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

by Rushworth M. Kidder

Where does wealth go when it evaporates?

That question might have sounded merely academic 10 days ago. No longer. In this brief period, the current economic crisis has morphed into something new.

In early October, the crisis was discussed largely in the language of numbers and trends. The conversation was carried on by an earnest coterie of financial experts, with the public looking on.

Now it’s increasingly a conversation about values and identity. It’s being carried on in the public square by individuals from all walks of life, with experts looking on and wondering how to contribute.

The earlier conversation asked what was happening, how the downturn would affect us, and when it was going to change. Today’s conversation is more likely to ask who we are, why we believe what we do, and what’s right. The discourse is shifting from money to metaphysics, from finance to philosophy, from economics to ethics.

That much is clear from looking at two archetypal appearances last week. The first was a two-page newspaper ad from the John Templeton Foundation in the New York Times on Sunday, October 19. (Full disclosure: The Institute for Global Ethics has received grants for work on character education from the John Templeton Foundation.) The ad featured essays by 13 distinguished scholars and public figures from various political and economic perspectives, ranging from former world chess champion Garry Kasparov and French philosopher Bernard-Henri Lévy to former Pennsylvania senator Rick Santorum and former Labor secretary Robert B. Reich. The question they addressed was, “Does the free market corrode moral character?”

Even without reading the essays, you can see that this ad stands as a telling artifact of our age. Get serious about big moral issues, it seems to proclaim. The question of the hour is not just about economics. It’s about the potential for markets to corrupt integrity. Had this ad appeared three months ago, I suspect it would have been met politely but dismissively. Instead, it suddenly is asking the questions on everyone’s lips: Has capitalism failed? Has trust been shattered? Is our financial culture in moral default?

The second archetypal appearance last week — by former Federal Reserve chairman Alan Greenspan, speaking to the House Committee on Oversight and Government Reform — was equally stunning. Although focused on economics, the conversation broadened into the philosophical and personal when Greenspan admitted that he was “shocked” to realize that his free-market ideology had been proved wrong.

“I made a mistake,” he told the October 23 hearing, “in presuming that the self-interests of organizations … were best capable of protecting their own shareholders and their equity in the firms.” He noted, too, that the “whole intellectual edifice” of risk management had “collapsed” in the summer of 2007. Translated into lay language, Greenspan’s mistake lay in believing that players in financial markets, left to their own devices, would self-regulate simply because it would be profitable to do so. Instead, self-regulation failed — and wealth simply evaporated.

But where did it go? Shakespeare raised a similar question about drama: Where do plays go when the curtain falls? In The Tempest, Prospero, the one-time duke of Milan, finishes watching a play-within-the-play and announces that “our revels now are ended.” The actors themselves, he notes, have “melted into air, into thin air.” The stage-set they once inhabited — “The cloud-capp’d towers, the gorgeous palaces, / The solemn temples, the great globe itself” — shall, he says, “dissolve” and “leave not rack behind.” Summing up all that’s left, he describes it as “the baseless fabric of this vision” and “this insubstantial pageant faded.”

What’s become of the wealth that seemed on paper to be so great? Is it, like Prospero’s revels, little more than the “baseless fabric” of a vision we mistook for reality? Has this last decade been but an “insubstantial pageant” that, once full of gorgeous glitter, has now faded? And if it has left “not a rack behind,” where did it all go — and can it come back?

These are not unanswerable questions. But they’ll only be resolved by addressing the big philosophical issues that finally have broken through into public thought. If free enterprise corrodes moral character, how can we construct a corrosion-proof culture of integrity? And if the “whole intellectual edifice” of modern financial instruments is, in the Bard’s words, “baseless” and “insubstantial,” how do we rebuild it on a responsible, fair, and honest footing?

These questions are about ethics, not economics. At last we’re giving them heed.

©2008 Institute for Global Ethics

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

“Put this down: That will never happen — ever, okay? I am not stepping down. I’m going to run through, and I’m going to win this election.”

– Sen. Ted Stevens of Alaska, speaking before his trial on corruption charges. Stevens, the Senate’s longest-serving Republican, was convicted on Monday on all seven counts of corruption related to favors and freebies given during a $160,000 home renovation, and now faces up to 35 years in prison. While the Senate has no rules barring felons from its ranks, Stevens, who currently is running for reelection, could be expelled by a two-thirds vote, notes the Associated Press.

Source: AP, Oct. 27.

For more information, see: Washington Post, Oct. 27 — Related Newsline Commentary, Aug. 4 — Related Newsline story, Aug. 4 — Related Newsline story, Aug. 20, 2007.

