So, ladies and gentlemen and distinguished guests, fellow faculty members, and staff and students at Bentley University, I'm delighted to welcome you to the Verizon Lecture in Business Ethics, given by one of the leading scholars of applied ethics, Professor Kirk Hanson. I am Mike Hoffman, the Executive Director of the Center for Business Ethics, and Hieken Professor of Business and Professional Ethics here at Bentley. It's a privilege to have such an accomplished scholar to address you as Professor Hanson. But before I ask him to the podium, let me provide a little context [COUGH]. The formal philosophical study of ethics in the west traces its origins back to the ancient Greeks some 2500 years ago. During the centuries that followed, philosophers proposed a treasure trove of theories on the nature of good and bad, and the meaning of moral expression. Yet for the less philosophically inclined, these somewhat abstract theories may have been perceived to be as interesting as watching paint dry. But then something unusual happened, starting in the 1960's and early 70's, a question became widely asked that went something like this. Could we apply our collective wisdom and ethics to shape the practical affairs of professional life? This generated an explosion of activity, [COUGH] in which ethical theory began to be applied to a wide spectrum of professions, such as business, medicine, biological research, defense, government, technology, and so on. And this movement became virtually important for advancing global ethical standards in professions around the world [COUGH]. One outcome close to home was the founding of the first Center for the Study of Business Ethics here at Bentley in 1976. And about a decade later, the Markkula Center for Applied Ethics was founded at Santa Clara University, where our speaker currently serves as its Executive Director. Ladies and gentlemen, we live in an age where traditions no longer exercise the dominant sway over popular morality as before. And yet people today face countless new and unimagined moral challenges that urgently require well-informed ethical understanding. Applied ethics has assumed an unprecedented importance in the development of ethical standards across the professions, and everywhere people have benefited. Professor Hanson has an outstanding reputation not only for his scholarship, but for his deep, practical insights into this domain. And so I am truly honored to have him here to speak with us today. Before I invite Professor Hanson to the stage, I want to first recognize the company through whose generous sponsorship this outstanding lecture series has been made possible, namely the Verizon Company. We are delighted to have with us today, Mr. Greg Miles, who is the Director of Verizon's Office of Ethics and Business Conduct. Mr. Miles had to snow shoe all the way up from New Jersey to get here today, and had to sit actually three and a half hours in the airport. So we especially thank Greg for coming. I'm also happy to see Mr. Paul McGovern, Verizon's Manager of Affirmative Action and Equal Opportunity Employment, who has been with us at these events many times. Greg, Paul, could you stand up and be recognized? >> [APPLAUSE] >> We at the Center For Business Ethics have been honored to work with Verizon for many years and are deeply grateful for the steady support for this outstanding program. Before going any further I'd like to remind everyone about an important matter of protocol Please, you don't need to turn off your cellphones, but if you would put them on mute or on vibrate, then they won't interfere with Professor Hanson's talk. Professor Hanson is kindly allowing us to record his lecture [COUGH] in order that it can be seen online or on DVD. If you would like to view the lecture later, in a few weeks, not [LAUGH] right away, DVD copies will be available in the Center for Business Ethics Library in Adamian, Room 108, and Bentley's Baker Library. Following Professor Hanson's presentation, there will be a question and answer session, during which time he would welcome your questions. And my colleague, Dr Robert McNulty, will be handling the Q&A for Professor Hanson. Moreover, we are pleased to inform you that following the Q&A there will be a reception with food and drinks in LaCava, right down the hall, Rooms 325A and B. Please stop by and take an opportunity to have some food and drink, but, more importantly to introduce yourself to Professor Hanson and say hello. Before closing, let me spend a few words telling you about our distinguished speaker, Dr. Kirk Hanson. Professor Hanson is one of the most well known and respected scholars, as I've said, in the field of applied ethics. He is the Executive Director of the Markkula Center for Applied Ethics at Santa Clara University, and the John Courtney Murray SJ University Professor of Social Ethics. Under Professor Hanson's leadership, the Markkula Center offers extensive programs in business ethics, bioethics, government ethics, internet ethics, and character education. He has worked closely with corporations, hospitals, city councils, and school districts on professional ethics. He taught business ethics at Stanford Graduate School of Business for 23 years, served as faculty director of the Stanford Sloan Program, and is now Senior Lecturer Emeritus there. He has written extensively on the ethical and public behavior of corporations including co-editing a four-volume series entitled, The Accountable Corporation. Professor Hanson has consulted with over 100 organizations on managing ethics. He currently serves on the Board of the School Community Fund, and is Chair of the Center for International Business Ethics in Beijing, China's first business ethics center, I believe. In 2007, he received the Lifetime Achievement Award from