The Last Domino

They’ve been mining coal in West Virginia for more than 250 years. For most of the last half of the 20th century Massey was a major player in the Court of King Coal. For the last two decades Massey Energy operated under the iron fist of its Chairman & CEO, Donald Blankenship. Don Blankenship hails from Stopover, a speck on the map about as far out as you can get into the eastern tip of Kentucky where it pokes into Virginia and West Virginia.

Those three states were Blankenship’s stomping grounds until 2010 when his reckless management style led to the deaths of 29 miners at Massey’s Upper Big Branch mine. That triggered his golden parachute retirement and the sale of the company the next year. Blankenship is the kind of “Bean Counter” we have all learned to fear. A bean counter whose relentless focus on profits ignores all else, in his case even safety. A bean counter who poured cash into politicians’ pockets to establish a regulatory atmosphere to fit his twisted management style.

 

These political “investments” and hundreds of thousands in fines regularly levied against Massey were seen as a cost of doing business. Still the Upper Big Branch mine was cited for more than a thousand safety violations in the three years prior to the explosion that killed 29 miners. The ventilation system that could have prevented that deadly explosion was not functioning properly, an uncorrected violation.

A tenacious federal prosecutor has been peeling away the cobwebs that surround the Upper Big Branch disaster. One-by-one U.S. Attorney Booth Goodwin is finding clues. One-by-one, individuals who bypassed regulations have fessed-up and pled guilty. It’s like a deadly row of dominos, as each one falls it tips the next in line; or in this case the next up the line.

Earlier this year Massey executive David Hughart admitted that he had tipped off workers when the inspectors were coming. When the judge asked Hughart who told him to alert the workers, he replied, “The Chief Executive Officer.” He, who was so all powerful he could not be named? Don Blankenship. The last domino is teetering at the top. Time will tell if he will face justice for lives lost and justice for families destroyed.

While Massey prospered under Blankenship’s demonic rule, one can’t help but wonder how it would have fared under an ethical leader. Would it have been cost effective to observe the law and avoid all those fines? Would it have been more profitable to have a workforce treated with respect, a more productive workforce perhaps? Would it have been better to consider the communities near their mines? Would it have been less costly to think about how their mines might impact the environment? Would an ethical business model have been better for all, especially for Massey’s shareholders? The answer across the free enterprise system is a resounding “Yes.”

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.

Published in CommPro.biz 2013.04.30

A Better People

 

OK! We get it. We understand that manufacturing economics too often makes outsourcing the creation of goods a necessity, especially when a major hand assembly component is involved. And when horrific calamities strike in faraway places, such as the building collapse last week (2013.04.24) in Savar, a suburb of Dhaka, the capital of Bangladesh, the American companies whose goods come from these factories wring their hands and say they are doing everything they can. That is simply untrue.  There is an alternative.

A low wage outsourcing model that works indefinitely better. It’s better for the workers and still allows the production of goods at competitive price levels. Born in the mid-1960s – 30 years before NAFTA – the Maquiladoro concept continues to be a cost-effective outsourcing alternative for American manufacturers. This concept flourishes along the US border with Mexico. American companies build factories in Mexican free trade zones. The workers and most managers are Mexican nationals, but the working conditions and standards are firmly in the hands of the American owners.

That’s very different from the 5,000 +/- factories in Bangladesh. Their owners, Bangladesh nationals, are driven by nothing but cost. The disaster that saw an eight-story building collapse in a pile of rubble came one day after cracks in the building made it apparent that it was unsafe. The owners were told to close it, an order they simply ignored. This calamity that took hundreds of lives cannot be ignored by the brands that used this facility and others like it.

It’s not enough for these brands to promise to put pressure on the factory owners. It’s time for them to build their own factories in countries where labor costs are favorable. It’s time for the major global clothing companies, Walmart, Gap, Sears, Tommy Hilfiger and all the rest, to act. They owe it to the more than three million workers in Bangladesh that sew their goods for minimum wage, under $40.00 a month. It’s not enough for Apple to say that FoxConn, a manufacturer in China, is making improvements. Apple could buy out FoxConn and make things right for the workers in those factories. Americans can afford the tiny bump up in prices that these ethical moves would bring.

The Maquiladoro concept works. For half a century most Maquiladoro workers have had clean, safe working conditions. Many have access to free healthcare on site, to nutritious meals at reasonable cost, to simple things like showers that we take for granted. While their wages are low by American standards, they make what is a living wage in their society, and we benefit from the cost of the goods they produce. Ethically, how can we accept anything less in the creation of what we wear on our backs and carry in our pockets? We have been blessed with much. How can we see those who make these goods suffer, even die to save us pennies? We are a better people than that.

