Ethics Newsline®

Do markets have morals?

On its face, the question seems absurd. A market is a device, a tool, a morally neutral structure. Generations of business students have dutifully been taught that “no” is the proper answer.

Do those who deal in the markets have morals?

That’s equally obvious. Of course they do. Dealers are human, and humans inhabit a moral universe. Every decision they make touches on fundamentally moral choices. And markets are nothing but vast agglomerations of decisions.

By itself, each of these answers is clear. When taken together, however, the former tends to slop over into the latter. In the business community, the “markets have no morals” response is so knee-jerk that the question of dealers is often bundled in with it. If the market has no morals, then why do those who work in them need morals?

It’s this kind of muddled thinking, unexamined and glibly expressed, that over the years has led millions to see “business ethics” as an oxymoron. Business, it is sometimes said, is merely a structure bringing together willing buyers and sellers. It neither has nor needs ethics — case closed. This view has long been popular, of course, among outsiders who criticize business. What’s more surprising is that great numbers of corporate executives agree — and that the business periodicals they read give them little argumentation to the contrary.

That’s why a small piece in the August 11 issue of the Wall Street Journal is so significant. The Journal has long covered ethics in its news columns, and its op-ed writers have had plenty to say about it. But the paper’s underlying stance toward ethics has always seemed slightly dismissive. Last week, the Journal turned a kind of corner. The piece, astonishingly titled “Morals and Wall Street,” was a well-wrought editorial in the paper’s own voice.

The editorial focused on two things: the situation at Bear Stearns, the Wall Street clearing broker fined nearly $40 million for failing to exercise ethical oversight on one of its clients, and the public concern about day trading following the fatal shootings in the Atlanta offices of Momentum Securities Inc. and All-Tech Investment Group. Using these examples, the paper sought to build the case not only against the fact of scandal and fraud in the securities business, but also against the appearance of them.

“Wall Street is a place where businesspeople go to great lengths to wear fine clothes and work in fancy offices that are meant to suggest solid performance,” says the editorial. “None of these trappings is as important as a basic sense of integrity — and when respected firms start salami-slicing that value, even if only in appearance, they do poorly by others in the business.”

Even more intriguing is the editorial’s comment on decision making. The business press, and many business consultants, are still hooked on tired arguments that failure never involves a lack of ethical sense but is instead explained by financial incompetence, unintelligent investment strategies, and an unwillingness to make decisions that could be brutal to others. This piece argues otherwise. “The real problem,” it says, “is not that people are making bad decisions about stocks. It’s that stockdealers are making some poor calls about ethics.”

Cheer them on! When a paper of this importance takes a flat-out stand for morals in business, you can be sure it will have an impact. Reading between the lines, however, you can be equally sure that it will also stimulate an upheaval.

How? Consider what’s being proposed by implication. The paper is calling for an ability to make better “calls about ethics.” How should dealers do that? Is there any training available to help them spot ethical dilemmas on the horizon? Are they being exposed to frameworks for values-based decision making? Is there, at any point between kindergarten and the MBA program, a sharp, penetrating focus on ethics that makes it as important to them as finance, or marketing, or advertising?

“But those are all hard, bottom-line issues!” you retort. Then is ethics part of the soft stuff? Tell that to the accountants at Bear Stearns, where a failure to attend to “soft stuff” cost nearly $40 million. Tell that to the families of those killed in the day-trading shoot-up in Atlanta, where a customer lacking the “soft stuff” suddenly snapped.

And try telling it to the stockdealers themselves. Many of them know how important ethics is to their profession. The Journal’s reverberant defense should cause three responses. First, gratitude for all we do know about ethics. Second, concern that there is hardly any place in our educational systems where dealers could be expected to learn to avoid “poor calls about ethics.” Third, willingness to keep up the pressure for better, higher ways to think about ethics. The Journal is right, and right to say it so clearly. Now comes the hard part of walking the talk.

(c)1999 by Rushworth M. Kidder

One important role of ethics is to discern the proper and hygienic boundaries between interests — in other words, where does a proper and productive relationship end and a conflict of interest begin?

