Ethics Newsline®

“Every man is to be respected as an 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 (German philosopher, 1724-1804)

From the Gallup News Service:

“Two-thirds of Americans approve of gambling, but serious reservations remain about the impact of legal betting on sports events, the effects of casinos on local communities, and the growth of youth gambling. Almost half of Americans favor keeping gambling at its current level, while the rest are divided over whether legalized gambling should be expanded, reduced, or banned altogether.

“[Just prior to the release of the National Gambling Impact Study Commission's] report on the social and economic impacts of gambling in the United States, a new Gallup Poll Social Audit shows nearly two-thirds (63 percent) of American adults approve of legalized gambling, while 32 percent oppose it. The poll also shows American teenagers are more evenly divided in their support for legalized gambling, with 52 percent of those aged 13-17 in favor and 47 percent opposing it.

“However, both teens and adults see problems with legalized gambling. Two-thirds of both groups believe betting on sports events leads to cheating or ‘fixing’ of games, and 57 percent of adults oppose legalized betting on sports events as a way to raise state revenues.

“Fifty-six percent of adults believe casinos have a negative impact on family and community life in the cities in which they operate, even though a majority (67 percent) says that gambling helps the local economy. Twenty-two percent of Americans say that legalized gambling should be expanded, 47 percent say that it should stay at current levels, and 29 percent believe that it should be reduced or banned altogether.

“The Gallup results also counter a stereotype of gamblers as lower class and lower-income. The results find that 75 percent of those earning at least $75,000 annually take part in some form of gambling, while 63 percent of those earning less than $25,000 do. The same trends hold for education, as 72 percent of college graduates report some form of gambling in the past year, compared to 61 percent of those who did not complete high school. Men tend to gamble more than women do, and among religious groups, Catholics are far more likely to gamble than Protestants and members of other religious groups. . . .”

CHICAGO
The American Medical Association (AMA) last week ruled that physicians are ethically bound to report patients who drive while intoxicated to state authorities.

The measure was drafted last year by the AMA’s Council on Ethical and Judicial Affairs, which suggested that doctors have a duty to report drunk drivers to keep them from injuring themselves and others.

The approved guideline advises doctors to report impaired drivers to the Department of Motor Vehicles, and inform the patient of the report, according to the Reuters news agency.

Stepping down last month after a decade as CEO of Avon Products, Jim Preston took with him a warm send-off, a reputation for turning around a troubled company, and a conviction about the power of values.

“People who say managing with values is a lot of nonsense,” he insists, “are crazy.”

In a recent Newsline interview, he expanded on that view — and shared the five values that undergird his management style.

“Any business ultimately succeeds or fails on the basis of the quality of its people and the quality of its leadership,” he says, adding that those things “are going to be enhanced if you have a company that has a deserved reputation of being ethical and moral in all its activities. I just believe that.”

Part of Preston’s belief is tied to results. As he says, “It has worked for us.” Part of it, too, comes from his background as the son of a Cleveland grocer and a religious mother who believed strongly in the Golden Rule.

“We were poor, but I didn’t know it,” he recalls. “I had to start working when I was eleven years old, setting pins at a bowling alley as a kid, making a dime a game, bringing home $4.50 per night sometimes and giving that to my mother because we needed it.”

He learned the value of work and of helping others. And after watching his father extend credit during the Depression — and nearly fail when some customers wouldn’t pay up even when times got better — he also learned, conversely, that “the great majority of people were really honest and strove hard to repay their debts.”

Taking Avon’s reins, he built on its long-standing tradition of ethical behavior by putting in place a set of values reflecting that upbringing.

