Ethics Newsline®

What’s going on at Hewlett-Packard? Strange machinations, indeed. True, the troubles at the Silicon Valley computer maker don’t hold a candle to the dismal failings at Enron, Tyco, or WorldCom. The HP story won’t be another Arthur Andersen, where a grand corporate icon collapses into ashes. It won’t even be another Martha Stewart, where a popular celebrity plummets into public disgrace.

But it may be the most significant corporate ethics story of the year, simply because it crosses two important moral watersheds.

The first has to do with ethics and law. In the coming weeks, as many as half a dozen federal, state, and in-house HP committees will begin probing HP. They’ll all ask the same question: Was there anything illegal in the way that corporate directors and officers — including former board chair Patricia Dunn, who resigned last Friday, and CEO Mark Hurd, who took over as chair — investigated leaks of sensitive information to the press?

The answer may well be no. To be sure, HP approved the use of “pretexting,” or assuming false identities to gain information, but investigators in a number of states are legally allowed to do just that. It also included the embedding of an electronic tracer in an email as a way to track later forwardings of the message, a relatively new technology about which the law appears unclear. Other techniques used by HP — tailing and photographing individuals on the street, accessing public information on the Web, or throwing journalists off course with bogus information — are standard operating procedure for investigators, breaking no laws. Yes, sending spies disguised as cleaning staff into media newsrooms may break trespassing laws, but the mere act of discussing whether or not to do it, which apparently was as far as it went at HP, has free-speech protection under the First Amendment.

But that’s not the point. Legal or illegal, most people see this list of things as somewhere between morally dubious and flat-out wrong. The real questions that the probers need to ask are not about law but about core moral values. Were the actions at HP genuinely responsible? Were they honest and aboveboard? Did they show respect by board members for one another, for the company, and for the public? Did they express the highest kind of fairness? Would HP’s corporate leaders feel comfortable having someone else — journalists, for instance — do to them what they did to others? If actions like these became the standard of best practice in every firm across America, would the business community be improved or diminished?

The point: Even if the lawyers never lay a glove on the company, it won’t emerge unscathed. And that’s the first thing that makes this case so significant. However it turns out, it already has given us a powerful object lesson to resist that tired old mantra of business cynicism, “If it ain’t illegal, it must be ethical.” It helps prove, in other words, that unethical activity can damage a corporation’s most important asset — its reputation — just as powerfully as illegal activity.

The second reason this case is so significant has to do with compliance. It is clear now that businesses trying to preserve reputations can’t count on mere legal compliance to do it for them. In recent years, and especially in the wake of Sarbanes-Oxley regulations, corporations have lunged toward compliance, sometimes at the expense of values-based ethics programs. But compliance, almost by definition, only picks up what’s illegal. If HP’s actions were lawful or even gray, no amount of compliance ever could have prevented them. Compliance is no substitute for a clear sense of conscience and character. Only a corporate culture deliberately committed to integrity and a strong moral compass can make it unconscionable for corporate leaders even to contemplate doing the things HP did.

To his credit, Mr. Hurd is seeking reform. At his press conference last Friday, he included the four key elements of any authentic apology: understanding that the actions were wrong, making clear how serious the actions were, asking forgiveness for failure, and promising never to do it again. It was both a personal and a corporate apology, and he deserves some running room to put it into practice.

But in the end, only one thing can make such reforms stick. Dismissing board members, firing executives, even building in more ethics training — those aren’t enough. It is only by addressing not the individuals but the entire ethical culture that reform has a hope of taking hold. Corporate cultures are tricky things. They survive beyond the people who currently inhabit them. They persist through narratives — good ones like the story of Bill Hewlett and Dave Packard working in a Palo Alto garage with $538 in capital to invent an audio oscillator, or bad ones like the tale unfolding at HP this week. And they range all the way from cultures of corruption — Enron and its ilk — to the cultures of integrity often found in Fortune’s annual “100 Best Companies to Work For.”

HP has let itself get bumped down a few notches in that range. Its task, whatever the upcoming probes find, is nothing short of a wholesale repurposing of its leadership around one goal: creating and maintaining a first-in-class culture of integrity.

©2006 Institute for Global Ethics

“Simply stated, short of a crime, anything goes at the highest levels of the Department of the Interior. I have observed one instance after another when the good work of my office has been disregarded by the department. Ethics failures on the part of senior department officials — taking the form of appearances of impropriety, favoritism and bias — have been routinely dismissed with a promise ‘not to do it again.’ “

PALO ALTO, Calif.
The chairwoman of Hewlett-Packard is out of a job and other members of top management may be heading for the same fate as the firm tries to blunt the impact of an ethics scandal involving spying on company directors and journalists.

Patricia Dunn had planned to step down in January, but the string of criminal investigations into the company and an upcoming congressional probe prompted her replacement by CEO Mark Hurd, according to UPI.

