Rather unpleasant news today regarding the Justice Department and corporate accountability: In Justice Shift, Corporate Deals Replace Trials

Here’s a clip:

“In a major shift of policy, the Justice Department, once known for taking down giant corporations, including the accounting firm Arthur Andersen, has put off prosecuting more than 50 companies suspected of wrongdoing over the last three years.

“Instead, many companies, from boutique outfits to immense corporations like American Express, have avoided the cost and stigma of defending themselves against criminal charges with a so-called deferred prosecution agreement, which allows the government to collect fines and appoint an outside monitor to impose internal reforms without going through a trial. In many cases, the name of the monitor and the details of the agreement are kept secret.”

I am sure there is a slight possibility that this less public and less invasive method of evaluating potentially fraudulent or otherwise criminal activity by corporations, and the subsequent nearly invisible and prone-to-abuse-and-self-dealing mechanism for monitoring them thereafter, might actually prove successful in holding them accountable…

Um, NO.

Be sure to read the full article. The following is just a whiff of how meaningless this approach really is:

“Firms have readily agreed to the deferred prosecutions, said Vikramaditya S. Khanna, a law professor at the University of Michigan who has studied their use, because ‘clearly it avoids a bigger headache for them.’

“Some lawyers suggest that companies may be willing to take more risks because they know that, if they are caught, the chances of getting a deferred prosecution are good. ‘Some companies may bear the risk’ of legally questionable business practices if they believe they can cut a deal to defer their prosecution indefinitely, Mr. Khanna said.

“Legal experts say the tactic may have sent the wrong signal to corporations — the promise, in effect, of a get-out-of-jail-free card.”

TAGS: CSR | Social Responsibility | Monsanto | Ethics | Fraud | Justice Department

While perusing our site stats I discovered a site with an excellent collection of links (Credo is listed under Corporate Responsibility). Pablo Halkyard (I assume, based on the title of the page that he is the site owner) has amassed links of blogs and sites covering, “international development, social enterprise, Africa, cause marketing, technology for development, microfinance, philanthropy, healthcare, the environment and corporate responsibility.” Be sure to check the list out when you have a moment.

Wow! It appears that several decades of progress in workplace atmosphere, sexual harassment policies and general decency just disappeared. Check out the following snippet from an interview Guy Kawasaki conducted with Penolope Trunk [clarification mine]:

“Question [Kawasaki]: Should I sue a boss who is sexually harassing me?

“Answer [Trunk]: In most cases, you will destroy your career if you report sexual harassment. So unless you are in physical danger, you should not report harassment. The laws governing sexual harassment don’t protect women who report. The law protects companies from being sued by the women who report. Human resource professionals are trained to protect the company, not the woman who reports.

“When you report harassment it is usually the case that you lose your job through retaliation. Retaliation is illegal but nearly impossible to prove in court. And, even if you could prove it in court, you would go through emotional hell, with no salary, and high-profile drama that makes you unable to get another job. All this for a settlement that will almost certainly not enable you to retire.

“This is simply how the legal system works. I am not saying this is okay. But I’m saying that if you care about your career, you’ll do everything possible to not report. Most women are not in the position to sacrifice their career—and their earning power—in the name of trying to bring down one harasser. The legal system needs to step in and take care of this.”

Let’s see here… No, no, no and NO! The above is absolutely terrible advice. If you are sexually harassed, report it — end of story.

I could pontificate for pages on why this is such bad advice and so completely off base, but I guess I feel as if the reasons are self-evident. Quite frankly, I find it baffling that the above mentality even exists today, let alone is verbalized. I think the only statement above that has value is the closing one — indeed, the “legal system [does need] to take care of this.”

Sheesh.

