that stereotype,” Halikias says. “I didn’t want to be written off as one of the 1.4 billion Asians that were applying.” Her mother was “extremely encouraging” of that decision, Halikias says, even though she places a high value on preserving their Chinese heritage. “Asian-American is more a scale or a gradient than a discrete combination. I think it’s a choice,” Halikias says.

But leaving the Asian box blank felt wrong to Jodi Balfe, a Harvard freshman who was born in Korea and came here at age 3 with her Korean mother and white American father. She checked the box against the advice of her high school guidance counselor, teachers and friends.

“I felt very uncomfortable with the idea of trying to hide half of my ethnic background,” Balfe says. “It’s been a major influence on how I developed as a person. It felt like selling out, like selling too much of my soul. I thought admission wouldn’t be worth it. It would be like only half of me was accepted.”

Other students, however, feel no conflict between a strong Asian identity and their response to what they believe is injustice. “If you know you’re going to be discriminated against, it’s absolutely justifiable to not check the Asian box,” says Halikias.

Wait a minute. This sounds like it is OK to do something wrong because you know something wrong is being done to you. As my mother taught me, two wrongs don’t make a right. If I conclude that lying on one’s college application is wrong, even if it “only” refers to the ethnicity question, then I shouldn’t do it. Ethical people act on principle from a foundation of what they judge to be right or wrong. Our beliefs about what is right and what is wrong develop from a variety on influences including our family upbringing, religious beliefs, peer influences, community, and so on. The point of ethics education is to teach young people that there are commonly accepted standards of behavior that should be followed in all actions and decisions including, trust, respect, fairness, caring, responsibility and accountability, to name a few. Integrity is the whole of ethical behavior because it relies on principles-based decision making.  

It’s unfortunate that Asian students may be discriminated against by some colleges and universities because these students belong to an over-achieving group. It seems to me we should try to rise up those without a strong work ethic (i.e. American students) to the level of those with one (Asian students). The wrong message is sent to all students when some with better credentials are denied admission because they are disproportionately over-represented in the student body.

Ethics is about how you treat other people. Let’s not forget the “Golden Rule” that is the foundation of religious belief – “Do unto others as you would have them do unto you.” In other words, would those making college admission decisions want to see their sons and daughters denied admission because their race or religion is already over-represented? I think not.

Blog posted by Steven Mintz, aka Ethics Sage, December 22, 2011

The Ethics of Fracking

A Cost-benefit Analysis of Fracking

I always tell my ethics students that there are two sides to every issue from an ethical perspective and they need to identify both in making a cogent argument for or against a particular action or decision. Oftentimes the ethical issues are subtle; they don’t jump out at you. A good example is fracking.

Fracking, which is short for ‘hydraulic fracturing,’ refers to a method of recovering oil and gas from shale rock. Here is how it works. An oil company would drill down and then push under great pressure liquids sideways into oil and gas-rich shale rock. Millions of gallons of water, mixed with brine or chemicals, is injected into the shale and the resulting pressure fractures the rock layers which releases natural gas or oil. A proppant (propping agent), usually sand, is injected into the fractures to keep the fissures open and the oil or gas flowing.

According to the Interstate Oil and Gas Compact Commission, 90 percent of all oil and gas wells in the U.S. are “fracked” to boost production. Fracking usually occurs just after a new well is drilled, but many wells are fractured numerous times to get as much production out of a profitable site as possible.

Fracking is controversial because the chemicals, mixed with water, may find their way into aquifers which supply drinking water. Oil companies say that fracking is safe and poses no threat to drinking water. Right now, few groups are calling for an outright ban on fracking. However, shareholders want companies to issue full disclosure about individual fracking operations and the chemicals used during the process. Some companies counter that they already abide by environmental laws and regulations and that further disclosure is not necessary.

Shareholders of two large gas producers — ExxonMobil, and Chevron - recently voted not to require company officials to disclose more information about fracking. Exxon and Chevron had urged shareholders to vote against disclosure. Even so, 30 percent of ExxonMobil shareholders and 41 percent of Chevron shareholders voted for increased disclosure.  ExxonMobil spokeswoman Karen Matusic said that while the company supports the disclosure of chemical composition of hydraulic fracturing fluid, management has urged shareholders to vote against the activists’ resolution. “We believe state-level oversight of oil and gas operations, including hydraulic fracturing, is the most effective approach for protecting human health and the environment, since it best accounts for local geology and other local factors,” she said.

The public has a right to be concerned about fracking. Last July thousands of gallons of fracking fluid spilled following an accident at a natural gas well in Pennsylvania. The well blew near the surface, spilling thousands of gallons of frack fluid over containment walls, through fields, personal property and farms, even where cattle continue to graze.

Two weeks ago the EPA found that compounds likely associated with fracking chemicals had been detected in the groundwater beneath Pavillion, a small community in central Wyoming where residents say their well water reeks of chemicals. The fracking occurred below the level of the drinking water aquifer and close to water wells, the EPA said. The EPA did emphasize that the findings are specific to the Pavillion area. The agency said the fracking that occurred in Pavillion differed from fracking methods used elsewhere in regions with different geological characteristics. Elsewhere, drilling is more remote and fracking occurs much deeper than the level of groundwater that would normally be used.

