Ethics Newsline®

For more information, see this week’s Research Report.

by Rushworth M. Kidder

If memory serves, my earliest acquaintance with a grandfather clock was in a bank lobby. As my mother did business with a teller behind a high marble counter, I stared around down at knee-level, listening to the stately tick-tocking of the clock’s massive pendulum. It was the sound of confidence. We’re here to safeguard your money, it said, and nothing will break our rhythm. Grave and perpetual, it bespoke the essence of financial order.

But suppose you stood that clock in the back of a pickup and drove it pell-mell down a potholed logging road. Imagine the pendulum, slamming randomly from side to side in the pitching truck. Not only would it be useless at keeping time, it would be lucky to survive without smashing through the polished cabinet. Violent and haphazard, it would be the epitome of disarray.

Watching the markets this year, there’s little doubt which pendulum symbolizes our age. As the first quarter of 2008 closes, the swings have been extreme. Writing in the New York Times last week, Floyd Norris noted that U.S. markets posted twelve sessions this quarter in which stocks either rose or fell by more than 2 percent — “something that didn’t happen even once in 2004 or 2005.” But the biggest change — a 4.2 percent rise in the Standard & Poor’s index of 500 stocks on March 18, as the Federal Reserve cut interest rates — was modest compared to volatility in France and Germany, which bounced around in ranges above 6 percent. In Hong Kong, the Hang Seng index rose 10.7 percent on one day and dropped 8.7 percent on another, with India and China showing extreme volatility as well.

Is there an ethical issue underlying these excessive swings?

I think there is, and I think it traces back to a financial short-termism that seriously imperils the free enterprise system. This trend — the quest for immediate profit at the expense of long-term financial security — is not new. In 1936, British economist John Maynard Keynes contemplated measures to “make the purchase of an investment permanent” as a way to “force the investor to direct his mind to the long-term prospects and to those only.”

Recent critiques of short-termism have erupted on all sides of the political spectrum, with observers as different as Warren Buffett and Al Gore calling for change. And several weeks ago the Economist, contemplating Wall Street’s woes, pegged short-termism as a root cause. “Spurred by pay that was geared to short-term gains,” its editors wrote in the March 19 issue, “bankers and fund managers stand accused of pocketing bonuses with no thought for the longer-term consequences of what they were doing.”

What’s wrong with short-termism? That question underlay two studies by reputable organizations in 2006, well before the current crisis. In a report titled “Breaking the Short-Term Cycle,” the CFA Institute Centre for Financial Market Integrity and the Business Roundtable Institute for Corporate Ethics called for reform of “practices involving earnings guidance, compensation, and communications to investors.” It declared that companies need to “make adjustments to their involvement in the ‘earnings guidance game’” — the practice of providing quarterly assessments of earnings prospects to Wall Street analysts, thereby encouraging investors to look only at immediate, bottom-line results rather than Keynes’s “long-term prospects.” It also called for executive compensation to be based on “long-term strategic and value-creation goals” rather than on these quarterly targets.

That same year a Conference Board report, “Revisiting Stock Market Short-Termism,” spoke presciently about today’s situation. “The pressure to meet short-term quarterly earnings numbers,” it asserted, “can cause undue market volatility.” Such whipsawing, in turn, can “cause management to lose sight of its strategic business model,” compromise global competitiveness, and fail to invest in “such critical long-term focused areas as research and development and environmental controls.”

These reports set forth the financial case against short-termism. But what about the ethical case? In themselves, neither short-term nor long-term thinking is “wrong.” In fact, situations that pit our present needs against our future obligations are so common that the phrase short-term versus long-term is used as a paradigm to describe some of humanity’s toughest right-versus-right dilemmas. And for good reason. All of us must honor the short term by spending for today’s necessities. To say, “I won’t eat today — I can do that next month,” is not an option. But neither can we say, “It’s boring to bring in the harvest — let’s just live for the moment.” There’s a moral case for both the long-term and the short-term — and frequently a need to choose between them.