TAGS: sexual harassment | ethics | whistleblower | moral | Penelope Trunk

A question that I continually hear following reports of company misconduct, fraud, or other illicit activity, especially when the action was too large to possibly go unnoticed, was how the action went unreported for so long. Why don’t people speak up when they know something improper is going on at their organization? There are a host of possible reasons, but a recent article by Ethical Corporation, Workplace Misconduct – Making ‘Speak Up’ Procedures Effective, shares some interesting statistics as well as some practical advice.

First for a few sobering statistics from the article. Here are the top four reasons why people were likely not to speak up:

• 21% - Possible alienation from colleagues
• 19% - That the issue was ‘none of their business’
• 13% - Fear of their job being jeopardized as a result
• 12% - ‘Everybody is doing it’

While the first and third seem like reasonable initial reactions, I find the second and forth as particularly troubling.

The article continues with excellent advice for organizations looking to increase the percentage of individuals willing to speak up when they become aware of any kind of misconduct. In addition, the suggestions are great building blocks for any company wishing to strengthen ethical conduct among its employees and partners. The article details the follow four principles:

1. Create and support an ethical culture;
2. Take swift action when misconduct is identified;
3. Ensure transparency in all communication (hmmm, I wonder if Dell is listening…); and,
4. Provide ethical training and leadership

I think the above list is a great start. Add in a stipulation for ongoing training to maintain the ethical culture, and to ensure the retention of the training and leadership, and I think it would be a fantastic platform for organizations of any size.

TAGS: ethics | ethical | fraud | misconduct | whistleblower | code of ethics

Dell seems to be continuing on its downward trend lately. The company’s 2-year stock performance has been somewhat dismal (click on the thumbnail to the right for a large chart [from Yahoo! Finance]), and in an article released yesterday, the New York Times reports that Dell has found evidence of accounting misconduct: Dell Reports It Has Found ‘Misconduct’.

Finance-related scandals are nothing new, especially among once high-flying tech companies, and span a wide spectrum ranging from options backdating, to balance sheet massaging, to pulling fake numbers out of thin air. Dell’s findings, though described with remarkably little detail, seem to point to minor misconduct issues. Perhaps that is because the company is keeping a tight lid on the specifics of their findings, and perhaps it is because nothing major was uncovered during the investigation. Either way, there is far too little information available to investors, or the public, in order to make a clear judgment call on the company’s conduct.

The findings come on the heels of a rather sustained down period at the once mighty company:

“It was once the biggest PC maker in the world, but its computer sales are growing more slowly than those of many competitors. Its chief executive, Kevin B. Rollins, resigned at the end of January, and Michael S. Dell, the founder, returned to office.

“Since then, Mr. Dell has tried to focus a company distracted by disappointing financial results and bad news. He shook up senior management ranks, and has concentrated much of its efforts in China, one of the fastest-growing markets, where Dell’s presence is not as strong as that of Hewlett-Packard or Lenovo.”

Rollins had been groomed for the top spot for years prior to taking the helm, and his departure served a considerable blow to the company and to investor’s confidence. If the financial scandal develops into something larger, Dell may take more than a few years to recover.

…Enter the broader issues. Toward the end of the NY Times article, there is a short passage noting the direct impact the scandal will have on the company’s employees. The news is a bit disturbing:

“The accounting problems, meanwhile, are financially damaging to employees. The company said yesterday that it would have to suspend contributions to the Dell stock fund within its 401(k) plan beginning next month because of its failure to make the necessary financial filings. The suspension affects all employees, a company spokesman said.”

The situation was arguably “messy” prior to the above tidbit. But now all Dell employees see a suspension, of an unspecified duration, of the company’s contribution to the Dell stock fund. What responsibility does the company have to include greater disclosure at this point? How long will the suspension last? What is the nature of the misconduct, and have the responsible parties been removed from their positions? What will the company do to ensure that similar misconduct does not recur in the future? How broad was knowledge of the misconduct? Was Rollins aware of the issue? Was the Board? Was Michael Dell?

I think every Dell employee and shareholder would want the preceding questions, and a host of other ones, answered with the utmost transparency.

