Ethics Newsline®

Dr. Rushworth Kidder, author of How Good People Make Tough Choices and Moral Courage, will host a symposium to discuss his next book (tentatively titled Good Kids, Tough Choices: Seven Lenses for Ethical Parenting), on September 23 in St. Louis, Missouri.

This special event will provide a forum for participants to discuss ethics and parenting issues with Dr. Kidder prior to the book’s publication. The symposium will be limited to 20 participants to ensure an intimate dialogue with Dr. Kidder.

For a limited time, register now to receive a special rate of $600. To register or to receive more information, please email Andrea Curtis or call 800-729-2615. Further information also can be found in this PDF.

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

by Rushworth M. Kidder

They fell like dominos last week, three in a row:

• On Monday, a German court convicted a former manager at Siemens, Reinhard Siekaczek, of operating slush funds within that massive electronics and engineering firm to pay bribes around the world.
• On Tuesday, Alaskan senator Ted Stevens, the most senior U.S. Senate Republican in history, was indicted for filing false financial disclosures that hid an estimated $250,000 he received from an Alaska-based company that included a remodeling of his vacation home.
• On Wednesday, Ehud Olmert announced that he would resign as prime minister of Israel amid suspicions that he took bribes from a Long Island philanthropist and collected multiple reimbursements for individual airline flights.

Two of these three must be presumed innocent unless courts find otherwise. So the issue is not so much with the people as with the common theme of corruption. Alaska alone, in fact, could provide enough corruption cases to round out the rest of this column. So could Siemens, which is expected to file charges this week against its former CEO and its former chairman — two of some 300 current and former employees under suspicion in a bribery scheme worth an estimated $2 billion. In Mr. Olmert’s case, the tentacles may spread well beyond Israel, with serious ramifications for the Middle East peace process.

So the real question is not, Who’s the latest bad guy? If that were all, this publication could simply become a police blotter, tut-tutting each week over global miscreants. Nor is the question, How big is global corruption? Estimates from the World Bank put it at trillions of dollars annually. Nor is it even, How important is it? An ongoing poll on our website ranks corruption at the top of nine tough challenges facing our global future.

No, the real question is, So what? Corruption is so big, pervasive, and timeless that it’s tempting to shrug it off as messy, inevitable, and intractable. Or even brazen: When lawmakers in Juneau recently came under fire for corruption, some of them reportedly donned “C.B.C.” baseball caps, standing for “Corrupt Bastards Club.”

So I was intrigued when, in a conference call last week with some U.S. school superintendents, the “So what?” question arose. They’re seeking to bring ethics into the classroom — since, as one said, “every kid who leaves school is going to be faced with ethical decisions.” But they’re up against skepticism. They need persuasive arguments to prove that ethics matters — using examples, they said, drawn from politics, current events, and cases like Enron.

That’s why last week’s news was so useful. Siekaczek, Stevens, and Olmert remind us that corruption involves the hubris and selfishness of power. It requires subterfuge and lack of transparency. It poisons the atmosphere of trust, making cynics of the citizenry. It rides roughshod over honest competitors in business or politics who refuse to bribe. It creates the illusion of a decently refereed playing field while biasing every call. In other words, it attacks the moral roots of free, fair, and open democracies, rendering them exclusive, deceitful, and opaque.

Corruption, then, may be the most insidious challenge on the planet. Samuel Johnson once defined courage as “the greatest of all virtues; because, unless a man has that virtue, he has no security for preserving any other.” Perhaps Johnson would agree also that corruption is the greatest of all anti-virtues, because unless our leaders avoid it, they have no security in resolving our toughest global threats. For Siekaczek, Stevens, and Olmert to lose their careers would be unfortunate, but for the world to suffer a void of moral leadership in global engineering, governance, and diplomacy would be devastating — a terrible price to pay in return for what, in the end, may be no more than a few contracts in Munich, airfares in Israel, or home repairs in Alaska.

©2008 Institute for Global Ethics

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

“The executive’s current claim of absolute immunity from compelled Congressional process for senior presidential aides is without any support in the case law.”

