Among FTSE 100 companies . . .
2003 | 2004 | |
Total number of female directors | 88 | 96 |
Firms with all-male boards | 32 | 31 |
New director appointments going to women | 13% | 17% |
Source: Cranfield School of Management’s “2004 Female FTSE” index.
We take it for granted that public corporations must publish a financial audit. Should they also publish an ethical audit?
Surprising though it sounds, there’s movement in this direction — and for good reason. Audits have several purposes: They open a transparent shaft into the bowels of prior years’ finances, and encourage good practice in the current year. But they’re also predictive. Audits help investors answer the question that matters most: Is this company a good bet for the future?
In today’s complex world, the answer to that risk-analysis question doesn’t come through financial numbers alone. It requires a consideration of non-financial issues — environmental impact, community relations, employment conditions, and a host of other topics related more to ethics than to finance. Get these wrong — stonewall an environmental disaster, offend the local populace, blow off health or safety issues — and the results can wreck your reputation and tank your stock just as surely as a financial mess-up.
How can investors tell whether a company is at risk in these areas? And how can they compare companies regarding non-financial matters? At the end of the 1990s, such questions helped launch the Global Reporting Initiative (GRI). Its goal: to bring consistency to corporate reporting on economic, environmental, and social issues.
In the last several months, two more initiatives out of Europe have helped elevate non-financial reporting on the corporate agenda:
How important is this trend? Rob Lake, who looks after corporate governance and social responsibility issues for the $150 billion portfolio of Henderson Global Investors in London, likes the GRI reporting structure but worries that it “sets out to be all things to all people.” He feels comfortable with the new U.K. approach that, as he says, simply requires a board to “tell shareholders anything it thinks they should know about strategy.”
Would this kind of reporting have warned the public of scandals brewing at Enron or Parmalat? Maybe not, although Mr. Lake notes that “regulation of this sort might create more space and create more comfort for [insiders] who are trying to screw up their moral courage to take a stand” against fraud and corruption.
But the important point here, as Mr. Lake emphasizes, is that “in this day and age, a whole host of things must be done well by companies that want to be successful for their shareholders.” Among them are these “broad ethics-related issues,” which he says are now “seen to have value in market terms.”
If this trend holds, twenty-first-century directors will need to practice a new kind of moral futurism. Just as they now use sophisticated strategies to foresee financial risks, they must develop methodologies to look over the horizon and foresee ethical, social, and environmental risks that have not yet arisen. Needed now are innovative conceptual frameworks for creating reports so penetrating and far-seeing that no director or investor could be excused for allowing another Enron or Parmalat to happen. Non-financial reporting at least gets us started down that track.
©2004 Institute for Global Ethics
“Every CFO has been pushed at times to take something that is clearly black and white and color it a shade of gray. But when the chief executive is shot at, he uses the chief financial officer as a human shield. Being a CFO has become one of the riskiest jobs in America.”
– Kenneth Goldman, a former chief financial officer (CFO) at six firms over 20 years, talking to the New York Times about new pressures put on officers by the new reporting and ethics requirements of the Sarbanes-Oxley Act. (“Where Have All the Chief Financial Officers Gone?,” New York Times, Nov. 28)
NEW YORK
Under pressure from officials, fans, and Congress, the Major League Baseball Players’ Association agreed last week to renegotiate its contract in order to put some teeth into the league’s steroid testing program.
The players’ decision authorizes bargaining between the association and Major League Baseball (MLB) commissioner Bud Selig’s office, with a deal expected before spring training begins.
Hanging over the negotiations is the threat of regulation by Congress, whose members hit the TV talk-show circuit last week to stump for change, with Sen. John McCain (R-Ariz.) swinging an especially big stick.
Major League Baseball’s current program is an “incredibly weak, disgraceful, once-a-year testing. I mean, it’s a joke,” McCain said. “It’s time for us to introduce legislation if necessary.”
