Ethics Newsline®

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

by Rushworth M. Kidder

Crisis invites introspection. As the markets tumble, credit freezes, and pundits mutter about the end of free-market economics, individuals and nations are revisiting their principles. What they’re finding is an age-old truth: At times of momentous challenge, there’s a tremendous yearning for straight-up integrity and sound ethical analysis.

That’s different from political or economic analysis. The former helps explain last week’s hesitation waltz, as members of Congress weighed the electoral costs of voting for the financial rescue plan. The latter helps us understand the symbiosis between Wall Street and Main Street, and why only demagogues think we can cut the former adrift without sinking the latter. These two kinds of analysis provide the default languages of journalism — the way reporters typically write about the world. These days, however, neither language brings us to the crux of the matter, which is essentially ethical. We’ve finally got to confront the question of whether the way we run the world is not simply politically astute or economically feasible, but whether it’s right.

Fortunately, we have a clearer understanding of “right” than we had two decades ago, when the seeds of today’s problems were sown. In 1987 it still was fashionable to assert that ethics was relative, situational, negotiable, and wholly subjective. That year, too, the movie Wall Street gave us Gordon Gekko, the Ivan Boesky-inspired character with the signature line, “Greed is good.” In the years since, there’s been a curious divergence of paths. On one hand, philosophy and public thought — and parts of the corporate world — increasingly have rejected moral relativism, recognizing instead that humanity shares a core of ethical values centered on honesty and responsibility. On the other hand, the financial community — or at least some parts of it — have drifted along on Gekko’s surf, clinging to a moral relativism that dismisses ethics as the “soft stuff” that impedes serious progress.

The question is, Which parts of that community? Before we can cleanse the current mess, we need to distinguish innocent human error from gross moral turpitude. Did this crisis arise because well-meaning people — CEOs, regulators, congressional committee members, traders, investors — simply took their eyes off the ball as the system grew more complex? Or was the crisis caused by fraud, deceit, and corruption — by mortgage lenders coaxing unwary buyers into unconscionable debt, banks fudging their figures, and lobbyists growing rich by misrepresenting Fannie Mae and Freddie Mac? If it was the latter, individuals need to be convicted and reparations paid. If it was the former, the system needs to be restructured and new regulations designed.

I suspect history will show us that it was some of both. For starters, then, there are two obvious courses of action:

• Build better regulations. If greed is the demon, we need up-to-date, applicable restraints. It’s been said that some of the new financial instruments are so mathematically complex that only a handful of people in the world actually understand them. Regulation always has sought to prevent the marketing of the inexplicable to the unwary. Perhaps it now should require financial institutions to demonstrate an elegant and ethical simplicity in their product lines.
• Create better enforcement. Under the market deregulation of recent years, the hope was that self-regulation — always the best form of enforcement — would work. Predictably, however, a financial community still mired in ethical relativism was never really going to embrace self-enforcement. Hence the need for new structures of punishment — and a diligent, well-paid, mature cadre of enforcers who can demand tough penalties that won’t be shrugged off as simply a cost of doing business.

But none of this will matter unless the regulations also require that, within our financial organizations, we take vigorous steps to create genuine cultures of integrity. Unless we can build into the corporate DNA a commitment to honesty, responsibility, respect, fairness, and compassion — in other words, to doing what’s right — all the regulation and enforcement in the world will create only more high-stakes efforts to game the system. Creating such cultures of integrity won’t be easy: The Ethics Resource Center found in 2007 that only 9 percent of U.S. companies had strong ethical cultures. But the need increasingly is recognized: The Revised Federal Sentencing Guidelines provide favorable treatment for companies that “promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law.”

If there’s a silver lining to the current crisis, it’s that public demand seems to be building for a culture-of-integrity movement. If this crisis grew out of greed and corruption, such a movement is obviously the right response. But it’s also the right response if the crisis arose from well-meaning leaders who weren’t paying attention. Sadly, we now have evidence — from a text-messaging commuter-train engineer in Los Angles who accidentally killed 25 people last month — that well-meaning inattention isn’t good enough. In financial markets, too, we can define such a thing as culpable indifference — and trust even that failure to be remedied under a strong culture of responsibility.

