Ethics Newsline®

WASHINGTON, D.C.
Michael Milken, the “junk bond king” who came to symbolize 1980’s-style greed and financial recklessness, last week agreed to a pay $47 million in a settlement that appears to put an end to the government’s string of actions against him.

Milken’s latest payment involves a civil lawsuit in which the Securities and Exchange Commission charged him with violating a previous order that barred him from participating in any securities deals.

In 1990, Milken — a former executive with Drexel Burham Lambert — pleaded guilty to six counts of securities fraud and was sentenced to two years in prison and fined more than a billion dollars.

Though Milken’s attorney, Richard Sandler, said that while the latest agreement is not an admission of guilt, the $47 million payment ends for now the SEC’s probe and Milken’s probation. With Milken currently battling prostate cancer, Sandler said his client decided not to contest the charges.

Question: "In your own words, what are your main hopes for the [United States's] future? What do you most hope for to make the [United States] better?"

Want to attract top talent into your company’s workforce? Build a values-based culture.

That’s one of the most potent findings of a report from McKinsey & Co., the global management consulting firm. Five of their associates studied 77 companies and more than 6,000 employees for an article titled "The War for Talent," which they published in last fall’s McKinsey Quarterly. Since then, their piece has attracted increasing attention from top corporate executives.

Why? Because recruiting is already tough, and it’s only getting tougher. Until now, the authors point out, "executive population has grown roughly in line with GDP." At this rate, a two percent economic growth rate over the next 15 years will increase demand for executives by about one-third. But look at the demographics: The supply of 35- to 44-year-olds in the United States will decline by 15 percent between 2000 and 2015.

Hence this report’s opening bugle call: "Companies are about to become engaged in a war for senior executive talent that will remain the defining characteristic of their competitive landscape for decades to come."

How should they respond? First, say the authors, make the talent search a top priority. Second, "create and perpetually refine an employee value proposition: senior management’s answer to why a smart, energetic, ambitious individual would want to come and work with you rather than with the team next door."

To find out what that proposition should be, the authors asked 200 top executives to rate 20 factors under three headings. Under Great Company were such statements as "Well-managed," "Values and culture," "Company has exciting challenges," and "Industry leader." Great Jobs covered things like "Freedom and autonomy," "Job has exciting challenges," and "Career advancement and growth." Under Compensation and Lifestyle came such elements as "High total compensation" and "Geographic location."

Pause for a moment. Which one of these factors would you guess ranked highest?

If you said, "Values and culture," you nailed it. More executives chose that concept as an "absolutely essential" motivator of talent (58 percent) than any other factor. Next in line: "Freedom and autonomy" (56 percent), "Job has exciting challenges" (51 percent), and "Well-managed" (50 percent). And as for "High total compensation?" It got only a 23 percent response, putting it tenth on the list of essential motivators.

Helen Handfield-Jones, a consultant in McKinsey’s Toronto office and one of the study’s principal authors, says that she and her coworkers "were surprised that [values and culture] ranked so highly." How, I asked her, did she think "values" was being interpreted? She admits that she’s not sure. Since her team never expected such a strong response, they were unprepared with follow-up questions. Forthcoming McKinsey surveys, she says, will seek to probe that area more deeply.

Let’s suppose, however, that the word "values" has within it the same overtones it has for society at large — that it embodies the idea of ethical standards, moral principles, and sound character. That’s not an unreasonable assumption. Last summer Business Ethics Newsline reported on a survey by the Fuqua School of Business at Duke University. It asked graduating MBA students from ten top U.S. business schools to rank 13 potential goals. They put "marriage" and "health" first and second. In third place — above income, career advancement, leisure, and everything else — came "ethics," which they defined as "having strong moral principles."

There’s reason to believe, then, that a recruiting proposition that doesn’t focus on corporate ethics and values will leave you vulnerable. If that’s so, ask yourself the next questions: "How are our recruiters doing in articulating this proposition? And, more importantly, how is our company doing in giving them something to articulate?" In other words, if they make a strong pitch about the ethics of this company, are they describing what really exists, or just what they wish were true?

