Category: Business Ethics

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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By Posted on Posted in Business Ethics

As Dennis Kozlowski, former Tyco CEO, heads off to a well-deserved extended “rest” in the slammer, and news reports show that a billion dollars was stolen from the Iraqi people in the form of crooked contracts, it’s time to remind ourselves that corporate theft is not a victimless crime.

Real people–innocent people–get hurt. Like the unfortunate former Enron employees whose pensions were wiped out.

In the case of the Iraq story, people will die because a well-organized fraud ring left soldiers to fend off attacks in decrepit armored cars that can’t even resist an ordinary bullet. In New Orleans, people died because a cronyistic corrupt appointment left someone in charge whose previous experience had nothing to do with disaster planning, and because a legalized theft of the money–and the National Guard personnel–that should have been going to repair and protect the levees was siphoned off into a certain unjustified and very expensive war. Yes, add to the nearly 2000 US dead and tens of thousands of Iraqis killed in an empty chase of WMDs, hundreds of New Orleaneans whose lives could have been saved if the money hadn’t been stolen from flood control, and if the Guard were at home where they belong, helping in a domestic crisis.

Oh, and speaking of cronyistic corrupt appointments, did you see what happened when the Bush administration tried to name a veterinarian as acting Director of the FDA’s Office of Women’s Health? They backed off in three days, and then denied they ever did such a thing. This is to replace the principled Dr. Susan Woods, who resigned because she could no longer publicly represent an agency that was stonewalling on a reproductive freedom issue. At least the new appointee, Theresa A. Toigo, has a 20-year background at the FDA and knows health issues. Good luck, Theresa–you’ll need it.

Back to Mr. Kozlowski: My question to you and your ilk: was it worth it? Were those ill-gotten gains that you enjoyed for a few years worth utterly destroying your company, your reputation and for the next 8 to 30 years, your own personal freedom? You were already one of the highest-paid executives in history. Did you really need to plunder beyond that? Couldn’t you have still afforded a $6000 shower curtain, if that’s how you wanted to waste your money?

In spite of these clowns, I still believe that nice guys don’t finish last, and that in the long term, business success means building a company (or a government) based on ethics and on building real long-term relationships created with honesty, integrity, and quality. Please visit my website if you’d like to know more.

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By Posted on Posted in Business Ethics

https://www.eurekalert.org/pub_releases/2005-06/ksu-kpi060905.php

Some good news for a change: National Association of State Boards of Accountancy is calling strong ethics coursework requirements as a requirement before taking the CPA exam.

In all the talk about business ethics, it’s important to remember: the crooks need crooked accountants to carry out their crimes. As the most obvious example, Enron’s shenanigans would never have reached such proportions without the active assistance of auditors at Arthur Andersen–once the most prestigious accounting firm in the world.

This is an excellent idea, and let’s hope it’s not only adopted nationally, but that some pressure is put on the profession to require the training in order to maintain an existing CPA certification. After all, there are thousands of CPAs already practicing–most of them honorable, to be sure, but not all.

Personally, I’d also love to see a flood of CPAs signing the Business Ethics Pledge.

Note: I am leaving for vacation (no e-mail) for two weeks. If you leve a comment, I’ll respond later.

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By Posted on Posted in Business Ethics

Weekly Spin reports that ExxonMobil has hired Philip A. Cooney, who resigned as White House Council on Environmental Quality chief of staff after we found he was editing government scientists’ reports to deflate warnings about global warming. Meanwhile, White House spokesperson Dana Perino told the New York Times “Phil Cooney did a great job and we appreciate his public service and the work that he did, and we wish him well in the private sector.”

This was widely reported; CNN’s version is at
https://www.cnn.com/2005/POLITICS/06/15/cooney.exxon.ap/

Earth to ExxonMobil: this is not the way to get good PR. Coverup is not fixing the problem–as you might remember form Exxon Valdez. I predict this appointment will come back to bite you. IF anyone’s paying attention out there, anyhow.