Bottom line? We’ll emerge from this crisis with a stronger commitment to integrity, a chastened revulsion against ethical relativism, and a firmer grasp on right. We didn’t need a crisis to get us there, but now that it’s here, there’s a growing clarity that the way out lies along the road to ethics.

©2008 Institute for Global Ethics

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

Last week’s guest commentary, “Free for Me,” argued that it is disingenuous, at best, for business leaders to shun regulation while hiding behind “free market” arguments when in fact they are manipulating rules (and loopholes) specifically created by regulation.

The piece drew quite a bit of mail reflecting on the nature of free markets.

“Free market philosophy made more sense in the days when a small, adventurous enterprise could go into the vast immeasurable territories of untapped resources and race, no holds barred, to see who can return quickest with the biggest catch,” one reader contended. “Now, with modern technologies and the awareness of complex interconnected environments and systems, it is dangerous and irresponsible to assume an industry should be free to fish until it cannot find any more fish, cut down forests until it cannot find another tree, strip mine and abandon the land, suck the oil dry, build the flimsiest homes, or let stock markets be run like casinos.”

Another reader drew an analogy from history: “You are right that citing the ‘free market’ has become a semantic sham. The real concept of the free market refers to what economists call ‘pure competition.’ What many free-marketers really want is monopoly power under the guise of free enterprise. That is what Teddy Roosevelt saw and tried to fix (successfully for quite a while) with the antitrust movement. It is time to get back to it and make it work again.”

One reader’s letter reflected a thread of frustration common among several readers’ responses and, of course, to the general climate of anger over the financial implosion. “We’re getting ripped off twice with lies and duplicity and just plain blind greed and belief that the pyramid can’t run out of pointy end. All in the name of a ‘freedom’ for corporations that are less encumbered than a newborn child when it comes to responsibility, integrity, and pity.”

– Compiled by Ethics Newsline® editor Carl Hausman

“What we’ve found is that one in four mammals are truly in peril, but these assessments were done largely without accounting for the potential impacts of climate change…. If we continue emitting greenhouse gases at the current rate, we’re looking at 40 percent loss of biodiversity by the end of the century.”

– Dr. Jonathan Baillie, director of conservation programs at the Zoological Society of London, discussing a new report warning of an “extinction crisis” threatening one-fourth of the world’s mammals due to habitat loss, hunting and climate change

Source: New York Times, Oct. 6.

Among the issues: executive compensation, subsidizing risk, ethics education at business schools, responsibilities of stockholders to monitor the institutions in which they invest, U.S.’s standing as world economic leader, and the morality of pursuing short-term profit

VARIOUS DATELINES
The U.S. Congress last week passed a $700 billion financial bailout package, which was signed quickly by President Bush. Now, the U.S. Treasury will implement what may be the costliest government economic intervention in history.

Several ethics angles on the events were featured in reports and opinion pieces from the national and world press last week. Among the top stories:

