Ethics Newsline®

Source: Figures, which may include items as well as cash, compiled by the Chronicle of Philanthropy as of Jan. 10, 2005.

Making an ethical decision takes several steps — gathering facts, analyzing dilemmas, building moral arguments, applying resolution principles. But none of them matters much without a crucial first step: recognizing that the issue at hand is in fact an ethical issue.

Surprising numbers of ethical collapses arise directly from a lack of this moral awareness. Of the many ways that people get morally blindfolded, three of them — lethargy, ignorance, and hypocrisy — are on display in recent news about WorldCom, Cendant, and Enron.

Lethargy. Last week, ten former directors of WorldCom settled an investor lawsuit for $54 million, including $18 million of their own personal funds. The charge, essentially, was that they were asleep at the switch. As their own executives were precipitating the largest bankruptcy filing in history, the directors were letting it pass unnoticed. Had the ethics alarm sounded, would they have roused themselves, gathered facts, and analyzed the issue? Who knows? It appears that no one even thought to construe what was happening as an ethical issue.

Ignorance. A more complicated blindness involves Cendant, in the news last week with the trial of two former executives, E. Kirk Shelton and Walter J. Forbes. Mr. Shelton, who was second in command at CUC International before its merger into Cendant, was found guilty in an accounting fraud that, when discovered in 1998, was the largest in U.S. history. But his CEO at the time, Mr. Forbes, was not convicted. The reason: Mr. Forbes argued that he didn’t know what was going on. He claimed he was “the outside voice of the company” and let others attend to details. Whether he knew or not was the crux of the legal issue resolved by the jury. Whether he ought to have known, by contrast, is resolved by an ethical principle enshrined in Harry Truman’s famous Oval Office motto, “The buck stops here.”

Hypocrisy. Meanwhile, as former Enron CEO Kenneth Lay prepares for his upcoming trial, we’re reminded of a third kind of blindness. In the fall of 2001, as Enron was swirling into the vortex that would destroy its stock price, Mr. Lay sold millions of dollars worth of his own shares. At the same time, he was urging employees to take advantage of “an incredible bargain” and buy Enron stock — without telling them that he’d just dumped massive amounts of it. Didn’t he see an ethical anomaly? “I don’t suppose I even thought about it,” he told the Houston Chronicle.

Of the three kinds of blindness, Mr. Lay’s is the most pernicious. While the WorldCom directors should have been more vigilant, it’s hard for boards to ferret out a deliberate executive conspiracy. And while CUC’s Mr. Forbes had ultimate responsibility for ethical rigor in his company, every CEO knows that good leadership requires delegation to those whom you trust — and who sometimes let you down.

Mr. Lay’s blindness is of another order. The world is flush with moral aphorisms on this kind of behavior, including the Golden Rule, Kant’s imperative to treat others as ends rather than as means, and the exhortation to “watch what I do, not what I say.” Such blindness, then, is little short of hypocritical.

Yet in an odd way it’s understandable. There’s a tunnel vision that can plague successful leaders. They pride themselves on focus. Trained to keep their eye on the ball, they ignore their peripheral vision. Failing to see what’s right beside them, they don’t connect ideas that scream for interrelationship — like selling stock while urging others to buy.

If creativity can be defined as looking at one thing and seeing another, the kindest indictment of Mr. Lay is that he was so uncreative that he never even looked — that, like the WorldCom directors, he was ethically asleep. A more damaging analysis suggests that never, even in hindsight, did he think caringly about his employees — because, like CUC’s Mr. Forbes, he was so focused on externalities. The most serious indictment, however, is that he saw dangers looming and cynically manipulated those who most trusted him.

Which was it? The courts will soon chew over that question. Whatever the answer, the point remains: A lack of awareness causes more ethical failings than muddled values and misplaced reasoning combined. Want to avoid career-ending ethical lapses? Start by honing your ethical awareness.

©2005 Institute for Global Ethics

“The support from corporations has been tremendous, like nothing we’ve seen.”

– U.S. Fund for UNICEF spokeswoman Marissa Buckanoff, speaking to USA Today about a record $12 million in donations received two weeks ago to aid victims of December’s tsunami. Companies gave nearly $6 million of that week’s donations to the group, according to the paper’s profile of corporate relief efforts. (“Business World Shows It Cares,” USA Today, Jan. 3)

NEW YORK
In a move that could cool interest in joining corporate boards, 10 former directors of WorldCom Inc. last week agreed to pay $18 million out of their own pockets for their failed oversight of the bankrupt telecom firm.

The directors, all of whom served between 1999 and 2002, are among those named in class-action litigation accusing WorldCom directors and officers of negligence in the lead-up to the firm’s July 2002 bankruptcy.

