Ethics Pledges and Buy Local: Efforts to Revive the Economy

Being immersed in the financial turmoil with daily news that failed to show any signs of comfort, I wish to extract from the community, efforts that would bring hope and encouragement. In this entry, I examined a post entitled “Kudos to Dove for its Campaign to Real Beauty” by Lauren Bloom, founder and CEO of Elegant Solutions Consulting. Bloom drew attention to how Dove shed beauty stereotypes through its campaign. In response, I discussed on “ethics pledges”, a growing phenomenon in the United States, which added onto Bloom’s discussion of Dove’s ethical business practices. Next, I responded to a post entitled “Ethics of Supporting Your Local Economy” by Chris MacDonald, Ph.D., professor at Saint Mary’s University in Halifax. MacDonald criticized on the public’s “buying local” actions in response to the economic crisis with sound arguments, which I did not fully agree with. My responses to the posts and links to the two blogs can be found below.

Kudos to Dove for its Campaign to Real Beauty
Comment

With no doubt, I am as sick of the whole financial crisis as you are. News on the minimal progress (or not) of acts to help revive the economy is getting on my nerves and I am glad that you brought up the actions of a company that walked the ethical path. Dove’s self-esteem fund, Campaign for Real Beauty (see left), definitely injected a positive note into the business realm. I agree perfectly to your description of a particular beauty ideal, “a swizzle stick with foot-long lashes, artificially bronzed skin, a perpetually windblown mop of hair, kamikaze nails and teeth that look like well-glazed sugar cubes. Even professional models don’t really look ‘like that’ until they’ve been worked over for hours by a small army of stylists, then digitally edited, airbrushed and distorted into ‘perfection’.” Dove made a bold move to free ladies out of beauty stereotypes and promoted the idea to embrace all definitions of beauty.

In fact, adding on to your encouraging discussion as well as relating to a recent post on my blog about the inattention to ethics and social responsibility in many MBA programs, I would like to bring up evidence on the escalating awareness society has on corporate social responsibility issues. A growing phenomenon known as the “ethics pledge” had drawn society’s notice on the subject. The Graduation Pledge of Social and Environmental Responsibility originally from Bentley University, Massachusetts, advocates the idea “to explore and take into account the social and environmental consequences of any job one consider and will try to improve these aspects of any organizations for which one works.” The organization provides materials and resources to teach students how to set up on-campus campaigns and helps students navigate tough choices that might come across during their careers, while keeping in mind commitments to ethics and social responsibility. More than a hundred schools and colleges are using the pledge.

Another pledge which is catered to business leaders, the Business Ethics Pledge, founded by Shel Horowitz, begins with “I pledge allegiance, in my heart and soul, to the concepts of honesty, integrity, and quality in business.” It allows leaders to sign electronically and advertise their businesses online by making the ethical vow. The pledge was established based on the belief that “businesses are more likely to succeed when they base themselves in ethics—in honesty, integrity and quality.” It is about changing the world and creating a climate where businesses are expected to behave ethically, and the fact that executives who try to drag their companies into the unethical swamplands will find that nobody is willing to carry out their orders. Of course, these ethics pledges are not and will not be the cure to economic turmoil. However, by encouraging pledge of allegiance to change the culture of doing business may not be such a bad idea. Just like Dove’s Campaign for Real Beauty, it has to start somewhere.

Ethics of Supporting Your Local Economy
Comment

Your post brought about sound arguments against encouraging the public to support local small businesses instead of contributing to national corporations’ economic activities, with response to an article in the Wall Street Journal: How the Locals are Trying to Save Small Businesses. However, I am hesitant to concur in your reasoning. First, you assumed the idea of supporting local businesses to be people’s notion that “economic benefit to own community is more important than economic benefit to other people’s communities,” and that “stores and factories and jobs in your own community might well be more important to you than stores and factories and jobs in other people’s communities.” It seemed unfair to presume that was the attitude behind the public’s campaign of “buying local” (see right). Helping local small businesses contributes to the national budget just as it would if the money goes to national corporations. In addition, I believe the campaign could even boost national spending in the sense that it arouses the public’s emotional connection with its own community, hence more willing to spend in support of local businesses.

