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Unformatted text preview: Business Ethics & Professional Responsibility Professional Unethical Behavior Unethical • Unethical behavior in Unethical business is not just a recent phenomenon phenomenon – In the sixth century, B.C., the In philosopher Anacharsis once said, “The market is a place set apart where men may deceive one another.” another.” Unethical Behavior Unethical The Old Testament also talks The about “false balances” (Amos 8:5; Hosea 12:7; Micah 6:11) despite God’s command against such (Lev. 19:36; Ezek. 45:10) 19:36; Business Ethics Business • Business Ethics is about: – Decision-Making – By People in Business By – According to Moral Principles or According Standards Standards Decision-Making Decision-Making • Conflicting duties, loyalties or Conflicting interests create moral dilemmas requiring decisions to be made requiring Decision-Making Decision-Making • Ethical decision-making involves the Ethical ability to discern right from wrong along with the commitment to do what is right. with Decision-Making Decision-Making • Some factors affecting decision-making (from Integrity Some Management, by D. T. LeClair et al, Univ. of Tampa Management by Press, 1998): Press, – Issue Intensity • (i.e. how important does the decision-maker perceive the issue to be? • Can be influenced by company/management emphasis) emphasis) – Decision-Maker’s Personal Moral Philosophy – Decision-Maker’s Stage of Moral Development – Organizational Culture Decision-Making Decision-Making • 8 Steps to Sound, Ethical Decision-Making Steps – 1. Gather as many relevant & material facts as 1. circumstances permit. circumstances – 2. Identify the relevant ethical issues (consider alt. 2. viewpoints) viewpoints) – 3. Identify, weigh & prioritize all the affected parties (i.e. 3. stakeholders) (see Johnson & Johnson Credo, Taking Sides, p.25) Sides, – 4. Identify your existing commitments/obligations. – 5. Identify various courses of action (dare to think creatively) – 6. Identify the possible/probable consequences of same 6. (both short & long-term) (both – 7. Consider the practicality of same. – 8. Consider the dictates and impacts upon your character & 8. integrity. integrity. Decision-Making Decision-Making • Disclosure Test: How comfortable How would I feel if others, whose opinion of me I value, knew I was making this decision? decision? Decision-Making Decision-Making • The higher the level of a decision-maker – the greater the impact of the decision the – and the wider the range of constituencies and that will be affected by the decision. that By People In Business By • The moral The foundation of the decision-maker matters matters • “He doesn’t have a moral He compass.” Whistleblower Sherron Watkins describing Andrew Fastow, former CFO of Enron. (Watkins gets frank of Watkins about days at Enron, Edward about Edward Iwata, USA Today, March 25, 2003, p. 3B.) 25, By People in Business By • Ultimately, one's own motivation for ethical behavior Ultimately, must be internal to be effective. External motivation must External has a limited value -- punishment and fear is only effective in the short-run. If people believe that they are above the law, they will continue to act unethically. Organizations that have a clear vision, and support individual integrity are attractive places support of employment. - Teri D. Egan, Ph.d, Associate Professor, The Graziadio School of Business at Pepperdine University, Corporate Ethics, Washington Post Live Online, Friday, Aug. 2, 2002; Post Ethics Ethics • Values: guiding constructs or ideas, representing deeply held guiding generalized behaviors, which are considered by the holder, to be of great significance. of • Morals: a system or set of beliefs or principles, based on values, which constitute an individual or group’s perception of human duty, and therefore which act as an influence or control over their behavior. Morals are typically concerned with behaviors that have potentially serious consequences or profound impacts. The word “morals” is derived from the Latin mores (character, custom mores or habit) or • Ethics: the study and assessment of morals. The word "ethics" is derived from the Greek word, ethos (character or custom). (character Morality Morality • “The most important human endeavor is The the striving for morality in our actions. Our inner balance and even our very existence depend on it. Only morality in our actions can give beauty and dignity to life. - Albert Einstein (in a letter 11/20/50) Albert Morality Morality • The historian Arnold Toynbee The observed: "Out of 21 notable civilizations, 19 perished not by conquest from without but by moral decay from within." decay Absolutism vs. Relativism Absolutism • Ethical Absolutism: What is right or wrong is Ethical consistent in all places or circumstances. There are universally valid moral principles. (“… only by obedience to universal moral norms does man find full confirmation of his personal uniqueness and the possibility of authentic moral growth.” - Pope John Paul II, see also Rom. 12:2; Heb. 13:8) Paul • “History is a voice forever sounding across the History centuries the laws of the right and wrong. Opinions alter, manners change, creeds rise and fall, but the moral law is written on the tablets of eternity.” – James A. Forude James Absolutism vs. Relativism Absolutism • Ethical Relativism (also called “Situational Ethical Ethics”): What is right or wrong varies according to Ethics”) What the individual/society/culture or set of circumstances. There are no universally valid moral principles. (Related Biblical reference "everyone did what was right in his own eyes" (Deut. 12:8, Judges 17:6; 21:25) (see also Isa. 5:20 & 24, Jer. 2:13, Rom. 1:18-32, 1 Cor. 5:6-7, 2 Cor. 6:14-15, 1 John 1:8) 1:18-32, Relativism Relativism • As R.H. Popkin describes relativism in his article on the As subject in The Encyclopedia of Religion, “views are to be The “views evaluated relative to the societies or cultures in which they appear and are not to be judged true or false, or good or bad, based on some overall criterion but are to be assessed within the context in which they occur. Thus, what is right or good or true to one person or group, may not be considered so by others … there are no absolute standards … “Man is the measure of all things” (quoting the Greek philosopher Protagoras (481things” 420, B.C.), and … each man could be his own measure 420, … [Relativism] urges suspension of judgment about right and wrong.” (Ellis Washington, Reply to Judge Richard A. Posner on the Inseparability of Law and Morality, A. Rutgers Journal of Law and Religion, Vol. 3) Rutgers Relativism Relativism • As Cardinal Joseph Ratzinger said, Relativism is As “presented as a position defined positively by the concepts of tolerance and knowledge through dialogue and freedom, concepts which would be limited if the existence of one valid truth for all were affirmed … affirming that there is a binding and valid truth in history in the figure of Jesus Christ and the faith of the church is described as fundamentalism. Such fundamentalism, … is presented in different ways as the fundamental threat emerging against the supreme good of modernity: i.e., tolerance and freedom.” - Address to Congregation for the Doctrine of Faith, Guadalajara, Mexico, May 1996 of Absolutism v. Relativism Absolutism • “The demise of America’s legal foundations The occur when society rejects laws that are based on solid, irrevocable, moral, universal, absolute values, to a society that bases it’s laws on an arbitrary system of relativism, situational ethics, materialism, individualism, hedonism, paganism, or in any secularist ideology. This secularization of law has influenced all branches of knowledge – law, philosophy, business, religion, medicine, education, science, the arts, and mass media.” Harold Berman, The Interaction of Law and Religion 21 (1974). Law Absolutism vs. Relativism Absolutism According to a recent poll of college seniors, 73% agreed with the statement that “What is right or wrong depends on differences in individual values and cultural diversity.” Only 25% agreed with the statement that “There are clear and uniform standards of right and wrong by which everyone should be judged." judged." Problems with Relativism Problems – Relativism undermines moral criticism of practices of particular individuals or in particular societies where those practices conform to their own standards. For instance, it could be used to permit slavery in a slave society or it could be used to justify trade and investment with basically evil regimes, e.g. Apartheid governments. – But, as Cardinal Ratzinger said, “There are injustices But, that will never turn into just things (for example, killing an innocent person, denying an individual or groups the right to their dignity or to life corresponding to that dignity) while, on the other hand, there are just things that can never be unjust.” - Address to Congregation for the Doctrine of Faith, Guadalajara, Mexico, May 1996 the Problems with Relativism Problems – Relativism allows for oppression of those with Relativism minority views by allowing the majority in any particular circumstance to define what is morally right or wrong. right • • • • • • • • • • “In Germany they first came for the Communists, and I didn't speak up because I wasn't a Communist. Then they came for the Jews, and I didn't speak up because I wasn't a Jew. Then they came for the trade unionists, and I didn't speak up because I wasn't a trade unionist. Then they came for the Catholics, and I didn't speak up because I was a Protestant. Then they came for me — and by that time no one was left to speak up.” and – - German anti-Nazi activist, Pastor Martin Niemöller Problems with Relativism Problems Relativists speak in terms that “soften” harsh realities. Relativists "Intelligent, educated, religious people embrace illogical "Intelligent, absurdities that set aside not only God's truth, but also our responsibility for the well-being of others. When words are warped and twisted perversely, they're eventually emptied of their true meaning. When you shine the light of common sense on deceptive language couched in medical, philosophical or intellectual terms, the logic evaporates. Moral choices require that we use language to describe reality.” - Jean Staker Garton, Author/Lecturer, Co-Founder of Lutherans for Life Author/Lecturer, Problems with Relativism Problems Relativists never need bother to examine why something is moral or immoral, they merely accept/tolerate alternative determinations, so that none are held to account account “Over the years I have found that those who call Over themselves atheists actually have a strong sense of the absolute truth they know exists. They just don’t want to acknowledge that it’s true - because if they did, they would have to change the way they live. They flee on moral grounds; refusing to submit themselves, they exchange the truth for a lie.” Chuck Colson -Being the Body, 2003. Chuck Problems with Relativism Problems • Commenting on the idea that legal reforms Commenting can compel corporate morality, Michael Prowse, in the Financial Times, stated that Financial stated "The underlying problem is that we are living in times that might aptly be called 'postin ethical.'" People are now "emotivists," who ethical.'" relativize moral judgments and "obey the law, help others and respect customs and mores only if they calculate that this will benefit them personally in some way. ... The root problem is a loss of belief in objective ethical standards.” standards.” Problems with Relativism Problems • Jesus said in John 8:31-32, “If you Jesus continue in my word, then are you my disciples indeed; And you shall know the truth, and the truth shall make you the the free.” It would seem follow then that, people cannot experience ultimate and true freedom unless and until they come to terms with the absolute truth revealed by God. by Absolutism vs. Relativism Absolutism Most ethicists reject the theory of ethical relativism. Some claim that while the moral practices of societies may differ, the fundamental moral principles underlying these practices do not. -Markkula Center for Applied Ethics Values Values “To ensure that employees can and will To act with integrity … organizations need a strong and consistent set of values strong that dictate appropriate individual actions.” - Conclusion of study conducted by Professor Pratima Bansal, cited in” Rebuilding trust, The integral role of leadership in fostering values, honesty and vision,”by Carol Stephenson in the Ivey Business Journal, Jan/Feb. 2004, Vol. 68, Issue 3. Issue Values Values • Navigating the complexities of a situation ... requires Navigating a reliable compass. We can plot that "north" by reliable We determining clearly our own core values. We have to core We identify - and articulate - what we believe is important to us and to our companies. Our core values drive our behaviors, and our behaviors tell the world who we are and what we stand for. ...Identifying and adhering to a core-values compass point provides a standard that will make decisions easier, consistent and justified.” - Parkinson, J. Robert, Thinking clearly, remembering values key to making the call, Milwaukee Journal Sentinel, March 22, 2004. Sentinel, Values Values “Without commonly Without shared and widely entrenched moral values and obligations, neither the law, nor democratic government, nor even the market economy will function properly.”- (Vaclav Havel Politics, morality, and Civility, Summer and Summer Meditations) Meditations) Values Values What are the core values that are fundamental to the success of any individual or organization? Values Values • • • • • • • Honesty Respect Responsibility Fairness Compassion Perseverance Courage Values - Honesty Values • Honesty - Being straightforward, sincere, truthful, free of fraud, deception or misrepresentation. free • Transparency - To be open, honest and available, to provide clear, accurate, and understandable information (e.g. in the context of financial disclosures). Some ethicists have argued that ethical business practices are best measured by a company's character and commitment to transparency than by their social vision or rhetoric (e.g. Jon Entine) rhetoric Values - Honesty Values Honesty – Builds/Maintains Trust – Fosters Community – Makes Communication more Efficient & Makes Effective Effective – Demonstrates Respect for the Dignity of Demonstrates Others Others Values - Honesty Values • Moral Leaders welcome transparency Moral and truth as opposed to secrecy and deception. • Respondents to a recent Victor Respondents James ethical leadership survey, by a wide margin, cited honesty as the quality most admired in a leader. quality Values - Honesty Values • Richard Sears—founder of Sears Richard Roebuck and Company—started the modern mail order industry, supplying a burgeoning nation with innovative products and building a business that gave employment to hundreds of thousands of people. In his zeal to sell merchandise, Sears occasionally would get carried away with catalogue descriptions, praising products far beyond the literal truth. This in turn led to returned merchandise and reduced profits. But Sears learned his lesson. In later years, he was fond of saying, "Honesty is the best policy. I know because I've tried it both ways.” - from Integrity at Work, Integrity both ed. By Ken Shelton. ed. Values - Honesty Values • “Honesty and transparency make you Honesty vulnerable. Be honest and transparent anyway.” - Mother Teresa anyway.” • Contra: "Speech was given to man to Contra: disguise his thoughts." - Charles-Maurice de Talleyrand Values - Honesty Values • Some scriptural references regarding Some honesty in business: honesty – (Exodus 22:10; 23:1–3; Leviticus 19:11– 12, 35-36, Deuteronomy 25:13–16, 12, Proverbs 6:16-19, 11:1, 12:17-19 & 22, Ephesians 4:25) Ephesians Values - Respect Values • Respect: To give particular attention to, show consideration for, or hold in high or special regard (Merriam-Webster's Online Dictionary, 10th Edition) Dictionary, • Should respect be given or must Should respect be earned? respect Values - Respect Values • “Every man is to be respected as an Every absolute end in himself; and it is a crime against the dignity that belongs to him as a human being, to use him as a mere means for some external purpose.” - Immanuel Kant, Prussian geographer and philosopher (1724Prussian 1804) Values - Respect Values • Human Dignity is “the intrinsic worth that inheres in every human being. From the Catholic perspective (among other Christian perspectives), the source of human dignity is rooted in the concept of Imago Dei, in Christ’s redemption Imago in and in our ultimate destiny of union with God. Human dignity therefore transcends any social order as the basis for rights and is neither granted by society nor can it be legitimately violated by society. In this way, human dignity