Ethics Newsline®

“Nearly all men can stand adversity, but if you want to test a man’s character, give him power.”

– Abraham Lincoln (16^th U.S. president (1861-1865) - 1809-1865)

From Quest Diagnostics Incorporated:

“Workplace drug use decreased in the first six months of 1999, extending a dramatic 65 percent decline in positive results over the past decade, according to the semiannual Drug Testing Index, released today by Quest Diagnostics Incorporated, the leading provider of drug-testing services in the United States.

“The positive test results for drugs in the workplace continued a long-term downward trend. During the first six months of 1999, 4.7 percent of the approximately 2.8-million workplace drug tests performed during the period were reported positive, down from 4.8 percent for all of 1998. In 1988, when the Drug Testing Index was established, 13.6 percent of all drug tests were reported as positive.

“Rates of use for several drugs, including cocaine and opiates, showed declines as a percentage of all positive test results. Cocaine use made up 16 percent of all positive results in the first half of 1999, down from 18 percent for 1998. The percentage of opiate tests that were reported positive declined by almost half in the current Drug Testing Index, from 10 percent of all positive results for all of 1998. At the same time, marijuana use increased nearly 4 percent as a percentage of all positive results to 63 percent. . . .

“Test cheaters made up a significant group of positive results on the Drug Testing Index. Cheaters, who test positive for substances used to adulterate or replace their specimens, accounted for nearly 2 percent of positive results for the first half of 1999. . . .

“Color graphics of the Drug Testing Index©, including regional maps which show positivity rates by type of drug, are available on-line at http://www.questdiagnostics.com to provide more localized workplace drug test data. The Drug Testing Index is released every six months as a service for government, media and industry, and is considered a benchmark for national trends. . . .”

Special to Newsline from Canadian correspondent Errol P. Mendes

OTTAWA
During his visit to Canada to open the new U.S. embassy and to speak at an international conference on federalism in Quebec, President Clinton reached an agreement in principle with Canadian prime minister Jean Chrétien on restoring Canada’s special status in bidding on over $5 billion worth of U.S. defense contracts.

The deal would allow Canadian aerospace corporations to make such bids without needing a State Department export permit for sensitive defense specifications.

Under the agreement, Ottawa will agree to U.S. defense export controls, which ensure military technology is not exported without prior State Department approval.

Not all the details of the agreement have been worked out, but the United States seems to have backed down from its position that no Canadians with dual citizenship could work on U.S. military contracts. If the Canadian government had endorsed this, it could have been a violation of the Canadian Charter of Rights and Freedoms.

However, under the agreement the United States will still insist on background checks of the many defense workers who were born outside of Canada, according to a report in the National Post.

Special to Newsline from Canadian correspondent Errol P. Mendes

TORONTO
The president and CEO of Corel Corp., one of Canada’s largest software manufacturers, has been charged with illegal insider trading by the Ontario Securities Commission (OSC).

The charges are based on a thirteen-month investigation by the OSC into Michael Cowpland’s sale of Corel stock worth $13.7 million, almost 25 percent of his holding, after he had been informed that Corel would have a sales shortfall in the third quarter of 1997. This information was not public at the time of the sale, according to the Globe & Mail.

The OSC also alleged, according to a Globe & Mail report, that Cowpland had submitted untrue or misleading statements during a meeting with the OSC on May 20, 1999. Cowpland denied all the allegations and said he was looking forward to clearing his name in court.

A conviction under Canada’s insider trading laws carrying a maximum fine of up to $673,000 and jail for up to two years less a day.

Question: A recent event sparked a wave of investor interest in a country that has developed a reputation as a financial basket case. What happened?

1. A peasant drilling a well struck massive oil reserves.

2. After a thorough cleaning, it was discovered that the streets actually were paved with gold.

3. A military coup toppled an elected government.

Answer: Item “c” appears the most improbable instigator of investment, but that’s the way it happened.

According to the Wall Street Journal, the day after a military coup overthrew Pakistani prime minister Nawaz Sharif, the U.S. Embassy’s commercial division was deluged with calls from companies that wanted to invest.

Amer Kayani, the embassy’s commercial counselor, was dumbfounded. According to the Journal, he’d spent most of his tenure trying to retain business in the midst of tangled bureaucracies and inconsistent policy.

But now, the government of general Pervez Musharraf was welcomed by foreign investors. Pakistani citizens seemed happy about the coup as well.

What’s the moral of the story? As much as any other factor, allegations of corruption weakened the civilian government and led to the coup. About $4 billion in bank loans are unaccounted for in Pakistan, apparently having been siphoned off by the politically connected. Tax evasion is rampant, with some estimates gauging that only one million people in Pakistan pay taxes. (By the way, there are 140 million people in Pakistan.)

