As the story at JPMorgan Chase continues to unfold, I’m increasingly struck by how badly the bank’s sophisticated investment gurus seem to have underestimated the risks associated with their losing trades. $2 billion is a sizeable chunk of change even in the investment world, and one has to go out of one’s way to lose that much money in a hurry. JPMorgan’s investment team obviously thought the returns would be worth the risk, and they were just as obviously wrong. Maybe it’s time they tried something different and hired some actuaries.

Having worked with them for many years, I have tremendous respect for the skills that actuaries bring to the table. Actuaries devote their careers to quantifying and managing financial and other risks, usually for insurance companies and pension plans. They use different mathematical models than the financial wizards of Wall Street and might well have had a different perspective on just how risky the JPMorgan trades were. That’s not why I think investment banks should make use of actuaries’ talents, however. What the actuarial profession can offer, and what Wall Street seems to me desperately to need, are rigorous standards of conduct and practice that are enforced by its membership organizations. Actuaries recognize that their work involves a tremendous amount of public trust and they safeguard that trust by establishing standards for how their work should be done and disciplining the (admittedly very rare) actuary who acts unprofessionally. Taking the good reputation of their profession very seriously, actuaries work hard to protect it.

Actuaries tend to be cautious and may seem like worrywarts to more adventurous types like investment bankers. If JP Morgan’s investors had been required to explain what they were doing to skeptical actuaries, though, the bank might be $2 billion more profitable today. Wall Street needs to do a better job of regulating its own behavior - the actuarial profession could be just the people to demonstrate how that’s done.

Topics: Business Ethics, Corporate Governance, For Actuaries, Lauren Recommends, Risk Management, Social Ethics, corporate responsibility, ethics | No Comments »

Will Wall Street ever learn?

05.15.12 By Lauren

Like everyone else who writes about business ethics, I’ve been following the developing tale of the latest Wall Street bank scandal, this time at JPMorgan Chase. Earlier today, JPMorgan’s CEO, Jamie Dimon, barely survived an effort by shareholders to push him out of office. Seems the shareholders are a tad distressed that the bank managed to lose $2 billion on trades that were supposed to hedge the bank’s other investment risks. (Can’t imagine why they’d feel that way, can you?)

This whole thing is giving me a virtiginous sense of déja vu. Wasn’t it less than four years ago that Wall Street investment banks crashed the world’s economy and brought far too many of us to the brink of financial ruin? And wasn’t it high-risk trading in subprime mortgages that put those investment banks in desperate need of federal bailout money? Can investment bankers really be so arrogant and unwilling to learn from their mistakes that they’re already gambling their shareholders’ money on high-stakes, unreliable investments once again? Personally, I’m with Rev. Seamus Finn, who represented shareholders from the Catholic organization Missionary Oblates of Mary Immaculate at JPMorgan’s annual meeting earlier today. Bloomberg quotes Rev. Finn as follows: “We heard the same refrain: ‘we have learned from our mistakes. This will never be allowed to happen again.’ I can’t help wondering if you are listening.”

Right on, Reverend.

To my mind, we’ve now proven beyond a shadow of a doubt that Wall Street investment bankers are insane; after all, they keep doing the same suicidal thing over and over while expecting a different outcome. Now that they’ve done it again, we’ll move into the next “here we go again” cycle in Washington, where some lawmakers will press for stronger regulation for investment banks while others will insist that regulation stifles growth and limits innovation. JPMorgan has been leading the pack of investment banks pushing for repeal of the Dodd Frank Wall Street Reform and Consumer Protection Act, passed in the wake of the 2008 meltdown, so the advocates for repeal will probably need to find a new champion, at last until the next big thing drives JP Morgan’s financial losses out of the public eye. Personally, though, I don’t think we need more or even tougher regulation as much as we need effective enforcement of existing laws and meaningful internal controls in investment houses. If someone at JPMorgan - Mr. Dimon, perhaps? - had set a policy requiring riskier trades to be limited in scope and strictly monitored, the bank’s $2 billion in losses might have been significantly reduced or even prevented altogether.

Maybe JPMorgan investors are so greedy for enormous returns that they’re willing to gamble billions at a time, but it seems more likely to me that Rev. Finn was speaking for the majority. If I were Mr. Dimon, though, I wouldn’t let this happen again anytime soon and I wouldn’t wait for Washington. He kept his job today but, unless he puts meaningful changes in place at JPMorgan, Mr. Dimon may not be CEO for long.