There are those who support fracking including landowners who have the most to lose if royalties stop flowing because of restrictions on fracking. Some landowners — such as a group with more than 10,000 acres combined in Oneida and Madison counties in New York State — have formed a formal partnership aiming to allow hydrofracking on their land, but they want control how it’s done.

From an ethical perspective we might look at the harms and benefits of fracking. In other words, do the potential dangers of fracking, including contamination of water supplies, outweigh the potential benefits of producing badly needed oil and gas resources at a time when our national security may be in jeopardy because of our continued reliance on unreliable sources of energy. Is U.S. energy independence more important than the potential for harm to those affected by fracking procedures? Do jobs and economic growth trump health and safety concerns?

There can be no doubt that additional studies are needed, more tests must be done, and the industry should be better regulated. (In 2005 the Bush administration chose to keep the industry virtually unregulated). In the meantime, why not release all available information to the public about safety risks and let the public decide? Full disclosure is a basic tenet of ethical behavior. From a “Rights Theory” perspective, those potentially affected by fracking operations have an ethical right to know about the potential harm to their drinking water and other environmental effects.

Energy decisions abound where safety versus economic benefits are pitted against each other. We have been debating the issue for years with respect to offshore oil drilling and now the debate focuses on whether we should extend the Keystone Pipeline that would carry 830,000 barrels a day of crude oil from northern Alberta to refineries on the Gulf Coast of Texas, crossing the U.S. states of Montana, South Dakota, Nebraska, Oklahoma, Texas and Kansas.

The bottom line on these issues, including practices such as fracking that has transformed the U.S. energy industry, is that energy independence comes at a cost. Increasingly, we as Americans, will be faced with tradeoff-decisions between sacrificing some health and safety concerns in the name of providing economic benefits, including jobs and increasing exports to countries like China that crave safer natural gas energy supplies for its growing economy. It’s a painful decision but one that must be made. We need a national conversation on the issue but, regrettably, the issue is largely on the back-burner this election cycle.

Blog posted by Steven Mintz, aka Ethics Sage, on December 19, 2011

Unintended Consequences of Occupy Movement

Port Disruptions Not the Way to Go for the Occupy Movement

Some believe the Occupy Wall Street movement seems to be all about socially engineering our country so that the rich get poorer and the poor get richer. Certainly, there are those in the movement who believe in a more socialistic society and wealth redistribution. Personally, I don’t think this was the genesis of the movement. It was to speak out about corporate greed and hold banks and investment firms accountable for the financial meltdown of 2008 that still causes pain for so many. Nevertheless, a valid question to ask is what motivates the hard core protesters that remain and disrupt work at ports of entry and block roads and streets.

Just this past Monday, thousands of demonstrators forced shipping terminals in Oakland, Portland, and Longview, Washington, to halt parts of their operations. Protesters claim they targeted the ports to focus on the "economic engines for the elite." Protesters are most upset by two West Coast companies: port operator SSA Marine and grain exporter EGT. Investment banking giant Goldman Sachs Group Inc. owns a major stake in SSA Marine and has been a frequent target of protesters.

Demonstrators say they are standing up for workers against the port companies, which have had recent high-profile clashes with union workers. Longshoremen in Longview, for example, have had a longstanding dispute with EGT, which employs workers from a different union to staff its terminal. The longshoremen's union says the jobs rightfully belong to them.

I’ve been a strong supporter of the Occupy movement from the beginning based on its message of protesting greed and the growing inequality of incomes in society caused mainly by the rich, such as corporate CEOs, earning millions while the average working Americans' wages stay stagnant or decline. Moreover, some CEOs earn millions in severance packages even after their company has failed. There is no denying the actions of banks and financial institutions, aided by government-sponsored entities such as Fannie Mae and Freddie Mac, created a housing bubble that has cut personal wealth by 50% in some cases. Those actions also have contributed to our persistently high jobless rate and disgruntled workers leaving the workforce.

The other side of the issue is that protesters have to think carefully about how their actions affect others – a basic tenet of ethical behavior. By disrupting work at ports and in business communities they may get their message across and bring attention to their cause but it may lead to business slowdowns that ultimately cost jobs and other economic costs.

Few consider the strain the protests put on municipal government. Police details are costly with police union’s often demanding overtime pay for such assignments. In New York City alone, the NYPD reported $2 million in extra security costs due to the protests. Atlanta estimated its costs for policing its own homegrown Occupy movement at $300,000. Oakland, the site of the most violence, claimed costs of $700,000.

Local businesses feel the costs as customers seek alternatives. Unfortunately, it seems the small businesses are hurt the most – the very groups we should be supporting during the economic downturn.

