Ethics Newsline®

In its annual survey of U.S. companies, Working Mother magazine rates the following firms as the best for working moms (alphabetical rank):

• Abbott Laboratories, IL
• Booz Allen Hamilton, VA
• Bristol-Myers Squibb Company, NY
• Eli Lilly and Company, IN
• Fannie Mae, DC
• General Mills, MN
• IBM Corporation, NY
• Prudential Financial Inc., NJ
• S. C. Johnson & Son, Inc., WI
• Wachovia Corporation, NC

Source: Working Mother magazine’s 18th annual list of the “100 Best Companies for Working Mothers,” released September 2003.

When the recording industry filed suit this month against 261 music lovers suspected of downloading and sharing music via Internet files, it raised a flurry of issues. Some were about law: The Recording Industry Association of America (RIAA) contends that file sharing violates copyright. Some were about economics: Sales of music CDs have dropped 31 percent since 200, according to the RIAA, which blames the slide on file sharing.

But the core issue is about ethics: Why does the average teenager see nothing wrong with file sharing? According to the Gallup Youth Survey, only 15 percent of 13-to-17-year-olds think that “in general” downloading music is “morally wrong.”

Have these kids simply blown their moral circuits? Not at all. Ask them about cheating on tests, and 81 percent call it morally wrong. So why do 83 percent think downloading is morally acceptable?

Start with arguments about cheating. Most students know that cheating gets you thrown out of school. It harms others who work honestly and yet get lower grades. It creates “A” students incapable of doing top academic work, thereby turning them into hypocrites — a term reverberant with loathing among teenagers. What’s more, it’s increasingly seen to damage the cheaters themselves, who are cutting themselves off from the very thing — real learning — that will help them prosper in a knowledge-based economy.

These reasons aren’t always consciously recognized, of course, so the appeal of cheating still nearly outweighs its risks. In the Gallup Youth Survey, 48 percent admit they’ve cheated on a test or exam, and 67 percent report seeing “a great deal” or “a fair amount” of cheating in their schools. Like file sharing, then, it’s popular. Yet regardless of the excuses used for doing it — that it’s no big deal, that it’s all just a game — a huge majority of teenagers see it as “morally wrong.”

Turn to downloading, however, and those arguments fall off the table. Your fellow students don’t get hurt. You don’t open yourself to charges of hypocrisy. You don’t damage your knowledge or ability to learn. And until the RIAA lawsuits, there was no credible threat of getting caught. Even now, any teenager nailed by the RIAA may well become a music lovers’ martyr and an overnight hero. Hard to imagine cheaters winning such accolades.

Then what about arguments favoring downloading? One often raised is the idea that music companies are rich and can afford to lose some revenue. That’s not a new argument: It also surfaces when student drivers get into fender benders and file exaggerated claims against “super-rich” insurance companies. But there’s a difference. I suspect that, as with cheating, most teenagers would think it morally wrong to rip off your insurance company. I suspect they see themselves as ethical individuals and would bristle at the thought of being lumped in with cheaters and frauds — even as they merrily download music.

So I suspect their core moral justification centers on victimless crime. When I download (the argument goes), nobody gets hurt. I never take anything that wasn’t at the same time left behind, unharmed, just where it was. It’s not like stealing, because nothing is missing. Nobody got hurt because nobody forked over any cash (the way an insurance company would) or lost any stuff (the way a supermarket would as a result of shoplifting).

That argument, I suspect, is abetted by a suspect moral thesis going back at least as far as first grade. It’s called “finders keepers.” A perversion of the old law of the sea, it builds on the beachcombers’ view that whatever drifts ashore is mine for the taking. If something falls overboard into the great sea of the Internet and washes up on my computer — Hey, it’s here, isn’t it? If the RIAA really wants to restrict my access, they should tie down their cargo more tightly. It’s not my fault I stumbled onto it!

Remedies? I can think of three.

• Help young people understand the legal concept of intellectual property. That’s a complex idea for our materialistic society, where value resides in stuff rather than in thought. But teenagers can learn to distinguish the thing they bought (a CD or DVD) from the artistic expression it contains and which still belongs to somebody else. They can also learn to appreciate the role of royalties in encouraging the creation of new music.
• Develop new technologies to inhibit file sharing. A new one debuting this month, MediaMax CD-3, lets you make no more than three copies of a CD, and only lets you email songs to a few people — who, once they get your email, can only listen to any song ten times before it self-destructs.
• Raise the ethical issues at every turn. Get teenagers to address their own moral incongruities. Make them think about why they despise cheating and adore downloading. Get parents to think hard about turning a blind eye to file sharing. And force the nation to ask tough ethical questions about the role of artists in our culture, the proper means of supporting creativity, and how it feels to have your work ripped off.

