How AT&T Turned Its “Big Mistake” Into An Example Of Ethical Behavior

When was the last time you heard a corporate officer unequivocally acknowledge a serious error?

Did it occur after United Airlines instructed police officers to assault a passenger who declined to surrender his oversold airplane seat? CEO Oscar Munoz eventually expressed regret, but only after his firm “seemed to go on the offensive when it circulated a letter in which (it) appeared to blame (the passenger), saying he “defied” the officers …

What about BP’s declaration of contrition regarding its massive Gulf oil spill? Indeed, its Chairman Carl-Henric Svanberg did express sympathy for residents of the region, but he was later compelled to apologize for his self-described “clumsy” choice of words when he referred to Gulf residents as “small people.”

So it is downright refreshing to hear a corporation clearly and unambiguously acknowledge a major blunder. When such an acknowledgment is honestly proffered, we may be able to encourage such behavior in the future by simply recognizing its ethical value.

Consider, for instance, AT&T CEO Randall Stephenson’s recent comment that its consulting contract with President Trump’s personal attorney Michael Cohen was a “big mistake.” Shortly after the election of 2016, AT&T agreed to pay Cohen’s firm $50,000 per month for advice regarding a “wide range of issues.” One such issue was its battle with the federal government to approve its merger with Time Warner, a battle that rages on today.

Special counsel Robert Mueller is now reportedly inquiring about the appropriateness of AT&T’s motivation for signing the contract. How has the corporate giant responded?

Stephenson could have simply stated that he would not comment about the matter. Or he could have noted that the contract concluded at the end of 2017, and thus is no longer a current concern of his firm. Instead, the CEO candidly confessed that “There is no other way to say it – AT&T hiring Michael Cohen as a political consultant was a big mistake.

Was Stephenson’s behavior impeccable? No, not perfectly so. Instead of issuing his statement to the public, he included it in an internal company memorandum that was shown to the Reuters news service.

Nevertheless, if blunt and unvarnished honesty is an indicator of ethical behavior, then AT&T should be recognized for this example of appropriate action. Honesty is not always practiced throughout the corporate realm; thus, whenever we manage to find it, we should be willing to commend it.

Can A Case Be Made To Justify Corporate Bribery From The Corporation’s Perspective?

Imagine that you are the chief executive officer of a global energy corporation. You are attempting to secure a contract to drill for oil on the territory of an emerging African nation. If you believe that a bribe might help “facilitate” the securing of the contract, would you offer to pay one? And if so, how much would you offer?

That is the situation that Royal Dutch Shell (i.e. Shell Oil) and the Italian firm ENI faced in 2011 while they pursued drilling rights for an oil field in Nigeria named OPL 245. The field was believed to contain nine billion barrels of oil, valued at approximately $500 million.

The corporations paid $1.3 billion to the Nigerian government prior to securing the contract. In April 2017, the BBC reported that $466 million of this payment may have been diverted to the personal bank accounts of various politicians.

Two weeks ago, Italian prosecutors arrested 15 individuals in connection with the contracting process. One would think that it would be difficult for the individuals to justify the payment, wouldn’t it?

But let’s think about the situation from the contrarian perspective. What if such payments are legal activities in the emerging nation? What if other energy corporations, based in nations where such payments are commonplace, are ready and able to step in and develop the oil field? And what if these other corporations are already well established in the emerging nation?

If Shell and ENI didn’t decide to pay the $1.3 billion and then recoup the cost from the contract’s operating revenue, another company would have likely done so. The Chinese economy, for instance, has become the African continent’s largest economic partner. It supports many firms that can manage oil fields.

The question is not a simple one. Although some can certainly argue that bribery is a pernicious activity that must remain illegal, others can reply that the types of payments made by Shell and ENI are justified because they support the development of the Nigerian and European economies and societies. Without such payments from European firms, the Nigerian economy and society will simply become more interdependent on firms from societies where bribery is commonplace.

Incidentally, this is not an isolated case. Global energy corporations have grappled with such questions for decades. And several years ago, Michael Kraten (the author of this blog) developed a corporate training case with other professionals to address this issue amid other business concerns.

It’s called Save The Blue Frog, and it is available online at SaveTheBlueFrog.com. The case is named after a different issue that challenges global energy corporations; namely, the existence of an endangered species on the proposed oil field site.

If you’re feeling aghast at the very idea that bribery may be justifiable, you need not worry. At the moment, there are no significant initiatives underway to repeal the Foreign Corrupt Practices Act in the United States or similar laws elsewhere.

