1. Wegmans Food Markets
2. W. L. Gore
3. Republic Bancorp
4. Genentech
5. Xilinx
6. J. M. Smucker
7. S. C. Johnson & Son
8. Griffin Hospital
9. Alston & Bird
10. Vision Service Plan
Now and then, when the mental weather is just right, a topic that’s been hovering unseen in the cultural atmosphere starts crystallizing and precipitating. This month, for no apparent reason, that topic is public penalties. It’s in the news everywhere you look.
Not only has CBS sacked four top executives following an investigation into anchorman Dan Rather’s reporting on President Bush’s National Guard service. Not only have ten former WorldCom directors coughed up $18 million in personal funds as punishment for their part in one of the world’s largest bankruptcy cases. Not only has a U.S. Army reservist received 10 years in military prison and a dishonorable discharge for his role as a ringleader in the abuses at Iraq’s Abu Ghraib prison. Not only has Major League Baseball announced a revision of penalties for players caught using steroids. Even the Supreme Court has weighed in, challenging the architecture of the federal sentencing guidelines used by judges to determine penalties large and small.
The court’s decision brought a philosophical perspective to this suddenly visible topic. What, after all, are the most fitting penalties for various crimes? How can they be made consistent, so that similar crimes in like contexts get similar sentences?
But for most people, I suspect, the galvanizing questions this month arose not from high-level judicial philosophizing (important though that is) but from down-to-earth ethical incongruities. When sentences seem too light, too heavy, or too inconsistent — or when they’re meted out to underlings rather than to those bearing the overall responsibility — public confidence takes a hit.
How deep a hit? Here’s a little test, phrased in the language of the high-school yearbook. Which of the four cases involving (1) CBS, (2) WorldCom, (3) Major League Baseball, or (4) Abu Ghraib would you vote “most likely to succeed” in:
promoting a snickering public cynicism;
causing a massive sigh of relief in high places;
sending a frisson of horror shivering through an entire elite community; or
engendering a head-shaking, they-had-it-coming, I-told-you-so response?
I suspect 1(d) is pretty obvious. When Dan Rather and CBS producer Mary Mapes allowed their values to be largely defined by competition and haste, they ignored the most rudimentary journalistic standards for checking facts and verifying sources. Then they surrendered any appearance of independence by talking with Democratic presidential candidate John Kerry’s campaign, fueling the impression that they were not trying to get the story but to get Bush. Finally, instead of learning from the sobering and instructive history of stonewalling (including Watergate and Clinton-Lewinsky), they clung doggedly to their story. Result: a grim public satisfaction in seeing a tainted organization get punished, even though some of its top people escaped.
That escape — and the relief engendered in high places when someone below you takes the fall — produces the 4(b) linkage. In the Abu Ghraib case, public outrage would have been severely roiled had Charles Graner gone free. But the prospect of those above him avoiding punishment smells so pungently of caproic acid — the scent of goats, in this case scapegoats — as to undermine the very premise of a chain of command. If the Army stands for anything, it is that superiors who have earned the right to give orders must shoulder the responsibility for knowing what’s going on. The gosh-I-had-no-clue defense ploy, which apparently may be used by former Enron CEO Ken Lay in his upcoming trial, is pitiful in the corporate sector. In the military, it’s scandalous.
Also associated with that defensive ploy, of course, is former WorldCom CEO Bernie Ebbers. Not so his directors, whom I would pair up with the frisson of horror in point (c). That shivering chill may betoken a new curb on malfeasance — and even ignorance — by corporate directors everywhere. The message is now clear: A director’s personal assets are not immune when his or her decisions wreck the fortunes of other investors.
Baseball, by contrast, has dug in to defend its immunity. Its 3(a) combo can promote only more cynicism. Is Major League Baseball really saying that a crime as severe as the use of performance-enhancing steroids can be indulged three times, and punished only in gently increasing stages, before a meaningful penalty kicks in? That a crime whose first indulgence sends Olympic athletes into often-career-ending banishment should, in the pro leagues, be treated with such hand-wringing and coddling? That it’s okay that every game played this next season may well have somebody on the field who, unknown to us, will be currently and deliberately using steroids? That a game so proudly associated with kids — think of the old bubble-gum-and-baseball-cards connection — should so cynically assert that steroids, known for their devastating effects on the young, are really not so bad? Does baseball really want to go the way of professional wrestling, which is known widely not as a genuine sport but as merely scripted crowd-pleasing?