is the conceptual basis for human rights. While providing the foundation for many normative claims, one direct normative implication of human dignity is that every human being should be acknowledged as an inherently valuable member of the human community and as a unique expression of life, with an integrated bodily and spiritual nature. In Catholic moral thought, because there is a social or communal dimension to human dignity itself, persons must be conceived of, not in overly-individualistic terms, but as being inherently connected to the rest of society.” from the Ascension Health Code of Ethics from Values - Respect Values • Civilizations should be measured by "the Civilizations degree of diversity attained and the degree of unity retained.” - W.H. Auden, English poet (1907-1973) • “Never look down on anybody unless Never you're helping him up.” - Jesse Jackson, American political activist and preacher Values - Respect - Tolerance? Values • What about tolerance? Values - Respect - Tolerance? Values • "Our culture has fallen into a kind of "Our moral vertigo – we value tolerance so much that we don't know how to talk to each other about what is right and good,” - Rev. Kevin Phillips, director of the Business Leadership and Spirituality Network (BLSN) quoted in “Competing Values”, by Jane Lampman, Christian Science Monitor, August 1, 2002. Science Values - Respect - Tolerance? Values • Did you know that the term “ tolerance” (or in Did some translations “sufferance” Gk. eao) is rarely some is used in the New Testament, and that where it is used it is generally used in a negative sense? For example: For – “Notwithstanding I have a few things against thee, Notwithstanding because you tolerate that woman Jezebel, who calls tolerate herself a prophetess, to teach and to seduce my servants to commit fornication, and to eat things sacrificed unto idols.” Rev. 2:20 sacrificed • By contrast, the New Testament uses the term “ By love” Gk. agapeo nearly 150 times in a positive agapeo sense. sense. – So what’s the difference between love and tolerance? Values - Respect - Tolerance? Values Tolerance: Demonstrating sympathy for, indulging, Tolerance: or making allowances for, beliefs or practices differing from, or conflicting with, one's own. differing Love: In the Christian context, from the Gk., agapeo, agapeo an active and beneficent interest in, and concern for, the well-being of another. It is given unconditionally and unselfishly. It involves a clear unconditionally determination of will and judgment (i.e. a responsible choice). A loving person, honestly responsible ). honestly (Rom. 12:9) gives respect and demonstrates respect compassion. Demonstrating such love often compassion Demonstrating requires courage. The source of such love comes courage The “from above” (James 1:17). “from Would you rather be loved or tolerated? Values - Compassion Values • Compassion: "sympathetic consciousness of another's distress together with a desire to alleviate it" [Webster's 7th New Collegiate Dictionary], fellow feeling, the emotion of caring concern; the opposite of cruelty, in Hebrew rahamanut, rahamanut from the word rehem, ''womb', based on rehem womb', the idea of sibling love (coming from from the same womb). the Values - Compassion Values • "The word 'care' finds its roots in the Gothic 'Kara' which means lament. The basic meaning of care is: to grieve, to experience sorrow, to cry out with.. . . A friend who cares makes it clear that whatever happens in the external world, being present to each other [now] is what really matters." [Henri Nouwen, Here and Now, Here p. 105] p. Values - Compassion Values “Southwest Airlines CEO Herb Kelleher has openly Southwest demonstrated a willingness to go the extra mile for Southwest employees. He has made it a priority to learn their names and to chip in and work alongside them when the situation has demanded his help. He has been observed lugging baggage and greeting customers in an Easter Bunny costume. He has repeatedly demonstrated a truly exceptional level of caring and compassion for his employees, and his employees have responded in kind. Perhaps the most dramatic example of their commitment to their beloved leader occurred when they pooled their own money and ran a $60,000 ad in USA Today recognizing him on Bosses Day. In the ad they thanked Kelleher for being a friend, not just a boss.” - from The Leadership Wisdom of Jesus, Charles C. Manz, 1998. Leadership Values - Compassion Values • “I expect to pass through the world but once. Any expect good therefore that I can do, or any kindness I can show to any creature, let me do it now. Let me not defer it, for I shall not pass this way again.” - Stephen Grellet, French/American religious leader (1773-1855) religious • "Men are only great as they are kind.” - Elbert Hubbard, American entrepreneur and philosopher (founder of Roycroft) (1856-1915) (founder Values - Compassion Values • "No act of kindness, no matter how small, is ever "No wasted." - Aesop, 6th Century B.C. Writer of Greek fables Greek • "If the world seems cold to you, kindle fires to "If warm it.” - Lucy Larcom, American poet (1826warm 1893) • "The individual is capable of both great "The compassion and great indifference. He has it within his means to nourish the former and outgrow the latter.”- Norman Cousins, American essayist & editor (1912-1990) essayist Values - Compassion Values • "There are two ways of spreading light: to be the "There candle or the mirror that reflects it.” - Edith Wharton, American novelist (1862-1937) • “Compassion is the basis of morality.'' - Arthur Compassion Schopenhauer, German philosopher (1788-1860) Schopenhauer, • All we need in order to be moral human beings is All compassion. - Nina Rosenstand summarizing the view of David Taylor in Good and Evil, from The Good from Moral of the Story: An Introduction to Ethics, Moral McGraw-Hill, 2004. McGraw-Hill, Values - Compassion Values Some scriptural references Some regarding compassion: regarding – (Matthew 18:27, Luke 10:30-37, (Matthew (Parable of the Good Samaritan), 1 John 3:17, Jude 1:22) John Values - Responsibility Values • Responsibility/Accountability/Reliability: Moral Leaders take responsibility for their own Moral actions/failures and those of their companies and they demand accountability from their subordinates. (e.g. at Dell there’s no ‘‘The dog ate my homework.” Dell ruthlessly exposes weak spots during grueling quarterly reviews and execs know they had better fix the problem before the next meeting. – “What You Don’t Know About Dell”, Business Week, Nov. 30, 2003, p.79) Involves a commitment to Week Nov. competent quality performance. Implies fidelity to promises and other commitments and not making promises that cannot be kept, such as committing to unrealistic delivery dates. Also calls for acknowledgment of implicit commitments, such as the protection of confidences. commitments, Values - Responsibility Values • “I am only one, but still, I am one. I cannot am do everything but I can do something. And, because I cannot do everything, I will not refuse to do what I can.” - Edward Everett Hale, American clergyman and writer (1822-1909) • “The question for each man to settle is not The what he would do if he had the means, time, influence and educational advantages, but what he will do with the things he has.” - Hamilton Wright Mabee Hamilton Values - Responsibility Values • “Any man’s life will be filled with constant Any and unexpected encouragement if he makes up his mind to do his level best each day.” - Booker T. Washington, American educator (1856-1915) educator • “I long to accomplish some great and long noble task, but it is my chief duty to accomplish small tasks as if they were great and noble.” - Helen Keller, American social activist, public speaker and author (1880social 1968) Values - Fairness Values • Fair: just, equitable, impartial, unbiased, objective. Involves a elimination (or at least a minimalization) of one's own feelings, prejudices and desires, so as to achieve a proper balance of conflicting interests. Implies an equitable distribution of burdens and benefits. John Rawls argues in A Theory of Justice that rules are fair if Theory they are rules that the people operating under them would have agreed to, had they been given an opportunity to accept or reject them beforehand. beforehand. Values - Fairness Values • Justice: demonstrating fairness, equity, demonstrating impartiality, righteous action, • To some, justice is about conformity to truth. To To others, its about conformity to law others, • But law and justice are 2 different concepts. – “The law is something we must live with. Justice is The somewhat harder to come by.” - Sherlock Holmes, in The Case of the Red Circle. Case – “This is a court of law, young man, not a court of This justice.” ~Oliver Wendell Holmes, Jr. justice.” “justice occurs on earth when power and authority justice between people are exercised in conformity with God’s standards of moral excellence.” - Gary Haugen, in The Good News About Injustice, InterVarsity Press, 1999. About Values - Perseverance Values • Perseverance/Fortitude steadfast determination to continue on despite adversity usually over a long period of time. Values - Perseverance Values • “Nothing in the world can take the place Nothing of perseverance. Talent will not; nothing is more common than unsuccessful men with talent. Education will not; the world is full of educated derelicts. Genius will not; unrewarded genius is almost a proverb. Persistence and determination alone are omnipotent.” - Calvin Coolidge alone Values - Perseverance Values • Some Biblical References: Job 17:9a, the righteous one Some holds fast to his way; Hos. 12:6b, endure to the end, John 8:31-32, 2 Cor. 13:5, keep proving yourself; Gal. 5:1–4, stand fast; Gal. 6:9, do not give up in doing what is fine; Phil. 1:27, stand firm, striving side by side; Phil. 4:1, stand firm; 1 Thes. 5:21, hold fast to what is fine; 2 Thes. 2:15–17, stand firm, maintain your hold; 1 Tim. 6:11–12, pursue endurance; 2 Tim. 2:12, go on enduring; 2 Tim. 3:14, continue in the things you have learned; 2 Tim. 4:7–8, fight the fine fight, finish the course; Heb. 2:1, pay attention to what you have heard that you not drift away; Heb. 3:14, make fast your hold to the end; Heb. 10:23, 35–36, hold fast to the declaration of our hope, you have need of endurance; James 1:2-4, perseverance must finish its work, 2 Pet. 3:17, do not fall from steadfastness. Pet. • God helps those who persevere. - The Koran Values Values • Which of the core values is Which the most important? Values - Courage Values • The first place to start is for every The individual to become aware of their core values and to have the courage courage and discipline to live out of them in all aspects of their lives. (“The rising tide all won't lift this economy: Unless we're willing to confront the trust problem we've helped to create”, Bill Grace, Founder & Executive Director, Seattle's Center for Ethical Leadership, Guest Columnist, Seattle Post-Intelligencer, June 16, 2003.) 2003.) Values - Courage Values • • • • • “Courage is the greatest of all virtues; because, unless a Courage man has that virtue, he has no security for preserving any other.” - Samuel Johnson other.” “Courage is the ladder on which all the other virtues Courage mount.” - Clare Booth Luce (1903 - 1987), in Reader's Digest, 1979 Digest, “Courage is the footstool of the virtues, upon which they Courage stand.” - Robert Louis Stevenson stand.” “Courage is not simply one of the virtues, but the form of Courage every virtue at the testing point.” - C.S. Lewis every “Courage is strength of mind, capable of conquering Courage whatever threatens the attainment of the highest good.” St. Thomas Aquinas St. Values - Courage Values • “Courage is a perfect sensibility Courage of the measure of danger and a mental willingness to endure it.” - General William T. Sherman (for whom the Sherman tank was named). • “Courage is being scared to Courage death . . . and saddling up anyway.” - John Wayne anyway.” Values - Courage Values • “Whenever you see a successful Whenever business, someone once made a courageous decision.” - Peter Drucker courageous • “We must constantly build dykes of We courage to hold back the flood of fear.” Martin Luther King, Jr. • “One isn't necessarily born with courage, One but one is born with potential. Without courage, we cannot practice any other virtue with consistency. We can't be kind, true, merciful, generous, or honest.” Maya Angelou (1928 - ) Maya Values - Courage Values • “The credit belongs to the man who is The actually in the arena... who strives valiantly... who spends himself for a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.” - Theodore Roosevelt Theodore Values - Courage Values • Courage: the ability to disregard fear; Courage: bravery. The Latin root of this word is cur, cur which means heart. Courage literally means to “take heart”. Fear exists along a continuum. Courage involves recognizing a reasonable amount of fear or nervousness, facing it and then taking an intelligent risk. • Moral courage involves standing up for Moral one’s principles, in spite of possible adverse consequences to such things as reputation or emotional well-being. reputation Values - Universal Rule? Values • The “Golden Rule” , i.e. to “do unto others The “Golden as you would have them do unto you” is an example of a value common to many cultures/religions (Mahabharata 5:1517, Hinduism, Talmud, Shabbat 31a & Levitcus 19:18, Judaism, Matthew 7:12, Christianity, Udana-Varga 5:18, Buddhism, Analects 15:23, Confucianism, Number 13 of Imam "Al-Nawawi's Forty Hadiths.", Islam) Islam) • Note: Several Corporations have directly Note: incorporated some form of this rule in their codes of ethics including Coachman, Mary Kay, Progressive, Merrill Lynch and USAA Kay, Corporate Culture Corporate • Both individuals and organizations hold “values” – A corporation is said to manifest its “values” in its “corporate corporation culture” culture” • Corporate culture is loosely defined as the attitudes, behaviors and personalities that make up a company and that shape its behavior and reputation, or as Elizabeth Kiss of the Kenan Institute for Ethics puts it, corporate culture is “how we perceive, think, feel and do things around here.” here.” • Most employees take their cues from the company culture Most and behave accordingly. and • A business derives its character from the business character of the people who conduct the business. - Ricky W. Griffin, Management, Boston: Houghton Mifflin Management, Company (2002) Company Corporate Culture Corporate Corporate Culture Corporate • "Moral behavior is concerned primarily "Moral with the interpersonal dimension of our behavior: how we treat one another individually and in groups — and, increasingly, other species and the environment." The key here is that morality brings us into contact with others and asks us to consider the quality of that contact. contact • Quote from The Leadership Compass, John Wilcox and Susan Quote The John Ebbs, as quoted in Everyday Ethics, by Thomas Shanks, S.J., Markkula Center for Applied Ethics. Markkula Corporate Culture Corporate • "The first step in the "The evolution of ethics is a sense of solidarity with other human beings." — Albert Schweitzer, early 20thSchweitzer, century German Nobel century Peace Prize-winning mission doctor and theologian doctor Corporate Culture Corporate • The Pressure to Conform – We are all a kind of Chameleon, taking We our hue - the hue of our moral character, from those who are about us. - John Locke (1632 - 1704) Locke Corporate Culture Corporate • The Pressure to Conform – Some years ago, a social scientist named Solomon Asch Some wanted to see how people dealt with social pressure so he designed an experiment to measure the results. He came up with a simple test that showed a series of lines on a board in front of the room, with one of the lines matching another in being the same length. The others were either much shorter or much longer. A person was brought into the room, along with others in a group, which unbeknown to the subject, were helpers to the professor. The whole group was asked to match the two lines that were the same length together. The helpers intentionally gave the wrong answer and it was found that in almost 75% of the time, the subjects would go along with the wrong answer, knowing full well it was wrong, but not wanting to stand out. - “Opinion and Social wrong Pressure”, Scientific American, Nov. 1955, 31-35. Scientific Corporate Culture Corporate • The Pressure to Conform – “Culture shapes behavior. There are plenty of perfectly Culture decent people who go astray because they're in a culture that creates an environment in which they can't get their jobs done unless they engage in unethical activities.” - Harvard Business School professor and business ethicist Barbara Toffler, former partner at Arthur Andersen. Toffler left Andersen in 1999, well before the Enron and Global Crossing scandals destroyed the company. Her book, Final Accounting: Ambition, Greed, and the Fall of Arthur Andersen (Random House/Broadway Books, 2003), describes the process of ethical erosion in grim detail. – “Postcards from an Ethical Wasteland”, CIO, June 1, 2003 CIO Corporate Culture Corporate • In Moral Man and Immoral Society, In Reinhold Niebuhr proposed that individual persons are always more moral functioning alone than when they function in a social group. - “Institutional Ethics: An Oxymoron”, By Joe E. Trull, Editor, Christian Ethics Today, Journal of Christian Ethics, Issue 035 Volume 7 No 4 Christian Issue August 2001 . August • Do you agree with this? Corporate Culture Corporate • Rarely do the character flaws of a Rarely lone actor fully explain corporate misconduct. More typically, unethical business practice involves the tacit, if not explicit, cooperation of others and reflects the values, attitudes, beliefs, language, and behavioral patterns that define an organization’s operating culture. organization’s Lynn Sharp Paine, Harvard Business School School Corporate Culture Corporate • “A strong corporate culture founded on strong ethical principles and sound values is a vital driving force behind strategic success.” - Thompson & Strickland success.” • One company stressed its commitment to One RICE : respect, integrity, communication, and excellence. The words have been on T-shirts, paperweights, and on signs. The firm printed a 61-page booklet with its code of ethics and every employee had to sign a certificate of compliance. That company was Enron! company According to Ethical or Moral, Values, Principles or Standards or • Whose Values? According to Ethical or Moral, Values, Principles or Standards Standards – Personal – Family – Peers – Religious – Company – Community, Regional, National, Community, International International According to Ethical or Moral, Values, Principles or Standards Standards • Learned Where? According to Ethical or Moral, Values, Principles or Standards Standards – – – – – – – – Home School Church (or other place of worship) Life Experience Work Experience Books News Media Entertainment Media According to Ethical or Moral, Values, Principles or Standards Standards • The average American, by the age of 65, will have spent the The equivalent of 15 years of their life watching television. 