When it comes to talking about the other factors — being well-managed, offering exciting jobs, being an industry leader, providing solid compensation — that’s a piece of cake. But that’s not what potential recruits most want to hear about. This is an idealistic generation coming along. They think ethics matters. And as Ms. Handfield-Jones observed, "It’s a sellers’ market." They’ve got options, and they’re not about to work in jobs where they have to check their values at the door.

Companies planning to win the "war for talent" need to figure out what "values" means. Then they need to embed them solidly in the corporate culture — and live them out so clearly in daily life that this year’s recruits don’t leave next year for a company where the values really are in place.

(c)1999 by Rushworth M. Kidder

This quote is from an interesting address by U.S. Commerce Secretary William Daley, made last week at a conference marking the U.S. inauguration of a landmark international treaty to combat bribery.

That’s our lead story in this week’s edition of Business Ethics Newsline, your comprehensive source of information about the intersection of ethics, business, and government.

And speaking of business and government, we have several stories related to that theme in our lineup this week:

• A dispute involving U.S. phone companies, the Cuban government, and a U.S. Court
• A contempt ruling against the U.S. Secretaries of the Interior and the Treasury Departments
• Proposed regulations to curb Internet fraud
• Proposed regulations to force employers to ergonomically protect workers

In other news involving ethics, we have a report from Boston about an unusual study contending that doctors, consciously or unconsciously, are biased when prescribing cardiac diagnosis procedures to blacks and women.

We also report on two other stories involving sensibilities regarding ethnicity and nationality: Ted Turner’s apology for an ethnic joke, and an important court ruling about aliens whose visas have expired.

We conclude our wrap of the week’s news with a story from the U.K., where the High Court has ruled that the British psychotherapy industry should be reviewed with an eye toward possible regulation.

Two stories have been filed this week by Canadian correspondent Errol Mendes: a series of press reports shedding light on the corporate culture of a major entertainment company, and a labor dispute involving a no-sale agreement of a Canadian auto company.

Next, our regular features Ethics in the News, and Ethics in the Workplace: From the national press this week, we have stories about a white-supremacist lawyer who has been denied a license and his resulting lawsuit, and a story about the controversy surrounding a women-only course at Boston College.

We conclude our report with two follow-ups on long-running stories: technology sales to China, and allegations of inflated drug prices.

Also, we invite you to check out our research and statistics features, which this week document an increasing concern with morals in everyday life, and an apparent closing of the "optimism gap," with Americans — who have recently been relentlessly upbeat about their personal futures — beginning to hold the same regard for the nation as a whole.

Have a productive, ethical week.

–Carl Hausman

WASHINGTON
U.S, Commerce Secretary William Daley last week celebrated the Feb. 15 U.S. inauguration of the Organization for Economic Cooperation and Development’s (OECD)Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, a landmark antibribery treaty, by calling on private companies to play fairly, establish ethics offices, and enact codes of conduct.

"Corruption affects rich and poor nations, multinational corporations, and small businesses. We are all in this together," Daley told government and private-sector delegates at the Global Forum on Fighting Corruption, the Associated Press reported.

Daley also referred to recent, high-profile scandals, according to the AP. "If there is a positive coming out of Salt Lake City or cronyism in Asia," Daley said, "it is that to the cost of bribery has been added a political price — people have lost their positions."

Also related to the conference is a scheduled 80-nation summit about fighting corruption among police, prosecutors, judges, and other government personnel, the Washington Post reported.

To date, the OECD Convention, which prohibits companies from paying bribes to foreign officials in exchange for contracts, has been formally adopted by only 12 of the pact’s original 33 signatories.

HAVANA
Cuba’s state-controlled phone company ETECSA last week cut communication circuits for five U.S. phone companies who owe the Cuban firm $119 million — money withheld while Cuba and a U.S. judge wrangle over compensation for the families of four Cuban-Americans killed over Cuba in an airplane shootdown three years ago.

AT&T and MCI, whose Cuban connections were disabled by ETECSA last week, planned to reroute calls through third countries, the Associated Press reported.