Four issues, four penalties. When the punishment fits, behavior shifts and the public is encouraged. When it misses the mark, nothing changes and cynicism builds. As these events remind us, an ethical culture gets built not just by judging the guilty but by punishing them in just the right way.
©2005 Institute for Global Ethics
“There’s a war on. Bad things happen.”
– U.S. Army Reserve Spc. Charles Graner, Jr., responding to a question about whether he felt remorse for abusing detainees at Abu Ghraib prison in Iraq. Graner, who was found guilty in a court-martial last week, was sentenced to 10 years in military prison. (“Graner Sentenced to 10 Years for Abuse,” AP, Jan. 16)
SAN FRANCISCO
Ending a six-year standoff over a massive accounting scandal, McKesson Corp. last week agreed to pay nearly $1 billion to settle a class-action lawsuit accusing the firm of defrauding investors in the late 1990s.
McKesson, the nation’s largest drug distributor, actually inherited the problem when it purchased healthcare software company HBOC in 1999, reported the New York Times.
HBOC, which built and supplied software to help hospitals track drug inventory and patient needs, allegedly engaged in bookkeeping fraud designed to inflate revenues.
When the boondoggle made headlines, the company lost $8.6 billion in market value in one day, shocking investors and spawning a flurry of lawsuits.
Last week’s settlement ends 54 of those lawsuits, consolidated by the courts and spearheaded by New York State Comptroller Alan Hevesi, who served as a trustee for a pension fund that took a big hit in the crash.
The $960 million settlement, coupled with $240 million reserved by McKesson to settle a handful of remaining suits, serves as “a warning to the few companies that commit fraud, and a message to the rest to be honest,” Hevesi said last week.
The agreement is the nation’s third-largest settlement of a class-action securities case, according to the Associated Press, trailing settlements of $3.2 billion by Cendant and more than $2.6 billion by WorldCom.
Charges related to the HBOC fraud are still pending against eight former executives, as well as against Bear Stearns investment bank and now-defunct auditing firm Arthur Andersen, according to the Times.
Special to Newsline from Canadian correspondent Errol P. Mendes
OTTAWA
The Globe & Mail is reporting that governance and accounting experts in Canada are laying the blame for Nortel Network’s woes not only on former CEO Frank Dunn, but also on its board of directors and outside auditors.
The criticism follows a Washington law firm’s independent review of the financial and accounting irregularities at the company, which have seriously hurt its reputation and share value.
The review by law firm Wilmer Cutler Pickering Hale and Dorr laid a substantial part of the blame for the irregularities on Dunn, but did not criticize the board of directors or outside auditors Deloitte & Touche.
But Stephen Jarislowsky, a leading governance expert and investment manager, asserted that the board’s approval of a bonus scheme for senior management provided the incentive for these managers to cook the company’s books and inflate corporate profits.
Al Rosen, a leading forensic accountant, has asserted that Nortel should have replaced its longtime outside auditors after the company stated that investors could no longer rely on audited financial statements going back to 1999.
Rosen is particularly mystified, according to the Globe & Mail report, that Deloitte & Touche could sign the restated 2003 financial statements when the company had doubted the accuracy of its books in earlier years.
The accounting firm did not raise any concerns about Nortel’s accounting processes during audits of the firm’s past results, according to the report.
The board and its outside accountants are facing class-action lawsuits as well as criminal and regulatory investigations in Canada and the United States.
NEW YORK
CBS News last week ousted four senior executives following the release of a report slamming the organization for sloppy reporting based on unverifiable documents concerning President Bush’s time in the National Guard.
CBS News’s “60 Minutes Wednesday” program aired the report last September, basing it largely on four memos casting doubt on Bush’s accounts of his time in the Texas Air National Guard.
The documents, which CBS said had been authenticated, were likely created on a computer word-processing program that did not exist at the time they were purportedly written, according to subsequent investigation.
An independent review of the matter by former U.S. Attorney General Dick Thornburgh and former Associated Press president Louis Boccardi concluded that a number of factors were to blame, including “the combination of a new ‘60 Minutes Wednesday’ management team, great deference given to a highly respected producer and the network’s news anchor, competitive pressures, and a zealous belief in the truth of the segment.”
While they said no evidence could be found to suggest a political agenda by the network, the men faulted CBS News for both a “rigid and blind” defense of the report and for disregarding “some fundamental journalistic principles,” reported CNN.
Leslie Moonves, co-president of CBS parent Viacom Inc., last week issued a statement in which he called much of the episode’s broadcast “wrong, incomplete, or unfair.”