But as with the other decision paradigms — individual versus community, justice versus mercy, truth versus loyalty — an excessive focus on one side over the other invites unethical behavior. In successful decision making, the two are kept roughly in balance. When one side continually drowns out the other, volatility rules and moral chaos ensues.

That’s nowhere truer than in short-term-versus-long-term dilemmas. More than the other paradigms, this one helps explain why market volatility is an ethical issue. Think of short-termism as consumption and long-term thinking as investment. Then remember that the issue driving the recent downturn — the housing market — represents something that, for most Americans, is the largest and most long-term investment they will ever make. Yet consumption — cashing in on rising markets to make immediate profits — represents one of the fastest ways to make money that most Americans have ever seen.

Does it now make sense that whatever would seek to destroy investment for the sake of consumption could be considered unethical? True, there are lots of financial causes for today’s downturn. But unless we recognize that behind them all lies the twenty-first century’s addiction to excessive short-termism, we’ll never address the ethical cause. Instead, we’ll just keep driving down that potholed road to nowhere — and wondering what all the clanging is about.

©2008 Institute for Global Ethics

Questions or comments? Write to newsline@globalethics.org.

“There are times when one must attend more diligently to personal and family matters. Now is such a time for me.”

– Alphonso Jackson, secretary of the U.S. Department of Housing and Urban Development, announcing his April 18 resignation on Monday. Jackson, who took the post after accompanying President Bush from Texas to DC, is under investigation by multiple agencies for multiple allegations, including steering contracts to friends, illegally influencing contracts, and taking retributive steps against the city of Philadelphia for refusing to transfer a valuable property to one of his friends, reports the Washington Post. Earlier this month at two Senate hearings, Jackson refused to answer questions about his role in the matter. President Bush accepted Jackson’s resignation, saying he still believes Jackson to be “a strong leader and a good man.”

Source: Washington Post, Mar. 31.

For more information, see: Wall Street Journal, Mar. 31 — New York Times, Mar. 31 — AP, Mar. 31 — Related Newsline story, Mar. 17 — Related Newsline story, Mar. 3 — Related Newsline story, Aug. 27, 2007 — Related Newsline story, June 11, 2007.

Had Eliot Spitzer not resigned over prostitute scandal, press reports say he could have faced probe over campaign against political foe

ALBANY, N.Y.
Yet another ethics story involving disgraced New York governor Eliot Spitzer emerged from Albany last week — this time, a claim by prosecutors that if Spitzer had not resigned in the wake of a prostitution scandal, he would have faced a grand jury probe over a political smear campaign.

According to the Reuters news agency, the district attorney’s office in Albany was investigating Spitzer’s role in the release of embarrassing information about Spitzer’s bitter rival, Senate Republican leader Joe Bruno.

Spitzer, a Democrat, repeatedly denied that he ordered an aide to release travel records that purported to show that Bruno misused state vehicles to transport him to Republican Party functions. But according to the Associated Press, a continuation of the probe has uncovered evidence that Spitzer indeed ordered the information released in an attempt to embarrass his rival.

The Albany Times Union reports that Spitzer’s former communications director, Darren Dopp, now says Spitzer sanctioned the release of the records but did so in an outburst that left no doubt that Spitzer was seeking personal and political revenge against Bruno.

New York radio station WNYC says the district attorney has declined to prosecute Spitzer, saying that the main element of the probe was malfeasance by a public official currently in office, but Bruno asserts that the case should go to court and has called on the new governor, David Paterson, to review the incident and take “appropriate action” against Spitzer and others involved.

The probe also centered on whether Spitzer inappropriately used New York State Police personnel to gather information about Bruno’s travels.

Spitzer, who resigned on March 12, had made his political reputation as a champion of ethics who prosecuted skullduggery on Wall Street.

Sources: AP, Mar. 29 — WNYC, Mar. 29 — Albany Times Union, Mar. 29 — Reuters, Mar. 28.

For more information, see: Related Newsline story, Mar. 24 — Related Newsline Commentary, Mar. 17 — Related Newsline story, Mar. 17 — Related Newsline story, Jan. 16, 2007 — Related Newsline story, Feb. 7, 2005.