Second, you suggested if every community engages in “buying local”, there will be “little change in net purchasing, but there could be serious reductions in efficiency and hence net decrease in total utility.” Yet in fact, I would say the campaign serves as a means to encourage and promote purchasing from local merchants, not by any means forcing people to do so. Using the example in your post, yes, the campaign suggested people in Town A gets good shirts and lousy pants, while people in Town B gets good pants and lousy shirts. However, it did not impose a rule saying people in Town A cannot buy pants from Town B and vice versa. If there is a need, people are free to spend their money however they desire. I believe the campaign acts as a medium to draw people’s awareness to locally produced products and encourages merchants to learn from each other to increase their products’ competitiveness in the market. For the sake of illustration, going along with your example, the campaign allows people in Town A to recognize the existence of businesses that produce pants locally as well as gave an opportunity for those merchants to learn from Town B’s quality pants production. All in all, I definitely understand your concerns, however, I do see a lot of positives that come along with “buying local”.

MBA Programs: Source of Financial Crisis?

With all the heated discussion of greedy bankers and guilty fraudsters, some people have been looking to business schools as a potential culprit of the current financial mess. A recent article in the New York Times, entitled "Is It Time to Retrain B-Schools?", published a stinging criticism which highlighted the failure of schools, in particular MBA programs, to focus their students' skills and attention on nothing more than short term shareholder value. Not surprisingly, the publication aroused a lot of debates, not only from the business school community, but also among the broader readership of the paper. Most comments agreed the financial environment we are emerged in now is traceable to MBA programs’ neglecting the topic of ethics in their curriculum, drawing from the fact that the CEOs of corporations who brought their companies down in the recent crisis all attained an MBA degree from a well-known institution. While I do acknowledge the fact that the MBA programs suffer from “an over-emphasis on the rigor and an under-emphasis on relevance,” according to Warren Bennis, a professor of management at the University of Southern California, I believe the inappropriate decisions those CEOs made should primarily be accredited to their own personal judgment.

The arguments towards why MBA programs are responsible for the current financial mess all began by short-listing a bunch of company CEOs who owned a MBA degree, yet failed to save their companies with their expertise during this critical environment. Then the line of reasoning continued by criticizing the education encouraged a scientific approach to business, assuming that the business profession could be nailed down in a textbook. By preaching a set series of formulas, schools encouraged students to believe that running a company could be mastered by anyone. Yet, in reality, management is a skill that is acquired through experience, judgment and flair. In addition, the intellectual tools that led us into the financial meltdown were largely invented within academia. Ken Starkey, a management professor at Britain's Nottingham University School of Management, pointed out that the economic models developed by business-school faculty were crucial to the massive trading of complex financial products that now are crippling banks. “They've been absolutely at the forefront of delivering a new financial system which was relatively untested, a financial system which has taken us into uncharted waters,” he said. The business schools neglected to address the issue of risk management. By doing so, they encouraged a whole generation of young men and women to go into investment banking armed with the belief that either they had mastered risk or worse yet, not acknowledging the factor at all. The truth, of course, turned out to be hugely different.

The reasoning continued by stating the schools created a managerial elite that acted like a caste apart. One reason the bonus culture ran out of control, with news of top executives running away with large sums of money when their companies are at a dire state, was that many of the people involved were engaged in a mindset: they thought guaranteed bonuses, private jets and multimillion-dollar compensations were normal. This thought-process began with assumptions that an MBA degree would guarantee a fabulous career and financial return. A survey done by CNNMoney.com in 2008 illustrated where MBA students expect themselves to go into after graduation, all of which are multi-billion corporations. Another survey compiled in the same year investigated on the expected salary of MBA students upon graduation. There were two interesting aspects in the results: one, there was an increase in salary expectation from 2007 to 2008 (see right); second, students expected their salary to double five years into their career.