After the report’s release, Moonves fired Mary Mapes, who produced the controversial report and was widely blamed for overriding others’ concerns and circumventing vetting procedures, according to the Associated Press.
Resignations were requested from senior vice president Betsy West; Josh Howard, the show’s executive producer, who had been at the post for only six days before the airing; and his top deputy, Mary Murphy.
Dan Rather, who narrated the report and subsequently stood by it on his “Evening News” broadcast, was characterized in the report as having a limited role in preparation of the segment but being overzealous in defending it.
Rather was not formally disciplined, but Moonves seemed to hint that Rather’s previously announced retirement from the anchor chair was related to the scandal.
Moonves, quoted in the New York Times, said that Rather had already apologized for the segment and “taken responsibility for his part in then broadcast. He voluntarily moved to set a date to step down from the CBS Evening News in March of 2005…. We believe any further action would not be appropriate.”
NEW YORK
Oversight problems in the U.N. Oil-for-Food program were well known long before becoming publicized and sparking a scandal, according to documents released last week by independent investigators.
An independent commission led by former U.S. Federal Reserve Chairman Paul Volcker is one of several groups looking into allegations of embezzlement and mismanagement in the more-than-$60-billion humanitarian program.
Last week, Volcker’s Independent Inquiry Committee released a 36-page analysis and 58 internal audits of the U.N. program, documenting persistent problems in how the program’s contracts were managed.
Problems included a “chronic shortage” of auditors, a failure to adopt reforms suggested by auditors, wasteful contract awards, and massive overbilling by some contractors, reported the New York Times.
“Though the auditors tried their best, we now know there were significant problems with their work, such as the lack of in-depth monitoring of the New York Oil-for-Food program office,” added Reid Morden, executive director of the Independent Inquiry Committee.
Documents examined by the group found that the New York headquarters consumed nearly 40 percent of the program’s $1 billion in administrative costs, reported the Times.
Also last week, two European papers — the Financial Times of London and the Italian business daily Il Sole 24 Ore — claimed they had discovered evidence that Britain and the United States permitted a massive oil smuggling scheme to take place in early 2003.
The papers reported that the smuggling, which involved 14 Jordanian tankers, at least seven million barrels of oil, and $150 million in profits, also put $50 million into the pockets of Saddam Hussein’s cronies.
Volcker last week confirmed that the United States allowed violations of the oil embargo “in recognition of its national interest,” according to the Financial Times.
In this case, the smuggled oil was diverted to Amman, Jordan, in order to build up strategic reserves ahead of the Iraq war, the paper reported.
While the U.S. State Department last week said it acted responsibly in tackling smuggling, emails obtained by the papers appear to contradict official statements that the United States was unaware of the smuggling operation.
EDINBURGH, Scotland
U.K. book chain Waterstone’s last week sacked a longtime employee over two unflattering comments posted on his web diary, known in Internet circles as a web-log or “blog,” sparking debate over free speech and employee rights.
Joe Gordon, an 11-year veteran at Waterstone’s, was fired after using his blog to vent twice about his “Evil Boss” and “Bastardstone’s,” reported the Guardian.
Gordon, who said the comments came after an especially bad day on the job, criticized his former employer for overreacting and stepping on the free speech rights it so proudly has championed in ad campaigns.
“This was moaning about not getting your birthday off or not getting on with your boss,” Gordon told the Guardian. “I wasn’t libeling anyone or giving away trade secrets.”
“It is a big personal blow to me to lose my job and it also has grave implications beyond that — for anybody who works for any company and blogs,” he added.
The Guardian and other press reports catalog a handful of workers fired for their blog postings, as well as criticism from science fiction author Richard Morgan.
“This bears comparison with taking disciplinary action based on private conversations overheard in a pub, and raises some disturbing issues of freedom of speech,” Morgan told the paper.
In other blog news, U.S.-based watchdog group the Electronic Frontier Foundation (EFF) last week said it will provide legal representation for two bloggers being sued by Apple for leaking details about upcoming product releases.
The bloggers are being sued by Apple in an attempt to force them to identify their sources, reported NewsFactor.
The case is the first to test the EFF’s contention that bloggers warrant the same protections afforded to journalists who promise anonymity to confidential sources.
WASHINGTON
The state of Missouri last week said it may shut down its popular “Adopt-a-Highway” litter clean-up program after the Ku Klux Klan won the last round in a legal battle to participate in the program.