In related news, many worry that the global economic implosion will hit the poorest people the hardest

VARIOUS DATELINES
The ethical aftereffects of the economic crisis were featured in several world-press reports last week. Among them:

• About three years after stepping down as chairman of the Federal Reserve, Alan Greenspan admitted that he put too much faith in free markets and paid too little attention to the self-destructive effects of reckless lending, reports the New York Times. “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he said in testimony before the House Committee on Oversight and Government Reform. While he refused to accept complete blame for the financial meltdown, Greenspan did concede that the exotic and complex financial vehicles that fueled the crisis had gotten out of control.
• The credit crunch that followed the world economic implosion is threatening to undermine ethical improvements made by retailers and suppliers, the U.K. Guardian reports. That warning came at a London conference marking the 10-year anniversary of the Ethical Trading Initiative (ETI) , a movement among retailers, suppliers, trade unions, government representatives, and charitable groups. ETI director Dan Rees said that the current economic climate “threatens gains already made,” according to the Guardian. He implored businesses to be vigilant in protecting workers against low pay and poor conditions. An official of clothing company Gap added that workers in poor nations are the weakest link in the supply chain and feel the pain most quickly and severely when the economy sours.
• United Nations secretary-general Ban Ki-moon says world leaders must help poorer nations through the global financial crisis. The BBC reports that Ban says the crisis could threaten the survival of many of the world’s poorest people. Ban said central banks and the International Monetary Fund may have to set up emergency credit lines for impoverished countries, according to financial news wire RTTNews.com.

Sources: RTTNews.com, Oct. 25 — New York Times, Oct. 24 — BBC, Oct. 24 — Guardian, Oct. 24.

For more information, see: Related Newsline Commentary, Oct. 20 — Related Newsline story, Oct. 20 — Related Newsline story, Oct. 14 — Related Newsline Commentary, Oct. 6 — Related Newsline story, Oct. 6.

U.S. attack ads fly, with varying degrees of fraudulence, according to press analysis; in Canada, one pollster blames negative advertising for low turnout in recent election

WASHINGTON and VANCOUVER
Ethics and election advertising in the United States and Canada were the focus of several stories last week. Among the coverage:

• Republicans have launched a series of commercials highlighting what they consider to be one of Barack Obama’s ethical weak points: his relationship with Antoin “Tony” Rezko, a former fundraiser who is now a convicted felon, reports the Washington Post. But the rash of ads emphasizing Obama’s friendship with Rezko appears to be having little impact on voters, according to the Post, with one poll showing that respondents overwhelmingly do not identify Rezko as a negative factor against Obama, and another poll showing Obama with a 10-point lead over McCain on the question of which candidate has the highest personal and ethical standards.
• Both campaigns continue to spin and exaggerate the facts in their ads, according to an analysis from U.S. News & World Report. An ad from the Obama camp that claims McCain would “privatize Social Security” stretches the truth, according to the magazine, because it refers to McCain’s support for President Bush’s proposal to create a purely voluntary program that would not affect current retirees, and in any event was never enacted. A McCain ad is cited for badly distorting the truth by claiming that Obama wants to “teach comprehensive sex education to kindergartners.” In truth, Obama supported a bill aimed at teaching youngsters how to protect themselves from predators, notes U.S. News.
• Recent polls show that negative advertising in the recent Canadian election actually drove voters away from the booth, reports the Vancouver Sun. Harsh ads targeting Liberal leader Stéphane Dion persuaded 11 percent of Canadian respondents not to vote for any candidate at all, according to poll conducted by the firm Angus Reid Strategies. Angus Reid pollster Andrew Grenville told the Sun that while attack ads often give candidates a short-term boost, the ultimately “reduce the number of people who want to vote. They reduce participation in the democratic process. They poison the system.”

Sources: Washington Post, Oct. 24 — U.S. News & World Report, Oct. 24 — Vancouver Sun, Oct. 24.

For more information, see: Related Newsline story, Oct. 20 — Related Newsline story, Oct. 20 — Related Newsline Commentary, Oct. 14 — Related Newsline story, Oct. 14 — Related Newsline story, Oct. 6.

Surveyed physicians say the practice is ethically acceptable, though many are uncomfortable with “benevolent deception”

NEW YORK
About half of U.S. doctors surveyed admitted that they regularly give patients placebos such as vitamins, sedatives, or even antibiotics, even though they don’t expect those treatments to help the patient’s underlying problem and do not so inform the patient.