15 watching • By contrast, over the same time period, the average weekly By church-going American will have spent only 8 months of months their life receiving spiritual instruction. receiving spiritual • American children will take in 63,000 hours of “media” American 63,000 (television, radio, internet, i-pods, etc.) input between the ages of 5 and 17. • By contrast, if they go to church once a week for an hour, By church over the same number of years, that's 600 hours. 600 According to Ethical or Moral, Values, Principles or Standards Standards • In the middle of an interview for acceptance to a In prestigious Ivy League school back east, the interviewer asked his “sure of himself” candidate, “If no one would ever find out, and no one got hurt, would you lie for $1M?” The young man thought for a moment and said, “If no one found out, and no one was hurt? Sure, I think I would!” The interviewer then asked, “Would you lie for a dime?” The young man shot back, “No way, what kind of man do you think I am?” The interviewer responded, “I have already determined that, I am just trying to determine your price.” determined According to Ethical or Moral, Values, Principles or Standards Standards • So fearful were the ancient Chinese of their enemies on the north that they built the Great Wall of China, one of the 7 wonders of the ancient world. It was so high they knew no one could climb over it, & so thick that nothing could break it down. Then they settled back to enjoy their security. But during the first 100 years of the wall’s existence, China was invaded 3 times. Not once did the enemy break down the wall or climb over its top. Each time they bribed a gatekeeper & marched right through the gates. According to the historians, the Chinese were so busy relying upon the walls of stone that they forgot to teach integrity to their children. According to Ethical or Moral, Values, Principles or Standards Standards • In the 1950s a psychologist, Stanton Samenow, and a psychiatrist, In Samuel Yochelson, sharing the conventional wisdom that crime is caused by environment, set out to prove their point. They began a 17-year study involving thousands of hours of clinical testing of 250 inmates here in the District of Columbia. To their astonishment, they discovered that the cause of crime cannot be traced to environment, poverty, or oppression. Instead, crime is the result of individuals making, as they put it, wrong moral choices. In their 1977 work The Criminal Personality, they concluded that the answer to crime is a "conversion of the wrongconcluded doer to a more responsible lifestyle." In 1987, Harvard professors doer James Q. Wilson and Richard J. Herrnstein came to similar conclusions in their book Crime and Human Nature. They determined that the cause of crime is a lack of proper moral training among young people during the morally formative years, particularly ages 1 to 6. particularly According to Ethical or Moral, Values, Principles or Standards or • 33% of teens would act unethically to get ahead 33% or to make more money if there was no chance of getting caught, according to a new Junior Achievement/Harris Interactive Poll of 624 teens between the ages of 13 and 18. 25% said they were “not sure” and only 42% said they would not. “These results confirm our belief that ethics education must begin in elementary school.” said Barry Salzberg, U.S. Managing Partner of Deloitte & Touche. Touche. According to Moral Principles or Standards Principles • Does society require a moral Does code to survive and prosper? code According to Moral Principles or Standards Principles – 17th Century Philosopher 17th Thomas Hobbes postulated that life in an amoral society would be “ poor, nasty, brutish and short”, lacking in industry and commerce, as well as knowledge and arts, and that its people would live in a constant state of fear and insecurity. state According Moral Principles or Standards or • “Men qualify for freedom Men in exact proportion to their disposition to put moral chains on their own appetites. Society cannot exist unless a controlling power is put somewhere on will and appetite, and the less of it there is within, the more of it there must be without.” Edmund Burke (1774) Edmund According to Moral Principles or Standards Principles “The institutions of our The society are founded on the belief that there is an authority higher than the authority of the State; that there is a moral law which the state is powerless to alter; that the individual possesses rights, conferred by the Creator, which government must respect … And the body of the Constitution as well as the Bill of Rights enshrined those principles.” – Justice William O. Douglas, in McGowan v. Maryland, 366 U.S, 420 (1961) Maryland According to Moral Principles or Standards Principles – “Without civic Without morality communities perish; without personal morality their survival has no value.” — Bertrand Russell, 20thBertrand century British century mathematician and philosopher philosopher According to Moral Principles or Standards Principles – Martin Luther King, Jr. Martin once noted, " The most dangerous criminal may be the man gifted with reason but with no morals." but According to Moral Principles or Standards Principles • We have grasped the We mystery of the atom and rejected the Sermon on the Mount. The world has achieved brilliance without wisdom, power without conscience. Ours is a world of nuclear giants and ethical infants. --General of the Army, Omar Bradley Omar According to Moral Principles or Standards Principles • There are seven sins in the There world: Wealth without work, Pleasure without conscience, Knowledge without character, Commerce without morality, Science without morality Science humanity, Worship without sacrifice and politics without principle. Mahatma Gandhi (1869 1948) 1948) Ethics Ethics • R. H. Tawney, the British R. historian, once wrote: ''To argue, in the manner of Machiavelli, that there is one rule for business and another for private life, is to open the door to an orgy of unscrupulousness before which the mind recoils.'' Ethics Ethics • Truett Cathy, Truett founder of Chick-fil-A, argues there is no such thing as business ethics - only ethics. only Ethics Ethics Duty-Based v. Outcome-Based Ethics – Duty (Deontology) • Duty is an act done simply for the sake of what is right. • Duty is determined by “revealed truths” and involves Duty universal principles universal • Often religion-based • e.g. Kant’s Categorical Imperative – "Everyone is obligated to act only in ways that respect the "Everyone intrinsic value, human dignity and moral rights of all persons." persons." • Places High Value on Individual Rights – Outcome (Consequentialism) • Ethical if best outcome for the majority • Involves cost-benefit analysis • e.g. Bentham & Mill’s Utilitarianism – "Of any two actions, the most ethical one is that which will "Of produce the greatest balance of benefits over harms." produce • De-emphasizes individual rights Ethics Ethics Strategic v. Real Ethics – What is the motivation/purpose What for acting ethically? for Integrity Integrity • Integrity: from the Latin integritas, meaning integritas meaning wholeness, completeness, or purity. To courageously hold to what one believes is right and true, without compromise. To stand undivided, immovable, consistent in both heart and action, word and deed. Involves the maintenance of virtue and the pursuit of moral excellence. Integrity is demonstrated by not only espousing your values, but by living according to them. Integrity describes both who you are and what you do. People of integrity are conscientious, trustworthy, accountable, committed and consistent. A key to maintaining integrity is “counting the cost” before committing yourself. yourself. Integrity Integrity • “Psychologists have found integrity to be Psychologists integrity essential to an individual's sense of identity and essential self-worth, enabling the successful navigation of self-worth enabling change and challenge. Links between integrity and the ability to gain and maintain the trust of others have often been noted. Many purveyors of practical advice, including Cicero and Benjamin Franklin, have counseled that integrity is the cornerstone of worldly success. According to Franklin, "no Qualities [are] so likely to make a poor Man's Fortune as those of Probity & Integrity" (quoted in Beebe, 1992, p. 8)” - from Blackwell’s Encyclopedic Dictionary of Business Ethics. Blackwell’s Integrity Integrity • In Living a Life That In Matters Rabbi Harold Kushner describes the kind of people who are able to overcome the negativity in their lives as shalem, people who are “whole, united within themselves, their internal conflicts ended.” Because of this, he says, they are “persons of integrity.” Integrity, says Kushner, is a quality just as essential to human well-being as is the pursuit of peace and justice. justice Integrity Integrity • The Bible/Talmud says that: – The man of integrity walks securely, but he The who takes crooked paths will be found out. (Prov. 10:9) (Prov. – The integrity of the upright guides them, but The the unfaithful are destroyed by their duplicity. (Prov. 11:3) (Prov. – Integrity brings peace (i.e. a clear conscience) Integrity and marks the perfect man (Hebrew Word: Tam = Man of Integrity) (Ps. 37:37, 1 Kings 9:4) Tam – The just [man] walketh in his integrity: his children [are] blessed after him. (Prov. 20:7) children – A good name is better than precious ointment. good (Ecc. 7:1) (Ecc. Integrity Integrity • Some Biblical Examples of Integrity: – Joseph, Gen. 39:1-12 – Jacob/Israel (Gen 32:29) known as a “simple man” (tam, Jacob/Israel Gen 25:27) that is to say, that “his mouth was like his heart.” heart.” – Job (Book of Job, see in particular description of Job at Job 2:3, 27:5) 2:3, – Daniel, Shadrach, Meshach & Abednego (Daniel Daniel, Chapters 3 & 6) Chapters – David (Ps. 7:8) – Solomon (1 Kgs. 9:4) • Contrast: Ananias & Sapphira, Acts 5:1-11 and Acts 20:1636 Integrity Integrity • According to Michael Useem, According Director of the Center for Leadership and Change Management, Warren Buffett's “influence derives Buffett's influence from his moral stature and integrity. In the aftermath of integrity In scandals that have rocked U.S. companies in the past few years, it is difficult to overemphasize the importance of ethics as a factor in leadership.” -Leadership and Change: Leadership Becoming the Best: What You Can Learn from the 25 Most Influential Leaders of Our Times , Influential Knowledge @ Wharton Newsletter, Jan.28-Feb.4, 2004 Newsletter, Character Character • Character: The notable/conspicuous/ The distinguishing moral/ethical traits or characteristics of a person that give evidence of their essential nature and which ultimately shape their reputation. reputation. Character Character • President Harry President Truman used to say: "Fame is a vapor, popularity an accident, riches take wings, those who cheer today may curse tomorrow, only one thing endures -- character.” -- Character • "What you are stands over you... and thunders so that I cannot hear what you say to the contrary.” Ralph Waldo Emerson Character • In his book The Death of Character, James Hunter, a noted sociologist from the University of Virginia, concludes that while Americans are innately as capable of developing character as they ever were in the past, there are now few cultural or institutional guidelines in our society that call for its cultivation or maintenance. The reason, he suggests, is because there is no consensus of moral authority. • Do you agree with this? Character • Compartmentalization: Many people believe that what individuals do in their private lives is their own business as long as it does not adversely impact the performance of their duties to the organization and they are able to “deliver the goods” professionally. Under this way of thinking even serious moral failures may be excused. Some refer to this kind of thinking as “compartmentalization.” (e.g. President Clinton/Monica Lewinsky situation, where, despite the scandal, President Clinton maintained between a 60 and 70% approval rating with the American public.) • Do you agree with this? • Contrast: “Find God in all things”, St. Ignatius Loyola. Character • Character vs. Reputation: It has been said that an individual’s character can be illustrated by a barrel of apples. The apples seen on top by all represent one’s reputation, and the apples that lie hidden underneath are his character. Reputation • Eli Lily introduced a drug, fialuridine, intended to treat hepatitis B. However, 15 patients who submitted to trials of the drug suffered liver toxicity and 6 died. Rather than follow the company’s long-standing “no comment” policy, the new Chairman and CEO, Randall Tobias openly acknowledged the failure. His view was that communication stands at the top of the list in the elements of good leadership. In addition, he believed that if a company leaves a communications void, others will fill it with misinformation. (Put the Moose on the Table:Lessons in Leadership from a CEO’s Journey Through Business and Life, Randall and Todd Tobias, Indiana University Press) Reputation • A railroad executive burst into Arthur Andersen’s office one day in 1914, demanding that the firm’s founder approve the railroad’s books. Accountants had discovered that the railroad was inflating its profits by failing to properly record expenses. Andersen refused, saying that there wasn’t enough money in the city of Chicago to make him approve the fraudulent accounting. Andersen’s independence cost him the client, but it gained him something far more valuable, a reputation for integrity that gave investors confidence in Arthur Andersen audits, a reputation that helped the firm become one of the top 5 accounting firms in the U.S. After nearly 90 years in business, Andersen imploded in 2002 after acknowledging that its auditors had shredded documents relating to its audits of Enron. Reputation • Warren Buffett, CEO of Berkshire Hathaway, warns his executives once a year not to do anything that year they would be ashamed to read about in their local newspaper. “You can lose a reputation that took 37 years to build in 37 seconds. And it might take more than 37 years to build it Virtue • Virtue:The quality of doing what is right and avoiding what is wrong. – "Virtue develops from a habitual commitment to pursue the good.” - Ronald F. Thiemann, a professor of religion and society at Harvard Divinity School – Wisdom is know what to do next; virtue is doing it. - David Starr Jordan (1851 - 1931), American naturalist The