Ethics Newsline®

Donors to political campaigns want their money used to help their candidate win. That’s no surprise. But a new study by the Institute for Global Ethics’ Project on Campaign Conduct shows that those who give money to today’s campaigns are getting fed up with the tenor of modern politics. Donors want their candidates to win . . . but not at any cost, according to the results of the bipartisan survey. “Donors are more aware than the general public of the realities of political life, but they want to see their contributions used more positively,” explains Brad Rourke, director of the Project on Campaign Conduct.

For more information, see this week’s Research Report and its suite of links. A snapshot of the findings follows:

As the U. S. presidential election moves slowly forward, observers agree that the tone is becoming more positive than it was in the primaries. There’s less stridency, less attack, less nasty negativity.

Why? In part because a simple fact is sinking in: The public is fed up with negative, attack-oriented campaigns.

A new survey, released last week in Washington by the Institute for Global Ethics, helps make that case. (see this week’s Research Report.) The survey questioned 600 political donors in three categories — those who gave candidates $200 to $500, those who gave $500 or more, and those who donated to political action committees (PACs). The objective was to learn what they thought about the ethics of attack advertising.

Like its sister poll from the Institute last November, which asked similar questions to the general adult public, this one found a powerful pushback concerning such campaigning. Neither group likes it. Both think it needs reform. And both say they’ll reward candidates who don’t do it — the public with votes, and donors with money.

If I were a candidate, this news would make me sit up and take notice. Trim a few votes, after all, and I can survive. But ax my sources of funding? That’s serious, bottom-line stuff. What can I do to keep the big donors happy?

The Institute’s survey, conducted from April 25 to May 1 by pollsters Celinda Lake (Democrat) and John Deardourff (Republican), makes three things very clear:

1. Donors are on the candidates’ side. That should go without saying, since they give money. But more importantly, they’re not sniping in the background or cynically condemning the process. While 70 percent of the public agrees that candidates “can’t be trusted to do what’s right anymore,” 64 percent of the donors disagree. In fact, the more they give, the more they trust: $500-plus donors, as well as those who have contributed to a PAC, solidly disagree that elected officials don’t seem to believe in behaving with good ethics. In addition, donors have more faith than the general public that government can do things right. The message for candidates? Your donors like you. They believe in the process. They want you to win. So listen to what they’re saying about campaign ethics.

2. Donors think campaign ethics is in decline. Sixty percent of campaign donors, including a full two-thirds (67 percent) of PAC contributors, say campaign ethics have gotten worse in the last 20 years, compared to just over half of the general public (53 percent). In particular, donors to business PACs are particularly negative (71 percent) about the downturn of campaign ethics. Both groups think candidates are guilty of “twisting the truth” (54 percent of donors, 59 percent of the general public). And both groups feel strongly that negative attack-oriented campaigns are “wrong” (83 percent of the general public, 76 percent of donors). Message: “Wrong” means “unethical,” which is what your donors think of such campaigning. It’s getting worse. And they don’t like it one bit.

3. Donors will reward candidates who take the high ground. Some six in ten donors (61 percent) think a code of campaign conduct agreed to by candidates is a good idea. But they draw a sharp distinction between a code designed by candidates alone — which they don’t think would work — and one designed by candidates with the help of an independent, nonpartisan organization. And here’s the eye-opening payoff: Nearly half of all donors (48 percent) say they would be more likely to contribute to a candidate who signed a code of conduct, with only 12 percent saying they’d be less likely to contribute. Message: You want campaign dollars? Clean up your act, and we’ll be there for you.

There’s a naïve assumption afloat that to win you have to “go negative.” It’s long been contradicted by the research showing that, on balance, those who attack are more likely to lose. Now it’s also contradicted by the attitudes of those who know and like the political process enough to donate to campaigns.

Know a candidate in your district? Share this news. And urge them to remember one figure: 48 percent. That’s the number of folks who say they’ll give more to a clean campaign. Need a practical, no-nonsense, bottom-line reason to be ethical? Here it is.

