Ethics Newsline®

Overall, how would you characterize your outlook for the U.S. economy in the next 12 months?                        Now 12/97 6/97 12/96 12/95Very optimistic         17%  23%  19%   13%    8%Somewhat optimistic     78   73   77    80    79Somewhat pessimistic     5    4    3     7    13 Very pessimistic        --   --    1    --    --Compared with the last 12 months, do you think the rate of growth of the gross domestic productwill go up, go down, or stay the same?                        Now 12/97 6/97 12/96 12/95Go up                   16%  27%  27%   27%   30%Go down                 38   29   21    18    25Stay the same           46   44   52    55    45What impact, if any, do you think the consolidation of European currencies into the euro will have on your business?Strong positive impact                          4%Somewhat positive impact                       29No Impact                                      60Somewhat negative impact                        5Strong negative impact                         --What impact, if any, do you expect the continuingpolitical and economic instability in Asia will have on your business?Strong positive impact                         --%Somewhat positive impact                        7No Impact                                      36Somewhat negative impact                       52Strong negative impact                          4

by Rushworth M. Kidder

Was "Chainsaw Al" Dunlap bounced from Sunbeam because he was unethical? Or was he sent packing because he didn’t pack in the numbers?

The answer matters to the business community in general and ethics managers in particular. If Sunbeam’s board fired Dunlap on June 13 because he was ethically impaired, this is an exhilarating cautionary tale about the fate of those who seek to do well without doing good.

But if what brought him down was simply the collapse of Sunbeam’s stock–following a March announcement that the company wouldn’t meet expectations for its first quarter, and subsequent revelations about untoward "bill and hold" transactions that gave the appearance of a spike in sales–then his is just another tale of an executive who couldn’t deliver.

In fact, the dichotomy is a false one. The real story here is about the interplay of ethics and numbers–and how the former drives the latter.

When Albert J. Dunlap arrived at Sunbeam in July 1996, the troubled small-appliance maker’s stock stood at 12. Dunlap swept in with a reputation for building shareholder value: Most recently, he had taken charge of Scott Paper Company, driven its stock up more than 200 percent, and merged it with Kimberly-Clark–all in 19 months.

But he was also noted for pursuing brutal layoff strategies that had felled some 18,000 employees in the previous four years. What’s more, he had crowed about his successes in a self-aggrandizing book, Mean Business: How I Save Bad Companies and Make Good Companies Great. The chapter titles alone reveal something of his strategic stance: They include "Shock Therapy," "Fire All the Consultants," "Real Jobs, Real Cuts," and "The Best Bargain is an Expensive CEO."

So when, four months into his Sunbeam stint, he announced plans to shut down two-thirds of the company’s plants and dismiss half its 12,000-person workforce, investors nodded in satisfaction. And Dunlap delivered. This spring the stock hit a record high of 53. Along the way, however, he practiced what his colleagues came to see as an abrasive, abusive, short-tempered management style. As the numbers rose, so did the disillusionment. Even those he handpicked ultimately felt misled. So did the board, which simply lost confidence in his ability to maintain the momentum of the firm. In June, Sunbeam’s stock bottomed out at 8-3/16.

And that’s the point. It doesn’t take a degree in quantum mechanics to understand that managing people involves skills in tact and caring as well as in courage and firmness. And it’s not rocket science to recognize that the long-term commitment of individuals is essential to any firm’s continued success. Trust is a reciprocal thing, and it gets built less through ends than means. Producing magnificent results inspires awe and respect, perhaps. But doing it well, with honesty and fairness and consideration for the long-term effect on others, produces trust and confidence. Suppose Dunlap reported grisly numbers, but had behaved in a way that inspired the board’s trust. Would he have been let go?

We’ll never know. But we do know that the Sunbeam saga helped shatter a grim old management hypothesis, which is that people work better and harder when inspired by dread and galvanized by meanness. That so much cheering went up when he evaporated–and that so many people in well-run firms report that their loyalty and commitment are tied to their perception of working for an ethical company–suggests the failings of the Chainsaw approach. Perhaps it was an experiment in extremism that had to happen to demonstrate the fallacy of that hypothesis.

Yet even in this cautionary tale there’s another caution. Don’t read Dunlap’s demise as proof that downsizing is bad. In many ways, he pursued noble ends, including the desire to refocus strategy, pare down to essentials, and reformulate jobs into meaningful elements of productivity. What did him in was not his ends but his means–which, in the nice irony of parables, is a telling play on words. He meant business. But he did mean business. And his means proved to be his end.

A cynic once defined news as “the same thing happening to different people.”

Like many wry observations, it contains a kernel of truth. And this week’snews in ethics contains several themes that have resurfaced after months andeven decades.