Our top stories this week in Business Ethics Newsline examine that question. Leading our report is a story from Japan, where the shaky economy has been rocked by persistent scandals involving the financial community and those who are supposed to regulate it; as a result, the Parliament has passed tough new conflict-of-interest laws. We also feature two reports about the American Bar Association’s position on potential conflicts of interest for lawyers: making contributions to public officials, and joining group practices with other professionals.

Our report continues with two stories about government’s role in regulating business: what the Internal Revenue Service views as a victory in its battle against offshore tax shelters, and a scathing report by securities regulators concerning day-trading firms.

From the international desk comes an interesting mix of stories about medical research in third-world nations, two lawsuits related to Japanese and German actions during World War II, charges of sweatshop conditions in the U.S. commonwealth of Saipan, and a continuing dispute over aircraft subsidies in Canada.

Next: two stories about the evolving U.S. workplace, one indicating that it’s more discourteous than ever, but the other painting a positive picture about accommodations offered to working fathers.

We conclude our wrap of the news with an uplifting story about a business owner who “did the right thing” for his employees — by dispersing millions of dollars to them when he sold his company for a profit.

And from our “Whatever Happened to…” file comes an update on the Boston College professor who tried to bar men from her classes in feminist theology.

Have a productive, ethical week.

– Carl Hausman

TOKYO
Reacting to public scandals that rocked confidence in the government and the economy, the Japanese Parliament last week passed ethics legislation barring the country’s public officials from accepting gifts or favors from private companies under their jurisdiction.

The new measure requires officials to rigorously report their investment transactions, as well as the receipt of gifts worth more than $43, the Reuters news agency reported.

Japan was rocked last year by a series of scandals centering on government officials who handed out corporate favors in return for lavish gifts and entertainment. The scandals prompted the resignation of the heads of the Finance Ministry and the Bank of Japan.

The new measure will take effect in April 2000, according to Reuters.

ATLANTA
The American Bar Association (ABA) last week rejected a proposed ethics guideline barring lawyers from making contributions to public officials in anticipation of winning future contracts or favors.

The practice, known as “pay-to-play,” has come under heavy criticism as an unfair means for lawyers to win work and influence, the Reuters news agency reported.

But supporters argue that restricting lawyers’ ability to make contributions to judges and other public officials would be an unjustifiable restriction of their right to participate in the political process.

After suggesting the need for pay-to-play reform last year, the ABA House of Delegates reversed position and voted down the proposed ethics clause at the group’s annual meeting last week.

U.S. Securities and Exchange Commission executive Christopher Ullman told Reuters that the ABA’s vote was “disappointing,” and that the government would continue to push for pay-to-play reform.

ATLANTA
The American Bar Association last week postponed a decision on whether to endorse joint-practice partnerships between lawyers and other professionals, such as financial planners, social workers, and doctors.

The ABA nixed an ethics proposal endorsing such partnerships until further study could be performed, the Associated Press reported.

Large multiservice firms, which allow clients to receive a bevy of services from one provider, are viewed by some lawyers as a way to stay competitive.

The ABA seemed poised to embrace so-called multidisciplinary practices, but held off under pressure from members who argued that the expanded corporate ties could impair lawyers’ independent judgment and cause conflicts of interest.

Outgoing ABA president Philip Anderson said that lawyers’ resistance to the alliances was ill conceived, according to the AP report.

“The response of ‘I don’t like it’ is not going to make it go away,” Anderson said. “I don’t like it either but it’s here and it’s going to stay here, and the question is what are we going to do about it.”

WASHINGTON
United Parcel Service (UPS) was ordered last week to pay more than $300 million after the Internal Revenue Service (IRS) said the shipping company set up an insurance business in Bermuda solely to avoid paying U.S. taxes.

The U.S. Tax Court ruled that UPS had abused tax-shelter laws when it formed its Bermuda-based subsidiary, Overseas Partners Ltd. (OPL), the Associated Press reported.

The court ordered UPS to pay the IRS more than $300 million in back taxes for illegitimate filings between 1984 and 1990, as well as an undetermined amount in penalties and interest.

UPS denied any wrongdoing, insisting that OPL served the legitimate function of insuring UPS packages, enabling the shipping company to avoid being regulated as an insurance business by the government.

But the court held that UPS set up its Bermuda-based operation only to avoid paying federal income tax.

UPS spokesman Norman Black said that his firm will likely appeal the ruling.