U.S. phone companies are exempt from the U.S. economic embargo on Cuba, allowing them to negotiate with ETECSA to connect the nearly two million Cubans living in the United States with their families back home. Phone companies make about $80 million a year as a result of the exemption, according to the St. Petersburg Times.

The current dispute stems from the 1996 downing of two U.S. civilian planes by Cuban authorities, which killed four pilots and passengers. A U.S. judge ordered the Cuban government to pay victims’ families $187 million, freezing phone companies’ payments to Cuba as part of the payment plan.

The Clinton administration criticized the phone-company payment freeze, saying the phone company cannot be held accountable for the Cuban military’s operations, and that the retaliatory dispute will only hurt the Cuban people.

WASHINGTON
A federal judge last week cited Interior secretary Bruce Babbitt and Treasury secretary Robert Rubin for contempt, saying that the two men had "either ignored or thwarted" court orders to turn over documents related to a case involving alleged mismanagement of billions of dollars’ worth of trust funds held for Native Americans.

U.S. District Judge Royce C. Lamberth claimed plaintiffs in a class-action lawsuit against the U.S. government had been promised relevant documents, but kept from seeing the evidence by a "campaign of stonewalling and strained interpretations" of court orders by the Treasury and Interior Departments, the Washington Post reported.

In a joint statement, officials from the Justice, Interior, and Treasury departments apologized for their "mistakes" and said they are "committed to meeting the judge’s concerns," the Post reported.

WASHINGTON
Reports of Internet fraud skyrocketed last year, with Internet auctions leading the list of complaints, the National Consumers League told a government panel last week.

The six-fold increase in complaints to the League’s Internet Fraud Watch (IFW) hotline is lamentable but not surprising, according to IFW director Susan Grant. "More people are online," Grant told government officials, "and more people are getting scammed."

Internet auction fraud prompted two out of every three complaints, according to the IFW. Other frequent complaints include (in order of number of complaints): general merchandise sales, computer equipment and software, Internet services, work-at-home offers, business opportunities, marketing schemes, credit card offers, advance fee loans and employment offers.

The Federal Trade Commission has announced plans to launch a 24-hour Internet fraud squad devoted to hunting down online scams, the Associated Press reported.

WASHINGTON
The Occupational Safety and Health Administration (OSHA) last week proposed controversial new "ergonomics" guidelines requiring U.S. businesses to alter and redesign their facilities to better fit workers’ bodies and reduce the risk of on-the-job injuries.

According to OSHA, more than 647,000 U.S. workers suffer musculoskeletal injuries, costing employers $15 to $20 billion each year in worker compensation expenses, the Associated Press reported.

OSHA’s proposed guidelines apply primarily to assembly line and industrial workers. Office workers who document workplace injuries caused by prolonged computer use also may be covered by the regulations.

Workers in the agriculture, construction, and maritime industries are not covered by the guidelines, which should be ready for public comment by fall, reported the Washington Post.

U.S. Chamber of Commerce executive Peter Eide blasted OSHA’s ergonomics proposal as "hopelessly vague" and premature, saying that further medical studies are needed to define valid standards for ergonomics — the science of tailoring the workplace to the human body.

BOSTON
Prejudice may account for women and blacks receiving less aggressive heart disease treatment from U.S. doctors than do white men, according to a study published in the New England Journal of Medicine.

The study involved 720 doctors attending medical conferences who viewed videotapes with actors of different race and gender but describing identical symptoms and histories and holding identical insurance.

Physicians were only 60 percent as likely to order cardiac catheterization for women and blacks, as for men and whites, the Associated Press reported.

Cardiac catheterization is considered the gold standard in cardiac diagnosis, the AP reported.

The medical community has traditionally attributed its less aggressive treatment rates for heart disease in blacks and women to logistical factors: lack of health insurance, socioeconomic problems, and the stoicism of minority groups, reported the Reuters news agency.

But the author of the study claims the problem is actually one of either overt or unintentional discrimination by doctors.

