Category: Business Ethics

By Posted on Posted in Business Ethics

Ken Lay has always had chutzpah; now he’s trying to paint himself as a victim.

The St. Petersburg Times rightly says that won’t wash:

Lay
said the villains in the Enron case are federal prosecutors, who have
hidden the truth in a “wave of terror.” Lay apparently equates the
deaths of innocent people at the hands of suicide bombers with his
indictment in the corporate scandal. Such hubris takes a lot of nerve,
but then Ken has plenty of that.

To which all I can
add is they are absolutely right. This man caused financial harship for
his loyal employees. I hope they make him pay back every penny of his
ill-gotten gains.

If the actions of Ken Lay disgust you, consider signing the Business Ethics Pledge to make a public (and marketable) stand for business ethics.

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By Posted on Posted in Business Ethics

​​​​The big dustup over GWB’s admission that he broke the law in having
the NSA spy on American citizens has gotten even a lot of prominent
Republicans upset. Columnist George Will, about as conservative as they come, called it a “mistake” the other day. And several GOP Senators (Spector, McCain, Hagel, and Snowe, among them) are saying, “hey, wait a minute!”

Oh
yes, and Senator Barbara Boxer (D-CA) quotes no less an authority on
presidential misconduct than John Dean, Nixon’s counsel during the
Watergate affair, as saying GWB is the first president to actually admit to an impeachable offense.

And
yes, I think it’s appalling that Bush not only condones illegal spying,
but does so enthusiastically and repeatedly. To show just how much they
don’t get it:

At the White House, spokesman Scott
McClellan was asked to explain why Bush last year said, “Any time you
hear the United States government talking about wiretap, it requires —
a wiretap requires a court order. Nothing has changed, by the way. When
we’re talking about chasing down terrorists, we’re talking about
getting a court order before we do so.” McClellan said the quote
referred only to the USA Patriot Act.

(The above quote is from a Washington Post story by Carol D. Leonnig and Dafna Linzer, dated Wednesday, December 21)

But…I think there are far more serious high crimes and misdemeanors that are worth going after.

Congressman John Conyers points some of them out in his just-released report, “The
Constitution in Crisis; The Downing Street Minutes and Deception,
Manipulation, Torture, Retribution, and Coverups in the Iraq War.”
With over 2000 US soldiers dead, by some estimates much more than
100,000 Iraqis in fresh graves, and countless wounded, that’s where I’d
start the impeachment proceedings, if it were up to me. And continue
through corporate corruption, election rigging, shredding the
environmental and economic safety nets, and a bunch of other stuff. In
the context of all this, the spying scandal is the least of it.

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By Posted on Posted in Business Ethics

Call me old-fashioned, but when I read stuff like this quote from Business Week’s Talk Show column (November 14, 2005)

After
the Securities & Exchange Commission launched a probe of accounting
irregularities at Dollar General, Cal Turner Jr. in 2002 returned $6.8
million that he had been paid for results that were eventually
restated; he then stepped down as CEO. The gesture was lauded by
BusinessWeek and others. But in the two years since, Turner has
remained employed by — and paid by — Dollar General, based in
Goodlettsville, Tenn. After retiring as chairman in June, 2003, Turner
stayed on as an adviser to the board: In 2004 he received $275,000 plus
$113,000 in perks.

On Oct. 18, Turner fully retired and got
another big payout. In an SEC filing reported on the Web site
Footnoted.org, Dollar General disclosed that Turner is getting a
lump-sum retirement payment of $1 million, access to the company’s box
suite at Tennessee Titans games, title to a company-owned 2004 Audi A8
that he drives, and up to $100,000 to cover legal and consulting
expenses. Dollar General also is making a “gross up” payment to cover
taxes on the package. Turner directly owns 3.3% of its shares, worth
$200 million.

