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.

At issue: press freedom in Vietnam, protecting rural Chinese from corruption, oversight of aid projects in danger zones, and plans for a new school for graft-fighters

VARIOUS DATELINES
Corruption was the topic of a range of stories from Asia and Europe last week. Among them:

• Vietnam imprisoned a reporter for his coverage of state corruption, reports the Agence France-Presse. The reporter, Nguyen Viet Chien, uncovered information about a transport ministry unit where officials had used foreign aid money for gambling. The incident, according to the AFP, led to a series of arrests and prompted widespread global praise for Vietnam’s loosening of press restraints. But in May the climate of tolerance apparently eroded and Chien was charged with producing stories with errors and bias that damaged the image of party officials. Several other reporters and sources involved in the case were charged and received lesser sentences or were fired or reprimanded.
• The rights of Chinese farmers, who have been hit hard by corruption during the nation’s rapid building boom, are the focus of a new wave of reform, reports UPI. Local use reform, which gives farmers more control over their land and spells out more of their rights, jumped to the top of the Communist Party’s agenda following a series of sometimes-violent confrontations between farmers and local officials. UPI reports that officials have cheated farmers out of their land, and farmers on occasion have been the source of trouble when they bought up neighbors’ properties and attempted residential or industrial development, sometimes without the proper skills or knowledge to prevent pollution or other environmental problems.
• British aid projects in international danger zones are particularly vulnerable to corruption, according to a government report. The National Audit Office says that in many parts of the world it is difficult and dangerous to make site visits to track aid distribution, according to a report from the BBC. Aid agencies were urged to do a better job of managing security risks and tracking progress in dangerous areas.
• Interpol and the United Nations’ Office on Drugs and Crime announced that they will jointly create an academy to teach government and police officials how to curb corruption, which the U.N. claims drains a trillion dollars a year from the global economy. The academy will open in 2009 near Vienna and will offer training in methods to preempt and root out graft and bribery, reports the Reuters news agency.

Sources: UPI, Oct. 17 — U.K. Press Association, Oct. 16 — BBC, Oct. 16 — Reuters, Oct. 16 — AFP, Oct. 15.

For more information, see: Related Newsline story, Oct. 16 — Related Newsline story, Sep. 29 — Related Newsline story, Sep. 15 — Related Newsline story, Sep. 8 — Related Newsline Commentary, Aug. 4.

Increasingly complex web of interactions poses knotty moral issues

VARIOUS DATELINES

Food appears to be increasingly linked with ethical dilemmas, according to a variety of press reports. Among last week’s stories:

• In a wrap-up of related issues on Scientific American’s 60-Second Science blog, journalist Jordan Lite notes that a new movement among Kosher-keeping Jews “fuses modern-day ethics into the practice, taking care that workers at processing plants and the animals themselves are well cared for.” Highlighting a report in the New York Times, Lite notes that some adherents also want kosher producers to incorporate organic farming practices.
• In California, a proposition on the upcoming ballot would outlaw caging animals in a space too small to let them stretch and move, the San Francisco Chronicle reports. Supporters include veterinarians, animal rights groups, and food safety associations. Opponents, including businesses and larger farms, claim the measure could backfire by allowing cage-free chickens to spread avian flu if they wander outside and are exposed to sick wildlife, according to the Chronicle report.
• China’s food adulteration scandal continued to deepen last week, with the government ordering all liquid and powered milk manufactured before September 14 to be removed from store shelves. Some milk products are contaminated with melamine, an ingredient used in plastics and fertilizers that artificially raises the protein level of a substance and allows watered-down milk products to pass quality control checks. A recent analysis from the Council on Foreign Relations notes that safety enforcement in China is weak, with many of the firms now blamed for the scandal exempt from inspections because they scored well on quality tests in the past. Also, the Los Angeles Times reports that while the U.S. Food and Drug Administration has recalled only a small number of Chinese-made products from U.S. shelves, some lawmakers and consumer advocates say the agency has not gone far enough and has acted too slowly.
• Pope Benedict XVI says the world has enough food to feed its entire population but squanders much of the supply because of corruption, overspending on military operations, and speculation. Voice of America reports that the pope, speaking on World Food Day, argued that the lasting solution to hunger is the promotion of an international order based on social justice.

Sources: Council on Foreign Relations, Oct. 17 — Voice of America, Oct. 16 — San Francisco Chronicle, Oct. 16 — Scientific American, Oct. 15 — Los Angeles Times, Oct. 15.

For more information, see: Related Newsline story, Sep. 29 — Related Newsline story, Sep. 15 — Related Newsline story, Aug. 11 — Related Newsline story, Aug. 11 — Related Newsline story, July 28.