– U.S. District Court judge John Bates, rejecting White House claims that President Bush’s top advisers can ignore congressional subpoenas seeking testimony in formal investigations. Bates, appointed by President Bush in 2001, ruled last week that both former White House counsel Harriet Miers and former White House chief of staff Joshua Bolten must cooperate with House investigators looking into the perhaps politically motivated firing of nine federal prosecutors in 2006. Miers, Bolten, and Bush’s former chief political adviser, Karl Rove, have each spurned attempts by Congress to gather information, claiming executive privilege — a stance Judge Bates ruled last week was illegal.

Sources: Washington Post, Aug. 1 — New York Times, Aug. 1.

For more information, see: Related Newsline story, Mar. 26, 2007 — Related Newsline Commentary, Mar. 26, 2007 — Related Newsline story, Mar. 19, 2007 — Related Newsline story, Mar. 12, 2007 — Related Newsline story, Mar. 5, 2007.

Chinese officials allow some holes in firewall blocking Internet access for Olympic journalists; FCC slams Comcast for secretly throttling Internet traffic; presidential candidates’ supporters claim media bias; and Los Angeles considers tightening the reins on paparazzi

VARIOUS DATELINES
Several angles on media ethics were featured in world press reports last week. Among the stories:

• Chinese authorities, facing a backlash from Olympic officials, journalists, and the West, partially dismantled the electronic firewalls blocking politically sensitive sites from visitors at the main press center for the Games. But the New York Times reports that certain topics, such as the banned spiritual movement Falun Gong, remain off-limits. The Times’s Andrew Jacobs, reporting from Beijing, writes: “The loosening of restrictions, however limited, came after senior I.O.C. officials spoke with China’s Olympic organizers on Thursday and urged them to reconsider their decision to ban some politically provocative sites. Critics said even a partial ban violated the host country’s pledge to provide uncensored Internet access to journalists, a promise that helped Beijing win the right to hold the Games.” A Chinese official interviewed by the Times refused to confirm whether there had been an actual change in policy, saying only that the nation is “fulfilling a promise to provide good working conditions for reporters covering the Olympic games.”
• The Federal Communications Commission (FCC) last week slammed cable titan Comcast for secretly throttling certain bandwidth-hogging activities among users, as well as for being evasive when confronted with the claims. The Washington Post reports that the FCC did not fine Comcast but ordered it to halt all “discriminatory network-management practices” by the end of the year. The issue has an ethical as well as legal angle because it is at the core of the argument over “net neutrality” — whether all Internet traffic should be treated equally and moved at the same speed. Proponents of net neutrality argue that all traffic should be moved at the same speed because allowing differential treatment would eventually result in deep-pocketed firms and individuals consistently receiving better service. Proponents also claim Internet service providers violate customers’ privacy by inspecting the type of transmission in order to determine whether it should be put on the slow track. Opponents of net neutrality say it is okay to throttle certain bandwidth-consuming applications, such as file sharing, to keep a small number of bandwidth hogs from slowing down everyone’s Internet speed.
• Republican presidential candidate John McCain and his aides last week criticized the media for what they characterize as lopsided coverage and an infatuation with his Democratic rival, Barack Obama. The Wall Street Journal reports that media executives defend their coverage, saying such attention is cyclical. “It used to be the stories were ‘everyone was in love with McCain — he’s on his bus, he schmoozes the reporters, they all give him a break,’” Paul Friedman, senior vice president for news coverage at CBS, told the Journal. “That’s the irony. These guys are now crying foul, and they’ve had the advantage of terrific relationships with the press.” The Journal report noted that Obama’s supporters are echoing a similar theme in criticism of the Fox network, claiming it is biased against Sen. Obama.
• A Los Angeles municipal task force is considering new laws to rein in paparazzi. Some, including a variety of celebrities who testified in favor of such restrictions, say the unruly packs of photographers pose a safety hazard, reports the International Herald Tribune. Opponents argue that selective restrictions on paparazzi threaten press freedoms and that the proposed “zone of privacy” would give preferential treatment to celebrities, as ordinary citizens would have no such allowance.

Sources: New York Times, Aug. 1 — Washington Post, Aug. 1 — International Herald Tribune, Aug. 1 — Wall Street Journal, July 23.

