Ethics Newsline®

As U.S. businesses become increasingly dependent on technology, the demand for young, tech-savvy workers is booming, too. According to a new report, businesses are going to ever-greater lengths to woo such workers, including relocating their operations to areas where the pool of workers is deeper. In the process, some local economies — specifically, those that serve as homes to the tech sector — are getting a boost. A snapshot follows:

When a Russian nuclear submarine exploded and sank August 12 in the Barents Sea off Norway, it left no survivors. It did, however, leave a string of unanswered questions.

Did the Kursk ram another sub? Did it trigger a leftover World War II mine? Did it collide with a submerged object? Was it the victim, as Chechen rebels claim, of a suicide bombing by a crewmember from the Caucasus? Was it testing a new-style torpedo that exploded before leaving the tube? Were there mechanical problems on board?

We may never know which is nearest the truth. What is known is the nature of the official response after the tragedy. In eerie repetition of Soviet stonewalling following the Chernobyl disaster in 1986, the Russian military let two days pass before announcing the sinking. Only after four days did they accept British and Norwegian help for the rescue. And only after five days did President Putin interrupt his Black Sea vacation to respond.

By the time Norwegian divers opened the escape hatch on August 19, there were no survivors among the Kursk’s 118 crewmembers. Would quicker action have saved lives? Unless further investigation confirms that all died in the explosion, it’s not unreasonable to assume that time was of the essence.

How, then, to account for the delay? Among the possibilities, three rise to the surface:

1. Moscow was protecting military secrets. Norwegian rear admiral Einar Skorgen, in an interview with a Norwegian newspaper, said that Norway almost called off the rescue effort because of “wrong details and disinformation” from the Russian military. Only when he used a military hotline to phone the commander of Russia’s northern fleet, admiral Vyacheslav Popov, did the Russian military begin to budge. No doubt the sub was loaded with spying equipment. Had it been examined by the rescuers, Russian security might have been compromised. Were choices being made to give secrecy a higher priority than humanity? In wartime, when breached security might cause additional deaths, a moral case can be made for such sacrifice. In post-Cold War peacetime, there’s no ethical defense for valuing machinery above men.

2. Moscow didn’t think a rescue effort was important. This possibility, more troubling, suggests that the military is routinely viewed as expendable. Unfortunately, reports from Russia of dismal military housing and inadequate pay — or of no pay at all — suggest entrenched attitudes about military personnel. Such Soviet-style thinking reminds us of the grim footage from Chernobyl. Shot by a television crew from Kiev that later died from radiation exposure, it shows soldiers dressed only in serge uniforms sent out to shovel away blocks of graphite so hot that the radioactivity had already disabled the robotic tractors sent out earlier to do the job. This interpretation, unlike number one above, suggests not a bad ethical choice but no interest in choosing at all — an atmosphere of amoral indifference to human life.

3. Nobody wanted to take responsibility. This, the worst of options, is hardest to repair. Routinely, when asked to identify the core values making up a code of ethics, participants in our seminars all around the world put “responsibility” near the top of the list. Real leadership demands that those in command are accountable — that they take charge, exercise authority, and open themselves to the possibility of blame. But when the ethics of a culture creates the expectation that the blameworthy will (at least figuratively) be beheaded, who will lead? If the new Russia is still caught in old thinking about bureaucratic infighting and career-sinking miscalculations, how is responsibility to be taught and modeled? Here the blame rests not on individuals but on a culture of irresponsibility void of ethics.

Is any of these interpretations true? As with the explosion on the Kursk, we may never know. Whatever truth they hold, in any case, is true not only for Russia. Even the most advanced democracies struggle against the mindsets of secrecy, indifference, and irresponsibility — though perhaps at lower levels of intensity. The lesson? You can’t build a genuinely ethical culture until you value lives over things, care enough about people to interrupt your routine in emergencies, and build a climate of responsibility.

(c)2000 by Rushworth M. Kidder

What is the price to be paid when the public loses confidence in an organization’s ethics? While a precise figure is impossible to quantify, the loss of public trust must certainly have an effect on the bottom line.