ATLANTA
CNN founder Ted Turner last week apologized to the people of Poland for making an ethnic joke that had jeopardized relations between the Polish government and CNN’s parent company, Time Warner.

In a Washington DC speech to a family planning group, Turner criticized the Pope’s staunch opposition to contraception, joking that it was as nonsensical as a "Polish mine detector" — testing for landmines by stepping on them, the Reuters news agency reported.

Polish deputy foreign minister Radek Sikorski blasted the remark as thoughtless "racism and bigotry," and threatened to halt Polish cooperation with Time Warner, withdrawing $200,000 in support for an April Time magazine issue on Poland, unless Turner apologized, according to a BBC report.

The two-week-old remark, which Turner said he "deeply regrets," also drew immediate fire from the Catholic League, an antidefamation watchdog, which also demanded and received an apology from Tuner.

WASHINGTON
The U.S. Supreme Court last week ruled that immigrants working in the United States without proper status cannot sue their employers for workplace discrimination, throwing out a 1995 lawsuit against a Washington-based company by a Nigerian man whose visa had expired.

Obiora Egbuna, who quit his job to return to Nigeria and then changed his mind, sued Time-Life Libraries in 1995, after the company refused to rehire him — a move Egbuna charged was in retaliation for his corroboration of a sexual harassment suit against Time-Life.

Egbuna’s lawsuit was eventually dismissed, reinstated, then dismissed again. Time-Life had used the expiration of Egbuna’s student work visa as a ground for ending the suit.

Without comment, the Supreme Court upheld Egbuna’s firing on the premise that a worker is not protected from U.S. workplace discrimination if the worker is not "qualified for employment," the Associated Press reported.

LONDON
Britain’s High Court last week ruled that the U.K.’s psychotherapy industry should be reviewed and possibly regulated by law, saying that the industry’s current lack of regulation could be resulting in the abuse of therapy patients.

Professor Petruska Clarkson, a psychotherapist leading the campaign for statutory regulation, said the High Court’s ruling "vindicated" her three-year crusade to investigate the "disturbing" level of patient abuse by unqualified psychotherapists.

Currently, there are no minimum requirements nor standard training required to set up practice as a psychotherapist in the United Kingdom, the BBC reported.

Special to Newsline from Canadian correspondent Errol P. Mendes

TORONTO
A suit by Canada’s financially troubled largest live entertainment company against the company’s cofounders has disclosed allegations of a corporate culture out of control.

Livent, Inc. brought the action against cofounders Garth Drabinsky and Myron Gottlieb, alleging that they received kickbacks as high as $132,500 per month from the company between 1990 and 1993.

The Globe & Mail reports that the 1,500 pages of filed legal documents depict a nightmarish corporate culture and governance structure at the company — including regular berating and bullying of staff into complicity in fraudulent schemes, along with screaming matches so violent that objects were thrown in anger.

Special to Newsline from Canadian correspondent Errol P. Mendes

MONTREAL
A Canadian auto-workers’ union claims that General Motors Canada is reneging on a no-sale agreement forged three years ago.

The Globe & Mail reported last week that General Motors Canada was planning to spin off three of its major auto parts operations to create a large separate auto parts company called Delphi Canada.

The company’s largest union, the Canadian Auto Workers, is crying foul, claiming that the move would violate a no-sale deal that the union obtained after a bitter three-week strike in 1996.

The strike was instituted in part to stop GM Canada’s plans to sell off two other parts plants.

CHICAGO
Avowed white supremacist Matt Hale last month sued the Illinois Board of Admissions to the Bar after the organization denied him a license to practice law on the ground that his discriminatory beliefs would interfere with his responsibility to uphold the law.

Hale, who graduated from law school and passed the bar exam last fall, sue the Illinois Board for allegedly violating his First Amendment rights to freedom of speech and religion.

In a 2-1 vote last December, the Board, which screens candidates on the basis of academic requirements as well as character, refused to license Hale, saying that his racist views would prevent him from adequately defending non-white clients, National Public Radio reported.