WASHINGTON
Day-trading firms frequently deceive customers about the industry’s risks and profitability, and encourage questionable loan schemes between customers, according to a scathing report on the industry released last week by state securities regulators.

The report by the North American Securities Administrators Association (NASAA) criticized the growing day-trading industry for promoting “unacceptable” practices that “appear to be widespread,” according to the Reuters news agency.

The report faulted day-trading firms for overstating the odds of turning a profit, accepting clients who cannot afford to sustain likely losses, and encouraging customers to lend each other money to cover losses.

The NASAA, which reviewed the practices of 12 firms over seven months, warned that day-trading companies will face increased regulation if they fail to reform and police themselves.

“If day-trading firms want to become part of the mainstream, they need to play by the same rules the rest of Wall Street follows,” said NASAA president Peter Hildreth, according to an Associated Press report.

Earlier this year, the Electronic Traders Association (ETA) took a step to head off tightened regulation, announcing a set of ethical guidelines adopted by its members. Those rules require ETA members to more rigorously screen potential day traders’ financial fitness and strengthen warnings about potential losses.

BOSTON
Doctors conducting medical research in third-world countries should realistically be allowed to use less costly, less effective treatments on test subjects, according to a controversial article published in last week’s New England Journal of Medicine.

Yale University’s Dr. Robert Levine urged the medical community to rethink its strict research-ethics code, the World Medical Association’s so-called Declaration of Helsinki, the Reuters news agency reported.

Levine’s article claims that the Declaration of Helsinki, which requires doctors to treat patients in their control group with the “best available” treatment irrespective of cost, is a financial deterrent to effective research.

Levine says that doctors should be allowed to use less effective treatments on control-group subjects if that is the treatment they would normally receive in their country.

A companion New England Journal of Medicine article criticized Levine’s argument, saying it would likely lead to a mercenary approach to medical research, inviting a flood of experiments on unprotected people, Reuters reported.

Levine’s approach has been endorsed by the U.S. government-run National Institute of Mental Health, which says the relaxation could stimulate vital research and benefit a greater number of people.

LOS ANGELES
A California World War II veteran last week sued Japanese trading giant Mitsui & Co., charging the firm with abusing and exploiting U.S. prisoners of war forced to work in a Mitsui coal mine during World War II.

Former POW Lester Tenney says that Mitsui forced him and other POWs to work in a coal mine considered too dangerous for its Japanese workers, the Associated Press reported.

Tenney, a retired university professor, says that Mitsui employees beat and starved the POWs.

Tenney’s suit is the first filed under a new California law permitting U.S. residents to sue multinational companies accused of exploiting slave labor, according to the AP.

Mitsui is one of Japan’s powerhouse trading firms, with $131 billion in 1998 revenues and subsidiaries in the mining, insurance, shipping, and commodities trading industries. The company had no immediate comment on the charges.

MUNICH
Germany’s Allianz last week denied rumors that Allianz and other European insurers had reached a settlement with Jewish groups over paying out long-denied life insurance policies held by Holocaust victims.

Allianz spokesman Nicolai Tewes told Reuters that while the groups had come closer to a settlement, several issues still remained “unresolved.”

Allianz, four other European insurance companies, representatives of the Israeli government, Jewish groups, and U.S. state insurance regulators have been meeting in New York to hammer out a settlement over the unpaid policies.

Plaintiffs claim that many European firms refused to honor Nazi victims’ life insurance policies at the end of World War II, making it harder for surviving Jews to reestablish themselves.

Earlier this month, the New York panel worked out a formula requiring the firms to pay policyholders’ heirs roughly 10 times the value of the original policies.

But subsequent grumblings sparked rumors that some of the insurers might pull out of the talks or demand the resignation of lead negotiators, bringing promises of swift financial retaliation from U.S. regulators.

Allianz, faced with billion-dollar class-action lawsuits, says that the settlement process will continue, and that a final deal likely will be reached by the end of October, Reuters reported.

LOS ANGELES
Four prominent U.S. clothing retailers last week agreed to pay $1.25 million to settle charges that they exploited sweatshop labor to produce garments in the U.S. commonwealth of Saipan.

Nordstrom, J. Crew, Gymboree, and Cutter & Buck signed on to a plan that will fund independent monitoring of the Saipan facilities, compensate workers, educate the public, and cover plaintiffs’ legal fees.