Bloomberg reported that the board of HP, the second-largest manufacturer of personal computers worldwide, requested Dunn’s resignation after learning that she knew more about the investigation than she originally disclosed.

According to sources close to the probe, Bloomberg reported, the board also is negotiating the pending resignations of the company’s ethics chief, Kevin Hunsaker, and company investigator Anthony Gentilucci.

The scandal erupted after it was disclosed that Dunn, angered over leaks to the press she believed came from Hewlett-Packard’s boardroom, set in motion a probe to uncover the sources of the information. HP hired outside investigators who impersonated board members and journalists to fool phone companies into providing calling records, which were then used to link reporters and sources.

Late last week, Hurd admitted that the methods were improper. “Many of the right processes were in place, but unfortunately they broke down,” Hurd said at a press conference, according to a transcript provided by the technology-news magazine Wired. “I extend my sincere apologies to those journalists who were investigated and to those who were affected,” he said.

Hurd also said that he had hired a law firm to probe how the investigation went so far awry.

Analysts noted that the ethical fiasco has damaged HP’s reputation to the point where it may be difficult to repair.

The International Herald Tribune, in a piece titled “Outsourcing Ethics,” noted that HP’s reputation will not necessarily be preserved by the degrees of separation between the executives and the outside contractors they hired.

“The battle at Hewlett-Packard, where an effort to unmask the source of leaks to the news media led to a sleazy investigation of the company’s own board of directors involving their private records, offers up two useful lessons,” the unbylined International Herald Tribune piece read.

“It should remind those of us watching from the sidelines just how porous our privacy is in an era of databases and hackers and sophisticated snoops, and how much we need greater legal safeguards and protections to keep pace with the technological advances.

Institutions should take a very different lesson away: That their reputations are only as good as the people they hire.”

OTTAWA
The case of a Canadian citizen who was tortured in Syria after being deported to that country as a suspected terrorist took several new turns last week after the incident was recounted in a stinging report critical of the process that led to the ordeal of Maher Arar.

Arar, a software engineer who holds joint Canadian-Syrian citizenship, was detained at New York’s JFK airport in 2002 as a suspected terrorist, and then deported to Syria, where he said he was tortured for information. An independent fact-finder hired by the Canadian government later backed up that claim.

The case sparked accusations that both the United States. and Canada engaged in “torture by proxy” — sending suspects to countries where it can reasonably be assumed that torture will be employed.

Last week a report by Canadian justice Dennis O’Connor concluded that the Royal Canadian Mounted Police (RCMP) asked U.S. authorities to put Arar on a terrorist watch list but also noted they had no conclusive link between Arar and Al Qaeda, according to reports from the Washington Post and the Toronto-based Globe & Mail.

The O’Connor report blasted the U.S. government for its role in the incident: “The American authorities who handled Mr. Arar’s case treated Mr. Arar in a most regrettable fashion,” O’Connor wrote. “They removed him to Syria against his wishes and in the face of his statements that he would be tortured if sent there. Moreover, they dealt with Canadian officials involved with Mr. Arar’s case in a less than forthcoming manner.”

The report did note that the RCMP appeared to have no direct knowledge of the U.S. intention to deport Arar and that U.S. officials deliberately attempted to deceive Canada about Arar’s whereabouts, reported the Calgary Sun and the New York Times.

O’Connor also called for the creation of a new body to oversee security investigations, a proposal expected to be fully detailed later this year.

Other sections of the O’Connor report put forth new information that raised eyebrows and tempers, including the finding that the RCMP had funneled questions to Syrian authorities who were interrogating another Canadian, Abdullah Almalki, who was imprisoned there and claims he, too, was tortured for information.

According to the Ottawa Citizen, the RCMP offered Syrian military intelligence “large volumes of highly sensitive documents and information” about terrorist cells in Canada in exchange for the Syrians asking the RCMP’s questions.

O’Connor concluded that sending the questions raised a “credible risk” that Almalki would be tortured. Almalki has filed a civil suit against the Canadian government, according to the Citizen.

WASHINGTON
President Bush and key Senate Republicans, publicly locked in a dispute over legislation governing how terror suspects must be treated, last week reached a compromise over the president’s request for changes in the interpretation of the Geneva Conventions.

The White House dropped its request that the government should be given maximum latitude in interrogation and imprisonment of terror suspects captured out of uniform. In return, the administration won assurances from the Senate that new legislation would provide specific “clarity” over what was allowed so that CIA operatives could function without fear of prosecution, according to the Chicago Tribune and the New York Times.

The administration wants Congress to define exactly what breaches of the Conventions would be prosecutable under the War Crimes Act, which outlaws a wide range of coercive techniques.

At the heart of the issue, according to an analysis from Voice of America, is the clause of the Geneva Conventions that outlaws what are called “outrages upon personal dignity,” a wording that White House officials maintained was too vague.

