Ethics Newsline®

A new survey of Fortune 1000 companies identified the following top 10 security threats, in rank order:

1. Workplace Violence
2. Business Interruption/Disaster Recovery
3. Terrorism (Global and Domestic)
4. Internet/Intranet Security
5. Employee Selection/Screening Concerns
6. Fraud/White-Collar Crime
7. Unethical Business Conduct
8. General Employee Theft
9. Property Crime (external theft/vandalism)
10. Drugs/Alcohol in the Workplace

Source: Pinkerton Consulting & Investigations 2002 report, “Top Security Threats and Management Issues Facing Corporate America.”

On May 21, when FBI agent Coleen Rowley fired off her now-famous whistle-blower memo to Director Robert S. Mueller III, moral courage was greatly enriched.

On May 24, when Sandra Baldwin resigned as president of the United States Olympic Committee (USOC), moral courage took a severe hit.

And last August, when Enron vice president Sherron S. Watkins sent her letter to her boss, Kenneth L. Lay, moral courage was confused.

Three women, three examples of whistle-blowing. What do they teach us?

Start with the latter two. Ms. Baldwin — no longer “Dr. Baldwin” — precipitously left the USOC after learning that a reporter was about to blow the whistle on some fatal discrepancies in her résumé. Why? Because the doctorate she claimed to have earned from Arizona State University in 1967 had never been awarded, for the simple reason that she never finished her dissertation.

By all accounts an effective executive, Ms. Baldwin was no newcomer to the Olympic organization. Moving up the ranks through treasurer and vice president, she had ample time to understand the high-profile nature of Olympics work before her election in 2000 as the USOC’s first female president and chair. But by then the biographical lie had lain unchallenged for so long that confession would have been terminal. Lesson 1: The windows of opportunity for moral courage open and then close. In the 1960s, she needed the courage to correct whatever misimpression was lodged in her credentials. By 2002 that window was bolted shut. Conclusion: Don’t imagine you can postpone moral courage and pick it up later. Moral convenience is not moral courage.

Ms. Watkins was different — sort of. In the letter to Enron’s boss, she described herself with chilling prescience as “incredibly nervous that we will implode in a wave of accounting scandals.” Her words were intended as a wake-up call. But she sent the letter anonymously. She positioned herself carefully to retain her place in the firm (and her benefits from the prior rise in Enron’s stock value) by seeking to share only her concerns, not her identity.

In the next few months, hundreds of employees were left with pensions worth little more than the damp rubber of a popped balloon. Had she gone public in August, how many might have salvaged more? Was this real whistle-blowing? Or was this but a faint squeak on a thin reed? Lesson 2: It matters not only that you blow the whistle but where and how you blow it. Do it privately, with little danger to your own prestige or pocketbook, and that’s not moral courage. Question: How much did Ms. Watkins really risk by her actions? So how little moral courage did she need? The answer remains confused.

No confusion swirls about Ms. Rowley. As the general counsel to the FBI’s Minneapolis office, she agonized for three sleepless nights before firing off a lengthy and impassioned memo to her boss about the Bureau’s failures regarding the 9/11 attacks and its handling of Zacarias Moussaoui, the so-called “20th hijacker.” An agent for 21 years, she knew the danger of criticizing superiors; she had seen agents put out to pasture for far less. But she felt the need to help the Bureau correct its course — and to protect her own four children and the U.S. public from future attacks.

Lesson 3: When the moment comes, go public with your concerns and your identity — not for self-aggrandizement, but for the good of the entire community. Use strong and principled arguments. Be cognizant of risks. And be willing to face the consequences without hedging yourself against them. In those three elements — commitment to principle, awareness of danger, and willingness to endure — lies the formula for moral courage.

Ms. Rowley teaches us something else: that whistle-blowing need not be about individual people. In an age that venerates personalities above ideas, that’s a tough argument to make. But what motivated the USOC’s Ms. Baldwin, and to some extent Enron’s Ms. Watkins, was a desire for personal self-protection. That theme never emerges in the testimony of Ms. Rowley. She’s not out to get Director Mueller nor any other agent or manager. Nor is she out to save her own skin. Her focus is on the organization, on ideas, on corrective action.