Role of Leadership in Developing a Culture of Integrity • According to Marshall Schminke, who teaches business ethics at the University of Central Florida, “A person’s individual moral framework is only the third-most important factor in deciding what they’ll do. The most important is what does their boss do. Workers look to their boss first for cues on what constitutes moral behavior. Second, they look at their peers, and finally at their own moral code.” -Experts: Ethics not Just Codes, Marshall Schminke, Raleigh News & Observer, June 8, 2003, p.12E, based on an article by Harry Wessel in the Orlando Sentinel.) The Role of Leadership in Developing a Culture of Integrity • “ A company's commitment to integrity flows from the commitment, action, and credibility of its leaders.” - Responsibility Lies In Leadership , By: Ruettgers, Mike, Chairman of the Board of EMC Corporation, Vital Speeches of the Day, 0042742X, 12/15/2003, Vol. 70, Issue 5, Delivered to The Fall 2003 Raytheon Lectureship in Business Ethics, Bentley College, Center for Business Ethics, Waltham, Massachusetts, October 8, 2003 Role of Leadership in Developing a Culture of Integrity • A leader’s integrity is probably the single most important factor in an organization’s ability to develop a culture of integrity • Numerous business leaders have described the development and maintenance of a culture of integrity as the very purpose of leadership? The Role of Leadership in Developing a Culture of Integrity • Edgar Schein argues that leaders shape culture through what they notice, measure, reward and dislike. – e.g. At Enron and Worldcom, executives and Board members elevated growth and short-term profits above all other considerations and nurtured a culture of cut-throat competition within the company. The Role of Leadership in Developing a Culture of Integrity • President George W. Bush observed recently, "Ultimately the ethics of American business depend on the conscience of America's business leaders." The Role of Leadership in Developing a Culture of Integrity • A report by former U.S. Attorney General Richard Thornburg explained how the corporate culture created by CEO Bernie Ebbers and CFO Scott Sullivan fostered an environment that led to the largest ever bankruptcy in U.S. history. Ebbers resisted efforts to establish a company code of conduct calling it a “colossal waste of time”. He also made numerous, often highly emotional demands for “results”. (Reports:Ebbers knew of “gimmickry”, Matthew Barakat, Raleigh News & Observer, June 10, 2003, p.1) The Role of Leadership in Developing a Culture of Integrity • The “closer” the enterprise the greater the correlation between the corporate culture and the personal ethics of its leaders (e.g. small, family business (note: Malden Mills was a family business), contrast: a multinational corporation) The Role of Leadership in Developing a Culture of Integrity • In a recent study by the Southern Institute for Business and Professional Ethics, 97% of respondents said that the leader of an enterprise must also be the moral leader, but many executives don’t see or appreciate their power as role models in this regard. Employees take their cue from superiors on how to conduct themselves, and written codes of conduct rarely carry as much weight as the actual actions of those in command. Role of Leadership in Developing a Culture of Integrity • Perhaps Skilling and Lay couldn't know all the goings-on at Enron, as they claim. However, "people at the top tend to set the target, the climate, the ethos, the expectations that fuel behavior," says Thomas Donaldson, a business ethics professor at the Wharton School at the University of Pennsylvania. (Corporate Ethics: Right Makes Might, Business Week, 4/11/02) Role of Leadership in Developing a Culture of Integrity • “Business ethics is integral to effective leadership. It is not something that can be delegated to others or to specialists like ethics officers, though the latter help. Top managers have the responsibility to "set the moral tone." - Archie B. Carroll, Robert W. Scherer Chair of Management in the Terry College of Business, University of Georgia, Athens-Banner Herald, 12/16/03. Role of Leadership in Developing a Culture of Integrity • In his new book, "Authentic Leadership" (2003), Bill George, CEO of Medtronic, discusses how to develop 5 essential dimensions of the authentic leader: – – – – – 1) Purpose 2) Values 3) Heart 4) Relationships 5) Self-discipline. Role of Leadership in Developing a Culture of Integrity Feuerstein • Malden Mills/Aaron • A Profile in Ethical Business Leadership • Feuerstein was thrust into the national spotlight in December 1995 when fire nearly completely destroyed his 130-year-old textile company. Demonstrating an all-toouncommon loyalty to his 2,400 workers, he continued paying them for 90 days at a cost of $1.5 million per week while the factories were being rebuilt. He also gave generously to support charities that helped the families of nine critically injured workers who have since recovered. Role of Leadership in Developing a Culture of Integrity to a • Sense of Responsibility • Broad Range of Stakeholders Feuerstein spurned the recent rush to downsizing stating that, “The fundamental difference is that I consider our workers an asset, not an expense. I have a responsibility to the worker, both blue-collar and white-collar”, Feuerstein added, his voice taking an edge of steely conviction. ‘I have an equal responsibility to the community. It would have been unconscionable to put 3,000 people on the streets and deliver a death blow to the cities Role of Leadership in Developing a Culture of Integrity • Compassion: Feuerstein arranged Heart-bypass operations for several workers that could not afford them and he provided free soft drinks and extra breaks for employees when the summer heat drove temperatures to more than 90 degrees on the manufacturing lines. Role of Leadership in Developing a Culture of Integrity • While many other American mill owners moved their operations to foreign countries, where employees earn as little as $1 or $2 an hour, Feuerstein said he was committed to keeping his business in Lawrence, MA where he paid his workers $12.50 an hour. In fact, Malden Mills' new $70 million plant was situated in the heart of a ghetto in Lawrence, one of the state's poorest cities. "I think it's the duty of government and industry to [remain committed to urban America]," he said. "Because if we don't, we won't have our cities in another 20 to 30 years. And if we don't have our major cities, we won't be the leader the financial world." Role of Leadership in Developing a Culture of Integrity • Respect: Employer/Employee Loyalty That Goes Both Ways How many corporate CEOs in the downsizecrazed companies today could ask their employees to double production in a few weeks given no changes in the current plant, much less given temporary plants set up in old warehouses? How many of your employees would work 25 hours a day because the company needed it to fill outstanding Role of Leadership in Developing a Culture of Integrity after the fire, • More than a year Feuerstein said he was as moved by his workers' gratitude as they were by his generosity. He told of one employee who thanked him for his support after the fire and said, "We're going to pay you back tenfold." Feuerstein said he didn't completely comprehend the meaning of the worker's comments until, after two months' time, production in one undamaged portion of the mill was boosted to 200,000 yards of fabric a week - far beyond its capacity before the fire. Role of Leadership in Developing a Culture of Integrity also • Customer Loyalty goes both ways: Feuerstein gave some young companies credit early on to help them grow and Feuerstein made sure the company kept its customers supplied even in difficult times. These customers returned the favor by remaining loyal customers even when Malden Mills was nearly destroyed. Role of Leadership in Developing a Culture of Integrity real test • Integrity: The of leadership is maintaining convictions during hard times. The most important communication is not what you say but what you do. Actions Speak Louder Than Words Spiritual Foundation • Spiritual Foundation: Feuerstein recently concluded a speech quoting from Jeremiah 9:22-23, in flawless Hebrew, then giving the English translation. His message was "Let the rich man not praise himself," but rather, by demonstrating the will of God, show kindness, justice and righteousness in his actions. His response to the catastrophe was in accordance with the Torah: you do not sacrifice the lives of people who are depending on you.” Spiritual Foundation • Feuerstein also quoted the famous first century Talmudic scholar Hillel - twice: "In a situation where there is no righteous person, try to be a righteous person” and "Not all who increase their wealth Spiritual Foundation • Feuerstein's father, Samuel, was one of the early pioneers of the Jewish Day School movement and a leader with the Union of Orthodox Jewish Congregations. In fact, Feuerstein related, it was, in part, his grandfather's devotion to Judaism that led him to found Malden Mills at the turn of the century when he emigrated from Hungary. "My grandfather felt that by owning a textile mill it would not only enable him to bring his children into the business, but would provide the opportunity to observe the Sabbath." Since the family worked together, it allowed them to schedule work hours around religious observances.” Spiritual Foundation • Feuerstein grew up in a family where Talmudic discussions around the dinner table helped formulate his beliefs about how to act in the world. "Judaism gives you a complete and thorough ethical framework within which you and your family can live," he explained. Spiritual Foundation • Feuerstein and his wife, Louise, are ardent supporters of their temple, Young Israel of Brookline, Mass. Coincidentally, their synagogue suffered a fire a year before the mill burned down and they played a role in helping to rebuild it. For Louise, who converted to Judaism nine years ago, her religion is a way "to focus on the here and now." She adds, "It's a positive impetus to make life meaningful every day, not just concentrate on what's down the road.” Spiritual Foundation • Spiritual study remains an important part of Aaron Feuerstein's life, and he refers to it as "exercise for my mind." Also, each day he alternates between doing an hour of running and an hour of calisthenics. During that time, he goes over memorized passages from either Jewish literature (his favorites are the Prophets, the Psalms and Pirke Avot) and English literature (specializing in Shakespeare's tragedies). Spiritual Foundation • Is it necessary to believe in God to be moral? Spiritual Foundation • In a recent poll, 58% of Americans said yes. This is not the view in most developed countries. For example, in France, only 13% said yes. (Nicholas D. Kristof, N.Y. Times} • However, only 4 % of U.S. adults have a biblical worldview as the basis of their decision-making, according to a new study by Barna Research Group. "Although most people own a Bible and know some of its content, our research found that most Americans have little idea how to integrate core biblical principles to form a unified and meaningful response to the challenges and opportunities of life," said researcher George Barna. Among the most prevalent alternative worldviews was postmodernism, dominant in the two youngest generations. Spiritual Foundation • “the happiness of a people, and the good order and preservation of civil government, essentially depend upon piety, religion, and morality." - The Massachusetts Constitution of 1780, Ch. V, Sec. 2 Spiritual Foundation • "Religion, morality, and knowledge, being necessary to good government and the happiness of mankind, schools and the means of education shall forever be encouraged.” - Northwest Ordinance, enacted by the Continental Congress in 1787, Art. 3, 1 Stat. 51, 53 n. a (July 13, 1787, re-enacted Aug. 7, 1789) Spiritual Foundation • "Where there is no religion, there will be no morals.” Benjamin Rush, Speech in Pennsylvania Ratifying Convention (Dec. 12, 1787) Spiritual Foundation • “[T]he most important of all lessons [from the Scriptures] is the denunciation of ruin to every State that rejects the precepts of religion. . . . I believe that religion is the only solid base of morals and that morals are the only possible support of free governments”. Gouverneur Morris, who spoke on floor of the Constitutional Convention 173 times, more than any other delegate. Spiritual Foundation • “I have read your manuscript with some attention. By the argument it contains against a particular Providence [Christianity], though you allow a general Providence, you strike at the foundation of all religion. For without the belief of a Providence that takes cognizance of, guards, and guides, and may favor particular persons, there is no motive to worship a Deity, to fear his displeasure, or to pray for his protection. I will not enter into any discussion of your principles, though you seem to desire it. At present I shall only give you my opinion that . . . the consequence of printing this piece will be a great deal of odium [hate] drawn upon yourself, mischief to you, and no benefit to others. He that spits into the wind, spits in his own face. But were you to succeed, do you imagine any good would be done by it? . . . [T]hink how great a portion of mankind consists of weak and ignorant men and women and of inexperienced, inconsiderate youth of both sexes who have need of the motives of religion to restrain them from vice, to support their virtue. . . . I would advise you, therefore, not to attempt unchaining the tiger, but to burn this piece before it is seen by any other person. . . . If men are so wicked with religion, what would they be if without it.” - Benjamin Franklin’s 1790 reply to Thomas Paine regarding Paine’s request of Franklin to review his new book, The Age of Reason: Spiritual Foundation • " … our ancestors established their system of government on morality and religious sentiment. “[T]he cultivation of the religious sentiment represses licentiousness . . . inspires respect for law and order, and gives strength to the whole social fabric. Moral habits, they believed, cannot safely be trusted on any other foundation than religious principle, nor any government be secure which is not supported by moral habits. . . . Whatever makes men good Christians, makes them good citizens " - Daniel Webster, December 22, 1820 at Plymouth, Mass. Of all the dispositions and habits which lead to political prosperity, religion and morality are indispensable supports… Reason and experience both forbid us to expect that national morality can prevail in the exclusion of religious principle. George Washington’s Farewell Address, September 17, 1796 Spiritual Foundation • "We have no government capable of contending with human passions unbridled by morality and religion. Our constitution was made only for a moral and religious people. It is wholly inadequate to the governing of any other.” John Adams Spiritual Foundation • “If we are to go forward, we must go back and rediscover those precious values - that all reality hinges on the moral foundations and that all reality has spiritual control.” - Martin Luther King, Jr. Spiritual Foundation • “Business and religion are not separate worlds. Business is people … they take their religion to work with them … True religion is is the life we lead, not the creed we profess … A character standard is more important to a stable world than an international gold standard.” - The Spiritual Responsibility of American Business and Industry. By: Johnson, Clement D.. Vital Speeches of the Day, 12/15/55, Vol. 22 Issue 5, p151, 3p; (AN 9867986) Spiritual Foundation • “[T]he loss of God leaves man at the naked mercy of his fellows, where might makes right.” – John Montgomery, The Law Above the Law, 55 (1975) Spiritual Foundation • • “What if, under your particular understanding of the universe, other human beings were not created in God's image, had no inherent dignity, and were yours to do with as you pleased? And what if your particular response to the mystery of life happened to be the same as that of Eric Harris, one of the two young killers in Littleton, Colorado, who said, "My belief is that if I say something, it goes. I am the law"? or, as Fyodor Dostoevsky wrote, "Without God, everything is permitted"?” - The Necessity of Truth by Senator Rick Santorum, Spiritual Foundation • In Business and Religion: Odd Couple or Bosom Buddies? Evan Gahr reports that: – Among leaders of the nation's top 100 businesses, 65 % attend church or synagogue regularly--compared to 40 % of the general population. – IBM chairman Louis Gerstner, Jr., a graduate of an allboys Catholic high school, attends mass daily. – Dallas-based Interstate Battery company, the top replacement-battery manufacturer in North America, boasts a full-time corporate chaplain who leads voluntary prayer sessions and Bible study groups. Spiritual Foundation • In Business and Religion: Odd Couple or Bosom Buddies? Evan Gahr reports that: – Illinois-based ServiceMaster was founded by 2 evangelicals. Originally just a rug-cleaning operation, it has since blossomed into the nation's top provider of cleaning workers. The company's motto is, "To honor God in all we do." – Thomas Monaghan, the founder of Domino's Pizza, also founded Legatus, an international organization for Catholic business leaders that holds seminars on business ethics and sponsors conferences featuring prominent Catholics from the pope on down. Monaghan calls Legatus his "number-one priority. Spiritual Foundation • In Business and Religion: Odd Couple or Bosom Buddies? Evan Gahr reports that: – Allou Health and Beauty Care, Inc., which boasts one of the highest profit margins in the industry, bases its business operations principles enunciated in the Jewish Talmud. Spiritual Foundation • According to a recent national survey by the American Research Group: – 70 % of respondents believe that corporate scandals would be avoided if CEOs followed biblical principles. – 94.4% of respondents believe companies run by individuals who follow the Bible will grow at least as fast or faster than those that do not. – 54% percent of respondents said they would be more likely to invest in a company run by a CEO who uses the Bible to guide his or her business decisions. Spiritual Foundation • And according to one study, a majority of Americans see religion as central to recovering the country's moral compass. Spiritual Foundation • Christian philanthropist Sir John Templeton, regarded by Wall Street as one of the world's wisest investors, contends in his book, The Templeton Plan—21 Steps to Personal Success and Real Happiness, that "the most successful people are often the most religiously motivated. They are likely to have the keenest understanding of the importance of ethics in business. They can be trusted to give full measure and not cheat their customers.” In his extensive research, Templeton found that "the common denominator connecting successful people and successful enterprises is a devotion to ethical and spiritual principles." Templeton believes that "the person who lives by God's principles is the same person who will succeed in life, making lasting friendships and, most likely, reaping significant financial rewards.”