• Trust. Given Avon’s three million representatives around the world, Preston calculates that “on any given day we have tens of millions of dollars in receivables in the hands of people we know by numbers, basically, in the computer. The point is, we trusted them. We said, ‘We are going to send out your order on credit, and you don’t have to pay for that order until you send in your second order.’ If you get people working with you who believe that you trust them, the overwhelming majority will reciprocate that trust.”
• Believing in people. “We stand for something beyond profit,” he says. “We have helped millions of women around the world support their families, and encourage self-esteem and self-enhancement.” In bringing new people into the sales force, Preston notes that the district sales manager tries to “look that woman in the eye and say, ‘You have more talent and potential than you think you have, and I can help you bring that out. I believe in you.’”
• Respect. In Preston’s mind, respect flows not because of title or position, but because people are “human beings God placed on this earth, and as a result they deserve to be treated with respect. We talk about that, and how you show signs of respect.”
• Humility. “Humility means that you’re not always going to be right, and it’s okay to be wrong. It means we’re not going to punish you if you admit you’ve been wrong. Humility also means being able to apologize for something you wish you hadn’t done. The other facet of humility is really trying to understand what motivates people. If you’re so wrapped up in yourself — your ego — your antennae aren’t going to be out there sensing what other people are thinking.”
• High standards. For Preston, that means “never accepting anything but excellence. Mediocrity just doesn’t cut it.” In Preston’s mind, there is no distinction between Avon as a values-based firm and as a high-performance company.

What happens when you put these values into practice? People will “kill to prove that you are right about them,” he says. “They will work harder and smarter and more creatively. That has to accrue to the bottom line.”

Is this management style catching on? Preston has seen a shift in the last ten years in “the paradigm of what makes a good CEO in a major business.” The old CEO attitude, he says, was, “‘My job is to increase shareholder value, and I’ll do whatever it takes to do that. I will close plants, I will fire people — nothing else matters.’

“Today’s CEO will say, ‘Look, I have a responsibility to a lot of stakeholders — to my employees, my community, my suppliers. If I take care of all those, the shareholders are going to benefit.’”

What most convinces him that he’s on the right track, however, are the talks he gives at business schools. “When I talk about these five values,” he says, “it is unbelievable. You can hear a pin drop.”

A conversation with a colleague years ago may explain why today’s generation resonates to Preston’s message. “One of the things that I really love about this company,” his colleague told him, is that “when I leave home in the morning, I don’t have to leave any part of me at home.”

If surveys of students’ attitudes tell us anything, it is that a company delivering that kind of moral coherence between work and life today will have a sure pipeline to the best of tomorrow’s talent pool.

(c)1999 by Rushworth M. Kidder

The U.S. Supreme Court last week issued several surprising and controversial rulings that may have a substantial impact on U.S. business, and those are our lead stories this week in Business Ethics Newsline — your guide to news with an ethical angle.

We lead our report with four stories about high-court decisions that set new limits on liability settlements, qualification for disability, the elements of a discrimination suit, and the right of individuals to sue states for violation of federal law, a decision seen by some as a victory for states’ rights.

Another interesting story about the rights of localities follows: a federal appeals court decision that the city of Boston may not impose a ban on dealing with firms that do business with Myanmar.

We have several other stories dealing with international business: an apology from a Coca-Cola bottler following a contamination scare in Europe; an antitrust action against a Mexican airline; a revolt by shareholders against a Canadian company; a proposal by the EU to mandate that automakers assume the responsibility for recycling cars; and a call in the United Kingdom for a crackdown on sometimes-dangerous counterfeit auto parts.

Three stories about medical ethics follow: the AMA’s support of a physician’s union, an AMA policy declaring that it is unethical for physicians to sell products through their offices, and a doctors’ strike in Sri Lanka.

Next, two stories about ethics and high-tech: Microsoft says it will yank its advertising from Web sites that do not post a privacy policy, and U.S. lawmakers inch closer to allowing export of encryption software.

We conclude our wrap of the week’s news with a good-news story: Texaco last week bounced back from front-page charges of institutional racism just three years ago to receive an award for the diversification of its workplace.

And we end our report with two follow-ups from our “Whatever Happened to…” file: a final ruling on punitive damages in discrimination cases — a story we have followed in these electronic pages for several months — and the AMA’s decision on whether doctors should be required to report their patients who drive drunk.

Have a productive, ethical week.

– Carl Hausman

WASHINGTON
The U.S. Supreme Court last week made it potentially more difficult for companies to sign sweeping settlements that end their liability for damages caused by defective products.

With a 7-2 vote, the Court set aside a 1993 settlement between vinyl-siding maker Fibreboard Corp. and plaintiffs who claimed that the company’s asbestos-laden products damaged their health.

The 1993 settlement established a $1.5 billion fund to pay as many as 186,000 victims of asbestos poisoning, according to the New York Times.