“The important aspect of this issue is that high school kids all over America believe that this is the only way they can make it,” McCain added. “This is the tragedy of steroids. And we all know that it will destroy a young person’s body. And that’s why we’ve got to bring this to a halt.”
The issue of steroids re-ignited after reports from the San Francisco Chronicle and ABC-TV’s “20/20″ highlighted testimony and interviews in which long-whispered rumors of steroid use were called fact.
Implicated were some of sports’ marquee names: New York Yankees’ Jason Giambi, San Francisco Giants’ home-run sensation Barry Bonds, and Olympic sprinter Marion Jones.
Jones, who has denied using steroids and threatened to sue for defamation, is also the subject of a new International Olympic Committee investigation over the allegations, noted the Associated Press.
The negotiations between the players’ association and MLB officials are expected to focus on four key points: substances tested for, frequency of testing, off-season testing, and punishments, according to the Los Angeles Times.
Most press reports point out that steroid testing in baseball’s minor leagues is far more stringent and punitive than it is in the major leagues, where much of the abuse is believed to take place.
MLB began testing players for some steroids in 2003, with between 5 percent and 7 percent of the 1,438 tests returning a positive result, according to the New York Times.
Under the current MLB contract, a positive steroid test results only in mandatory counseling.
WASHINGTON
U.S. methods of gathering intelligence on Iraq came under harsh criticism last week following the forced release of confidential memos accusing a top-secret military taskforce of both violently abusing Iraqi captives and of intimidating U.S. agents who questioned their methods.
The allegations were leveled in memos secretly and tightly held by the Bush administration, which was forced to release the documents by a federal court responding to a Freedom of Information Act (FOIA) request by the American Civil Liberties Union and other groups.
The documents include a memo written by the head of the U.S. Defense Intelligence Agency (DIA), who said two of his staff members had been threatened and harassed by interrogators in Iraq who had been abusing prisoners, reported the Associated Press.
Press reports note that there is no indication that the memo, written months after the Abu Ghraib abuse scandal broke, resulted in any action by the Pentagon or its top attorneys, who were aware of the memo.
The special-forces taskforce in Iraq allegedly beat prisoners, then targeted DIA officials who had complained about and documented the mistreatment. The special forces troops took the DIA agents’ car keys, told them to keep quiet about what they had seen, and said they would monitor the agents’ email, according to the Washington Post.
Other FOIA documents included complaints from the FBI that military interrogators at Guantánamo Bay, Cuba, were using “highly aggressive interrogation techniques” and mistreating terror suspects, but stopped short of labeling the activities as outright abuse, reported the AP.
While the lead complainant, FBI counter-terrorism expert Thomas Harrington, said it appeared the concerns resulted in no action by the Pentagon, the head of the Guantánamo base said “appropriate actions were taken.”
In other news, a senior CIA operative sued the agency last week for allegedly retaliating against him after he contradicted administration contentions that Iraq had weapons of mass destruction before the Iraqi war.
The agent’s suit was given the green light last week by a court that will look into charges that CIA management harassed him, then sought to defame and discredit him for refusing to follow the party line, reported the Post.
The man’s lawsuit alleges that CIA managers ordered him to falsify information to back the supposed threat of WMD, then launched spurious investigations to ruin his career, eventually firing him for “unspecified reasons” in August 2004.
“The notion that CIA managers order officers to falsify reports is flat wrong,” CIA spokeswoman Anya Guilsher insisted to the Post. “Our mission is to call it like we see it and report the facts.”
WASHINGTON
Eight U.S. soldiers currently serving in Iraq sued the U.S. government last week, arguing that the military’s “stop-loss” order automatically extending their tours of duty was an unfair violation of their rights.
The soldiers’ suit claims that their contracts with the military never disclosed the possibility of stop-loss extension, which was invoked last June by the government, reported the New York Times.
The government says the stop-loss policy, first invoked in the first Gulf War, makes for a better military by protecting unit cohesion during especially dangerous times. Critics say it is a back-door method of prolonging tours of duty and enlarging the military when it runs short of volunteers.