While I agree to a great extent the criticisms in the New York Times article, I believe it is unfair to assign all the blame to business schools and their MBA programs. For all it matters, an MBA degree is simply another qualification, a stepping-stone for one to land a good, well-paid career on Wall Street. "People don't behave like jerks just because they spend two years in business school," said Matthew Stewart in his article. True, companies who did not survive in this crisis all seemed to have a CEO who graduated from a renowned MBA program. However, correlation does not necessarily mean causation. Go through the records, and we would probably find that most of them also did finger painting in kindergarten. My point here is: it is unfair to point the responsibility solely to MBA programs and condemn their value. In fact, I would say the general MBA curriculum has made the necessary efforts to incorporate the issue of ethics. All in all, there are limitations to courses in an MBA program consisting simply of professors lecturing students in a classroom setting. While professors try to bring in real life case studies into their class discussion, there are infinite amount of factors that could not be predetermined in a situation which could perhaps drastically affect one’s decision making. As Dwight Crane, Professor of Business Administration, Harvard Business School expressed in an interview, “Students need to gain an understanding of the real-world implications of their own professional actions, something that can seem highly abstract.” There is knowledge that could only be attained through real-life in-person experience. A random example would be a CEO’s decision of whether or not to fire an unproductive manager who has, however, serviced the company for a long period of time. Schools would definitely teach students firing the manager is the right thing to do. Yet, external factors were not considered in the discussion. Due to the fact that he has been with the company for quite some time, the manager’s dismissal would cause discontent among workers and possibly even a labor strike. In addition, firing the manager could hold up the company’s operations; send a sense of restlessness amongst employees; encourage buyers to switch out because of management instability, and so on. As a CEO, one has to be attentive of how his decision affects the different departments and operations of the company. Hence, the CEO has no choice, in a way, than to retain the unproductive manager.

I believe with regards to ethics, business schools are in the role of promoting awareness on the issue, and not guarantee every MBA student who graduates is equipped with the ability and desire to make the perfect choices as a leader in a corporation. As Alan Morrison, a finance professor at Oxford University’s Said Business School said, “I could teach you how to use a gun for good or for ill, and I can teach you how to create a financial product. How you use that skill is down to you.” Business schools for sure drew those CEOs’ attention to the issue of ethics and advocated the importance of upholding it when making business decisions, yet the desire to adhere to that still lies within the CEOs themselves. "We cannot take credit for their success one day and then the next day pretend we are devoid of responsibility when we witness such widespread failure of leadership."suggested Dr. Angel Cabrera, president of Thunderbird School of Global Management , As much as we criticize the CEOs' responsibility for the financial turmoil, we should be fair in recognizing their contributions to corporations, and efforts of trying to prevent the situation from happening. Instead of putting the blame on business schools, CEOs should take the initiative to evaluate themselves and revisit the values that came with the MBA degrees attained.

CSR commitment: Go Green Attempts by Google and Ford

For the last few weeks, I drew attention to unethical practices in the recent business realm. This week, I hope to bring a more positive note to the issue of business ethics. In this entry, I used Google and Ford Motors as examples to demonstrate encouraging corporate practices. I examined a post entitled “Planet 2050” by Dr. Leslie Gaines-Ross, Weber Shandwick’s Chief Reputation Strategist, who strongly promoted corporate social responsibility through the use of clean energy. Ross also brought out the issue of reputation building through corporate social responsibility. Next, I responded to a post entitled “Outsourcing Pollution, With No Thought for Ethics” by Shel Horowitz, who is an author of several business related books and is hoping to emphasize in his blog: ethics as a success driver. Horowitz’s post discussed on companies outsourcing to countries such as China and India, in hopes to take advantage of the low cost production and absence of anti-pollution laws. My responses to the posts and links to the two blogs can be found below.

‘Planet 2050’
Comment

Your post provided sound arguments against skeptics who argued that green business would be an early casualty of the credit crunch. Without a doubt, “the fit for purpose company will be an environmental leader, ready to embrace a new world order.” And the new world order is running in the trend of going green and environment sustainability. This is not a temporary trend. Companies who advocate the trend of going green and prove success in its environmental protection practices would excel and lead the industry. In addition, I agree completely that “corporate responsibility is a fundamental element of corporate reputation-building.”Allow me to add on to your discussion using Google as an example.