Where were the elected governments as corruption ate away the foundations of Pakistan’s infrastructure? New York Times reporters Tim Weiner and Steve LeVine summed up the recent history of civilian rulers this way: “For 11 years, since the end of the last military dictatorship, most of them have behaved like medieval barons, plundering what remained of the nation’s wealth. What was left was not enough to run a civil society. The principal export of Pakistan today is Pakistanis. The most talented, the best educated, the potential leaders are gone.”

For a nation that has experienced previous brutal (if comparatively competent) dictatorships, nostalgia for a strongman is a strange thing indeed. And investors heaving sighs of relief at a military coup is downright surreal — but that is the lesson and the legacy of corruption.

People will put up with almost anything to get a government that works, a system that appears not to siphon money into the coffers of the connected.

But as history shows, a quick cure — abandoning elected government for someone who promises to make the trains run on time — is often more pernicious than the disease.

At press time, the prognosis for Pakistan is unclear.

(c)1999 by Carl Hausman

When trading with a nation that some suspect of espionage, how far can — and should — a company go to ensure that its exports are not used for military purposes?

That’s the central question in this week’s lead story. In what appears to be one of the most significant recent cases involving export law, federal investigators have alleged that a Boeing Co. subsidiary, McDonnell Douglas Corp., circumvented export laws by selling machine parts to China, knowing — an indictment alleges — that they would be put to use in manufacture of military aircraft.

Boeing also figures in our second story, one of several entries dealing with workplace issues. We report on a discrimination suit against Boeing brought by a group of Asian employees, a sexual harassment suit against Ford, and a hostile-environment suit brought by college basketball players against a coach.

We have two stories this week from our litigation file: actions against Big Tobacco and against alleged telephone slammers.

Three reports this week focus on the media: the reversal of a verdict against ABC News in a suit by Food Lion, a new measure to protect the privacy of children who venture on line, and a report on the Denver television news departments that have won critical praise for their restraint in handling coverage of the Columbine massacre.

From the overseas commerce desk, we have reports on Italian antitrust enforcement and a story in which Reebok essentially blew the whistle on itself over conditions in its Indonesian manufacturing plants.

And from the science and technology file, we report on a medical organization’s condemnation of the patenting of medical procedures, and a newspaper’s claim that the New England Journal of Medicine does not follow its own ethical guidelines.

We follow with an interesting story about ethics and governance: The House last week passed a bill granting continuation of government medical benefits to disabled people who rejoin the workforce — but no one is yet sure how to pay for the measure.

Our report wraps up with several international stories of general ethical interest: allegations that a Canadian film studio falsely put names of Canadian writers on screenplays in order to qualify for government subsidies, a scathing report charging British charities with confusing donors about accounting practices, and the consequences of too many hours on the job in Britain.

We conclude with two “Whatever Happened to” follow-ups: insider trading charges against a Canadian software firm, and a dispute over defense contracts between the United States and Canada.

Have a productive, ethical week.

– Carl Hausman

WASHINGTON
A federal grand jury last week issued a 16-count indictment against Boeing Co., alleging that Boeing’s McDonnell Douglas Corp. unit knowingly sold state-of-the-art equipment to a Chinese company planning to divert the machinery to a military facility.

The grand jury also issued similar charges against a Chinese company, the first time such charges have been filed against a company run by the Chinese government, according to the Washington Post.

The allegations center on a collection of machine tools liquidated by Boeing during its takeover of McDonnell Douglas in 1994 and 1995, the Reuters news agency reported.

Federal investigators claim that McDonnell Douglas hid information indicating that the purchaser planned to send some of the equipment to a military installation where missiles and attack planes were manufactured.

Boeing denied the charges and pledged to fight them in court.

The Chinese government denounced the indictment as anti-Chinese propaganda, Reuters reported.

If convicted of the charges, Boeing and the state-owned China National Aero-Technology Import Export Corp. (CATIC) face up to $10 million in fines. Three individuals, two Chinese nationals and a McDonnell Douglas executive, named in the suit could face up to five years in prison.

“In the end, firms that sacrifice American security for profit must pay a price,” U.S. Customs executive Bonnie Tishcler said. “Even before the equipment left American soil, both firms knew it was military-bound.”

SEATTLE
Nine Asian workers last week sued Boeing Co. on charges that the company created a hostile work environment and discriminated against them based on their ethnicity.

The workers, who come from Pakistan, India, Iran, and Vietnam, say that they lost promotions and pay raises because of harassment and prejudice at Boeing, the Associated Press reported.

They also claim the company failed to stop workers and supervisors from making racist remarks.

The lawsuit comes on the heels of similar litigation finally settled by Boeing earlier this month, when the company agreed to pay $15 million to settle charges that it discriminated against its black workers.

Plaintiffs in the new lawsuit are seeking currently seeking class-action status.

