Just a couple of hours ago, the Coast Guard received word that a second oil rig has exploded in the Gulf of Mexico, not far from where the Deepwater Horizon rig exploded in April. According to The Wall Street Journal, the explosion injured one of thirteen workers on the rig, which is owned by Mariner Energy. There’s no report yet on whether the explosion will cause yet another oil leak.

Ordinarily, I don’t comment on breaking news because it’s so easy to go off in the wrong direction before all the facts are in. However, in this instance, a little speculation seems in order. If this new explosion leads to a second major leak, it’s all too likely to further complicate the already snarled situation in the Gulf. When there was only one spill to worry about, it was pretty clear that BP and its affiliates were responsible for cleaning up the oil and compensating injured parties. If this explosion creates a second spill, the question of “whose mess is it, anyway?” could easily be debated for years by clever lawyers and experts. And as long as that happens, it’ll probably be that much more difficult for people whose lives and businesses were destroyed by the first spill to get the relief they need - to say nothing of how much additional damage the Gulf ecosystem may suffer.

Obviously, there’s a lot more information to be gathered. This latest explosion may not be reflective of larger ethical lapses in the industry, but then again, a pattern may be emerging even as the Coast Guard races toward the second damaged rig. In the meanwhile, send good thoughts and prayers to Gulf of Mexico. The pelicans and people there are likely to need them.

Topics: Business Ethics, corporate responsibility, ethics | 1 Comment »

MSNBC reports today that CEOs who laid off more workers than average raked in more money than their peers. According to a new report issued by the Institute on Policy Studies, the fifty CEOs who led the charge on laying off rank-and-file employees during the recent economic turndown received $12 million on average in 2009, as opposed to the mere $8.5 million average compensation that CEOs of S&P 500 corporations received. (Gosh, can you imagine having to live on less than $9 million a year? What a hardship!) Each of the top fifty companies surveyed laid off 3,000 workers or more from November 2008 to April 2010. In other words, more than 150,000 people lost their jobs while their top bosses made a stunning 145% of the already lavish average salaries that S&P 500 CEOs receive.

Something just isn’t right here.

MSNBC quotes Sarah Anderson, lead author of the Institute’s report, as saying that “‘CEOs are squeezing workers to boost short-term profits and fatten their own paychecks.’” Put the emphasis on short-term. Unemployed people don’t buy goods and services they can’t afford, so companies that lay off their workers to boost already outrageous CEO salaries are ultimately destroying their own consumer base. Something’s got to give and, eventually, this kind of short-sighted, selfish thinking will do real damage to the American marketplace.

Here’s my question: where are the Boards of Directors of these companies? Don’t they recognize that laying off skilled workers may reduce short-term costs, but limits a company’s ability to grow when the economy improves? Don’t they know that the economy really can’t improve as long as unemployment lingers near 10%? And aren’t they even slightly concerned for the well-being of employees who’ve have transformed CEOs’ grand visions into practical realities? The MSNBC article focuses on Hewlitt-Packard’s former CEO, Mark Hurd, who cut 6,400 jobs from his company in 2009, only to step down this year in the face of allegations that he’d sexually harrassed a female contractor. Hurd’s severance package is estimated to be as much as $40 million, or a litle over $6,000 for every employee he fired. I’ll bet a lot of displaced HP workers can think of better ways to spend that money, and that a lot of them are at least as deserving of it as Hurd.

Don’t get me wrong; talented executives deserve fair compensation, and keeping costs down is often one of a CEO’s most important responsibilities. But I believe that Boards of Directors shouldn’t rubber-stamp huge compensation packages for CEOs who cut costs by savaging their other employees. Companies are supposed to produce goods and services; it’s tough to do that when an overpaid CEO is the last employee in the building.

Topics: Business Ethics, Corporate Governance, Social Ethics, corporate responsibility, ethics | No Comments »

The New York Times reports today that, despite the mess caused by the Deepwater Horizon leak, oil companies are taking increasing and largely unscrutinzed risks as they drill deeper for offshore petroleum. According to the Times, rigs are becoming larger and more complicated, are farther than ever from the coastlines (and immediate support in an emergency), and are more frequently serviced by robot subs that break down themselves than by live workers. The article quotes Edward C. Chow, a former oil industry executive, as follows: “‘Our ability to manage risks hasn’t caught up with our ability to explore and produce in deep water.’”

Wonderful.

Don’t get me wrong. I understand that our society runs on petroleum and recognize that there are good reasons to decrease our dependence on foreign oil. I’m just worried about an industry that seemingly knows more about how to create risks than how to guard against them and appears unconcerned about that disparity. After all, as the Times points out, it’s in the oil industry’s interest to hope that the Gulf spill was a one-time fluke. When it comes to risk management, however, hope is not an effective strategy.