Probe focuses on internal memos, emails, and meeting minutes

ST. JOHN’S, Newfoundland, Canada
A lawyer for plaintiffs in a class-action lawsuit against a Canadian health-care agency claims that managers worried more about being sued for faulty cancer tests than about the ethics of informing patients.

The CBC reports that Ches Crosbie, the lead lawyer in a case involving Eastern Health, a government-run health conglomerate formed in 2005 from the merger of seven other health organizations, charged last week that Eastern delayed advising patients that their tests were flawed.

Internal communication showed “input from people in communications, input from lawyers, insurance companies,” Crosbie claimed, adding “What about ethics?”

“This was primarily an ethics issue,” Crosbie said, claming that a director of ethics did not become involved in the issue for another year, according to the CBC.

A public inquiry in St. John’s, Newfoundland, is examining the circumstances behind inaccurate test results given to 383 breast cancer patients and whether authorities at Eastern Health responded appropriately, reports the Toronto Star.

At issue are claims that Eastern Health knew there were problems with test results from a lab at an affiliated hospital as far back as 2003 but did not pursue the issue until a weekly newspaper published a story in 2005, according to reports from the Star and the Globe & Mail.

The Globe & Mail reports that notes, emails, and meeting minutes were entered as evidence in the inquiry. One email was from a lawyer advising the board of the lab company not to send a letter informing patients that their cancer tests were being reexamined by Mount Sinai hospital in Toronto, reports the paper.

“There is a possibility that we could be sued in a class action by those people who receive this proposed correspondence whose test results do not change,” attorney Daniel Boone wrote in an email to Eastern Health’s risk-management consultant, according to the Globe & Mail report. “Otherwise these people would not have a cause of action, so sending the letter actually exposes us to a liability which does not now exist…. I do not see how the letter advances the health care of the affected patients, and it increases our exposure to claims for damages. I would recommend against sending it.”

The National Post reports that the inquiry also is attempting to assess whether Eastern’s chairwoman was properly informed of the testing problems.

The tests in question were designed to determine the proper course of treatment for women already diagnosed with cancer.

Sources: Toronto Star, Mar. 29 — CBC, Mar. 28 — Globe & Mail, Mar. 28 — National Post, Mar. 28.

For more information, see: Related Newsline story, Mar. 17 — Related Newsline story, Mar. 10 — Related Newsline story, Mar. 10 — Related Newsline story, Mar. 3 — Related Newsline story, Feb. 11.

Florida Senate passes new ethics law; Chinese press says students are not impressed with educators’ ethics; two civil engineering professors are in trouble after investing in land that was the focus of student research; Maryland principal is criticized for buying a golf cart to help him get around sprawling new campus

VARIOUS DATELINES
Ethics issues related to education in schools and colleges were the topic of various reports last week. Among them:

• The Florida State Senate last week unanimously approved an ethics bill cracking down on teacher abuses. The Sarasota Herald-Tribune reports that the measure would prohibit paying retirement benefits to teachers found guilty of committing certain felonies against minors and would require the state to help public and private schools develop codes of ethics for educators. The measure now moves to Florida’s House. A bill passed earlier this month in the Florida Senate urged the U.S. Congress to establish national ethics standards for teachers and to set up a clearinghouse to help states report and share information about educator misconduct.
• An online survey shows that more than three-quarters of Chinese youth say the ethics standards of their professors are declining, reports the official Chinese news agency Xinhua. In addition to worries about standard issues such as plagiarism and research integrity, survey respondents complained about professors cursing in their blogs — currently a controversial topic on the mainland, according to the report.
• The University of Texas at San Antonio has suspended two tenured civil engineering professors after the professors bought a parcel of land that was the subject of surveys by their students, according to the Chronicle of Higher Education. A probe had determined that the professors, Chia Shun Shih and Alberto Arroyo, violated the university’s ethics policy when they purchased the property, according to reports from the Chronicle and the San Antonio Express-News.
• A high school principal in Maryland is at the center of an ethics controversy after he purchased a golf cart to help him get around his sprawling campus. The Washington Post reports that principal Moreno Carrasco said the golf cart primarily would be used to supervise outdoor athletic events. He would not say how much the vehicle cost, although the Post notes that new golf carts typically cost from $5,000 to $10,000. While critics argue that the expense is inappropriate at a time when the district is facing a tax shortfall, others point out that the campus is huge, with a central building as long as two football fields.