Which of these has the best chance of helping? Understanding a legal concept doesn’t guarantee legal behavior. As for technological fixes, bright teenagers will find ways to circumvent them — and will tell all their friends how to do it, too. Only the last one — focusing on the underlying ethics — has any real staying power. Here’s where the national conversation needs to begin.

(c)2003 Institute for Global Ethics

“Our planet is not balanced. Too few control too much, and too many have too little to hope for. Too much turmoil, too many wars. Too much suffering.”

World Bank president James Wolfensohn, speaking last week at the organization’s annual meeting in Dubai, United Arab Emirates. In the meeting’s opening address to delegates from 184 countries, Wolfensohn criticized the disproportionate defense spending among both leading and developing nations, noting that education and foreign aid are far lower. (“World Bank Chief Scolds Rich Nations,” AP, Sep. 23)

WASHINGTON
Congress and the courts played tug-of-war last week over the national “Do Not Call” registry, leaving the new law in limbo after a federal judge in Denver judge struck down the measure as a violation of the First Amendment.

The “Do Not Call” registry, a list of phone numbers — nearly 51 million and growing — placed off-limits to telemarketers by irritated citizens, was scheduled to take effect on Wednesday.

Early last week, an Oklahoma federal judge struck down the law for the first time, saying the U.S. Federal Trade Commission (FTC) lacked the authority to create and maintain the registry.

Congress fired back with nearly unprecedented speed, taking roughly 24 hours to author and adopt a law empowering the FTC to maintain the registry, reported the New York Times.

Before the champagne began flowing, though, the new law was struck down again — this time by a Denver judge who said it illegally put the government in the business of censoring speech.

Noting that the law proscribed commercial telemarketing calls while allowing charitable and political calls, U.S. District Judge Edward Nottingham said the law amounted to an infringement of the First Amendment.

“The mechanism purportedly created by the FTC to effectuate consumer choice instead influences consumer choice, thereby entangling the government in deciding what speech consumers may hear,” Nottingham ruled, barring the new law from taking effect.

Robert Corn-Revere, a lawyer for the American Teleservices Association, which is fighting the registry, praised the Denver decision. “Congress can’t trump the Constitution,” Corn-Revere told the Times. “If rules and laws are unconstitutional, they cannot be enforced.”

A spokesman for Rep. Billy Tauzin (R-La.), who helped push last week’s pro-registry bill through the House, insisted that the telemarketers’ legal efforts are simply delaying the inevitable, reported the Associated Press.

“They can keep going to court and we’re going to keep trying to get this registry up and running,” said Tauzin spokesman Ken Johnson. “It puts a little damper on the party, but we’re still confident of prevailing in the end.”

SEATTLE
Microsoft Corp. last week said it plans to pull the plug on its Internet chat services in 28 countries and reduce service in the United States, saying concerns about child safety and spam had pushed the firm to take the cost-saving measure.

On October 14, the company’s chat rooms will be shuttered in 34 markets in Asia, Europe, and Latin America in a bid to cut down on “unsolicited and inappropriate material, particularly with regards to children.”

Services will continue in Brazil, Canada, Japan, and the United States, but with conditions, reported the Associated Press.

In the United States, chat rooms will be accessible only to users who subscribe to other Microsoft services using credit cards, allowing the firm to more easily track down transgressors.

In rooms liable to abuse, moderators — the online version of chaperones — will keep an eye on discussions.

“Recently we have become increasingly concerned about the level of inappropriate communication, including spam, the grooming of children by pedophiles, and sexually explicit language and imagery in chat rooms,” Microsoft spokesman Matt Whittingham told CNN.

Many analysts said the move would benefit Microsoft, which should be able to shed many of its nonpaying users, boost revenues by increased subscriptions, and decrease possible liability for what goes on in its chat areas.

For consumers, though, the dividends were less clear, with increased safety on one hand but decreased access on the other, noted CNN.