The retailers were part of a broad class-action suit filed on behalf of about 50,000 Saipan garment workers who charged the companies with violating U.S. labor laws and international human-rights treaties.

The workers claimed they were forced to work 12-hour days without overtime pay, earned only $3 an hour, lived in unsanitary housing, and were isolated by armed guards and barbed wire, the Reuters news agency reported.

Plaintiffs’ representative Al Meyerhoff commended the firms for quickly tackling the sweatshop charges by agreeing to the settlement, which must still be approved by a federal judge.

The class-action proceedings, as well as a related suit filed in San Francisco, will continue against 12 other firms, including the Gap, Tommy Hilfiger, and Wal-Mart, according to the Reuters report.

Special to Newsline from Canadian correspondent Errol P. Mendes

OTTAWA
Both Canada and Brazil were recently reprimanded by a World Trade Organization (WTO) appeal panel that criticized both countries’ aid to their leading aerospace corporations.

The Globe & Mail reported that while the WTO ordered both countries to cease the aid to the aerospace sector because such aid amounted to unfair subsidies, both countries are expected to come up with new forms of subsidies for their aerospace industries which will be “disguised” forms of the old contested ones.

The Globe & Mail reports that industry watchers do not expect the subsidies war to cease because the industry is considered strategic to both countries, employing thousands of workers and generating huge amounts of export dollars.

CHICAGO
Rudeness at the workplace is on the rise, and men are mostly to blame, according to a new study released last week at the Academy of Management’s annual convention in Chicago.

The report, “Workplace Incivility: the Target’s Eye View,” tallies the views of 1,400 workers, 78 percent of whom said that workplace behavior has worsened over the past 10 years, the Associated Press reported.

Respondents also noted that men instigate workplace incidents 70 percent of the time, and that rude people are three times more likely to hold higher-level positions than their targets.

University of North Carolina business professor and study co-author Christine M. Pearson said the aim of the report is to make companies aware of the rising problem and its consequent costs.

BURLINGTON, Massachusetts
Working fathers are fighting harder than ever to find a balance between family and job — and a growing number of employers are starting to help, according to a report in last week’s Boston Globe.

As a generation that grew up with workaholic fathers and single-parent homes takes charge of a competitive labor market, employers are realizing that family-friendly policies often pay off in the long run.

The Globe reports that a number of U.S. enterprises, from Microsoft to the U.S. Marine Corps, are offering parenting seminars, fatherhood courses, and daycare support for their male employees.

Proponents say that corporate support for working fathers is a win-win situation, helping fathers spend more time with their families, while boosting employee loyalty and enabling the workday to continue at home.

But Michael F. Carter, vice president of Philadelphia-based management and consulting Hay Group, warns that there is still plenty of progress to be made.

“There is still a certain amount of schizophrenia going on in the workplace,” Carter told the Globe. “Family-friendly policies may be part of company policy, but it still works out that the person who is up for the promotion is often the one who gives more time to his work — to the detriment of his family.”

BOSTON
Internet search engine Lycos last week said that it will not renew an advertising contract with a religious group whose controversial Web banner caused a deluge of complaints from Jewish users.

Jews for Jesus, a Jewish group promoting Jesus as the Messiah, paid Lycos $1,700 to post its ad at the top of Lycos’ Web page when users ran a search using the word “Jewish,” the Boston Globe reported.

A rash of complaints convinced Lycos to nix the ad and the Jews for Jesus contract, already scheduled to expire this week.

Lycos general counsel Jeffrey Snider told the Globe that the incident had taught the company a distinct lesson: “Controversial advertising is bad for business.”

Jews for Jesus spokeswoman Susan Perlman characterized Lycos’ decision as a defeat for First Amendment principles. “The Web is supposed to be a marketplace for all kinds of ideas,” Perlman told the Globe, “and people can click on them or pass them by.”

BELLEVILLE, Michigan
When asphalt-company owner Bob Thompson recently sold his highway-paving business for $422 million, the Michigan businessman distributed nearly one-third of the $128 million profit among his employees.

Hourly workers with a retirement plan received $2,000 per year of service; salaried workers without a retirement plan received between $1 and $2 million each, National Public Radio reported.