Sources: Washington Post, Mar. 29 — Xinhua, Mar. 28 — Sarasota Herald-Tribune, Mar. 28 — Chronicle of Higher Education, Mar. 21 — San Antonio Express-News, Mar. 20.

For more information, see: Related Newsline story, Feb. 18 — Related Newsline story, Dec. 31, 2007 — Related Newsline story, Aug. 6, 2007 — Related Newsline story, June 11, 2007 — Related Newsline story, Apr. 16, 2007.

At center of controversy is emerging ethics issue of Net neutrality

SAN FRANCISCO
Comcast Corp., the nation’s largest residential Internet service provider, last week reversed its denials and admitted that it has been blocking some Internet traffic, promising to revamp its approach to managing Web traffic after a series of press reports and public inquiries challenged the ethics of its behavior.

Comcast was under pressure from the Federal Communications Commission (FCC) and public interest groups after it was disclosed that it was blocking some Internet traffic of customers who used certain file-sharing software programs, the New York Times reported. The Company previously had denied blocking the traffic.

The issue came to light after an Associated Press investigation, which found that Comcast was surreptitiously blocking Internet usage via some popular file-sharing programs, a revelation that BusinessWeek characterizes as a “major public relations debacle.”

The report led not only to outrage among customers, BusinessWeek notes, but also prompted an FCC threat to consider regulations on network management techniques.

A report from the San Francisco Chronicle says that Comcast has agreed to end its practice of blocking traffic from customers using certain programs on peer-to-per networks and will work with software manufacturers to find ways to move files efficiently.

The agreement announced by Comcast still involves the potential slowing of Internet connections of heavy bandwidth users during peak hours, though the slowing will not be based on the particular programs used, reports the London-based Independent, leading some critics to say that regulation is still necessary in order to protect Net neutrality.

The ethics issue at hand is the quarrel between those who favor Net neutrality versus proponents of “bandwidth shaping.”

Net neutrality advocates maintain that all traffic should be treated equally and warn that if telecommunication and cable companies are able to move certain messages at different speeds, it will lead to a system where fast and reliable service is only available to those who pay a premium for it.

Backers of bandwidth shaping, which involves moving different types of traffic at varying rates and through varying channels, claim that bandwidth hogs, especially those who share audio and video files online, choke traffic for the majority of users.

Privacy advocates argue that it is unethical for Internet service providers to sidetrack selected transmissions because they have no right to digitally inspect the content in order to determine whether it should be put on the fast or slow track.

Sources: Guardian, Mar. 29 — New York Times, Mar. 28 — BusinessWeek, Mar. 28 –San Francisco Chronicle, Mar. 27.

For more information, see: Related Newsline story, Mar. 24 — Related Newsline story, Mar. 3 — Related Newsline story, Feb. 25 — Related Newsline story, Oct. 22, 2007 — Related Newsline story, June 26, 2006.

Suit had been one factor in recent controversy surrounding revision of school textbooks that deleted reference to forced mass suicides

OSAKA
In Japan, where feelings about the nation’s actions during World War II still run deep, a libel suit over a claim that the military was involved in mass suicides in Okinawa was dismissed last week.

A court in Osaka dismissed the suit brought against Nobel Prize-winning writer Kenzaburo Oe, 91, and his publisher over statements in his book that military officers ordered civilians in Okinawa to commit mass suicide, reports the Tokyo-based Mainichi Daily News.

The court rejected a $200,000 suit filed by a 91-year-old war veteran and another veteran’s surviving relatives who claimed there was no evidence of the military’s involvement and that the suicides were voluntary, the International Herald Tribune reported.