The Deepwater Horizon spill has cost billions to clean up, and BP isn’t done yet. The spill has also taken an enormous toll of sheer human misery on the residents of the Gulf Coast. The oil industry needs to learn to better manage its risks before venturing into deeper water. Otherwise, it may only be a matter of time before another, bigger spill occurs.

To read the Times article, click here.

Topics: Business Ethics, Risk Management, corporate responsibility, ethics | No Comments »

Empower your people

08.27.10 By Lauren

Continuing my Friday series on keeping your business out of court, let’s focus on a recent experience I had with my own family. To celebrate my oldest daughter’s 10th birthday, we went to Disney World … in August. It was a great trip overall but the heat was nearly unbearable, and I’d decided that, instead of renting a car, we’d take advantage of Disney’s transportation network. Not a great decision. Waiting twenty minutes for a bus in hundred-degree heat and humidity with exhausted kids isn’t smart, and I almost bit the bullet and rented a car. If I’d done that, though, we would have missed Tom, and that would have been a shame.

Tom drives a bus between Epcot Center and the Disney hotels, and he’s absolutely amazing. He first caught my attention with the courtly approach he took to bringing a little girl in a wheelchair on board. She had to be hotter than any of us, but he had her smiling in seconds. Then, Tom charmed the socks off an entire busload of tired, overheated people, cracking jokes and telling stories all the way to our hotels. If you asked him what he does for a living, Tom would tell you that he makes magic every day, and he’d be right.

How does Tom’s outstanding attitude relate to keeping your business out of court? Read on. Disney is famous for empowering its employees to go the extra mile to keep visitors happy. Incidentally, they also stand as the company’s first line of legal defense, because they diffuse tension, solve problems, and leave Disney’s patrons with a smile. If Tom had been forced to put that little girl on his bus according to rigid restrictions and hadn’t been able to exercise his signature charm, her parents would have been much more inclined to call their lawyer if, Heaven forbid, the child was injured during the bus trip.

Happy, empowered employees prevent litigation by keeping customers content. If your company is overly controlling, you can inadvertently restrict your employees from solving problems before they escalate into expensive litigation. Hire people you trust, give them good training, then give them space to do their jobs. They’ll be more productive, and they’ll protect your company along the way.

Topics: Business Ethics, Lauren Recommends, Risk Management, corporate responsibility, customer relations, ethics | 1 Comment »

Well, this is depressing … The Wall Street Journal reported today that mortgage fraud is once again on the rise, less than two years after the international financial meltdown. As you’ll recall, recession set in, world financial markets tumbled, home values plummeted, and unemployment skyrocketed when it was discovered that Wall Street investment firms had gambled billions on subprime mortgages. Allegations of mortgage fraud from 2008 still haven’t been fully investigated and prosecuted, yet here we are again.

When are we going to learn?

The Journal reports that the compliance measures that were put into place after the 2008 meltdown didn’t prevent fraud for long. In response, swindlers have simply developed more sophisticated scams. Frauds related to falsified credit reports have declined, but appraisal frauds (claiming a property appraised for more than its value in order to justify a higher loan amount) are on the rise, and application frauds are holding steady.

Someone who’s truly determined to game a system can almost always come up with a new way to do it, and writing another layer of regulations to try to prevent misconduct is all too likely to be a waste of time, energy, paper, and ink. To prevent fraud, what’s really needed is timely, effective enforcement of existing laws by regulatory agencies. It’s long since time our legislators stopped tweaking the mortgage rules and, instead, gave the agencies who are responsible for punishing mortgage fraud the necessary resources to do so.

To read the Journal article, click here.

Topics: Business Ethics | No Comments »

When former CEO Mark Hurd resigned from Hewlett-Packard Co. last week, he joined a lengthy list of top business executives who have stepped down after being accused of personal ethical lapses. Of course, this isn’t HP’s only recent scandal. HP suffered considerable public embarrassment just a few years ago when its chairwoman, Patricia Dunn, left the company after wiretapping conversations of an HP Board of Directors member. Ironically, it was Hurd who, after settling the wiretapping case with the California attorney general, publicly announced that he was “committed to ensuring that HP regains its standing as a global leader in corporate ethics and responsibility.”

Oh, really?

News reports allege that Hurd’s demise came out of a “personal relationship” that he had with former actress and marketing consultant Jodie Fisher. At one point, Fisher filed a sexual harassment suit against Hurd, which he settled for an undisclosed amount. However, when HP investigated Fisher’s claims it found that Hurd had not violated the company’s sexual harassment policy. Hurd’s forced resignation was based on the company’s determination that Hurd had falsified about $20,000 in expense reports, allegedly to conceal whatever relationship he had with Fisher, and that Fisher had received at least some compensation for work she hadn’t actually performed.