Will Doherty of the Electronic Frontier Foundation cautioned that the move would only deepen the “digital divide” by creating online “gated communities” where only those who can afford to pay can play.

NEW YORK
JetBlue Airways last week apologized to angry customers for violating its strict privacy policy by supplying data on more than one million of its passengers to a U.S. Army subcontractor studying ways to identify terrorists.

JetBlue, a three-year-old airline popular for its low prices, said the data sharing followed an “exceptional request” of the U.S. government, which asked the airline to cooperate with Alabama-based Torch Concepts.

JetBlue, saying it was told the Torch project was designed to assess security at U.S. military bases, provided Torch with data — names, addresses, and phone numbers — on 1.1 million passengers, reported the New York Times.

Torch then took the JetBlue information and matched it against consumer databases, deducing Social Security numbers, occupations, and family sizes, and assessing the terrorist threat posed by each passenger.

Torch “developed this information into a presentation, without JetBlue’s knowledge, for a Department of Homeland Security symposium,” JetBlue chief executive David Neeleman said in an email apology.

After Wired News exposed the project, word quickly spread, sparking more than 1,500 email complaints to JetBlue, which conceded that it had violated its strict privacy policy, noted the Times.

JetBlue was sued last week for the breach, and three government entities — the Department of Homeland Security, the Federal Trade Commission, and the U.S. Army — began inquiries into the matter.

Torch last week said it had been hired by SRS Technologies, a California firm helping to develop the Pentagon’s highly controversial electronic dragnet known as the Terrorism Information Awareness program.

Last week, as the JetBlue scandal hit the headlines, Congress killed all funding for that program — but transferred some of its tools and resources to other agencies without providing details, reported the Associated Press.

JetBlue’s controversial decision to share private information with government data miners echoes a similar effort under way at the Defense Department, which plans to scrutinize data on all U.S. airline passengers by next year — a project known as CAPPS II.

SARASOTA, Florida
Following the lead of 15 other newspapers from around the country, the Sarasota Herald-Tribune last week announced that as of October 1, it will no longer accept classified ads for most firearms.

While the paper will continue to allow the listing of antique firearms made before 1898, the classified section’s “Guns & Rifles” category will be eliminated, reported the Associated Press.

The Herald-Tribune’s decision stems in part from an incident earlier this year in which a convicted Florida felon used the newspaper’s classifieds section to locate a gun for purchase. He then used the gun to kill his estranged wife in front of her 9-year-old daughter.

Herald-Tribune publisher Diane McFarlin told the AP, “I believe strongly that this is the right thing to do. We certainly don’t want to make it easier for criminals to gain access to weapons.”

The Herald-Tribune itself reports that under the federal Brady Law, gun dealers are required to conduct criminal background checks on all potential buyers and to maintain records of all transactions. However, individuals selling firearms from a “personal collection” are exempted from those requirements.

Special to Newsline from Canadian correspondent Errol P. Mendes

TORONTO
The Globe & Mail is reporting that one of Canada’s leading accounting firms, PricewaterhouseCoopers (PwC), has withdrawn from its joint auditor role with Canada’s largest bank, Royal Bank of Canada (RBC).

PwC cited the reason as its concern over a possible conflict of interest and violation of post-Enron securities and corporate-governance regulations in the United States and Canada.

The report in the Globe & Mail states that PwC is worried it may have violated auditor independence rules when it performed less than $150,000 worth of undisclosed non-audit work for an RBC subsidiary.

Peter Currie, chief financial officer of the Royal Bank of Canada, is quoted as saying that PwC made a “bad judgment” when it assured RBC that its independent audit status would not be jeopardized by the consulting work.

However, he also stated that RBC may have been at fault for not seeking the approval of its own audit committee for the non-audit work performed by PwC.

OSLO, Norway
Norway’s biggest company, petroleum firm Statoil, last week announced the resignation of a third high-level executive — CEO Olav Fjell — following news of a police investigation into a possible bribery scheme.

Norwegian police raided Statoil’s headquarters earlier this month, searching for evidence that Statoil planned to funnel a $15 million bribe to an Iranian official in exchange for help with contracts.

Fjell’s resignation follows similar step-downs from Statoil chairman Leif Terje Loeddesoel and Richard Hubbard, head of the company’s international exploration and productions.