In a survey of 679 internists and rheumatologists, researchers from the National Institutes of Health found that 62 percent believe that giving a placebo without the patient’s knowledge is ethically sound, according to a report from ABC News.

One researcher involved in the survey, Dr. Jon Tiburt, told WebMD that he does not think doctors “have anything but the patients’ best interest in mind when they give a placebo prescription…. They are thinking about both the physical and psychological well-being of the patient.”

While some studies purport that placebos do in fact work for conditions such as depression or high blood pressure — harnessing the power of the mind to heal the body — the problem is that the patient must be unaware of the deception. As a report from Discover Magazine notes, even though it is a “benevolent deception,” it is enough to make some doctors uncomfortable.

The Canadian Press quotes Arthur Schafer, director of the Center for Professional and Applied Ethics at the University of Manitoba, as saying the practice of prescribing placebos is “deeply unethical. Expensive, dangerous, deceptive, and wrong. It’s bad medicine.”

A co-author of the study, Dr. Ezekiel Emanuel, said he was surprised by the high rate of placebo prescription and said that in some cases the practice can actually be harmful, such as when doctors prescribe unnecessary antibiotics, which he says has fueled the increase in so-called superbugs, which are resistant to treatment.

“In that particular case, it actually puts all of us at risk,” Emanuel told the Canadian Press. “That ought to be roundly condemned.”

Sources: WebMD, Oct.24 — Discover Magazine, Oct. 24 — ABC News, Oct. 24 — Canadian Press, Oct. 23.

For more information, see: Related Newsline story, Sep. 29 — Related Newsline story, Sep. 22 — Related Newsline story, Aug. 25 — Related Newsline Commentary, July 28 — Related Newsline story, July 14.

Hu Jia has been imprisoned by China for “subversion of state power”; China displeased that award is given to a “criminal”

BEIJING
Chinese dissident Hu Jia was honored by the European Parliament last week — a move that immediately infuriated Chinese leaders, who complained the award was being bestowed on a convicted criminal.

Hu was given the Sakharov Prize, which honors achievement in human rights activism and commemorates the late Soviet dissident Andrei Sakharov.

According to the Los Angeles Times, Hu was most recently noted for documenting Beijing’s pre-Olympic crackdown on dissent and disseminating the information widely on the Web.

He also reported on environmental degradation and the plight of HIV sufferers in China, according to UPI.

In April he was sentenced to three-and-a-half years in jail.

Spokesmen for the Chinese government dismissed the human rights award as an attempt to meddle in the country’s internal affairs, and expressed “strong dissatisfaction” for honoring a “criminal convicted of inciting subversion of state power,” Bloomberg reports.

Washington last week called on Beijing to free Hu.

State Department spokesman Gordon Duguid, quoted in a report from the Agence France-Presse, said he hopes that “the recognition the European Parliament has given Hu Jia … will demonstrate to China’s leaders the enormous esteem the international community holds for his important work as a human rights defender and that China will release him immediately.”

Sources: Los Angeles Times, Oct. 25 — UPI, Oct. 24 — Bloomberg, Oct. 24 — AFP, Oct. 23.

For more information, see: Related Newsline story, Oct. 20 — Related Newsline story, Oct. 14 — Related Newsline story, Sep. 29 — Related Newsline story, Sep. 22 — Related Newsline story, Sep. 15.

In aftermath of several scandals involving dangerous Chinese products, the giant retailer plans more accountability, stricter enforcement of environmental standards

BEIJING
Wal-Mart says it will hold its Chinese suppliers to stricter environmental and social standards, and will take away business if they don’t comply.

“Meeting social and environmental standards is not optional,” Wal-Mart CEO Lee Scott told a gathering of more than 1,000 suppliers in Beijing, according to a report from the Financial Times.

“A company that cheats on overtime and on the age of its labor, that dumps its scraps and its chemicals in our rivers, that does not pay its taxes or honor its contracts will ultimately cheat on the quality of its products,” he said.

According to a report from Forbes, one of the first steps in Wal-Mart’s plan will be to implement a supplier agreement that will require factories to certify that they comply with local laws and regulations.

Additional standards relating to the environment and energy efficiency will be implement later.

The news was not especially welcome in China, reports the Wall Street Journal, because it comes at the confluence of increasing raw-material costs and softening global demand for Chinese goods.

BusinessWeek’s Dexter Roberts, in an analysis, reports than Wal-Mart “has good reason to show it is cracking down on wayward Chinese suppliers. The country has been rocked by a series of scandals involving dangerous toys, drugs, and food. Following news last month of the hospitalization of tens of thousands of children sickened by milk tainted with an industrial chemical, governments have been banning imports of Chinese products.”