I get pretty disgusted. Why do corporate boards persist in rewarding
ethically questionable and/or poor management decisions? Is this the
model we want to present to the next generation? I don’t think so, and
I think he should give any penny of the cash and gifts back to the
stockholders, and the board that allowed this should all resign.

My thanks to David Batstone for calling my attention to this.

Interestingly,
the same Business Week column notes that every Ecuadorian employee at
Occidental Petroleum’s Ecuadorian facilities got a bonus of $130,000 to
$150,000, thanks to that country’s profit-sharing law. Yes, the
janitors, the secretaries, the field technicians. With an average
annual income of just $2180 nationwide, these 350 individuals could
make a significant dent in the quality of life in their families and
villages.

And don’t feel sorry for Oxy; its $464 million in
locally-generated profits can easily fund the 15 percent payment to its
workers. The US, with its rampant overpayment of poorly-producing CEOs
(as cited above), could learn some lessons here.

Shel Horowitz’s Business Ethics Pledge models a different–and healthier–way to conduct business.

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By Posted on Posted in Business Ethics

The State of New Hampshire gets a $5 million settlement from Tyco–and it’s using it to start a business ethics education program.
The program will be administered by Myron Kandel, who has many
connections in media (especially CNN, which he co-founded), government,
and business. Kandel has already announced that he’ll use the program
to help focus political candidates on questions of ethics as the
barnstorm through the state during the run=up to the presidential
primaries.

Seems like a win all around.

Ethics expert and ward-wining author Shel Horowitz is the initiator of the Business Ethics Pledge campaign.

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By Posted on Posted in Business Ethics, General Commentary, Media Ethics

If I’m a tad schizophrenic in my feelings toward search engine
giant Google, it’s because the company sometimes seems like a
many-headed hydra whose various heads have no clue what the others are
up to.

On the positive side: Google last October announced a wonderful plan
to donate one percent of its stock value–just a whisker under a cool
billion at the time of the announcement–to various change-the-world
charities–and to donate various other streams that push the total value well above that amazing $1 billion mark.

This
is wonderful! It makes sense both to advance founders Larry Page and
Sergey Brin’s vision of the kind of world they want to live in, and to
advance Google’s corporate goals of continued market dominance. (One of
the initiatives, for example, is to help MIT develop $100 computers.
Guess how they’ll link to the world?).

Also on the positive side
is Google’s ability to create a powerfully positive user experience.
How did I find the above article? I received a Google News alert by
e-mail for ethical business, that linked to a blog post by Joseph Newhard.
After reading the article, which was more commentary than news, I
wanted a more authoritative source to quote from, so I typed the
following string into Google

google “$1 billion” healthcare

About three seconds later, I had the San Francisco Chronicle article I referenced earlier.

Oh
yes, and I’m typing this on a Blogger blog, owned by Google. If you’re
reading it on my own site, I use Word Press for the mirror blog. And I
switched my site-specific search engines to Google a couple of years
ago, because it didn’t need me to tell it each time I added content.
Though I’d love to see them add the feature of searching a few sites at
once under common ownership that my old, clunky search engine offered.

And
I think it’s fabulous that Google now has a share value of $100 billion
and profits of $968 million–because those profits are built on doing a
lot of things right–first of all, creating a search engine that gives
the right results if you know what to ask for, and gives them
instantly. Second, not bothering with a revenue model until “usership”
had built up. And thirdly, introducing its primary revenue model–a
modification of the old failed model of web ads–as the brilliantly
successful low-key, non-intrusive contextual advertising, with millions
of partner websites who are benefiting from Google’ success. Obviously,
it works.

But then there are those other heads: Google
Book, for instance, *almost* works. The ability to search books’
complete text is great. The it’s-a-big-pie model that shares revenue
with publishers by directing purchasers to publisher websites to buy
the book is great. But what’s not great–and the Authors Guild is suing
over it–i that Google insists it has the right to take books into the
program without consent of the copyright holder.