TAGS: DELL | Fraud | Ethics | SARBOX | GAAP | Accounting | Corporate Governance

Just a quick post to direct your attention to the current print or online edition of the Economist. The leading article, though covering a somewhat stale topic, is well written and insightful (big surprise there…). Take a gander at the online version: Globalisation and the Rise of Inequality: Rich Man, Poor Man. A few passages I found interesting are noted below.

On wage disparity:

“Since 2001 the pay of the typical worker in the United States has been stuck, with real wages growing less than half as fast as productivity… If you look back 20 years, the total pay of the typical top American manager has increased from roughly 40 times the average—the level for four decades—to 110 times the average now.”

On globalization:

“When the jobs going abroad are not whole assembly lines, but bits of departments, how exactly do you pick out the person who has lost his job to globalisation from the millions of people changing jobs for other reasons? And, hardhearted though it may sound, most of the gains from trade and technology alike come from the way they redeploy investment and labour to activities that create more wealth. That, like all change, can be painful; but it is what makes a country richer. A policy locking people into jobs that could be better done elsewhere is self-defeating.”

A suggested solution:

“Instead, the way to ease globalisation is the same as the way to ease other sorts of economic change, including the impact of technology. The aim is to help people to move jobs as comparative advantage shifts rapidly from one activity to the next.”

TAGS: Globalization | Economy | GDP | Economist | Compensation | Wealth

I tend to shudder at catchy phrases such as “internet bubble,” “web 2.0,” or “Ajaxified,” but I was unable to come up with a better term for how I have begun to visualize the next level of corporate structure than “Corporation 2.0.” This may not be a new concept, just perhaps a bit more concise and repackaged. After chewing on the moniker for a few days, and cycling through dozens of mental and sketched-out diagrams, I’ve simplified the concept down to the rather elementary doughnut diagram that follows:

Out With the Old…

The old corporate model, more or less, revolved around profit maximization. Profits at any cost, it often seemed. More mature corporations would tend to have a fairly solid corporate governance system in place, but typically lacked any kind of corporate social responsibility initiative or a formalized Code of Ethics.

In With the New…

Times are changing and there is a building consensus that corporations and their profits should be held to a higher standard. Corporation 2.0 is at the intersection of business and social responsibility. In short, as I see things, instead of simply pushing to achieve profit maximization, Corporation 2.0 combines a strong showing from each of the following disciplines to instead generate “ethical profits”:

• Business Ethics;
• Corporate Governance; and,
• Corporate Social Responsibility.

This is most likely not a startling concept to anyone that follows the noted issues, but perhaps the visual links between the three and ethical profits is helpful to view in such a manner. What the diagram strongly conveys to me is that without one of the three key pieces, the corporation will not be able to generate ethical profits–it is only through a strong showing from each of the three that ethical profits can be realized.

For instance, imagine a company with strong and consistent corporate governance, but that lacks a formal Code of Ethics. Without the code, how do employees and stakeholders evaluate ethical dilemmas? For that matter, do they have any idea what the company believes is ethical or not? Without such formal ethical guidelines, can the company truly generate ethical profits?

On the other hand, a strong showing from all three guarantees that the company is generating ethical profits. With strong corporate governance, stakeholders and employees are ensured that the proper checks and balances are in place and functioning correctly. A solid foundation of business ethics described by a formal Code of Ethics makes clear what is acceptable or not, and provides a guide for dealing with any ethical breaches. Strong corporate social responsibility initiatives ensure that the company is taking into consideration such issues as the environment, human rights, and community involvement.

I am hopeful that we will see more and more corporations moving toward the pursuit of ethical profits and I look forward to the day that I start pondering what Corporation 3.0 will look like.