the Aspen Institute's Center for Business Education for contributions to business and society. And in 2013 he was conferred an honorary doctorate from the University of Portland. We're all very fortunate to have Professor Hanson who has flown all the way from California, from a wonderful sunny climate [COUGH] into our lovely weather that we have today. And we are very fortunate to have him as this year's recipient of the Verizon Professorship in Business Ethics. Ladies and gentlemen, Professor Kirk Hanson. >> [APPLAUSE] >> Thank you. Took me just about the same amount of time it took Greg Miles to get here from Newark, so, I apologize for his suffering. I did get here 30 minutes early last night, so it was a good flight. Well, I'm delighted to be with you. Given that it snowed, I will ask for one more part of an honorarium, which is that I have a collection of mugs from universities, coffee mugs, and I don't have one from Bentley. And so I'm gonna count on my host to add that as a compensation for it being snowing while I'm here. So I would appreciate that. I'm honored obviously to be selected as this year's Verizon Professor of Business Ethics. And I will turn on, there we go. Am I on now? I guess we are. All right, I'm delighted to be here, delighted to be selected. Thank Verizon, as executive director of the center I know how important it is to have the kind of support that Verizon provides for this lecture series. You just don't get to do things without the kind of commitment and persistent commitment, continuing commitment that corporations like Verizon provide. I'm glad to be here also to, in essence, recognize and honor Mike Hoffman. Who was one of the real pioneers in the field of business ethics. He and I have been friends for almost 40 years, which means he must be very old- >> [LAUGH] >> As I am. I was here for the first conference on business ethics in 1976, when the center was founded. And I'm delighted to be able to come again and reflect upon what I think I've learned in that 38 years that I've been teaching in the field of business ethics. Now a year ago for this lecture, one of our friends, one of our good friends from the same era, was your speaker, good friend, and kind of good pastor. And he gave a very thorough examination of the history of corporate responsibility. Concluding that the future of the corporation is tethered to the future of responsible management. That in order of public acceptance and licence to operate companies had to be responsible. And corporate responsibility was their expression of that. And that they are done pretty good over time. I am not going to be a sanguine this afternoon. I'm much more critical of where we are in the enterprise of business ethics. What I'll do is to develop three themes. First the failure of ethics just to put it boldly, bluntly, and the triumph of compliance which I consider to be a weak form, if not diversionary form of ethics. Secondly how ethics can only be restored by the actions of the individuals like you and me, and Greg, and Paul. And others who work in organizations that only through the efforts of individuals at times fighting against corporate cultures can ethics become a part of corporate life. And thirdly, I would like them to talk about how we do that. How we as individuals bring ethics to the organizations that we're a part of, by talking about six ethical dilemmas which I think each of us as individuals face in our own professional lives. And that we have to content with and we have to get right. And I wanna make some suggestions about both what they are, but how we can get them right. The concept of ethical dilemmas and unavoidable ethical dilemmas is central to my message this afternoon. The biggest lesson I've learned after teaching in this field for 38 years is the best way I believe of thinking about what you and I face as ethical challenges in our lives is to think about the roles we play. Roles as students, roles as parents, roles as bosses in business, or as employees, or accountants, or lawyers. Whatever our professional roles and multiple roles are. And that only by identifying those roles and their obligations can we get to what is really the important content. The unavoidable ethical dilemmas that come with each of those roles. And I believe that your challenge and mine in preparing to live a life of integrity is based upon how good a job we do on identifying those unavoidable ethical dilemmas. That will confront us each year if we're an accountant or we're a first line supervisor or we're a salesperson. And so that's the enterprise that I wanna suggest we all have to undertake. And one way of getting at that is to talk about the six most prevalent, most unavoidable of those dilemmas for each of us. Okay, let's face it. Over the last 38 or 40 years, it would be nice to be able to report that the teaching that Michael Hoffman and I have done has changed American Business. And that there are no more ethical problems. That Greg does not need to have his job within Verizon. Because their corporation simply by their very nature act ethically. But unfortunately, this is not the case. The ground has changed dramatically over this time. Here are some of the concerns of the 1960s. And I did come out of my own undergraduate program in the 1960s and got my first job in Corporate Responsibility Business Ethics day one, when I walked out the door. But at that point in time, we were talking about product safety. The Ford Pinto was a later case, but the Chevrolet Corvair was our Widespread discussion about whether this was a responsible car. It had a tendency to flip over, a few things like that, that made it substandard by the typical product safety standards of the time. The hardcore unemployed, in the wake of the riots in Watson, 1965, in Detroit and