Published in CommPRO.BIZ 2013.05.22

Reputation, Reputation, Reputation

A disconnect between public perception and reality when it comes to ethics in business is perhaps the most costly economic factor in America. Companies that follow the highest ethical standards make way more money than those following any other model. Communication professionals are –or should be– guarding the most valuable asset in any business, reputation, the fountainhead of profits.

Surprise! Ethics has always been the road to profits. Reputation Rocks! The ethical business model and the United States share came to be in the same era. The late 1700s were a very trying time for the Brits. They were tied up in nasty military conflicts with France, Spain, the Dutch, and Colonial America. The Industrial Revolution was turning society inside out, snatching work and workers from a home-based production model to machine dominated mass production concepts. Great for a new class of factory owners, not so much for those whose living space was dominated by a spinning wheel and a loom worked to the point of exhaustion to eek out a livelihood.

The lucky ones found work at the “Mill,” jobs that look pretty bleak, and were very bleak. Long hours in windowless buildings (windows were taxed), breathing foul air filled with fabric particles, enduring unending, unbearable noise levels, all the while facing the risk to life-and-limb the clattering machines presented. By 1800 the misery of home-based labor had given way to the despair of the mill and the tenement. Bad as this picture was, strangely it was a tad better than the brain and body numbing efforts of the home-based model it replaced.

However, the ethical business model was growing on the fly. Late in the 1700s a ten-year-old lad, Robert Owen, set off to make his fortune in London. He became a commission salesman at a men’s clothing establishment.  By the time he was eighteen Owen had saved £100, a small fortune in that day. Enough to go into business for himself turning raw cotton into cloth; within a year he tripled his fortune.

At nineteen he made the acquaintance of a large mill owner with a Dickensesque name, Peter Drinkwater.  Drinkwater purchased Robert Owen’s equipment and goods and hired him at £300 a year to manage his mill.  For six weeks Robert changed nothing, he just walked about the mill and got to know the employees. Once he felt he knew what was needed, he began to act.

Owen improved working conditions, visited the workers in their homes offering help and advice.  He set up schools for them and for their children. The first year he quadrupled Drinkwater’s profit.  When the owner came up to his Manchester mill from London to see what this young genius had done, he found his mill clean and tidy, his workers happy and productive.  He gave Owen a £100 bonus and a new contract with a percentage of the profits built in.

Now in his early twenties, Robert Owen kept improving the lot of his workers and Drinkwater’s profits kept soaring.  He added windows and ventilation to the mill. He refused to hire very young children. Not only was the mill well run and extraordinarily profitable, the quality of the goods was the finest in the land. When Drinkwater wanted to buy out his contract, he happily agreed. At twenty-seven Robert Owen had become a “brand.”

On a visit to Scotland, he met the charming daughter of a mill owner and bought her father out for £60,000. Now with a mill of his own and the love of his life at his side Owen was ready to show what the ethical business model could really do. He cut the workday from twelve to ten hours. He put in showers and provided healthy meals, often eating with his workers. He leveled the tenements and built comfortable cottages. He lived among his workers. He gave prizes for the most beautiful gardens grown from flower seeds he provided.

Owen built a combination nursery, kindergarten, and school. It ran day and night caring for the small children of his workers, teaching older children and anyone else who wanted to learn. Teachers could not strike the children; Owen explained that it only taught them violence. He poured money into improving the lot of his workers. He believed that clean water, a sewage system, trees, flowers, and healthy employees were a benefit to everyone and to his bottom line.  A bottom line that made him very wealthy. Owen is just one of many who adopted an early ethical business model. Through the 1800s and into the 1900s this model became the hallmark of many great and highly profitable enterprises. 

Peter Cooper was born in New York City in 1791, the year Owen turned twenty. An extraordinary human being, Cooper’s serendipitous life melded his remarkable intellect and resourcefulness to turn both opportunities and disasters into useful and profitable enterprises. He continued to live a simple life even after he became the richest man in New York. His idol, Benjamin Franklin, died the year before Cooper was born. Like him, Franklin had only one year of formal education. And like Franklin, Cooper felt America’s future lay in education. He was determined to found an institution of higher learning for the poor.

In his sixties, Cooper began to build his school, The Cooper Union.  And to be sure he got the school he wanted, he maintained total control: his money, his plan, his school. He believed education should be “as free as the air we breathe.”  He offered night classes for adults. He encouraged both men and women to attend; devising special classes to be sure young women gained useful skills. His dream endures. Cooper Union continues to serve —as he put it— “the boys and girls of this city, who have had no better opportunity than I enjoyed.”