CHICAGO
A federal judge ruled last week that two lawsuits charging Ford Motor Co. with sexual harassment and discrimination may be certified as a class action.

The decision permits up to 850 women to join lawsuits charging Ford with fostering a hostile work environment at two Chicago-area plants, where plaintiffs claim women were subjected to obscene drawings, comments, and gestures.

The decision comes as a disappointment for Ford, which had hoped to dispose of most of the litigation after signing a related $7.5 million settlement with the Equal Employment Opportunity Commission (EEOC) last month.

But U.S. District Court judge Elaine Bucklo last week ruled that the agreement did not go far enough in forcing Ford to comply with the terms and did not allow the plaintiffs enough voice in crafting the settlement, Reuters reported.

Ford spokeswoman Della DiPietro said the automaker would appeal.

Bucklo’s decision permits any of Ford’s female employees who opt out of the EEOC settlement to join the class-action litigation.

BOSTON
Three former University of Massachusetts women’s basketball players filed a $45 million lawsuit last week charging their former coach with creating a hostile and abusive environment.

The players, teammates during the 1997-98 season, say that coach Joanie O’Brien humiliated and yelled at them during practice and games, making the sport unbearable and ruining their college-basketball careers.

“This was a hostile environment and the university didn’t do a thing about it,” plaintiffs’ attorney Brian Woolf told the Boston Globe.

University of Massachusetts spokeswoman Kay Scanlan declined comment, saying that the university does not comment “on legal matters,” the Associated Press reported.

MIAMI
A Florida state appeals court ruled last week that a Florida jury has the right to levy what could be a colossal lump-sum damage award against Big Tobacco, a decision seen as a major blow for the industry, which had hoped to deal with a series of smaller trials rather than one gigantic class-action suit.

Last week’s ruling sets the stage for Phase II of Florida’s landmark class-action lawsuit against the tobacco industry, a suit waged on behalf of an estimated 500,000 smokers.

Last July, a Florida jury found the tobacco industry liable for creating a dangerous, harmful product, and defrauding the U.S. public about the health risks posed by cigarette smoking.

The same jury is now scheduled to take up the issue of damages on November 1, CNN reported.

Tobacco lawyers had asked that damages be assessed on an individual basis, smoker by smoker, which would slow down the process and help cigarette companies gradually absorb settlements.

Previously, the appeals court had ruled out a lump-sum award. But last week, the three-judge panel reversed its decision, clearing the way for an award that could reach upwards of $300 billion.

Arguing against a lump-sum approach, lead tobacco attorney Dan Webb warned the court that such a penalty could “cause huge irreparable harm … which could bankrupt the industry,” according to CNN.

Following the decision, prices of most tobacco stocks fell to 12-month lows, according to the Reuters news agency.

WASHINGTON
The Federal Communications Commission (FCC) last week proposed more than $2 million in fines against Denver-based Qwest Communications International Inc. for allegedly switching 30 people’s long-distance phone services without their authorization.

The process, known as “slamming,” is the chief source of written and phoned complaints to the Federal Communications Commission (FCC), which proposed last week’s fine against Qwest.

Over the past year, the FCC received 2,548 slamming complaints against Qwest and LCI International Telecom Corp., acquired by Qwest earlier this year, the Reuters news agency reported.

FCC investigators charged that Qwest falsified or forged documents in at least 22 cases. In one case, the FCC said, Qwest switched phone services based on a “signed authorization” from a customer’s dead dog. The customer had listed the phone in his dog’s name — Boris — for privacy reasons.

Qwest, which issued a statement promising to take “immediate action” to fix any complaints and punish those responsible, has 30 days to appeal or pay the fine, according to the Associated Press.

RICHMOND, Virginia
A federal appeals court last week threw out all but two dollars of what originally was a $5.5 million damage award against ABC News for its undercover taping of food-handling procedures at the Food Lion supermarket chain.

In a 2-1 decision, the court ruled that ABC did not violate a North Carolina law barring unfair and deceptive trade practices, since the network was neither a competitor nor intent on harming Food Lion.

Instead, the justices ruled, ABC was trying to benefit the public by exposing unsanitary procedures at the supermarket, according to ABC News.

The historic case began in 1992, when ABC News aired an exposé on Food Lion health practices. The show used hidden-camera footage obtained by undercover reporters posing as employees. ABC said the tape showed Food Lion employees mixing rotten and fresh meat, bleaching rotten meat to get rid of the smell, and re-dating expired products to go back on store shelves.

Food Lion sued ABC, but not on charges that that the allegations were untrue. Instead, the grocery chain complained that the network had used fraudulent methods to acquire the video footage.

In January 1997, a jury sided with Food Lion, awarding the company $5.5 million. That amount was later reduced to $315,000.