a variety of other cities in 1967, focused the business attention and the, if you like, the business ethics focus, on trying to find ways to employ the hardcore unemployed within our urban areas. We were starting to talk about opportunities for minorities more generally and we were starting to talk about water and air pollution. Over the next 20 years, we dealt with a whole succession of issues and, I'm going to argue, not very effectively. Illegal political contributions coming in the Nixon re-election campaign of 1972. You may know, more than a hundred blue chip companies were found to have laundered money through Mexico and contributed it to the Nixon re-election campaign. And the question was how could all these blue chip companies have done that, violating directly US law about the laundering of money? Or the overseas bribery scandals, which broke in 1975, it was a local story in California because Lockheed was the, if you like, the poster child for overseas payments. There have been many poster children for FCPA violations since then. But Lockheed was the one at the time, and their bribery of the Japanese government officials, the Dutch government officials, and others. The whole debate over corporate complicity with apartheid in South Africa came up in the 70s as well. And the question about whether General Motors could continue to sell trucks in South Africa, if those trucks were bought by the military and used to enforce apartheid. Or could Hewlett Packard computers be sold in South Africa, if they were being used in some ways in support of apartheid? Or could Polaroid cameras, for a local store here, be sold in South Africa, if the Polaroid pictures were being used to create the mandatory ID cards for blacks and coloreds in South Africa. So that was part of our debate. Toxic chemicals, Love Canal was the story of 1976. You may not remember that reference, but that was the first toxic dump that was widely publicized and became a test for what our corporate responsibilities towards toxic chemicals. Insider training in the early 80s, takeover artists in the early 80s, and finally the defense industry scandals of 1986, which led directly to the creation of this whole enterprise of corporate ethics programs that now are quite widespread. The corporate effort, then, is an effort to try to create a presence for ethics within the organization. And when the DII, the Defense Industry Initiatives, were created, was literally created over a weekend in 1986. I think, maybe, Tim Mazur and I both worked that weekend over those problems. But there was an attempt to legislate controls on the defense industry that they were not very pleased with, and what do you know? Over the weekends, there was established, a voluntary ethics effort, which would allow the corporations to pledge to do certain behaviors differently than they had tended to and that headed off more severe regulation. That's a pattern that I think we see in a variety of areas of business ethics. The Ethics Officers Association created here at Bentley in 1991, sentencing guidelines were a set of standards of what constituted how we would punish corporations for their sins. And the sentencing guidelines, as they were revised in 1991, gave some credit to companies if they had good ethics programs. And so there was a structure, a growing definition of what constituted an adequate ethics program within the company. All during the 1990's, there was a growth of ethics officers as a profession. And there are today, hundreds and hundreds of Greg Miles running around the corporate world. Most major corporations have not just a senior executive in charge of ethics and compliance, but have a widely distributed organization with compliance officers and ethic officers throughout the world in their multiple facilities. The sentencing guidelines were enhanced in 2003, in part, because of the scandals of early 2000s. Sarbanes-Oxley Act created a whole set of standards for gatekeeper liability. That's the way CFOs had to act, the way general counsels had to act, and gave them more specific responsibility. The tenancy during this period, and we'll talk more about it, was to move from ethics, as the word that described controlling corporate behavior to compliance. And the Ethics Officers Association, now off campus related in the community, not formally related to Bentley any longer, became the Ethics and Compliance Officers Association, ECOA. And the acting director is here with us today. And then finally, in 2010, the Dodd-Frank Act, which enhanced the accountability, not just for the gate keepers, but for the CEOs and the Board, and created some empowerment for whistleblowers, that hadn't been there before. You see the pattern that's emerging, there are two important directions for this. One is that there's an increasing tightening of the screws on corporate behavior. The attempt to define more regulations, which control the corporate behavior, and a tightening of the definition of what constitutes an adequate ethics program. At the same time, a third trend is that ethics was becoming, I would say, infected more and more with the concept of compliance. This isn't about great ethical values, this is about complying with the regulations and the standards that had been put into law and other regulations. The companies developed four different strategies for addressing ethics. In my mind, very seldom did they get to the only effective one, which I consider to be managing ethical values. But some did nothing and relied on the ethics of their employees. How did that work out for them? Not so hot. Some of them did embrace, very strongly, a compliance orientation. And that is the dominant corporate approach to ethics today, which is that we're here to make sure that no one violates either regulatory