The New Responsibility in Business

Scott Harshbarger, former Massachusetts Attorney General and gubernatorial candidate, now a lawyer with a practice specializing in ethics issues, spoke on ethics at Cooley Dickinson Hospital in Northampton, Massachusetts. Shel Horowitz, author of Principled Profit: Marketing That Puts People First, took notes. Material in square brackets is paraphrased; the rest is quoted directly.

The challenges to corporate America, to business leaders, to find ways to restore, repair or demonstrate integrity and confidence in the average investors, in consumers, is a very important issue. This issue affects everyone. If you go back to the 2000 presidential election, what were the issues debated? Terrorism was not a major issue. And we never talked about whether there were major problems in corporate America. Enron was convincing us that we could have dergulation at the same time California was being choked on that issue.

But over the last three years, [the economy has suffered] over 7 trillion in lost value. It is not a surprise that this issue, whether or not you can trust the leadership of corporate America, trust the market, is essential.

This is not limited only to Fortune 100 and Fortune 500 companies. Pose to your children the question: take $140 million and have your reputation tarnished [as did Richard Grasso of the New York Stock Exchange (NYSE)] or maintain your integrity and give back the money. As best we can tell, he did nothing illegal, everything was subject to appropriate accounting rules, unlike Tyco, Enron, etc. They knew what they were doing and didn't see it as a problem at a time of pain for so many people.

[The outcry] was driven by the institutional investors, who want the economy to flourish. They demanded that the NYSE play by the rules they [enforce on everyone else]. Regulate us, but do not do it with conflicts of interest. [The governing board was regulating its own members].

These kinds of disclosure questions we have expected of public officials for 25 years. You could never have done any of these things as a public official and not face shame and probably an indictment. You could not have done this as a board member of a nonprofit.

We're talking about fundamental ethical issues that go to the very core. What's happened in the last couple of years is that every aspect of our society suffers from massive ethical breakdown. Self-regulation requires adult supervision.

We expect the market to go up and down, but most of us expect that American business is based on fundamental rules of fairness. We expect that accountants and auditors [protect the independent investor too]. And civil rights and civil liberties [are crucial and must be protected].

This is about corporate governance—an opportunity to see if we can't help people. there's going to be a cycle. How do we help the leaders of corporate America do well by doing good—talk the talk and walk the walk. How do we run business in a way that competes fairly but also does it with accountability, without favoritism. The American economy is the model around the world because you can trust the numbers. We always believed that. We didn't believe they were feathering their own nest at the expense of employees, shareholders. We expected boards to exercise oversight—and those things have been questioned.

The biggest challenge is how to avoid more direct regulation. It could be overly burdensome, for small business people in particular. This is about how these principles cascade down and apply in different circumstances.

Do you have the right to use a public corporation to feather your own nest at the expense of other interests?

What about your competitors? It's in the interest of the vast majority who did play by the rules, meet environmental standards, pay their workers compensation. Imagine if you were Verizon or Sprint, trying to compete with Worldcom. Those numbers they're putting up every quarter. Lots of competitors paid a huge price because one company was engaging in fraud.

Many of these things we know, which are obvious—but it doesn't hurt to go back to basics. What it is that put you where you are today. Why is it that the businesses you run you believe fundamentally are fair, have integrity, have values. You're running enterprises in a way that has integrity. The danger is we're going to see those explosions occur. We're going to demand that our legislators—this level of victimization would have produced something much stronger than Sarbanes-Oxley. We passed a law because people wanted some response. That reflects a basic faith in the economy and the American business economy. We all recognize that we can kill the golden goose. If we all lose, we all lose. But we don't want to find out that on the way down, someone avoided the pain. There's an opportunity to review how it is we are governing our institutions. Checks and balances, but not micromanaging. You want them engaging in strategic initiatives: businesses, schools. People are waiting for the business community in this country to step up and say what Warren Buffet, Paul Voelker, senior folks have been saying: what we were doing was outrageous—we should be leading the effort to heal, we should be leading the reform. Each of us should look at what we can do to restore the confidence of the average American in our economy. There's a lot at stake. Our economy, our business models, have worked. We need to continue that, but with fairness and integrity. There's no magic solution.

90-95 of the people running these corporations want to do the right thing. How do we structure it so that you can do well by doing good—that it's consistent, responsible to your community, ethically correct and a model? We need true models, on Wall St, in Washington, in the State House, in every one of our public schools, in every part of the health care system and every part of this community. You can succeed by being responsible; they're not in consistent; in fact they add deep, deep value.

Questions:

Craig Melin, CEO of Cooley Dickinson Hospital: how do you model without showing absolutely everything you do?
It's not about standing up and shouting "look at me." If you're doing it in way that's public, willing to be accountable, that's better than showboating. I've never seen a co that had a great new product that wasn't willing to showcase it all over the place. Why are these areas so hard for people to say, we're prepared to be judged—because we have standards and practices that can make a difference here. Discretion is crucial. You cannot be hammering people for mistakes in the same way that you target serious criminal enterprises. Given the nonprofit nature of the NYSE, that is not the average corporation in America today. Up till now, you could treat the others as outliers. All you need is people who've made mistakes to get religion and be reformers. John McCain's presidential campaign made him much more conscious of the process. I watched him remake himself.

Peter Vickery, intellectual property attorney: Any advice to attorneys in private practice with smaller clients?
One of our challenges is to help smaller companies understand what applies to them and what doesn't. The biggest challenge isn't what to do about the Fortune 500. It's too much for most companies to absorb. My fear is they won't do anything about it. Ask them: Have you thought about how you compensate your CEO, structure your board, your governance? How does your compliance system work, could we check on that? Could the compliance people come to the board and speak about that? Talking with your clients—I agree it's a burden, but there are ways to adapt. People are going to articulate these standards more and more. Individuals on boards are going to start to ask these questions.

Being a lawyer and politician talking about ethics—ultimate oxymoron. In any organization, colleges, the Attorney General's office, there's not enough discussion about common ethical issues. The clash of competing principles—the gray areas. Whether to violate the law is not an ethical quandary; we got that one. The challenge is how we talk about this. The most disheartening thing was a dean at business school who said he didn't know what to tell the next generation. There's an Ethics Officers Association; they have a website. Some of these [programs] are beginning to developed in the schools. Jeff Seglin, professor, Emerson College, writes a New York Times monthly column on ethical issues for business—and has a book.

Many corporations have excellent training courses, but they don't require the supervisors/managers to take them. Enron had the best compliance code of anybody, but nobody was monitoring it and it didn't apply to the executives.

One person can make a difference; the person who raises a question—but the way you raise it—no one listens to Ralph Nader because of the way he raises it—we're finding people really want to talk about this issue.. Whether its Granny D, Colleen Rowley, the FBI agent in MN, Sherron Watkins at Enron—one person asked the question. If there's a problem, loyalty means you tell, you'll ask the question.


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