Originally published in CommPRO.biz

The Good Old Days

by: W.T. “Bill” McKibben

On this day before Christmas one can not look about without seeing a louse. Here a banker too slick to jail, there a cliff of unprecedented scale. Tens of thousands are still struggling to recover from Super Storm Sandy. Then it was overshadowed by the unbearable loss of innocent life in Sandy Hook. Makes one wish for days of yore when all was well. Or was it?

The Amish, who mold their lives on the past, were stunned as was the world a little more than a half dozen years ago when a deranged man entered a one-room Amish school outside Lancaster, Pennsylvania, and took the lives of five young girls, leaving five more with horrible wounds. It was the third school shooting our nation endured in less than a week.

There is a lesson in the way the Amish reacted. A family member of the killer was quoted as saying that “An Amish neighbor comforted his family hours after the shooting and extended forgiveness.” Amish community members visited and comforted his widow, children and parents. One Amish man held the killer’s sobbing father in his arms to comfort him. The Amish even created a charitable fund for the killer’s wife and children.

The past, however, was not filled with good hearted folk like the Amish. Quite the contrary in fact. Aside from the havoc mankind endured from diseases we no longer face, the workplace was not terribly friendly, as we are reminded at this season by performances of Charles Dickens’ A Christmas Carol. Death and injury were endured as routine well into the 20^th century.

In a 2011 NPR broadcast authors Joshua Goldstein and Steven Pinker laid out a compelling case that the last decade was the most peaceful in human history. That violence in all its ugly aspects from war to murder to rape is at an all time low. That as a matter of fact we are living in the most idyllic time in history. And when you look at the numbers it’s obvious that Goldstein and Pinker are right. Why then does the exact opposite seem to be the case? First and foremost because there remains so much room for improvement.

Our perception is based on the 24/7 news cycle that focuses on the worst of every aspect of life on this planet. A century ago our forbearers were not aware of went on much beyond their neighborhood. Yes, the telegraph and the railroad had opened up their horizons but only for happenings of major importance. Today the volume of minutia dumped on us by the media, the internet and all the other sources that pour into our lives right down to our smart phones is unending.

Good news does not make the news cycle. But it far overwhelms the bad. Most people, businesses and major corporations strive to do the right thing. In part because it’s a lot harder these days to get away with bad behavior, it will come out. That’s the upside of today’s world. Refocus on what’s good all about us: “These Are The Good Old Days.”

Walmart,,, Again?

Tazreen Fashions Ltd., that’s the company where a fire left scores injured and 112 dead. At first Walmart claimed they had no connection to the Bangladesh factory. Then they said they had cut their association before the fire. Then when it turned out that more than a third of the massive eight-story factory was producing goods for five Walmart suppliers, they claimed the suppliers acted on their own against instructions from the company. It may be true that Walmart told their suppliers that Tazreen was no longer to produce their goods. However, that message was likely lost under the pricing pressure the retail giant exerts on all their suppliers.

The details of this fire are horrific. When the fire alarm went off the stairwells that served as the sole exit from the upper floors were blocked by managers who told the workers that it was just a drill, to return to their sewing machines. In a few minutes screams from below and smoke filled the workspace, the managers had disappeared and a stampede of workers jammed the narrow stairwells. The windows were covered with iron grilles. Sixty-nine of the dead were found on one floor. Scores were saved by a worker who escaped. He then climbed a scaffolding, smashed a window grille and helped workers out and down the scaffold.

Bloomberg reporters Renee Dudley and Arun Devnath dug up information on a retailers’ meeting in the spring of 2011. Concerned with safety lapses and deaths from fires in Bangladesh, the group attempted to forge an agreement that would provide support for the factory owners to create safer working conditions. Only two brands, Tommy Hilfiger and German retailer Tchibo, were willing to sign on. Minutes from that meeting included this statement: “We are talking about 4,500 factories, and in most cases very extensive and costly modifications would need to be undertaken to some factories. It is not financially feasible for the brands to make such investments.” 

According to published reports Walmart “most strongly advocated this position.” Walmart says their objections were taken out of context. Gap, however, has put forward a plan to, “Make Bangladesh garment factories safer. It includes hiring a chief fire safety inspector to inspect factories, giving suppliers as much as $20 million in capital to make safety improvements.” 