Google released its Clean Energy 2030 plan (see left, above) last fall. It says the country can generate 30% of its electricity from renewable sources, mostly wind and solar, by 2030, and in so doing replacing all coal and oil electricity generation, and about half of that from natural gas. Google itself has venture capital investments in start-ups in solar power, wind and wave energy. The goal to generate 30% of electricity from renewable sources might seem overreaching, and critics argue that the company neglects shareholder value. However, at the Wall Street Journal’s ECO:Nomics Conference in Santa Barbara, California, Eric Schmidt, Google’s CEO, insisted the net benefit of Clean Energy 2030 to the U.S. economy would amount to around $4.4 billion. He believes that the recent financial turmoil should not be a reason to put the plan on hold. “Change does not occur when things are going well,” he says. “Change occurs when people are scared. This is the time to have this conversation. Shareholder value in a company is created at the end of everything we do.” Utilizing renewable sources, although with high initial capital investment, is more profitable in the long term. Schmidt says, “Green energy, done right, is more profitable than the old kind of energy. Lower costs cause more earnings for shareholders.”

In addition, the Clean Energy 2030 plan does not only build on energy saving issues. As the plan develops, Google claims that around 9 million jobs will be created. The news is a strong boost to society morale amongst the recent announcements of layoffs in the market.

I believe Google’s active role in advocating clean energy explains why the company is continually ranked first in the list of 100 Best Companies to Work For and has an exceptionally high reputation in the industry. Its reputation is tied to its commitment in corporate social responsibility.

'Outsourcing Pollution, With No Thought for Ethics'
Comment

Your post is of intriguing thought. It has never occurred to me that corporations are “shifting our manufacturing operations overseas, not only because of lower costs, but also because these countries do not have effective anti-pollution laws.” It is especially true to say, “when there’s money to be made, it’s understood that you want to be among the profits.” During the recent economic turmoil, news such as the peanut salmonella outbreak and the Satyam scandal, exemplifies corporations and executives’ single mindedness on boosting sales and profit making. While it is true that some corporations rank profits over ethical values, I would like to use Ford Motors as an example to demonstrate its commitment to the environment and how it upheld corporate social responsibility over the years.

The world is all about going green and saving the environment now. People are shocked by the fact that the environment they are living in might not be able to endure the damages we are making any longer. In response to that, hybrid cars seemed to be the new hit item. Just this spring, Ford Motors introduced Ford Fusion, a retooled, restyled, fuel-efficient midsize car. Despite its $5.9 billion loss in the fourth quarter of 2008, that it is revamping its balance sheet and a share of its stock costs less than a Big Mac, Alan Mulally, CEO of Ford Motors (see right, above), still pushed forth the higher capital investment of producing hybrid cars. In this year’s Wall Street Journal’s ECO:Nomics Conference in Santa Barbara, California, Mulally was introduced as “the one American auto industry CEO who is not taking bailout money.” Mulally admitted that “the hybrids are very tough economically.” While the company might not be doing well in its financial books, Ford is still considered as an industry leader.

In fact, Ford Fusion is not the company’s first attempt to stir itself to a more environmental friendly corporation. As early as 1983, Ford launched the Ford Conservation and Environmental Grant award, which aims to encourage and commend environmental programs. The award was made global to include China in 2000. In addition, William Ford Jr., Ford Executive Chairman, along with Alan Mulally, announced that they would take a 30% pay cut for the next two years. Ford’s board of directors will also drop their compensation for two years and there will be no more performance bonuses for salaried workers and senior executives. Ford and Mulally believed that “these are necessary actions to help us emerge as an even stronger, profitably growing Ford Motor Company for the benefit of us all.”

I believe Ford Motors is a great example of sound management team and corporate social responsibility. I hope this adds some optimism that maybe there are still companies out that who would not sacrifice their morals for profits.