Topics: Business Ethics, Lauren Recommends, Risk Management, Social Ethics, corporate responsibility, customer relations, ethics | No Comments »

This may the be post that permanently alienates my more conservative readers, but I can’t let this go. The Washington Post reported Thursday that, while in prep school, presumptive Presidential nominee Mitt Romney was offended by the appearance of a younger boy whom the Post described as “a soft-spoken new student one year behind Romney, [who] was perpetually teased for his nonconformity and presumed homosexuality.” The younger boy reportedly wore his “bleached-blond” hair “draped over one eye” and the Post quotes the young Romney as saying, “‘He can’t look like that. That’s wrong. Just look at him!’” According to the Post, Romney gathered a group of his friends and, together, they pinned the boy to the ground and Romney repeatedly clipped his hair with a pair of scissors. The Post reported that five of Romney’s fellow students independently described the event, quoting one of the participants as saying that the younger boy was “‘terrified’” and “‘to this day it troubles me … what a senseless, stupid, idiotic thing to do.’”

So, many years later, what does candidate Romney have to say about this? In an interview on Fox Radio, Romney said, “Back in high school, I did some dumb things, and if anybody was hurt by that or offended, obviously I apologize for that … I participated in a lot of hijinks and pranks during high school, and some might have gone too far, and for that I apologize.” And here’s my personal favorite: “I don’t remember that incident” (italics mine).

Ye gods.

We’ve all done stupid, hurtful things, and when teenaged kids gang up and bully their peers, it’s never pretty. If Romney had offered a sincere apology for bullying a “terrified” younger boy - who has since passed away and, thankfully, was spared the media spectacle around the Post story - I wouldn’t have liked what he did, but I could have forgiven him. But Romney’s half-hearted, conditional apology demonstrates that he can’t or won’t accept responsibility for his actions, and his claim that he doesn’t even remember what happened is downright appalling. This wasn’t just a whacky adolescent prank; five other people reportedly saw Romney assault a younger boy with a pair of scissors, for pity’s sake! How arrogant and unfeeling would one have to be to dismiss such violence from memory?

I’ve come to the opinion that Mitt Romney is a liar, a monster or both, not because he did something vicious as a teenager, but because he doesn’t recognize or won’t acknowledge the seriousness of what he once did. Either way, he doesn’t belong in the White House.

To read the Post story, click here.

Topics: Apologies, Presidential Campaign, Social Ethics, ethics | No Comments »

For those of us who think and write about business ethics, Wal-Mart can be an absolute godsend. Most companies behave pretty well most of the time, leaving commentators with precious little to say. Wal-Mart, on the other hand, can be counted upon to provide plenty of material for those of us who like to use bad examples to teach better practices.

Wal-Mart’s most recently reported faux pas, allegedly bribing officials in Mexico to obtain a larger market share, is a classic example of how U.S. companies should not behave abroad. Mexico undoubtedly has its own laws prohibiting corruption that would be violated by the reported misconduct of Wal-Mart executives. Additionally, the federal Foreign Corrupt Practices Act explicitly prohibits U.S. corporations from bribing foreign officials. Wal-Mart is an enormous corporation with fleets of lawyers on call. You have to believe that its top brass knows better.

Trouble is, Wal-Mart’s alleged ethical slipups don’t seem to do much damage to its bottom line. Just this morning, The Wall Street Journal quoted that magician of the markets, Warren Buffett, as saying that the Mexican bribery scandal hasn’t disinclined him toward investing in Wal-Mart. According to the Journal, Buffett said that in general, someone at larger corporations is always doing something wrong, and that the company’s job is to get the issue corrected. Translation: a scandal may be embarrassing but, unless it seriously impacts a company’s profitability, investors probably won’t care about it very much.

Sad to say, Mr. Buffett probably has it right. When the opportunity for profit outweighs the potential for punishment - and it all too often does - corporate executives will risk illegal or unethical behavior. Even if Wal-Mart were fined under the Federal Corrupt Practices Act, the fine would probably seem a pittance compared to the profits that could be raked in from an expanded Mexican market. If that’s all investors care about, then Wal-Mart’s management will probably continue to do whatever seems most likely to keep the company’s stock price aloft. In short, it sounds as though this latest scandal won’t do any damage to Wal-Mart’s stock price. I just wish that it would.

To read the Journal article, click here.