For more information, see: Related Newsline story, June 9 — Related Newsline story, Apr. 14 — Related Newsline story, Mar. 24 — Related Newsline story, June 11, 2007 — Related Newsline story, May 21, 2007.

Current board claims former executives’ negligence hurt the firm’s reputation and produced a mammoth bill for compliance costs

MUNICH
Siemens, the giant German engineering firm, last week said it will seek to recover damages from two former CEOs and other former members top management executives for ethics breaches that damaged the firm’s reputation and bottom line.

Berlin-based news service Deutsche Welle reports that Siemens will pursue 11 former officials for “breaches of their organizational and supervisory duties in view of the accusations of illegal business practices and extensive bribery.”

In the crosshairs are two former chief executives, Heinrich von Pierer and Klaus Kleinfeld, whom Siemens claims failed to halt the bribery scandal that has plagued the company since 2006.

Both men repeatedly have denied any wrongdoing but remain subject to criminal investigations, reports Deutsche Welle.

Bloomberg reports that Siemens’ suit is unprecedented in German business. “It’s the first time that the supervisory board of a company decided to sue practically the whole old management board,” Manuel Theisen, a business professor at Munich University, told Bloomberg. “That’s a paradigm change.”

In an analysis, TIME magazine reporter William Boston writes that the development is viewed widely as a sign that “the atmosphere in the clubhouse commonly known as Germany Inc. just got a lot less chummy…. In Germany’s two-tiered management system, shareholders elect the supervisory board. It has the job of appointing and supervising the executive board, which runs the company’s day-to-day business. Typically, though, a retiring CEO is appointed to chair the supervisory board, which often is a paper tiger with little incentive to scrutinize executives. Siemens’ decision to seek financial damages from former executives is a warning to the rest of German industry that such practices are under threat.”

Siemens first will offer the former executives a chance to defend themselves and make restitution before formally pressing lawsuits.

Forbes reports that compliance costs for the company are in the neighborhood of $650 million in the current financial year.

Sources: TIME, July 31 — Bloomberg, July 31 — Forbes, July 29 — Deutsche Welle, July 29.

For more information, see: Related Newsline story, June 16 — Related Newsline story, May 12 — Related Newsline story, May 5 — Related Newsline story, Jan. 28 — Related Newsline story, Nov. 13, 2007.

Britain’s highest court rules that fraud office was right to suspend probe into bribery allegations because of national-security concerns, but officials say they’ll continue to pursue the company on other fronts

LONDON
BAE, the troubled British defense contractor beset by ethics problems, was the subject of three major news stories last week:

• Top jurists in the House of Lords ruled that fraud investigators acted properly when they aborted an investigation into bribery allegations related to an arms deal between BAE and Saudi Arabia, reports the Economist. Officials closed down the inquiry, which focused on an alleged slush fund supposedly used to bribe Saudi officials to award contracts to BAE, on the basis that it threatened national security. A previous court ruling held that ending the probe was improper, but yesterday’s ruling by the Law Lords, Britain’s equivalent of the U.S. Supreme Court, overruled that finding. The decision was criticized sharply by anticorruption campaigners in Parliament, reports the U.K. Guardian.
• The Financial Times reports that despite the Law Lords’ decision, government investigators will continue their probes into allegations of BAE misconduct in other venues, including the Czech Republic, Romania, South Africa, and Tanzania. British officials also are considering a request from the U.S. Department of Justice to help with a U.S. probe into the company. BAE consistently has denied any wrongdoing.
• BAE said it will implement all 23 recommendations in a company-sponsored report into its ethics, and will do so in a three-year program to be monitored by an external auditor. The recommendations were drawn up in the wake of the Saudi bribery scandal. BAE chairman Dick Oliver said his firm “hoped to be recognized as a global leader in ethical business conduct” once the reforms are completed, Reuters reports.

Sources: Financial Times, July 31 — Economist, July 31 — Guardian, July 31 — Reuters, July 22.

For more information, see: Related Newsline story, July 21 — Related Newsline story, June 30 — Related Newsline story, May 12 — Related Newsline story, Apr. 14 — Related Newsline story, Jan. 22.