standards, legal standards, or bright line issues, theft of company property, cheating on your expense report, et cetera. Some organizations have relied more on exhortation, we want you all to be ethical here, working at our company. Or my favorite one was, we want you to use the same ethics here at work. That you use at home. That bothers me, well, I think that should probably bother a lot of ethics officers, that notion. So those three approaches don't really embrace ethics, I would argue. They don't define what are ethical values that ought to be implemented in the company. And it is a very rare organization, a very rare corporate leader who has been able to take it the next step and say, this is how I want this company to be run. These are the values that I want to see implemented in all of our decisions. That is rare. You find it sometimes in founder-run companies. In Silicon Valley, we have one of the great examples with Hewlett-Packard Corporation, which while Hewlett and Packard were alive, was run by their values. And it was very apparent how one would handle it. And in fact, whenever you had to answer the question, what shall we do, you asked the question, what would Dave and Bill do? And because they owned a big piece of the company and because they were still the CEO and the chair of the board, there was no question that their values were legitimate for that organization and could be followed. HP since the death of Hewlett and Packard is not as pretty a story. We probably won't go into that unless you want to get into Q and A and I swear you all to secrecy. But that's been the problem, is who defines the values and what values, what ethical standards ought we to be following? Now, the reality is that the ground is changed underneath all of us who advocate corporate ethics. And the ground has changed in very significant ways. The pressures on corporate managers are very different today than they were back in that era. We used to talk about the business statesman of the 60s and 70s. And the idea was that people like Reginald Jones of GE, and Frank Carey of IBM, and David Rockefeller of Chase Manhattan, were able to do quite a bit of good in their jobs as CEOs of these very large corporations. Now some critics, and I think they've got a case to make, argue that it was because those companies had a bit of an oligopolistic power. And there was enough slack resources in the institution that they could go and contribute to their communities in ways that may be not possible today. But of course, that was not an ideal, perfect era. This was an era in which minorities had no opportunities in business. Women were excluded consistently. Where there was no attention to so many of the issues that are very important to us today. Here are some of the elements of how things have changed and why I believe corporations have failed to address ethics today. One is just simply more and more aggressive competition. If you always have the threat that a new entrant in your business, in your industry, can create a stripped-down organization that does what you do, or take what you do, disintermediates it and goes online. It becomes very hard for you to set aside much in terms of resources to quote, do good. And so that aggressive competition, some of it from overseas, has become one of the realities of business today. And executives are running more scared than they ever have in the past. They also are running scared from Wall Street, the enhanced discipline of quarterly earnings, and the expectation that you won't have a down quarter. And the sense that there are very few opportunities for long-term investments creates a discipline in which you're hesitant to make any kind of long-term commitments to ethical values or to addressing complicated kinds of issues. I have to add the third one because I think it perhaps is the most powerful of all. It's tied to the first two. Which is that with the dramatic increase in executive salaries, particularly CEO's salaries. There is a much enhanced temptation for executives to do whatever to increase the bottom line numbers, particularly over the next x quarters when their bonus is best. And therefore they're very hesitant to do anything that would get in the way of their accumulation of wealth. For the first time in American history, non-founders of companies can create fortunes by being professional managers, not by being founders. It is possible within three or four or five years of being a CEO to create inter-generational wealth as some people call it. That changes the whole calculation amongst our senior executives. This is the flip side of, or a concurrent part of the 1% problem, which is that the salaries of the top 20% of society have increased over the last 30 years where the salaries of the bottom 80% have stagnated. And that the top 1% have captured an incredibly disproportionate amount of the wealth over, particularly, the last 10 to 15 years. It's not a Republican, Democrat issue. This is a national issue of great importance about what that does to our social fabric. And so this emphasis, which is really coming in part from both parties, of somehow having to get at that problem, I think is critically important. The last change of their ground, of course, is the global spread of business. And if there's always someone who can outsource that manufacturing to some other country and do it more cheaply. It's very hard to do more for your workers in a plant in Flint, Michigan or a plant in the southern part of the United States. You've always got to slim down your organization to cut costs and so on. It's also the global spread of business brings you to confront very directly so many cultural patterns or business behavior patterns in different parts of the world. My work in China over the last ten years