One caveat, however: Director Mueller is principled enough, and Congress and the public are concerned enough, that Ms. Rowley will probably survive and prosper. But it might not have happened thus. What if she’d done all this — and then got the sack? She would still be a shining example of moral courage. But would we have thought so? Or would we have dismissed her actions as mere foolhardiness?

(c)2002 by the Institute for Global Ethics

“As you go forward in life, you will become leaders of families, communities, and even companies. You will be confronted with questions every day that test your morals. The questions will get tougher and the consequences will become more severe. Think carefully, and for your sake, do the right thing, not the easy thing.”

WASHINGTON
While violent crimes and property theft are on the wane across the country, white-collar corruption is taking the opposite course, rising to record levels, according to a report last week from the New York Times.

The cause: As educated baby boomers take control of the nation’s corporations, some are finding that white-collar crime not only pays quite well, but carries a light penalty if discovered, according to the Times report.

The crime of choice among executives is accounting fraud since it buoys corporate revenues, benefiting both investors and company CEOs, whose pay packages often include lucrative stock option deals that depend on rising stock prices.

As the high-flying stock market of the 1990s took a dive, many corporate heads concocted a diverse number of schemes to keep their stock options from losing value and investors from losing confidence, the report says.

Enron largely burst that bubble, sobering up blissed-out investors — as well as regulators, who have launched a growing number of investigations into corporate accounting even as a record number of financial restatements are filed.

Investigations of corporate finances are now pending against Adelphia Communications, Arthur Andersen, Computer Associates International, Dynegy, Elan, Enron, Global Crossing, Halliburton, Kmart, Microsoft, Qwest Communications International, Schering-Plough, WorldCom, and Xerox, among others, noted the Times.

In a speech to the National Press Club last week, Goldman Sachs head Henry Paulson lamented the current state of U.S. business ethics and warned that immediate changes are needed to regain investors’ confidence.

“I cannot think of a time when business over all has been held in less repute,” Paulson said, issuing a clarion call for reforms that most business leaders have timidly avoided, according to the Times.

Saying his comments were “overdue,” Paulson observed that reforms in CEO pay, including counting the increasingly contentious stock options as an expense, will likely be needed.

“If the outcome of all we have been through in the last six months, all the soul searching and debate, is business as usual … then we will have missed an enormous opportunity for improvement,” Paulson said.

NEW YORK
L. Dennis Kozlowski, the high-flying head of Tyco International Ltd., resigned last week under board pressure after word leaked out that the highly paid executive was under investigation for tax evasion.

Since January, prosecutors in New York have been investigating Kozlowski for allegedly doctoring sales and shipping receipts for more than $13 million in paintings, including works by Monet and Renoir, the Washington Post reported. He was formally charged the day after his resignation.

Kozlowski is accused of buying the art for his private Fifth Avenue apartment, but shipping it to Tyco offices to avoid paying sales tax. In some cases, art dealers delivered the art to Kozlowski’s apartment but shipped empty crates to Tyco to create a false trail, according to sources cited by the New York Times.

Two weekends ago, Kozlowski told Tyco about the investigation, and then resigned when the workweek opened. An insider told the Times that Kozlowski was actually forced out, but was allowed to resign so the board and angry shareholders would not be required to pay a contractual $120 million severance package. A new package will be negotiated.

Kozlowski aggressively converted Tyco from a small company at the start of the 1990s into a sprawling conglomerate worth $120 billion at its height. But like many other mavericks of the 1990s boom, his firm has come under increasing scrutiny for questionable bookkeeping, inflated revenue statements, and excessive executive pay, the Times reported.

Since the start of the year, Tyco shares have plummeted by nearly 66 percent, losing about $80 billion in market value, the Reuters news agency reported.

That downward trend continued last week after Kozlowski was formally indicted on 11 felony counts for tampering with physical evidence, falsifying business records, and evading state taxes.

Facing up to 44 years in prison, he entered an innocent plea, according to the Associated Press.

SAN DIEGO
A San Diego-based firm has fired its CEO after discovering a one-time secret deal that distorted the company’s earnings, saying the dismissal was necessitated not by financial damage but by principle.

JNI Corp., an enterprise storage company, said CEO Neal Waddington had brokered a $500,000 sale on the provision that the merchandise could be returned for a full refund, reported the San Diego Daily Tribune.