But you may wish to keep in mind that there are reasons why China has become Africa’s largest economic partner. In other words, there are costs to be paid — and opportunities to be lost — when a nation enacts laws that are based on moral codes of conduct.

The Ethics Of Data Scraping

What is your position on the ethics of data scraping? Is it right, or is it wrong?

Huh? You’ve never even heard of data scraping? That’s not unusual; most people probably haven’t heard of it either.

But if you utilize a professional networking web site like LinkedIn, you place yourself at considerable risk if you fail to consider the presence of data scrapers.

Why? Because these firms “scrape” information off publicly available web sites and then use the data to produce products and services. One such firm, a small organization named hiQ, culls information from LinkedIn’s public profiles. Then it relies on that data to identify employees who may be seeking jobs elsewhere, and it reports those employees to their current employers.

How can hiQ possibly know if a LinkedIn user is looking for another job? It might assume, for instance, that an individual who suddenly updates his LinkedIn job profile might be tidying up his resume for a career search.

It certainly isn’t a foolproof method, but data scrapers don’t guarantee the predictive accuracy of their information. That’s why hiQ’s web site promises employers that it will simply “provide a crystal ball that helps you determine …turnover risks months ahead of time.

LinkedIn, needless to say, is displeased with hiQ’s use of its data. It is now engaged in a legal action to compel hiQ to cease these activities.

So what do you think? Is hiQ acting in an ethical manner? Is it right to make a profit by using a person’s data, without notifying him, to inform his employer that he might be looking for employment elsewhere?

To be sure, reasonable minds may differ about whether data scraping is an ethical business activity. But regardless of your opinion about this question, perhaps we can agree on a practical implication.

The next time you’re ready to update your LinkedIn profile, you should stop and think for a moment. Do you really want to do it?

It may not be a harmless action. After all, your employer may be tracking you.

Morality and the Auto Industry

Do you recall the great Volkswagen emissions scandal of 2015? American officials discovered that the automobile company was hacking the computers of its own diesel engine products by installing secret software that tricked emissions testing equipment into ignoring hazardous levels of pollution.

Volkswagen then compounded this crime by marketing those very vehicles as green products to environmentally sensitive customers. Thus, citizens who cared the most about clean energy were duped into purchasing the dirtiest products imaginable.

At the time, it seemed that the scandal was an extreme aberration that was unlikely to recur in the future. But guess what happened last week? Two different national governments, in different regions of the world, announced similar investigations into the products of a pair of additional automobile companies.

According to Bloomberg, “Paris prosecutors, who raided Renault a year ago in an initial emissions investigation, opened a probe into the automaker on Thursday. About the same time, the U.S. Environmental Protection Agency accused Fiat Chrysler of installing software in 104,000 Jeep Grand Cherokees and Ram 1500 pickups that allowed them to exceed pollution limits on the road.”

What is going on here? Why are the internal environments of these automobile companies permitting employees to behave so badly? Considering that the firms all maintain extensive codes of conduct with clearly stated ethical guidelines?

One reason may be that these ethical codes are not firmly rooted in foundations of morality. Thus, although they attempt to regulate behavior, they do not help employees make appropriate moral judgments about right and wrong.

Consider, for instance, the Fiat Group’s current Business Ethics and Anti-Corruption Guidelines. They simply state that “payments … to any political parties … are permitted only if in compliance with applicable law.” In any corrupt nation of the world, of course, a ruling party could simply declare such payments to be legal, thereby negating Fiat’s prohibitive guideline.

In other words, an ostensibly immoral bribe might be classified as a perfectly ethical payment under Fiat’s Business Ethics guidelines. By failing to define its own moral principles in terms of what is right and what is wrong, the firm allows its ethics officers to (either intentionally or unintentionally) draft behavioral guidelines that permit immoral behavior.

Now let’s contrast this Fiat bribery guideline to one that is listed in Coca Cola’s current Code of Business Conduct. The beverage company states that, when dealing with governments, its employees should “ … not offer anything to a government official—directly or indirectly—in return for favorable treatment … Bribes Are Prohibited. A bribe is giving or offering to give anything of value to a government official to influence a discretionary decision.”

Can you see the difference? Whereas Fiat simply instructs its employees to make ethical decisions that are consistent with local laws, Coca Cola defines such ethical decisions by implicitly describing a moral distinction between right and wrong. For Coca Cola, a wrong decision is one that attempts to solicit “favorable treatment,” even if such a solicitation isn’t necessarily defined as illegal by a host nation.