If there is
any justice in the courts, Google will lose this case–and it will be a
big, expensive mess. Just as an example–I’m delighted to have the text
of my most recent book, Principled Profit: Marketing That Puts People
First, in the program; I think that can only help sales. But I have
deliberately refused to put in my older e-book, The Penny-Pinching
Hedonist: How to Live Like Royalty with a Peasant’s Pocketbook–because
with that book, appealing to a self-defined frugal audience, it’s much
more likely that a searcher would find the specific piece of
information wanted and feel no need to then spend $8.50 to own the
content. For authors of cookbooks, reference manuals, travel
guidebooks, etc., involuntary participation in the program could be a
disaster. Google could, I think, easily develop a form to submit to
publishers enabling them to quickly import their entire catalog and
check yes or no for the program. By saying “we have the right unless
you opt out,” they’re acting like spammers, violating copyrights
unnecessarily, and depriving publishers of the right to make decisions
about how their copyright-protected material is used.

And then there are some serious concerns about privacy. See for instance “Google as Big Brother” on the Google-watch site (scroll down to “Google’s immortal cookie”). If you want to find more, here’s Google’s own results page on a search for google privacy. Stories on Wired and elsewhere raise cause for alarm.

Of
course, Google isn’t the only company to be a bit erratic in its
ethics. I could have easily written a similar article about Microsoft,
or Ford, for instance.

But Google does so much that’s right–I
just have to wonder about their blinders on the copyright fronts, and
take a watch-and-wait attitude on the privacy front.

Shel Horowitz’s Business Ethics Pledge campaign
seeks to create a climate where future Enron/WorldCom scandals will be
impossible. He’s the author of the Apex Award winner, Principled
Profit: Marketing That Puts People First and five other books.

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By Posted on Posted in Business Ethics, General Commentary, Marketing Trends/News

Just back from several days in Minneapolis, and I had my trend-spotting radar up. Some observations:

1. The airline industry continues to shift.

We flew ATA and Southwest, and it was illuminating to contrast them. Southwest still very much encourages the nonconformists and humorists among its staff, and continues to do very well with on-time performance, full or nearly-full planes, and other metrics. And they continue to make things nicer for their customers. For instance, online check-in is a big improvement over the cattle-herd system of the old days, and printing your boarding group right on the boarding card is much better than the old plastic passes. Maybe it was my imagination, but it seemed to me there’s a bit more leg room than there used to be. And on today’s flight home, they even gave us each a square of chocolate!

Lessons for other companies: give your people room to shine and they will. Fill a market niche, and you’ll be profitable. Be nice to your customers, and they will return. Do all three things right and you’re a rare success in a troubled industry.

ATA, by comparison, was not a pleasant experience. The seats are jammed together to the point where, even at only 5’7″, I was extremely grateful to have an aisle seat so I had someplace to put my feet. (My wife flew Northwest recently, and said the legroom is even worse there.) On the way there, we discovered that the airline had never entered a change in our itinerary and had us flying the previous day. Luckily, we had a paper trail and there were still enough seats. Yet, even though I watched the ticket agent enter the correct information for our return trip, it seemed the check-in agent on the flight home had some difficulty getting the reservation to show up appropriately. And other little things–no sparkling mineral water or seltzer, only club soda (which has salt, on top of all the salt in the pretzels). And big things: ATA had over two hours to get our luggage to Southwest during our Chicago transfer; not one of our four bags made it on the plane, and neither did the bag of another passenger with the same itinerary. None of this was life-threatening, and most of it is a pretty small inconvenience–but it added up to somewhat negative experience that is likely to influence future purchase decisions. Oh yes, and the reason we were on Southwest in the first place is that ATA suddenly pulled out of our market long after we’d booked our flight. (Southwest doesn’t fly to Minneapolis.)

Lesson: No matter how good your advertising, your brand is built on positive and negative customer experiences.

(Disclosure: I was a fan of Southwest long before this happened, but I should point out that the company bought 1000 copies of Principled Profit: Marketing That Puts People First, prepublication. If that colors your view of my comments, so be it.)