- Christian Ethics in Business - Asset or Liability, Ian Buchanan, www.christianity.ca. Spiritual Foundation • Does a leader’s strong spiritual foundation guarantee that he will lead his company in developing a culture of integrity? Spiritual Foundation • Note that in Business as a Calling Michael Novak reports that: – Kenneth Lay, Chairman and CEO of Enron Corp., confided that "I grew up the son of a Baptist minister. From this background, I was fully exposed to not only legal behavior but moral and ethical behavior and what that means from the standpoint of leading organizations and people. I was, and am, a strong believer that one of the most satisfying things in life is to create a highly moral and ethical environment in which every individual is allowed and encouraged to realize their God-given potential. There are few things more satisfying than to see individuals reach levels of performance that they Role of Leadership in Developing a Culture of Integrity right thing: • Courage to do the Unfortunately, subsequent years of mounting debt forced Malden Mills into bankruptcy. Questions inevitably arose about whether Feuerstein's benevolence may have helped bring his company to bankruptcy. To Feuerstein, though, the point is moot. In March, he was asked by the CBS program "60 Minutes" if, knowing how things played out, he would do the same thing he had done, he responded "Yes, it was the right thing to do. “Maybe on paper my company is now worth less to Wall Street. But I can tell you it is worth more.” Role of Leadership in Developing a Culture of Integrity an • Barbara Lee Toffler adjunct professor at Columbia University's Graduate School of Business and an expert on corporate responsibility, when asked by The New York Times last November about Mr. Feuerstein's actions in the wake of the Malden Mills fire, and about the company's newly precarious economic prospects, suggested that "it may have been that the desire to take principled action somehow blinded him to thinking long term.” Perhaps Role of Leadership in Developing a Culture of Integrity • It seems appropriate that Feuerstein, translated from the Yiddish, means “firestone”, or “a stone which can endure intense heat”, because it is clear that his integrity survived a literal “trial by fire”. Role of Leadership in Developing a Culture of Integrity • Postscript: Aaron Feuerstein filed a reorganization plan to emerge from Chapter11 bankruptcy on March 7, 2003. Creditors have already arranged to strip Feuerstein of his chief executive's title, though they haven't kicked him out of his office. Feuerstein retains the titles of president and chairman but owns just a minority stake. Malden Mills Board now includes Feuerstein, two independents and four members appointed by creditors. The company has laid off about 70 people and has set aside Feuerstein's pledge that fabric made in Asia with cheaper labor wouldn't be sold to US consumers, a policy he felt would protect local jobs. A mill in China recently began producing the company's signature Polartec for garments sold in the United States. Some members of the board would like to move "substantial" parts of the mill overseas, whereas Feuerstein "believes that it is not only feasible, but desirable, to maintain manufacturing operations in the United States."The board is also looking into developing housing or commercial assets on parts of the mill's 25-acre site. Feuerstein has to raise $125 million to pay off creditors and retain control of Malden Mills. Feuerstein's connections won Malden Mills valuable military contracts to supply Role of Leadership in Developing a Culture of Integrity • Vision - Moral leaders tend to maintain a clear, strong and positive vision and purpose for themselves and their organizations that takes into account their organization’s impact on society, and they must inspire others to become invested in the pursuit of that vision. (Related Scriptures, Prov. 29:18, Hab. 2:2-3) • According to Wess Roberts, author of Leadership Secrets of Attila the Hun, vision is the “Northstar” for any organization. Role of Leadership in Developing a Culture of Integrity • Servant Leadership - Moral leaders benefit their organizations by empowering as opposed to controlling others. They do this by first recognizing, and then helping actuate, the latent potentialities of others. (see Matt. 20:25-27) • The key concept behind servant leadership is the belief that true leadership emerges from those whose primary Role of Leadership in Developing a Culture of Integrity • 10 Characteristics of a Servant Leader (from Spears, Reflections on Leadership) – 1) Active Listener • Leaders must be good listeners and invite discussion, debate and feedback. - Carol Stephenson – – – – – – – – – 2) Genuinely Empathetic 3) Healer 4) Persuader 5) Aware 6) Possessing/Demonstrating Foresight 7)Conceptualizer 8)Committed to the Growth of others 9)Good Steward 10)Community Builder Role of Leadership in Developing a Culture of Integrity • An increasing number of companies have adopted servant-leadership as part of their corporate philosophy or as a foundation for their mission statement. Among these are the Toro Company (Minneapolis, Minnesota), Synovus Financial Corporation (Columbus, Georgia), ServiceMaster Company (Downers Grove, Illinois), the Men's Wearhouse (Fremont, California), Southwest Airlines (Dallas, Texas), and TDIndustries (Dallas, Texas). Role of Leadership in Developing a Culture of Integrity • Front-line Actors - Moral leaders really lead. They become consciously and actively involved in the promotion of ethical behavior in their organizations, both by word and deed. 3 Theories of Social Responsibility • Classical Theory • Stakeholder Theory • Corporate Social Responsibility Theory (CSR) Classical Theory • Definition: The role of business is to maximize profits within the law (see Milton Friedman, "The Social Responsibility of Business Is to Increase Its Profits.", New York Times Magazine, Classical Theory • Put another way, by Harvard Professor Theodore Levitt, “In the end business has only two responsibilities - to obey the elementary canons of face-to-face civility (honesty, good faith, and so on) and to seek material gain.” - “The Dangers of Social Responsibility”, Harvard Business Review 36 (Sept.-Oct., 1958) Classical Theory • Serve the interests of the shareholders • Social obligations limited to “ordinary moral expectations”. • Views obligations to non-shareholders as a constraint • Trusts in Adam Smith’s “Invisible Hand” (The Wealth of Nations) - The assumption that society benefits most when individuals are allowed to define and pursue their own self-interests, with minimal interference from governments or other authorities. Classical Theory - Contra • Problems with: Market Failures (e.g. pollution & resource depletion, see Pacific Lumber Case, Desjardins, Introduction to Business Ethics, p.39, a successful, balanced enterprise ruined) Classical Theory - Contra • When the 1990’s Tech Stock Bubble “burst” it sent layoffs soaring, 401(k) assets tanking. According to the Center on Budget and Policy Priorities, between 1997 and 1999 the bottom 20% of earners saw their income decline, while the richest 1% saw their income more than double. The invisible hand is a bit partial in the way it dispenses favors. (Marjorie Kelly, The Divine Classical Theory -Contra • “In fact, the purpose of a business firm is not simply to make a profit, but is to be found in its very existence as a community of persons who in various ways are endeavouring to satisfy their basic needs, and who form a particular group at the service of the whole of society. Profit is a regulator of the life of a business, but it is not the only one; other human and moral factors must also be considered which, in the long term, are at least equally important for the life of a Stakeholder Theory • Definition: The primary consideration in business decisionmaking is preserving/promoting the rights of stakeholders • Takes into consideration the moral principle of mutual respect. Stakeholder Theory • Goal: to maintain the benefits of the free market while minimizing the potential ethical problems created by capitalism (Phillips, Wharton School) • Primary difference from Classical Theory: elevation of nonshareholding interests to the level of shareholder interests in formulating business strategy and Stakeholder Theory • Stakeholder: an individual or group, inside or outside the organization, who has a meaningful stake in its performance. • Who are the stakeholders of a business? • Narrow view vs. Wide View Stakeholder Theory • Some Possible Stakeholders of a Business: – Customers – Department/Employees – Owners/Shareholders – Creditors – Suppliers – Distributors – Competitors Stakeholder Theory • Some Additional Possible Stakeholders: – Local Community – National Citizens – Global Inhabitants – Non-Human Life – the Environment Stakeholder Theory • Corporate citizenship: the extent to which a business meets its responsibilities, to its various stakeholders, or to society at large. Stakeholder Theory • Problems with wider view? – Discourages Investment Undermines/Dilutes shareholder property rights – Interest Group Politics - Leads to waste and inefficiency Corporate Social Responsibility Theory • Definition: A voluntary assumption of responsibilities, beyond the legal and economic, that take into account moral/ethical/socially desirable goals and outcomes. • Concept originated in the 1950’s and began to gain a significant following in the 1960”s. Corporate Social Responsibility Theory • • Possible Examples Merck: moved to develop Mectizan, a drug that would treat river blindness, a disease that primarily affected the poor. Merck knew that it would cost millions to develop and that they would most likely not realize a direct profit from the effort. But this resulted in a public relations windfall! Corporate Social Responsibility Theory • Intel: provides education in science & math in countries where it has plants. Corporate Social Responsibility Theory • Citigroup: has provided significant funds to microcredit ventures. Corporate Social Responsibility Theory • “Man … ought to regard himself, not as something separated and detached, but as a citizen of the world, a member of the vast commonwealth of nature … to the interest of this great community, he ought at all times to be willing that his own little interest should be sacrificed.” - Adam Smith Corporate Social Responsibility Theory • In the words of General Robert Wood Johnson, founder of Johnson and Johnson: “The day has passed when business was a private matter, if it even really was. In a business society, every act of business has social consequences and may arouse public interest. Every time business hires, builds, sells or buys, it is acting for the people as well as for itself, and it must be prepared to accept full Corporate Social Responsibility Theory • Problems with CSR in general? – Dilutes the Business Purpose – Viewed as fundamentally antagonistic to the Capitalist Enterprise – Often influenced by simplistic political and social agendas Corporate Social Responsibility Theory • The search for guilt-free affluence has helped to transform "green" business into a mass-market phenomenon. • Patagonia, a designer and distributor of outdoor clothing and gear, has long prided itself on being green. For nearly two decades, it has given 10% of pre-tax profits or 1% of sales, whichever is larger, to environmental causes. Corporate Social Responsibility Theory • “Rain Forest Chic” - Socially responsible image as a marketing tool, source of free, positive publicity (e.g. The Body Shop, both customers and franchisees attracted by progressive reputation) Corporate Social Responsibility Theory • Anita Roddick/Body Shop – Supports various social causes (e.g.Save the Whales) – But may have stolen store concept and unfairly deals with franchisees? Corporate Social Responsibility Theory • Ben & Jerry’s – Fight global warming with Ice Cream – Annual one world one heart festival – Pint for a pint with International Red Cross – Rainforest Crunch Fiasco/Mistreatment of Employees/Sale to Unilever (4/12/2000) 3 Theories of Social Responsibility • If you were trying to decide which type of company to invest in, which would you choose and why? (Classical, Stakeholder, CSR) Environment • Areas of Concern? – Waste & Pollution – Use of Natural Resources – Preservation of Environmentally Sensitive Areas – Preservation of Biodiversity • Consider Endangered Species Act, Noah/Ark, Note: Under Jewish Law: The medieval Jewish commentator Nahmanides explained the biblical injunction against slaughtering a cow and her calf on the same day (Leviticus 22:28) and the taking of a bird with her young (Deuteronomy 22:6). "Scripture will not permit a destructive act that will cause the extinction of a species, even though it has permitted the ritual slaughtering of that species (for food). And he who kills mother and sons in one day, or takes them while they are free to fly away, is considered as if he destroyed that species." The Sefer Ha-hinukh offers a similar explanation, stating that there is divine providence for each species and that God desires them to be perpetuated. Environment • Sustainability - the ability to meet the needs of the present without compromising the ability of future generations to meet their own needs. (see Phil. 2:4) • “The responsibility for ensuring a sustainable world falls largely on the shoulders of the world’s enterprises.” Stuart Hart (1997) • See Interface Corporation Case, Desjardins, p.174-176. • Environment • Do Christians/Jews/Muslims have a moral duty to care for the environment? Environment – What is the world’s oldest profession? Environment – Caretaker • See Gen. 2:15 (“Dress & Keep”) – Dress(abad, Heb.) = Work, Serve, Labor for – Keep (shamar, Heb.) = Keep, Guard, Treasure, Preserve, Protect, Retain, Save, Watch Over, Celebrate – Jewish prohibition known as bal tashhit, 'do not destroy' is based by the Rabbis on the biblical injunction not to destroy fruit-bearing trees (Deut. 20: 19), but it is extended by them to include wasting anything that can be used for the benefit of mankind. – See also Ezek. 34:18, Anti-pollution scripture? • Takes into account the moral principle of stewardship/trusteeship (see Lev. 25:23-24). Sweatshops • Sweatshops: Huge mass production facilities in which large numbers of people work under barbaric conditions for subsistence wages. Sweatshops • Sweatshops often involve such things as: – Dangerous working conditions (e.g. firetraps, exposure to dangerous chemicals and/or machines without proper safeguards) – Denial of bathroom breaks – Physical abuse – Demands for sexual favors – Seven day work weeks – Long hours (12 to 16 hours a day) – Forced double shifts – Dismissal of anyone who tries to organize a union Sweatshops • Some Examples (from a recent Fair Labor Association Report): – Adidas - Vietnam: Workers forced to do overtime, arbitrary firings, widespread sexual harassment, toilet visits limited – Liz Claiborne-China: Workers fined for talking, blocked exits, no toilet paper or towels, no sick leave, no pay stubs, excessive overtime.. – Levi Strauss-Thailand: Child labor, dirty toilets, improperly stored chemical tanks, no drinking water in the dining facility, excessive overtime. – Levi’s now monitors producers (“no-sweat” goods) » Negative: Monitoring leads to use of fewer sources = less opportunity Sweatshops • • • • Illegal immigrants especially vulnerable. Often involve organized crime. 