You might also notice that Coca Cola’s discussion of bribery appears in a section of its Code of Business Conduct entitled “Integrity in Dealing with Others.” Furthermore, the phrase “Acting With Integrity Around The Globe” appears on its Code’s cover page. In contrast, Fiat’s Business Ethics and Anti-Corruption Guidelines only mention the word “integrity” in passing in a brief introductory paragraph.

This is not to imply, of course, that Fiat’s ethical guidelines are unimportant. Nor is this to imply that the recent investigatory announcements of the American and French governments are unnecessary.

But if we hope to prevent such ethical lapses by automobile companies in the future, it may not be sufficient to simply rely on these controls. After all, they do not seem to be up to the task of compelling appropriate employee behavior.

Instead, we may need to require the corporate leaders of these firms to create cultures of morality within their own organizations. Once their employees are able to differentiate between right and wrong, they may be more likely to engage in honest behavior.

Price Gouging = Capitalism?

If it takes three incidents to confirm a trend, the pharmaceutical industry is most certainly immersed in a trend.

And what is that trend? MyLan CEO Heather Bresch would call it capitalism. When asked why she increased the price of the severe allergy treatment EpiPen from $100 to $600 per unit, she responded “I am running a business. I am a for-profit business. I am not hiding from that.

Let’s paraphrase her sentiment. In essence, Ms. Bresch justified her decision to sextuple drug prices on sick consumers who desperately need her product with the assertion: “That’s capitalism.”

And in the pharmaceutical industry, she isn’t alone. Recently, Turing increased the price of its anti-parasite medication Daraprim from $13.50 to $750.00 a pill. And Valeant Pharmaceuticals more than quadrupled the price of its blood pressure medication Nitropress after it purchased the drug from a rival firm.

That’s capitalism, eh? Apparently, the business executives of these organizations do not believe that they are running afoul of any price gouging laws or regulations by increasing their prices in this manner. Nevertheless, it remains to be seen whether any of these firms can sustain such brutal business strategies over the long run.

After all, it’s difficult to name any organization that has prospered over the long term by increasing sales prices to unaffordable levels while alienating desperate users. That’s why, for instance, Uber voluntarily capped its “surge prices” in Washington DC when the Metrorail public commuter service shut down for emergency repairs.

And Uber went much further than establishing a simple price cap. It announced: “We will work around the clock to keep DC moving tomorrow. We are extending uberPool to the entire metropolitan area during the closures to maximize every car on the road while also keeping prices down for riders. Passengers using uberX to travel with neighbors or co-workers can use the Fare Split option to share the cost of their trip.”

Did Uber’s executives voluntarily take such steps out of an altruistic desire to help their customers? That is one possible explanation. Another explanation, though, is that Uber’s executives may have feared a public backlash over any price gouging activities. That is a very rational concern, and Uber’s executives undoubtedly made a very sound business decision.

In light of that decision, the behavior of Ms. Bresch and her colleagues may strike us as being extremely short sighted. Although price gouging may be legal and profitable in the near term, it cannot help but compel customers to despise their suppliers in the long term.

And no for-profit business can possibly prosper for long when surrounded by stakeholders who hate it. That’s why global banking organizations like Goldman Sachs are dedicating significant resources to public relations initiatives that are restoring their brand reputations after their financial crisis collapses.

To be sure, price gouging firms like MyLan, Turing, and Valeant are undoubtedly for-profit capitalist businesses. But more consumer friendly firms like Uber and Goldman are capitalist businesses too, and they will likely earn more profits than their price gouging pharmaceutical colleagues over the long run.

FIFA Chooses Continuity

Fans of global football (i.e. United States soccer) all cheered last Fall when long time FIFA President Sepp Blatter was suspended from his post amid a hailstorm of corruption charges. Why? Because it appeared that the international sport was finally prepared to clean up its act and appoint new leaders to restore the public trust.

But can the global football community trust FIFA to purge itself of its tradition of dishonesty? Last week, that question was put to the test when the global congress of FIFA delegates elected its new leader.

To be sure, this wasn’t the first time that a professional sports organization attempted to cleanse itself of corrupt behavior. For instance, after several members of the Chicago White Sox accepted payments from gamblers to intentionally lose the 1919 Word Series, Major League Baseball owners appointed Judge Kenesaw Mountain Landis to the position of Commissioner.

They granted him unilateral and unrestricted authority to clean up the game. Landis, an outsider with no prior experience in baseball, immediately banned the accused White Sox players from the sport for life.

So, last week, did the Zurich, Switzerland based global football federation similarly appoint an outsider to be its new leader? Not at all; FIFA’s electors selected Gianni Infantino instead.