A group of senators led by Arizona Republican John McCain, who was tortured as a POW in Vietnam, has opposed any tampering with the Geneva Conventions, arguing that expanding the scope for coercion would backfire by subjecting U.S. troops to future brutality abroad.

While the three hold-out Republicans agreed to go along with the compromise, Sen. Arlen Specter (R-Pa.), chairman of the Senate Judiciary Committee, said he was concerned by the agreement to strip detainees of their habeas corpus right to challenge their detention in court.

The compromise measure would leave detainees without any recourse to challenge their lifetime confinement — a step that Specter warned was unconstitutional — according to reports from the Associated Press and the Reuters news agency.

The proposed legislation also ran into some international opposition late last week after a group of U.N. human rights investigators testified that the measure is a violation of the Geneva protocols, according to a report from the Jurist, the University of Pittsburgh’s law-news site.

The group of independent envoys also claimed that President Bush’s recent admission that the United States operates secret prisons overseas suggests “very serious human rights violations,” according to the publication.

BANGKOK
Thailand was rocked by a military coup last week, with the new military leader claiming that the former prime minister’s corruption motivated the revolt.

The Army commander overthrew the government of prime minister Thaksin Shinawatra, who had been under pressure to step down but remained popular in rural areas, according to the BBC.

Thaksin faced public outrage and mass demonstrations — rare in a nation that values the appearance of harmony — after it was revealed that his sale of a family business was finessed in such a way as to make the transaction tax-free.

Gen. Sondhi Boonyaratkalin, who engineered last week’s bloodless coup, said the nation probably will restore democracy within a year, according to a New York Times report.

Thailand’s new military rulers also created an anticorruption agency, according to the U.K. television network ITV, which noted that the establishment of the “National Counter Corruption Commission” may be the first move in an attempt to seize the assets of the billionaire Thaksin, who was out of the country when his government was overthrown.

According to a report from the Agence France-Presse, the Thai military has fired or detained several key aides to the former prime minister.

BUDAPEST
The revelation that prime minister Ferenc Gyurcsany lied in order to win re-election ignited furious demonstrations in Hungary last week.

According to a report from UPI, about 15,000 demonstrators took to the streets for three straight nights of sometimes-violent confrontations after a tape, leaked to the press, showed Gyurcsany admitting that he and his Socialist party lied to the public about the state of the Hungarian economy in order to win a second term in office in April’s general elections.

The violence erupted last Monday when the media released the leaked tape in which Gyurcsany was overheard saying to other party members that they had lied “in the morning and in the evening” to capture the vote, according to a dispatch from Reuters.

Bloomberg reported that Gyurcsany has rejected calls for his resignation and said he will continue his economic programs.

About three months ago he enacted a series of unpopular measures, including new taxes and higher prices for natural gas, electricity, and medicine, apparently introduced to deal with the mounting budget deficit he had attempted to conceal.

The U.K. Guardian noted that the unrest in Hungary, coupled with last week’s coup in Thailand, sent bonds, stocks and currencies plunging in many areas of Europe and Asia.

CAMBRIDGE, Ohio
The controversy surrounding Ohio congressman Bob Ney, who has been implicated in the ethics scandals swirling around Capitol Hill, deepened last week after it was revealed that his jackpot at a London casino owed more to kickbacks than luck.

Newsweek reported that Ney’s plea deal with the federal government, in which he admits to a variety of corruption charges, details an incident in which a foreign businessman gave Ney thousands of dollars in free gambling chips at a London casino. At the same time, Newsweek reports, Ney was helping the businessman negotiate a waiver from the U.S. government allowing him to do business with Iran.

The Republican congressman previously told reporters that he simply had gotten lucky during his London stopover — where he came away with about $34,000.

The about-face appears to fit into a pattern of deception that is leaving constituents hurt, angry, and betrayed, according to a report from the Dispatch of Columbus, Ohio. Reporter Jonathan Riskind writes that many in Ney’s sprawling 18th Congressional District “took Ney at his word that he was innocent as federal prosecutors investigated his involvement with convicted lobbyist Jack Abramoff and a foreign-born businessman from whom Ney accepted thousands of dollars in gambling chips in London, England.”

Now, Riskind writes, voters are “struggling to come to terms with the wrongdoing of a longtime, popular officeholder who won over many Democrats with his affable personality and pro-labor, steel and coal politics.”

While prominent congressional Republicans and Democrats have called for his resignation, Ney is not legally required to leave office, according to Steubenville, Ohio, television station WTOV, and he and his lawyers have not answered queries about his intentions.

Ney recently said he would not run for re-election and has stepped down from his two committee chairmanships, according to the Toledo Blade. In an editorial, the paper called on Ney’s colleagues to expel him for “betraying his constituents and bringing shame to the House.”