Under last week’s settlement, the former directors agreed to pay $54 million for alleged mismanagement, with $18 million earmarked to come out of their personal accounts, reported the Washington Post.

That arrangement is unusual, press reports note, since most companies carry insurance designed to insulate directors from taking a personal hit when sued for wrongdoing.

In this case, however, the scale of bookkeeping fraud at WorldCom — the firm eventually restated its 2000 and 2001 figures by $74 billion — put the former board members in the sights of angry shareholders, with investors demanding personal accountability on the part of directors, according to the New York Times.

“This is a watershed development by imposing personal liability on corporate directors beyond the scope of insurance coverage,” former U.S. Securities and Exchange Commission chairman Richard Breeden told the Post.

“It will send a shudder through boardrooms across America and has the potential to change the rules of the game,” he added. Breeden is serving as WorldCom’s court-appointed corporate monitor.

WASHINGTON
In a push to make national policy more closely reflect corporate priorities, several of the nation’s powerful business groups have announced plans to attempt to dismantle parts of the Sarbanes-Oxley Act and stump for President Bush’s conservative judicial nominees.

Sarbanes-Oxley, passed in 2002 to bolster corporate transparency after the Enron and WorldCom debacles, imposed rigorous auditing and governance requirements on U.S. companies.

Now a handful of firms and trade groups — the American Bankers Association, Fidelity Investments, and the U.S. Chamber of Commerce among them — are seeking to roll back some of the Act’s provisions.

Complainants say Sarbanes-Oxley has gone too far, setting too-steep demands on boards and officers, and cutting into profits by requiring more exhaustive audits to prevent bookkeeping fraud. The costs, they say, are too onerous for large companies and too expensive for smaller firms.

The groups plan to spend their funds recruiting members, unleashing mailings, filing lawsuits, and lobbying Congress in an effort to strip out some of the tougher rules of Sarbanes-Oxley, reported the Washington Post.

And when commissioners at the Securities and Exchange Commission (SEC) come up for reappointment or replacement, they plan to lobby the White House on who they would like to see take the open seats.

While corporate America says Sarbanes-Oxley has problems that are hurting businesses, former SEC chairman Harvey Pitt said they have no one to thank but themselves for the ethics onus imposed by law.

“If these industries had taken the lead in detecting their own conflicting practices, and then resolving them, there wouldn’t be anything for Elliot Spitzer or the SEC to do,” Pitt told the Post.

“What business should be concerned with is the attitude on the part of the SEC that regulation is the solution to all financial market problems,” Pitt said. “It isn’t, and it shouldn’t be.”

In other news, the National Association of Manufacturers (NAM) last week said it will use its clout to enter politics by helping President Bush push his federal judicial nominees through the confirmation process.

NAM’s decision to stump for pro-business candidates will align the group with social conservatives, a union that NAM head John Engler insists is both politically necessary and beside the point.

“The whole effort to cast this in terms of a few social issues … ignores the fact that much of the work of the courts has to do with America’s ability to compete internationally,” Engler, the former governor of Michigan and a longtime friend of President Bush, told the Los Angeles Times.

NAM represents more than 10,000 smaller U.S. firms, as well as behemoths like Boeing, Caterpillar, and General Motors, according to the Times.

WASHINGTON
Repercussions echoed through the media and on Capitol Hill last week after USA Today revealed that the Bush administration paid well-known black conservative commentator Armstrong Williams $240,000 to promote the government’s education policies.

Documents obtained by USA Today under a Freedom of Information Act request showed that Williams accepted payment through a public relations firm to “regularly comment” on the controversial No Child Left Behind Act (NCLB) during his broadcast commentaries, to interview Education Secretary Ron Paige on his shows, and to use his contacts in the media to promote the legislation.

Until it was revealed by USA Today, Williams had not disclosed the arrangement.

NCLB, a controversial centerpiece of the Bush administration’s legislative agenda, is aimed primarily at improving results in poorly performing school districts, and imposes penalties against schools that do not meet standards that many educators say are underfunded.

While Williams maintained that he is a commentator and not a journalist, he admitted he had crossed an ethical line. “My judgment was not the best. I wouldn’t do it again, and I learned from it,” he said.

Tribune Media Services, which syndicates Williams’s column, last week cut all ties with the commentator. “Readers may well ask themselves if the views expressed in his columns are his own, or whether they have been purchased by a third party,” the company said in a statement.

The Education Department defended the arrangement as legal and proper, saying it followed legitimate procedures to enhance public understanding of the No Child Left Behind Act.