But the Supreme Court ruled that the settlement inappropriately failed to accommodate the potential lawsuits of future victims of Fibreboard contamination.

The Court also ruled that the deal was too easy on Fibreboard, which contributed only $500,000 while convincing insurers to pay the remaining $1 billion. Fibreboard was subsequently sold to Owens Corning for $515 million in 1997, according to the Times.

While many applauded the decision, some critics say that it will only delay the resolution of class-action cases, dragging them out and keeping needed funds from plaintiffs.

The Times notes that the ruling is also expected to make it harder for industries such as tobacco companies, manufacturers of silicone breast implants, and gun makers to settle broad class-action claims.

Pending claims against Fibreboard must now return to lower courts for further consideration.

WASHINGTON
The Supreme Court last week narrowed the scope of the landmark Americans with Disabilities Act (ADA), ruling that people with substantially correctable physical conditions cannot be considered disabled.

In a 7-2 vote, the Court rejected the disability claims of four litigants — two flight attendants with nearsightedness, a mechanic with a heart condition, and a truck driver with poor eyesight — who were fired because of their physical problems.

The court ruled that people who can correct or compensate for their disabilities are not covered by the ADA, the Associated Press reported.

The ruling was welcomed by business groups, which feared that if the claims were upheld they would broaden the definition of “disabled” and would spawn a crippling number of lawsuits and disability claims.

But disability rights advocates harshly condemned the ruling as impossibly narrow and a subversion of the intent of the nine-year-old ADA.

The Supreme Court’s decisions “create the absurd result of a person being disabled enough to be fired but not disabled enough to challenge the firing,” ADA architect and Georgetown University law professor Chai Feldblum told the Associated Press.

WASHINGTON
Employees who were the victims of discrimination do have the right to sue their employers for punitive damages even if the discrimination was not egregious, the Supreme Court ruled last week.

Federal antidiscrimination law currently prohibits discrimination based on a person’s race, sex, country of origin, and religion, but says that the discrimination must be “egregious” to warrant damages in a lawsuit, the Associated Press reported.

But in a 7-2 ruling, the Court lowered the bar for such cases, ruling that damages may be awarded even if the targeted employee cannot prove that the employer’s behavior was egregious.

The Court tempered its decision with a separate 5-4 ruling, insisting that companies cannot be forced to pay such damages if the discrimination was conducted in violation of the company’s “good-faith” efforts to keep the workplace free of bias, according to the AP report.

WASHINGTON
In a surprising and significant ruling for states’ rights, the U.S. Supreme Court last week narrowly voted in three cases to shield states from federal laws governing workplace, patent, and copyright protections — making it nearly impossible for individuals to sue states for violations of those federal laws.

The bitterly divided Court ruled against plaintiffs in the cases of Maine parole officers trying to force the state to pay them for overtime work protected by federal law, a Florida bank suing the state for copying the workings of an investment program, and a Californian biotech firm suing the University of California for patent infringement.

In each of the cases, the Court ruled that the states were immune from the private lawsuits charging violation of federal laws.

Dissenting justices Souter and Breyer were outspoken in their dissent from the majority ruling, warning that the Court has created a dangerous and foolish precedent that put the states above the law, the Chicago Tribune reported.

The rulings shocked some legal experts. University of Southern California law professor Erwin Chemerinsky told the Los Angeles Times that the Court’s 5-4 decision amounts to “a radical change in American government. It says the states can violate federal law with impunity and nowhere can they be sued for damages in a federal or state court.”

BOSTON
The city of Boston cannot refuse do to business with companies that trade with Myanmar (formerly Burma), a federal appeals court ruled last week.

The court upheld a lower court’s ruling that dismissed Boston’s ban as unconstitutional, ruling that it “impermissibly infringes on the federal government’s power to regulate foreign affairs,” the Associated Press reported.

Boston implemented the ban in 1996 to protest human-rights abuses and oppression in Burma, arguing that the city had the right to refuse to spend taxpayers’ money on companies that violated the city’s ethics.

But the courts disagreed, ruling that the ban overstepped the city’s trade rights — a decision welcomed by Myanmar officials and the National Foreign Trade Council, an alliance of 580 major U.S. businesses.