Walmart and the others feeling pushed on one hand for higher shareholder value and on the other to lower prices, have chosen the wrong path in Bangladesh. To put the lives of human beings at extreme risk to cut a buck or two off the cost of some piece of clothing, tool or toy is not an acceptable choice. Walmart and the others struggling to meet the demands of the marketplace as they see it ignore the evidence that an ethical business model makes you more competitive and more profitable.

My 2012 Top Ten 

Business Ethics Milestones

This year as every year almost everyone and almost every business strives and succeeds to maintain the highest ethical standards. It’s our nature and we know that our most precious asset is our reputation. After all, who wants to do business with a crook? It is, however, a struggle; and it’s too easy to take that first little step over the line onto the slippery slope. Of course there are those who seem ethically challenged. They spend a lot of time and treasure scheming and even more trying to cover their tracks. Ultimately they end up at the bottom of the slope, way past ethics into criminal territory. Most of this year’s milestones fall into the latter category, but there are some outstanding rays of sunshine.

#10 Let’s start out with some good news. A nationwide research study by Satmetrix, a West Coast provider of customer experience software, measured the attitudes of 30,000 consumers. Their findings reinforce the ethical business model’s value. It’s no surprise that companies boasting a long history of ethical standards top the list. Wegmans, Costco, Apple, Jet Blue, American Express, Virgin America, Amazon, Lowes, Google, all the usual suspects lead when it comes to doing the right thing. And guess what? They are leaders when you check their bottom line.

#9 There’s no such glow when you look at a few of our wealthiest Americans and biggest financial institutions; you get more of a Greasy Sleazy Feeling. They think nothing of turning our commodity markets into gambling halls, manipulating the price of food and fuel. Markets designed to support commodity producers have become a playpen for those with more money than morals. There’s a cure: limit commodity purchases to end users. Good for producers, good for end users, good for consumers, good for America.

#8 The ethical cesspool at the center of the media colossus Rupert Murdoch spawned on London’s Fleet Street, is beginning to suck him into its vortex. Unfortunately, it’s spread beyond his native Australia and Great Britain; it has spilled onto our shores. Murdoch became an American citizen so he could legally own broadcast properties here. He bought a couple smarmy newspapers like his British rags. He has also taken over and is twisting the once the once well-regarded Wall Street Journal. His big bucks come from broadcast holdings; satellite operations in Asia and Great Britain, cable outlets here. And then there’s his production arm producing television programs and motion pictures. Murdoch lunged over a line that most media tend to avoid, plunging into politics, even attempting to pick out his own presidential candidate. That kind of activity is common in Great Britain, not so much on this side of the pond. It’s especially disturbing when practiced by Scum-Lord Rupert Murdoch.

#7 Big Pharma's Big Con. The real cost of bringing a new drug to market averages $90 million a pop; a lot of money but a fraction of the$1.3 billion dollars they claim. Unless of course you include marketing, that’s where the big bucks go: flooding doctors’ offices with materials and samples, even hiring them to pitch other docs on the newest, latest, slightly updated drug. Add in the avalanche of print and television advertising urging patients to pressure their doc. It all adds up to sky high drug prices. Prices protected by a law prohibiting the government from negotiating lower prices– all courtesy of Big Pharma’s friends in the Congress. It’s enough to make you sick.

# 6 When the lobbyists pushed through “The Commodity Futures Modernization Act” opening up Wall Street to gambling, they unleashed a chain of events that resulted in the collapse of the world economy eight years later. Wall Street began leaping one ethical barrier after another and today everyone but the bankers is suffering. Dodd-Frank is designed to rein in some of the worst of this. The bankers are fighting these sensible controls. Our economic future depends on how it works out.

#5 Foxconn, a Taiwanese company with operations in China and around the world, makes many of the electronic toys that fill our lives. A British newspaper report described the life of a 21-year-old woman working ninety hours a week for less than fifty dollars a month. They calculated that allowing for inflation that fifty bucks comes to, “about half the wage weavers earned in Liverpool and Manchester in 1805.” Ponder that ethical issue the next time you finger the electronic toys in your pocket.