2. A Discounter Goes Upscale

Southwest again. The airline’s Unique Selling Proposition has always been the combination of low prices, reliability, and superior service. Perhaps it’s the service aspect that’s helping Southwest Spirit, the inflight mag, to go after a very upscale advertiser profile. The pages are filled with ads for expensive high-rise housing, Las Vegas casinos, glitzy restaurants, expensive gizmos…and there are a lot of ads!

This could mean several things:

  • High-end consumers are putting greater value on low prices
  • Southwest’s superior experience means non-price-conscious consumers are seeking them out because they want to get there on time and be entertained
  • The airline may be experimenting with moving away from that USP, and higher prices may be on the way (though I suspect they wouldn’t be quick to throw away 30 years of loyalty built in large measure by affordability)

I’ll try to do Part II tomorrow

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By Posted on Posted in Business Ethics, General Commentary

Something most of the corporate scandals have in common over the past few years: those with their hands in the cookie jar already were receiving compensation that most of us would consider wildly excessive.

For a number of years, some companies have established maximum earnings for top execs as a multiple of the earnings of the company’s lowest- paid employees. So if the multiple were, say, 50 times, and the lowest paid worker made $15,000, CEO pay would be capped at $750,000. If the CEO wanted higher pay, that $15,000 a year worker would get an increase as well.

But we see CEOs with compensation in the hundreds of millions. Often the crooked ones. The Wall Street Journal reported that Enron Chairman and Chief Executive Kenneth Lay was paid $67.4 million in the year immediately prior to the company’s bankruptcy filing. That same year, according to the American Institute of Certified Public Accountants, Tyco’s Dennis Kozlowski received $125.3 million in total compensation. And you can bet that the lowest paid workers at Tyco got nowhere near 1/50th of that.

Yet these outrageous figures weren’t enough to keep them from stealing? How much money does any single person really need to live on?

A very interesting solution was proposed in this report of the Center for Corporate Policy; I like it because it relies on tax law, rather than coercion, to enforce the cap:

Cap CEO pay through a maximum wage. This can be done by eliminating tax deductions for executive compensation above a certain amount — e.g. above 25 times that of the lowest-paid employee, a standard originally proposed by management guru Peter Drucker. Rep. Martin Sabo (D-Minn.) has included this proposed standard in “The Income Equity Act of 2003” which would eliminate all tax deductions for compensation above 25 times that received by the lowest paid worker in the corporation.

Another law, proposed by Rep. Barney Frank of Massachusetts, would initiate strict disclosure rules for CEO compensation, making the packages subject to investor scrutiny for the first time.

These are both positive steps. And long overdue.

There will be a consumer rebellion if steps are not taken to curb these excesses.

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By Posted on Posted in Business Ethics, General Commentary

Let me get this straight right at the beginning: I believe in capitalism. In fact, I write books teaching people how to be better and more successful/ethical capitalists, like my award-winning most recent book, Principled Profit: Marketing That Puts People First.

But my sense of justice is deeply affronted by this week’s news. The Washington Post story says, in part,

High prices for crude oil, gasoline and natural gas helped Exxon Mobil Corp. to its highest-ever quarterly profit, $9.92 billion, up 75 percent from the third quarter last year, the company said yesterday.

Profit in the third quarter at the world’s largest publicly traded oil company set an industry record, and its sales of $100.72 billion were the highest in a quarter by U.S. company, according to Standard & Poor’s.
Exxon Mobil’s third-quarter profit, $9.92 billion, was the highest the oil company had ever recorded.

Analysis
Oil Industry Seeks to Cast Huge Profits as No Big Deal
By most familiar comparisons, the $9.92 billion profit earned by Exxon Mobil Corp. in just three months is almost unimaginable. It would cover all Social Security benefit payments for three months. It would pay for an Ivy League education for about 60,000 kids. It would pay the average list price…

Other oil companies have reported soaring third-quarter profits this week. Royal Dutch Shell PLC, based in the Hague, said yesterday that its third-quarter profit was not far behind Exxon Mobil’s: $9.03 billion, up 68 percent. London-based BP PLC reported profit of $6.53 billion, up 34 percent.