Ted Stevens pleads not guilty to charges he lied about gifts; Israeli PM, under investigation for alleged corruption, to resign; South African leader expected to continue his presidential bid despite graft trial

VARIOUS DATELINES
Corruption cases against government officials made news last week. Among the top stories:

• Alaska Sen. Ted Stevens last week pleaded not guilty to federal charges that he lied about hundreds of thousands of dollars in gifts from an oil service contractor. Stevens, the longest-serving Republican in the U.S. Senate, was indicted last week on several counts of lying on Senate disclosure forms, according to press reports. Stevens has been the focus of a corruption investigation for more than a year.
• Israeli prime minister Ehud Olmert, at the center of numerous corruption allegations, last week said he will resign. Olmert said he will not run in his party’s September 17 primary and would leave office shortly thereafter to clear the way for his successor, reports the Jerusalem Post. Olmert has denied any wrongdoing.
• Officials of South Africa’s ANC Party last week characterized corruption charges against leader Jacob Zuma as politically motivated and said they would stand behind Zuma in next year’s elections. The Agence France-Presse reports that Zuma faces 16 charges, including money laundering and racketeering. His trail begins this week. Zuma continues to maintain that he is innocent.

Sources: Washington Post, Aug. 1 — AFP, Aug. 1 — NPR, July 31 — Jerusalem Post, July 31.

For more information, see: Related Newsline story, July 21 — Related Newsline story, May 12 — Related Newsline story, Feb. 18 — Related Newsline story, Aug. 20, 2007 — Related Newsline Commentary, Aug 6, 2007.

Keeping the profiles is ‘the first step towards a totalitarian state,’ says inquiry member

LONDON
A government-sponsored panel has concluded that DNA profiles of people not convicted of a crime should be wiped from databases in England and Wales.

Javed Aslam, one of the 30 panel members, told the BBC that keeping the records would be “the first step towards a totalitarian state.”

British law enforcement has enthusiastically embraced DNA databanking, and the technology has been used to solve several high-profile crimes, including some cold-case murders, reports newspaper portal WalesOnline.com.

Britain currently has records of more than four million people in its database, with DNA collected from cheek swabs. Those swabs can be taken from anyone who comes into contact with police, either as a suspect or witness.

About a million samples from innocent people would be destroyed if the panel’s recommendations are followed, reports London’s Daily Mail.

The report also criticized “lax security measures” concerning which organizations have access to the database.

The London Telegraph last week published a series of reports claiming that millions of profiles were handed over to private companies without the consent of those involved.

Sources: BBC, July 30 — WalesOnline.com, July 30 — Telegraph, July 30 — Daily Mail, July 30.

For more information, see: Related Newsline story, May 5 — Related Newsline story, Apr. 7 — Related Newsline story, Feb. 25 — Related Newsline story, Feb. 4 — Related Newsline story, Jan. 28.

SEC levels $500,000 penalty against Pax World funds

BOSTON
The U.S. Securities and Exchange Commission (SEC) last week penalized Pax World funds half a million dollars for investing in the types of companies that the firm, which was founded on the basis of socially responsible investment, is supposed to avoid.

As the Associated Press reports, socially responsible funds typically screen out the stocks of polluters, defense contractors, weapons companies, casinos, and firms that produce alcohol and tobacco products. Investors in the socially responsible funds choose to place their money in them based in large part on those promises.

According to the SEC, Pax violated some of those restrictions in the years 2001 through 2006.

Pax owned shares of a major oil and gas firm, even though it violated several of the fund’s screening criteria, according to a report from USA Today. Another fund operated by Pax owned shares issued by a company that garnered revenue from gambling and liquor.

New Hampshire-based Pax did not admit or deny the charges, reports the Union Leader of Manchester, but issued a statement saying that its major socially responsible fund, holding more than 90 percent of its assets, did not purchase any unscreened funds and was not cited by the SEC.

The firm has agreed to the civil penalty and said it will comply with a cease and desist order against future violations of securities law, according to investment adviser trade journal Investment News.

Sources: USA Today, July 31 — AP, July 31 — Investment News, July 30 — Manchester Union Leader, July 30.