has indicated how difficult that is for American companies to contend with Chinese society. Ironically we've made great progress, there are on the books now in China, wonderful laws having to do with bribery and having to do with treatment of workers in the workplace and product safety and so on, it's just that they aren't enforced yet. And that's a slower process in that context, but there's progress being made. Okay, so how's all this done? I think if you look at the last 10 years, 15 years, the record is pretty dismal. Whether it's Enron, WorldCom, all of the fraudulent accounting in the 2000, 2002 period. The fraudulent earnings management, [LAUGH] we in Silicon Valley, one of my fellow scholars took the earnings of companies in the second quarter. Of 2002, and looked at the prevalence of fraud in the preparation of financial accounts. That was at the downturn of the first tech bust. And what do you know? As soon as there was a bust coming, companies got very creative and fraudulent in the preparation of their accounts. And you have just a slew of organizations in Silicon Valley where there was manipulation of their accounts. Because, and this ties back to the wealth, because so much of the wealth of those leaders of the companies was tied to their stock options. And a down quarter would create a loss of value of the stock, would create a dramatic loss in the wealth of those individuals. And therefore, we had just a huge upsurge in the amount of fraud at that particular moment in time. Financial manipulation, excess risk in financial institutions in 2008 which led to the terrible experiences of the last few years with the collapse of so much of our financial engineering, was simply greed translated into financial manipulation. Conflict of interest has become a greater problem as financial organizations have claimed. Well, we can do all of those different functions. You can trust us to have Chinese walls, or to have ways of controlling our conflict of interest. But, of course, that hasn't worked out in so many cases. Banking complicity, the notion that the banks would not have known what Madoff was doing is just unbelievable on its face. Or that they didn't know that the mortgage-backed securities that they were backing were flawed. That's impossible, and they're paying billions of dollars now in fines related to those two patterns. Energy and environment, go back to the 90s, we've got the Exxon Valdez. But the BP platform, and that was about the third incident for BP, it had been discovered that it was managing the Alaska Pipeline but it wasn't cleaning the pipeline, cleaning the pipes, on schedule. They decided to save some money and so they cut back on the cleaning schedule and they ended up with a series of spills up in the Alaska Pipeline. And so when the BP explosion took place in the Gulf, some observers said that's one more piece of the pattern. I don't know whether that's a fair charge or not, but that is the worry. Overseas bribery keeps coming back. The two biggest incidents of the last five, six years, Siemens, which appeared to have been built on the willingness, like Lockheed back in the 1970s, Siemens appeared to be willing to pay anyone to get any deal closed. And the pattern across the world of Siemens payments was breathtaking. And they paid huge fines, again, in the billions of dollars, for their sins. Walmart is probably the most surprising one, because I've admired Walmart, as I'm sure a number of you have. But the fact that they could be paying off so many people in Mexico to expand the Walmart network footprint of stores was really quite striking. And even that the payoffs were being managed by the Walmart ethics officer for Mexico who was keeping the funds and paying off the various public officials that they were bribing. But it was a drive that the executive in charge of Mexico was on the make. He wanted to be the next CEO of Walmart, and he almost made it. He had been pulled to headquarters as vice chair and was being talked about as the successor CEO. Needless to say, he is not the successor CEO, but resigned immediately when the scandal broke. And insider trading, hedge funds, blue-chip clients. Some of our biggest names in Silicon Valley, some of the biggest names in consulting firms like McKinsey, passing insider trading secrets to some of the hedge funds. What were they thinking? But it was that clubbiness of we're all in this to get rich together that, at least to me, is indicative of a really sad chronicle of the last 10 to 15 years. This is an upbeat talk, isn't it? So here's what happens then I think when executives try to deal with ethics. I don't think they can really advocate real ethics because their boards would not stand for it and it might get in the way of their quarterly earnings goals. And they're not sure whether they have the standing to do it. They're not the founders. So where do they look for their legitimacy to define what constitutes ethical behavior in the organization? Compliance, yes. They wanna be compliant with the law. Somebody else has defined that. But what about ethics? What about a sense of how we ought to treat our employees or how we ought to treat the customer and so on? I think they're hesitant to try to write those clear values down, because they're afraid they'll be heavily criticized, whatever they are. I think they are unwilling to forego profit for ethics. They're afraid it will damage their own intergenerational wealth, and their own standing as a lion of industry. I think business has succeeded in redirecting regulation toward voluntary approaches and forgiving approaches, rather than very tight regulatory standards. And so as long as that pattern continues, companies, I believe, have an incentive, To continue to operate as they are without committing to any