Waddington allegedly kept that arrangement secret, while telling JNI’s finance team that it could be counted as a straightforward sale — an improper accounting procedure.

When the purchaser tried to return some of the product, the secret side agreement was discovered — and JNI was forced to restate its 2001 fourth-quarter revenues from $13.5 million to $13 million, according the Tribune.

Although an internal investigation found that Waddington’s deal was an “isolated departure from company policies,” the board said it felt it was necessary to fire him given the fragile post-Enron climate.

“While the board regrets having to take such drastic measures over a transaction of relatively small amount, we believed that it is critical in this environment to send a clear message that we will not tolerate any improper conduct relating to financial reporting,” John Stiska, a JNI board member who will take Waddington’s place, said in a statement.

WASHINGTON
In the wake of September 11, U.S. workplaces are struggling to remain free of religious bias, especially against Muslims, according to a report last week from the Voice of America.

Under U.S. law, employers are barred from discriminating against workers based on a number of criteria, including race, gender, and religious beliefs.

Employers sometimes complain that the restrictions, which forbid the firing of some workers who say they cannot work on Sunday or must wear certain religious garb, make it hard to keep businesses running smoothly.

But in the end, unless the religious accommodation is unduly difficult for the employer, religious rights come first, David Frank, chief counsel for the U.S. Equal Employment Opportunity Commission (EEOC), said recently.

“Worrying about how the public or your customers perceive an employee because of their religious garb is every bit as illegal as refusing to hire somebody because he is black,” Frank told a Washington conference on religion in the workplace.

Frank said an apparent backlash against Muslims after the attacks of September 11 has sparked a spike in suits alleging religious discrimination on the job, according to the VOA report.

Fewer than 200 workplace suits on behalf of Muslims were filed in the year before the attacks. In the year following, nearly 500 have been filed, according to EEOC figures.

WASHINGTON
Civil rights groups filed suit last week against four U.S. airlines accused of discriminating against travelers who looked Middle Eastern.

Five men — four U.S. citizens and one permanent resident — say they were ejected from flights due to irrational, baseless, and racist fears following the terrorist attacks of September 11.

The American Civil Liberties Union (ACLU) and the American-Arab Anti-Discrimination Committee filed the suits against American Airlines, Continental Airlines, Northwest Airlines, and United Airlines.

The groups contend that the airlines heeded the groundless fears of flight crew, pilots, and passengers when removing the men from various flights, the Reuters news agency reported.

Michael Dasrath, a 32-year-old U.S. citizen from Brooklyn, was one of two passengers escorted off a Continental flight in December after someone told a flight attendant, “Those brown-skinned men are behaving suspiciously.”

“What happened to me didn’t happen because the airline thought I was a security risk. It happened because someone didn’t like the color of my skin,” Dasrath said last week after the suits were announced.

In a report released at the end of April, the Council on American-Islamic Relations said it had documented 191 alleged incidents of rights violations involving passengers barred from flying because of their Middle Eastern appearance, noted a report from USA Today.

NEW YORK
The number of people seeking treatment for drug and alcohol addiction has spiked since September 11 — a problem exacerbated by tough economic times and standard workplace stress, according to a report last week from USA Today.

Twenty-three states and the District of Columbia have reported a sharp increase in demand for addiction treatment since the terrorist attacks, according to the National Center on Addiction and Substance Abuse at Columbia University.

Experts say the rise in addiction rates poses a problem for those who are addicted and for society itself because addiction’s corollary problems extend from social and family troubles to on-the-job dangers.

”We’ve had the economy, 9/11, the bubble bursting in the stock market. People are under stress and will try to cope,” Richard Chaifetz, CEO of Chicago-based employee-assistance provider ComPsych, told USA Today. ”When this happens, you see a precipitous increase in substance use. It’s a big issue for employers.”

The paper’s report profiles a number of people who became caught up in various addictions, including drugs, alcohol, and gambling. While many of the stories portray disgraced executives doing time for stealing to fuel their habits, others show the success found by those who overcame their dependency.

USA Today notes that alcohol and drug abuse cost U.S. businesses roughly $246 billion each year in lost productivity, with 6.7 million full-time employees abusing drugs or alcohol.