But under pressure from top Democrats and House Education Committee head Rep. John Boehner (R-Ohio), a formal investigation by both the House committee and the Education Department’s inspector general are expected.

According to USA Today, the lawmakers wrote that “the act of bribing journalists to bias their news in favor of government policies undermines the integrity of our democracy.”

Last week’s news follows two findings last year by the Government Accountability Office (GAO), Congress’ nonpartisan investigative arm, that the Bush administration has engaged in “covert propaganda” to push its policies.

While PR efforts are nothing new in Washington, the current administration has taken heat for tilting its ad efforts further away from disclosure and transparency, according to the Los Angeles Times.

“The crucial issue here is the covert aspect of it,” GAO managing associate general counsel Susan Polling told the Times. “If this is prepared with tax dollars, then legally it should be acknowledged as such.”

While some lawmakers have said Williams should return the money, he dismissed the demands last week as “ludicrous,” telling USA Today that the government “bought advertising, and they got it.”

WASHINGTON
U.S. regulators last week took aim at the chairman of Mexico’s second-largest TV broadcaster, accusing him of concealing $109 million in self-serving deals from the company’s investors and board members.

The civil fraud charges against TV Azteca chairman Ricardo Salinas Pliego were filed after the firm’s U.S. lawyers quit in December 2003, saying he had refused to heed their advice to disclose his activities.

Under new ethics rules in the 2002 Sarbanes-Oxley Act, corporate lawyers have the right to call it quits and alert authorities if they become aware of potentially fraudulent conduct, as in this case, reported the Washington Post.

Salinas Pliego has denied any wrongdoing around the $109 million deal between a private firm he owned and a TV Azteca subsidiary — a transaction that Salinas Pliego repeatedly concealed from regulators and the company’s board, according to the U.S. Securities and Exchange Commission (SEC).

The SEC last week hit Salinas Pliego with civil fraud charges, saying that since his TV Azteca firm trades on the New York Stock Exchange, it must operate with the transparency required by U.S. law.

“Geographic boundaries will not serve to protect those who seek to defraud investors,” said SEC associate district administrator Spencer Barasch. “When companies, domestic or foreign, avail themselves of our capital markets, they have the same responsibility to adhere to U.S. securities law.”

Two TV Azteca directors also were named, one of whom has paid $200,000 to settle civil charges with the SEC.

The SEC suit seeks more than $110 million in forfeiture and penalties from Salinas Pliego, as well as disbarment from serving as a director or officer at any firm traded in the United States, reported the New York Times.

WASHINGTON
From the Capitol to Cuba, the treatment of prisoners captured during the U.S.-led war on Iraq spawned numerous stories with ethical threads last week. Among the developments:

• Alberto Gonzalez, nominated to head the Justice Department by President George W. Bush, was questioned last week on Capitol Hill by the Senate Judiciary Committee over his role in drafting memos that appeared to approve the use of torture on detainees. Gonzalez, who initially distanced himself from the memos and their ensuing scandal, was later revealed to be significantly involved in their drafting, leading to questions about his ability to stand with constitutional principle instead of push for wanted political ends. Gonzalez defended his actions, saying the Bush administration does not endorse torture. He is expected to be confirmed.
• U.S. military doctors violated both the Geneva Conventions and their Hippocratic oath by helping U.S. forces design coercive and painful interrogation procedures, last week’s New England Journal of Medicine asserted. The Journal reports that military medical personnel helped tailor the techniques by basing them on detainees’ medical and psychological records. The Pentagon last week called the article inaccurate, saying that while doctors consulted on techniques, they never participated in the actual abuse or torture, according to the Washington Post. The Pentagon also said that some military doctors may legitimately focus their efforts not on healing patients, but on coaching interrogators in how far they can go without endangering a detainee’s health.
• An Australian citizen being held by U.S. forces at Guantánamo Bay, Cuba, last week accused the U.S. military of sending him in late 2001 to Egypt where he was questioned and tortured. Egyptian-born Mamdouh Habib has asked U.S. courts to bar the military from engaging again in the process known as rendition, according to papers released last week. The U.S. military told the Washington Post that it asks countries with poor human rights records for assurances that such captives will not be harmed, though critics say the tacit understanding is otherwise. An Egyptian official last week told the Post that “accusations that we are torturing people tend to be mythology.”
• The U.S. military said it will investigate allegations of prisoner abuse detailed in recently released FBI documents. To date, the Pentagon says 137 military members have been disciplined or face courts-martial for mistreating detainees, according to the New York Times. The scope of the allegations in terms of both number and geography have led to questions about whether such abuse was random, as the military insists, or derivative from policy, as critics contend. Last week also saw the selection of a 10-man jury for the military trial of U.S. Army Spc. Charles Graner, widely fingered as the ringleader in the abuses at Abu Ghraib, noted the Associated Press.