Sources: BusinessWeek, Oct. 24 — Financial Times, Oct. 24 — Forbes, Oct. 22 — Wall Street Journal, Oct. 22.

For more information, see: Related Newsline story, Apr. 21 — Related Newsline story, Jan. 28 — Related Newsline story, May 29, 2007 — Related Newsline story, Apr. 2, 2007 — Related Newsline story, Aug. 21, 2006.

Venues range from United Nations to courtrooms in Asia, South Africa, and United States

VARIOUS DATELINES
Allegations of graft figured in several stories from the international media last week. Among the coverage:

• The chief of the United Nations’ internal watchdog bureau accused the organization of being lax on corruption. According to the Reuters news agency, the remarks by Inga-Britt Ahlenius came as she presented a U.N. committee with a report by a task force that has probed allegations of graft linked to contracts enforced by the world body. Ahlenius, head of the Office of Internal Oversight Services, claims that 250 separate investigations by her office uncovered “a serious problem” of defective internal controls that leave the agency vulnerable to “waste, abuse, fraud, and corruption.”
• A court case in Miami is focusing a spotlight on corruption in Venezuela, according to press reports. Testimony in the trial of businessman Franklin Duran has involved repeated allegations that millions of dollars were funneled to the government of Hugo Chavez. According to the Washington Post, the testimony exposed allegations that “top government officials have profited from a corrosive web of corruption in the oil-rich country…. Kickbacks, bribes, and secret payoffs have become a feature in the socialist administration, which had claimed a break from the past but instead has seen several officials implicated in multimillion-dollar corruption schemes, according to testimony and conversations taped by the FBI.” According to the Miami Herald, a prosecution witness testified last week that he and the defendant had purchased an office building in Caracas for $4.5 million so they could sell it to the Venezuelan Finance Ministry for $9.5 million — kicking back $4.5 million to senior officials of the agency and pocketing half a million dollars in the process.
• Thailand’s Supreme Court last week convicted — in absentia — former prime minister Thaksin Shinawatra of corruption charges related to a land deal. Thaksin, who has been in exile since being overthrown in a bloodless coup related to public outrage over graft allegations, was sentenced to two years in jail, reports the Bangkok Post. But carrying out the sentence is another matter, notes the paper: Thaksin currently is seeking asylum in Britain, which has the final say in whether he will be extradited, and related procedures are expected to be long and complex.
• The former vice mayor of Beijing has been given a suspended death sentence for bribery and corruption. Prosecutors allege that Liu Zhihua, who was in charge of construction projects in preparation for the Olympics, pocketed about a million dollars in kickbacks in return for providing favors in contracts and loans, the official state news agency Xinhua reports. Liu’s death sentence was delayed two years, according to the Jurist, probably meaning that the Liu will receive life imprisonment if he exhibits good behavior.
• Jacob Zuma, the head of South Africa’s ruling party and the leading candidate in that country’s upcoming presidential election, may face revived corruption charges. The Voice of America reports that a South African court granted a prosecutor’s request to appeal a recent ruling dismissing charges against Zuma. Zuma, who was accused of taking bribes from a French arms company, denies any wrongdoing.
• The murder of a crusading journalist has focused international attention on corruption in Croatia, reports the Associated Press. The nation’s prime minister vowed to relentlessly pursue the killers of Ivo Pukanic, who was killed when a bomb exploded near his car. Pukanic’s magazine had published several articles exposing alleged corruption in politics and business. Stanching corruption has been one of the demands imposed by the European Union, which is considering admitting Croatia in 2010.

Sources: Bangkok Post, Oct. 25 — Washington Post, Oct. 24 — Miami Herald, Oct 24 — International Herald Tribune, Oct. 24 — Jurist, Oct. 24 — Reuters, Oct. 24 — Voice of America, Oct. 24 — AP, Oct. 24 — Xinhua, Oct. 19.

For more information, see: Related Newsline story, Oct. 20 — Related Newsline story, Oct. 20 — Related Newsline story, Oct. 6 — Related Newsline story, Sep. 29 — Related Newsline story, Sep. 8.

With one out of five people in Japan over age 65, network of help agencies assist with transportation, chores, and companionship

NAGAREYAMA, Japan
The Christian Science Monitor reports that retired men in Japan, who often find that life after retirement is short on meaningful activity, are enlisting in a new venture: acting as caregivers for other retirees.