Since 2009, Infantino has served as the head of the European football association UEFA, based in Nyon, Switzerland (a suburb of Geneva). Immediately after his election, he was accused of assuring American officials that he would support the assignment of the 2026 World Cup to the United States in return for their support.

On the one hand, one can argue that Infantino is an experienced football administrator who has not been directly implicated in the corruption scandal that has tarred FIFA. And if continuity is a desirable goal, then FIFA has certainly met this goal by replacing the outgoing Swiss based President of its global federation with the incoming Swiss based leader of its European affiliate.

On the other hand, though, one cannot help but feel a bit disappointed by FIFA’s refusal to make a clean and complete break with its recent history. Although there are times when continuity is helpful, this may well be a time when discontinuity — and, indeed, outright disruption — is necessary.

The Auto Industry’s Ethics Problem

Automobile sales have been surging in the United States lately, driving up consumer spending and boosting the national economy. If you are one of the Americans who need a new car, which model will you choose?

A European model? Perhaps not. Volkswagen, the German manufacturer that is now the largest auto maker in the world, recently admitted to a mind boggling fraud. While promoting millions of vehicles as environmentally Clean Diesel devices, VW intentionally built the cars with technology that tricked pollution testing equipment into giving the engines passing grades.

In other words, they promoted the cars to environmentally conscious consumers as green vehicles. But the autos actually spewed illegal toxic fumes into the atmosphere, and were rigged to cheat on the engine tests that are periodically required in the United States.

Well, then, will you select an Asian model instead? Once again, perhaps not. Toyota, the largest of the Asian automobile manufacturers, was recently forced to recall millions of vehicles because of devastating car accidents involving unintentional acceleration. In a wide variety of situations, drivers found themselves behind the wheel, trying desperately to stop automobiles that were accelerating out of control.

What about other Asian models? Hyundai / Kia, the largest Korean manufacturer, wouldn’t offer you much of an alternative. Just last year, the American government fined them for brazenly lying about the fuel mileage of their automobile models. Unlike Volkswagen, the firm didn’t instruct their engineers to develop clever technologies to trick regulatory testing devices into certifying the performance claims of their vehicles. Instead, they simply lied about their performance.

Then how about selecting an American model? Yet again, perhaps not. General Motors, the largest manufacturer of America’s Big Three, is still managing the fall-out of its ignition switch scandal. For many years, its engineers knowingly allowed one hundred customers to die because of a mechanical defect that it illegally hid from the government and the public.

So what is going here? Why is the entire automobile industry led by manufacturers that behave in this way? Perhaps the root cause of the problem is the nature of the firms’ sales distribution networks. By relying on networks of independent dealers to sell their products, the firms are insulated from their own customers and thus fail to be influenced by their concerns.

Such insulation problems are not unique to the automobile industry. Steve Ballmer, the long time chief executive of Microsoft, has spoken about the company’s decision to design, produce, and sell Surface tablets directly to the public without contracting with its Original Equipment Manufacturers (OEMs) and distribution partners. According to an interviewer of Ballmer:

“As expected, Microsoft’s OEMs, some of whom said publicly they felt blind-sided by Microsoft’s decision to make its own devices, were none too happy about the move. But Ballmer insisted Microsoft had no choice.

‘I was concerned that we had areas of vulnerability in competing with Apple and without any (first-party) capability, that we were not transacting that well just through our OEM partners.”… our OEMs were having a hard time investing in competing with the higher end brand. The (Microsoft retail) stores … hadn’t taken off … that was also an issue … our OEMs do great work, but there are places their brands and investments don’t travel.’”

Nevertheless, Microsoft’s products don’t kill their customers, as do the products of automobile manufacturers. And Microsoft has not been accused of lying about the performance of its products to the government and the public. So what unique feature of the automobile industry’s sales distribution strategy is promoting such ethical lapses?

Although it’s impossible to pinpoint a single causal feature, one contributing factor might be the manner in which sales prices are established with individual buyers. After all, how many customers are truly prepared to engage in complex haggling with auto dealers — i.e. with professionally trained negotiators — to agree on prices?

Most customers know that they are not equipped to do so. And as a result, many feel uncomfortable about the process of purchasing an automobile.

Does this culture of “haggling vigorously with your own customers for every penny of every sale” itself promote unethical behavior? The only way for a manufacturer to know for sure would be to experiment with haggle-free policies, and to observe whether such practices align their cultures with the interests of their own customers.

Until a manufacturer decides to try that approach, good luck! And let’s be careful out there.