WASHINGTON
Kicking off the new season in Congress, Republicans in the U.S. House of Representatives last week pushed through a measure effectively making it harder to investigate alleged ethics breaches by elected officials.

The new rule would block investigations of accused officials unless the House ethics committee casts a majority vote to pursue the matter. If the committee — made up of five members of each party — is deadlocked, the investigation will no longer move forward.

In the past, investigations of accused officials automatically started after 45 days of deadlock among members of the House ethics committee.

That arrangement made it more likely that alleged wrongdoing would be investigated because committee members could still toe the party line by deadlocking, while still knowing that the matter would eventually be probed.

Under the new rule, however, an ethics committee member now must make the politically perilous decision to investigate a member of their own party before any investigation can begin — a step many Washington watchers say is unlikely, according to the New York Times.

Introduced by Rep. David Dreier (R-Calif.) and championed by House Speaker Dennis Hastert (R-Ill.), the new rule was crafted in a Republican-only conference and then adopted by a 220-to-195 vote.

A Hastert spokesman said the rule would restore the “presumption of innocence in our process” by blocking purely partisan attacks. Critics countered that the new measure stifles the process altogether.

Rep. Louise Slaughter (D-New York) noted that the ethics committee’s rare and repeated rebukes of House majority leader Tom DeLay (R-Texas) last year all eventuated after deadlocks among the committee.

“If these changes had been in place in the last Congress, no ethics complaints would have seen the light of day,” Slaughter, the senior Democrat on the House Rules committee, warned last week.

Rep. Christopher Shays (R-Conn.) broke with Republican leaders to criticize last week’s move, noting that deadlock-spawned investigations often highlighted important issues and that majority votes already were needed before the ethics committee could concretize a rebuke.

“You always needed a majority (vote) to make a finding, but the point is once you have an investigation, it’s harder to cover things up,” Shays said, according to the Los Angeles Times.

In related news, House Republicans last week rescinded a November rule change meant to shield DeLay in case he is indicted by a Texas grand jury investigating fundraising irregularities by a related political action committee.

That vote last Fall subjected the Republicans to sharp criticism from both sides of the aisle for apparently rolling back ethics protections long in effect. DeLay last week urged the reversion, saying he was confident he would avoid indictment, noted the Times.

Rep. Zach Wamp (R-Tenn.) said the move “allows the Republicans to focus on the issues, the agenda that is before us, and not to have Tom DeLay be the issue. I feel like we have just taken a shower.”

WASHINGTON
Calling into question both past research and present practice, a fired employee of the U.S. National Institutes of Health (NIH) last week said the agency’s research into a widely used anti-AIDS drug was seriously flawed.

Dr. Jonathan Fishbein aimed his criticism at the drug nevirapine, single doses of which are used across Africa to combat the transmission of HIV from pregnant mothers to their newborn children.

Fishbein last week said that the NIH so badly botched the safety testing of the drug “that its data must be rendered invalid as a matter of law, policy, and human health,” reported the Reuters news agency.

Fishbein’s testimony came during a hearing being held by a panel of experts at the Institute of Medicine, which has been asked to investigate the NIH’s testing and methodology following a critical exposé last month by the Associated Press.

More than 1,000 mothers and newborns were involved in the tests, which took place in Uganda between 1997 and 1999. The study was suspended and reviewed in 2002 after concerns were raised by Fishbein, auditors, medical experts, and others, according to the AP.

While admitting that there were problems with some of the study’s technical aspects, the NIH green-lighted the continued use of nevirapine, which had become widely prescribed in the 1990s.

“At the end of the day our conclusion was that indeed things could have been done better,” NIH official Dr. Clifford Lane told Reuters. “But in reviewing everything and double-checking … we found nothing to question the safety and efficacy of nevirapine.”

Fishbein last week accused NIH officials of being “so heavily invested in the (Uganda) trial’s outcome” that they lacked objectivity, distorted research, and overlooked problems to ensure the drug’s continued use.

Fishbein, who was hired by the NIH to improve the agency’s research practices, says he is being fired for speaking out. The NIH says he is being fired for poor performance, noted the AP.

LONDON
Despite a few small improvements, workplace equality for Britain’s women appears to be stalling and may soon warrant government intervention, according to an annual government review.

The U.K. Equal Opportunities Commission (EOC) pins much of the blame on businesses’ outdated reliance on the so-called “mummy track,” which sidelines women trying to juggle both a career and a family.