For more information, see: Related Newsline story, July 28 — Related Newsline story, July 28 — Related Newsline story, July 21 — Related Newsline story, July 14 — Related Newsline story, July 7.

Critics say interest rates are too high, but microlenders note that it’s expensive to service small loans, especially in remote areas

NEW YORK
As microlending — the process of offering tiny loans to people who ordinarily might never come into contact with a bank — has demonstrated its potential for helping entrepreneurs in impoverished nations, a heated debate has begun to brew about the ethics of the practice, according to a piece published last week in TheStreet.com.

Writer Lauren Tara LaCapra notes that microloans typically come with high interest rates because such small lending is expensive to service, especially in poor, remote, and rural areas.

Some microlenders, she writes, have been accused of exploiting clients by pushing interest rates far above what it costs to grant the loans.

LaCapra put the question of ethics to Gerhard Bruckermann, a noted European banker who started AMK, a nonprofit that provides small loans to villagers in rural Cambodia.

“We’re serving more than 120,000 customers, and as is typical for a microfinance institution, something like nine out of 10 customers are women,” Bruckermann told TheStreet.com. “So far we only operate in rural areas, which is of course much more complicated than urban areas. You spend a lot of money simply getting to the village.

The average loan size is less than $100, so what we’re really talking about is buying fertilizers, buying seeds, helping thorough drought times, when there are emergencies in the family and they need medical treatment. We’re not talking about [starting up] small companies — this is micro, micro, micro.”

Bruckermann said his lending organization charges between 28 percent and 32 percent.

“And you say, ‘Wow, how the heck are they going to survive this?’” Bruckermann said. “You look at the high interest rate and say, ‘This is really exploitative.’ But this is really all absorbed by the high operating expense. The loans are really small and you need this interest rate simply to cover your costs.”

Bruckermann maintains that socially responsible investors can make a lot of money if a microlending venture makes it to the point of an initial public offering. But he notes that his firm is committed to investing its profits back into other social investments.

Source: TheStreet.com, July 28.

For more information, see: Related Newsline story, June 16 — Related Newsline story, June 2 — Related Newsline story, Feb. 25 — Related Newsline story, Feb. 18 — Related Newsline story, Jan. 28.

While U.S. public picks the money, Canadians are ‘more evenly divided on this issue,’ poll finds

From Harris:

“As economic conditions worsen, people who are asked to make a decision between protecting the environment or economic growth and development have moved even more strongly into the economic growth column. Specifically, a Harris Poll … found:

• “U.S. adults are divided on how they perceive things in their own community as 38 percent say it is going in the right direction while 37 percent believe things have ‘pretty seriously gotten off on the wrong track’. This perception has gotten better in the past few months….
• “More than three in five Americans (63%) say economic growth and development is more important to their region while one-quarter (27%) believe protecting the environment is more important….
• “The focus on economic growth has grown over the last year. In June of 2007, Americans were more divided as 48 percent thought economic growth was more important and 43 percent believed protecting the environment was more important….
• “Looking ahead to the future, just over half of U.S. adults (56%) believe that the quality of life in the area they live in will decrease for their children and grandchildren while 44 percent believe it will increase….

“In Canada, there are different opinions on some of these topics:

• “Canadians are much more positive about the direction of their community as over three in five (63%) believe things in their community are going in the right direction and 37 percent say they are going off on the wrong track;
• “Canadians are more evenly split on which is more important, economics or environment as 45 percent say it is economic growth and development and 44 percent believe it is protecting the environment; and,
• “One area Canadians agree with Americans on is the quality of life in their region for children and grandchildren as 56 percent of Canadians say it will decrease and 44 percent believe it will increase.

“So What?

“As the economic woes continue, anything that places the economy versus something else will see economy most likely winning the battle. But, many polls, including earlier Harris Polls, show very strong support for strengthening environmental protections and regulations. Also, most people do not see the hard trade off between economic development and protecting the environment. In fact, many people believe that we not only can do both of these, but that we should be doing both….”

For the full press release, July 30, click here.

“Real generosity toward the future consists in giving all to what is present.”

– Albert Camus (French writer, 1913-1960)