(c)2000 by Rushworth M. Kidder

This week’s Newsline centers on the challenges modern businesses face as they struggle to make a profit while meeting the expectations of employees, customers, and a regulatory system empowered to impose stiff penalties when violations are uncovered.

Stories this week involve the treatment of workers, settlements, and corrective actions taken by companies accused of regulatory and legal malfeasance, and accounts of corruption by those entrusted with official responsibilities.

Our lead story reports on an announcement by the three largest U.S. automakers stating that they will extend medical benefits to the same-sex domestic partners of their gay employees. We also provide an update on Microsoft Corp. and its ongoing fight against the U.S. government’s efforts to break the company up — noting the firm’s resolve to fight on, and its firm belief that Microsoft will prevail in the appeals process.

Meanwhile big tobacco companies are back on the radar screen as Philip Morris announces its intention to stop placing ads in magazines that attract a substantial readership among teens.

A number of companies reached agreements last week to settle investigations and court actions involving charges ranging from sexual harassment and discrimination against employees to deceiving customers, bilking the government, and price rigging. We have five stories this week that report on substantial costs to companies resulting from official investigations related to such activities.

In a report filed by Canadian correspondent Errol P. Mendes, we learn about a scheme to offer Canadians the opportunity to make investments online using accounts maintained in the Cayman Islands, a location that is well known as a tax-haven. Another international story reports on the European Union’s efforts to bolster antidiscrimination policies among its member nations.

From the road, Newsline’s Carl Hausman reports that stories about corruption dominate the headlines in China, where he has been traveling in recent weeks. Officials have stirred up unrest and courts have generated controversy as Chinese officials grapple with a succession of incidents involving massive corruption.

– Philip Benoit

DETROIT
The nation’s three largest automakers announced late last week that they would extend healthcare coverage to the same-sex domestic partners of their gay employees — a move designed to make the companies both more inclusive and more competitive.

The decision by Ford Motor Co., General Motors, and DaimlerChrysler brings the Big Three into the ranks of roughly 3,400 other companies, including 93 Fortune 500 firms, that currently offer domestic-partner benefits to their gay employees.

Gay rights advocates called the announcement a major step forward. “This is a landmark announcement,” said Kim Mills, a gay rights lobbyist with the Washington-based Human Rights Campaign. “Never before have we seen virtually an entire industry announce domestic-partner benefits simultaneously,” she said.

“One factor is certainly the tight labor market,” Mills told the Associated Press. “There’s also the rise of openly gay employees within society generally and in the workplace, sitting down with managers and saying this isn’t fair….”

Ford vice president of human resources David Murphy agreed, citing both the job market and ethical considerations as reasons for his company’s action, according to an Associated Press report.

“The benefit is saying to employees and future employees, ‘Look, we are a diverse company and we do recognize not only race and gender but sexual orientation,’” Murphy told the AP. “…[W]e’re sending a signal about how inclusive the Ford Motor Co. is.”

According to Murphy, Ford expects coverage for domestic partners to add about $5 million to the $2.4 billion the company currently spends annually on health benefits.

The automakers’ decision follows their pledge to study the issue after last fall’s contract talks with the United Auto Workers union, which has lobbied for the domestic-partner benefits.

The new policy, covering nearly 500,000 workers at the firms’ U.S. facilities, provides medical, dental, and prescription benefits for employees’ same-sex partners. The policy is scheduled to take effect August 1.

WASHINGTON
A U.S. District Court last week split Microsoft Corp. into two companies. The ruling by judge Thomas Penfield Jackson imposed stringent restrictions on the company’s ability to develop new products and to work with business partners. Jackson said that force seemed to be the only way to make Microsoft behave fairly in the tech marketplace.

Microsoft immediately announced plans to appeal the judge’s ruling and to seek a stay of the District Court’s order that Microsoft says is needed to give the appellate courts an opportunity to consider the case before the decision takes effect.

Microsoft chairman Bill Gates said that “grievous and irreparable harm” will come to the company and its 35,000 employees and shareholders if the court-imposed restrictions go into effect within the stipulated 90-day period.