The Satyam Scandal: The Past and Future of India's Economy

The heated wave of criticism against Bernie Madoff has barely came to a conclusion when, as the global media reported, another round of scandal emerged. The “Indian Madoff”, Ramalingam Raju (see left), the chairman of India’s fourth-largest IT company Satyam Computer Services, shocked investors with a letter that admitted his culpability of compiling fraudulent financial statements. This announcement to the public not only caused investors to scramble to retrieve their investments, but also put a red light over the worldwide confidence on India’s vast economic growth and success in its niche IT market. Ironic enough, the Obama administration issued a budget letter for fiscal year 2010 last week, stressing that the economic blueprint should be as much about morality as fiscal policy. Maybe this serves as a wake up call for Indian regulatory bodies; a time for Indian corporations to shed their outdated and controversial methods of doing business and learn from the success of respectable corporations around the world. In the subsequent analysis, instead of laying out the logistics of the Satyam scandal from beginning to end and the public criticisms against the company’s management team, I wish to embark on a road less traveled and examine some issues that are worth our attention. In particular, I believe there are creditable lessons to be learned from the scandal. While there are certainly external factors which hinder the economic growth of India such as the poor market environment and power of suppliers that governs the production rate of the country, I believe India should take steps in strengthening its internal operations and culture for the sake of a better future. Through the discussion, I hope to suggest ways that India, in its vibrant stage of economic growth, can potentially rise to a powerful position like the United States and contribute to the global economic realm.

In Raju’s startling four-and-a-half page letter to his board of directors as well as the Bombay stock exchange, he uncovered the fact of inflating the amount of cash on financial statements by nearly one billion and incurred a liability of $253 million on funds arranged by him personally. In Satyam’s quarterly report for September 2008, he overstated revenues by 76% and profits by 97%. Upon submitting his resignation, Raju confessed personal inability to close a small discrepancy that grew beyond control. “What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew significantly,” he wrote. “It was like riding a tiger, not knowing how to get off without being eaten.” The question is: how did Raju get away with all this fraud? I suggest we trace the cause back to the legacy of License Raj, a period of heavy government intervention and bureaucratic control of the economy from 1947 to 1991. During that era, India's GDP growth rate was as low as 5%, lowest among developing countries and more than half of China's. Businessmen were forced to work with politicians and pay bribes to regulators and government. Companies often run separate accounts to avoid taxation. Wharton management professor Jitendra Singh said in an interview, “In the bad old days, particularly pre-1991, when the License Raj held sway, and by design, all kinds of free market mechanisms were hobbled or stymied, and corruption emerged almost as an illegitimate price mechanism, a shadowy quasi-market.” All in all, corruption was prevalent and the level of ethical standards was very low in India. Yet, corruption was not the sole reason for India’s economic failure. Corruption led to the emergence of a trend, whereby people lost incentive on product development and focused instead, their energy on cultivating people in positions of power. In the years following 1991, although India engaged itself in an economic reform, such distorted cultural norms remained in existence in society. Even though government control loosened up over the years, and significant economic growth occurred in India, corruption was not seen to have decreased. Faster growth gave regulators and governmental bodies new grounds to extract payments, such as land regulation, spectrum allocation or college admissions. In order to be competitive in the international market, companies need efficient approval from the government. This also gave regulators much more leverage over private institutions. In a survey by Transparency International in 2005, India was ranked 89th in the Corruption Perception Index, with a CPI Score of 2.9 over 10 when the average is 4.1.

Corruption could be a significant brake on India’s economic rise. CLSA India analyst Bhavtosh Vajpayee called the scandal “an accounting fraud beyond imagination and an embarrassing and shocking episode in Indian corporate governance.” The Satyam scandal undoubtedly shook India to the core. It pulled out many issues that the Indian government and corporations are facing. It brought to the attention of the public that their investments and trust are not safe in the hands of Indian corporations. It raised one prominent question: Is the Indian economy doomed under such vicious state of economic environment? Possibly, and if so my suggestions to rectify the situation would be: first, to reform the economic system in the country; and second, to learn from the United States. To begin with, a thorough reform is definitely necessary. Propositions should be made to govern the relationship between institutions and regulatory bodies. Detailed codes of conduct should be established and firmly adhered to. Regulatory bodies should be set up to make sure fairness is upheld. Simply take a well-developed country as an example, the mentioned criteria are inherent in success of those countries. Such reform is necessary if India hopes to gain significant growth and a solid position in the international economic realm.