BOSTON
A prominent feminist professor at Boston College last month again refused to admit men into her classes on feminist ethics, prompting a discrimination lawsuit by a male student and forcing the university to reconsider its tolerance of her longstanding women-only policy.

Theologian Mary Daly, author of the seminal feminist text Gyn/Ecology: The Metaethics of Radical Feminism, chose to go on sabbatical this semester rather than admit a male student into her women-only class on feminist ethics.

Daly insists that male students distract and diminish the participation of her female students, who have been "socialized to nurse" and defer to men, the Associated Press reported.

Boston College officials, who have overlooked Daly’s discriminatory policy in the past, admit now that Daly must change her "archaic and stereotypical notion that men shouldn’t have access to her perspective,” according to the AP.

If a male professor refused to admit female students into his classes, Boston College spokesman Jack Dunn told the AP, "we’d be run out of town."

WASHINGTON
The Clinton administration last week reversed its position and blocked a $450 million satellite technology sale to a Chinese-controlled consortium, a move that some observers say could sour the market for U.S. companies that depend on overseas sales to survive.

Administration officials told the Associated Press that the deal, which had been given the green light by government officials, was scuttled because of concerns that the technology sale could provide the Chinese military with technology secrets.

Hughes Electronics, whose proposed sale helped spark the recent debate over sharing satellite technology with China, may have to pay up to $100 million to Asia Pacific Mobile Telecommunications for canceling its contract.

The Chinese government criticized the contract cancellation as "entirely unjustifiable" and warned that it could hurt U.S.-China relations, reported the Associated Press.

SAN FRANCISCO
Nineteen pharmaceutical companies agreed to pay more than $176 million to settle charges that they inflated drug prices for independent pharmacies, charging the pharmacies as much as 20 times the prices paid by health maintenance organizations that bought the same products.

The drug makers’ California settlement includes $148 million worth of brand-name drug donations to 300 nonprofit medical clinics that serve the poor, and $27 million for plaintiffs’ legal fees.

Company representatives denied any wrongdoing, but agreed to the settlement "rather than risk an inaccurate verdict," according to John Doorley, spokesman for Merck & Co.. Merck will pay $19.1 million, the highest sum of any drug company, the Associated Press reported.

Others companies involved in the settlement include: Glaxo Wellcome, Bristol-Myers Squibb, Eli Lilly, Pfizer, SmithKline Beecham, Pharmacia & Upjohn, Schering-Plough, Zeneca, Warner Lambert, Abbott, Rhone-Poulenc, Dupont, Boehringer Ingleheim and Knoll.

From The Pew Center for the People and the Press:

Spike in National Mood
"The public’s sense of how well the country is doing has finally caught up with Americans’ positive ratings of their own lives. In fact, the national mood is better today than at any time since the 1960s, and the public is even more optimistic about the future. Nearly one-in-three Americans gives the country high ratings today, reflecting a substantial jump from just 10 percent in 1996 and 20 percent a year ago. One-third of Americans (36 percent) says the outlook for the next five years is just as strong.

"The upswing in the national mood has diminished the traditional ‘optimism gap’ — the tendency for Americans to rate their own lives substantially better than they rate the country. Indeed, while personal satisfaction remains high — 43 percent place themselves on the top three steps of an eleven-step rating ladder — the gap between the personal and national ratings is substantially smaller than it was several years ago.

"The increase in positive ratings for the country has been largest among less affluent groups, which typically express lower levels of satisfaction with the state of the nation. Fully 30 percent of those with a high school education or less give the country a high rating, for example, up from just 18 percent a year ago.

"Men continue to rate the condition of the country more favorably than women do, and the national ratings are colored by partisanship, as well. Just 18 percent of Republicans give the country a high rating, for example, compared to 23 percent of Independents, and 38 percent of Democrats.

"Over the past four decades, the national mood has tended to rise and fall along with the level of public trust in government. But the spike in public optimism today marks a divergence in this trend: Even as ratings for the country are up, the public’s level of trust in government and elected officials is flat at best. Just 31percent of Americans say they trust the government at least most of the time, down from 38 percent in late 1997."