LONDON
Britain’s working women have gained ground over the past 50 years, but still suffer major pay inequalities and poor childcare options, the government’s Equal Opportunities Commission (EOC) said last week.

While the pay gap has narrowed among full-time workers, women still earn 18 percent less than men doing comparable jobs, according to the Guardian.

Aside from persistent pay inequity, other factors, including limited childcare options, make the workplace a struggle for not only for working mothers but fathers as well, noted EOC chair Julie Mellor.

“The structure of working life hasn’t kept up with changes in women’s and men’s roles,” Mellor said. Outdated stereotypes prevent “many women from progressing at work and [deny] many men the opportunity to be involved with caring for their children,” she said.

Despite working longer hours than any other European nation, “the fact that our productivity is not as high as in other countries shows that long hours don’t work,” Mellor added. “What men and women want is a way of balancing work and family life.”

Special to Newsline from Canadian correspondent Errol P. Mendes

OTTAWA
Jean Chrétien, the Canadian prime minister, has fired Paul Martin, the most popular minister in his cabinet, citing irreconcilable differences.

The firing follows close on the heels of a decision by the prime minister that all ministers who are organizing to succeed him must cease their leadership activities. This decision was partly prompted by allegations that leaks about ethical misconduct of Cabinet ministers close to the prime minister were coming from unnamed supporters of leadership candidates.

A series of breaches of conflict-of-interest rules by senior ministers have severely shaken the Chrétien government.

Mr. Martin made it public that he would be weighing his options in light of the PM’s decision, but Mr. Chrétien shuffled him out of his prestigious Finance portfolio before he had made a decision.

Mr. Martin claims that he heard about his firing on the radio. The prime minister denies this and claims Martin was not fired.

There is growing evidence that Mr. Martin intends to contest the PM’s leadership at a leadership review convention slated for February 2003 and will stay as a backbencher to promote his policy positions.

The governing party is seriously divided over the two political rivals and many expect that there will be more and serious political leadership ethics issues to arise in the coming months in Canada.

WASHINGTON
Drug maker Bristol-Myers Squibb was sued last week by 29 states for allegedly conspiring to block the release of a generic version of the firm’s lucrative cancer-fighting Taxol drug.

The suit accuses Bristol-Myers Squibb of filing false patents and frivolous lawsuits, and colluding with a competitor to extend its monopoly on the Taxol market, the New York Times reported.

Taxol was developed by government scientists using tax-payer funds, but licensed to Bristol-Myers Squibb with a five-year exclusive contract in 1992. Sales of Taxol topped $1 billion a year.

Bristol-Myers Squibb originally filed two patents on the drug, then launched two lawsuits against competitors, automatically extending its patent protections each time, the Associated Press reported. Then, when the patent was finally set to expire, the company allegedly convinced rival American BioScience to file a third frivolous lawsuit, stalling the generic release yet again.

“It would be ironic if it wasn’t so egregious,” Ohio Attorney General Betty Montgomery said, noting that American BioScience is partly financed by a company committed to getting cheaper drugs to the nation’s hospitals.

“These marketplace practices have had a dramatic impact on the ability of people and health care systems to obtain affordable, effective drugs,” Montgomery said.

American BioScience dismissed last week’s lawsuit as “preposterous,” “false, and without merit,” according to the Times.

Bristol-Myers Squibb said “the only news in this lawsuit is that the states have chosen to enter late in the litigation. The actual events at issue are several years old and have been the subject of litigation for some time.”

At least two other lawsuits centered on Taxol and alleged patent manipulation are already pending in the nation’s courts. Last week’s suit seeks unspecified remunerative and punitive damages.

Bristol-Myers Squibb is also facing a suit by 29 states over its anti-anxiety drug BuSpar. That suit, which claims similar patent manipulation, was filed in December.

PHILADELPHIA
U.S. libraries cannot be compelled to use Internet filters to block indecent material from minors, a federal court ruled last week, striking down the third U.S. law aimed at sanitizing the Internet experience for children and teens.

In a unanimous ruling, a panel of three federal judges in Philadelphia threw out the Children’s Internet Protection Act (CIPA) of 2001, a law requiring libraries to block objectionable material from minors by July 1 or face the loss of federal funding.

While the judges supported the law’s intent, they rejected both its practicality and its constitutionality, the New York Times reported.