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

We must recycle plastic!

04.23.12 By Lauren

Yesterday was Earth Day and, in its honor, let’s talk about plastic. My family spent a week in Orlando earlier this month, riding roller coasters, hanging out at the hotel pool and, on one occasion, going to the movies. Instead of indulging in yet another restaurant dinner, we decided to get hot dogs at the movie theater. We were blown away … not by the hot dogs themselves, which were nothing special, but by the enormous plastic boxes surrounding them. Those boxes were sturdy enough to protect the hot dogs from anything short of being run over by a bus, and we used them for no more than fifteen minutes. When we were done eating, we learned that the movie theater had no recycling facilities. As it happened our hotel did, so we took the boxes back and recycled them there. But moviegoers who were less fanatical about recycling or who didn’t have such ready alternatives would undoubtedly have thrown them away, along with plastic spoons, cup lids, straws and what-have-you. That theater undoubtedly disposes of bushels of plastic trash every day, and it’s only one relatively small business in one town. If you stop to think about how much plastic gets used once then thrown into trash cans from which it’s carted to burgeoning landfills across the country, it will blow your mind.

According to the website Recyclaholics.com, almost 12% of U.S. municipal solid waste is plastic, which doesn’t biodegrade. Americans throw away 2.5 million plastic bottles every hour and, unless those bottles are recycled, they’ll sit in landfills until the end of time. Unfortunately, only 5.7% of all plastics are recycled every year, which means that 94.3% of plastics go into the trash and stay there. It’s not only a tremendous blot on the environment, it’s also a ridiculous waste of a precious and non-renewable resource. 10% of U.S. oil consumption is used to make plastic, a statistic that should give anyone pause when gasoline is going for over $4.00 per gallon.

I once heard Al Gore observe that the United States borrows money from China to pump oil out of a hole in the ground in Saudi Arabia so we can burn it and destroy our ozone layer. To his chain of tragic absurdities I’d add that what we don’t burn we pile into mountains of trash that will blot the landscape for generations to come. Honestly, how hard would it be for businesses like that Orlando movie theater to install recycling bins? For that matter, with unemployment still at near-record levels, why wouldn’t we want to create more jobs sorting and recycling plastics and other reusable materials? Instead of continuing to bury our country in waste, we could create jobs, improve our living conditions and reduce our dependence on foreign oil if we’d just recycle our plastic. And, while I’m a huge proponent of home recycling, it’s even more important for businesses to recycle because they generate more waste than individuals do. We have an opportunity to reap a lot of beautiful benefits if businesses will simply make recycling part of their daily operations.

To see the facts on Recyclaholics.com for yourself, click here.

Topics: Business Ethics, Lauren Recommends, Social Ethics, corporate responsibility, customer relations, ethics | No Comments »

Citigroup stockholders made headlines this week when they voted down the Board of Directors’ proposal to award CEO Vikram Pandit a compensation package totalling a cool $15 million. The vote came under the “say on pay” provision of the newly-enacted Dodd-Frank Act, which requires publicly traded companies to allow their shareholders to vote on executive compensation. The vote is non-binding - we can’t allow the owners of a corporation to have too much power, now can we? - but it still sent shockwaves through the financial services industry. (And it appears that the fun is just beginning; earlier today, it was announced that a Citigroup shareholder had sued Pandit and the Board of Directors for breach of fiduciary duty, arguing that Citigroup had paid unjustifiably high salaries in 2011 to the company’s top executives.)

This is one of the first times that Dodd-Frank’s “say on pay” provision has resulted in a “no” vote from stockholders, so the negative vote has attracted a lot of media attention. Personally, I’m only mildly interested in the fact that the shareholders voted Pandit’s package down. What interests me much more is why they chose to do so. There seem to be two schools of thought in the media as to why Citigroup’s stockholders voted thumbs-down on Pandit’s pay. Some commentators see the vote as an important sally in the war to whittle down outrageous executive compensation. Others think that the shareholders were reacting to Citigroup’s poor first-quarter performance and piddling dividends; in other words, shareholders expected to receive a better return on their investment in Citigroup and voted against Pandit’s pay package out of self-interest, not on principle.

