Ethics Officer?

Many years ago when I was chair of the philosophy department we were gifted $25,000 as a result of a court case involving bid-rigging. The trial was held in a nearby county and as a result of the defendants being caught pretty much red-handed, they were fined $100,000.00. They settled out of court for $50,000.00 and the proviso was that the money should be split between two local colleges who were then directed to set up courses in business ethics. My department was one beneficiary.

Well, as it happens, we already had several courses in business ethics, including one in the Masters program in Business. I always enjoyed teaching that class because the students were older — often folks who had returned for their M.B.A. after deciding it would advance their careers a bit. They brought a fund of information and experience with them and we had some great discussions. And the business arena is a gold mine for those of us looking for ethical issues.

The problem was what to do with all that money when we already had those courses. I decided to set up a lecture series to supplement the business ethics courses and we brought to campus some very interesting people — including the founder of the Parnassus Fund in California which promised to invest only in ethical companies — companies that treated their employees well, didn’t produce cigarettes or liquor, etc. He was most interesting and gave an excellent talk and then went to a couple of business classes and interacted with the students.

We also brought to campus the “Ethics Officer” at Honeywell — a corporation in Minneapolis that bragged about the fact that they were ethically oriented as witnessed by the fact that they donated free computers to the schools and engaged in other charitable acts. In any event, the ethics officer was a lawyer(!) whose job it was to make sure the corporation didn’t take steps that would get them in a legal tangle and to help them out of those tangles if they slipped up. Hardly ethics! (As a footnote, I would add that when the company later ran into financial difficulties the first things they cut were their charitable works!). In any event, it was instructive to get a first-hand look at one corporation’s notion of what ethics is all about.

The problems, of course, is that the law is not always ethical and that, in fact, ethics and legality often conflict in the “real world.” I spent a good deal of time after the lawyer’s visit trying to make that point clear to my students. Something can be perfectly legal and yet replete with ethical conundrums. This would be the case, for example, in those companies that promote dishonest advertising in order to increase sales. The ads may stay within the perimeters of legal strictures and yet violate the principle of honesty. And it is not at all clear that major companies treat their employees with the respect that all persons deserve.

But in those years of teaching business ethics I learned that the publicly owned corporations care not a whit about ethics and focus almost exclusively on the bottom line. Honeywell we simply one of a host of companies that was dedicated to profits and regarded ethics as a bit of a pain in the ass.

This is not to say that all companies were unethical, though most of the publicly-owned companies have terrible track records. There are a number or quite remarkable stories about privately owned companies, however, that go out of their way to do the right thing by their employees and their customers. Malden Mills, a family-owned company in Massachusetts is a case in point. As a news story reported at the time,

[Aaron] Feuerstein, an Orthodox Jew whose grandfather had started Malden Mills in 1906, not only to decided to rebuild. He also resolved to continue paying the 1,400 workers left idle during the construction works their salaries for the next three months, and to cover their health insurance for 180 days.

Asked to explain his decision, he attributed it to the ethics he had learned from studying the Talmud.

“I have a responsibility to the worker, both blue-collar and white-collar,” he told Parade magazine. “It would have been unconscionable to put 3,000 people on the streets and deliver a deathblow to the cities of Lawrence and Methuen. Maybe on paper our company is worthless to Wall Street, but I can tell you it’s worth more.”

There are more such stories, but not as many as the horror stories about companies such as Johns Manville that know they were producing such things as cancer-causing asbestos long before they were forced to change their product by the government. Or the tobacco companies that knew many years before their customers that cigarettes cause lung cancer. Which is why we need governmental controls — contrary to what we hear abroad these days. They act as watch-dogs to try to keep the unethical companies in line.

It’s not a perfect system. But while the law is not always ethical, at times it’s all we have.

Conflicting Interests

I taught business ethics for years and always found it a goldmine of interesting though at times disturbing cases for discussion. One such case recently surfaced online and it is worth a moment’s reflection. In this day of the infamous 1% it is always instructive to try to see what goes on in the minds of those who control the wealth (and government) in this country. One rarely finds thoughts of duty or honor — though there are always exceptions like Warren Buffett. The article I refer to does not focus on the exception, as it happens. It is more of the same: men at the top who are busy accumulating more wealth than they know what to do with.

The story begins: HOUSTON (Reuters) – Aubrey McClendon, the CEO of Chesapeake Energy Corp, has borrowed as much as $1.1 billion over the last three years against his stake in thousands of company wells – a move that analysts, academics and attorneys who reviewed loan documents say raises the potential for conflicts of interest.

The man himself sees no conflict of interest because he doesn’t seem to understand what the words mean. But, then, dealing with such huge amounts of money might tend to blind a person to even the most obvious moral truths. At some point when dealing with large figures, the mind positively boggles. It is difficult for me to imagine having a loose million to spend, but a billion dollars is almost meaningless. But the article goes on:

The size and nature of the loans raise questions about whether McClendon’s personal financial deals could compromise his fiduciary duty to Chesapeake investors, experts who reviewed the documents told Reuters. . . .The revelation comes as McClendon is scrambling to help Chesapeake weather a multi-billion-dollar cash shortfall amid a plunge in natural gas prices.

One wonders how a man could continue to worry about personal gain at a time when his company is at risk. There is a phenomenon in business known as “embeddedness” in which people become so involved in what is close up they lose sight of the things in the distance — things that, in the end, truly matter, like family and loved ones. . .  and the company that provides one’s livelihood in this case. One should also mention the man’s “fiduciary duty” to the investors. What becomes blurred in the process is  “the right thing to do.”

What is of main interest here is what passes for “ethics” in a world such as this. It really collapses into the word “legal,” as in whatever is legal is ethical. McClendoin, says, for example, “these are private transactions that the company has no responsibility to disclose or to vet . .. There are no covenants or obligations in my loan documents or mortgages that bind Chesapeake in any way.” In a word, I have done nothing illegal, therefore I have done nothing wrong. That, of course, is nonsense. There are many legal practices that are unethical — such as the conflict of interest in this case. I would argue that legally increasing personal wealth at a time when your company is in dire financial straits is unethical. It might even be argued that accumulating great wealth, more wealth than one could possibly spend in a lifetime, is unethical at a time when there are people who cannot put food on the table. Even John Locke thought there were limits on how much wealth a person could accumulate without crossing an ethical line.

I recall inviting the “ethics officer” from Honeywell to campus years ago when we were sponsoring a business ethics series of lectures on campus. The officer was, of course, an attorney and her job was to make sure Honeywell wasn’t doing anything that could lead to law suits. That was the company’s conception of ethics. The woman had no training in philosophy and had never even taken a course in ethics. She was not an ordained minister. But it didn’t matter, because it was all about keeping Honeywell out of court. Interesting. But what is even more interesting is the fact that this misconception is all too common in the corporate mindset. The focus on the bottom line, embedded as it is on profits, cannot see the ethical implications of the choices that are made and ignores the people who are effected by those choices.

It is a different world from the one I live in, I must say. And if given the choice, I prefer my own world where things are clearer.