The Monitor’s Amelia Newcomb writes: “As of March 2008, almost 22 percent of the population [in Japan] was over age 65, a figure that is expected to double by 2050…. More than 36,000 Japanese were born a century ago, and 13 million are over 75. Meanwhile, a plunging birthrate is eating away at traditional labor ranks.”

Japan’s government has responded by passing a law supporting nonprofits that provide social support for the elderly. In addition, new health insurance regulations provide reimbursement for certain programs aiding retirees.

Volunteers in various programs assist with such chores as taking the elderly to doctor and hospital appointments, gardening, housekeeping, and household repairs.

At the same time, Newcomb notes, “much of the focus is simply on having a good time,” as the program often engages the elderly in social activities.

Kohei Yoneyama, a retired venture capitalist who now runs one of the agencies and recruits recently retired executives, tells the Monitor: “I try to transform a company man into a community person…. Get rid of job titles. Get rid of your business cards. Don’t long for your old train pass. Let go of the old and become a new person.”

Source: Christian Science Monitor, Oct. 24.

Amidst robo-calls and negative ads, poll finds widespread distrust of politicians

From Harris Interactive:

“Regardless of the candidate they support, most people agree on the need for more honest and moral leaders. This desire is shared not only by most adult Americans, but also by most teenagers.

“…This Harris Poll finds:

• “Four in five adult Americans agree that the federal government needs better moral leadership, with 59 percent strongly agreeing with that sentiment. These feelings are not limited to adults. Two-thirds of teens, 13-17 years old (68%) also agree that the federal government needs better moral leadership;
• “Over half of adults (57%) and a similar number of teens (58%) believe that most politicians would take a bribe if they could get away with it.
• “Almost three in five adults (58%) believe that most politicians are not honest, a feeling shared by 57 percent of teens. Just one in five adults (19%) and one in ten teens (10%) believe most politicians are honest;
• “Looking at adults, there are some interesting party line differences. Independents (64%) are more likely than both Republicans (57%) and Democrats (53%) to believe that politicians would take a bribe if they could get away with it. Democrats (25%) are more likely to believe that most politicians are honest, in comparison to both Republicans (18%) and Independents (15%)….

“The study also found that there is some mixed feelings on whether elections will be fair in their state….

“According to Regina Corso, Director of The Harris Poll, ‘At the moment, we have the lowest ever number of people who say the country is going in the right direction and near, or at, record low approval ratings for many politicians. Many people are angry and expect more from their politicians — better moral leadership. There is hope that a new administration will provide leadership that has a strong moral element….’

“According to Peter Shafer, Vice President of the Harris Interactive Youth Center of Excellence, ‘The conventional wisdom in every Presidential election is that since younger voters don’t show up at the polls, why should candidates bother addressing the issues that are relevant to them? If these attitudes exist then it’s no wonder that the youth turnout is so low. Politicians need to remember that today’s youth are watching and are tomorrow’s voters. And, they need to be shown that there truly are good, honest and dedicated people in Washington, DC, contrary to what they may see and hear in the media.’…”

For the full press release, Oct. 27, click here.

“Do not hold the delusion that your advancement is accomplished by crushing others.”

– Cicero (Roman statesman, orator, and author, 106-43 B.C.)

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

by Rushworth M. Kidder

Okay, enough hand-wringing. It’s time for a solution-oriented approach to the current economic crisis. To get there, we need to ask three questions.

First, what caused it? We may never fully know. Some probable causes are easy to understand, like Wall Street excesses, regulatory inattention, and unscrupulous mortgage lending. Others are nearly incomprehensible, like derivatives, collateralized debt obligations, and credit default swaps. Still others are too amorphous for words — ghostly fears, leaping like pale sparks from market to market, spooking investors, and scorching trust.

But running like an obbligato beneath them all is the persistent murmur of a single word: unethical. There’s a feeling in the air that what’s happened has been not simply illegal but profoundly immoral. There’s a sense that core decencies have been demolished, integrity dissolved, and common values trampled upon to an unprecedented degree.

Second, who’s to blame? Not just the leaders. There’s a growing recognition that entire organizations, not just their top executives, can go off the rails. Like individuals, corporations can develop wholesale cultures of greed, fraud, and deceit. Regulatory agencies and congressional committees, too, can slide into irresponsibility, blame shifting, and turf wars. Sure, we take grim satisfaction in seeing top executives nailed for turpitude, but our intuitions tell us that the problem is bigger than that. In some organizations, the culture itself is so toxic that few employees dare call attention to misconduct — and is so deaf that whenever anyone does speak up, nobody listens.