(If that link goes dead, or you want other perspectives, here’s a link to a whole bunch of other stories on the same theme. That includes the YahooNews story that says Exxon Mobil “rewrote the corporate record books.)

There’s nothing wrong with profit in and of itself. But could this obscene 75 percent profit possibly have something to do with increases of up to a dollar a gallon at the pump in the immediate aftermath of Katrina, which followed closely on a wave of increases that added about 40 cents a gallon even before Katrina hit? Bodies were floating through the streets of New Orleans, tens of thousands were made homeless, and meanwhile, oil company profits–not revenues, but merely the money left over in these three months after the costs of operations–$25.5 billion just from the three largest profiteers–is equal to or exceeds the entire yearly economic output of any of the world’s poorest 159 countries, from Jordan on down.

While I’m fully convinced that “peak oil”–the idea that the easy-to-get stuff is gone, and that the cost of oil extraction will continue to rise rapidly as supplies diminish, and that we had darned well better get off the petroleum economy–is a reality, this is price gouging, clear and simple. I don’t have enormous sympathy for the single occupant of a mammoth and usually unnecessary SUV, croaking out all of 9.6 miles per gallon in the case of a Hummer S2, but I do feel sorry for the working stiff who bought an appropriate vehicle and watched fuel costs double. And then, factor in home heating costs, which are a big factor here in the Northeast–or cooling costs elsewhere. It ain’t pretty.

Surely the time has come to make a commitment, as a society, to nonpolluting, nondepletable, environmentally friendly ways of powering our economy. The technologies–solar, wind, small-scale hydro, and others–have been around for decades and continue to improve. Let’s leave the profiteers out of the loop.

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By Posted on Posted in Business Ethics

Sometimes it seems those of us who care about ethics are fighting a losing battle. My colleague, Chris Bauer, reports on some shocking findings in a survey conducted by the well-known accounting firm KPMG:

  • Of 459 executives at US companies with revenues above $250 million, 75% had experienced fraud
  • The fraud had cost 36% of the companies surveyed at least $1 million
  • For those companies experiencing fraud in the area of financial reporting, the average cost was $257,923,000 (other types of fraud had less dollar impact)

I believe the only way we can turn this around is to show businesses that ethical behavior is ultimately profitable–that’s the position I advocated in my book, Principled Profit: Marketing That Puts People First, and I continue to advocate that position in the Ethics Pledge campaign and elsewhere. The costs of the fraud itself, the hit the company takes when it’s discovered, the environmental, workplace harassment, and other lawsuits that tend to crop up against fraudulent companies, etc. etc. make this a very obvious conclusion. But apparently the business world can’t see it.

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By Posted on Posted in Business Ethics

I’m reminded of the old Doonsebury book title, “But The Pension Fund Was Just Sitting There!”

The above link is a Toronto Globe & Mail article about convicted embezzler Paul Coffin, who stole $1.55 million from the Canadian government. Somehow, the courts decided that partial restitution ($1 million) and community service were an appropriate punishment. So now he’s in front of a class of 180 McGill University undergraduate business students.

He described Ottawa’s sponsorship funds as a “cookie jar” that kept on giving.
“I seemed to just keep going back to the cookie jar that seemed to have no bottom and no lid,” he said, according to several students.

He said the program failed to provide checks and balances. “The carte-blanche system played to my weakness.”

Duh! It’s not exactly rocket science that any government or private entity should have strong accounting safeguards, and that crooks will exploit weaknesses of those that don’t.

Surely, having talked his way out of prison with community service, this man should be expected to provide some value for his “students”–and lessons applicable to the wider world.

I hope someone is holding him accountable–this time.

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