According to Bloomberg, the judge hearing the case ruled that Oe had “reasonable data and grounds” for the assertion.

In Oe’s 1970 essay, “Okinawa Notes,” he claimed that Japanese soldiers forced the Okinawans to kill themselves instead of surrendering to Allied troops.

“Okinawa Notes” had a wide legal and ethical impact throughout Japan, notes the Times of London, with the lawsuit serving as one basis for the government’s decision last year to change public-school textbooks to delete reference to military-forced suicides.

Sources: International Herald Tribune, Mar. 28 — Mainichi Daily News, Mar. 28 — Times of London, Mar. 28 — Bloomberg, Mar. 28.

For more information, see: Related Newsline story, Dec. 31, 2007 — Related Newsline story, Dec. 18, 2006 — Related Newsline story, Sep. 5, 2006 — Related Newsline story, June 19, 2006 — Related Newsline story, Apr. 17, 2006.

Items range from the indictment of Puerto Rico’s governor to the controversy over a new law in Oregon that requires extensive financial disclosure for volunteers on small-town planning boards

VARIOUS DATELINES
Ethics issues involving government were reported by news media on several continents last week. Among the stories:

• Puerto Rico’s governor, Anibal Acevedo Vila, last week was charged with 19 corruption counts stemming from a campaign finance scandal, the Agence France-Presse reports. He pleaded not guilty and was released without posting bail, according to CNN. Prosecutors allege that the governor and other codefendants accepted illegal and unreported contributions, funneled through false sources, to pay off campaign debts.
• An Indonesian court exonerated the nation’s former president, the late Haji Mohammed Suharto, and his heirs, of liability in a civil corruption case alleging that a charitable foundation run by Suharto had stolen state funds. The Jurist, an online journal from the University of Pittsburgh Law School, reports that the court ruled that the foundation’s board of directors, not Suharto, had been responsible for any misuse of funds. The court ordered the foundation to repay $110 million to the government.
• Nigeria’s anticorruption czar is about to lose his job, according to a report from ABC News. The impending sacking of Nuhu Ribadu, who has become popularly known as the Elliot Ness of Nigeria, comes in the midst of his investigation of the former Nigerian vice-president and several of the nation’s governors. Newly elected Nigerian president Umaru Yar’Adua already has removed Ribadu from office on a temporary basis by sending him on a yearlong training program. Ribadu has become well-known in Nigeria not only because of his relentless antigraft prosecutions, but also because he publicly blamed corruption for Nigeria’s troubled economy, reports ABC.
• Oregon State recently adopted a tough new ethics law, but small towns are finding their ranks of volunteers depleted because of its strict financial disclosure provisions. The Portland Oregonian reports that the latest venue for controversy is the small city of Maupin, where four of the seven members of the planning commission quit rather than submit a statement of their economic interests to the Oregon Government Ethics Commission. Earlier this month, the entire planning commission for the city of Elgin resigned for the same reason. The Oregonian notes that the new law requires officeholders, even volunteers, to identify their sources of income, property holdings, certain types of debt, and investments. The mayor of Maupin said the new rules are a “slap in the face” to the integrity of volunteers.

Sources: AFP, Mar. 28 — CNN, Mar. 28 — Jurist, Mar. 28 — ABC, Mar. 28 — Portland Oregonian, Mar. 27.

For more information, see: Related Newsline story, Mar. 10 — Related Newsline story, Mar. 3 — Related Newsline story, Feb. 18 — Related Newsline story, Feb. 18 — Related Newsline story, Feb. 11.