“This ruling says to creators of intellectual property that the government can take away what you’ve created if it turns out to be too popular,” Gates said. He expressed confidence that Microsoft will prevail in the appeals process, and said that employees will continue to focus on software development while its legal team works to resolve the issues involved in the case. “This is the beginning of a new chapter in this lawsuit,” said Gates.

Under the ruling, Microsoft will become two companies — one will produce Windows operating platforms, the other will focus on software applications, including Office and Internet Explorer. Microsoft executives will be barred from holding positions in both companies.

Jackson also ordered Microsoft to release control of the appearance of the Windows desktop screen, to “unbundle” Windows from Internet Explorer, and to open up portions of its source code to software programmers.

Jackson has indicated that he will fast-track the appeal to the U.S. Supreme Court, while Microsoft would prefer a hearing at the U.S. appellate level, which previously has favored Microsoft in the case. Analysts warn that the appeals process could take several years.

Jackson’s verdict, which follows a series of anti-Microsoft rulings as well as failed settlement talks, sets the stage for the largest break-up of a U.S. company since the 1911 dismantling of Standard Oil, noted the Washington Post.

The U.S. Justice Department and 17 states sued Microsoft in 1997, charging the company with using its 90-percent market lockhold on personal computer (PC) operating systems to force vendors into distributing Microsoft’s Internet browsing software.

The government argued that Microsoft’s tactics amounted to marketplace bullying that shut out competitors, stifled innovation, and ultimately left consumers with fewer options and poorer products.

After issuing his ruling, Jackson indicated that he would still prefer a less severe settlement between Microsoft and the government, reported National Public Radio.

Nevertheless, he defended his ruling, citing “credible evidence in the record to suggest that Microsoft, convinced of its innocence, continues to do business as it has in the past and may yet do to other markets what it has already done in the PC operating system and browser markets.”

Microsoft has until October 7 to submit a detailed plan for dividing its operations and assets, noted the New York Times.

WINSTON-SALEM, North Carolina
Tobacco giant Philip Morris last week said it would no longer advertise in magazines popular with young people — a policy change that will withdraw ads from 40 to 50 major magazines by September.

Philip Morris pledged to pull ads from magazines including Cosmopolitan, Elle, Entertainment Weekly, Glamour, Hot Rod, National Enquirer, Newsweek, People, TV Guide, and Vogue, reported the Reuters news agency. The company last month dropped ads from Rolling Stone and Sports Illustrated.

Philip Morris said it will no longer advertise in publications that boast more than 2 million teen readers, nor in publications with a teen readership of 15 percent or more, according to the Los Angeles Times.

The move follows two reports released last month showing a sharp jump in youth-magazine advertising by the nation’s cigarette makers, which were supposed to stop the practice under terms of their 1998 settlement with the states.

That settlement barred cigarette ads from billboards, stadiums, and shopping malls — as well as from magazines that boasted at least a 15 percent readership of people younger than 18, the legal age to smoke.

Last month, Massachusetts researchers warned that teen-magazine advertising by tobacco companies had actually jumped more than 30 percent since the settlement was signed.

The nation’s number-two tobacco firm, R. J. Reynolds, said it would not follow the Philip Morris company’s lead. RJR spokesperson Ann Smith, insisting that the company’s advertising policy complies with the settlement’s guidelines, downplayed the impact of advertising on smoking by young people. “Study after study has shown that peer and family influences lead kids to smoke, not the appearance of cigarette advertising in magazines,” said Smith.

Philip Morris, which also has criticized the current methodology, said it has urged regulators to establish an independent third-party method to more reliably measure youth readership, according to Reuters.

WASHINGTON
Twenty-two Hispanic women last week won a $1 million settlement from two companies accused of allowing male managers to engage in egregious sexual harassment against the women over a period of several years.

The women alleged they were groped, grabbed, demoted, fired, denied work breaks, confined, and assaulted by male managers while working at a soup and baked-goods plant in Maryland.