Our top stories this week deal with instances where companies face crises of confidence: a carmaker that admitted it hid defects from regulators, and the pension arm of a major bank that reports losing over a billion dollars in business after public disclosure of stock manipulation by the firm’s traders.

Next, three reports about ethics-related litigation: a software firm loses a major wrongful-termination case, a sweepstakes firm agrees to a settlement over a deceptive-practices suit, and an oil company settles an air-pollution case for $7 million.

From the media ethics file come three stories: U.K. web sites are ordered to stop dispensing financial advice, the FCC warns U.S. broadcast outlets they may lose their licenses if they air death threats, and a panel accuses the South African media of institutional racism.

We follow with an interesting item dealing with animal rights: McDonalds decides that poultry deserve a break and orders its egg suppliers to improve treatment of their hens.

And we conclude our wrap of the week’s news in ethics with a follow-up from the “Whatever Happened to” file about the continuing problems faced by the scandal-plagued Cinar Corp.

Have a productive, ethical week.

– Carl Hausman

TOKYO
Mitsubishi Motors last week confessed to covering up mechanical defects in vehicles sold in Japan for more than 20 years, a revelation that could cost the company millions in repairs, billions in penalties, and an even heavier toll in consumer confidence, analysts warn.

Mitsubishi admitted it had concealed up to 80 percent of consumer complaints since 1977, hiding the reports in such places as employees’ lockers and changing rooms to keep them from inspectors. Computer records of the complaints were coded with the letter “H” for the Japanese words for “conceal” or “defer,” the New York Times reported.

Mitsubishi president Katsuhiko Kawasoe said last week that the company had systematically and deliberately deceived safety regulators to avoid public humiliation from exposure of the defects.

Apologizing to consumers, Kawasoe said he will dock his and other executives’ pay, and will submit the company’s production facilities to quality-control oversight by an independent body.

Last week’s announcement was accompanied by a recall of more than 600,000 Mitsubishi vehicles susceptible to brake, chassis, fuel tank, and engine part defects. The problems have been linked so far to three minor accidents in Japan, but no fatalities.

The admission drew sharp criticism from industry analysts and government regulators, who say the company’s efforts to save face will cost them consumers’ trust and confidence, the Times reported.

But analysts also say that some of the blame should be shouldered by the Japanese government, which they claim performs minimal inspections designed to absolve regulators of nominal responsibility when defects are found, according to the Los Angeles Times.

Mitsubishi’s recall follows a spate of national recalls, and comes roughly one week after Japan’s Bridgestone Corp. announced the recall of 6.5 million tires in the United States.

In Japan, where businesses have long boasted of superior product quality, the series of quality-control failures has taken a toll on corporations’ reputations, noted the Times.

“I think clearly when you look at the bigger picture, Japan is losing confidence, strength, and momentum,” Merrill Lynch analyst Takako Nakanishi told the Times. “We have very poor political leadership, and many Japanese feel the country is losing its shine.”

Special to Newsline from Canadian correspondent Errol P. Mendes

TORONTO
The Globe & Mail is reporting that new CEO of Royal Trust, Michael Wilson, a former Canadian finance minister, has revealed that the company lost $680 million in pension accounts because of concern about the ethical behavior of the corporation’s traders who were charged with stock manipulation by the Ontario Securities Commission.

The losses amount to about 3 percent of the $26 billion in pension accounts managed by Royal Trust at the end of June 2000 when the scandal broke.

However, Mr. Wilson also pointed out that the corporation had also picked up 10 new clients with a total of $170 million over the same period.

SAN FRANCISCO
A San Francisco jury last week ordered Oracle Corp. to pay $2.6 million dollars to a former executive fired after she warned her boss that the firm may have stolen software secrets from a competitor.

Sandy Baratta, a former vice president at Oracle, was fired in April 1999. She said the termination came one day after telling her boss, Gary Bloom, that she believed Oracle engineers had stolen technology from German competitor SAP when developing an Oracle product, reported the San Francisco Chronicle.

Baratta, who was five months pregnant at the time of her dismissal, sued Oracle for wrongful termination, as well as for disparaging comments allegedly made by Bloom about other pregnant executives before he knew Baratta was pregnant.