Doctor Owned Device Firms

It’s not easy these days for those who practice medicine. Physicians are standing on shifting sand. It’s a tough and demanding profession. They have to be super smart and go through a grueling educational process that too often leaves them staggering under a mountain of debt. The traditional Fee For Service model that dominates American medicine pushes doctors to see more and more patients and tack on as many services as possible. It’s not a giant leap from there for doctors to have a financial interest in a medical entity or device. Makes sense, we invest in what we know. And there is nothing wrong with that.

But therein lies an ethical and legal quagmire. Let’s say a surgeon specializes in implantable pacemakers and defibrillators. It wouldn’t be unusual to favor and use a particular manufacturer’s models exclusively; nothing wrong with that. The red flags go up when a cozy relationship with the manufacturer evolves into a deal netting the doctor a profit on each device sold. The potential for doctors to call the shots on medical supply purchases is defensible when their motivation is to maintain high quality goods and services. It is indefensible when they have a financial interest.

While blatantly ethically challenged behavior of this nature would seem rare in a profession like medicine, apparently it is common enough to trigger last month’s (2013.03.26) “Special Fraud Alert: Physician-Owned Entities,” from The Office of the Inspector General of the Department of Health and Human Services. Their concern on this issue dates to the late 1980s when they issued their first fraud alert under a statute covering kickbacks in the medical field. While the current alert covers implantable devices, the kickback statute looks at any situation where medical personnel have an interest in a device or facility resulting in usage or referrals that puts money in their pocket.

In addition to the smarmy side of these issues there is an obvious concern that healthcare costs will be driven up by a proliferation of physician owned facilities. Costs driven by an excess number of such facilities where there is little market supply and demand restraint. And when the doctors own the imaging facility, the testing laboratory, the dialysis facility, or any other medical service that they can feed patients into, there is a potential for abuse. It shouldn’t have to be a federal case, but those who will not live within their own ethical boundaries can expect a visit from the law.

Published in CommPro.biz 2013.04.30

Whose $$$$s Anyway?

Two decades ago, John O’Shea, a National Institutes of Health (NIH) scientist at the taxpayer supported entity, was pursuing JAK3, a protein that attaches itself to immune cells. Dr. O’Shea and his team at the NIH thought JAK3 might be used to fight autoimmune disease, specifically arthritis. In 1993 the NIH contacted Pfizer to see if the Pharma giant might have an interest in partnering with Dr. O’Shea in this research. Pfizer said “no thanks” because under the rules in place back then they would have had to share any resulting revenue from the collaboration with the taxpayers who fund the NIH.

Big Pharma’s “K” Street lobbyists had that requirement removed in 1995 and so Pfizer signed on in 1996. Fast forward twenty years and the FDA (Food and Drug Administration) approves Pfizer’s new arthritis medication Xeljanz® (tofacitinib citrate). Three cheers all around says the NIH for the teamwork made possible by Dr. O’Shea’s discovery of JAK3, and his team’s collaboration over twenty years with the folks at Pfizer that led to Xeljanz®.

Big surprise, Pfizer doesn’t see it that way. They say that the good doctor’s work moved into the public domain when it was published in 1994, that anybody could have used it. So far as the cooperative research with Dr. O’Shea goes, Pfizer didn’t end up with anything they could patent, so it was of no value. It was all the work and the more than a billion bucks Pfizer invested that resulted in a new arthritis drug, Xeljanz®. Pfizer is charging Medicare over $2,000 a month for each and every patient on Xeljanz®, a mind-numbing $25,000.00 taxpayer bucks a year.

This whole scenario is so outrageous you wouldn’t believe it if you didn’t know it’s true. A private entity takes the work of a government researcher; brushing a deal aside they made to work with the NIH. They take all the credit for developing this drug, adding the standard boilerplate claim that they sunk a billion bucks into the effort, yada, yada, yada.

A figure debunked last year in a British Medical Journal study. All these billion plus drug development claims start with a half billion they might have earned had they invested in some once-upon-a-time index fund over the same twenty-year period. Then there is $300-$400 million they get in tax credits. At the end of the day Pfizer has maybe a couple hundred million in Xeljanz®, no small amount but nothing close to a billion. Talk about corporate welfare or voodoo economics. It’s time for this nonsense to stop. Without Dr. O’Shea’s team at the NIH there would be no Xeljanz®.  We want our share of the bucks.

The stranglehold Big Pharma has over the Congress is shameful. From endorsing the theft of taxpayer funded science to an outrageous ban that prevents Medicare and Medicaid from negotiating what they pay for drugs, the corrosive impact of corporate spending in our democratic process is overwhelming. It has to stop.