TAGS: Corporation 2.0 | Business Ethics | Corporate Social Responsibility | CSR | Corporate Governance | Ethical Profits | Triple Bottom Line

The bad news continues: Hewlett-Packard Spied on Writers in Leaks [NYT]

Here is a clip from the article:

“The company said this week that its board had hired private investigators to identify directors leaking information to the press and that those investigators had posed as board members — a technique known as pretexting — to gain access to their personal phone records.

“In acknowledging Thursday that journalists’ records had also been obtained, the company said it was apologizing to each one. ‘H.P. is dismayed that the phone records of journalists were accessed without their knowledge,’ a company spokesman, Michael Moeller, said.

“In an interview Thursday about the state’s criminal investigation of the Hewlett-Packard matter, Attorney General Bill Lockyer said, ‘A crime was committed.’ But he added: ‘It is unclear how strong the case is. Who is charged and for what is still an open question.’”

And then more specific information regarding the investigators spying on journalists:

“CNET said Thursday that phone records of two of its reporters, Dawn Kawamoto and Tom Krazit, had also been obtained. It said access to Ms. Kawamoto’s records had been gained from the same Internet address used by the person who accessed the phone records of Mr. Perkins. A caller used the last four digits of her husband’s Social Security number to establish an online account with AT&T to view the records. Access was gained on one date, in late January 2006, it said.

“A CNET spokeswoman, Sarah Cain, said: ‘These actions not only violated the privacy rights of our employee, but also the rights of all reporters to protect their confidential sources.’”

TAGS: HP | Hewlett Packard | Pretexting | Spying | Board of Directors | Ethics | Corporate Governance

For those of you that have not heard about the recent board scuffles at Hewlett Packard, check out the following articles:

• Leak, Inquiry and Resignation Rock a Boardroom
• A Board in Need of an Emily Post
• H.P. Spied on Directors to Find Leak
• State Probes HP’s Spying on Directors
• Hewlett-Packard under investigation in spying scandal
• `Pretexting’ by Hewlett-Packard’s hired investigators could be considered illegal

I find the news particularly troubling simply for the fact that I am saddened to see such behavior going on at a company that I used to admire so much (it has been quite a few years…). To make matters worse, I feel that Mark Hurd has been, for the most part, doing a great job at turning the company around after Fiorina’s ouster. This news, complete with questionable actions, information leaks, governance quandaries and general grime, will certainly set the company back.

Relevance:

How does this mess speak to ethics or corporate governance? First, the legality of Patricia Dunn’s authorization for surveillance of HP’s directors has been questioned. Apparently legal counsel was sought prior to the authorization, however, there are a number of privacy issues that come into play. (ARS Technica has an excellent overview of what was involved in the surveillance.)

Further, I find it curious that the surveillance was authorized by a member of the board and not an independent committee. What if Dunn was also a source of the leaks? A second investigation launched in January was handled by HP’s office of general counsel but why not have all of the investigations go through the same channel?

Are these recent incidents the actions of a mature and ethical company with a strong corporate governance structure? Were the leaks breaches of fiduciary duty (I believe so) and why were they not handled in a more appropriate manner more in line with HP’s governance setup? What does all of this tell HP shareholders about the company’s leadership?

TAGS: HPQ | Hewlett Packard | Board of Directors | Corporate Governance | CSR | Business Ethics

The exchange, BURSA Malaysia, recently announced the launch of a corporate social responsibility framework for publicly listed companies (PLCs). I first learned of the news after reading a Business Times article, but found its information somewhat vague. The article made little mention of the details of the framework, noting only a few of its aspects such as a focus “on how a corporation interacts with the environment, community, workplace and marketplace.”

If you are interested in reading more, BURSA Malaysia’s website has a CSR section that lists the following PDFs for download:

• CSR Write-up: A short introduction to the framework as well as a nice overview of corporate social responsibility.
• CSR Framework for Malaysian PLCs: This presentation contains the details of the CSR framework and also of BURSA Malaysia’s short and long-term CSR goals.

TAGS: CSR | Corporate Social Responsibility | BURSA Malaysia | CSR Framework