Statoil allegedly agreed to pay nearly $15 million to a London-based consultant with close ties to Iran’s NIOC oil group. Investigators claim the consultant was planning to pass the funds to NIOC executive Mehdi Hashemi Rafsanjani, the son of Iran’s former president, reported the Agence France-Presse.

Former CEO Olav Fjell last week explained that while he never approved the creation of the deal, he failed to intercede after learning about it — a lapse that put him in an “ethical gray zone,” he said.

“I admit handling the situation badly when I was informed of the contract,” he told a news conference after announcing his resignation.

While police look into the matter, Statoil’s acting board spokeswoman Kaci Kullman Five said the firm is taking its own steps, including hiring accounting firm Ernst and Young to evaluate its contracts.

“Statoil’s international ambitions will be retained with high ethical standards,” Kullman Five said. “It is fully possible for the group to succeed internationally without becoming involved in activities which lie in a borderland as regards ethical norms and rules.”

Norway, which owns 82 percent of Statoil, is the world’s third-largest oil exporter, following Saudi Arabia and Russia, reported the Associated Press.

WASHINGTON
Over the last decade, Air Force officials largely disregarded known threats, ranging from harassment to assault, against female cadets at the Air Force training academy, indicating systemic problems that remain unaddressed, according to an independent report released last week.

The report, written by a seven-member independent panel appointed by Congress, offers a harsh indictment of Air Force leaders from Colorado to Washington, faulting the force for “a deep chasm in leadership … that extended far beyond its campus in Colorado Springs.”

The panel also criticized a June report by Air Force general counsel Mary Walker, whom they accused of spinning her findings “to shield Air Force Headquarters from public criticism,” reported the New York Times.

Prompted by high-profile accounts of sexual assault at the Air Force academy, Walker’s report had concluded that there was “no systemic acceptance of sexual assault at the school” and “no institutional avoidance of responsibility.”

The truth is far different, declared the independent panel’s head, former U.S. Rep. Tillie Fowler (R-Fl.).

“Since at least 1993, the highest levels of Air Force leadership have known of serious sexual misconduct problems at the academy,” the commission warned, but have failed to take serious steps to counter the problem.

A report from the Reuters news agency notes that of the academy’s roughly 660 female students, 398 told investigators this summer that they had suffered sexual harassment of some sort.

The civilian panel called for a broader investigation of Air Force officials and recommended a series of reforms, including strengthening the school’s board of trustees and educating cadets about sexual assault.

JERUSALEM
Twenty-seven Israeli reservist pilots last week joined the “refusenik” movement, saying they would not participate in bombing attacks in the West Bank and the Gaza Strip, which often injure civilians.

“We refuse to participate in Air Force attacks on civilian populations,” the pilots said in a petition delivered to the head of the air force, Maj. Gen. Dan Halutz. “We refuse to continue harming innocent civilians.”

Last week’s refuseniks are part of a small but vocal movement opposing Israel’s policy of “targeted killings,” in which helicopters and planes drop bombs or fire missiles to kill terrorists hiding in civilian areas.

The 27 reservists were branded disloyal and widely lashed in press and political circles, reported Ha’aretz.

Reeling from the pilots’ high-profile revolt, the Air Force quickly grounded the nine signatories still on active duty and barred the others from teaching posts at the air force’s flight school.

“These are not the people who should educate the next generation of pilots,” said Halutz.

The protesters last week insisted otherwise, according to the report from Ha’aretz.

“We are all loyal citizens of the state of Israel,” signatory Captain Yonatan told Ha’aretz on behalf of the others. “We have taken this step after deep thought and much soul-searching. As officers and pilots, we have been given the heavy responsibility of operating a most powerful war machine. As people who were educated with the moral code of the IDF and the state of Israel, we have decided to … obey the order that obliges us not to carry out an order that is blatantly illegal.”

Air force head Halutz said the targeted bombings are legal, even if controversial, and said military reservists have no right to opt out of their missions. “We do not choose our wars,” he said.

LAUSANNE, Switzerland
The U.S. Olympic Committee (USOC) faced questioning from the international Olympic organization last week over its alleged secrecy in handling U.S. athletes who have been allowed to compete despite testing positive for banned drugs.

“We want to hear why the athletes were exonerated,” International Olympic Committee (IOC) president Jacques Rogge said at the group’s annual meeting last week. “We want to see if there was a valid reason. If not, we want to see if this was widespread.”