Third, what can be done? In the coming months, the media will gorge on scandalous tales of malfeasance, as CNN already is doing in a listing titled, “Ten Most Wanted: Culprits of the Collapse.” Useful? Sure, if the fault lies in individuals. But if we’re going to shift from suspicions to solutions, we need to look at organizational cultures. We need to know not just what makes bad ones worse, but what makes good ones better. We need, in other words, the “Ten Most Wanted” characteristics of cultures of integrity — what they are, what they do, and how to build them.

So here’s a start. Based on years of research at our Institute, we think cultures of integrity arise when organizations do the following:

1. Embed ethics in every action, strategy, and policy. Walking the talk, such organizations bring their stated cultures into alignment with their practiced cultures — and spread that alignment from the custodian right up to the board chair.
2. Define ethics not simply as right versus wrong but as right versus right. Moving past obvious wrongdoing, I’m-right-you’re-wrong oversimplifications, and black-and-white rigidities, they learn how to make nuanced ethical choices when both sides have powerful moral arguments.
3. Engage moral reasoning to shape future decisions. Not content simply to use core values to explain past actions or current circumstances, they develop early warning systems to address over-the-horizon ethical dilemmas before they arise.
4. Focus on intrinsic rather than instrumental values. They know that the latter (diligence, say, or competitiveness) are as important to themselves as to the mafia. So they ground themselves in really big values, like truth, respect, and fairness.
5. Emphasize moral principle over legal compliance. Recognizing that lawfulness is vital, they also know the dangers of the mantra, “If it ain’t illegal, it must be ethical.” Legal principle is playing by enforceable rules; moral principle is obedience to the unenforceable.
6. Expand their moral perimeter. Some people have great honesty or responsibility, but practice these values only within their own firm, family, or tribe. Cultures of integrity constantly expand the inclusiveness of their ethical concern toward the global.
7. Focus on relationship building, not just deal making. Knowing that truly important relations are not transactional but values based, cultures of integrity have multiple bottom lines that measure not just financial but social, environmental, and ethical success.
8. Cherish and repeat fireside stories. Cultures of integrity point with pride to their own moral traditions, educating new employees through narratives about taking courageous stands, making character-building decisions, and putting principles above personalities.
9. Maintain deep reserves of moral courage. Though prepared to take stands for conscience, cultures of integrity don’t need to expend those reserves internally — while in unethical organizations, good people need huge courage just to get through a workday.
10. Keep the ethics flame alive collectively. Since culture means “how we — not I — do things around here,” cultures of integrity make ethics the responsibility not of an exceptional individual’s probity but of an entire community’s sense of honor.

If every organization in the world approximated these characteristics enough to warrant the “culture of integrity” label, we’d be left with only one question: How could a financial crisis like the one we’re in ever happen again? If we want the answer to be, It couldn’t, we need to solve today’s problems in ways that ensure such crises never recur. How? By deliberately building cultures of integrity across business and government. Nobody said that’s easy, but nothing less will do.

©2008 Institute for Global Ethics

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

Last week’s commentary by Rushworth Kidder, examining the ethical obligation to correct others’ lies, drew a number of comments from readers. One wrote: “To me, the insidious nature of the lie that is unchallenged is doubly corrosive. There is the lie itself, which is destructive of the public’s right to know and ability to make judgments, and then there is the silence of the individual, which eats at the character of the one who is silent.” Another conjectured that the incident cited in the commentary was typical of the modern “good cop/bad cop” political team tactic, where “the silence or subtle inference can be more than an ethical question mark. This is a coordinated approach with lieutenants lying as the leader(s) retain plausible deniability.”

– Compiled by Ethics Newsline® editor Carl Hausman

“There’s no question that the department has been stretched thin when it comes to resources generally, and that has affected white-collar enforcement in a variety of areas.”

– Former U.S. deputy attorney general Paul McNulty, speaking to the New York Times in a piece examining the FBI’s current dearth of funding and staffing to prosecute white-collar crimes amidst financial fraud in the current economic collapse. The Times notes that “more than 1,800 agents, or nearly one-third of all agents in criminal programs,” were shifted to national security duties in the wake of 9/11, leaving the white-collar crime division undermanned. Even as FBI officials realized in 2003 and 2004 that trouble was brewing in the financial sector, the agency’s requests for more staffing and funding were largely spurned. “From 2001 to 2007, the FBI sought an increase of more than 1,100 agents for criminal investigations apart from national security. Instead, it suffered a decrease of 132 agents,” reports the Times. Over those same years, the FBI requested an increase of $800 million in funding for criminal investigations; it received one-sixteenth of that, notes the report.