#4 Little did we know that the HSBC slogan, “Bank as easily around the world as you do at home” was to be taken literally. That this British “too-big-to-fail” bank was laundering cash for Mexican Drug Lords, hiding funds from the IRS in far off India for wealthy Americans, providing US currency to a Middle Eastern bank said to be a source of terrorist funding, and generally thumbing their nose at American laws and regulators. The bank has been hit with a record $1.9 billion fine in the US. The $27.5 million Mexico hit them with last summer along with the legal fees they have run up brings the total over $2 billion. That sounds like a lot of cash until you compare it to their 2011 profit, nearly $17 billion, or to a bonus pool of more than $4 billion that the HSBC executives split up. And surprise, it looks like none of those big-wigs are facing jail. The $2 billion amounts to pocket change for HSBC, just another minor cost of doing business.

#3 “Income Inequality” is a really big deal in the minds of Americans. A Pew study found it to be our greatest source of tension. Two thirds of the respondents see the divide between the super rich and those on down the food chain as our major concern. Reinforcing that view, in a Bloomberg Global Poll more than 1,200 investors, analysts and traders say it harms the economy and harms growth. Why is nobody willing to do anything about it?

#2 How can we turn our backs on sexual abuse? The Church, College Athletics, The Boy Scouts, who knows where it will be found next? The abuse of our children by institutions we trust is horrific, to cover it up is unforgivable.

#1 The Gift of Life - 4,800 people died last year waiting for a kidney. There were nearly 100,000 waiting for one a few months ago. The numbers are similar across organ donation programs. How could that happen? Consider that the latest available annual highway death toll (2010) totaled 32,885 individuals, a tragic number. But most with healthy organs, it’s disgraceful that so few remember that should something fatal befall us, our organs could help others live. Every business, everywhere we gather, organ donation should be a primary focus. We can think of no higher moral and ethical goal than assuring that if we give up our lives, we give life to others.

Who Pays the Piper?

While there are Global Warming deniers, there is no question that the cost of recent weather related disasters in life and treasure is staggering. Thousands dead, billions for Katrina, Sandy far surpassing that tragedy. Wildfires devour paradise and the homes within, farmers’ efforts come to naught, streams, rivers, lakes and reservoirs draining, and we are told this is but the beginning.

It is going to take billions to repair and get ready for what’s coming next. We need to think, however, about where the line between public and private responsibility lies. If you wish to live at the ocean’s edge, in the midst of a towering forest, or any other attractive location threatened by nature out of control, that is certainly up to you. The question of responsibility enters when your dream goes up in smoke, or is smashed by wind or waves. Should you wish to repair or replace, who pays?

In many cases the answer is the taxpayers. The federal government set up the National Flood Insurance Program for folks who live in flood prone areas like those devastated by Sandy. While the insurance is sold by private companies, the risk is carried by the taxpayers. We are looking at more than $500 billion just in our coastal flood plains and more than a trillion at risk nationwide. To put that in perspective, National Flood Insurance is second in size only to Social Security when it comes to our government’s potential liability.

We are in the flood insurance business because no commercial insurer in their right mind will touch it. There are multimillion-dollar homes on our beaches that we ordinary folk have rebuilt several times. That’s not what we pay taxes for. It makes no sense ethically to expect middle class and lower income Americans to insure homes that they can barely dream of owning.

Among the devastated communities in New York and New Jersey are several gated locales. Communities that prior to Sandy were protected by razor wire and checkpoints manned by heavily armed guards; communities that maintain their own streets, sewers, and other such necessities to justify excluding the common folk. Now some of them are lobbying to have their infrastructure replaced by the taxpayers. 

There is every reason to believe that the increasingly severe conditions of the last several years will continue to worsen. It’s past time for the taxpayers to get out of the flood insurance business. We must, of course, honor the commitments now on the books. If those folks choose to rebuild in the flood plains that’s up to them, but they should not plan on their fellow Americans underwriting their folly.

While they are not covered by the Federal Flood Insurance Program, those whose homes are at risk in wildfire prone areas should expect no help from those who could never afford to live in such exotic locales. The Federal Flood Insurance Program should be allowed to expire; those with policies should be advised that they will not be renewed. We have better things to do with our taxes.