kind of absolute or clearly defined ethical values. And instead, simply comply. Do a few things so that they don’t outrage the public and destroy their reputations. Although, you look at something like Walmart and you say, what were they thinking? But, of course, that was one rogue executive, you could argue, who simply wanted to make himself a star. But he did get much of the rest of the organization to participate with him. And so my conclusion is, we haven't made much headway on getting a commitment to ethics. We've made quite a bit of headway on compliance. And most companies have very, very good, highly trained, highly skilled executives in the compliance job. But, very often, those jobs are described as ethics and compliance. And just like the advertisement, where's the beef, I keep asking, where's the ethics. I think compliance is there, but not the ethics. Dodd-Frank said, let's give some accountability to the board. And I'm now working with a number of boards on their management of ethics. But I think they're subject to the same pressures as the executives. It's an uphill battle to try to get boards to focus on this because they know that just like the CEO's reputation is based on meeting those quarterly earnings, their reputations as board members is dependent upon the same kind of performance. In a few cases, they have substantial financial stakes, as well. And they certainly don't wanna be seen as soft on profit. This is still basically a clubby atmosphere in American boards where the presumption is that you're there to meet quarterly earnings and to enrich the management as well as the share holders of the organization. Okay, so where do we turn? I think we turn to individuals, I think there is still hope. I would argue that there is the possibility that we can bring about a revolution from the bottom up, and not just from the bottom up but from executives who are inside these organizations that operate somewhat differently. So, the challenge of acting ethically has to start with what are your values. But it also has to get to what are the situations where my values will be tested. And this is a chart I spent a lot of time on. What are the roles I play? What are the obligations of those roles? And therefore, what are the unavoidable ethical choices that I have to face? Just to get the point here, this is not just about business roles, but it's about spouse, parenting roles, being a sibling, being a son or a daughter, being a neighbor, being a mentor. What is it that I owe to the people that I have these relationships with? For me there are six fundamental questions that you and I each answer. And if we answer them well, we can have a considerable impact on the ethics of organizations in general, and of the specific organizations that we are a part. So, these are the six I'm going to deal with, I don't wanna talk for a couple of moments about each. What is worthwhile work? Every one of us answers that question for us individually. It's a fundamental value question that says, what's worth investing the next 30 years of my life on? Or 8 hours, 10 hours, 12 hours a day on. A vocationist traditionally thought of as matching the needs of the world, where there needs out there with the talents I have and my belief about what is important. Now, in a thin job market we can't all jump into the thing we think is most important, I realize that, but this should be our goal and at least at the margins we should probably avoid those things that we think are not as noble and important. What I'm seeing, I don't know whether you're seeing it here at Bentley. I'm seeing an increasing number of young people who are saying, I've got to find opportunities for service. Frankly, with the MBAs I run into, it's always, I'd like to start a social enterprise. I can still make a bunch of money, but it can do a lot of social good, as well. There will be a few social ventures that have that kind of opportunity but many of them will simply be opportunities to do good, and so that's one answer to the question of what's worthwhile work, starting a new organization that has an impact. One of my students when I said well, how do you think about things, he says well I'm trying to cope right now with the question. Will I feel good about having spent my life selling flowered toilet paper over plain toilet paper? That was an interesting way to capture it. But the point here is that we all choose, just as we choose, we choose both the organization and the function. We choose the substance of the work and the culture of the organization. Is internal audit a passion that I think that can be so much to guiding a corporation, keeping it on the straight and narrow or being an ethics and compliance professional. That can contribute a huge amount. This is a question that doesn't just come up once when you graduate from college, but comes up again and again throughout your life. When you get a promotion, or an opportunity for a promotion. Or you get a job offer from elsewhere. Do I go do that, is that noble work also? And it even comes up in what is now being called encore careers. Finding an increasing number of 60-65 year olds who are starting new careers in education or overseas development or whatever. Taking their talents that they've developed in the business world and putting them to use with a much higher percentage of the purpose being social benefit. That’s the first and I think each one of us decides that every day we get up. But we have these episodes and moments in which hopefully we reflect more deeply on what is worthwhile work for us. I think you have immense power if you chose to go to work for companies that do worthwhile work by your standards. I think you'll have an impact far beyond anything that you know. Okay, second, is what's the balance that