The Klan’s victory came after the U.S. Supreme Court last week refused to overturn a lower ruling that said Missouri would violate the group’s First Amendment rights if it banned the Klan from participation in the program.
Last week’s refusal to consider the case marks the second time that Missouri has lost a fight to keep the Klan from claiming a stretch of highway — as well as the thank-you sign typically erected by the state.
After losing its first battle to the Klan in 2001, Missouri modified its Adopt-a-Highway program to bar groups with a “history of hate.” The Klan sued again, resulting in last week’s defeat, reported the St. Louis Post-Dispatch.
Missouri argued that allowing the Klan to participate in the program encouraged people to infer the state’s support for the Klan, “giving motorists the mistaken impression that the state has anything good to say about a horrific, racist group.”
Missouri also said the Klan’s engagement could actually increase litter by passers-by angry with the group, as well as endanger highway workers mistaken for Klan members by motorists, noted the Post-Dispatch.
“The state of Missouri was hanging its hat on the notion that Klan members were creating threats and committing horrible crimes, and that was far from the reality,” said Thomas Robb, national director of the Knights of the Ku Klux Klan. “You cannot abolish someone’s First Amendment rights simply by what you think might happen.”
Given last week’s victory, Robb said the Klan may try to join Adopt-a-Highway programs in other states.
ATLANTA
A federal judge last week ordered an Atlanta-area school district to remove stickers calling evolution a “theory” from science textbooks, saying the district had crossed the line separating church and state by apparently endorsing religion.
While federal judge Clarence Cooper said the stickers’ language itself was inoffensive, he noted that the stickers’ origin was religiously motivated, making the stickers impermissible.
The stickers were placed in the books in 2002 after complaints by parents who support so-called intelligent design, which posits that the universe is so complex that it must have been created by a higher power.
The parents were upset that evolution, though widely accepted by scientists, was presented as fact.
Other parents, backed by the American Civil Liberties Union, sued, arguing that the disclaimers were an illegal use of public resources to fund and promulgate a religious viewpoint.
By putting the stickers in the science books at the parents’ behest, “the Cobb County School Board appears to have sided with these religiously motivated individuals,” Judge Cooper wrote, according to CNN.
Intentionally or not, the stickers send “a message that the school board agrees with the beliefs of Christian fundamentalists and creationists,” unconstitutionally entangling a public school with religious instruction, he concluded.
The school board last week said it has not decided whether to appeal, according to the New York Times.
SCOTTSDALE, Arizona
Under pressure from nearly all fronts, Major League Baseball (MLB) last week announced a new and tougher testing program for steroids, though some critics faulted the deal as too little, too late.
Under the new policy, in effect for the 2005 season, a player who tests positive for a banned substance will be publicly identified and suspended for 10 days. The previous punishment was merely counseling.
A second offense will meet with a suspension of 30 days, a third with 60 days, a fourth with one year, and a fifth with a punishment at the discretion of the MLB commissioner, reported the New York Times.
The new plan also allows for repeat testing through the season, encompasses a wider range of banned substances, and permits off-season testing for all players — all of which are new to the policy.
While it has a bit more bite than the 2002 arrangement that it replaces, the new policy was criticized for being weaker than baseball’s minor league testing system and for failing to ban amphetamine stimulants.
Sen. John McCain (R-Ariz.), who threatened in January to have Congress legislate punishments if MLB failed to take action, last week said the new deal was a step in the right direction, though improvements should be made.
“I believe the policy should suspend players from a meaningful number of games, as the minor league policy requires, and that it should permanently suspend repeat offenders,” McCain told the Times.
McCain’s remark was echoed by others, who noted that penalties for steroid usage carry more weight in other sports, including a two-year suspension for first-time cheats in the Olympics.
But Mike Stanton, a New York Yankees pitcher and former players union representative, last week defended the new program as progress.
“As you can tell from other sports, I don’t think the problem is ever going to be totally gone,” Stanton told the Times. “But it’s going to make it much tougher on the guys that do want to do that stuff, and I think it’s going to stop some guys from starting. That might well be the biggest plus.”
TEHRAN
The governments of Iran and Kenya were accused last week of arresting and brutalizing reporters for criticizing officials and covering allegations of corruption.
Among the developments:
Following a press crackdown launched by government hard-liners last September, roughly 20 pro-reform journalists and bloggers have been detained by police. Some of those detained say they were tortured into confessing crimes against the state.