90% of sweatshop workers are female. Sometimes involve child labor. – Note: According to International Labor Organization (ILO) reports, some 1/5 of all children in the world ages 5-14, or about 250 million children, are engaged in child labor. • Major offender: apparel industry. Sweatshops • Are Sweatshops Necessarily Evil? (Taking Sides, p. 282) Globalization • Yes - Black et al – Violate Int’l Human Rights & Labor Laws – Right to a “living wage”? – Companies can afford to treat better/pay more • A men’s dress shirt, made in Mexico, and selling for $32.00 in the United States, costs only $4.74 to produce – Customers will not tolerate sweatshops and are willing to pay more to prevent them. (Is this true?) • Ad by “Behind the Label” and organization dedicated to exposing sweatshops shows a young American girl shopping and saying, “I helped push African women into slums, I was just shopping.” Globalization • No- Myerson - Merely “Growing Pains” – May be only option in developing countries to accumulate capital • First-step towards modern prosperity (e.g. Hong Kong, Singapore, South Korea, Taiwan, Indonesia) Over the past 50 years, countries like India resisted sweatshops, while countries that started at a similar economic level - like Taiwan and South Korea - accepted sweatshops as the price of development. Today, Taiwan and South Korea are modern countries with low rates of infant mortality and high levels of education; in contrast, every year 3.1 million Indian children die before the age of 5, mostly from diseases of poverty like diarrhea. Per capita income in Indonesia has more than tripled in the last 20 years. • “The simplest way to help the poorest Asians would be to buy more from sweatshops, not less.” - Nicholas D. Kristof, N.Y. Times, 9/4/2000. Globalization • No- Merely “Growing Pains” – When Nike and Gap pulled out of Cambodia after a BBC report on sweatshops there it cost the country $10 million in contracts and hundreds or workers lost their only source of income for themselves and their families. – China, Vietnam and various Eastern European Countries are now Sweatshop “hot spots” – The United States has had its own history of sweatshops, employing African & Asian slaves, various waves of immigrants, etc, Globalization • No- “Growing Pains” • In the late 1930’s Life Magazine declared that sweatshops no longer existed in America • However, there has been a definite resurgence of sweatshops in America, especially since the late 1960’s, mainly employing illegal immigrants – (e.g. A 1995 police raid of a fenced-in compound in El Monte, California found a clandestine garment sweatshop that employed some 72 Thai immigrants as virtual slaves) – The U.S. Labor Dept. estimates that 50% of current U.S. owned/operated garment factories are sweatshops. Globalization • No- Developing nations not complaining – Honduran union leaders universally resent the moralizing of U.S. labor activists who, like the National Labor Committee, are funded by organized labor committed to preserving American jobs. According to Honduran labor leaders, maquiladoras are increasingly unionized and offer wages two-to-three times the minimum wage. These are prime jobs in an economy in which almost half of the population can find no work at all. Labor shortages at these jobs have helped bump up wages throughout the economy. (Jon Entine) – “A policy of good jobs in principle, but no jobs in practice, might assuage our consciences but is no favor to its alleged beneficiaries.” Is Ethical Behavior Good for Business? • "The successful entrepreneur must know how to glide over every moral restraint with almost childlike regard...[and have], besides other positive qualities, no scruples whatsoever, and [be] ready to kill off thousands of victims -without a murmur.” - John D. Rockefeller. Is Ethical Behavior Good for Business? • Some Costs of Ethical Misconduct – Public/Interest Group/NGO disgrace/scandal/ostracism/repudiation/protest s – Litigation/Prosecution – Decreased Employee Morale/Loyalty/Commitment/Performance/Produ ctivity – Loss of Business/Profits – Loss of Customer/Supplier/Partner, Trust/Goodwill/Loyalty Is Ethical Behavior Good for Business? • Some Additional Costs of Ethical Misconduct – Loss of Social/Reputation Capital/Goodwill (i.e. the willingness of stakeholders to overlook failings) – Shaken public confidence in company and in capital markets – Layoffs – Loss of Investments/Pensions – Increased Government Scrutiny/Regulation – Environmental/Health Damage Is Ethical Behavior Good for Business? • Impact on the Bottom Line – Ethical Behavior Enhances profitability Most academic studies support the conclusion that ethical behavior and profitability go hand in hand Is Ethical Behavior Good for Business? • A 1999 DePaul University study of 300 large firms found that companies that make an explicit commitment to follow an ethics code provided more than twice the value to shareholders than companies that didn't. And it gets better: According to Management Review, published by the American Management Association, "For the 47 companies expressing a more extensive or more explicit commitment to ethics, the market value added difference was larger--an average of $10.6 billion, or almost three times the MVA of companies" without similar commitments. Is Ethical Behavior Good for Business?at the Harvard Business School did a study of • “Two professors 207 major companies over an 11-year period. They used all sorts of measuring devices and came up with a ranking by corporate cultures. What they measured were things that are sometimes called the soft side of business-morale, rewards for creativity, emphasis on ethics, how well managers listen to their employees, and so on. In my business we call them more or less spirited workplaces. We could also call them companies with a high or low level of integrity. They then put these companies up against the hard side, the bottom line, on three measures: 1] gains in operating earnings, 2] return on investment, and 3] increase in stock prices. Terry Deal, who coined the term corporate culture, took a second look at those numbers, ran the same numbers again, and came up with an analysis of the top 20 companies vs. the bottom 20. Here's what he found. The top 20--the companies with integrity--the spirited workplaces--averaged 571% higher earnings than the dispirited workplaces. The top 20% averaged a 417% higher return on investment. The top 20% enjoyed an increase in stock prices of 363% in the same period. One of American's most successful CEO's was right when he said, "the soft side is the hard side.” - Restoring Integrity To Business , By: Thompson, Is Ethical Behavior Good for Business? • An investment of $1,000 ten years ago in each of ten companies highly regarded for ethical behavior (G.E., Coca-Cola, HewlettPackard, Microsoft, Intel, Southwest Airlines, Berkshire Hathaway, Disney, Johnson & Johnson, and Merck) would have resulted in a return nearly three times as much as an investment of $10,000 in the Standard & Poor’s 500 stock index. (Fortune) Is Ethical Behavior Good for Business? • An exception: In response to numerous lawsuits, gun manufacturer, Smith & Wesson's former CEO Ed Shultz decided to start including locks on its handguns in March 2000. Although the decision was clearly ethical, customers especially the NRA) were unhappy with the change. Sales declined, employees were laid off, and Shultz resigned. In this case, the ethical decision did not have a positive financial impact on the firm. Nonetheless, despite Is Ethical Behavior Good for Business? • Reputation Management • A reputation for integrity enhances customer loyalty (e.g. Johnson & Johnson Tylenol Case) • Conversely, damage to a company's reputation can mean a sharp and often irreversible loss of Is Ethical Behavior Good for Business? • Social Capital – Experts say most people forgive mistakes made by leaders who have both conviction and a good heart. Del Jones, Leadership lessons from the Reagan years, USA Today, June 11, 2004, p.6B. Is Ethical Behavior Good for Business? • Decreases Costs - Though initiating and ethics program sometimes involves significant upfront costs, it generally helps to avoid other larger costs later. Is Ethical Behavior Good for Business? • Encourages Investment - A Conference Board of Canada poll revealed that 77% of Canadians are most likely to invest in, 81% to purchase from, and 79% to work for companies they view as socially responsible. Causes of Failures in Business Ethics • • • • • • • • • • • • • • • Decreased Authority of Moral Standards Empty Gestures/Insincerity Situational Ethics/Moral Relativism/Expansion of Cultural Diversity Rapid Expansion and Decentralization of Control Company/Personal Immaturity Parties Perceived as Enemies or Not Worthy of Ethical Treatment/Moral Exclusion (e.g. Lying to the IRS, cancer causing pajamas and other defective products dumped on 3rd world markets, etc.) Narrow View of Stakeholders Failing to “Count of Cost” before committing to a particular course (see Luke 14:28-30) Lack of “Owner” Accountability/Spin Actual or Perceived Pressures Fixation on “Results” Speed/Carelessness Ethical Illiteracy Rote Behavior Distractions Causes of Failures in Business Ethics • Focus on Short Term Profits & Wrong Standards for Hiring – "If we select people principally for their charisma and their ability to drive up stock prices in the short term instead of their character, and we shower them with inordinate rewards," the author asks, "why should we be surprised when they turn out to lack integrity?” - Bill George, Former CEO Medtronic Corp. - in "Authentic Leadership: Rediscovering the Secrets to Creating Lasting Value," Jossey-Bass/Wiley, 2003. – “The mind of the superior man is conversant with righteousness; the mind of the mean man Causes of Failures in Business Ethics • Emphasis on the Individual rights – “Instead of conceiving of society as something established for the defense of individual rights, fair contracts, and due process of law, we are invited to see it in terms of the biblical vision. This way of living, thinking, and acting where autonomy and related rights take priority has seriously jeopardized the meaning and values of all institutions in our society.” - Detroit Archbishop Adam J. Maida, in a speech to Catholic judges including Rehnquist, Scalia, Kennedy, and O'Connor Causes of Failures in Business Ethics • Self-Deception/Choosing Not to Know – Types • Tribalism, or the belief that the company is always right • Legalism, the inability to imagine moral obligations beyond the law (Note: Kedoshim Tiyu is a requirement of a Jew not to just obey the letter of the law but to obey the spirit of the law as well. Under Jewish law, it is entirely possible for a person to be 100% observant or all the law and yet be a Naval B'rshut HaTorah , that is, a repulsive, disgusting individual. One must go beyond the law, called Lifnim Mishurat HaDin, and embrace the ethical imperatives that are within it. • Moral Gamesmanship, the excusing of unethical practices by viewing business as "a game" and oneself as "a player” • Scientism, the elevation of science-including management science-to a position of unquestioned authority. Causes of Failures in Business Ethics • Emotions – Arrogance • "When men are most sure and arrogant they are commonly most mistaken, giving views to passion without that proper deliberation which alone can secure them from the grossest absurdities" – - David Hume quotes (Scottish philosopher, historian, economist and essayist. 1711-1776) Causes of Failures in Business Ethics • Emotions – – – – – “Blind” Ambition Desperation Feeling of Invulnerability Flirting with the Edge Greed Causes of Failures in Business Ethics • Is the Capitalist System or the Corporate Structure inherently Immoral or Amoral? Capitalism • Capitalism: An economic system in which the major part of production and distribution lies in private hands, operating under a primarily free market system, for the primary purpose of earning a profit on capital invested. Capitalism • “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of the things for the greatest good of everyone.” John Maynard Keyes Capitalism • Values that are central to a capitalism – Freedom of voluntary exchange – Sanctity of contracts – Removal of impediments to trade • (Source: Ethics and Economic Affairs,by Lewis, Alan; Wärneryd, Karl Erik, Publication: London ; New York Routledge, 2002) Capitalism • “As it presently functions, capitalism encourages human pathologies -embodying irresponsibility as a central requirement in its operating routines.” -William Greider is national affairs correspondent for The Nation Corporations • Today more than 25% of the world’s economic activity comes from the 200 largest corporations. - “Top 200 The Rise of Corporate Global Power”, by Anderson & Cavanaugh, Institute for Policy Studies, 2000) • The largest 500 U.S. companies constitute at least 75% of the U.S. economy. Corporations • Many now believe that it is not the church or state, but the corporation that is: – “the most important organization in the world” - The Company: A Short History of a Revolutionary Idea, by Micklethwait & Woolridge, 2003 – or “the central institution of contemporary society” - “Corporate Society: Class, Property, and Contemporary Capitalism, by McDermott, 1991. – or “society's dominant non- Corporations • These beliefs echo the prediction made by -French Sociologist Emile Durkheim (18581917), in his work Suicide, that “following the collapse of the family and the church, the corporation would be the association in the future that would supply the social support that every individual needs to maintain a moral life” . - Cited in “An Essay on the Background of Business Ethics: Ethics, Economics, Law and the Corporation, by Lisa N. Newton & Maureen M. Ford, in Taking Sides. Corporations • Legally speaking, Corporations are: – “fictional persons” • “lacking body and soul”, corporations cannot be punished - Pope Innocent IV (13th Century) • “lacking a soul, corporations cannot commit treason, be outlawed, or excommunicated - Sir Edward Coke, Chief Justice, King’s Bench (17th Century) Corporations • King George III's Lord Chancellor Baron Thurlow remarked at the end of the 18th Century: "How can you expect a corporation to have a conscience, when it has no soul to be damned and no body to be kicked?" Corporations • As “artificial persons” corporations cannot have “real” responsibilities. Nobel Prize Winning Economist Milton Friedman • Philosophy Professor Manuel Velasquez argues that only corporate members and not corporations themselves, can be held morally Corporations • However, “Although a corporation is not something that can be seen or touched, it does have prescribed rights and legal obligations within the community.” - William H. Shaw, Business Ethics. Corporations • “The exclusively economic definition of the corporation is a deadly oversimplification , allowing overemphasis on self-interest at the expense of the consideration of others.” - Kenneth Andrews, Professor, Harvard Business School Corporations • Limited liability is the key feature of the corporate form, encouraging investment. – Doesn’t that run directly counter to the value of Responsibility/Accountability? Self-Regulation of Business Ethics • Types of Codes of Ethics/Conduct – Compliance Oriented: Statement of business standards or practices – Visionary: Statement of beliefs, core values, mission, principles (e.g. Johnson and Johnson Credo) or corporate philosophy (e.g. the “HP Way”) – Combination: (e.g. G.E.’s Integrity Program called “The Spirit and the Law”. Types of Codes Forbes 500 Companies (237 respondents): Date Introduced < 5 yrs. >20 yrs. Revised in ‘90s Code of Ethics 91% 18.5% 15.5% 82% Values Statement 53% 51.0% 8.0% 83% Corporate Credo 34% 41.0% 22.0% 81% All Three Documents 49 cos. Source: Patrick E. Murphy, “Corporate Ethics Statements: Current Status and Future Prospects,” Journal of Business Ethics 14: 727­740 (1995). Self-Regulation of Business