Not surprisingly, some of those being monitored say there’s an ethics issue

NEW YORK and LIVERPOOL, U.K.
Tracking technologies can produce a variety of practical benefits, but as reported in several stories last week from the world press, they also carry some ethical baggage:

• High-tech fingerprint scanners may be installed at the doors of schools in Liverpool, England, enabling only teachers, pupils, and support staff to enter the buildings. But the Liverpool Echo reports that the proposal is controversial, with some critics saying that the technique, which could be expanded to monitor attendance, is an unacceptable invasion of privacy and would put fingerprints in a database that could be misused in the future.
• Punching the time clock is going high-tech at a variety of businesses, reports Scientific American, but the advancing technology is intersecting with ethical controversy. The newest wrinkle in monitoring employee movement and attendance is the biometric scanner, which gathers and stores information about body parts such as fingers, palms, and eyes, and can be used to monitor access as well as employees’ arrival and departure times. Many employees are beginning to object, according to the report, not only on the ground that such systems are intrusive, but that they are potential germ spreaders because so many people will be forced to stick their hands in the devices.
• Devices to electronically monitor young drivers are a hit with parents and insurance companies, reports the Wall Street Journal, but are receiving a lukewarm reception from teens. One system profiled by the Journal uses video cameras to monitor the inside of a car as well as the view through the windshield. Whenever the car makes an erratic move, the camera transmits a digital recording to a central monitoring station, where the movement is analyzed and a report emailed to parents. A variety of other systems use recording devices or GPS trackers to monitor the movement and speed of young drivers. Not surprisingly, teens often protest the intrusion, and the Journal notes that the head of one of the featured firms acknowledges that almost all of his systems are installed without the teen’s knowledge.

Sources: Wall Street Journal, Mar. 28 — Scientific American, Mar. 28 — Liverpool Echo, Mar. 24.

For more information, see: Related Newsline story, Mar. 24 — Related Newsline story, Mar. 10 — Related Newsline story, Feb. 25 — Related Newsline story, Jan. 28 — Related Newsline story, Jan. 7.

Three in four now believe U.S. is in a recession

From Reuters/Zogby:

“With U.S. recession fears hitting new highs, the overall mood of Americans has taken a sharp turn for the worse, a new Reuters/Zogby poll shows. The Reuters/Zogby Index, which measures American confidence, has fallen to a new low of 87.7 from 99.3 last month, when the index boasted its highest rating since the baseline rating of 100 for the index was established in August.

“The report of public confidence in the economy and their nation comes after several days of dramatic economic headlines, but fieldwork for the survey was actually completed just as news was breaking Friday about the collapse of investment house Bear Stearns and the full percent cut of a key interest rate by the Federal Reserve — a quarter-point on Sunday and another three-quarters of a percent on Tuesday.

“The Reuters/Zogby index is comprised of 10 poll questions that gauge perceptions of the state of the country and the economy. Every one of the 10 data points declined in March compared to a month ago.

“Three in four Americans — 74% — believe the U.S. economy is currently in a recession, a sharp increase from the 54% surveyed last month who believed a recession could arrive sometime in the next year. Worries about the state of the nation’s economy may also be taking a toll on how Americans view their own economic circumstances — more than half (54%) give their personal financial situation a negative rating, up from 44% who said the same in last month’s survey….

“Likely voters are overwhelmingly dissatisfied with the performance of U.S. economic policy, with 87% who rate it negatively — up 10 points from the 77% who said the same in February — with half (50%) who now rate the nation’s economic policy as ‘poor.’ Discontent over the nation’s economic policy cuts across party lines….

“Nearly three in four are also pessimistic about the overall direction the U.S. is headed — 73% believe the country is on the wrong track, up from 62% who said the same last month. Independents are most likely to feel this way (85%), but most Democrats (77%) and Republicans (60%) also believe the U.S. is heading in the wrong direction.

“The gains in job approval ratings made by President George W. Bush and Congress over the past few months from their all-time lows last year have reversed course in this latest poll. Approval ratings for the President stand at just 26% this month, down from 34% who gave him positive job approval marks in February. Bush has lost ground across the political spectrum, including among likely voters in his own party….

“Likely voters are even more dissatisfied with the job performance of Congress — job approval ratings for Congress have fallen to just 13%, down from 17% who gave Congress a positive rating last month….”

For the full press release, Mar. 19, click here.

“There is no good in arguing with the inevitable. The only argument available with an east wind is to put on your overcoat.”

– James Russell Lowell (U.S. writer, diplomat, and abolitionist, 1819-1891)