Originally published in CommPRO.biz

Business Ethics Is Not 

An Oxymoron

 

Every day all but a few of us go out into the world and try our best to do the right thing. That’s true in our personal life; that’s true in our workplace. Why then does it seem that all we hear about are the bad things? The Enrons, the Adelphias, oil spills in the Gulf of Mexico, bribes at Walmart, reckless bankers destroying the world economy. Given all that and more, how can we say “Business Ethics is not an Oxymoron?”

It has to do with what we human beings consider news. By and large we aren’t interested in the good stuff. Quiet day-to-day happenings occasionally make for an interesting feature story, but the front page headlines tend more toward mayhem, treachery, and such. We don’t go to the race track to see the drivers make left turns; we go to see the cars crash. We don’t head for the movies to see ordinary life. We don’t pick up novels about good folks doing well, but in real life good folks doing the right thing and doing well is actually the norm.

Several years ago two academics and a writer published Firms of Endearment documenting their research into business ethics. They set out to find companies that maintain the highest ethical standards. Companies that deal with all their stakeholders at the highest ethical levels: their customers, their employees, their vendors, their community, the environment and finally their bottom line, their lenders and shareholders. They found them, great examples, nice outfits to deal with and have around. However, the remaining question was, do they make any money?

It turns 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 that it’s always easy to follow this path or that everyone who follows it will succeed. There are times when the right thing is not clear. Unforeseeable factors come into play, such as economic downturns, competitive issues, market trends; even a natural disaster like Super Storm Sandy can wipe out a thriving enterprise.

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 won’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.

 Too Slick To Jail 
 

 This OP-ED appeared originally in: CommPro.Biz

So let’s get this straight: energy giant BP pleads guilty to a flock of charges and faces the largest criminal fines ever levied, fines overshadowed by massive civil penalties and more fines. And the only people facing charges are four way-down-the-pecking-order guys? And that’s it? The $4.5 billion in fines is pocket change when viewed against BP’s 2011 profits of $25.7 billion (that’s about $3 million an hour). How about the executives at the top who pushed those below for more and more? Folks like whiner-in-chief Tony “I'd like my life back” Hayward, BP CEO for the three years leading up to the disaster. Why isn’t Hayward being charged with manslaughter?

Instead, the two top guys on the BP rig face manslaughter charges for the eleven people killed in the blast. Another executive is charged with obstruction. He is alleged to have lied about the amount of oil spewing into the Gulf. One relatively low-level engineer was arrested earlier, charged with deleting hundreds of texts from his smartphone that indicated a much higher flow of crude oil into the Gulf than the numbers the bigwigs were feeding the media.

Tony Hayward and other carpetlanders created a “Profits First” culture that led to corner cutting and the disaster. Tony got a golden parachute. He got his life back. There’s no way the families of the eleven workers can get their “lives back.” One family member observed that he never got so much as an apology. That during a Congressional hearing BP executives seated close by never even looked him in the eye, let alone expressed sorrow for his loss. That would suggest that the only loss they are sorry for is the cash.

The Supreme Court declared that corporations are people with the benefits we all enjoy. The BP situation exposes a massive problem with that decision. How do we punish corporate “citizens” whose reckless actions result in the death of flesh and blood citizens? Imposing fines hardly seems sufficient. But how do you jail these corporate citizens? Going after a few minor players is a joke. Even sentencing the CEO to jail –culpable as they might be– doesn’t fill the bill; they rarely deserve all the blame. There’s the Board of Directors; aren’t they responsible for policy? Lots of luck trotting them all off to the slammer. We don’t see an answer.

After all, we haven’t been able to bring the individuals responsible for the collapse of the world economy to justice. The banksters we bailed out are living high. They have proven too big to jail. It shouldn’t surprise us then that the true architects of the disaster in the Gulf are too slick to jail.

A Cost of Doing Business

This OP-ED appeared originally in CommPRO.biz

Back in July the American operations of Britain’s largest bank, HSBC, were found to be riddled with nasty stuff like laundering cash for Mexican Drug Lords, hiding funds from the IRS in far off India for wealthy Americans, providing US currency to a Middle Eastern bank said to be a source of terrorist funding, and generally thumbing their nose at American laws and regulators.