The women’s suit charged that, although the abuse was perpetrated by lower-level managers, company executives knew of the problems and did nothing to stop them, reported the Washington Post.

W.R. Grace & Co., which owned the plant until March 1996, agreed to pay $850,000 to settle the suit. Townsend Culinary Inc., which bought the plant and then closed it in April, agreed to pay $150,000.

The two firms initially blamed and sued each other over the women’s charges, but settled their complaints privately. Both companies denied any wrongdoing, characterizing the agreement as a “nuisance value settlement,” according to Townsend’s attorney.

The settlement was not so easily dismissed by Ida Castro, chairwoman of the U.S. Equal Employment Opportunity Commission, which argued the case on behalf of the women.

“We’re seeing a number of cases involving egregious discrimination, and they are on the rise against the migrant or immigrant workforce,” Castro warned in the Post report. “This case sends a clear message that wholesale violations of the civil rights of the most vulnerable work force — immigrant women in low-wage jobs — will not be tolerated,” said Castro.

NEW YORK
Morgan Stanley Dean Witter & Co. has subjected female employees “to a pattern and practice of discrimination because of their sex,” according to findings released last week by the Equal Employment Opportunity Commission (EEOC).

Morgan Stanley was accused of sexual discrimination in November 1998 by executive Allison Schieffelin, who filed a complaint against the investment brokerage with the EEOC, reported the Associated Press.

Schieffelin alleged that she and other female workers had been denied equitable pay, promotions, and hiring terms, and had been excluded from company functions because of their gender.

The EEOC filed last week’s letter of determination against Morgan Stanley after an 18-month investigation of the charges. According to the New York Times, the commission said it found evidence that supported Ms. Shieffelin’s charges that less-deserving men had been promoted while she remained in a lower-level position, and that Morgan Stanley had retaliated against her for filing complaints.

Morgan Stanley spokesman Ray O’Rourke said the firm “emphatically disagrees with the findings” and does “not practice or condone employment discrimination of any kind.”

Nevertheless, O’Rourke said the Wall Street firm was inclined to begin a mediated “conciliation process” to settle the complaint before it hits the courtroom as a potentially costly class-action suit, noted the AP report.

NEW YORK
Fashion house Donna Karan was named last week in a class-action suit charging the clothing designer with running New York sweatshops that have cheated workers out of millions of dollars in overtime pay.

The suit was filed by five women on behalf of roughly 300 fellow workers, most of whom are Chinese immigrants with little or no English skills, reported the Associated Press.

The women accuse their employers of forcing them to work 70- to 100-hour workweeks with no overtime pay in clear violation of U.S. labor law. Some of the workers also allegedly earned less than minimum wage.

While the women work for companies that only contract services with Donna Karan, their suit alleges that the fashion firm knew of the workers’ situation and low wages and did nothing to help, reported the New York Times.

Donna Karan issued a statement dismissing the women’s claims as “without merit” and insisting that the fault rests with the subcontracted firms. “We do not believe we should be held responsible for another company’s business practices over which we have no control,” the company asserted.

Last week’s lawsuit is the latest to charge Donna Karan and other popular designers with looking the other way while subcontractors operate sweatshops, noted the Associated Press. Last October, Donna Karan and several other firms settled similar charges regarding sweatshop conditions on the island of Saipan.

WASHINGTON
Telecommunications giant WorldCom last week agreed to pay $3.5 million to settle complaints that the company illegally switched consumers’ long-distance phone service without their permission — a practice known as “slamming.”

Under terms of the settlement, WorldCom agreed to pay $3.5 million, bolster penalties for employees who slam consumers, and provide credits to customers who complain their service was switched illegally.

Consumers filed 2,900 such complaints against WorldCom last year — more than against any other long-distance carrier, prompting a formal investigation by the Federal Communications Commission (FCC), reported the Los Angeles Times.

Last week’s settlement ends the FCC probe and adds to the $5 million already netted this year by the FCC in other anti-slamming actions, according to the Times.