Local television station asks philosophy professor whether people were right to take advantage of the mistake

WISCONSIN RAPIDS, Wis.
An incident in Wisconsin Rapids, Wisconsin, last week brought ethical analysis right down to the level of the local gas pump.

UPI reports that a computer error at a gas station allowed self-serve customers to fill up at 34 cents a gallon. The actual price should have been $3.43.

The station lost thousands of dollars over the next 90 minutes because the owner could not reset the computer under a Wisconsin state law that makes it illegal to change gas prices more than once a day, according to WISC television in Madison.

USA Today reports that a station employee says word spread quickly: “People were calling people, those people called people, and by then the whole town probably knew.”

Television station WSAW in Wausau sought out a philosophy professor for his take on the issue.

Mark Brown, from the University of Wisconsin Marathon County, says the question of whether it was ethical for people to cash in on the mistake boils down to how you look at it.

Since we’re in a market economy, Brown told WSAW, it’s the costumer’s right to look for the best price and the store owner’s responsibility to ensure that his pricing mechanism is working properly.

But on an ethical level, Brown says, it’s different. “It is the personal responsibility of people who are living in the same community to not take advantage of their fellow community members.”

WSAW notes that as of the next day, not a single customer had returned to the station to pay back the difference.

Sources: USA Today, Oct. 17 — UPI, Oct. 15 — WISC (Madison, Wis.), Oct. 15 — WSAW (Wausau, Wis.), Oct. 15.

For more information, see: Related Newsline Commentary, Sep. 15 — Related Newsline story, July 7, 2007 — Related Newsline story, June 30 — Related Newsline story, May 27 — Related Newsline story, Feb. 18.

“Democrats and independents are more likely than Republicans to say the campaign has been too negative”: Pew

From the Pew Research Center:

“With less than three weeks to go before the election, there is a growing sense among the public that the tone of the presidential campaign has changed. A majority of Americans (55%) now say that the campaign is too negative. This is up significantly from 43% a month ago and represents a dramatic change from the beginning of the primary season when only 28% said the campaign was too negative. Perceptions of the tone of the current campaign are nearly identical to views of the 2004 presidential campaign. In October, 2004, 57% of registered voters said the campaign was too negative.

“In spite of criticism about the tone of the campaign, the public remains highly engaged in the process. Fully 71% say the campaign is interesting, and a strong majority (63%) says the campaign has been informative thus far….

“Democrats and independents are more likely than Republicans to say the campaign has been too negative…. Today, 62% of Democrats and 57% of independents say the campaign is too negative, while only 47% of Republicans agree….

“Democrats overwhelmingly believe that Obama’s television ads are truthful, while they doubt the veracity of McCain’s. Similarly, Republicans believe McCain’s ads are truthful, while a plurality says Obama’s are not. Independents have a much more favorable view of Obama’s ads than they do of McCain’s. By a margin of 42%-26% independents say Obama’s ads are truthful. When it comes to McCain’s ads, independents are evenly divided: 32% say they are truthful and 33% say they are not….

“Public views of the candidates continue to fluctuate. For John McCain and Sarah Palin, changing views are more negative than positive. In the survey conducted Oct. 10-13, fully a third of the public say their opinion of McCain has become less favorable in recent days, while only 17% say their view of the GOP nominee has become more favorable.

“Views of Sarah Palin also turned more negative: 38% say their opinion of Palin has become less favorable in recent days, while 21% say their opinion of the Alaska governor has become more favorable. Palin’s public image had improved significantly the week of the vice presidential debate. Since then, the views of Republicans, who rallied behind her after the debate, have become more static, and the views of independents have become less favorable.

“Obama’s image improved somewhat last week: 29% say their view of the Democratic nominee has become more favorable in recent days while 21% say it has become less favorable. Views of Joe Biden have changed relatively little: 23% say their opinion of Biden has become more favorable recently, 14% say their opinion has become less favorable and 56% say their view of Biden has not changed in recent days….

“Impressions of press coverage run strongly along party lines. In the current poll, fully 70% of Democrats rate press coverage positively, but fewer than four-in-ten (38%) Republicans share this view. Independents, meanwhile, are divided on the subject….

“Opinions about the quality of campaign coverage appear to be correlated with age. A 59% majority of young people (ages 18-34) rate press coverage positively, while middle-aged Americans are more divided on the quality of campaign reporting. Among older Americans (those 65 and older), most say the coverage is only fair or poor (53%), compared with 44% who say it is excellent or good….”

For the full press release, Oct. 16, click here.

“Men do less than they ought, unless they do all that they can.”

–Thomas Carlyle (Scottish essayist and historian, 1795-1881)