The ruling is expected to have far-reaching ramifications for other U.S. cities, including New York, San Francisco, and Portland, Oregon, that boycott businesses that violate the cities’ ethical standards, according to the AP report.

ATLANTA
Coca-Cola Enterprises last week apologized to its European consumers after more than 250 of them became ill after drinking Coke products contaminated during bottling in Belgium and France.

Coke Enterprise’s chief executive Henry Schimberg apologized for consumers’ “distress and inconvenience,” and promised that Coke would work hard to regain Europeans’ trust, the Associated Press reported.

The health scare began two weeks ago, when some European consumers began complaining of vomiting, nausea, and dizziness after drinking Coke products.

The company’s investigation revealed two separate incidents of contamination: a bad batch of carbon dioxide in Belgium, and fungicide contamination in France.

Coke was temporarily banned from store shelves in both Belgium and France, prompting the company to recall more than 14 million cases of soda at a loss of more than $60 million, according to the AP report.

Shimberg and Douglas Ivester, head of Coke Enterprise’s parent company, Coca-Cola Co., last week flew to Europe to show their concern for customers, as well as their confidence in Coke’s ability to correct the problem.

Coke has promised to pay the medical bills for consumers who became ill if subsequent tests prove a linkage, the Reuters news agency reported.

Many business-ethics specialists applauded the company’s forthrightness in dealing with the problem, saying that fessing up from the start is the best way to regain consumer confidence.

“Nothing is served by stonewalling,” Barbara Ley Toffler, a business ethicist for the Arthur Andersen consulting firm, told Reuters. “People are not stupid. Smart consumers realize that things can happen and they are more forgiving if a company is up-front.”

MEXICO CITY
Mexican antitrust regulators last week accused the country’s largest airline company of operating a monopoly that was draining consumers’ pocketbooks and limiting the profits of competitors.

Mexico’s Federal Competition Commission (CFC) last week suggested that Cintra, which owns and operates Mexico’s two leading air carriers, Aeromexico and Mexicana de Aviacion, be split up and sold in order to break the company’s monopoly, the Reuters news agency reported.

“Cintra is abusing its market power,” CFC head Fernando Sanchez Ugarte told Reuters. “It’s charging more than it would charge in a situation of competition.”

The CFC has said it will wait to hear government reaction to the proposed dissolution of Cintra, 56 percent of which is owned by the Mexican government, according to the Reuters report.

Cintra has denied any wrongdoing.

Special to Newsline from Canadian Correspondent Errol P. Mendes

TORONTO
Two institutional shareholders of a small Canadian penny-stock company are making headlines with their revolt over the allegedly excessive compensation package for the chairman of the firm.

The dissident investors are seeking the removal of Steven Berg as head of Repap Enterprises because they say he is being paid too much given the poor performance of the company, the Globe & Mail reported.

According to press reports, the revolt was triggered after the alleged secret firing of a vice-president, Terry McBride, who had opposed Berg’s compensation package.

The Globe & Mail reports that Berg’s compensation included a $420,000 annual salary, $1.25 million worth of shares, options to buy 75 million shares in the future, plus a potential for a bonus equal to a percentage of the market value of the company’s shares.

At the stock’s 52-week high of 19 cents, the package would amount to $38 million, according to the Globe & Mail.

Meanwhile, the company has a debt of nearly $680 million and now operates one paper mill in New Brunswick after its British Columbia operations went into bankruptcy.

Canadian commentary has focused on the controversy as an indication of rising shareholder revolts against closed management circles, and as a sign that shareholders are beginning to demand professionalism from management, rather than being solely concerned with share values.

LUXEMBOURG
The European Union and automakers were set to square off last week over the EU’s proposed plan to require car companies to recycle old and unwanted cars.

EU environment ministers say that car companies should be held responsible for the massive quantity of waste produced by their abandoned cars.

Current estimates show that scrapped cars constitute one-tenth of the EU’s hazardous waste, and that two million cars are brought to the dump each year in the United Kingdom alone, the BBC reported.

EU ministers want automakers to recycle a greater percentage of a scrapped car’s parts, and accept and recycle worn-out cars from consumers free of charge.

Automakers say the cost of the proposal is staggering, and would likely be passed on to consumers until the market adjusts, according to the BBC report.