Ethics • Why have a Code of Ethics? – to define accepted/acceptable behaviors; – to promote high standards of practice; – to provide a benchmark for members to use for self evaluation; – to establish a framework for professional behavior and responsibilities; Self-Regulation of Business Ethics • Why have a Code of Ethics? – as a vehicle for occupational identity & maturity; – to increase ethical sensitivity & judgement; – to enhance the sense of community among members, of belonging to a group with common values and a common mission; Self-Regulation of Business Ethics • Why have a Code of Ethics? – to compel people to think through their mission and obligations, as a group & as individuals; – to strengthen support for individuals’ moral courage; – because a written document reinforces an intention. – to act as a vehicle to address public Self-Regulation of Business Ethics • Why have a Code of Ethics? – to discourage corruption, fraud and other malfeasance – to enhance credibility with stakeholders – to provide a guidepost for addressing potential problems such as potential conflicts of interest Self-Regulation of Business Ethics • Some Typical Components – Preamble (Aspirations) – Rules and principles. – An Articulation of Core Values Self-Regulation of Business Ethics • Some Elements of “Best Codes” – Clear, Coherent, Understandable Language – Involves sanctions and rewards – Is more about values than compliance – Involves “Ownership” (i.e. People from every level of the company should be involved in its development. Self-Regulation of Business Ethics • Some Elements of “Best Codes” – Provides a set framework for making ethical decisions – Demonstrates respect for all employees as unique, valuable individuals – Supports each individual employee's freedom, growth, and development – Promotes a “balanced life” & respect for employee family concerns Self-Regulation of Business Ethics • Some Elements of “Best Codes” – Promotes employee health & safety – Promotes tolerance & an atmosphere free of harassment – Promotes honesty – Promotes fairness? – Cultivates a positive attitude/outlook Self-Regulation of Business Ethics • Some Elements of “Best Codes” – Promotes openness/transparency (no cover-ups) – Promotes accountability/personal responsibility – Promotes risk-taking, within limits – Promotes excellence Self-Regulation of Business Ethics • Some Elements of “Best Codes” – Promotes tolerance of errors & learning from same – Promotes unquestioned integrity – Promotes consistency – Promotes cooperation/collaboration – Promotes courage & persistence Self-Regulation of Business Ethics Self-Regulation of Business Ethics • But as Joshua Joseph, research manager at the Ethics Resource Center in Washington, D.C. says, corporate ethics codes alone have little effect on employee behavior. Organizations must communicate what’s in the code, provide training on what it means and put systems into place that allow workers to ask questions and report possible misconduct without fear of reprisals. Self-Regulation of Business Ethics • Some Implementation Methods – Integration – Endorsement – Breach Response Plan (Gaps between values and practices must be addressed) – Personal Feedback – Affirmation – Regular Review – Contracts Self-Regulation of Business Ethics • Some Implementation Methods – Training (Role-Playing) (including outside specialty firms, e.g. Baker Hughes signed a 3year contract renewal and extension with LRN® , The Legal Knowledge Company™ to provide online education, training and testing in ethics, legal and compliance issues to its global workforce through the LRN Legal Compliance and Ethics Center) Self-Regulation of Business Ethics • Some Implementation Methods – Translation (e.g. Merck & Co.’s code has been translated into 22 languages) – Distribution (Pamphlets, On-Line, etc.) – Annual Report – Ethics Officer/Department Self-Regulation of Business Ethics • Some Monitoring/Compliance Methods – Required annual acknowledgement/review – Periodic surveys – Anonymous 24-hour contact point with real and immediate investigation/followup Self-Regulation of Business Ethics • Are Codes of Ethics/Conduct just for show? (Taking Sides, p.22) • Yes? – Created in response to coercion – Often Ambiguous language – Enron had a Code of Ethics! Self-Regulation of Business Ethics • Other Forms of Self-Regulation: – Industry Codes – Support character based education in your community (e.g. Boy Scouts) – Hiring Ethical People: hire people who can uphold the company's high ethical standards Self-Regulation of Business Ethics • Set your expectations high; find men and women whose integrity and values you respect; get their agreement on a course of action; and give them your ultimate trust. - John Fellows Akers, Chairman of IBM Self-Regulation of Business Ethics • I am sure that in estimating every man’s value either in private or public life, a pure integrity is the quality we take first into calculation, and that learning and talents are only the second.- Thomas Self-Regulation of Business Ethics • In looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you.-- Warren Buffet Government Regulation of Business Ethics • Is It desirable or necessary for government to protect/promote good business ethics? – Not everyone agrees that tough, new regulations is the best way to stop corporate fraud Government Regulation of Business Ethics • Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws. - Plato Government Regulation of Business Ethics • Dick Grasso, Former Chairman and CEO of the New York Stock Exchange, “You cannot legislate honesty.” (Who was forced to resign due to outrage over his $39.5 million salary) Government Regulation of Business Ethics • Leon Panetta, Former White House Chief of Staff in the Clinton Administration, "Restoring trust in corporate America is crucial to our economy. Passing laws alone will not guarantee honesty. CEOs and Boards of Directors have that responsibility," he Government Regulation of Business Ethics • ”Rules cannot substitute for character." — Alan Greenspan, Chairman of the U.S. Federal Reserve Board Government Regulation of Business Ethics • Senator Joe Lieberman, “We cannot put the business ethics police on every corner that might be cut—nor would we want to. Government will never be able to legislate or regulate morals into every part of our markets. Business people and Government Regulation of Business Ethics • Senator Joe Lieberman, “Those who idealize the government's role and suggest heaping so many new regulations on businesses may stifle the American spirit of enterprise. Those who idealize the market's selfcorrective powers don't see the size of the scar or the powerful temptation to return to business as it was before. Government Regulation of Business Ethics • Senator Joe Lieberman, “The Enron scandal cries out for governmental action, but we must acknowledge before we act that there are twin dangers—of doing too little and doing Government Regulation of Business Ethics • Milton Friedman, suggests that the market and not new regulations is a more effective deterrent and punisher. New regulations will only hinder the growth of American's economy, and the "bad eggs" have already have been punished by the market. Government Regulation of Business Ethics • The argument for regulation – The existence of a code of ethics alone is not sufficient to prevent unethical behavior (e.g. General Dynamics code of ethics did not prevent some highly unethical practices in the pursuit of government contracts and Enron had an elaborate code of ethics) – Change in the behavior of the corporation is initiated to make it give more attention to social goals. – Competition does not enable the manager to Government Regulation of Business Ethics • Has regulation been good for business in any way? – Statutes like the Sherman & Clayton Antitrust Acts helped to dissolve giant trusts (Though recent trends seem to be reversing this) – Statutes like the Wagner Act enabled labor unions to emerge as responsible entities – OSHA regulations have improved workplace safety – Recent acts have forced disclosure of financial information leading to a more honest and effective stock market. Government Regulation of Business Ethics • But have recent new regulations actually helped improve business ethics? • Only 17% of respondents to a recent SHRM online poll report seeing a decrease in ethics violations at their companies. 35% report an increase! Government Regulation of Business Ethics • Levels – Local – State – National – International Government Regulation of Business Ethics • Branches – Executive – Legislative – Judicial The Sarbanes-Oxley Act • creates higher standards for corporate governance • includes rigorous standards for audit committees • requires more frequent & transparent financial disclosures • requires securities analysts to maintain greater independence from investment banks. • provides a series of new civil and criminal penalties for violations of securities laws, and enhances penalties for such violations under existing statutes. • The Sarbanes-Oxley Act must disclose whether or Companies not they have a code of ethics, and if not why not. They must also disclose any change in or waiver of ethics codes. • Whistleblowing employees are protected for providing information to federal officials, congressional members, and company supervisors. • The Sarbanes-Oxley Actpublic company Created a accounting oversight board to register public accounting firms, to establish or adopt auditing, quality control, ethics and independence and accounting standards, to conduct inspections of registered CPA firms and to enforce compliance with the Act. • The Sarbanes-Oxley Actmust report material Attorneys evidence of a securities law violation, or breach of fiduciary duty, to the chief legal counsel or CEO. If those parties fail to respond, attorneys must report to the board. Some attorneys believe this duty may conflict with their field’s existing ethical codes of conduct. (Though the ABA has recently • The Sarbanes-Oxley ActCFOs must certify their CEOs and financial reports are accurate, or suffer penalties of $1 million and up to 10 years in prison for "knowing" violations, and up to $5 million and 20 years for "willful" violations. • All personal loans to executives and directors by public companies are banned. • The Sarbanes-Oxley Act are required to pay back Executives bonuses or equity-based compensation, if companies later restate their financials. • The penalty for certifying bad financials: fines up to $5 million, and up to 20 years in prison. • The Sarbanes-Oxley Act objective standards for There are no exactly what CEO's or CFO's are actually certifying. Under Section 906, they must certify "that information contained in the periodic report fairly represents, in all material respects, the financial condition and results of operations of the issuer." But what does "fairly" mean? What is "material"? U.S. Federal Sentencing Guidelines • Created in 1984 in order to give greater uniformity and effectiveness in sentencing for federal crimes. • Took effect in 1991. • Emphasis is on prevention and detection. • Intent to wipe out illegal gains and compensate victims. • Base fine from a table of ranked crimes, $5K to 72.5 K + or - culpability score, factors e.g. level of personnel involved & existence of an effective ethics program. U.S. Federal Sentencing Guidelines • Codes of conduct must be developed that are capable of reducing misconduct, • Specific high level personnel must be responsible for the compliance program (i.e., compliance officers) and support the ethics/compliance program (i.e., top management). • Substantial discretionary authority in the organization must not be given to persons with a propensity to engage in illegal conduct. U.S. Federal Sentencing Guidelines • Standards and procedures must be communicated to employees, other agents (such as advertising agencies), and independent contractors (or consultants) through training programs and formal communication systems. (All relevant stakeholders should be U.S. Federal Sentencing Guidelines • The organization must take reasonable steps to achieve compliance with its standards, by using monitoring and internal auditing systems to detect misconduct. A reporting system must allow employees and agents to report misconduct without fear (i.e., U.S. Federal Sentencing Guidelines • Standards and punishment must be enforced consistently and the organization must create a process to prevent further offenses. • A plan to review and modify the compliance program is necessary to demonstrate a continuous improvement process in self- U.S. Federal Sentencing Guidelines • The Corporate Ethics movement has been spurred by the Federal Sentencing Guidelines which offer leniency where an effective ethics program is in place. U.S. Federal Sentencing Guidelines • Limitations: – Motive for violation usually financial opportunity • Many large companies can afford the risk of penalties – Of the 208 sentenced organizations, only four asked for mitigation based on the presence of an effective ethics compliance program. Limitations of Government Action : Laws & regulations are usually punitive rather • Punitive Nature • • • • • • • than motivational Difficult to Enforce: Regulations sometimes difficult to enforce as the costs of conducting litigation are high Incompetence: “Political appointees” are sometimes not competent Failure to act in the Public Interest: Regulatory agency made earlier decisions allowing Enron to engage in certain accounting practices and exempting the energy-trading company from some federal requirements Non-compliance: Passing laws alone will not guarantee compliance. Ambiguity: Difficulty in reaching consensus, leading to ambiguity in legislation: leaving it subject to various interpretations (e.g. good faith) Unethical does not always = illegal: (Enron’s worst sins seem to have been lawful.) Creates a False Sense of Security: Regulation creates a moral hazard. We don't understand finance, but it's regulated, so we're safe. Limitations of Government Action • • • • • • • • Jurisdictional limitations: Globalization has weakened the ability of government agencies to regulate business. Conflicts of Laws: e.g. Government Regulation = free trade barrier under WTO Reactive: Law is usually reactive and rarely proactive Tech Lag: Regulation lags behind knowledge/Technology in an industry (e.g. asbestos cancer causing effects). Inefficiency Defense: Compliance with government regulations makes production slower and more expensive. Slow Process in Creating: The legal process is slow. Regulatory process allows “comment” period and thus lobbying, misinformation, public campaigns, legal challenges. Ineffective Enforcement: Regulatory agencies understaffed and underfunded (by design?) Complexity: “Generally accepted accounting principles” consist of 144 standards, each requiring a volume of explication. Title 17 of the CFR, covering commodity and securities exchanges, is 2,330 pages long. Federal tax is 3,778 pages, with an additional 12,880 Limitations of Government Action • Agency Capture: Regulated industries set out to "capture" their regulatory bodies. – e.g. J. Steven Griles, a former mining and oil industry lobbyist is now Deputy Secretary of the Interior, John Graham, the director of a White House office overseeing environmental regulation founded a Harvard think tank that Limitations of Government Action • Effects of Lobbying/Propaganda: (e.g. Pinto Case)Auto industry powerful lobbyists still today (e.g. fuel efficiency standards) Enron helped by deregulation of energy industry a position they heavily lobbied for. – Over $5 billion a year spent by lobbyists in U.S. – Lobbying budget in US greater than GDP of 57 nations Government Regulation of Business Ethics • Best Option: Combined Self & Government Regulation? Government Regulation of Business Ethics • Other regulators: The market, industry associations (peer pressure), the media/public opinion (boycotts), Public Interest Groups /class action suits) • Weakness: Approach based on confrontation. Pressure usually irregular & ad hoc in nature Corruption/Bribery Corruption/Bribery • Corruption exists in every country and is endemic to some, especially developing countries. – Africa: Corruption is perceived to be rampant in Cameroon, Kenya, Angola, Uganda, Madagascar and Nigeria. In Kenya, bribery costs the average citizen 20% of their income. In 2004, Kenyan President Kibaki launched a “zero corruption” initiative. (Unfortunately, his government was recently forced to resign due to, you guessed it, corruption). No African country was listed among the 25 least corrupt countries in the most recent Transparency International Survey (Botswana, which was Corruption/Bribery – Asia: Corruption is perceived to be rampant in Bangladesh and Indonesia. In Indonesia, it is estimated that 20% of business costs are bribes to bureaucrats. The Financial Times recently reported that “deep corruption [in China] is corroding the exercise of