After hearing two weeks of testimony, the judges ruled that existing software not only fails to catch some obscene material but also blocks perfectly acceptable sites focused on topics including education, medicine, politics, and religion.

The filters’ clumsiness forced the judges to reject the law as an unconstitutional abridgment of the First Amendment, Chief Judge Edward R. Becker of the Third Circuit U.S. Court of Appeals, explained.

“We find that it is currently impossible, given the Internet’s size, rate of growth, rate of change, and architecture … to develop a filter that neither underblocks nor overblocks a substantial amount of speech,” Judge Becker wrote.

“Any public library that adheres to CIPA’s conditions will necessarily restrict patrons’ access to a substantial amount of protected speech in violation of the First Amendment,” he added.

While the court sympathized with the government’s position and supported insulating children from the full, sometimes harmful content of the Internet, “this outcome … is not available in this less than best of all possible worlds,” Becker conceded.

CIPA supporters lamented last week’s ruling, which marked the third time U.S. courts have overturned federal laws aimed at keeping children away from adult-themed Internet sites.

But critics of CIPA and similar screening laws, including the American Library Association and the American Civil Liberties Union (ACLU), applauded the ruling.

“The court has barred the law from turning librarians into thought police armed with clumsy filters,” Ann Beeson, litigation director of the ACLU’s technology and liberty program, told the Times.

Any appeal of last week’s ruling, currently under consideration by the U.S. Justice Department, would take the case directly to the U.S. Supreme Court, according to the Reuters news agency.

From Pinkerton Consulting & Investigations:

“For the fourth year in a row, workplace violence, which results in three deaths daily and thousands of injuries each year, is the number one security concern facing American business, according to the ninth annual study of Fortune 1000 corporate security professionals conducted by Pinkerton Consulting & Investigations, the nation’s oldest and largest security company.

“In addition, the survey also revealed that terrorism leapt from the number 17 concern to number three, while business interruption/disaster recovery climbed from number five to number two.

“‘The continued and imminent threat of terrorism and the lessons learned from September 11 are the primary reasons business interruption and terrorism are of almost as great a concern as workplace violence this year,’ comments Don Walker, Pinkerton’s chairman and chief executive officer. ‘We think that they will continue to be two of the highest priority concerns for the foreseeable future.’

“The study, ‘Top Security Threats and Management Issues Facing Corporate America,’ identified the following top 10 security threats, in rank order:

1. Workplace Violence
2. Business Interruption/Disaster Recovery
3. Terrorism (Global and Domestic)
4. Internet/Intranet Security
5. Employee Selection/Screening Concerns
6. Fraud/White-Collar Crime
7. Unethical Business Conduct
8. General Employee Theft
9. Property Crime (external theft/vandalism)
10. Drugs/Alcohol in the Workplace

“Workplace violence has ranked first or near the top of the list in each of Pinkerton’s previous surveys. It costs employees over $36 billion annually and affects over two million Americans every year.

“‘Some of the keys to prevention of workplace violence are very simple,’ Ray O’Hara, CPP, Vice President Western Region for Pinkerton Consulting & Investigations and an expert on workplace violence, said. ‘Awareness, early reporting, communication, and then re-communication of the policies and procedures over time are important. Also, it all starts with the next group to be hired; it is important to provide them with a clear understanding of workplace behavior expectations and how to deal with unusual behavior in the workplace, before it leads to violence.’

“Yet the largest change with this year’s survey was the dramatic leap the threat of terrorism, both global and domestic, made from number 17 last year to number three this year.

“Ambassador David Fields, senior vice president for Pinkerton Consulting & Investigations, and a prominent expert on terrorism, said: ‘I think that Fortune 1000 Companies face the challenge of global terrorism and their challenge is to protect their people. That’s a huge challenge, especially for multinational companies or international companies, and most of the Fortune 1000 fall into that category. They have facilities around the world and people traveling and/or working globally. If terrorists cannot get at U.S. government targets, they will go for a softer target. Companies should review their crisis plans and then put into action elements they feel are required to upgrade their security to protect their people.’…”

“Courage that grows from constitution often forsakes a man when he has occasion for it; courage which arises from a sense of duty acts in a uniform manner.”

– Joseph Addison (English essayist and poet, 1672-1719)