The trouble with HP’s story is that it doesn’t hold water. If Hurd really lied on his expense reports and overpaid an underperforming contractor, shouldn’t he have been fired outright? And should he really be leaving with a severance package worth $37 million or more? On the other hand, if he’s being allowed to resign and take all that money with him, how credible are the claims against him? Fisher was quoted just this morning expressing surprise and regret that Hurd lost his job over his alleged sexual misconduct, and both deny ever having had an affair. Did whatever happened between Fisher and Hurd really warrant his ouster, or was something else going on?

Some commentators have suggested that Fisher’s sexual harassment suit against Hurd was bogus, and that HP’s Board of Directors just didn’t have the guts to defend him. (Remember, Hurd was exonerated by the company’s internal investigation.) Hurd’s lavishly-funded departure may, in fact, be the outcome of a carefully-negotiated compromise. But if HP’s Board thinks this is the best way to prevent future scandals at the company, it needs to think again. Hurd’s ambiguous departure sends a blatantly mixed message to other HP employees. Maybe it’s not okay to violate the company’s code of ethics but, if you’re high enough up the corporate ladder, you can do so and still get paid to go away. On the other hand, if you don’t violate the company’s code of ethics but someone else uses you to put the company in an awkward position, the company won’t defend your honor, but it will pay you off. Neither position is calculated to encourage ethical behavior on the part of HP’s other employees.

It may be a while before we find out why Hurd really resigned, if we ever do, but one thing is clear. If HP wants its employees to act ethically, it needs to set clear expectations, support employees whom it believes to be ethical, and fire even the highest-level employees when they are not. Anything else is just begging for future scandals.

Topics: Business Ethics, Corporate Governance, Professional Ethics, Risk Management, Social Ethics, business communications, corporate responsibility, ethics | 1 Comment »

Observe health and safety rules

08.06.10 By Lauren

Continuing my Friday series on keeping your business out of court, let’s look at a high-profile story that’s back in the news. Four months ago, an explosion at the Big Branch mine killed over two dozen workers. According to news reports, the mine had been repeatedly cited by inspectors for safety violations, but the mine owners claim they were always concerned with the safety of their employees.

Ri-i-i-i-i-i-i-ght …

It’s taken investigators this long to dig up methane gas monitors from the site of the mine explosion. Those monitors were intended to keep track of the level of methane gas build-up in the mines, to permit miners to stop working before equipment sparked a major explosion. NPR claims to have documented proof that the monitors were intentionally tampered with. They’ll be inspected tomorrow, and we’ll find out Tuesday (after families of the victims have been briefed) whether, in fact, someone prevented the monitors from functioning.

While I don’t know what the investigation will reveal, I’m ready to bet a sizeable amount of money that NPR is right. If it turns out that the monitoring devices had been tampered with, the next question will be whether it was done with the knowledge and consent of management. We’ll probably be told “no,” but that won’t entirely address the question. If miners believed that their bosses considered safety concerns less important than daily output, they might well have tampered with the devices themselves in order to make their quotas. If the management at Big Branch failed to require the miners to keep an eye on methane levels and stop work when they became unsafe, they’re at serious legal risk as well as deserving of every rotten thing than can possibly be said about them.

Here’s the thing. It’s entirely too commonplace for employers to pay lip service to safety regulations, then create a culture where any employee who doesn’t tough it out and stay on the job despite hazardous conditions is scorned as a coward or at risk of getting fired. Even if workers are willing to take chances, it’s up to employers to keep them from risking their lives. Yes, it may cost your company a little more to ensure that your premises are safe and healthy for your employees, clients and customers, but the increased costs dwindle when you compare them to the potential costs of a lawsuit. Maintaining safe and healthy premises will not only help keep your company out of court, it’s just the right thing to do.

Topics: Business Ethics, Risk Management, corporate responsibility, customer relations, ethics | 2 Comments »

For the past several days, the Internet has been ablaze with stories about how big insurance companies have allegedly mistreated military families. These companies are among many that participate in the Servicemembers’ Group Life Insurance program, or “SGLI,” which provides low-cost life insurance to active duty military service personnel. When those active duty personnel die in the line of duty, their beneficiaries are rightfully entitled to as much as a half-million dollar insurance payout.

Trouble is, the companies that are currently under fire have been accused of misleading service members’ beneficiaries in order to delay making benefit payments. These companies provide beneficiaries with “checkbooks” that may look to a grieving beneficiary as if they’re associated with a bank account. However, the “checks” are really just drafts that only the insurance company will honor. The beneficiary can withdraw the money by submitting one of the “checks” at any time, a fact that gets spelled out somewhere in the thick packet of papers that accompany the “checkbooks.” Until the beneficiary figures that out, however, the insurance company keeps the money in a “retained asset account” that earns interest. The beneficiary gets a small percentage of that interest, and the insurance company pockets the rest.