HSBC is by no means the only banking institution taking this stance toward our laws. Several European and American banks have pretty much followed the same path. We’ve hauled them up in front of Congressional Committees. In the case of HSBC their top compliance officer fell on his sword and resigned during a Senate hearing. So there is no question they are sorry. The question may be, sorry for what, sorry they got caught?

This whole business came up again last week when HSBC announced that they added another $800 million -bringing the total to $1.5 billion- to funds set aside for the fines they expect to pay. HSBC CEO Stuart Gulliver is reported to have told those on a media conference call last week (2012.11.05): “We deeply regret what took place in the United States and Mexico; a number of people have left the bank and have had clawbacks against their compensation.” Really?

While that makes great press, you don’t have to be an international banker to see that a couple billion in fines is pocket change in comparison to the money to be made flaunting our laws. Or put it up against the quarterly pre-tax profit HSBC announced the same day, $5 billion, and that was below analysts’ expectations. What was the impact of all this bad news? More fines? Only $5 billion? One bad day on the London Market; HSBC’s shares fell 1.3%. Big deal. Big nothing for them, these fines are no more than a cost of doing business. 

It’s going to take more than fines to deal with these out-of-control, profit mad international and American banks. This kind of behavior reflects the corporate culture emanating from the top. Until those who head these organizations are called to task, nothing will change. Criminal charges against the CEOs and other top executives, however, will put a stop to these practices. After all, if they choose to defy our laws, fund drug lords, terrorists, tax dodgers and other low life types, they should face the same levels of punishment as the scum they are funding. 

Ethical bankers who work to serve their customers and communities make up the majority of our banking sector. They shouldn’t have to compete with banks that do not follow that model. Banking is too important to be left to those looking for a fast buck anywhere they can find it. There are lots of good people toiling at HSBC and all the other banks big and small. In a few cases their leaders have deserted and betrayed them. It’s time to call those leaders to task. It’s time to return ethics to the forefront; to return ethics to the Board Room. A goal that leads to a more profitable enterprise at the end of the day. And a much nicer day along the way.

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.

 It Doesn’t Change The Facts

Published today in CommPro.biz http://www.commpro.biz/news/tuesday-october-30-2012/ 

 

Remember last March when a Goldman Sachs executive very publicly resigned with a scathing OP-ED in the New York Times? Well, last week (2012.10.23) Greg Smith released a book fleshing out his description of Goldman’s decay over the twelve years of his impressive career from the heady time when he made the cut and became an intern. Prior to the book’s release, Goldman fired back. They deny that they play any of the smarmy games that Smith claims are routine.

The investment banking firm paints Smith as a disgruntled employee who left not out of disgust with a deteriorating culture, but because he was refused an increase in his annual bonus from a half-million to a million dollars. Smith doesn’t deny that request, but suggests that instead of select items, Goldman should release his entire personnel file. He says it will show twelve years of rave reviews.

While smearing Greg Smith may blunt his criticism, the fact is, Goldman has paid out more than a half-billion dollars to make charges of the very kind Smith hangs his arguments on, go away. Goldman CEO Lloyd Blankfein told the Times of London, that he is “just a banker doing God’s work.” Comedian Stephen Colbert noted that “Blankfein had not indicated which god. Perhaps Shiva, Lord of Destruction.”

Blankfein has hired a lawyer with a history of defending high profile corporate crooks; not what those working in God’s vineyards normally do. On the face of it Greg Smith has an impressive track record. During his twelve years at Goldman he rose from intern to a high ranking position in their London office. He was chosen as one of ten out of more than 30,000 Goldman employees to appear in their college recruiting video. He was certainly a key player.

A Congressional investigation detailed that Goldman routinely sold packages of crappy investment vehicles to their customers (AKA “Muppets”) all the while betting that they would fail. Testifying before a Congressional Committee, CEO Blankfein denied knowledge of these practices. However, the Committee trotted out internal documents putting his denial in “Pants on Fire” territory.