Peter Cooper was in his mid-forties when Jamie Oliver arrived in America from Scotland. His father had been content to scratch out a living tending another man’s sheep. His mother was determined to come to America.  They finally made it in 1836 and found themselves in Mishawaka, just outside South Bend, Indiana. That state was giving a farm, a rich piece of fertile earth, to anyone willing to live on it and work it. What a far cry from keeping someone else’s sheep in the rocky hills of Scotland.

Jamie loved farming every day of his life. He found it necessary, however, to work at almost any odd job he could find. Along the way he learned how to smelt iron, so when a fellow in South Bend wanted to sell his struggling foundry Jamie came up with $88 to buy it. The plant cast the one-horse plows farmers relied on to turn the soil. Jamie knew from backbreaking personal experience that the plows of the day could stand considerable improvement.  In 1870 he sold his first Oliver “Chilled” Plow – so named for a unique method of cooling white-hot metal as it was formed.  In just a few years his little foundry grew to a 30-acre complex, the

Oliver Chilled Plow Works, capable of producing a half-million plows a year. Jamie’s innovative design reduced by half the effort of both the horse and the man behind the plow.

Through it all Jamie never saw himself as a factory owner or a businessman. He saw himself as a farmer, solving farmers’ problems.  He saw his workers as vital to solving those problems and felt responsible for giving them comfortable lives so they could focus on that task. When financial woes struck the nation, Oliver kept his plant producing, storing the plows he couldn’t sell until better times came.  He never laid off workers and never reduced wages.

To put the importance of Oliver’s ideas in perspective, remember in his time, 60% of Americans lived on farms. He made the lives of the farmers easier and more productive. Jamie played a vital role in the largest sector of America’s economy.  Jamie Oliver considered himself a farmer, a friend of the farmer, a partner of the farmer, and a partner of nature. His success came while seeking to benefit his fellow men, the very essence of the ethical business model.

The Industrial Revolution was in high gear in the late 1800s and no place on earth illustrates the extremes it created more than Pittsburgh, Pennsylvania. Nestled along the Monongahela River on one side of Pittsburgh were Andrew Carnegie’s steel mills. The gutsy little Scot built his enterprise on benevolent principles. But when he needed it most his resolve and moral fiber failed him.

The defining moment in Carnegie’s life came in 1892 at his Homestead Works. He was bent on nipping a tiny union movement in the bud. He saw it as elitist because membership was not open to the vast majority of his workers. A minor dispute spiraled into war. Carnegie locked out all of his workers and called in a private Pinkerton army. A battle ensued resulting in 16 deaths and over 20 seriously wounded, forever tarnishing Carnegie’s legacy.  All the libraries, a great university, and his other numerous charities will never erase this tragedy.

A lesson learned in Homestead was not lost on another Pittsburgh business man, Harry Heinz. He had started out packing horseradish in his parents’ basement. A talented promoter and salesman, he was forced into bankruptcy as a result of (as his competitors saw it) his out-of-touch-with-reality idea that preserving food intended for human beings should be done under sanitary conditions.  Heinz persisted, however, starting over again and even going back and paying off those who lost money when his earlier enterprise went under. He called those “moral debts.”

By 1892 –the year of the violent Homestead strike– Heinz was growing his food packing enterprise a few miles away on the north shore of the Allegheny River across from Pittsburgh. He hoped to create an atmosphere that would make violence unnecessary. His plant was to grow larger and larger in the last decade of the nineteenth century, and as it grew it became a model for enlightened employee working conditions. Like Owen, Cooper, Oliver, and others, Heinz was out of step with some of the conventional thinking of the day.

The H.J. Heinz plant that emerged as the century turned was unique in almost every way. It was bright and sparkling clean.  It preserved and packed a wide range of foods by natural processes under pristine conditions. Workers (mostly women) wore clean blue and white uniforms and were trained in high standards of personal cleanliness. Every employee was given a weekly manicure.

Heinz employees were offered a wide range of educational, recreational, and social opportunities.  A roof garden and reading room were provided for their use; a swimming pool, regular outings and picnics made it an ideal place to work.  Far ahead of its time and not bad even by today’s standards.  Sounds almost like life at the Googleplex.

The ethical business model was supported mostly by anecdotal evidence until two academics and a writer published Firms of Endearment that documented their groundbreaking business ethics research. They set out to find companies with the highest ethical standards. Companies that dealt with all their stakeholders on the highest ethical plane: their customers, their employees, their community, their vendors, and the environment. But how about their bottom line? How about their shareholders?