Last week’s ruling knocks the award down to nearly nothing, fining ABC only $2 on the basis that ABC’s reporters had defrauded the chain by using bogus résumés to obtain jobs that they never intended to keep, the Baltimore Sun reported.

Media groups praised last week’s decision as a victory for journalists’ First Amendment rights and as a repudiation of back-door methods to penalize news organizations.

WASHINGTON
Commercial Web sites catering to children will be required to obtain parental permission before collecting and disseminating information gathered from young users, the Federal Trade Commission (FTC) announced last week.

The new policy, implementing the 1998 Children’s Online Privacy Protection Act, received a surprisingly warm welcome from both the ecommerce industry and privacy-rights advocates, the Reuters news agency reported.

FTC chairman Robert Pitofsky said his agency’s job had been a difficult one — protecting both children’s privacy and companies’ commercial needs.

Pitofsky said the new policy “puts parents in control over the information collected from their children online” and is flexible enough to accommodate industry change, according to Reuters.

Starting April 21, 2000, the FTC will require Web sites to obtain a parent’s written, oral, or electronic permission, verified by a password or personal ID number, before collecting and selling their children’s data.

Sites that collect but do not disseminate children’s information must receive emailed parental permission.

The move follows an FTC survey showing that 89 percent of child-oriented Web sites collected and exchanged information on their users, while only one percent required parental consent, according to Reuters.

ROME
Italy’s antitrust agency last week announced that it was conducting a probe into alleged price fixing by the country’s gas stations and petroleum suppliers.

Consumer complaints sparked the investigation, which is focusing on nine firms, including Agip, Esso, Fina, and Shell, the Reuters news agency reported.

Officials say that the investigation, which has so far turned up no evidence of collusion, should conclude by May 2000.

CHARLOTTE, North Carolina
While television is often criticized for overly aggressive handling of breaking stories, three executives responsible for local coverage of the Columbine High School shootings said last week they bucked that trend.

“For the most part, we sort of put the competitive situation behind because we all wanted to see this come out the right way,” said Angie Kucharski of Denver’s KCNC-TV.

Kucharski and two other news directors from Denver, all women, spoke on a panel at a convention of the Radio and Television News Directors Association in Charlotte, the Associated Press reported.

The news directors explained how the rapidly unfolding situation last April demanded a focus on the needs of the parents, victims, and community.

“The magnitude of the story forces you to take that step back and say, ‘We don’t need to be wrong on this,’” Kucharski said.

While they made a few mistakes, the executives were widely praised for taking quiet steps to keep a handle on the volatile situation, including providing counseling for reporters, treating witnesses sensitively, avoiding inflammatory speculation, and coordinating coverage of Columbine’s reopening.

STOUGHTON, Massachusetts
Reebok International Ltd. last week made public a report detailing poor working conditions and corrective actions taken at the athletic shoemaker’s Indonesian factories.

The report, commissioned by Reebok, faults two of the company’s five Indonesian factories for poor communications with workers, health and safety lapses, and discrimination against female employees.

While many companies might be tempted to quash such findings, Reebok wants the report made public, Doug Cahn, vice president of Reebok’s Human Rights Programs, told the Reuters news agency.

“By sharing the report broadly, we hope it can have a positive impact” industrywide, Cahn said.

Reebok has spent $500,000 correcting structural and operational problems at the plants, even though the shoemaker does not own the facilities, the Associated Press reported.

The 14-month investigation, which gave researchers unfettered access to workers and company records, was conducted by Insan Hitawasana Sejahtera, a prominent independent research and consulting firm based in Jakarta.

TEL AVIV
Patenting medical procedures is an unethical practice that can harm patients and hinder progress, the World Medical Association (WMA) stated last week at its annual meeting.

In formalizing its opposition to medical-process patents, the WMA aligned itself with the American Medical Association and more than 80 countries that already prohibit such patents, the Reuters news agency reported.

Medical-process patents cover such items as specific surgical procedures and techniques. The WMA claims that allowing procedures to be patented could lead to shortages of physicians trained to do such procedures and higher costs for patients, according to Reuters.

LOS ANGELES
The prestigious New England Journal of Medicine has repeatedly violated its ethics policy banning researchers from reviewing products made by companies that fund the researchers’ work, the Los Angeles Times charged last week.

Eight of 36 articles in the Journal’s “Drug Therapy” series have been written by researchers with financial ties to products reviewed in their articles, the Times claimed.

Although the authors routinely informed the Journal of those ties, they were told that they did not need to disclose the relationships to readers.

That was a mistake, admitted the Journal’s interim editor in chief, Dr. Marcia Angell.

“We’re going to try to do the right thing and bring our practice into conformity with our policy,” Angell told the Times. “There was a misinterpretation of exactly what our policy was.”

The Times’ findings have prompted sharp criticism of the Journal, considered the world’s most respected medical publication, for lax enforcement of its ethics policy.