While I’ve seen enough greed on Wall Street to suspect that stockholders voted against Pandit’s pay package to punish him for failing to produce better returns, I’d really love to be wrong in my suspicions. The stock market meltdown of 2008 and recession that followed inflicted appalling pain on so many people. I’d love to think that investors have listened to the other 99% and recognized that no one needs to pull down tens of millions of dollars year after year, even if they’re extremely good at what they do. The fact that Pandit wasn’t able to lead Citigroup to a more successful 2011 might be a secondary reason not to lavish money on him, but the primary reason should be that our society will prosper better if our collective riches are distributed more equitably. CEOs should make good money, but they don’t need to receive the equivalent of a national lottery win every year.

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

Today’s AOL Daily Finance features an article titled, “3 Big Lies Food Companies Are Feeding You.” At first I was surprised to see it, because the law prohibits food companies from actively misrepresenting the contents of their products. Upon reading the story, however, it became clear that the food companies’ “lies” weren’t affirmative falsehoods, but failure to describe in blunt terms ingredients that might offend consumers.

Here’s the rundown: chickens rountinely get fed caffeine, arsenic and active ingredients from several medications, and it’s not clear whether consumers injest those substances with their chicken nuggets. Many ground beef products contain beef trimmings that have been treated with ammonium hydroxide, a substance disparagingly nicknamed “pink slime.” And then there are foods that contain “genetically modified organisms” - which can include a whole range of agricultural products - that some pundits refer to as “Frankenfoods.”

From a business ethics perspective, the story troubles me in two respects. First, I think that food producers should be straightforward about the contents of their products so that consumers have a reasonable hope of understanding what they put in their mouths. If ingredients are unappealing or scary, diners should have the right to reject them, but they can’t exercise that right if they don’t know what they’re eating.

But second, I wish AOL Daily Finance had chosen a more accurate, less sensational title for the story. Food producers may try to put a benign spin on unappetizing ingredients, but that doesn’t mean they’re outright lying. By accusing food companies of intentionally deceiving consumers, AOL gave those food companies grounds to whine about being victimized by the press, which can be a great tactic to deflect legitimate criticism of questionable business practices. AOL’s chosen title was no more straightforward than the marketing practices the article condemned.

To read the AOL article, click here.

Topics: Business Ethics, Social Ethics, business communications, corporate responsibility, customer relations, ethics | No Comments »

For the past few weeks, I’ve dedicated my Friday posts to examining questions of social ethics. The questions of why we do the things we do, favor some people over others, and tolerate (or even encourage) some kinds of inequities strike me as more vital than ever at a time when our society seems so angry and outraged.

One of the questions that has troubled me for a long time is why people choose to battle and blame one another when things go wrong. As an attorney, I’ve seen the soul-wrenching damage that litigation can do. Fighting in the courts is a lousy way to solve problems, and it makes healing almost impossible as long as the lawsuits go on. That’s why I wrote The Art of the Apology . I think it’s critically important for individuals, companies and governments to be able to admit to mistakes and offer sincere apologies that promote genuine forgiveness and reconciliation. Life is too short to waste a minute of it on bittterness and bad feeling.

So, I’m particularly delighted to tell you about a project that could make an enormous, positive difference in people’s lives. Shawne Duperon, an Emmy Award-winning producer, is gearing up to make a film documentary all about forgiveness. The incident that inspired her to make the film is described at ProjectForgive.com, and it’s absolutely heartwrenching. (No, I’m not going to describe it … go check out the website and see for yourself.) Shawne’s looking for sponsors and, judging from the trailer on the Project Forgive website, this film is going to be fantastic. I’ve already pledged to support the production, and hope you’ll consider doing so, too.

The way I see it, we have a choice. We can continue fighting, holding grudges, and nurturing our self-righteous indignation when people make inevitable, human mistakes. Or we can choose, individually and as a society, to recognize that forgiving one another is essential if we’re going to live well together. Please take a minute to check out Project Forgive. Whether you pledge or not, its message will give you a moment of wonderful hope.

To view the Project Forgive trailer, click here.

Topics: Apologies, Lauren Recommends, Personal Ethics, Social Ethics, ethics | No Comments »

How much should an e-book cost?

04.12.12 By Lauren

Yesterday, the Justice Department filed a civil antitrust suit against computer giant Apple and five major publishers (Hachette, HarperCollins, Macmillan, Penguin, and Simon & Schuster), accusing the defendants of artificially inflating the prices of e-books. According to news reports, Hachette, HarperCollins and Simon & Schuster have already settled the suit, leaving Apple, Macmillan and Penguin to fight on. DOJ alleges that the publishers secretly met with Apple representatives, including the late Steve Jobs, to discuss how to prevent Amazon from undercutting them on e-book prices. Their concern was very real - at the time of the alleged meetings, Amazon controlled 90% of the e-book market and actively enforced a policy setting the cost of most e-books at $9.99 or less no matter what the authors or publishers of print editions wanted.