• Lawmakers added more than 400 pages to the Treasury Department’s original three-page proposal for the bailout, including limits on how much executives could recoup if their firms sell assets to the government, according to a report from the Los Angeles Times. The fairness of executive compensation has been a particularly touchy issue throughout the evolution of the crisis, as critics complained that many of those responsible for the meltdown were walking away from the rubble with millions of dollars in their pockets.
• Wall Street Journal columnist Daniel Henninger weighed in on the “moral hazard” argument, noting that now, “with big banks dropping like flies and Wall Street vaporizing amid a mortgage meltdown, every corner bar and hair salon is filled with experts on the perils of moral hazard. Everyone gets it: Cut risk down to next to nothing and some people do crazy things.” Henninger notes that the term has been kicking around for hundreds of years, but when it eventually came into the economists’ lexicon “the first thing they did was strip out the heavy moral freight to make the concept value-neutral. Now moral hazard became less about judgment and more about the economic ‘inefficiencies’ that occur in riskless environments.” Henninger says that now we are “back to the original meaning. Losing tons of money for an institution is an economic inefficiency. Lose the nation’s financial structure, however, and moral fingers get wagged.”
• Fox News religion correspondent Lauren Green argues that the seeds of the current economic implosion were sown in the nation’s business schools during the 1970s and 1980s — the same schools she says are trying to reclaim the moral high ground today. She cites Harvard professor Rakesh Khurana’s claim that in the first half of the twentieth century, U.S. business schools taught a standard of socially responsible management — a standard they abandoned in the last two decades to advocate decisions made on the premise of a higher return rather than a higher purpose. But now, Green maintains, those same business schools are trying to correct that profit-at-all costs culture. Green points to Harvard’s new Leadership and Corporate Accountability course, the Wharton School’s recently developed doctorate in business ethics, and Yale’s Center for Faith and Culture, which offers a joint degree between the School of Management and the School of Divinity.
• One of Europe’s senior bankers last week said the financial crisis had been caused by a collapse of ethical standards among banks, as well as the blind eye turned to the situation by watchdogs, rating agencies, and accountants. Sir Evelyn de Rothschild had harsh words for shareholders who ignored the increasingly overextended positions of the companies in which they invested, according to the London-based financial website ThisIsMoney.com.
• Philadelphia Inquirer columnist Trudy Rubin contends that the financial crisis imperils the United States’s standing as the world economic leader, with the dollar’s status battered by the cracks in the foundation of the nation’s financial systems. Moreover, Rubin argues, the implosion of the financial structure undercuts the nation’s image as the home of stable institutions. She also posits that recent events erode the nation’s credibility, noting that the United States staunchly had opposed bailouts for ailing banks during the Asian banking crisis in the late 1990s, during which many banks failed, hurting many middle-class Asians.
• A top Vatican official last week proclaimed that the world’s financial crisis is a result of an obsession with short-term profits and an example of what happens when the common good is ignored, the Associated Press reports. Cardinal Tarcisio Bertone, the Vatican’s number-two official, criticized the quest for short-term profits, which, “virtually identified as a good in itself, ends up wiping out the profit.”

Sources: Los Angeles Times, Oct. 4 — Wall Street Journal, Oct. 2 — Fox News, Oct. 2 — AP, Oct. 2 — ThisIsMoney.com, Oct. 2 — Philadelphia Inquirer, Sep. 29.

For more information, see: Related Newsline Commentary, Sep. 29 — Related Newsline story, Sep. 29 — Related Newsline story, Sep. 29 — Related Newsline story, Sep. 15 — Related Newsline story, Sep. 8.

Some object to choice for moderator of Palin-Obama debate, a journalist who is writing a book on Obama; a popular CNN election-show anchor’s ‘rant’ raises objectivity questions; ethics dilemmas await reporters who plan to buy tickets for Obama fund-raising concerts

WASHINGTON and NEW YORK
Issues of objectivity of the press were raised in several news reports last week. Among them:

• Last week’s highly anticipated vice-presidential debate had a media-ethics angle: Some were critical of the choice of moderator Gwen Ifill on the grounds that she is writing a book that will deal partly with Barack Obama. According to the International Herald Tribune, Ifill says she has not yet written the chapter on Obama in her book, titled “The Breakthrough: Politics and Race in the Age of Obama.” She differed with descriptions of the book as “pro-Obama.” The paper notes that scrutiny and criticism of debate moderators appears to be more intense this year, perhaps as an outgrowth of the unusually intense, hard-fought, and close campaign.
• Cable-TV news programs are dealing with questions of impartiality in the election season, with the most recent controversy centering on CNN’s Campbell Brown, who hosts the network’s “Election Center.” The New York Times reports that the questions center on Brown’s self-described “rant” on her show in which she said that Sarah Palin should be cut loose from what Brown claims are overcautious and sexist handlers. The video became a sensation on the Internet, but also caused problems for CNN, which has attempted to cultivate an atmosphere of objectivity, in contrast to the loud advocacy of some other cable networks, according to the Times.
• Newspaper trade journal Editor & Publisher reports that there’s something of an ethical-practices showdown looming as reporters and editors ponder the consequences of buying tickets to Obama benefit concerts, including one featuring superstars Bruce Springsteen and Billy Joel. Editor & Publisher writer Joe Strupp points out: “Four years ago, a series of concerts by Springsteen and others that were touted as fundraisers for then-Democratic presidential nominee John Kerry sparked debate over what constitutes conflict of interest and personal activities…. The St. Paul Pioneer Press suspended two reporters in 2004 for attending one of the pro-Kerry “Vote for Change” concerts that raised money for political causes. The move prompted a formal grievance at the time by the Newspaper Guild.” According to the Editor & Publisher report, some papers, such as the Washington Post and Miami Herald, banned all employees from attending the 2004 concerts. Others, such as the Detroit Free Press, banned attendance by reporters directly involved in political coverage, while some, including the Cleveland Plain Dealer, imposed no bans at all, saying the events were more entertainment than advocacy.

Sources: New York Times, Oct. 4 — International Herald Tribune, Oct. 2 — Editor & Publisher, Oct. 2.

For more information, see: Related Newsline story, Sep. 29 — Related Newsline story, Sep. 22 — Related Newsline story, Sep. 15 — Related Newsline story, Sep. 15 — Related Newsline story, Sep. 8.

In a repeat of a common contention over the ethics of cross-cultural censorship, the company says it has no choice but to obey Chinese laws if it wants to work in China

NEW YORK
A Chinese version of Skype, eBay’s popular Web-communication software, spies on users, zeroing in on keywords such as “democracy,” Taiwan Independence,” or “Falun Gong,” according to press reports.

The Chinese company, called TOM-Skype, has been logging and storing users’ instant messages so they can be monitored for content offensive to the government, reports technology network CNET.

The revelation came from researchers at the University of Toronto, who say they discovered that TOM-Skype was not only censoring communication but also logging and recording text chats and voice calls, according to CNET.

Echoing an oft-repeated contention in the ongoing discussion of the ethics of censorship, Skype officials said they were unaware of the logging of communications but said their Chinese TOM-Skype partners have no choice but to obey Chinese law to operate in China, trade journal InformationWeek reports.

The same rationale for cooperating with the repressive Chinese government has been cited by companies such as Google and Yahoo.

Skype has claimed that it was aware that that partner company TOM Online was using a text filter to block certain words considered subversive in China, but says it was caught by surprise when the Chinese partner changed policies and stored the messages, Reuters reports.

Sources: CNET, Oct. 6 — PC Magazine, Oct. 3 — InformationWeek, Oct. 2 — ComputerWorld, Oct. 2 — Reuters, Oct. 2 — CNET, Oct. 1.

For more information, see: Related Newsline story, Aug. 25 — Related Newsline story, Aug. 11 — Related Newsline story, Aug. 4 — Related Newsline story, July 14 — Related Newsline story, June 23.

Russia, Mexico, Dubai, and Indonesia step up graft-fighting programs; soccer officials want crackdown on match fixing across Europe

VARIOUS DATELINES
Efforts to stanch corruption captured global headlines last week. Among the top stories:

• Russia is gearing up to fight corruption, according to English-language Russian newspaper Moscow News Weekly. Two recently introduced bills call for tough new deterrents, including confiscation of property from officials convicted of corruption offenses and mandatory disclosure of incomes and properties by all government officials, including the military, judges, police, and officials’ spouses and children over 18.
• Mexican president Felipe Calderon has sent an anti-drug plan to Congress, and it includes a proposal to set up a department to monitor police corruption, considered a major element enabling the drug trade, according to a report from the BBC. Mexico has been gripped by a recent wave of violence waged by drug cartels.
• The governing body of European soccer has set up a six-person special investigation unit to probe corruption, according to the U.K. Press Association. The Financial Times reports that currently 25 soccer matches from last season are under investigation for alleged point-shaving related to betting scams.
• Dubai has a hard-earned reputation as a land of superlatives, including home of the world’s tallest tower, biggest shopping mall, and fastest-growing airlines, notes Canada’s Globe & Mail. But a series of corruption scandals at state-owned firms is “casting a growing shadow on the United Arab Emirates’ economic miracle,” reports the paper. “Seven executives at state-linked companies have been arrested since April. Dozens more have been questioned on suspicions of bribe taking, including officials from Nakheel Corp., the Dubai developer that last summer snapped up a 20-percent stake in Canada’s Cirque Du Soleil,” reports the Globe & Mail. Last week, the government set up a task force to crack down on corruption in the financial sector.
• Indonesia is in the midst of a series of antigraft probes and seems to be making some progress, reports the Voice of America. VOA’s Katie Hamann, reporting from Jakarta, notes that Indonesia’s climb from 143rd to 126th on the Transparency International corruption index “is a small sign of improvement in a country viewed as one of the most corrupt in Asia.” The latest high-profile case involves the arrest of a government commissioner charged with taking a $66,000 bribe from the head of a television network. The network, according to the VOA report, was the recipient of a favorable government ruling on business practices related to the televising of a popular sporting event.

Sources: Moscow News, Oct. 2 — Voice of America, Oct. 2 — U.K. Press Association, Oct. 2 — Globe & Mail, Oct. 1 — Financial Times, Sep. 27.

For more information, see: Related Newsline story, Sep. 29 — Related Newsline story, Sep. 15 — Related Newsline story, Sep. 15 — Related Newsline story, Sep. 8 — Related Newsline story, Sep. 8.

Apple stock took a dive after bogus report; Securities and Exchange Commission is probing possible market manipulation

NEW YORK
CNN’s plunge into so-called citizen journalism raised ethics questions and more than a few eyebrows at the U.S. Securities and Exchange Commission (SEC) after the cable-news outlet posted what turned out to be a false report claiming that Apple CEO Steve Jobs had suffered a heart attack.

Bloomberg reports that the event is viewed by many as an example of the need for news organizations to verify content generated by users before it is published.

According to Bloomberg, “citizen journalism” has been adopted by a variety of news outlets in an effort to stretch resources and appeal to online audiences.

CNN’s iReport site broke the bogus Apple story last week — and before it was corrected, Apple’s stock went into a tailspin, losing about 11 percent of its value, reports the San Jose Mercury News.

iReport — whose motto is “Unedited. Unfiltered. News.” — is a site where anyone can post news reports.

Apple quickly denied the story and iReport took it down, according to the Chicago Tribune. Apple stock rebounded later in the day, but closed down in a general market sell-off.

In the aftermath, the SEC opened an investigation of the false report to determine if it was a deliberate attempt to manipulate the market, according to technology network ZDNet.

Sources: Bloomberg, Oct. 4 — Chicago Tribune, Oct. 4 — ZDNet, Oct. 3 — San Jose Mercury News, Oct. 3.

For more information, see: Related Newsline story, Sep. 8 — Related Newsline story, June 16 — Related Newsline story, May 19 — Related Newsline Commentary, Feb. 11 — Related Newsline Commentary, Jan. 22.

Ottawa Citizen report examines an ethical dilemma: Should advertisers use ultra-thin models, even though it lowers consumers’ morale, or take the high road and produce potentially less-effective ads?

OTTAWA
A marketing researcher at a college in Pennsylvania found that viewing ads featuring very skinny models made many women feel badly about themselves.