Source: New York Times, Oct. 18.

Probe reportedly is examining whether execs made misleading statements about health of company, which collapsed in the wake of the subprime lending debacle; in related news, AIG says it will cancel many events after being caught sponsoring lavish getaways — even as the firm drew billions in government rescue funds

NEW YORK
Lehman Brothers, one of the investment banks at the heart of one of the biggest financial-ethics stories in recent history, is the subject of at least three federal criminal investigations, according to press reports last week.

Richard Fuld, Jr., Lehman’s former chairman and CEO, and Erin Callan, its former CFO, have been subpoenaed in the case, reports the Washington Post, citing unidentified sources.

Spokesmen for prosecutors and Lehman declined comment and lawyers for Fuld and Callan did not immediately respond to the Post story.

The Post says three grand juries are investigating the collapse of Lehman Brothers, which in September filed the largest bankruptcy claim in U.S. history.

The Dow Jones News Service reports that the probes appear to center on whether Lehman executives made false statements about the fiscal health of the firm shortly before its downfall.

In related news, American International Group (AIG), another casualty of the world financial crisis brought on by the collapse of mortgage-backed securities, last week agreed to cut back on spending for junkets, executive perks, and compensation for high-ranking employees, CNN reports.

AIG, which tapped into more than $120 billion in government aid after it could not cover losses on insurance-like products that it offered to investors, drew fire from Congress after it was discovered that even as it was drawing on a taxpayers’ rescue funds, it was holding events at lavish resorts, according to CNN.

Following the revelations, AIG said it would immediately cancel more than 160 planned events, including a $750,000 conference in Las Vegas, according to ABC News.

Sources: Washington Post, Oct. 18 — Dow Jones News Service, Oct. 18 — ABC News, Oct. 16 — CNN, Oct. 16.

For more information, see: Related Newsline story, Oct. 14 — Related Newsline Commentary, Oct. 6 — Related Newsline story, Oct. 6 — Related Newsline Commentary, Sep. 29 — Related Newsline story, Sep. 29.

Palin is subject of second ethics probe in Alaska; Obama is pressed on his association with group alleged to have engaged in voter fraud; in rare move, Florida paper retracts its endorsement after congressman is linked to scandal

VARIOUS DATELINES
Several stories specifically related to claims and counterclaims about ethical issues were part of the political news last week. Among them:

• An Alaska legislative panel agreed last week to share confidential personnel records relating to a second ethics investigation into the actions of Alaska governor and GOP vice-presidential nominee Sarah Palin. The probe’s second round follows an earlier determination by the panel that while Palin had the legal right to fire Alaska’s public safety commissioner, she violated state ethics laws by trying to get her former brother-in-law, a state trooper, fired. The bipartisan ethics probe began before Palin became the GOP nominee. As her national role grew, so did the scandal, dubbed Troopergate, with Palin, her husband, and several aides alleging political bias and refusing to cooperate as previously pledged.
• The FBI is probing allegations of voter fraud involving a grassroots organization linked to Democratic presidential nominee Barack Obama, Bloomberg reports. Employees of the Association of Community Organizations for Reform Now, known as ACORN, have been accused of submitting false voter registration forms, according to Bloomberg. Obama says he has not worked with ACORN at all during the general elections and was only associated with the group by once acting as its lawyer, MSNBC reports. The ACORN issue has been brought up repeatedly both by Palin and by McCain, who previously gave the keynote address at an ACORN-sponsored rally in 2006. Slate notes that the allegations of voter registration fraud — different from voter fraud — actually were brought to the attention of election officials by ACORN itself, which flagged the problem registrations for review and rejection.
• In a highly unusual move, the Palm Beach Post last week rescinded its endorsement of Congressman Tom Mahoney. The freshman Florida Democrat had been endorsed by the Post the day before an ABC news report claimed that Mahoney had used more than $100,000 in campaign funds to bribe Patricia Allen, a former staffer, into keeping an apparent affair with him secret, reports The Hill, a newspaper covering Congress. In an editorial, the post admitted it is rare for a paper to retract an endorsement, but contended: “Though he has more or less admitted to the affair with Patricia Allen, Rep. Mahoney has not said why he put his mistress on the payroll and why he gave her the settlement … Rather than speak directly to his constituents, whose votes he is seeking, Rep. Mahoney has called for a congressional investigation that would not be over until after the Nov. 4 election.” The Post also chided House Speaker Nancy Pelosi, who in 2006 promised the “most ethical Congress in history, for not being more forthcoming about the incident.