As an attorney, I find it interesting that DOJ thought it was more important to prevent publishers from teaming up with Apple than it was to prevent Amazon from engaging in what might be considered predatory pricing. (Full disclosure: Amazon sells my book, The Art of the Apology, at the cover price.) What interests me more, though, are the ethical questions around the pricing of e-books. Should they sell for whatever consumers will pay? Should they cost less than printed books because they’re produced and distributed free of any cost of materials? Or should consumers pay more for the convenience of being able to upload a digital e-book at any time and almost any location? (One of the benefits of an e-book is that the seller never runs out of stock.) Would it be better public policy for e-books to cost less because they don’t end up in landfills? If so, who should make that decision? And who should determine the price of an e-book? Should it be online vendors like Amazon, who have a strong sense of what the market will bear? Or should the price of each e-book be determined by its author and publisher?

The digital revolution has flummoxed the publishing industry and stretched traditional copyright laws to the limit. As someone who loves books, both print and digital, I’m excited to be around to witness the revolution in how books are produced and distributed. Whenever massive change occurs, though, ethical questions come with it. This would be a very good time for authors, publishers and vendors to engage in thoughtful discussions about how to navigate the ethical issues that accompany the publication of e-books so they can agree on defensible solutions. And, if they want to avoid legal difficulties, it might be wise to invite someone from DoJ to sit it.

Topics: Business Ethics, Legal Ethics, Social Ethics, corporate responsibility, customer relations, ethics | 1 Comment »

As events surrounding the shooting of Trayvon Martin continue to unfold, I become increasingly concerned about how news reports may distort the outcome. By law, George Zimmerman, the man who reportedy shot Trayvon Martin, is innocent until proven guilty. He hasn’t even been indicted yet. Unfortunately, hard lines have already been drawn between people who are convinced that the justice system is unfairly sheltering Zimmerman because the boy he shot was African-American and people who believe that the justice system is being strong-armed into prosecuting Zimmerman because the boy he shot was African-American. Both groups believe that racism is warping the process, which means that someone is going to be angry and disappointed whether Zimmerman is ultimately convicted or exonerated.

It hasn’t helped that we know so little about what really happened the night Trayvon Martin died. One witness is dead, the other is claiming self-defense, and so far it doesn’t appear that anyone else saw enough to reliably describe what occurred. That hasn’t stopped the press, though. We’ve been treated to hours of reports on the impact that the shooting has had on the Martin family (who deserve our deepest sympathies), the credibility of the local police, and angry protests from both sides. The worst story came from NBC News, when a producer edited a 911 call that reportedly occurred between Zimmerman and an emergency worker in a way that made Zimmerman’s interest in Trayvon Martin seem more racist than it did when the entire call was played. NBC has apologized and fired the producer, but the report still threw unnecessary fuel on an already inflamed situation.

We don’t know what happened between Trayvon Martin and George Zimmerman. We may find out if Zimmerman is put on trial, but we’ve seen from other high-profile cases that criminal trials don’t always provide satisfactory explanations. I believe that the media would be more responsible to wait until there are actual facts to report before trying to cover this story. If nothing else, premature news coverage may well make it more difficult for Zimmerman to receive a fair trial which, in turn, could call the legitimacy of any verdict into question. Zimmerman certainly has a stake in making sure he’s fairly treated, and so do the rest of us if we want our legal system to be credible.

There’s another crucial aspect to this situation, though, and it needs to be thoroughly reported. The media should directly address the societal tensions that have made this case so important to the nation. Some people apparently believe that racism, institutional and personal, is a thing of the past. However, the outrage sparked by the failure of Florida police to immediately arrest George Zimmerman says otherwise. It’s clear that a great many good people believe that racism is still very much an ugly part of American culture. Their concerns need to be heard, respected and meaningful action needs to be taken to address them. If the press is genuinely interested in finding justice in this sad situation, they should report on the tragic truth that entirely too many Americans believe they can’t trust society to treat them fairly because of the color of their skin.

Topics: Lauren Recommends, Legal Ethics, Professional Ethics, Social Ethics, ethics | No Comments »

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