The jury found for Baratta on all counts, ordering Oracle to pay roughly $2 million in canceled stock options, $300,000 in lost wages, and $200,000 for emotional distress. No punitive damages were awarded.

Oracle promised an appeal, insisting that Baratta was fired for mistreating her staff.

Oracle has recently become entangled in legal fights over stock options with two other former executives, former executive vice president Randy Baker, and Pier Carlo Falotti, former head of Oracle’s European, Middle Eastern, and African operations.

Baker claims he was unjustly fired six months before his stock options, worth $16 million, were to vest, while Falotti says he was unfairly fired while on sick leave just four days before his $10 million in options were to vest, reported CNET News.com.

CNET notes that Oracle’s recent legal battles — all of which center primarily on stock options taken away from former executives — may force companies to rethink the practice of granting employees the now-common perquisite.

NEW YORK
Publishers Clearing House (PCH) last week agreed to pay $18 million and institute widespread reforms to settle charges filed by 23 states and the District of Columbia that the sweepstakes firm routinely deceived customers.

Central to the states’ claims is the debt accumulated by customers who purchased magazine subscriptions from PCH in the mistaken belief that doing so would better their chances of winning.

“We believe that this agreement will help put an end to the horror stories of consumers, especially seniors, buying thousands of dollars in magazine subscriptions that they don’t need and can’t afford in the mistaken belief it will help them win a grand prize,” New York attorney general Eliot Spitzer said.

PCH insists it has never misled consumers, but agreed to prominently advertise the no-purchase-necessary principle, as well as call consumers spending large sums on subscriptions to make sure they understand.

The settlement also requires PCH to stop using simulated checks and its “You are a Winner” slogan unless the company gives equal prominence to the contests’ requirements and qualifying conditions, the Associated Press reported.

Settlement funds will be divided by the states for redistribution to people who have spent more than $2,500 on magazine subscriptions sold by PCH between 1997 and 1999.

PCH executive and general counsel Bill Low denied any wrongdoing, insisting that the company’s “mailings have always been clear…. Nevertheless, prolonged litigation is very expensive and no company can withstand separate proceedings with so many states.”

Along with the District of Columbia, last week’s settlement covers claims filed by Alabama, Alaska, California, Georgia, Hawaii, Idaho, Illinois, Louisiana, Mississippi, Montana, Nebraska, Nevada, New Hampshire, North Dakota, New Mexico, New York, Ohio, Oklahoma, South Carolina, South Dakota, Virginia, Washington, and Wyoming.

LOS ANGELES
Chevron, the nation’s second-largest oil company, last week agreed to pay $7 million to settle claims that it violated the Clean Air Act by releasing pollutants at one of the company’s offshore petroleum transfer terminals.

The settlement includes $1 million earmarked for equipping the transfer terminal with valve components that reduce pollution, and a $6 million fine — the largest ever assessed for Clear Air Act violations at a single facility.

The agreement also bars Chevron from using the terminal, situated off the California coast near El Segundo, until it agrees with the Environmental Protection Agency on a plan to cut emissions, the Associated Press reported.

Chevron agreed to the settlement while continuing to deny wrongdoing. “Chevron operated in good faith and thought it was in full compliance with appropriate air emission rules,” spokesman Gary Yesavage said in a statement.

LONDON
U.K. Web sites were warned last week to steer clear of publishing stock tips for users unless the sites had regulatory approval for giving financial advice.

Last week’s warning was directed at such sites as Sharepages.com, which had begun republishing investment ideas culled from the nation’s newspapers, the BBC reported.

The Financial Services Authority (FSA) says the crackdown is designed to keep unqualified firms from leading investors astray. “It all boils down to consumer protection,” an FSA spokeswoman told the BBC.

Sharepages.com, which posted a notice to users explaining the demise of its stock-tips round up, said it will challenge the FSA rule, arguing that its republished tips were already in the public domain.

Newspapers are exempt because the ban on unlicensed advising only applies to businesses that are primarily devoted to dispensing financial advice.