So it comes down to this. Greg Smith’s motivation for leaving may or may not have been pristine. However, his motivation does not make his claims untrue. Goldman Sachs is not a nice outfit. They are not doing God’s work. They grind out huge profits moving money around. In Goldman’s case not a role that contributes to the well-being of society.

Understand, many investment banks play an important role. They provide bucks to keep major organizations in business and serve as advisors to businesses and to institutional investors. Problem is Goldman Sachs and some other bottom feeders play both sides of the street. The game that regulators during the Great Depression decided was a really bad idea. The laws set up back then to protect against the activities Greg Smith sees as toxic were swept away in the 1980’s and 90’s, leading to the recession we are struggling to overcome. Bad idea? You bet! Once a bad idea, always a bad idea.

Chickens Roost

We sure are glad we haven’t been holding our breath waiting for those who drove our economy off the cliff to be called into account. While there is still not a lot of action on that front, various folks are finally going after the bad guys. Federal and some state prosecutors -notably the New York State Attorney General- are on the move. And the shoes are beginning to fall in the civil courts.

The American Civil Liberties Union (ACLU) filed a suit last week (2012.10.15) against Morgan Stanley.  The investment bank loaned billions to New Century, an outfit that specialized in sub-prime loans. Morgan Stanley pushed New Century to generate more and more of those high risk loans, then packaged them up and sold them -at astronomically high margins- to pension funds and other “suckers” as they were referred to. These toxic loan packages, along with similar packages peddled by other investment banks, went sour and were the major factor in the collapse of the world economy. An exercise in ethical ignorance.

What made the New Century loans particularly smarmy were the mortgage company’s targets. Poor folks, mostly black, who were not sophisticated enough to understand what they were signing up for. According to published reports the ACLU’s class action suit on behalf of these folks is based on “claims that Morgan Stanley violated the Fair Housing Act and the Equal Credit Opportunity Act.”

This suit joins a host of others by investors and government entities aimed at finally bringing to task the banks whose reckless behavior has caused incredible pain all around the world. In addition to the Morgan Stanley suit, Wells Fargo is facing an action claiming that their reckless lending practices ended up dumping bad loans on the taxpayers’ backs by sticking a government insurance program with the tab. Bear Stearns & Company, now a part of JP Morgan Chase, fell into the sights of the Justice Department earlier this month for reckless housing boom activities. One-by-one the guys who rolled the dice and hollered for help from the taxpayers when they came up snake eyes, have the law knocking on their door.

But where are the individuals, the executives who pushed to keep the bucks flowing from their subprime mortgage scams? Where are the big shots who took hundreds of millions in bonuses while the taxpayers suffered from the recession triggered by their reckless actions? People like Lloyd Blankfein, Goldman Sachs’ CEO who had his people betting against their own customers in a heads-we-win, tails-you-lose game that only Goldman Sachs could win. Unbelievable!

The same “Pants on Fire” Blankfein who mocked a Congressional Committee by denying knowledge of activities at Goldman Sachs when internal communications from the bank show clearly that he was in the loop. How come Blankfein has not been charged with lying to Congress, a felony? After all, we went after a baseball player for lying with little or no evidence, why not a banker with solid evidence?

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.

Missing The Point

The Security and Exchange Commission (SEC) has broad powers to regulate our security markets and those who do business in this arena, commonly known as Wall Street. Last week (2012.10.02) the SEC convened a high-frequency trading panel to review this practice that creates as many as 70% of all investment market trades. We use the term investment loosely, that’s the last thing high-frequency traders practice; they could be more accurately described as pirates.

Using ever more sophisticated algorithms, the high-frequency traders search for various types of large trades, then race ahead of them buying up the target and less than a second later sell, raising the price and essentially stealing from the institutional buyer. That means that your 401K or Granny’s pension fund ends up paying more. While it’s legal larceny it’s neither ethical nor in any way beneficial to society. The traders will claim they have lowered the cost of trading. While that might be true, any savings vanish in the inflated pricing they add to the markets.

Given all the damage the traders flying the Jolly Roger inflict on the markets, there was great hope that last week’s meeting would bring some relief. Kiss that hope goodbye. The panel focused exclusively on the problems high-frequency traders encounter when their computer programs malfunction. In May of 2010 a trillion dollars in market value briefly disappeared. Three computer-gone-wild incidents have occurred this year. On August 1^st Knight Capital lost $440 million in the blink of an eye and the firm nearly went bust. Oh, those poor babies.