These are “unintended consequences” of the Occupy movement and that seem to be negatively affecting public support for the cause. According to a Gallup Poll taken November 19-20, support for the movement declined from the previous month from 25% to 20% while disapproval went from 20% to 31%. It’s quite possible the results will be lower when the next poll is taken.

I believe the Occupy movement has to take it to the next level and identify positive changes in the way our economy is run. Be a force for change, not disruption. It’s one thing to constantly stare down the opposition. It’s another to formulate solutions to the very problems the movement protests against. And, find a way to get your message across without disrupting the normal flow of economic activity and hurting the very people we should be helping.

Blog posted by Steven Mintz, aka Ethics Sage, on December 15, 2011

Is Corzine a Fraudster or just Incompetent?

Corzine Feigns Ignorance in Questioning about MF Global

Is Jon S. Corzine, the former U.S. Senator, New Jersey governor, and Goldman Sachs CEO, a fraudster who is trying to absolve himself of any responsibility for the meltdown at MF Global by feigning ignorance, OR is he the most incompetent CEO ever to come out of the C-Suite? You make the call.

MF Global filed for bankruptcy protection on October 31 after a disastrous bet on European government debt. In just a week, stock investors lost about $585 million. More than $600 million in clients' money is still missing. Regulators say MF Global moved the money out of client accounts within days as the firm's cash dried up.

MF Global didn't list the European debt on its balance sheet for all to see. Instead, those holdings were shifted to the company's "off-balance sheet," deep in its financial statements. Some separate filings with regulators excluded the European debt entirely.

Under a 2002 anti-corporate fraud law (Sarbanes-Oxley Act) — which Corzine co-wrote as a U.S. senator — CEOs of public companies must personally certify the accuracy of their company's financial statements. If client money was used by the firm for its own purposes, Corzine could be held responsible, according to Thomas Ajamie, an attorney who specializes in financial fraud cases. "That would be the house gambling with customers' money," Ajamie said.

The direct costs of the failure include $1.2 billion in supposedly segregated retail investor accounts that have not been identified and 2,900 people lost their jobs. The real costs go way beyond and include a further rupturing of the trust in the securities industry on the part of the American public and concerns about whether our regulatory systems are capable of monitoring banks and securities firms to identify problem firms while the fraud is occurring and take action against such firms after the fact.

Corzine appeared before Congress last Thursday having been subpoenaed to testify about his role as the former CEO of MF Global. Here are some of Corzine’s explanations and responses to questions from the Congressional panel. It’s worth noting that Lawmakers had previously heard from farmers, ranchers and small-business owners who are missing money deposited with the firm. Agricultural businesses use brokerage firms to help reduce their risks in an industry vulnerable to swings in oil, corn and other commodity prices.

• In his prepared testimony submitted before the hearing, Corzine said he could not explain what happened to “many hundreds of millions of dollars” that the firm was holding for customers. "I simply do not know where the money is, or why the accounts have not been reconciled to date," he told the House Agriculture Committee, adding that he was "stunned" when he heard of the missing funds.
• Under pointed questioning by members of the House Committee, Corzine said he “would not rule out the possibility that someone at the firm misinterpreted him as suggesting that the struggling firm tap into investors’ funds.”
• Asked why there was a shortfall in customer funds, Corzine said that “many transactions… occurred in those last chaotic days.” He said he was not aware of all of those transactions and that “as a consequence it would be very hard for me to speculate why or where that shortfall took place.”
• Asked if he authorized a transfer of customer funds, Corzine responded, “I never intended to break any rules, whether it dealt with the segregation rules or any of the other rules that are applicable.”
• When asked if he was aware of any transfers, authorized or unauthorized, out of customer accounts, Corzine said, “I’m not in a position, given the number of transactions, to know anything specifically about the movement of any specific funds.”

Janet Tavakoli, an expert on the transactions MF Global specialized in, said Corzine's remarks seemed to divert attention from the firm's fundamental flaw under his leadership: It lacked the cash to cover its bets after investors started to fear that a major European nation would default.

Rep. David Scott, D-Ga., said it was the "height of disbelief" to think that Corzine knew nothing about the $1.2 billion. "We've got to get better answers from you because you [were] the CEO," he said. Rep. Tim Johnson, R-Ill., said that "people who live in the real world" have "suffered dramatically" from MF Global's downfall, and he asked Corzine whether he'd be willing to pay back those people with his own personal fortune. Corzine dodged the question, saying he was confident the money would be found. Seriously?

In his testimony to the House Agriculture Committee, Corzine sought to deflect blame for the company's collapse, arguing that he inherited a firm already doomed by his predecessors' bad financial decisions. Let me get this straight. Here is a former Senator, Governor, and CEO of Goldman Sachs taking a position as CEO of a failing company. Why would he do that? It doesn’t pass the smell test unless he saw it as a vehicle to stoke the burning fire that is his ego. Perhaps Corzine saw it as a way to personally enrich himself and he didn’t consider the possible consequences of his actions. That seems to be a recurring theme in the business frauds and financial meltdown that has plagued our country since the late 1990s.

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