WorldCom president and CEO Bernard Ebbers insisted his company has a “zero-tolerance policy for slamming” and that the incidents under investigation “were perpetrated by a few sales employees” who have since been fired.

WorldCom, formerly MCI WorldCom, may have had added incentive to settle the FCC investigation, observed the Times story. The company is awaiting FCC approval for its bid to buy Sprint Corp., the nation’s third-largest long-distance carrier.

WASHINGTON
Managed-care company Humana Inc. last week agreed to pay $14.5 million to settle charges that the healthcare firm double-billed the government for services supplied to consumers between 1990 and 1998.

The Justice Department had been investigating Humana for fraudulently classifying patients as eligible for both Medicare and Medicaid — a designation that effectively doubles the amount of money repaid to healthcare providers by the government.

Last week’s fine recovers the $11 million allegedly stolen by such misclassifications and overbilling, and slaps on a $3.5 million penalty, reported USA Today. The settlement also requires Humana to design a five-year plan to reduce the likelihood of such fraud in the future.

Humana, which did not admit any wrongdoing in agreeing to the settlement, says the deal was signed “to bring closure” to the issue, according to company spokesman Tom Noland.

Medicare is the federal program providing healthcare coverage for the disabled and persons over 65 years of age. Medicaid is the federal-state program providing assistance to the poor, the aged, the blind, and the disabled, explained the Reuters news agency.

BRUSSELS
The European Commission last week slapped Archer Daniels Midland Co. (ADM) and four Asian firms with fines totaling $104 million for rigging the global market for lysine, a widely used animal-feed additive.

ADM and the other companies — two from Japan, two from South Korea — ran a cartel that rigged prices, sales quotas, and market shares for lysine from at least 1990 until 1995, according to the Commission’s findings.

Illinois-based ADM, which was fined $45 million, took the heaviest hit of the five companies, partly because the firm refused to cooperate with investigators, reported the Reuters news agency.

In accordance with European Union antitrust laws, the other four firms had their fines reduced by 30 to 50 percent because they provided evidence or cooperated with the EC investigation.

Last week’s ruling follows a series of punitive actions against the five companies, which already have been fined nearly $111 million by U.S. and Canadian regulators for rigging the lysine market.

ADM did not immediately contest the EC ruling, but a spokeswoman said the company “plans to review its legal options,” noted the Reuters report.

BRUSSELS
The European Union last week adopted a set of proposals requiring its member nations to devise and adopt laws barring racial discrimination in the workplace, the marketplace, and the public service sector.

The EU’s unanimous decision is designed to make member nations’ antidiscrimination policies — fairly advanced in some nations, entirely lacking in others — more cohesive and fair.

The EU legislation includes a provision that dramatically shifts the burden of proof for workplace discrimination onto employers. From now on, companies accused of racial discrimination will be required to disprove the charges, not simply defend themselves, noted the BBC.

Last week’s legislation was followed quickly by a call to impose EU-wide restrictions on sexual discrimination. Similar legislation is expected later this year covering workplace discrimination based on age, religion, disability, and sexual orientation, reported the BBC.

Special to Newsline from Canadian correspondent Errol P. Mendes

TORONTO
The launch of an online service that offers Canadians the chance to do business with an offshore investing service located in the Cayman Islands — but with World Wide Web operations in Canada — has attracted the interest of the Canadian government according to a story in Toronto’s Globe & Mail newspaper. Securities regulators and tax officials have expressed concerns about the offer of a company called TradingOffshore.com, Ltd. to provide “tax-free trading” for Canadian investors.

In a press release, the company states that it is “the first onshore/offshore online securities trading company to offer clients real-time execution of trades in the Cayman Islands with no direct taxation.”

Backed by the private Swiss Bank, Omnicorp Trust Co., the service operates as a Web site that is hosted on computers located on a Mohawk Indian reserve just outside of Montreal. The company says it will offer Canadians real-time trading of shares but with no direct taxation as all investors’ monies will be held in offshore accounts in the Cayman Islands.