It turned out that over the ten years prior to the Firms of Endearment study, the public companies that met their ethical bar returned eight times the Standard & Poor’s average. Not eight times the worst, eight times the average return. That’s pretty impressive. It shows that if you take care of everything else your bottom line will take care of itself. It doesn’t mean it’s always easy to follow this path or that everyone who follows it will succeed. Unforeseeable factors such as market trends, economic downturns, competitive issues –even a natural disaster like Super Storm Sandy– come into play.

It takes smarts. It takes hard work. It takes courage to succeed. You have to be lucky and you have to follow the oldest of moral guides, the Golden Rule. That’s what ethics is really all about. Nor is it writ large that cutthroat bad guys don’t succeed. It just means that all things being equal, an ethical business model will dramatically outperform any alternative. Instinctively we know that; it’s why the vast majority of us are out there trying to do the right thing every day, enjoying the great feeling that comes from that effort win or lose.

In the end that’s what it’s all about, the satisfaction we gain from our endeavors. We want to be able to hold our heads up when we head out to work. We want to end the day fulfilled. We don’t want to spend our life looking over our shoulder. Just as nobody wants to do business with a crook, nobody wants to look back on their life and feel like a crook. Crooks can always justify their behavior, but deep down in the dead of the night they know who they are and what they are, they are crooks.

Walmart, Ethics & the Law

Walmart announced that Daniel Trujillo came on board last week (2012.10.29) as SVP and Chief Compliance Officer for Walmart International. It’s a new post and part of a restructuring of the retail giant’s legal structure. General Counsel Jeff Gearhart now heads compliance, legal, ethics, and investigations ops, according to published reports. They also added Jay Jorgensen, an attorney, as Global Chief Compliance Officer and FBI veteran Tracy Reinhold, as VP Global Investigations.

This reflects a flurry of activity triggered by the exposure of what looks like their widespread use of bribery in Mexico. If true it would open Walmart to charges under the Foreign Corrupt Practices Act (FCPA). Earlier this year (2012.02.21) in an in-depth investigative piece, The New York Times painted a picture of bribery fueling Walmart’s growth in Mexico. Tens of millions were paid to overcome any obstacle in their effort to fast-track new store construction across the country. It worked; twenty percent of the world’s Walmart stores are now in Mexico.

Walmart employees in Mexico who tried to alert headquarters “Carpet-Landers” were ignored or marginalized. When the top leaders could no longer turn a blind eye to the problem they did their best to minimize the issue. Their Investigations Unit was rebuked for being “overly aggressive” by then Walmart CEO, H. Lee Scott Jr., who is still on their Board of Directors. A few days later their report was shipped to Walmart’s Mexican headquarters never to be mentioned again.

These new hires and this consolidation in the headquarters legal office looks like an extension of the cover-up that has been at the core of Walmart’s response to the bribery scandal. Looking at their newly minted SVP, and Chief Compliance Officer for Wal-Mart International, Daniel Trujillo’s chief qualification for the job is pretty obvious. He was Chief Compliance Officer at oilfield services company Schlumberger Ltd. Our Justice Department just bailed on a bribery investigation involving Schlumberger, an outcome Walmart is probably hoping for.

There are a couple things wrong here. Compliance and ethics don’t belong in the same basket. Compliance has to do with the law; ethics falls way outside what’s legal. It’s about corporate culture and reputation. The corporate communications folks deal in that arena. Were Walmart really interested in fixing this problem, they would be focused on new hires to create a culture to repair their reputation.

You would think that the 2006 Hewlett-Packard Board of Directors spying case would burn that into the minds of every major corporation. Kevin Hunsaker, HP Senior Counsel and Director of Ethics and Standards of Business Conduct, green-lighted a stupid telephone spying operation. He thought it was legal, it wasn’t. Hunsaker and several others were charged with a felony; he pleaded no contest. From an ethics viewpoint this plan wasn’t even close to being OK, but that’s not the viewpoint lawyers work from. Ethics and reputation are not in their skill set.

Reputation Counts

Corporate Responsibility Magazine released its first corporate reputation study in advance of its annual Commit!Forum (2012.10.02>03) held at the opulent Wall Street venue, Cipriani. The CARAVAN® telephone survey of 1,032 adults in early September came up with some startling results; especially startling in view of the existing job market.