Published in CommPro.biz 2013.05.06

The Disposable Bankers

Matthew Marshall Taylor is probably on his way to jail. The 34-year-old took a wire fraud plea deal for making up stuff to cover some wild trades that cost his employer, Goldman Sachs, $118 million. The charges against Taylor are not as serious as they might be because his crime did not put Goldman Sachs’ financial existence at risk and he followed his usual work patterns. Understand, Taylor didn’t steal anything; he just threw Goldman Sachs’ dice for more bucks than he was authorized to put at risk. He was trying to look good by making a big killing and maybe increase his take home pay. Apparently he was having trouble getting by on the over a million and a half he was paid in 2007 when all this came down.

While we understand that Goldman Sachs couldn’t allow this kind of reckless behavior –they had no choice but to prosecute Taylor– it does, however, seem ironic that a minor player goes to jail for covering up reckless financial behavior at, of all places, Goldman Sachs. The same outfit that crafted investment vehicles referred to within the firm as “Crap” so they would look like good stuff, then pressured the rating agencies to bless this crap with top notch ratings. While Matthew Marshall Taylor never put the stability of Goldman Sachs at risk with his $118 million loss, in the same time frame Goldman Sachs put the World Economy at risk with reckless bets that went bad crashing that economy.  

Nobody from Goldman Sachs is facing jail for those bad bets. In fact their head honcho is so arrogant as to claim that he is “Doing God’s Work.” He feels free to mock the members of a Congressional Committee and lie through his teeth while testifying under oath – a felony. He is not facing prison time, nor are any of the other monster bank executives whose reckless behavior, in concert with Goldman Sachs, drove the world economy off the cliff. Not only are they not headed for jail they are right back playing the same reckless games. Why wouldn’t they? They are livin’ large, taking home carloads of money, secure in the knowledge that if they blow it the taxpayers will come to their rescue again, and again, and again.

The Dallas Federal Reserve Bank has a proposal to break these monsters up and take the taxpayers off the hook. In a Bloomberg View OP-ED, Joshua Rosner, a financial research guru takes another tack. He picks up on the monster banks’ defensive position that frames them as part of a worldwide system. Rosner suggests “outsourcing” these fragile monsters, urging them to move to some other country whose citizens don’t mind crazy bankers. These banks do little or nothing for America. There are thousands of slightly smaller banks more than able to support our banking needs. Banks that would no longer have to compete with the Las Vegas style banking model the monster banks represent.

We like it. Let the monster banks set sail, and as they disappear over the horizon taking their risky behavior with them, we can all breathe a sigh of relief.

Murdoch Again?

The Murdoch slime machine slithered into the news cycle again. Their people in China reportedly laid some hefty “gifts” (entertainment and travel) on sources over there. If true, that would seem to be a big no-no under US law. Wall Street Journal staffers in China were tagged with the bribery charges. They deny everything and say outsiders hired to investigate gave them a clean bill. They could have saved their money; hopefully our authorities will do the investigation and if it turns out that the Journal is clean, it will not cost Murdoch a penny. But if our investigation goes the other way, it will cost him big time. The FBI and the Justice Department are not commenting on these bribery charges.

However, this is not the only instance of the Murdoch empire being looked at for possible violations of our Foreign Corrupt Practices Act (FCPA). That’s the law that makes it illegal for American entities to bribe folks outside our borders as Murdoch has in Great Britain. His minions were nailed for unconscionable telephone hacking schemes and laying thousands of British pounds on police and other public servants for scoops. Murdoch is a US citizen and his organization is based in the United States; that would seem to put his London crew under FCPA.

That could be the least of Murdoch’s worries. The FCPA violations would go away after some healthy fines; just a cost of doing business for the ethically challenged like Rupert Murdoch. More serious is the finding of a committee of the British Parliament that Murdoch is "not a fit person" to run a major international entity like News Corp. Where that spills over into News Corp’s home in America is when Murdoch’s broadcast licenses come into play. He owns a couple dozen broadcast stations in America.  

Citizens for Responsibility and Ethics in Washington (CREW), a nonpartisan watchdog group, has been bugging the Federal Communications Commission (FCC) to revoke his licenses as the Communications Act would seem to dictate. Should that happen Murdoch’s American broadcast properties would be reduced to some used office furniture, used electronics gear and real estate. The tens of millions these facilities are worth would be gone, poof, just like that. We’ll see what the FCC does. They have had this issue before them for a couple years; it is past time for them to act.

Meanwhile the DOJ is juggling the FCPA implications raised by Murdoch’s bribery activities in Great Britain. The Brits have arrested Murdoch minions by the dozen including Rupert’s darling, Rebecca Brooks, who formerly headed all his smarmy Fleet Street newspaper operations. The DOJ ought to be arresting Murdoch executives here in the United States, perhaps even Murdoch himself, certainly his son James, who headed News Corp at least in theory. Don’t hold your breath, however. In the end the FCC and the DOJ will probably chicken out and do nothing; a pity.