The current stop-loss order is affecting roughly 7,000 soldiers in Iraq at any one time, according to press reports.
While a handful of reservists have sued upon being called up for service, last week’s suit marks the first legal action taken by soldiers already in the thick of the Iraqi war, reported the Associated Press.
Only one of the soldiers, David Qualls, agreed to be named in the suit, with the others — John Does 1 through 7 — saying they feared retribution or more dangerous assignments if their names were known.
Qualls said he, too, worries about the repercussions of the lawsuit, which he filed while home on a brief Thanksgiving leave, but told the Times that doing what he feels is right for his family and other solders must come first.
“You’ve got thousands of people over there in the same situation as me, and somebody’s got to do something. Why not have it be me?” he said. “I can’t worry about what people will say.”
“You should know I’m not against the war. This just isn’t about that,” said Qualls, a former full-time soldier who signed up for a one-year term with the Arkansas National Guard in July 2003. “This is a matter of fairness.”
“My job was to go over and perform my duties under the contract I signed,” he told the Times. “But my year is up and it’s been up. Now I believe that they should honor their end of the contract.”
Military and legal issues experts who spoke with the Times said that while the lawsuit might bring unwelcome attention to an increasingly controversial policy, the men likely would lose in the end.
“Rarely have we seen people win such cases,” legal expert and former Army captain Phillip Carter told the Times. “At best, this is symbolic protest.”
A federal judge last week refused to grant a temporary restraining order for Qualls, upholding the extension of his tour of duty and ordering him back to Iraq.
In other news, 23 Army reservists who refused to follow an order for a mission they believed to be unnecessary and dangerous will be punished, but not court-martialed, the military said last week.
The reservists, who will face demotions and/or extra duties, refused to transport a load of fuel last October, saying their vehicles were insufficiently armored and that the fuel was tainted and would be useless on delivery.
Although military investigators backed some of their claims as credible, punishment will still be meted out, reported the AP.
“They felt they didn’t have the proper equipment to do the mission they were ordered to do, and are being disciplined for failing to follow orders,” said military spokesman Lt. Col. Steve Boylan.
WASHINGTON
The Defense Department’s inspector general last week said that 10 people — eight commanders and two lawyers — were primarily to blame for the sexual assault scandal that erupted at the Air Force Academy last year.
The scandal was set off by an anonymous complaint to members of Congress that the Colorado Springs-based academy of the U.S. Air Force (USAF) was ignoring, silencing, and punishing female cadets who claimed to have been assaulted by fellow cadets.
Following that anonymous email, nearly 150 women stepped forward to accuse male cadets at the academy of raping or assaulting them, leading to a series of investigations and recriminations.
After an internal Air Force investigation pinned most of the blame on cadets, a congressionally appointed panel said the problem more accurately lay with Air Force officials shielded from blame by that earlier probe, reported the Washington Post.
Inspector General Joseph Schmitz then took up the matter, investigating the roles played by 31 people, 21 of whom he said last week bore no responsibility for the scandal, according to the Agence France-Presse.
Instead, Schmitz fingered eight Air Force commanders and two legal counsels for failures that helped keep “the magnitude of the problems from becoming visible to USAF leadership, and prevented effective criminal investigations,” according to the Post.
The scandal was caused by the “failure of successive chains of command over the past 10 years to acknowledge the severity of the problem,” Schmitz wrote to Defense Secretary Donald Rumsfeld, summarizing his report into the scandal.
“Consequently, they failed to initiate and monitor adequate corrective measures to change the culture until recently,” he added, according to the Associated Press.
“Many leaders in positions of authority could have been better role models, could have been more vigilant in inspecting those placed under their command, failed to guard and suppress sexual misconduct among cadets, whether or not prosecutable as specific crime, and failed to hold cadets accountable for such misconduct,” Schmitz concluded.
Air Force officials last week said much progress had been made, noting that all of the academy’s senior leaders had been replaced since the scandal broke and promising further reforms.