That triggered this SEC panel discussion, a discussion that focused on protecting the high-frequency traders from harm. There seems to be a consensus on creating “Kill-Switches” that could cut off destructive (to the Jolly Roger sector) computer glitches. The discussions centered on Kill-Switch access, who can push the button and should they be hair triggered or take a little longer. For its part the SEC has created an Office of Analytics and Research to study the issues. It will take time to get the office set up, hire the geeks to man it and give them enough time to study the issues – albeit all the wrong issues.

The issue the SEC should be studying is how to reign in this useless, destructive  practice. The stock markets exist to allocate capital. High-frequency traders do nothing to serve that purpose; actually they interfere with the underlying purpose of the investment markets. It’s time to send them packing.

Currently capital gains on investments held more than a year are taxed at the 15% level. We’d like to suggest some new tax brackets. For investments held twenty years or more, there would be no tax liability on capital gains. For ten to twenty years, 5%, five to ten years 10%, two to five years 15%, one to two years 25%, one month to a year 50%, one week to a month 75%, less than a week 95%. That will force these pirates to sail off into the sunset; or perhaps to Las Vegas where the odds are not stacked in their favor.

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.

Shareholder Spring

 

Evidence is piling up that out-of-control “Carpet Land” compensation levels are not only unfair, they are counterproductive. It’s not news that paying corporate leaders outrageous amounts of money concentrates their focus on raising their paycheck instead of corporate health. We have known for decades that all the excuses in support of the multimillion dollar deals are just that, excuses.

Ten years ago (August 9, 2002) in a USA Today piece, management guru Jim Collins reported that in a five-year study his organization had been unable to find any connection between compensation levels and the success of the companies they studied. Collins said, “If you have the right people, they will do everything in their power to make the company great, no matter how difficult the decisions and largely independent of their stock-option packages.”

In the same article Collins noted that you don’t have to pay the big bucks to keep talent on board. “Retention” is the favorite “excuse” of Compensation Consultants brought in to advise the companies on what they have to shell out to keep their Carpet Land inhabitants in place. Collins noted that more often than not, an insider promoted into the top spot did a better job.

Today the evidence is piling up that skills from one job are not transferable to another organization. A study by the John L. Weinberg Center for Corporate Governance at the University of Delaware found that CEO skill sets do not move easily to another company. This cuts the legs out from the retention rationale and with it the Compensation Consultants’ favorite tool to feed the endless how-high- can-you-go pay scale race, the sacred “Peer Group Benchmark.” The consultants pick a group of companies that they feel are relevant and use their compensation levels to set their clients’ compensation; a method that keeps CEO paychecks on an ever upwards spiral. In a NY Times interview the lead researcher on the UofD study, Charles M. Elson, said, “It’s a false paradox, a peer group is based on the theory of transferability of talent. But we found that CEO skills are very firm-specific. CEO’s don’t move very often, but when they do, they’re flops.”

Apparently shareholders are fed up as well. Shareholder voting on compensation is growing increasingly negative in what’s being called “Shareholders’ Spring.” In Europe where executive compensation levels are considerably lower than here in America, the shareholders are outraged. New York Investor Relations Guru Gene Marbach writes that, “the French government is considering the imposition of pay limits on executives at companies in which it owns a majority stake. Pay will be capped at 20 times that of the lowest paid worker in the company.”  

That’s reminiscent of a few decades ago when ratios in America were 40 times the pay of the folks at the bottom of the pay scale. Today it can run as high as $1,000 to a CEO for every $1 paid the folks on the bottom. Ethically, morally, or for that matter practically, there is no way to justify this kind of wage disparity.

Life or Death

A recent New York Times report documented a shockingly inefficient system that decides who lives or dies waiting for a kidney transplant. While no one questions a need to avoid the cost of marginally successful surgery, the facts seem to call for a total reevaluation of the system when nearly 4,800 people died last year waiting for a kidney and over 2600 donated kidneys were discarded.