“Confessions were extracted from us under physical and psychological pressures in prison,” one detained blogger told the AP, adding that “threats against us and even our families have been continued.”
One journalist has been charged with criminal libel, and the paper’s editor published an apology after being taken into custody by police, reported the BBC.
Denouncing the government’s steps as draconian and a “disturbing regression,” the embassies said the government should “encourage investigation of those responsible (for corruption), not seek to muzzle those who ask questions.”
Nations endorsing the statement were Canada, Denmark, Finland, Germany, Norway, Sweden, Switzerland, the United Kingdom, and the United States, according to the BBC.
NORTHFIELD, Illinois
Kraft Foods last week announced that it would voluntarily curb snack-food ads aimed at kids between the ages of six and 12, saying the firm wanted to take a step toward helping kids make healthier choices.
Kraft said it would pull ads aimed at the youngest consumers, though it will still use cartoons, contests, prizes, and other promotions to plug products to older kids, reported the Washington Post.
The company also will continue marketing products that it feels are healthy — Sugar-Free Kool-Aid and 1/2-the-Sugar Fruity Pebbles, for example — to children below the age of 12, according to the Associated Press.
Kraft’s move may be preemptive, noted the Post: The Institute of Medicine last year recommended that the U.S. government formulate marketing guidelines to help fight obesity in children, who are barraged with ads for products high in calories but low in nutritional value.
“We do recognize that people and parents are concerned about advertising to young children,” said Kraft spokesman Mark Berlind. “We hope this will address that concern.”
From Fortune magazine:
“Wegmans Food Markets, the Rochester-based grocery chain, tops Fortune’s eighth annual ‘100 Best Companies to Work For’ list. The unusual motto of this privately held company is ‘Employees first, customers second.’ The rationale? When employees are happy, customers will be too.
“‘The company has proved adept at battling the intractable problem facing grocery stores in this country: There’s no compelling reason to shop there anymore,’ says writer Matthew Boyle. ‘Privately held Wegmans — which had 2004 sales of $3.4 billion from 67 stores in New York, Pennsylvania, New Jersey, and Virginia — has long been a step ahead.’ The list and related stories appear in FORTUNE’s January 24 issue, on newsstands January 17 and at www.fortune.com on January 10.
“No. 2 on the list is W. L. Gore, the privately-held maker of Gore-Tex fabric. When it comes to managing employees, the Newark, Delaware-based company does things a little differently from most companies. For example, workers evaluate fellow team members each year to determine compensation.
“Thanks to a boom in home buying last year, customer service reps at No. 3 Republic Bancorp received $10,000 in bonuses; nearly half of non-management employees at the Owosso, Michigan-based mortgage banker were awarded stock, and all employees got stock options….
“For the first time since its inception in 1998, ‘The 100 Best Companies to Work For’ is, in addition to the general list, divided into three sections, featuring large, mid-size, and small companies…. Also included is a ‘Hall of Fame,’ a list of 22 companies that have appeared on every list since 1998. Those companies are A.G. Edwards, American Cast Iron Pipe, Cisco Systems, FedEx, First Horizon National, Four Seasons Hotels, Goldman Sachs, J. M. Smucker, Marriott International, MBNA, Microsoft, Nordstrom, Publix Super Markets, Recreational Equipment (REI), SAS Institute, Synovus, TDIndustries, Timberland, Valassis, W. L. Gore, Wegmans Food Markets, and Whole Foods Market.
“‘The 100 Best Companies to Work For’ list is compiled for FORTUNE by Robert Levering and Milton Moskowitz of the Great Place to Work Institute in San Francisco, based on two criteria: an evaluation of the policies and culture of each company, and the opinions of the company’s employees. The latter is given more weight; two-thirds of the total score comes from employee responses to a 57-question survey which goes to a minimum of 350 randomly selected employees from each company. It asks about things such as attitudes towards management, job satisfaction, and camaraderie within the organization.
“The remaining one-third of the score is based on an evaluation of each company’s demographic makeup, pay and benefits programs, and culture. Companies are scored in four areas: credibility (communication to employees), respect (opportunities and benefits), fairness (compensation, diversity), and pride/camaraderie (philanthropy, celebrations)….”
“Nothing can be more unphilosophical than to be positive or dogmatic on any subject. When men are the most sure and arrogant, they are commonly the most mistaken and have then given reins to passion without that proper deliberation and suspense which alone can secure them from the grossest absurdities.”
– David Hume (Scottish philosopher and historian, 1711-1776)