FRESNO, California
As expected, nine automakers sued California last week over the state’s tough new emissions law, which took effect in September and aims to reduce by 30 percent the auto pollution contributing to global warming.
At issue is whether California has the right to set statewide emissions standards that are tougher than those favored by Congress. The state says yes; the automakers — along with a handful of dealers — say no.
Despite evidence that auto emissions are contributing to global warming, Congress long has balked at demanding significantly cleaner cars, mandating only minor improvements in fuel efficiency.
Because states are barred from leapfrogging Congress on fuel standards, California decided to take aim at another standard: pollutants, especially the carbon dioxide pumped out by auto tailpipes.
California’s new law would phase in steep declines in emissions beginning in 2009, setting more demanding standards for car classes ranging from compacts to mammoth SUVs, according to the Associated Press.
California, which pioneered the fight against smog, has a special right to enact tougher rules than Washington under a special provision of the Clean Air Act. Under that law, all other states have the right to follow either California’s lead or Washington’s weaker rules, reported the New York Times.
Last week, automakers filed suit, saying California has no right to regulate carbon dioxide emissions under its Clean Air Act waiver, since the Bush administration last year refused to classify carbon dioxide as a pollutant.
Carbon dioxide is the main greenhouse gas tied to global warming, according to the Associated Press.
While automakers worry that California’s tougher rule would drive up costs and consumer prices, they also fear the possibility that other states would follow suit, creating a bifurcated nation of emission regulations.
Automakers joining the suit include BMW, DaimlerChrysler, Ford, General Motors, Mazda, Mitsubishi, Porsche, Toyota, and Volkswagen. Honda and Nissan are considering similar action, according to the Times.
Last week’s lawsuit coincided with the release of a biennial report from the Union of Concerned Scientists examining smog pollutants and carbon dioxide emissions from vehicles sold in the United States.
The report, which studied vehicles sold by the six automakers with top U.S. sales from the 2003 model year, ranked Honda at the top and General Motors at the bottom, reported the AP.
While efforts to combat smog-creating pollutants have been improving, little progress has been made on fighting the release of global-warming gases like carbon dioxide, said David Friedman, research director of the Union of Concerned Scientists’ Clean Vehicles Program.
“In terms of heat-trapping gas emissions, automakers have been running in place for almost the last 20 years,” Friedman told the AP. “The industry is more or less ignoring global warming when you look at the products they’re putting on the road.”
The New York Times notes that gas-guzzling SUVs have erased any gains made by cleaner smaller cars, causing the average fuel economy of new vehicles sold in the United States to decline since the late 1980s.
BALTIMORE
Battles between the government and the press flared last week in both Baltimore and Denver, where leading newspapers were denied access to officials complaining about their coverage.
In Maryland, the Baltimore Sun last week sued Governor Robert Ehrlich, Jr., over his November 18 order barring state officials from speaking to two Sun journalists whom he has accused of writing inaccurate stories.
The lawsuit punctuates a longstanding feud between the Republican governor and the state’s leading newspaper, which endorsed his rival in 2002 and which he accuses of liberal bias, reported the New York Times.
Ehrlich last month barred his staff and all workers in state agencies from speaking to a Sun columnist as well as the paper’s statehouse bureau chief.
After weeks of refusing to meet with Sun editor Timothy Franklin to discuss the situation, the paper decided it had no choice but to sue.
“If the First Amendment stands for anything, it’s that government can’t retaliate against individuals based on their views,” Franklin told the Times. “And that’s exactly what Governor Ehrlich has done in this case.”
“No governor, Republican or Democrat, should be allowed to pick and choose whom state employees speak to based on whether the governor approves of their views,” Franklin added in a letter to readers.
After refusing to comment for weeks, the governor’s office last week finally agreed to talk with Sun editors on Dec. 17, reported the Associated Press.
Also last week, Army officials at Colorado’s Fort Carson decided to block the Denver Post’s access to the base after the paper published a piece about soldiers’ complaints about their medical care.