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By Posted on Posted in Business Ethics, General Commentary

On the surface, a flamboyant pop star has little to do with an accounting firm: the epitome of corporate conservatism.

But the accounting firm we’re talking about is Arthur Andersen, and the way its auditors let Enron’s top execs bring down both companies hardly fits my standard of fiscal conservatism.

Anyway, the comparison isn’t about lifestyle or philosophy. It’s about the notion that being cleared in a court of law doesn’t necessarily mean you’re actually innocent.

Michael Jackson was not found guilty. He may or may not have molested children–I don’t have the knowledge to say, one way or the other. He certainly used bad judgment to share his bed with them–but the jury’s decision rested not on whether or not he committed the act, but whether the government had proven its case beyond reasonable doubt. Given the lack of credibility of one of the prosecution’s chief witnesses, the jury found that the government had not put forth an ironclad case.

And the Supreme Court, late last month, found not that Arthur Andersen wasn’t culpable for its destruction of documents, but that the judge had given faulty instructions to the jury, and thus the guilty verdict was thrown out.

Lawyers for both Michael Jackson and Arthur Andersen were quick to hail the court decisions as clearing their clients’ names, and Enron CEO Jeffrey Skilling’s lawyer quickly made the claim that his client’s case was strengthened. But the Andersen jury foreman, Oscar Criner, called the Supreme Court’s ruling “a grave error” (as reported in Enron’s hometown paper, the Houston Chronicle:
https://www.chron.com/cs/CDA/ssistory.mpl/topstory/3204884 )

But in fact, neither decision addressed the defendant’s guilt or innocence. All that has happened is that a jury in one case and a panel of judges in the other found that the government did not make a strong enough case for wrongful intent.

Arthur Andersen first allowed Enron’s highly questionable accounting practices and then, as the SEC was preparing to investigate, destroyed the documents about the case. Michael Jackson shared his bed with teenage boys. While they were not guilty in the eyes of the law, the ethical questions remain in both cases. Failing to find that an action is criminal is not the same thing as finding that a defendant acted with ethics, with honor, and with good intent. It merely shows that the standard of proof was not met.

Legality and ethics are not always the same. Let’s keep that in mind as the Enron trials proceed.

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By Posted on Posted in Business Ethics

https://www.msnbc.msn.com/id/7750293/

Here’s yet another case of a company pushing product it knew wasn’t safe. Now we learn that Merck actually stepped up its marketing of Vioxx once it was known that the product was linked with increased risk of heart attack and stroke. The company sent out a detailed sales training menu, even covering proper etiquette when dining with doctors. Vioxx became a best-seller, before the feds yanked it off the market.

Sometimes I wonder if the business world is populated by slow learners. They may create terrific sales projection PowerPoints and elegant profit spreadsheets, but they seem to lack any ability at all to find True North in their moral compasses.

And even if these talented and highly compensated MBAs don’t have a moral compass, you’d think they’d have figured out by now that deceptive practices, and particularly the selling of something as safe when you know it’s not, are bad for business.

We’ve already seen, after all (to name just three among dozens of examples)…

  • The plunge of revenue at Ford following revelations that they knew all along, even before they brought the car to market, that Explorers have an unfortunate tendency to flip over in hot weather
  • Enormous payouts from the tobacco companies, who also knew all along that they were pushing death
  • And a positive example: the rapid return of consumer confidence and profits when Johnson & Johnson stepped up to the plate and made it clear, following the Tylenol poisoning incident, that here was one company that actually did put its customers first. J&J took full responsibility for something that was not even its own fault, launched a massive recall campaign with huge publicity, and became one of the most trusted brands in America

I know they teach ethics in business school; maybe the message will only get through when people realize the ethical path is actually better for the bottom line (something which I discuss in some detail in my book, Principled Profit: Marketing That Puts People First https://www.principledprofits.com ).

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