The next aspect is to learn from the United States. I am not suggesting that the United States is free from corruption and unethical practices. In fact, from a recent research conducted by the Marist College Institute for Public Opinion in New York, nearly 60% gave the worst grades to Wall Street executives for honesty and ethical practices. Yet, my point is, despite the economic downturn and financial instability, the Obama administration signaled a candid call to return to ethics and responsibility in his 2010 budget titled A New Era of Responsibility - Renewing America's Promise. Obama's message in the budget says, "The time has come to usher in a new era— a new era of responsibility in which we act not only to save and create new jobs, but also to lay a new foundation of growth upon which we can renew the promise of America." In a website documenting Obama’s campaign, it laid out Obama’s ethics rules which included the creation of a centralized internet database for lobbying reports and ethics records; establishment of an independent watchdog agency to oversee the investigation of congressional ethics violations, and; restrict political appointees on their participation of regulations or contracts directly relating to their prior employer for two years. The Obama administration took solid steps to address the issue of ethics in his political regime. This is crucial in setting an example for institutions in their establishment of corporate governance. It also lays a foundation for the Indian government and corporations on the approach necessary to succeed and rise to power. Drawing from the United States’ biggest accounting fraud, the Enron fiesco, the country swiftly acted on and corrected its accounting systems to avoid similar issues happening again. India should respond to its problem of corruption with the same attitude. All in all, it definitely will be a tough process to bring India out of its corruption practices and into the international business realm. However, with persistence, India will one day come out of its shell and become a butterfly.

The Bailout Plan: Bailing out corporations or top executives?

The recent financial turmoil has undoubtedly put the world in chaos. With multi-billion dollar corporations filing bankruptcy and announcing mergers that are critical in order to maintain existence in the business realm, the government is throwing out billions of dollars at the expense of taxpayers to avoid the demise of those bulge-bracket corporations. Amongst the heated discussion with bailout plans for the collapsing corporation, top executives were found running away with millions in compensation and living lavishing life amidst the crisis their companies are facing. With regards to this, Obama imposed a $500,000 mandatory salary cap for top executives. This generated another heated wave of complains from top executives, demanding to be compensated with better terms. In this blog, I examined a post entitled “Shameful.” by Andrew Crane and Dirk Matten, two business professors in York University, Toronto, who compared the idea of corruption in poorer countries to executives demanding additional compensation with regard to Obama’s $500,000 mandatory salary cap proposal. Next, I responded to a post entitled “So, you really can’t manage on half a million?” by Lauren Bloom, founder and CEO of Elegant Solutions Consulting, where she heavily criticized on the executives’ threat against Obama’s limit on their salary. My responses to the posts and links to the two blogs can be found subsequently.

‘Shameful’.
Comment

The example brought about with the corruption perception index is a very stimulating idea. How shameless it is for bankers to take home bonuses from bailout funds financed by the government, which came out of taxpayers’ pockets, when the bankers were the ultimate culprit of their companies’ failure. You mentioned, “This ‘height of irresponsibility’ (Obama) will ask for new rules for the game. Obama will hardly avoid addressing this problem of executive compensation.” Obama certainly took a firm stance in the issue fairly swiftly. He imposed a mandatory salary cap of $500,000 a year for top executives who resides in companies that receive funds from the bailout plan, whereby additional compensation to come in the form of stock.

I agree completely with the idea that, “Being rewarded for success – fine. But more often than not, the link between stock prices and individual managers’ performance is more than tenuous.” Yet, as this compensation issue continues to unfold, it is all the more upsetting, and shocking, to read news reports that these executives are actually exploring ways to go around the salary cap that Obama imposed. They threaten to pull out stakes and resign from their positions if the Obama administration formalizes those limits. Honestly, how much more shameless can these executives be? In fact, most of my friends who just graduated make around $50,000 annually as they enter the workforce, one-tenth of the proposed half-million dollar annual limit. To think these top executives would be about to find a position with better pay in this market is like kids believing that Santa exists.

I believe people who should be running corporations should not be these bankers who seem to be motivated solely by the instrumental satisfaction of attaining great financial compensation. There are abundant amount of qualified people who are willing to put in a hard day’s work for the opportunity to be part of a multi-billion dollar, bulge-bracket corporations, for reasons that go beyond financial satisfaction. These people understand that there are times when money cannot trade for satisfaction. They understand that past a certain threshold, money provides little satisfaction. What they want is to make a difference in the world. And I believe these people, who have a far more profuse and concrete prospect of the company, should be the very ones running multi-billion dollar corporations. Perhaps this issue will have a cleansing effect in the highest reaches of corporate power, as the greedy step down to make room for the virtuous.