Thompson, who launched his paving company 40 years ago, told NPR that giving $128 million to his employees “was just the right thing to do.”

Thompson said he “cherished the fact that our employees were the difference between us and our competition. We’ve always asked them to be Number One every day of their work life and that’s a tough position to put people in.”

BOSTON
Feminist professor Mary Daly squared off again last week with Boston College (BC) over whether she had resigned her position or been ousted by the university.

Daly, a tenured professor released from BC after she said that she would rather resign than let male students into her feminism classes, last week argued that BC had illegally locked her out of her campus office.

BC spokesman Jack Dunn said that Daly’s charges were false, and merely a stunt to draw attention away from her “desire to discriminate against her male students,” the Boston Globe reported.

Last month, a Massachusetts judge ruled that the college, which previously had reprimanded Daly five times for policy violations, had “adequate cause” to fire her.

The case will continue in court as a contract dispute, according to the Associated Press.

From the University of North Carolina at Chapel Hill’s Kenan-Flagler Business School:

“Incivility at work hurts a company’s bottom line, according to a new study by Christine Pearson, a management professor at the University of North Carolina at Chapel Hill’s Kenan-Flagler Business School. What follows is summary of the responses of 775 people who were targets of incivility at work. . . .

“In general, the incidents that are the core of the study are relatively mild in intensity, and might be ambiguous as to intent to do harm on the part of the instigator. None of the incidents involved intense physical aggression or violence. Examples of uncivil behavior included sending a nasty and demeaning note, making accusations about a lack of knowledge, undermining credibility in front of others, and being shouted at. . . .

“In addition, there is a spillover effect on others in the workplace. Virtually all targets (94 percent) described their encounters to someone else. Most talked with workplace peers or family members, half spoke with workplace superiors and friends outside work, and about one-fifth of the targets described what had occurred to their subordinates. . . .

“The ‘instigators,’ the people responsible for the incivility, were:

• “An average age of 41 (ages ranged from 19-72).

• “Averaged eight years working in the organization (range of less than one month to 40 years).

• “More than twice as likely to be male (70 percent male versus 30 percent female).

• “More than three times as likely to be of higher status than the target (60 percent as compared to about 20 percent at equal status and 20 percent lesser status than the target).

• “Men were seven times as likely to instigate uncivil behavior on someone of lower status than on someone of higher status.

• “Women were equally likely to behave uncivilly toward their superiors as toward their subordinates, but less likely to be uncivil to their peers. . . .

“Generally, targets reported that people in their organizations did not doubt each other’s honesty, nor did they express anger openly. And in the organizations where the incivility took place, nearly all responding targets reported that workers would be reprimanded and encounter career problems if they sexually harassed, overtly threatened, or physically attacked someone. . . .

“Only one-fourth of the targets was satisfied with the way the organization handled things. As a result, more than a third said that their commitment to the organization declined.

“The potential costs of rude, disrespectful encounters deserve leadership attention. First, leaders need to be aware that this kind of behavior occurs, and that the instigator might operate from a position of power and with cunning. Some targets said that they never reported the event to organizational leaders because they believed that it could jeopardize their careers or that their reporting would have no impact. Many respondents indicated that leaders seemed reluctant to take follow-up action. . . .

“Many recommendations flow from the researchers’ findings. . . .

“In terms of the employment lifecycle:

• “In recruiting and selection, check references thoroughly, especially regarding potential signals of patterns of incivility; assure the ‘fit’ of the individual with organizational and work site culture; and consider people skills that may be required of an applicant in current or future jobs.

• “In orientation and training, establish expectations about interpersonal behavior; communicate expectations in orientation for all new employees; provide sensitivity training (e.g., harassment, intimidation); and provide training in listening skills, stress management, conflict resolution.

• “In evaluation, document behaviors that cross the line regarding incivility; provide corrective feedback to instigators despite their clout; and provide opportunities for subordinate/peer input through 360-degree feedback.

• “In termination/exit of an employee, look for patterns, have a third party present if terminating an instigator and don’t transfer people who should be fired. . . .”

“One cool judgment is worth a thousand hasty councils. The thing to do is to supply light and not heat.”

– Woodrow Wilson (28th U.S. president (1913-1921), 1856-1924)