The former head of the USOC anti-doping efforts, Dr. Wade Exum, released documents last spring indicating that doping among U.S. athletes was frequent while punishments were few.

While athletes tested positive for banned substances more than 100 times between 1988 and 2000, only a few were barred from competition; 19 of the athletes went on to win medals, Exum’s papers indicated.

The USOC has identified 24 athletes who tested positive, but said all but one were either exonerated or faced “appropriate discipline under the applicable rules,” reported the Reuters news agency.

“These cases were adjudicated in accordance with the applicable rules of the time,” USOC spokesman Darryl Seibel told the Los Angeles Times. “There was no attempt to cover anything up.”

Despite such assurances, the IOC still has questions, noting that the USOC has declined to name many of the athletes and that USA Track & Field has refused to provide details of 31 positive cases from 1996 to 2000.

BEIJING
The Chinese publisher of Sen. Hillary Rodham Clinton’s memoir last week admitted that the translated text has been censored, with the removal of 10 passages criticizing or commenting on Chinese policy.

Simon and Schuster, the memoir’s U.S. publisher, last week demanded a recall and full translation of the Chinese version of Clinton’s “Living History” — a move that was shrugged off by Liu Feng, vice editor-in-chief of Yilin Press.

Liu has defended the edits as “minor, technical” alternations that helped the publisher get the book to market before piracy cut too deeply into sales, reported the New York Times.

The edits include the removal of several passages, including one mentioning Tiananmen Square and another lamenting China’s “dismal record on human rights and its policy of condoning forced abortions as a means of imposing its ‘one child policy.’”

Another edit recasts Harry Wu — described by Clinton as a “human rights activist who had spent 19 years as a political prisoner in Chinese labor camps” — only as a person “prosecuted for espionage and detained awaiting trial,” noted the Times.

“We have made technical changes to the content in some parts of the book in order to win more Chinese readers,” Liu insisted. “But the changes do not hurt the integrity of the book.”

Liu’s Yilin Press has printed more than 200,000 copies of Clinton’s book in at least four editions, reported the Associated Press.

Simon and Schuster last week posted side-by-side translations of the missing and edited passages in English and Chinese. The translations are available free of charge on the company’s Web site.

From Working Mother magazine:

“Payroll may be down but work/life benefits are up at many of America’s top companies, according to Working Mother magazine, which today released its 18th annual list of the ‘100 Best Companies for Working Mothers.’

“‘Even these tough economic times haven’t swayed the commitment of our forward-thinking 100 Best companies,’ says Working Mother editor-in-chief Jill Kirschenbaum. In fact, the magazine finds that companies have increased benefits — ranging from child-care programs to massages to take-home dinners straight from the company cafeteria — in order to cut stress and keep employees healthy.

“What this means, says Kirschenbaum, is that ‘workplace cultures at the best places to work have changed and now reflect the permanent impact of working mothers. And companies also are responding to pressure from both men and women in Generations X and Y, who want a balanced life. Work/life benefits are here to stay.’

“…This represents ‘a seismic shift at companies around the country,’ says Kirschenbaum, ‘turning work/life into an essential part of business strategy.’ Even as little as four years ago, only 30 percent of companies on the 100 Best list had a wide array of child care and flexibility options. Now most companies do — and they’re getting stronger, with additions like after-school, holiday, and emergency care for kids and elders, as well as fitness programs.

“In another trend: Companies are offering after-school programs for teens and tweens in day-care centers, as well as support groups and counseling for parents…. [Ninety-eight] percent of the Best Companies offer some form of elder-care resource and referral.

“Kirschenbaum calls these changes ‘common sense on the part of the companies,’ because both employees and employers benefit. ‘When an employee’s personal life runs smoothly, her productivity continues uninterrupted,’ she says, pointing to such cutting-edge offerings as sending a trained caregiver to the employee’s home when her child is sick. Adds Kirschenbaum: ‘These programs markedly cut absenteeism.’

“The complete list of the 100 Best Companies for Working Mothers appears in the October issue of Working Mother….