It’s important to acknowledge that grieving beneficiaries are often ill-equipped to make smart financial choices. A retained asset account can provide a useful service, allowing the beneficiary to make at least a little interest while the money is kept safe with the insurance company. So, is the practice of putting a beneficiary’s money in a retained asset account unethical? Maybe not - if the beneficiary understands that some of the interest earned on the money will be retained by the insurance company. To my mind, the sleazy part of this practice is less about the insurance company making money on the transaction than it is about the apparent lack of meaningful disclosure. If I were a beneficiary I might not object to the insurance company keeping part of the interest income from my benefit payment, but I’d sure like to know about it before leaving my money with the company.

Insurance companies have been using retained asset accounts for over a decade, but it took the connection with SGLI to make the story a scandal. Bad enough to lose a spouse or child to war - encouraging grieving families to make iffy financial decisions to benefit shareholders is downright awful. Congress is already considering legislation to require insurance companies that participate in SGLI to provide financial counseling to beneficiaries. Personally, I wish they’d go a step further and require insurers to clearly explain their benefit payout options to all beneficiaries. Honest disclosure is good for military families that have made the ultimate sacrifice - and it’s good for the rest of us, too.

Topics: Business Ethics, Social Ethics, business communications, corporate responsibility, customer relations, ethics | 2 Comments »

Get the whole story

07.30.10 By Lauren

Continuing my Friday series on keeping your business out of court, let’s look at a potentially disastrous mistake made recently by the U.S. Department of Agriculture. One of its employees, Shirley Sherrod, recently got caught in the cross-fire of accusations of racism between the NAACP and the Tea Party. In an effort to prove that the NAACP is racist, conservative blogger Andrew Breitbart accused Ms. Sherrod of stating in a speech to the NAACP in 1986 that she might not have been as inclined to help a white farmer in financial difficulties as a black one simply by virtue of race. To support his argument, Mr. Breitbart posted a taped excerpt of the speech on YouTube. In the ensuing uproar, Ms. Sherrod was asked by the Secretary of Agriculture, Tom Vilsack, to resign. After all, government employers can’t tolerate racism among their employees, can they?

No, they can’t. And if Ms. Sherrod had indeed said only what the clip showed, Secretary Vilsack would have been entirely justified in requesting her resignation. The thing is, Mr. Breitbart posted only a portion of the speech. When viewed in its entirety, Ms. Sherrod’s speech was actually a plea for equal opportunity, and the clip Mr. Breitbart selected was only the set-up for her compelling argument that racism is wrong, period. However, it seems that nobody at the Department of Agriculture bothered to watch the entire speech before acting to discipline Ms. Sherrod.

Secretary Vilsack and President Obama have both apologized to Ms. Sherrod, and have offered her another position in the Department of Agriculture. Ms. Sherrod announced today that she intends to sue Mr. Breitbart, and the federal government is lucky not to be named as the other defendant in the suit. In most jurisdictions, employers retain the right to terminate any employee at will, so long as the termination is based on a lawful reason. However, if an employer wants to terminate based on an employee’s alleged misconduct, the employer should first verify that the alleged misconduct actually occurred.

The Department of Agriculture could have saved itself a lot of bad press by taking a few extra minutes to get Ms. Sherrod’s side of the story before taking any employment action against her. Other employers are smart to learn from Secretary Vilsack’s gaffe. Before taking an adverse action against an employee, make sure you have the facts straight first. Doing so could save you a world of embarrassment as well as legal fees.

Topics: Business Ethics, Risk Management, ethics | 1 Comment »

It’s summer and the economy is bad, which means that people are hunting online for bargain airfares to their favorite vacation destinations. There are a number of sites that offer discounted airfares. However, if you’re not careful to read the fine print, you may pay more than you intended.

It seems that some of the discount travel sites do unwary customers the “courtesy” of automatically tacking travel insurance and other services onto the price of their e-tickets by pre-checking the “yes” box on the electronic order form. Those services don’t come free, and can take a significant bite out of whatever savings a traveler might get by purchasing a plane ticket online. Unwary travelers who fail to read the fine print can get stuck buying unwanted travel insurance or other services unless they remember to uncheck the box asking if they want those extras or not.

Christopher Elliott of The Washington Post called me recently to ask whether I consider it ethical for sellers to pre-check boxes that can cost customers money. Not only do I think that the practice of pre-checking is unethical and obnoxious, I think it deserves to be exposed for the petty con job that it is. So if you know someone who’s about to purchase tickets online, make sure to warn that person to beware of pre-checked boxes. Whether it’s a plane ticket or travel insurance, a purchase is only a bargain if it’s something you want.

To read the Washington Post article, click here.

Topics: Business Ethics, business communications, corporate responsibility, customer relations, ethics | 3 Comments »

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