One disturbing report detailed the tragic death of a healthy 36-year-old. His liver and one kidney were transplanted into waiting patients. His other kidney -just as healthy- was ultimately offered to more than 10,000 potential matches with no takers. It ended up discarded - disgraceful.

The systems for allocating livers, hearts and lungs have been revised to take into account the urgency of need and the life expectancy of the recipient, factors that are disregarded in the case of kidneys. Efforts to update these and other outdated rules take years to change. Meanwhile, perfectly good kidneys are being tossed in the garbage and people are dying. How dumb is that?

One might question the ethics of the medical centers that turn down marginally viable kidneys for patients in need. But it’s not that simple. One kidney center was censured because they had an 88% success record. In order to keep from being decertified they cut back the number of kidney transplants done and raised their success rate to 96%. The doctor in charge of the program mused which would you choose 88 successful transplants out of 100, or 59 out of 60? The choice of the 29 people who might have been saved is crystal clear. 

According to the Times story, “A computer simulation suggests that a redesigned system could add 10,000 years of life from one year of transplants.” Currently an outdated computer matching program makes the process inefficient. Add to that government oversight, the overreliance by doctors on inconclusive tests and even federal laws against age discrimination. Medical rationing that arguably gives all candidates a fair shot at a transplant but does not save as many lives as it might. 

We can all agree that dumping organs that might give life to those in need is not what we should be doing. We should all agree that the reported 14,484 kidneys recovered last year is pitiful; especially in light of the 93,413 folks waiting for one recently (2012.09.19). It’s disgraceful that all last year something less than 7,500 people remembered to make sure that should something fatal befall them, their organs could help others live. Who could possibly not want that to happen? 

There is no easy way to estimate the potential number of organs that could be recovered. But consider that the latest available annual highway death toll in 2010 totaled 32,885 individuals, a number that could vastly increase the number of organs recovered. Then add in other accidental deaths, and deaths from a wide variety of causes and it becomes apparent that we are ignoring an opportunity to give the gift of life, perhaps to several people. Shame on us!

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?

Rule Or Ruin?

Many technical advances present two faces. For instance, we have an unrealistic view of life in the “Horse & Buggy” age. In the motor vehicle age we see death and injury rates and imagine that things were better in earlier times. They were not by any measure; horses are difficult to control at best and the drivers then were no more responsible than they are now. The key to reducing the downside of motor vehicles has been to make cars, trucks and big boy’s toys safer through technical improvements. The rules of the road -among other things- have to improve as well.

A new book, Automate This: How Algorithms Came to Rule Our World, came out last week. Former tech journalist Christopher Steiner delves into the rise in the use of this digital tool as well as its impact on our society. In a Fast Company interview, he says he initially planned to just cover the use of algorithms on Wall Street. But from that starting point his research took him out further and further into our lives like the concentric waves when a rock splashes in a lake. Algorithms make Google search work. They drive customer service programs, they are everywhere.

Many of us know that algorithms underlie the high-speed traders who dominate our stock markets these days. They carry out most of the billions of trades the markets see every day. The upside is that the cost of trading has been going down with this volume. One downside is that some high-volume traders use this tool to shadow trades being exercised by pension funds and other wealth management entities. They can race ahead of these traders scooping up their target stocks and selling them to the funds at a higher price seconds later. The effect is to drive up the cost of the securities in your 401(k) or Grandma’s pension plan.  

Worse, they have contributed to the market’s abandonment of its only benefit to society, as a source of capital for business. In fact the markets have veered from the view of arguably the most talented investor in the world, Warren Buffett, who famously said, "The best time to sell a stock is never." Businesses are obsessed with daily prices and struggle to meet the quarterly expectations of the market instead of the long-term goals that could make them hugely more profitable.

There is a simple solution for this problem. Tax capital gains based on the length of time an investment is held. Just for fun let’s say if you hold an investment for twenty years or more, there would be no tax liability. Ten to twenty years, 5%, five to ten years 10%, two to five years 15%, one to two years 25%, one month to a year 50%, one week to a month 75%, less than a week 95%. Better than pirating value from Grandma’s pension, better for investors, better for business and their employees, better for America. Ethically there is no basis for the gambling hall culture on Wall Street; high speed trading is one gaming table we don’t need.