“Working Mother gives special mention to this year’s Top 10 companies (listed alphabetically):

• Abbott Laboratories, IL
• Booz Allen Hamilton, VA
• Bristol-Myers Squibb Company, NY
• Eli Lilly and Company, IN
• Fannie Mae, DC
• General Mills, MN
• IBM Corporation, NY
• Prudential Financial Inc., NJ
• S. C. Johnson & Son, Inc., WI
• Wachovia Corporation, NC

“…Companies that shine as BEST IN INDUSTRY are:

• Financial & Professional Services: Wachovia Corporation
• Health Care: Northwestern Memorial HealthCare
• Information Technology: IBM Corporation
• Manufacturing & Retail: S. C. Johnson & Son, Inc.
• Media & Advertising: Discovery Communications Inc.
• Pharmaceuticals & Biotech: Eli Lilly and Company
• Travel & Hospitality: Noel Group…”

“A half truth is a whole lie.”

– Yiddish proverb

Needed: Managers with moral courage. Wanted: Organizations that don’t need them.

If that sounds like a paradox, let me tell you about Bud (a real manager, though that’s not his real name). Voluble and savvy, with a grizzled exterior hiding a puff-pastry heart and a seasoned hand, he manages top-level teams of analysts and report writers in a large organization.

Bud strikes me as the kind of manager who understands his people well. He knows who’s got great hunches and a lucid literary style but can’t self-start. He knows who can give you the skinny on every single person who supported Policy X (whatever that was) but is a lousy judge of character. He knows who got promoted before they were ready and won’t ever quite catch up — and who’s been diligent but self-effacing and may therefore be passed over for promotion.

This last issue concerns Bud deeply. As a manager of the organization’s thought-ware, he sees who’s goofing off and who’s wound up tight, who’s logging the bare minimum and who’s doing the work of two people. So when it comes time for review panels to consider promotions, he’s sometimes in a hard place. Others on the panels — his friends and peers — may see only the résumé, the portfolio of writing, the prior recommendations. Bud, on the other hand, may know an individual intimately through the years. Yes, there may be some flaws, but this may still be an extraordinary employee well worth retaining and moving forward in the organization.

What does Bud do? The easiest thing, when his colleagues want to pass over someone, would be to go with the flow. He could salve his conscience by entering a modest demurral and then letting the candidate be swept aside.

The harder thing is to stand up for the candidate, take on the momentum of opinion, fight the process to a standstill, and labor for what he feels is right. The hardest thing, in other words, is to express moral courage. But that can mean cashing in your political chits and spending down your reservoirs of goodwill. Do that too often and you risk your reputation. Do it too forcefully and you may risk your career.

Bud is deeply committed to his work. But I sense in his conversation a needling frustration over the culture of his organization. He tells me he’s being called on to take these kinds of stands more frequently these days. He knows something is amiss.

What he’s facing is the cultural paradox of moral courage. So valuable is that quality that it may, in fact, be the essential characteristic of leadership. Leadership has many attributes — energy, humility, discipline, articulation, and creativity among them. But without the catalyst of moral courage, those grand qualities can languish. Any effort to cultivate leadership must put moral courage at the top of its wish list of qualities for the future executives of any successful organization.

The paradox comes in the organization itself. One mark of a successful organizational culture, in fact, is that moral courage is not required on a daily basis. The best cultures will be the ones where the core business gets transacted daily in ways that don’t make bravery essential. Of course risk-taking is crucial for leadership. But it shouldn’t be required in every meeting. When it is, the warning flags should go up.

What happens when culture trumps courage? That’s the story of Enron, where a fast-moving, underhanded culture made it difficult for managers and even board members to offer even the most routine suggestions for course correction. That’s the story of NASA, where the now-famous “broken safety culture” would have taken towering courage to address from within. That may be much of the story at the New York Stock Exchange, where if a board member ever asked, “Are we doing the right thing with Dick Grasso’s pay?” there seemed to be little culture of a listening ear.

And look what happens when courage trumps culture. Where was the culture that, when FBI agent Coleen Rowley felt concerned about her agency’s failures in preventing terrorism, would have let her speak up through normal channels without summoning up the moral courage to write an open letter to Director Robert Mueller? When biology teacher Christine Pelton caught 28 high-school students plagiarizing in Piper, Kansas, where was the culture that would have supported her decision to penalize them — without her having to resign when the school board refused to back her up?

What my friend Bud is sensing is this paradox. Organizations must require moral courage in their leaders — and then work assiduously to make sure it’s rarely needed. When it gets put into play by even the most routine decisions — like promoting employees or punishing plagiarists — that’s a sure sign that something’s out of whack in the culture.