JOHANNESBURG
South Africa’s former deputy president dodged another legal bullet last week when a judge threw out corruption charges against him.

The Reuters news agency reported that the judgment clears the way for the popular politician and his left-wing allies to run for the presidency, although Zuma has said he is not actively campaigning and would run only if the African National Congress asks him to.

Time Magazine reported that Zuma, who had been fired from his post by president Thabo Mbeki when prosecutors began preparing the corruption charges, has survived other legal skirmishes: Earlier this year he was acquitted of rape charges, and 15 months ago his financial adviser was found guilty of corruption in the same case that prosecutors brought against Zuma.

According to a report from the New York Times, the latest case, which involved allegations that Zuma took bribes from a French company in connection with an arms deal, was dismissed after the judge ruled that prosecutors improperly prepared the charges.

But the action does not necessarily prohibit prosecutors from bringing charges again.

The South African Independent reported that Zuma continues to say that all of the charges against him have been politically motivated, but has ruled out a suit against the government.

NEW YORK
A case that has become a touchstone for debate over the balance between corporate and personal responsibility is still alive after a federal judge last week ruled that two teenagers can continue pressing their lawsuit claiming that eating at McDonald’s made them fat.

The teens claim that McDonald’s advertising was deceptive because it made them believe the fast-food chain’s fare was nutritious and part of a healthy diet, reported UPI.

McDonald’s challenged the validity of the suit and filed a motion to dismiss, but judge Robert Sweet ruled that the action could continue because the plaintiffs had satisfied the legal requirements to “sufficiently describe” the injuries they had suffered and had specified which ads they believed to be “materially deceptive,” according to the New York Daily News.

According to an analysis from the New York Law Journal, the suit has drawn criticism from those who claim it is one more example of overzealous lawyers and of Americans blaming others for their own bad habits.

TORONTO
Canadian authorities are debating the question of who is responsible for stopping students from arranging schoolyard fights and posting the videos on the Internet.

Late last week, Ontario premier Dalton McGuinty said the new phenomenon is something for parents to deal with, not Canadian lawmakers, according to reports from the Globe & Mail and the Toronto Star. He said that because the participants consented to the fights, the police have no legal mechanism to stop the activity.

McGuinty’s comments came after the CTV network aired footage of fights staged outside the Orangeville Secondary School near Toronto. The Orangeville fights, along with others, were posted on the popular website YouTube.com, where users contribute their own videos.

According to the CTV report, many of the students involved characterized the posted fights as “cool” and say they won respect from their peers through their bouts.

Psychiatrist Ariel Dalfen told CTV that evolving Internet technology and the popularity of reality shows are fueling the activity. “Everyone wants their 15 minutes of fame, and now it’s so much easier to get that with something like YouTube,” Dalfen said.

A 17-year-old Orangeville student told the Ottawa Citizen that the trend stems from the fact that they have nothing else to do.

“Half of the fights are planned beforehand because we’re bored,” he told the Citizen. “I’m bored. The fights are fun to watch and do.”

From the Smeal College of Business at Pennsylvania State University:

“Graduate students are cheating at an alarmingly high rate and MBA students are doing so at even higher levels, according to a new research report….

“Linda Treviño, Franklin H. Cook Fellow in Business Ethics at Penn State’s Smeal College, and her colleagues Donald McCabe of Rutgers and Kenneth Butterfield of Washington State examined survey results from 5,331 students at 32 graduate schools in Canada and the United States. They found that 56 percent of graduate business school students admitted to cheating one or more times in the past academic year compared to 47 percent of non-business students.

“Policies, rules, and the potential for getting caught had little to do with the students’ decisions to cheat, according to the research. Rather, the authors found that, for business students, the perception that other students were cheating was the most powerful influence on their own behavior.

“To counteract the perception that dishonesty is permeating U.S. college classrooms, the authors recommend that college administrators work with faculty and students to create what they call a ‘culture of integrity and responsibility’ in their schools.

“Building an ethical community requires more than individual faculty efforts, such as creating multiple versions of exams; even though such efforts can send an important message that a particular professor takes academic integrity seriously.

” ‘In an ideal culture of integrity and responsibility, faculty and administrators engage students in an ongoing dialogue about academic integrity that begins with recruiting, continues in orientation sessions and initiation ceremonies, and continues throughout the program,’ they write. ‘If students see their peers behaving with honesty and integrity, designing academic integrity policies, living up to pledges regarding integrity, and educating other students about the importance of academic integrity, then cheating should be less likely.’

“…’Academic Dishonesty in Graduate Business Programs: Prevalence, Causes, and Proposed Action’ will be published in a forthcoming issue of the Academy of Management Learning and Education….”

“The world is full of people whose notion of a satisfactory future is, in fact, a return to the idealized past.”

– Robertson Davies (Canadian author, journalist, and professor,1913-1995)