The FSA says it will consider the issue on a case-by-case basis, and will work with the Treasury department to draft regulatory guidelines clarifying the rules for Web sites wanting to spread stock tips. That legislation is expected to be completed by next July.

WASHINGTON
U.S. broadcasters must keep death threats — whether serious or made in jest — off the air, or face possible revocation of their licenses, Federal Communications Commission regulator Gloria Tristani warned last week.

Tristani’s admonishment follows two recent on-air death threats, one made in jest by a CBS television show against presidential candidate George W. Bush, the other made against vice-presidential candidate Joseph Lieberman on radio shock-jock Howard Stern’s program.

Following the CBS parody, which featured a picture of Bush captioned with “Snipers Wanted,” Tristani said her office had been barraged with complaints from viewers outraged by what she called the “irresponsible” broadcast.

In the wake of the parody gone awry, which appeared on “The Late Late Show with Greg Kilborn,” CBS issued repeated apologies for airing the “inappropriate and regrettable” graphic, the Reuters news agency reported.

Such apologies may not be sufficient, Tristani warned, saying that broadcasters are obligated to steer far clear of any messages that implicitly endorse violence “against those with different opinions.”

Viewers believe “violence suggested on television too easily and too often becomes violence accepted,” Tristani told APBnews.com.

“Calls for voluntary codes of conduct are changing to calls for enforceable regulatory standards,” Tristani wrote in a letter to CBS following the incident.

But some free-speech advocates say the Commission is overzealous. Paul McMasters, First Amendment ombudsman for the Freedom Forum, told APBNews.com that, “to presume that either CBS or the Howard Stern show, or any of these others, are soliciting violence against an elected official or encouraging violence in general is an awfully big stretch.”

JOHANNESBURG
South Africa’s media is rife with racism both in the style of reporting and in the industry’s predominately white staffing, issues that should be addressed voluntarily by the industry or by legislation to correct the problem, a panel studying the issue said last week.

Wrapping up a two-year investigation, the South African Human Rights Commission said it had found that blacks are consistently portrayed unfavorably by the nation’s newspaper, radio, and television journalists.

While overtly racist comments are rare, the Commission said that news coverage routinely characterized blacks as criminal, irrational, and incompetent, the Associated Press reported.

“South Africa’s media are racist institutions,” charged Commission chairman Barney Pityana.

The Commission says its findings should prompt journalists to voluntarily address the issue and draft a strict code of conduct — or face regulations imposed by the government, noted the AP report.

While some press groups in South Africa agreed that there may be substance to some of the charges, most cautioned against tightened government regulation of news.

CHICAGO
McDonald’s Corp. last week said it will require its egg suppliers to improve conditions and treatment of their caged hens or lose their contracts with the fast-food giant.

Under McDonald’s new rules, egg suppliers are barred from engaging in “forced molting,” a widely practiced process of boosting egg production by withholding food and water from the birds for up to two weeks.

Egg suppliers must also phase out the practice of clipping hens’ beaks, and enlarge hens’ cages from the current industry standard of 40 square inches to a minimum of 72 square inches, which McDonald’s says will permit the birds to lie down.

McDonald’s, long the target of criticism from animal-rights groups, says it hopes the new rules will push other fast-food chains to insist on more humane treatment of animals by their suppliers, according to the Reuters news agency.

“The bottom line is that when McDonald’s speaks, people tend to listen because of our massive purchasing power,” company spokesman Walt Riker told Reuters. “Our suppliers understand where we’re going with this and the ones who want to come along can come along. We suspect they will.”

Animal-rights groups welcomed the new rules, but said the new cage size — less than the surface area of a letter-sized piece of paper — is still too small for the birds to stretch their wings.

Special to Newsline from Canadian correspondent Errol P. Mendes

MONTREAL
Cinar, the renowned Canadian animation company which is now fighting for its life after several ethics scandals involving allegations of fraudulently obtaining government subsidies and the inappropriate investing of corporate funds, is facing a challenge from the founders of the company, Micheline Charest and Ronald Weinberg.

Charest and Weinberg, who were formerly the joint CEOs of the company but stepped down from those positions earlier this year, were dismissed from the board of directors by the rest of the board last week.