The issue of global warming was highlighted again as President Clinton wounddown his tour of China. He used the aftermath of a scenic sightseeing trip toask the Chinese government to lessen its dependence on fossil fuel and in theprocess curb its greenhouse gas emissions.

That plea echoes a familiar refrain in the ethical debate over greenhouseemissions from the developing world: Can a nation be expected to curbindustrial emissions when a factory job might literally be the only obstaclebetween a worker and starvation?

Echoes from a decades-old tragedy made the news last week in the continuingstory of the distribution of assets held in Swiss banks to survivors ofHolocaust victims. As we report, a commission of U.S. state and local financeofficers last week voted to clear the way for imposition of sanctions againstSwiss banks.

The sporting-good industry is again troubled by a recurring story: This time,Adidas has been accused of labor abuses in Asia — a charge that has alsohaunted rival Nike.

From London, we report on a move by the British government to stem what itcalls artificially high electricity prices. And a report from Thailandhighlights a recurring issue common to many nations: illegal immigration.

But the week’s news in ethics also contains some new wrinkles. The AssociatedPress used computer technology and a federal database to identify about 750doctors and other health-care workers who own interests in, of all things,tobacco farms. And from London, we have a report about a pair of businessmenwho are trying to make money the new-fangled way — by creating internetdomain names that resemble the names of major companies and re-selling them tothose firms.

Our “Whatever Happened To…” department this week tracks two major newsstories that resulted in retractions and ethical embarrassments for major newsorganizations: the CNN/Time report that nerve gas was used American defectorsduring the Vietnam war and the Cincinnati Enquirer story about alleged abusesby the Chiquita banana firm.

LONDON
In a case that may have repercussions on the international internetindustry, two British men found liable for trademark infringement are wagingan appeal this week, claiming that their creation and purchase of internetdomain names similar to well-known UK companies — in hopes of selling the names back to the firms at a huge profit — waslegal and simply sharp business practice.

A lower court judge held that the plan would create trademark confusion andimposed an injunction against the pair.

But the men — owners of domain names such as “burgerking.co.uk,” spice-girls.net,” and “buckinghampalace.org” — claim they had no malicious ordeceptive intentions, reports the BBC. According to their lawyer, the mensimply “spotted the opportunity to make money out of domain names and theytook it.”

BANGKOK, Thailand
Four hundred Thai rice mill owners launched an industryshut-down last week to protest a planned government crackdown on illegalimmigrant workers, saying that the policy will devastate the country’s riceindustry.

Rice mills depend on the illegal workforce to perform difficult, low-wage workat the mills — tasks that most Thai citizens refuse to do, mill ownersinsist.

The BBC reports that the new get-tough policy on illegal labor, sparked byhigh unemployment in Thailand, may backfire by bankrupting rice growers andplacing one of the country’s staple crops at risk.

SHANGHAI
Sporting goods manufacturer Adidas canceled all manufacturingcontracts in China last week after two former Chinese dissidents accused thecompany of knowingly using forced prison camp labor to manufacture Adidassoccer balls.

An Adidas spokesman told the BBC there is no proof of the charges but thecontacts were canceled pending an investigation to protect the Adidas name.

Charges of abusive Asian labor practices have recently rocked other firms inthe sporting goods industry, including Nike, the BBC reports.

LONDON
National Power and PowerGen, Britain’s two dominant coal-burningelectric power producers, have been ordered to partially divest aftergovernment regulators charged the companies with maintaining artificially highprices.

Britain’s Office for Electricity Regulation (Offer) ruled that National Powerand PowerGen should cut rates by ten percent.

The decision was welcomed by the coal industry, which sees the price cut as away to stay competitive with other forms of power, the BBC reported.

SHANGHAI
President Clinton last week urged China’s government and businesssector to cooperate in reducing the nation’s heavy dependence on fossil fuels,noting that “China is about to assume the unfortunate distinction of replacingthe United States as the largest emitter of greenhouse gases that aredangerously warming our planet.”

With U.S. and international aid earmarked to help the Chinese curb pollutionand invest in alternative energies, Clinton said that Chinese and Americanbusinesses have a shared duty “to work together for a planet that ourgrandchildren can still enjoy living on,” the Reuters news agency reported.

China led a group of developing nations in a revolt against the greenhouse gasemission limits proposed at the global warming conference in Kyoto, Japan,last December.

RALEIGH, North Carolina
Hundreds of doctors and health care workers profitfrom tobacco farming, according to an Associated Press survey that cross-matched the names of doctors and health care workers with a federal databaselisting people who own federal tobacco-growing rights.

While some doctors contacted by the AP justify the practice as a means ofmaintaining a sense of heritage or helping neighboring farmers who lease thetobacco land, others admit to being “absolutely schizophrenic” in their dualrole of tobacco growers and physicians, or simply “greedy as hell.”