The Quebec Securities Commission (QSC) says it will try to block the service, according to the Globe & Mail. QSC spokesman Denis Dubé said the commission will “take any action that’s possible to stop this kind of business.”

The company claims that it need not seek regulatory approval from Canadian securities authorities because trading takes place in the Cayman Islands. The QSC, however, says the company has to be registered because the Web site is located in the province on the Mohawk Kahnawake reserve.

The press release issued by TradingOffshore.com promises “strict confidentiality, privacy, and security,” implying that client records will not be disclosed to Canadian authorities. The Internet service provider that hosts the site, Mohawk Internet Technologies, has denied that it would assist in contravening any Canadian tax laws.

Meanwhile, Canadian tax authorities point out that such offshore investing accounts are not legitimate methods of avoiding taxation because the income of Canadian residents is subject to taxes no matter where it is earned, and the law requires that it all be reported. Not to do so constitutes tax evasion according to Canadian tax authorities.

Special to Newsline from Carl Hausman in south China

GUANGZHOU, China
Press reports here indicate that the government is stepping up investigations of alleged corruption related to the construction of the Three Gorges Dam in Central China.

The latest controversy centers on charges that officials responsible for resettling residents displaced by the massive dam project here embezzled more than $481,000 in resettlement funds.

The South China Morning Post reports that the new investigation comes as critics of the project warned of possible unrest by peasants displaced by construction of the dam and angered by the reports of corruption.

So far, the government has brought various corruption charges in more than 140 cases related to the dam project. Those punished so far include Huang Faxiang, a land maintenance official in Fengdu County, who was executed early this year for embezzlement of about $1.2 million.

The South China Morning Post also ran a page-one story about a high-profile case involving a Hong Kong couple. The case tests the legality of cross-border searches by mainland police. The Post reported that Su Zhi-Yu was given a life sentence and Kam Shuk-Ya received a 15-year term for allegedly pocketing half a million dollars from a state-owned company.

The Hong Kong case is attracting nationwide attention not only because it is the latest in a series of major corruption cases, but also because the judge in the case allowed the introduction of evidence defense lawyers said was seized by mainland police who were not given jurisdiction in Hong Kong when the island nation was reunited with mainland China last year.

Special to Newsline from Brad Rourke, director of the Project on Campaign Conduct:

WASHINGTON
Donors to political campaigns share the public’s concern about campaign ethics and tactics and believe the situation has grown worse in recent decades. This may come as no surprise to readers of Business Ethics Newsline, themselves frequently members of the business community who so often are approached for both “hard” and “soft” money donations to political candidates and PACs. Now there is data to back up the growing sense of revulsion with what that money supports.

The finding comes from a first-of-its-kind survey of political contributors released Thursday by the Project on Campaign Conduct, an initiative led by the Institute for Global Ethics.

The bipartisan survey, conducted for the Institute by the polling firms of Lake Snell Perry & Associates and Deardourff/The Media Company, provides a snapshot of donor attitudes toward campaign ethics and tactics and draws comparisons and distinctions between donors and the public at large, as well as differing attitudes among different types of donors.

The survey shows that, while campaign donors are less cynical about politicians and the electoral process than the public, they are still quite skeptical of politicians’ motives and ethics, and voice strong support for cleaning up campaigns. Specifically:

• Seventy-six percent of donors believe negative, attack-oriented campaigns are wrong.
• Sixty percent say ethics and values in campaigns have worsened in the past 20 years.
• Fifty-four percent of donors say candidates for elected office twist the truth.
• Nearly half of all donors (48 percent) would be more likely to contribute to a candidate who publicly signs a code of conduct.

“When even the people who fund campaigns voice serious concern about the tenor of campaigns and call for reform, it is clearly time for a change,” said Brad Rourke, IGE’s vice president for public policy and director of the Project on Campaign Conduct. “Donors are more aware than the general public of the realities of political life, but they want to see their contributions used more positively.”

“The political machine triumphs because it is a united minority acting against a divided majority.”

– Will Durant (U.S. educator and writer, 1885-1981)