However, the couple, who still control 62 percent of the voting shares of the company, say they will not step down unless the rest of the board also resigns and a new slate of directors is appointed.

The company’s shares have not been traded since March 2000 and have dropped 70 percent in value.

The couple’s lawyer has stated that as Charest and Weinberg still control the majority of shares, they could theoretically call a shareholders’ meeting and vote in a new board of directors if they chose to.

From American Demographics:

“America’s young, skilled, tech-savvy workers are more likely to switch cities and regions in search of better financial and lifestyle opportunities created by the Internet economy, according to American Demographics magazine. This trend — involving some of the nation’s most desirable consumer and worker groups — is reshaping regional markets, creating new kinds of communities, and influencing companies that seek to reach these young technocrats.

“‘Movement at Warp Speed,’ an analysis of census data in the August issue of American Demographics, shows that a third of all people in their 20s changed residences in 1997, according to the Census Bureau’s recently released 1998 Current Population Survey. Where are they going? To regions across the country that have technology-heavy employment opportunities. In the past two decades, metro areas with technology-intensive employment have economic growth that vastly outpaces the United States at large. Taking into account employment growth and earnings per job, NPA Data Services estimates that from 1969 to 1998, the United States as a whole had an average annual economic growth rate of 2.6 percent. San Jose, however, averaged 5.0 percent, and Raleigh-Durham, Austin, and Fairfax County averaged 5.5 percent, 7.2 percent, and 8.0 percent, respectively, over the same period.

“‘Savvy Internet and high-tech companies are following the migration trend to these economic centers to seek out and employ skilled workers,’ said Seema Nayyar, editor of American Demographics…. Some high-tech firms are even considering the lifestyle choices of key employees when deciding where to set up their companies.

‘The growth of these tech-heavy economic centers has huge implications not only for high-tech businesses, but also for regional economies,’ Nayyar says. ‘Well-paid New Economy workers can attract a variety of businesses that were non-existent in an area’ prior to the rise of a technology business center, such as North Carolina’s Research Triangle Park. The park’s 43,000 employees have attracted high-end retailers, a multicultural restaurant base, and many more businesses to the region. Nayyar noted that regions must ‘make an effort to attract a skilled workforce — and the companies that employ them — in order to realize the economic benefits that they bring along….’”

“The greatest want of the world is the want of men — men who will not be bought or sold; men who in their inmost souls are true and honest; men who do not fear to call sin by its right name; men whose conscience is as true to duty as the needle to the pole; men who will stand for the right though the heavens fall.”

– E. G. White (U.S. religious leader, 1827-1915)

The percentage of U.S. job applicants lacking requisite reading, writing, and math skills is rising, according to a report from the American Management Association (AMA). The study finds that as more firms (43 percent in 1999) test applicants for required skills, more workers are coming up short. See this week’s Research Report for suggestions from the AMA on how businesses can best tackle the problem. A snapshot of the study’s findings follows.

One of our top stories in this week’s news update deals with some good news: Workplace deaths are declining across the board in the United States.

This may fly in the face of perception. For example, despite recent headline-grabbing incidents, workplace homicides have actually declined 40 percent over the past six years.

But these statistics don’t tell the whole story. Other recent surveys and studies show a statistical upswing in stress levels on the job, as well as incidents such as shoving, bullying, and harassment. A Yale University survey of about 1,000 workers showed 25 percent saying they are “generally at least somewhat angry at work.” A study from a large security firm indicates that workplace violence remains the top worry of corporate security directors. And several recent studies demonstrate that working hours and demands for productivity in the United States and many other nations are at an all-time high.

So even though there was a welcome statistical dip reported last week, any observer who sticks a finger in the wind of the modern workplace senses a gathering lightning storm of stress.

What’s happening? Why is the workplace crackling with tension? Many feel the booming economy has a dark side.

In a recent Associated Press article, workplace stress expert Mark Braverman summed it up well. “Workplaces,” he says, “are real pressure cookers. Employers are having to do more with less. The pressure for productivity is enormous. I think definitely people have shorter fuses.”