Sources: MSNBC, Oct. 17 — Hill, Oct. 17 — Slate, Oct. 16 — Palm Beach Post, Oct. 16 — AP, Oct. 16 — Bloomberg, Oct. 16 — Washington Post, Oct. 14 — Slate, Oct. 10.

For more information, see: Related Newsline Commentary, Oct. 14 — Related Newsline story, Oct. 14 — Related Newsline story, Sep. 29 — Related Newsline story, Sep. 22 — Related Newsline story, Sep. 15 — Related Newsline story, Sep. 15 — ACORN statement, Oct. 13.

Critics condemned the practice, which gave admitted students financial rewards for increasing their score, as a blatant attempt to game the system and boost the university’s rating in guidebooks

WACO, Tex.
Baylor University, in the words of the New York Times editorial-writers’ blog, was caught “red faced — and red handed” after it was revealed that the Baptist university was paying incoming freshmen to retake the SATs, the most widely used college admission test.

Times editorial writer Brent Staples reports: “Administrators claimed that they were merely giving admitted students a chance to burnish their records and win so-called merit scholarships. But it seems more likely that Baylor’s marketing team was trying to drive up the school’s test scores — and move it up in college rankings, like the ones issued by U.S. News & World Report.”

For its part, U.S. News & World Report condemned the program, saying there is “no academic value in asking students already enrolled at the university to retake a college admissions test. U.S. News disapproves of any educational policy that’s designed solely to manipulate data to boost a school’s ranking.”

High-school students can routinely elect to retake the SAT, but according to education journal Inside Higher Ed, Baylor appeared to be the only institution offering a financial incentive to do so.

Baylor University’s student newspaper, the Lariat, which U.S. News & World Report credits with breaking the story, followed up late last week, reporting that Baylor officials now admit they “goofed” and will no longer offer incentives to retesters.

The Lariat reports that Baylor gave $300 in bookstore credit to incoming freshmen who retook the SAT. If the students scored 50 points or more higher, they received an additional $1,000 per year in scholarship money.

Sources: New York Times, Oct. 17 — Inside Higher Ed, Oct. 17 — U.S. News & World Report, Oct. 17 — Lariat, Oct. 17 — New York Times, Oct. 15.

For more information, see: Related Newsline story, Sep. 15 — Related Newsline story, June 9 — Related Newsline story, May 5 — Related Newsline story, Mar. 31.

Critics say decision is motivated by profit and will make a bad situation worse as gambling problems mushroom in times of economic trouble

LONDON
Search engine giant Google will relax its global ban on gambling ads in England, Scotland, and Wales.

Google, which sports “Don’t Be Evil” as its corporate motto, said that gambling firms licensed in the United Kingdom will be allowed to place targeted ads on pages that deliver search results, reports the Times of London.

Critics claim that the global credit crunch is behind Google’s decision to alter its ethics stance, according to the Times.

“The bottom line really is it’s a lot of money,” advertising expert Hannah Kimuiu told the Times. “The gambling advertising industry is probably worth £100 million [roughly $170 million] a year. A lot of advertisers have had to half [sic] their budgets in the past year. They’ve got to recover this money somewhere.”

Google will retain the ban on gambling ads in the rest of the world, and will continue to refuse all ads worldwide for firearms, fireworks, dubious medical treatments, and prostitution, according to a report from the U.K. Guardian.

Various members of Parliament and church leaders immediately attacked the decision as “irresponsible,” reports the London-based Independent. Critics say problems engendered by gambling are becoming worse in the foundering global economy.

The Church of England said that recent studies show a 25-percent increase in people seeking help with gambling problems.

Google says it made its decision in light of Britain’s tolerance of gambling-related enterprises, saying in a statement that it is attempting to “be as consistent as possible with local business practices,” reports the Independent.

Google has been at the center of several recent ethics issues, including controversies over a decision to comply with Chinese censorship laws, the intrusiveness of its “Street View” mapping function, and fears that its new online encyclopedia will create a conflict of interest by pointing to Google content.

Sources: Times of London, Oct. 17 — Independent, Oct. 17 — Telegraph, Oct. 16 — Guardian, Oct. 16.

For more information, see: Related Newsline story, June 23 — Related Newsline story, May 27 — Related Newsline story, Aug. 11 — Related Newsline story, May 21, 2007 — Related Newsline story, Sep. 11, 2006.