But the study also found that the same subjects were more likely to buy products touted by super-skinny models than products advertised using models of more normal dimensions.

Ottawa Citizen reporter Joanne Laucius notes that several firms have been using normal-size models in recent years, a trend that many find empowering but unfortunately not very effective at moving products.

This creates a moral dilemma for advertisers, Laucius writes: “Should advertisers use ads that sell stuff knowing they make women feel bad about themselves?” Or, she asks, should they take the high road and run ads that potentially are less effective?

The Citizen report also elaborates on another ethical issue involving excessively thin models: The images often are digitally enhanced. The fact that this is not widely acknowledged, according to a psychologist quoted in the report, poses ethics problems because it leads some consumers to aspire to look like what are literally unreal images.

Source: Ottawa Citizen, Oct. 2.

For more information, see: Related Newsline story, Apr. 21 — Related Newsline story, Apr. 7 — Related Newsline story, Feb. 20, 2007 — Related Newsline story, Nov. 20, 2006 — Related Newsline story, Sep. 26, 2005.

Pew poll tracks U.S. public’s views on abortion and related issues

From the Pew Research Center:

“Public opinion on the legality of abortion has remained relatively stable for well over a decade, with slight majorities of the public consistently saying they favor keeping abortion legal. Polling conducted between 1995 and 2008 reveals that support for keeping abortion legal in all or most cases has fluctuated between 49% and 61% over the 13-year time period. Fewer Americans have tended to express support for making abortion illegal in all or most cases, ranging from a low of 36% to a high of 48% over the same period of time.

“At the same time, large majorities have expressed support for the 1973 Roe v. Wade decision that established constitutional protections for women seeking an abortion. In October 1989, for instance, more than six-in-ten Americans (61%) said they would oppose seeing the U.S. Supreme Court completely overturn the Roe decision, while only one-in-three (33%) favored overturning Roe. Sixteen years later, in November 2005, two-thirds (65%) continued to express support for keeping Roe as the law of the land, while 26% supported overturning the decision.

“An August 2008 poll … confirms that American opinion on this issue remains very much in line with this historical pattern….

“Men and women are about equally likely to express support for abortion rights — 53% of men and 54% of women say it should be legal — but women are somewhat more likely than men to say abortion should be legal in all cases (20% of women vs. 14% of men). Majorities of most age groups say that abortion should be legal in all or most cases….

“Republicans are considerably more likely than Democrats and independents to oppose legalized abortion….

“And despite the Roman Catholic Church’s vocal opposition to abortion, opinion on the issue is also closely divided among Catholics, with about half (49%) saying abortion should be legal and a similar percentage (47%) saying it should not….

“While the public generally tends to support legalized abortion, it is also clear that most Americans harbor concerns about the morality of abortion and favor certain restrictions on its use. Pew Research Center polling from 2006, for instance, finds that most Americans (73%) believe that abortion is morally wrong in nearly all (24%) or some (49%) circumstances. Only one-in-four (24%) say abortion is not a moral issue. And a 2005 Pew Research Center poll finds that nearly six-in-ten Americans (59%) think it would be a good thing to reduce the number of abortions performed in the United States, compared with only 33% who do not feel this way.

“Perhaps reflecting these concerns, attitudes about abortion are highly dependent on the pregnant woman’s circumstances. For example, a 2005 Pew Research Center analysis shows that the public supports abortion when the physical or psychological health of the mother may be in danger, or when the pregnancy results from rape or incest. But most Americans disapprove of abortion when the circumstances relate to economics, life choices or a personal preference not to have a child.

“Other Pew Research Center polling finds that majorities of the public also consistently express support for requiring that women under age 18 get the consent of at least one parent before having an abortion; 73% expressed this view in 2005, as did 69% in 1999 and 73% in 1992….”

For the full press release from Pew, Sep. 16, click here.

“You can’t hold a man down without staying down with him.”

– Booker T. Washington (U.S. freed slave, educator, orator, author, and community leader, 1856-1915)