Observers also note that the changing character of the workplace stokes tension. Jobs involving use of high-tech equipment are frequently cited as stressful, for various reasons, including the impersonal nature of the high-tech work, where employees often work in isolation and may in fact have had very little experience in team-oriented, cooperative ventures. Also, the computer is a demanding and fickle taskmaster. A morning’s email may contain fifty requests for action or information. And as anyone who works with digital technology is quick to realize, the programs are often counterintuitive, frustrating, and unforgiving.

But the fact of the matter is that the new workplace is here to stay, and that makes the issue an ethical one.

As Braverman notes, beefing up security to head off violent incidents isn’t enough. Employers, he says, are obligated to seek out the root causes of stress and demonstrate their concern.

(c)2000 by Carl Hausman

How far is a company obligated to go in order to protect the safety of customers and employees? That may be the most basic of all business ethics questions, and we address it in our three top stories this week. We lead with an update on the SabreTech case, followed by a report on declining workplace deaths, and a call from a British watchdog group for closer monitoring of workplace diseases and illnesses.

Next, we have two reports dealing with the ethics of idea ownership: a ruling that Walt Disney Co. stole the ideas of a pair of businessmen, and a suit brought on behalf of freelance authors who claim online databases profit from their articles without compensating the writers.

We follow with two stories from the bioethics file: a Canadian government statement of opinion following a court ruling that animals apparently can be patented under Canadian law, and a call for expansion of cloning research in Britain.

And from the financial desk come three reports: the U.S. government closes a tax shelter, British investors call for linking CEOs’ pay to long-term performance, and the resignation of one of Canada’s most flamboyant CEOs.

Have a productive, ethical week.

– Carl Hausman

MIAMI
Airline maintenance contractor SabreTech was ordered last week to pay $11 million for improperly stowing hazardous cargo aboard ValuJet Flight 592, leading to a crash that killed 110 people in 1996.

Last week’s verdict — $2 million in penalties and $9 million in restitution to victims’ families — follows SabreTech’s conviction last December on nine criminal counts related to the crash.

During the criminal trial, SabreTech was found guilty of inadequately packing and illegally stowing 144 out-of-date oxygen generators, which are used to supply air to passengers during a loss of cabin pressure.

Instead of using three-cent safety caps when stowing the canisters, SabreTech workers cut, tied, or taped the canisters’ activating pull strings, according to the Miami Herald.

Investigators believe those improvised safeguards failed, igniting the canisters and triggering an explosion that killed the plane’s passengers and crew, according to the Herald.

SabreTech also was convicted of inadequately training its workers, and failing to mark the canisters as hazardous cargo, a designation that would have prevented ValuJet from carrying them aboard a passenger airplane.

A federal investigation of the crash split the blame among SabreTech, ValuJet, and the Federal Aviation Administration, which it accused of lax oversight of discount airlines, according to the Associated Press.

Senior U.S. judge James Lawrence King stopped short of fining SabreTech as severely as prosecutors had hoped — a move some analysts suspect was due to the company’s bankrupt status and the $262 million in civil settlements already paid by SabreTech and its insurers, noted the Herald.

SabreTech, the first aviation firm convicted of criminal charges related to a commercial jet crash, still faces a record $2.25 million federal fine as well as 110 counts of third-degree murder and 110 counts of manslaughter in a trial set for October.

The company says it will appeal last week’s ruling.

WASHINGTON
Workplace deaths in the United States last year declined to their lowest mark in seven years, with 6,023 employees losing their lives while on the job in 1999, according to government statistics released last week.

The U.S. Labor Department says the 1999 figures — an average of nearly 17 workplace deaths each day — are the lowest since 1992, the year the government began tracking on-the-job fatalities.

In 1999, vehicular deaths and work-related falls claimed the most lives, followed by workplace homicides, which have declined 40 percent over the past six years, according to a Labor Department press release.

While the seven-year low in workplace deaths is welcome news, Labor Secretary Alexis Herman cautions that much more progress needs to be made.

“We are experiencing one of the longest periods of sustained prosperity that our nation has seen. Protecting the workers who have helped to make this historic prosperity possible” must remain a top priority, Herman urged. “No workers should have to sacrifice their lives for their livelihoods.”