The government’s annual “Sex and Power: Who Runs Britain?” report charted nearly negligible gains in representation for women at top posts in politics, businesses, the judiciary, and other public sectors.

While there has been progress in past years, between 2003 and 2004 the gains barely registered, EOC deputy chair Jenny Watson told the Guardian.

“Women now make up over half the workforce and the proportion is growing. Yet our decision-makers remain overwhelmingly male,” Watson said. “We can no longer assume that it’s only a matter of time before more women make it to the top.”

The government, which already has passed a raft of family-friendly workplace rules, is threatening to take matters further if businesses fail to correct the disparities themselves.

The EOC has argued that flexible work hours should become the norm, replacing the longtime categories of full-time and part-time work with a new “continuum of hours” that lets employees select the hours that will let them be most productive for firms.

According to the EOC, such flex-time arrangements should be “commonly available at every level of job and across the economy,” the Guardian reported.

WASHINGTON
After facing blistering criticism for failing to address widespread sexual assault among the armed services, the U.S. Defense Department last week announced plans to tackle the problem at its military posts worldwide.

The new plan comes after testimony and reports indicating that hundreds of female soldiers have been sexually assaulted, both at training academies and at current stations in the Middle East.

A Pentagon taskforce last year concluded that the Defense Department was failing to do enough to stop the violence, protect victims, and punish offenders, reported the Washington Post.

Last week, Undersecretary of Defense for Personnel and Readiness David Chu acknowledged the military’s failings, announcing a series of steps aimed at turning the situation around.

Included in the plans are a standardization of procedures for dealing with alleged assaults, and improved confidentiality for accusers, many of whom fear retaliation if they step forward.

Plans also call for the appointment of a sexual assault response coordinator at every U.S. military installation around the world, with an emphasis on helping the victim, according to the New York Times.

While Chu said he hopes the new policy helps recover the trust of victims and “instills in our services that this crime will not be tolerated,” he said the road to fixing the military’s current problems may be a long one. “There is no overnight solution, and to do this right, it is going to take time.”

From the Chronicle of Philanthropy:

“Donations have streamed in to relief organizations that are providing aid to victims of the deadly earthquake and tsunamis in South Asia. American relief charities have raised [figures as of January 7, 2005] more than $324 million, with much of the money coming in online. The total amount raised from private sources is now getting closer to the $350 million pledged by the U.S. government.

“Some of the money raised by relief groups has been contributed by companies and foundations. The Chronicle has tallied more than $90 million awarded to relief efforts by grant makers.

“Among the organizations that have raised the most money are:

• “Twelve days after the December 26 catastrophe, the American Red Cross has raised nearly $150 million. A little more than half of that total has come in through the organization’s Web site.
• “The U.S. Fund for Unicef, in New York, has received $35 million for its relief efforts. Donors have made Internet gifts totaling approximately $25 million.
• “Save the Children, in Westport, Conn., has received $23 million in contributions, with $9.5 million coming through the organization’s Web site.
• “Catholic Relief Services, in Baltimore, has brought in $21 million, more than $10 million of which was donated online.
• “As of Wednesday, World Vision USA, in Federal Way, Wash., had received gifts totaling $20 million, with Internet contributions accounting for $11 million of that figure.
• “Oxfam America, in Boston, has raised $16 million, $12 million of which has come in online. Oxfam International affiliates have together raised more than $73 million for relief efforts.
• “CARE USA, in Atlanta, has collected $16 million for its relief efforts. Internet gifts account for $6.1 million of that total. Internationally, CARE has raised $55 million.

“…Smaller charities have also raised significant amounts for their relief efforts…

“Doctors Without Borders, in New York, has raised more than $20 million, $16 million of which was contributed via the Internet. Worldwide, the Doctors Without Borders network has raised more than $50 million….

“Doctors Without Borders now believes that it has raised enough for its emergency response in South Asia, and has posted a notice on its Web site donation page asking donors to contribute to the organization’s general Emergency Relief Fund.

“‘We kindly request that you contribute to our general Emergency Relief Fund, which is enabling our quick response to the current disaster in South Asia as well as humanitarian needs in war-torn Darfur, Sudan, and elsewhere in the over 70 countries where MSF is working around the world,’ the statement reads….

“While the pace of donations raised for the tsunami victims has been extraordinarily quick and generous, the American response has still been somewhat slower than after the September 11, 2001, terrorist attacks. In the two weeks after the attacks, donors contributed at least $550 million to help the victims of that catastrophe.”

“The spirit of the world has four kinds of spirits diametrically opposed to charity — resentment, aversion, jealousy, and indifference.”

– Jacques-Bénigne Bossuet (French bishop, 1627-1704)