So, you really can’t manage on half a million?
Comment

I am in complete agreement with your position in this compensation issue. Like you said, “running your business into the ground was a firing offense, not a reason to demand a higher salary.” I was doing some research on the web, and I came across the Stakeholder Theory. Allow me to share it here with you. The Stakeholder Theory is a business ethics theory that addresses the morals and values in managing an organization. In general, it suggests that when making decisions, whether major or minor decisions, companies should consider the interests of its stakeholders – that is, the interests of individuals who have invested in the fortunes of the company. If we adhere to this theory, all taxpayers are now stakeholders of companies which received bailout funds from the government. Those top executives who are compensated with the bailout funds should be reporting to the taxpayers. And by demanding for more compensation, they are being irresponsible and inconsiderate with the interests of their companies’ stakeholders.

Without a doubt, those top executives whose morals are blinded by attaining the greatest possible financial rewards should be heavily criticized. And I agree to Obama’s $500,000 mandatory salary cap proposal. However, I suggest Obama to make amendments to the proposal. As with the current proposal, a $500,000 mandatory salary cap for top executives might put pressure on the recruitment of talented individuals that are capable to lead corporations out of the financial crisis. In addition, potential investors might be reluctant to lay their money on corporations without a sound management team. This in turn, transfers the pressure to taxpayers, as the government continues to bailout companies with funds from taxpayers. I believe executives should be rewarded by success, possibly in financial terms. Hopefully, the economy turns around soon enough, and my suggestion is that those executives who have the ability to rescue their firms out from the turmoil should be rewarded with a certain percentage of the company profit, while the rest goes to repaying taxpayers. This sounds more like a fair deal, right?

The Peanut-Salmonella Oubreak: Who's the culprit?

Every CEO talks about how his company practices ethical business practices; every company website has a page dedicated to promoting corporate social responsibility and explaining how the company plans to take a role in it. Yet, with the recent news of milk powder produced in China caused kidney failure in over a thousand babies; the issue of miniature bonds in Hong Kong from Lehman Brothers without clearly explaining the risks to investors, mostly middle-aged men and women, left investors without a penny as the company filed for bankruptcy towards the end of 2008; Two partners from PricewaterhouseCoopers in India was arrested for knowingly approving an overstated profit statement and creating a fictitious cash balance of more than one billion for Satyam Computer Services Limited; the Salmonella outbreak in peanut butter that sickened hundreds and caused the deaths of nine; and so on, the term “business ethics” rises to fame once again.

Jerry Greenfield, along with his partner Ben Cohen, were the founders of the all-time famous ice cream shop Ben & Jerry’s (see right). The company is considered by the public as one that exemplifies corporate social responsibilities. During an interview with Greenfield, he explained that the mission of Ben & Jerry’s was “to make quality ice cream, always conduct business responsibly and have fun doing both.” Every year, aside from financial profit and loss statements, the company produces an equally scrutinized report that measures its philanthropic work. When he was asked to comment on the recent outbreaks of unethical practices in the business realm, he said, “Traditional businesses measure success by how much money they make. Even in business schools today, students are taught that the only legitimate purpose of business is to maximize profits. I think that’s what leads to companies doing essentially anything, whether legal or unethical, in their single minded pursuit of profits.” As with the scripture of Confucius, greed, among other emotions, “dominate the soul, causing blindness and leading to destruction.”

But is that the whole story? Should the company involved in unethical business practices be the sole culprit for causing societal disruption and breach of customers’ trust? Take the Salmonella outbreak in peanut butter case as an example. It is definitely one of United States’ most high-profile tainted food cases in decades. The outbreak began on December 21, 2008 when Shirley Mae Almer, 72, died in Brainerd after eating peanut butter tainted with salmonella. Her relatives filed a lawsuit against the distributor King Nut Cos. saying Almer’s death was a direct result of eating peanut butter infected by a salmonella strain linked to the nationwide outbreak. In the weeks following, the Food and Drugs Administration and other federal agencies immersed in vigorous investigation and were able to trace the contamination source to the Peanut Butter Corporation of America (PCA), a peanut processing (see left) company and maker of peanut butter for bulk distribution to institutions, food service industries, and private label food companies. Evidence showed that Stewart Parnell, president of the PCA, emailed his employees and urged them to ship out products that he acknowledged as salmonella-tainted foods. As Greenfield said, it was his “single minded pursuit of profits.” With no doubt, such unscrupulous act by the PCA was heavily criticized. Numerous lawsuits were filed against the PCA and the company eventually filed a Chapter 7 bankruptcy petition in the U.S. Bankruptcy Court for the Western District of Virginia.