(c)2003 Institute for Global Ethics

“What if you had trust, fairness, and collaboration substitute for lock-step rules? Except for things like salaries, pensions, medical, safety, due process, and things covered by law, maybe virtually everything else should be negotiable.”

– Randi Weingarten, president of New York City’s teachers’ union, speaking last week about a proposal to pare down workplace rules protecting teachers in exchange for a greater say in how schools are run. The proposed experiment, which would cover roughly 100 schools, is an attempt to reform the city’s schools, which are struggling under red tape and budget shortfalls. (“Teachers Barter with Work Rules,” New York Times, Sep. 16)

NEW YORK
Richard Grasso, the head of the New York Stock Exchange (NYSE), resigned last week following three weeks of withering criticism over a controversial lump-sum pay package worth nearly $140 million.

“I believe this course is in the best interest of both the exchange and myself,” Grasso said last week, announcing his resignation after a quickly arranged conference call with the exchange’s 27-member board.

Grasso, who began working as a clerk at the NYSE in 1968, never left the exchange, eventually rising to hold its top executive position and winning praise and acclaim along the way.

Less than a month ago, much of the praise turned to criticism after the NYSE, pressured by media and investors, broke years of secrecy to reveal its executive pay details, reported the New York Times.

Ensuing disclosures showed that Grasso was owed $139.5 million in deferred pay and retirement benefits from his 20 years as an executive at the exchange. His 2003 salary and bonus were to total at least $2.4 million.

Those figures shocked many powerful institutional investors as well as members of the NYSE board, who expressed outrage even though they had approved the pay packages, according to the Times.

Criticism also centered on conflicts of interest that plagued Grasso’s relationship to both his board, where he could nominate the people who approved his compensation, and to the companies he was regulating even as he sat on some of their boards.

“This will be the first time in American history where someone who is said to have done a good job is being fired because the board is paying him too much,” Jeffrey Sonnenfeld, associate dean of the Yale School of Management, told the Times. “The board’s accountability is the second issue to be dealt with.”

Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, said that Grasso’s resignation “goes a long way to resolving corporate governance issues at the exchange, but it takes two to tango. The board has a lot of soul-searching to do. It is clear that the reputation of the exchange has been damaged.”

Until a new chief executive is found — a process expected to take four to six months — the NYSE has hired John Reed, a former chief executive of Citicorp, to head the exchange. Reed will be paid $1 a year, reported the Times.

NEW YORK
Financial scandals continued to unfold last week as charges, settlements, and censures filled the headlines. Among the developments:

Morgan Stanley was fined $2 million for breaking a 1999 law that bars brokerages from providing incentives — cash, concert tickets, resort vacations, and the like — to brokers in exchange for meeting specific sales quotas.

Morgan Stanley was censured for continuing to run 29 such contests since October 1999, plying brokers, branch managers, and regional supervisors with Britney Spears tickets, cash gifts, and gift certificates to local stores and restaurants for selling shares in the firm’s mutual funds. The company neither denied nor admitted wrongdoing.

Also last week, New York Attorney General Eliot Spitzer continued his campaign against widespread fraud in the nation’s $6.9-trillion mutual fund industry by announcing criminal charges against a former Bank of America broker.

In a sign widely seen as a warning of more prosecutions to come, Theodore Sihpol was indicted on charges of grand larceny and securities fraud for allegedly helping Canary Capital Partners engage in late trading, a practice that allows favored investors to buy stock after the market closes and pay that day’s closing price, rather than the next day’s closing price, as required by law. Late trading allows investors to take advantage of late-breaking news that would likely affect stock prices.

The federal government filed separate civil charges, reported the Los Angeles Times.

And in Houston last week, three former Merrill Lynch bankers surrendered on charges that they helped set Enron on a collision course with bankruptcy by engineering false transactions to inflate profits.

The men have been charged in connection with a 1999 deal in which Enron allegedly “sold” three barges moored off the coast of Nigeria to Merrill Lynch, all the while quietly promising to buy back the barges within six months at a 22 percent profit for Merrill Lynch.

Prosecutors say the deal was designed to make the transaction look like a profitable sale instead of a costly loan, reported the Reuters news agency. The men face a maximum prison sentence of five years, although one of the defendants — charged with obstruction of justice and perjury — faces up to 15 years.