They found that among the unemployed in the study, 75% said they would rather keep looking than take a job with an organization with a bad reputation. Among those currently working, 58% would move to one of the bad guys for more money. How much more? On average they would hold their nose and change jobs if their pay were doubled. On the flip side, among the currently employed, 87% would take an offer from a company with an excellent reputation. More money? Yes, but not all that much, between 1% and 10% added to their paycheck.

“The results of the new survey underscore Americans’ desire to align themselves with organizations that do more for society than increase their bottom-line. Even during a time when Americans face many fiscal challenges, most people would rather continue their search for employment than work for a company that has questionable business practices or ethics,” Elliot Clark, the CEO of Corporate Responsibility Magazine, is quoted in a press release. “The survey demonstrates that there is a cost of bad business behavior, which significantly affects the ability to attract and retain people.”

Great people who stay with an organization are one of the markers not only of a nice place to work; they are makers of a profitable business. Businesses that care for their employees, their customers, their vendors, their community, and the environment get a much better shot at profitability than outfits that focus on the bottom line. The authors of Firms of Endearment found that companies that followed these markers racked up eight times the profits of the S&P 500 average over a ten-year period.

So those who would rather keep looking are wise. Better to keep looking until you find a decent organization to work for than go to work for a bottom-line focused scumbag outfit that’s likely to fail or kick you to the gutter at the first sign that their bottom line is shrinking. That leaves you with another empty spot on your resume to explain when you are back out on the street. Who needs that?

A good place to work attracts good people who stay long-term, who work really hard, who take care of your customers and your suppliers. Employees who are active in your community and alert you to its needs; employees who are alert to environmental issues and keep you caring about those issues. Employees who keep your lenders and your stockholders happy because those employees keep the bucks coming in and the profits piling up. That’s what an ethical business model looks like, what makes it a fun place to work, a great place to work, and a secure place to work.

Don’t Close Your Hand 
                         on the Canary

Suddenly it’s October, and we are into the fourth and last quarter of 2012. This point in time gives us pause to examine why we are here; a time to remember that we are the canaries in the coal mine. Our job is to sniff out and head off the slightest hint of anything that might damage the reputation of our client(s) or our organization. The trick is earning a place of trust that gives us access to thinking and planning at the highest level. We need a place at the right hand of the CEO; a place where we can nip off reputation damage in the bud.

Over more than four decades in communications I have watched the consequences break bad when we lose our focus on this role. It never starts out as a big deal, just some little thing. An action that might escalate into a problem, but it probably won’t, so it’s easy to let it go. Anyway, every time you raise a point it challenges one of the other players and they may not see the danger.  It’s easier to let it pass, to close your hand on the canary.

A move that risks breaking the one rule that we should all have emblazoned on our conference room wall, Warren Buffett’s advice, “It takes 20 years to build a reputation and five minutes to ruin it.” Don’t allow anything stand in the way of your role as reputation guardian. I’ve had more than one client refer to me as their “Corporate Conscience,” and not always in a kindly tone. I even lost a client on one occasion when I raised ethical issues; never an easy outcome, but easier than losing a client because something that you let pass damaged or destroyed their reputation.

In recent years I have turned my focus to promoting the ethical business model. The idea that an organization that puts their employees, their customers, their vendors, their community, and the environment first has no need to worry about their lenders or their shareholders because the first five will assure them the best possible shot at profitability. Check out Firms of Endearment, a book detailing a study that shows that firms following those markers were eight times as profitable over a ten year period as the S&P 500 average.

Can anything guarantee profitability? Of course not, just that all things being equal you have a better shot if you follow the markers. It’s a message that resonates well and has given me consulting, speaking, and seminar opportunities, including an invitation to keynote a European Union banking conference on the Island of Malta. I even wrote a book, Play Nice, Make Money, that makes the case for an ethical business model as the most effective route to profitability. It’s a message we need to deliver to those entering the  business world, corporate communications and communications agencies. I welcome any chance to spread that message. Maybe we should all have a pretty yellow canary singing in our reception room to keep us focused on that message.

Beyond Disgusting

We had to know that decades of sexual abuse cover-ups in our churches were not the only cases of adults taking advantage of trusting youngsters. Then the disaster at Penn State University came to light; an all-powerful football program covered up the horrific actions of one of its leaders. Where young people gather, predators are sure to lurk, in churches, in sports programs, these youngsters are easy prey.