This might be the story most people know about. However, there is another side of it. In fact, dating back to 2006, there were already issues concerning the PCA. Four inspections by the Georgia Department of Agriculture cited repeated violations at the Georgia plant of the PCA. The violations included food residue buildup and improper storage on floors. In 2008, seven samples taken at the PCA were tested positive for salmonella. In both cases, in addition to various minor issues discovered during the period, the Georgia Department of Agriculture did not take concrete actions or report the PCA’s violations to a higher level of bureaucracy. In cases where samples were tested positive for salmonella, the products were shipped out after a retest of negative. The nationwide salmonella outbreak exposed the fact that nobody was required or believed it was necessary to notify health officials at the sight of deadly salmonella turning up repeatedly at the Georgia plant. It is definitely an imperative loophole that needs to be addressed before worse happens. In addition, the outbreak brought about attention to the responsibilities and efficiencies of health officials. It was discovered that some food manufacturing plants were almost never inspected. Health officials were insensitive to shady operators who tried to keep dangerous outbreaks confidential and lack the authority to order recalls. Various health related agencies also failed to carry out their roles effectively.

In all likelihood, companies committing in unethical practices are not to be defended, yet it is crucial to acknowledge the fact that they might not be the sole culprit who brought upon various societal impacts. In the peanut-salmonella case, the PCA received its punishment of filing bankruptcy. For health related agencies, the case is a wake up call. A call to step up and take actions with respect to food plant quality control, the autonomy agencies should have when coming across food contamination issues and violations in plant operations. In the world of business, suppliers are responsible to satisfy customers’ needs. Governmental agencies should act as a support to assure customers’ needs are adequately satisfied and that their rights and well-being are protected. The two need to work hand-in-hand. With respect to corporate social responsibility, as suggested by Greenfield, it ultimately boils down to how a company measures success, and social responsibility should be as high a priority as corporate profits.

Reference research: Utilizing the Web

This blog wishes to bring forth attention to recent ethical issues occurring in the business realm. There seems to be an increasing trend in which corporations engage in unethical business practices in order to secure corporate profits and deceive customers, especially during the recent financial turmoil. In a social perspective, such unethical practices have caused great disturbance to the general public, either directly through the failing products customers are using, or indirectly increasing their skepticism for other products in the market. On the other hand, in the corporate perspective, there has to be valid reasons as to why they choose to engage in such unethical practices. Hence, this blog will look into and discuss the various perspectives behind unethical practices and the effects they have on society. As a new entrant in the blogosphere, I am planning to utilize resources mainly from the Web to support my discussion on recent ethical news. On the right under “linkroll”, are some of the websites I find useful as reference. The websites chosen are extracted based on the Webby Awards criteria, which contains knowledgeable content, consistent and transparent structure, good visual design and high functionality. Adhering to the IMSA criteria, reference blogs are chosen by the reliability and insightfulness of its content, in other words, the level of authority of its writers. In addition, the blogs should be alive and frequently updated. Keeping such criteria in mind, I went on Google and Yahoo directory and search with terms relating to business ethics, such as “white collar crime”, “corporate social responsibility” and so on. After vigorous scouring of the Web, I found websites documenting recent news particularly on business ethics, such as Business Ethics Magazine, China Daily and Corporate Social Responsibility Newswire; governmental websites such as the Federal Bureau of Investigation; authoritative websites that explains the correct approach to business ethics, such as Knowledge @ Wharton, Institute of Business Ethics and Markkula Center for Applied Ethics; the White Collar Crime Prof Blog that discusses recent white collar cases in a certain perspective; and so on.