state power.” Falsified accounts used to cover up this corruption have the effect of rendering China’s official statistics “virtually meaningless.” Corruption/Bribery • Latin America: Corruption is perceived to be rampant in Paraguay. In Ecuador, it is estimated the government could pay off its foreign debt in five years if corruption was brought under control. In Argentina, corruption in the customs department defrauded the government out of $3 billion in revenues. Officials estimated that 30% of all imports were being under-billed and approximately $ 2.5 billion of goods were brought into the country labeled “in transit” to another country, thus illegally avoiding import taxes altogether. Corruption/Bribery • In Albania, approximately one-third of potential profits are lost to bribe payments that amount to 8% of inventory turnover. • German companies are estimated to pay an aggregate of over $ 3 billion a year in bribes to obtain business contracts abroad. • In industrial countries 15 % of businesses were found to pay bribes, but in the former Soviet Union this figure jumped to over 60 %. • In Kazakhstan typical bribe to win approval of a large construction contract Political Corruption/Bribery • In Mexico, suspicions surround the ability of Raul Salinas, the brother of former President Carlos Salinas, to amass a fortune of over $ 120 million while a public official. • Two former presidents of South Korea were convicted of developing a fund of over $900 million while they were in office in the 1980s and 1990s. • According to Transparency International, in 6 out of 10 countries, political parties were determined to be their nation’s most Corruption/Bribery • 1997 estimate by the World Bank placed the total about of bribery involved in international trade at $ 80 billion per year. • A recent World Bank survey of 3,600 firms in 69 countries found that 40 % of businesses pay bribes. Corruption/Bribery - Least Corrupt • According to a recent Transparency International Report, Finland was rated the world's cleanest business environment, followed by New Zealand, Denmark, Iceland, Singapore, Sweden and Switzerland. (Note Norway is somewhat farther back on the list) Corruption/Bribery - Least Corrupt • What national characteristics might explain this? – Racial homogeneity? (But what about Japan & Korea?) – Geographic Isolation? (Iceland, New Zealand, Singapore) – Strict Rule of Law? (Singapore) Corruption/Bribery • What sets Norway apart? – Oil • Recent Statoil bribery allegations, planned to funnel a $15 million bribe to an Iranian official in exchange for help with contracts • Oil is considered a significant factor in Nigerian & Angolan corruption as well. Corruption/Bribery • Where do we stand? – In the same study , the U.S. tied for 17th with Belgium and Ireland. – It was perceived as more corrupt than Norway, Australia, the Netherlands, the U.K., Canada, Austria, Luxembourg, Germany and Honk Kong, but less corrupt than nations such as France, Spain, Japan, Israel, Italy, & Mexico. Corruption/Bribery • Bribe - a payment of money, or something of value, to a party, with the intent to influence, or in exchange for special consideration, that is incompatible with the party’s duties of office, position or role (“Coarse Bribery” that which affects a significant community interest) Corruption/Bribery • Some examples of bribery – Corporate purchasing agents are often given "kickbacks" in order to make their purchases from a specific supplier. – Tour operators may receive special unpublicized commissions or payment in kind or services, in order to include certain airlines, hotels, restaurants, and stores in their itinerary. Corruption/Bribery • Civil servants in regulatory agencies, usually badly paid relative to the economic power they possess, may find it hard to refuse payment in exchange for waiving the regulations or to tailor specifications and contracts, to suit special groups or firms. (Note: In India most government officials & their families could probably not survive on their Corruption/Bribery Corruption/Bribery • Motivations: Firms, pressure groups and citizens try to maximize their gains by paying bribes, while public officials try to maximize their illegal earnings and politicians their power and wealth. Corruption/Bribery • Facilitating Payment - customary, local, incentive/”grease” payments or “sweeteners” intended to expedite performance. Usually made to low-level public officials to “speed things along”. Typically involves issuing licenses or permits, clearing goods through customs, etc. (In Italy, called bustarella. In Mexico, la mordida, “the bite”. In South Africa, “dash”. In the Middle/Near East, baaksheesh. In Germany, schimengeld. In Corruption/Bribery • The CEO of Unilever, the food and hygiene giant, insists Unilever does not pay bribes but it does pay "facilitating payments". "There are customary local things," he said. But they are only used where local custom and practice dictate in the 90+ countries in which Unilever operates. The idea is akin to tipping a waiter to get a better table, he said. He insisted that an overall code of conduct governs these matters, and bans the use of payments for unfair advantage although trusted local managers have leeway to interpret the rules according to local habits. Corruption/Bribery • How do you distinguish between a bribe and a mere gift? – Its not always clear – Secrecy is a defining characteristic of bribery/corruption. – Gifts are generally made openly and often declared – Bribes are often made using a middleman – Gifts are usually given directly – Bribes are usually of significant value – Gifts are typically of minimal value Corruption/Bribery • How do you distinguish between a bribe and a mere gift? – Consider the social situation and context – Consider perceptions of donor and recipient important – Consider whether or not a quid pro quo is understood to be expected Gift or Bribe? • Ashbourn Corp., is soliciting bids for a 5 year contract for the cleaning of their U.S. facilities, worth $22 million per yr. Pete Stevens, the Sales Manager of Perfect Cleaning Co. is, by coincidence, a former employee of Ashbourn Corp.& an old college buddy of John Joyce, Ashbourn Corp.’s Purchasing Director. Pete was confident he could win this contract, after all his company already had a good relationship with Ashbourn Corp. James Parkin, the CEO of Perfect Cleaning Co. & Edgar White, the CEO of Ashbourn Corp. were both Masons and Parkin had sponsored White for membership to an Gift or Bribe? • Pete phoned John Joyce to find out more about the bidding process. They also talked about old times and how they used to enjoy skiing holidays together "Isn't it about time we went back to Reno" asked Pete, "How about booking a long weekend? I've got plenty of spare Air Miles that you can use?” • John Joyce was cautious about this suggestion. After all, they are in the middle of a bidding process. But he mentions it to his wife who is really keen about the idea of getting back onto the slopes. "We will have a rule, no mention of work" She says. They book to go on holiday with Gift or Bribe? • Christmas is fast approaching. John Joyce, sends Pete Stephens a Christmas card. His company has a policy of not sending gifts. John’s wife receives a package by courier on the 23rd of December from Pete and his wife addressed to the Joyce family. It is an elegant mantel clock. • In February, the two couples enjoy a relaxing skiing holiday together. Not a word is spoken about business. Pete even wins $10,000 at the casino after taking some tips from John on winning at Black Jack. Pete buys John a champagne dinner to celebrate. Gift of Bribe? • In March the bids are considered, with John Joyce as Chairman of the Selection Committee. The bids are almost identical. None of the companies really stand out on price, quality of service, etc. • John tells his CEO that he hesitates to recommend Perfect Cleaning Co. because of his rejuvenated friendship with Pete. However, his CEO tells him, ”Don’t worry about that. I trust you to look after our shareholders' interests - you tell me who you think is best for the job". • Perfect Cleaning Co. is awarded the contract. A week later a letter arrives marked "Private & Confidential". John Joyce opens it and a check for $5,000 falls out. A simple note is attached "Thanks for your tip at the Casino you deserve a Corruption/Bribery • Bribery commonly occurs in: – Large investment projects – Government Purchasing – Extra-Budgetary Activities (“Special Projects”) Corruption/Bribery • Reasons/Excuses for Participation in Bribery – Competitive necessity – Respect for local cultural norms – Extortion – Inability or unwillingness to control rogue employees/delegation of power Problems with Corruption/Bribery – Distorts otherwise sound, reasoned judgment – Creates partiality – Often shifts government spending away from vital functions such as education and public health, and into projects where public officials can more easily extract bribes. (e.g. “White Elephant Projects”, “Pork Barrel Spending”, “The Big Dig”, etc.) – Disincentive to invest (Less security, lower return) – Bribery adds to the cost of goods, fueling inflation. – Inhibits fair and efficient markets, e.g. bribes are sometimes paid in order to keep a competitor out of the market, by preventing it from receiving a license or winning a bid. When companies choose to rely on bribe payments to secure market position, they are less concerned about increasing operating efficiency, or developing new products, services and technologies. Problems with Corruption/Bribery – Can lower the quality of public goods and services and even threaten safety (e.g. Turkish apartments that collapse, African bridges without connecting roads) – Undermines public confidence in democracy e.g. in places like Argentina, Panama, Honduras, Guatemala, Nicaragua, Venezuela, Bolivia, Ecuador and Haiti. – Opting to pay bribes damages company reputations and makes it difficult to say no later (the reverse of this is also true!) Corruption/Bribery . • Governments are starting recognize and respond to the damage caused by bribery/corruption • Why? – Lost revenues (taxes, duties, etc.) Corruption/Bribery . • Globalization: The “borderless” global marketplace is bringing national economies and corporations throughout the world into increasingly greater interdependence. • High profile cases (e.g. Lockheed/Japan, involved major companies as well as political figures and staggering sums of money. Paid $12.5 million in bribes Corruption/Bribery . • U.S. Foreign Corrupt Practices Act of 1997 – Prohibits payments to a foreign official for the purpose of influencing • • • • any act or decision or the omission of an act in violation of the law of that country to obtain or retain business – Implies intent – Only liable for actions of 3rd party agents when have reason to know of – Does not prohibit facilitating payments – (Note that the Justice Dept. only brings on average 1.5 cases per year- “Special Report: Bribery and Business, Economist, March 2, 2002, p.64) Corruption/Bribery . • At first, the rest of the world looked at it as a sad case of an American moralism or moralistic imperialism – If other nations not follow suit does this = a competitive disadvantage for U.S.? Corruption/Bribery . • 1996 Interamerican Treaty Against Corruption • 1997 OECD treaty committing 34 countries to similar restrictions, in effect beginning in 1999. Corruption/Bribery . • Other important anti-bribery initiatives have recently been launched by the World Bank, the International Monetary Fund, the European Union, the Council of Europe, the Organization of American States, the Pacific Basin Economic Council, the Global Coalition for Africa and the United Nations. Corruption/Bribery . • Ghana, Mozambique, Zambia & South Africa have also launched anti-corruption drives.. Corruption/Bribery . • In addition, recent steps by President Vladimir Putin to introduce tax reforms and new laws fighting money-laundering in Russia • But still high levels of bribery by firms from Russia, China, Taiwan and South Korea, Italy, Hong Kong, Malaysia, Japan, USA and France. Corruption/Bribery . • Not much being done to address the “demand” side of bribery (i.e. extortion) • RICO (Anti-Racketeering) Statutes in U.S. Corruption/Bribery . • Reputation Management (Coca-Cola) – Coca-Cola is operational in many developing countries, is doing well, is beating competitors, and is not paying bribes. The company is thoughtful and painstaking about how it enters new markets, how it selects local business partners, and how it conducts itself in foreign countries. Corruption/Bribery . • Integrity is key to its approaches. – Coca-Cola makes maximum effort to be transparent in its dealings, to win public support, and to develop the kind of strength -- from its consumers and the public at large -- that make top officials uneasy about seeking bribes from the beverage giant. Corruption/Bribery . • The reality is that to maximize opportunities in the growing markets of developing countries, corporations must strive to be seen as honest, long-term, committed guests. Corporations must impress upon host governments, customers, suppliers, and the general public that they seek fair, open, long-term relationships. Corruption/Bribery . • Coca-Cola trains its staff to learn about the traditions, politics, and values of the people in all of the countries in which it operates. It gives key responsibilities to nationals of these countries and ensures that its image is never that of a ruthless multinational colonialist corporation. Corruption/Bribery . • Coca-Cola plays an active role in most of the countries in which it works, supporting education and the arts and social services in a longterm and genuine way. • GE & Texaco also have developed a reputation of refusing to pay bribes. Corruption/Bribery Caux Roundtable Anti-Corruption Principles • 1. Disclose publicly and make widely known its endorsement of the Anti-Corruption Measures. • 2. Establish a clearly articulated written policy prohibiting any of the firm’s employees from paying or receiving bribes and “kickbacks.” • 3. Implement the policy with due care and take appropriate disciplinary action against any employee discovered to have made payments in violation of the policy. • 4. Provide training for employees to carry out the policy, and provide continuing support, such as help lines, to assist employees to act in compliance with the firm’s policy. Corruption/Bribery Caux Roundtable Anti-Corruption Principles all transactions fully and fairly, in • 5. Record accordance with clearly stated record-keeping procedures and accounting controls, and conduct internal audits to assure that all payments made are proper. • 6. Report annually on the firm’s bribery and corruption policy, along with a description of the firm’s experiences implementing and enforcing the policy. • 7. Have the annual report in step six above audited either by an independent financial auditor or an independent social auditor, or both. • 8. Require all agents of the firm to affirm that they Corruption/Bribery Caux Roundtable Anti-Corruption Principles • 9. Require all suppliers of the firm to affirm that they have neither made nor will make any improper payments in any business venture or contract to which the firm is a party. • 10. Establish a monitoring and auditing system to detect any improper payments made by the firm’s employees and agents. • 11. Report publicly any solicitations for payments whenever such reporting will not lead to harsh reprisals of material consequences to the company or its employees (or report privately to a monitoring organization, such as Transparency International or a social auditor). • 12. Establish a system to allow any employee or agent of the firm to report any improper payment without fear of retribution for their disclosures. Accounting Principles Accounting Accountant’s Duty of Care An accountant must possess An the skills that an ordinarily prudent accountant would have and exercise the degree of care that an ordinarily prudent accountant would exercise. exercise. Accounting Principles Accounting The skills and care of an ordinarily The prudent accountant are reflected in the: the: Generally accepted accounting Generally principles (“GAAP”) promulgated by principles the Financial Accounting Standards Board (FASB), and the Board Generally accepted auditing standards (“GAAS”), promulgated by the American Institute of Certified Public Accountants (AICPA). Accountants Accounting Principles Accounting An accountant conforming to GAAP or An GAAS, and acting in good faith, will normally not be held liable for incorrect judgments or for relying on incorrect information. incorrect On the other hand, a violation of GAAP On or GAAS will be prima facie evidence of the accountant’s negligence, subject to the accountant clearly qualifying her opinion or disclaiming liability for particular errors. liability ...
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