Fort Carson officials yanked the Post from an email list that sends event invitations and official statements to newspapers “as a direct result of Fort Carson not being given fair and balanced treatment,” spokesman Lt. Col. David Johnson charged to the Associated Press.
Post editor Greg Moore last week said he hopes that Army officials rethink their position before the paper is forced to find another remedy — procedural, legal, or otherwise, according to the AP.
“Other newspapers and media organizations have reported on the issue. Our story was thorough, and balanced the concerns of soldiers with substantial response from the military,” Moore said. “It’s our job to investigate issues like these and explain them to our readers, many of whom have family members serving in the military.”
Special to Newsline from Canadian correspondent Errol P. Mendes
OTTAWA
The National Post is reporting that a University of Ottawa research team has revealed that workplace bullying may be worse than sexual harassment when it comes to workplace morale.
The team analyzed 52 case studies of nonviolent workplace aggression and discovered that such bullying was more strongly liked to decline in workplace morale and job satisfaction than was sexual aggression.
The study also revealed that the deleterious effect of such bullying was greater for female employees than for male employees.
The study will be published in the April issue of the Journal of Occupational Health Psychology.
The research team leader, Dr. Laurent Lapierre, is reported as stating that one of the several reasons why workplace bullying has such damaging impacts on employees is because it is a systemic problem, especially if there are multiple bullies in the workplace.
In addition, Lapierre asserts that bullying victims are more likely than victims of sexual harassment to feel that there is no recourse to stop the bullying. For this reason, Lapierre says victims are more likely to endure the abuse than are harassment victims, who are probably aware that harassment is clearly a “no-no.”
From the Cranfield School of Management:
“The 2004 Female FTSE index offers clear evidence that companies with women directors are better in terms of corporate governance practices compared to companies with all male boards….
“The research measured good governance using a range of indicators covering the board recruitment and development processes, board performance assessment and reporting and openness….
“Dr. Val Singh, co-author of the Female FTSE Report, said: ‘Corporate Governance is about putting in place the right board structures and processes to improve board effectiveness. For example, a diverse board can generate a richness and quality of ideas that is lacking in an all-male board firmly locked into the same mindset. The result is often a better managed company, making more informed decisions, with a greater understanding of the needs of its customers and workforce.’
“The overall picture of women on the board of FTSE 100 companies is a mixed one however. The total number of women directors has gone up from 88 to 96, and more promisingly in 2004 we have seen the largest increase ever in the proportion of new director appointments going to women (17 percent, up from 13 percent in 2003). On the downside the number of companies having all male boards has remained relatively static (31 in 2004, 32 in 2003)….
“Director of the Cranfield Centre for Developing Women Business Leaders, Professor Susan Vinnicombe of Cranfield School of Management said: ‘The U.K. is taking a unique position in the world in the way it is endeavoring to modernize its top 100 boardrooms without resorting to enabling legislation or quota systems as done elsewhere. We see government, chairmen, existing women directors, search consultants, academics, leading journalists and change organizations, working together in energetic and innovative ways to create momentum.’
“‘…Another significant finding is that 33 percent of the new female directors already have current or previous FTSE 100 board experience. This goes against conventional thinking that women lack experience at FTSE board level. Further, 92 percent of the new female directors have portfolio experience (i.e., experience from more than one sector),’ said Professor Vinnicombe.
“In the light of this research, Trade and Industry Secretary Patricia Hewitt encouraged corporate Britain to widen the talent pool for British boardrooms. Patricia Hewitt said: ‘I`m pleased that 17 percent of new board appointments this year have been female. But clearly for some British businesses, diversity is still not part of their plan. That means they might not be getting the best people for the job.’
“Professor Vinnicombe’s research suggests that companies with diverse boardrooms also tend to be the ones with good corporate governance….”
“In modern life, nothing produces such an effect as a good platitude. It makes the whole world kind.”
– Oscar Wilde (Irish writer, 1854-1900)