But Retail Motor Industry Federation representative Alan Pulham says that the push for material accountability may be inevitable and even beneficial.

“I think there is every possibility of doing this,” Pulham told the BBC, “and eventually after the initial set-up costs have been absorbed, perhaps [it will produce] a saving for the manufacturers.”

EDINBURGH
U.K. regulators last week warned that the country’s booming trade in counterfeit car parts has the potential to injure or kill consumers.

The U.K. Institute of Trading Standards (ITS) held a three-day conference last week to boost awareness of the growing industry in fake car parts, cheap and often defective imitations of real auto components.

The ITS estimates that the fraudulent-parts business has skyrocketed from nearly $480 million to nearly $4.8 billion in the last five years, according to the BBC.

ITS spokesman Tony Northcote told the BBC that the boom in bogus parts has crossed the line from nuisance to danger because the trade has spread from nonessential, luxury accessories to vital car parts, including brake pads, brake shoes, and steering components.

Regulators warn consumers to use only reputable auto repair firms, but admit that even those firms might be fooled by some of the scams.

To eradicate the problem, the ITS plans to use a network of spies to crack down on the illicit industry, which they say often ships fraudulent parts from former Eastern Bloc and USSR countries, according to the BBC report.

JOHANNESBURG
South African police arrested five men last week in connection with an extortion scheme that lured foreign businessmen to South Africa, where the executives were kidnapped and ransomed.

Authorities say the five men — three Nigerians, one Ghanaian, and one South African — were involved in at least four extortion attempts, the BBC reported.

Both foreign and local businessmen have become prominent targets for such schemes, which lure the executives with false business deals.

Police recovered and released one Jordanian captive last week. Earlier this month, a Canadian businessman was found shot to death after his captors demanded a ransom from the man’s family, according to the BBC.

CHICAGO
The American Medical Association (AMA) last week voted to form a national physicians’ union, acknowledging the growing number of dissatisfied doctors demanding more professional leverage.

Roughly six percent of the nation’s 600,000 practicing doctors have already joined unions, a number that is growing rapidly as more doctors get fed up with increasing paperwork and decreasing autonomy, the Associated Press reported.

Many physicians contend that collective bargaining is needed to fight the growing power of insurers and health maintenance organizations (HMOs), which they claim put profits before patients’ and doctors’ needs.

HMOs and their advocates maintain that they have fostered competition among health-care providers, reduced costs, and made health insurance more affordable. They argue that doctors’ unions will undo much of what they have accomplished, upping costs and driving insurance out of the reach of the poor, the Associated Press reported.

Outgoing AMA president Nancy Dickey told the Associated Press that doctors’ unions are focused less on financial issues, and more on doctors’ rights and resources, including the range of drugs that can be prescribed, the length of patients’ hospital stays, and patients’ access to specialists.

CHICAGO
Doctors should not sell medications, health products, or safety devices at their offices for a profit, according to an ethics resolution narrowly adopted last week by the American Medical Association (AMA).

The debate over such sales, which range from prescription drugs to sunscreen to bicycle helmets, had divided AMA members and prompted heavy lobbying from some doctors and state delegations.

A report from the AMA’s Council on Ethical and Judicial Affairs had recommended the ban on for-profit sales in doctors’ offices, saying that they foster conflict of interest and jeopardize patients’ trust of doctors.

The Reuters news agency credited former AMA president Dr. Robert E. McAfee with convincing the divided AMA to unite behind the new guideline. Speaking before the narrow vote, McAfee urged doctors to remember that their top priority should be the health of patients, not profits.

“The physicians’ code of ethics is the only thing that separates us from a trade or a guild,” McAfee told AMA delegates, according to the Reuters report. “While more permissiveness on this might be good business, it is not good medicine.”

COLOMBO, Sri Lanka
Sri Lankan public-hospital doctors walked off the job last week to protest the government’s planned decentralization of the country’s healthcare administration, halting nearly all non-emergency treatments and triggering some violent attacks on doctors.

The controversial strike continued despite a court order banning the action.

Although Health minister Nimal Siripala de Silva called on people to remain calm, violent attacks on striking doctors continued, with incidents of arson and physical assault reported last week, according to BBC coverage.

In the interim some doctors have begun offering free service at private hospitals, according to the BBC.