One tobacco-growing physician told the AP that the ethical issue extends pasttobacco. “You could argue that the farmers in South and North Dakota thatraise barley (for beer companies) are also contributing to a product that …hurts the lifestyle of many families,” he said. “The issue is how far we takeit.”

NEW YORK
A commission representing more than 800 state and local U.S.finance officials last week voted unanimously to clear the way for impositionof sanctions against Swiss banks, saying that negotiations between the banksand families seeking repayment of assets lost during the Holocaust arehopelessly stalled.

The banks’ proposed $600 million settlement over Holocaust-era assetsdeposited in Swiss banks falls far short of the World Jewish Congress’s demandfor $1.5 billion. Both sides have accused the other of being uncooperative,and bank representatives claim the move will disrupt efforts to reach a fairsettlement.

California was to be the first state to impose sanctions, planning to refuseto seek new contracts with U.S subsidiaries of Swiss banks, the AssociatedPress reported. Other states will decide when and how sanctions will beimposed in coming weeks.

CINCINNATI, Ohio
The Cincinnati Enquirer retracted a highly publicizedexpose on the Chiquita banana company, and fired chief investigative reporterMichael Gallagher, saying that Gallagher’s investigative methods violated theEnquirer’s code of ethics.

Enquirer officials removed the stories from their web site, promised to payChiquita more than $10 million, and issued a front-page apology that focusedless on the disputed facts and more on Gallagher’s “violations of Enquirerstandards,” reports the Associated Press.

Gallagher’s report, charging Chiquita with shady and abusive businesspractices, relied on voice mail recordings from Chiquita’s offices –recordings Chiquita said were stolen and re-edited to mislead readers.

WASHINGTON
CNN/Time last week retracted a story charging the Americanmilitary with using nerve gas on American defectors during the Vietnam War.

CNN apologized for its “Operation Tailwind” expose, acknowledging “seriousfaults in the use of the sources who provided the original reports.” Thesenior producer of the report resigned, two other producers were fired, andreporter Peter Arnett was reprimanded, the Reuters news agency reported.

The retraction followed an investigation of the story begun after veterans andmilitary analysts denounced the CNN/Time report as untrue.

by Rushworth M. Kidder

ST. LOUIS
As Sanford McDonnell recalls it, his wife was the one who, indirectly, propelled the McDonnell Douglas Corporation into a code of ethics.

McDonnell, who became chairman and CEO of the firm in 1980, had been working flat out. But his son was 12. That’s when his wife urged him not to miss the best years of his son’s life–and suggested they find something they liked to do together.

So his son joined the Boy Scouts of America, and "Sandy," as he is known, became a scoutmaster.

"After years of working with boys and telling them to live up to the Scout Oath and Law, [I felt] we ought to have such a code at McDonnell Douglas," he chuckles during an interview for Business Ethics Newsline in his office at the St. Louis headquarters of the company, now part of Boeing.

"We had a code of conduct, a `Thou Shalt Not’ code," he remembers. "But we didn’t have a positive code of ethics, like the Scout Oath. So we put together a small task force and had them come up with a code." It was based on 11 of the 12 points in the Scout Law–leaving aside only the word reverent, since he didn’t feel they could require a religious or spiritual commitment from their employees.

Then, working with Gary Edwards, president of the Ethics Resource Center in Washington, and with Prof. Kirk Hansen at Stanford University, McDonnell Douglas set up one of the first "truly comprehensive proactive ethics programs" in the nation, complete with an eight-hour training program for all employees.

That first code was adopted in April 1983–eight years before the Federal Sentencing Guidelines impelled so many firms to establish codes of ethics. And it helped promote what was to become the nation’s first real industry-wide ethics effort, the Defense Industry Initiative, established in 1986.

"The aerospace industry, in my opinion, is perhaps one of the leaders, if not the leader, in this whole proactive ethics program," says McDonnell. Early on, he recalls, "I tried to get the whole industry to adopt codes of ethics." Their initial reaction, he recalls, was "a manifestation of the halo-clutching syndrome," where his counterparts in other companies would say, " `You may need a proactive ethics program at McDonnell Douglas, but I don’t need it at XYZ Corporation!’"

"I have to admit that I didn’t make it that first time," he says. But David Packard, deputy secretary of defense in the Reagan administration and cofounder of Hewlitt-Packard, saw the need as well.

"It took a David Packard," recalls McDonnell, "to get hold of [CEO] Jack Welch of General Electric and say, `Why don’t you really organize the industry into a proactive ethics program?’ "

The result was the Defense Industry Initiative, which led to industry-wide cooperation in developing ethics programs. "This was way ahead of any other industry," he says.

By the time McDonnell stepped down as CEO in 1988, his company had put about 50,000 people through the program–which was, he notes, "a major investment."

It is necessary to any originality to have the courage to be an amateur.

–Wallace Stevens (1879-1955)