And now a series in the Los Angeles Times exposes decades of abuse and cover-ups in the Boy Scouts (BSA); cover-ups by the BSA and some in the media with leadership roles in the movement. It’s not surprising that the Scouts have made every effort to hide sexual assaults by Scout leaders on the boys in their program. Leaning on a Congressional Charter, the organization has a history of arrogant independence, haughtily refusing to be accountable to any outside entity.

Meanwhile they have been paying out millions to victims who brought lawsuits against the Scouts as a result of abuse. The Times has obtained some 1,600 pages of documents made public by these lawsuits. There is no way to know how many cases are still hidden away in the BSA files. They have spent millions in the courts fighting attempts to open this cesspool to public view.  

Over the years the BSA has published many rules and regulations, but like the elegant Code of Ethics proudly displayed by Enron prior to its fall, the BSA rules in most cases were not worth the paper they were printed on. They repeatedly ignored reports of abuse and allowed the abusers to continue to work with boys.

The Times story included these disturbing instances among many others: “In at least 50 cases, the Boy Scouts expelled suspected abusers, only to discover later that they had reentered the program and were accused of molesting again.”

“One scoutmaster was expelled in 1970 for sexually assaulting a 14-year-old boy in Indiana. After being convicted of the crime, he went on to join two troops in Illinois between 1971 and 1988. He later admitted to molesting more than 100 boys, was convicted of the sexual assault of a Scout in 1989 and was sentenced to 100 years in prison, according to his file and court records.”

“In 1991, a Scout leader convicted of abusing a boy in Minnesota returned to his old troop — right after getting out of jail.”

These disturbing reports go on page after page. While the BSA appears to have toughened up its standards and rules, there is no reason to believe that they are any more willing to open themselves up to reputation damaging revelations than they have been in the past. 

We understand the thinking behind this behavior, the belief that all the good the BSA, the Church, the Sports program, etc., etc., does, justifies “protecting it.” How about protecting the victims for a change?

“It’s Official, Even the Banks Say They Messed Up” 

A Wall Street Reputation Study* commissioned by New York communications firm, Makovsky + Company unearthed some not too surprising outcomes, from a very surprising source. The study targeted communications and marketing types at mid-sized to large publicly traded and private financial organizations: banks, brokerages, insurance companies, etc.

They see the viewpoint held by the public that their behavior tossed America and the world into economic chaos as “The” biggest challenge they face. Almost all of those surveyed (96%) believe they brought it on themselves. Eight of ten see bonus swollen “C” Suite compensation packages as a major issue for the financial sector. Big surprise: three out of four believe that “increased regulation will help their firms improve reputations and trust with customers faster.” 

Now that’s not big news to anyone who has looked at the roll deregulation played in allowing the greed driven, crazy speculation fueled trip that took most of the world down the drain, but to hear it from the greed sector, WOW! We can imagine how that went over on “K” Street where the financial types have been pouring bucks by the tens of millions into the politicians’ pockets fighting even modest regulations.

It gets even more interesting; more than half admitted the “Occupy” movement had a “real impact on their business.” Four out of ten said they were surprised by “Occupy,” but only three out of ten think it’s over. Seven of ten say it will carry on at least through the November elections. Given the reaction of the Wall Street types who were pictured literally looking down their noses while enjoying pricy luncheons as the protesters marched outside their watering holes, this is a real surprise. Our guess is that those distaining the riff-raff were not the folks from communications, who likely saw the storm clouds gathering. That’s reflected in the 73% who said, “Their marketing/communications departments grew in importance over the past year.” Let’s hope their influence upstairs grew as well.

"With the six-month anniversary of the movement sparking a resurgence, the consensus is that Occupy Wall Street is not going away anytime soon, and financial services executives need to be better prepared to address this issue moving forward," Scott Tangney, executive vice president and head of the Financial Services practice at Makovsky, said in a news release. Time will tell if the warnings expressed by this study and clearly elucidated by Tangney sink in up in carpetland. 

When asked to take a look in the mirror and grade the industry, communications pros surveyed gave themselves pretty low grades, 57% graded "average," "below average" or "failing.” But then there were those with their heads in the sand, the 9% who gave themselves a “perfect” grade. This could be a watershed moment. Will the financial quarter embrace reform, or seek a return to the dark side? 

*Echo Research, February 22 through March 1, 2012

© 2012 GLG

As Clear As Mud

Sifting through mounds of media coverage on the Gulf Oil spill for the cause has proven almost as fruitless as watching the Congressional hearing participants play the blame game on who bears responsibility for this disaster. While it’s important to find out just what went wrong with the Deepwater Horizon last month –as it is to minimize the damage– the underlying cause is becoming quite clear. The ethical culture projected at the top by British Petroleum (BP) was not conveyed or perhaps enabled at the operating level. This disconnect becomes obvious in reviewing their operations on another Gulf rig, the Atlantis.

The company hired an independent firm headed by Stanley Sporkin, a former federal judge, to review a whistle-blower's complaints about the BP-owned Atlantis, stationed more than 150 miles south of New Orleans in over 7,000 feet of water. The gist of the complaint is that the Atlantis operated with incomplete and inaccurate engineering documents, which one expert warned could "lead to catastrophic operator error." Sporkin says that the whistle-blower’s allegation "was substantiated, and that's it." We are not talking about a paper here and a paper there. An expert who reviewed thousands of the Atlantis’ documents says that as many as 85% of them were flawed.

Not so according to an Associated Press report. Karen K. Westall, Managing Attorney for BP, says "BP has reviewed the allegations and found them to be unsubstantiated." Adding to the confusion, early this year a BP lawyer advised members of Congress that the company was complying with federal requirements. Furthermore the Atlantis received an award for safe operation from the Minerals and Management Service (MMS), the federal agency that oversees these rigs. Makes you wonder what they call that award, maybe “The MMS So Far, So Good Award.”

It all comes down to this. Ethical behavior ain’t cheap, but it’s a whole lot less expensive than the alternative as BP is discovering. When you’re in a hurry, or someone is pushing to save a buck, it’s too easy to cut a corner, or in this case thousands of corners. BP can talk the talk, but they are far from walking the walk. At this point they need to step full bore into the ethical model. They keep saying they will bear responsibility for all financial loss. That would be a big step in the right direction. It rings a little hollow, however, against the finger pointing they did during the Congressional hearing.

It’s time for BP to decide their future. If they do the right thing, tell their lawyers to “stuff a sock in it” and spread an ethical culture into every corner of their operations, they may be able to recover their reputation. That is an incredibly expensive alternative. Should they choose to stonewall, duck and dodge, the odds are they will destroy what little is left of their reputation and perhaps the company. A much more expensive alternative.

The Goldna Sachs Saga

“Those who fail to learn from the mistakes of their predecessors are destined to repeat them.”

George Santayana

Marcus Goldman and his family launched their company in 1869, building a reputation highlighted in 1896 with an invitation to join the New York Stock Exchange (NYSE) and in 1906 to manage the initial public offering (IPO) for Sears Roebuck.

A couple decades later the partners launched Goldman Sachs Trading Corporation. It was basically a Ponzi scheme that made tons of money before the bottom fell out in 1929. At that point former office boy, Sidney Weinberg, took the helm and spent a quarter century rebuilding their reputation. In 1956 Goldman Sachs landed the IPO of the century, Ford Motor Company.

Even as Weinberg rebuilt Goldman’s reputation, however, others in the firm lost sight of their role: putting the Capital into Capitalism. Along with much of the banking world, Goldman Sachs moved increasingly into trading, crossing a line long considered a conflict of interest; a world of strange financial products, often with no societal value. They, of course, didn’t see it that way given the astronomical amounts the firm pocketed.

This world rapidly evolved into little more than a gambling den. The virtual Casino on Wall Street had become a reality. The bankers’ political clout (read contributions) generated legislation in 1992 and 2000 exempting derivatives –including their high risk cousins, synthetic derivatives and credit default swaps– from gambling laws.

From there on it was a race to disaster. In 2003 legendary investor Warren Buffett warned that derivatives could become “Financial weapons of mass destruction;” a warning soon to become fact. They became a root cause of the global financial sector collapse.

In the midst of this Goldman Sachs got involved in a smarmy deal. The SEC says they peddled some scummy bundles of mortgage derivatives to pension fund managers, European banks, and other large “sophisticated” investors. Legally the case is said to be on shaky ground. But why would Goldman Sachs (and other banks) ever let it get onto legal ground?

We don’t know if the course they have been following is legal, but it is anything but ethical. Under Sarbanes-Oxley (SOX) publically traded companies are required to offer those in their employ ethics training. It would be hard to imagine how anyone involved in this high flying flimflam could have considered any part of it ethical. Let alone how Goldman Sachs’ management could believe they fulfilled their SOX mandated ethics training obligation.

In a business built on trust and reputation, how could Goldman Sachs forget how long it took Sidney Weinberg to restore their reputation when it tanked in the 1920s? Or a famous quote from their largest shareholder Warren Buffett, “It takes 20 years to build a reputation and five minutes to ruin it.”