we each achieve between work and family? The reality is that organizations love hard workers, and they're willing to let you work as much as you want, and as much as you will tolerate. Some organizations even have deliberate periods in which they load you up with work at the beginning. Maybe because that's the way its structured. If you go into a financial firm you may work long, long hours in the first, in an investment bank, or in a law firm, in the first few years. In some others, it's simply we're gonna load everything on you and see what happens. Almost a hazing, kind of attitude. Some organizations are family tolerant and some are not, and you need to know that when you pick a company, you need to know what your own trade-off is. We choose an organization that has certain characteristics and we choose a lifestyle. We choose whether we're going to go home for the soccer game that our child has at 3PM. We choose whether we take on that assignment that involves 30% international travel. I'm not going to make a judgement for you about whether that's ethical or unethical. Under certain circumstances it may be and may not. My wife and I have had a practice of we'll take short-term episodes of intense work and because we're both MBAs as well as PhDs, we have traded off. So she'll do two years of intense work starting a company which she's done twice, I'll do two years of intense work working with some organization that I've been developing. And we can do that as long as we take some time off afterwards. And as long as we keep in some rough balance the opportunities that both of us have as a couple that wants the success of both. So that balance of work and family is absolutely fundamental. Some people will choose to have children and some won't. Some people will choose not to go for the top. I remember when my father when I was about 15, passed up the big promotion to New York and came home and discussed with us. This is something that would have done such damage to our family, because he would have been on the road 90% of the time as a sales manager. But he chose not to do it. That always had a very strong impact on me as a child. Third dilemma we all face, is will I go along with the crowd? Every organization and work group has a culture. The cultures have values, and maybe attitudes toward certain subgroups, women, minorities, gays, immigrants. Transgender, very important issue in California right now, lots of flare ups of what's corporate attitudes towards transgender. It may be a bullying kind of culture, there's talk about corporate bullying these days, internal organizational bullying. There's also other choices in terms of, well you know, we go ahead and we oversell our products, selling vaporware. There's certain organizations in Silicon Valley that are famous for overselling their software, overselling the capabilities of their devices, and you know, do you go along with that or do you object once you're in the organization? Short cuts exist in all organizations, and you have to decide whether you're gonna accept those. Or, yes we're not permitted to put liquor on our expense reports, but what we do is, we all disguised that as taxi fares, or that in one organization. Or, you're not supposed to take anything home from work, but 20 pencils and a ream of paper once a month will be fine. And so on. There are shortcuts like that that exist. Will I go along with that kind of a crowd? Will I accept the attitudes towards gays, or towards immigrants or whatever from my particular culture? And I think we each have an opportunity to accept a different tone in the organizations we're a part of, but only if we've got some guts, and only if we decide that's going to be part of who we are, that we stand up for certain values. And only if we know what those values are to begin with. Will I object when my boss is wrong or when leaders mislead? Leaders are not all ethical. Some are like the Mexican executive who decided he would grow the number of stores very rapidly. Some are sales people. Sales managers who say get that deal even if you have to write a side letter, which is illegal. Go ahead and get that product shipped even if you have to skip the last two tests. That happens all the time. You're gonna be the one on the end of that request and the potential that you're gonna feel awkward at having to say no, or having to say isn't there a better way to do this? Or having to say gee, I'd rather work the weekend and get that test done so we can ship it right on Monday. But, we all have those opportunities to say yes or no when the boss is trying to get you to do something wrong. Ever since I started teaching, 38 years ago, at Stanford, I've had my students in every course write an ethics case, and how they handled it. And what they thought they should have done. I now have close to 5,000 of these cases. And the most common single scenario is this one. I was asked to do something wrong, how should I have handled the situation? Fifth dilemma, well I try to change things. Maybe with a specific challenge, to ask you to complicit in something, you may become aware that the company or your work group, or your boss are doing something that simply is wrong. You may know about it and the question. Ethics officers, compliance officers always have as a fundamental part of the code that you are all responsible for the behavior of this company and we expect you to stand up for it, report it, and so one, but frankly that's not done so often. And the question is will you try to change things when you see something wrong? A wonderful story in yesterday's New York Times about hedge funds in New York owns a company that provides telephone services. You probably saw the story. Telephone services for inmates in penitentiaries, and they charge $3 to $5 a minute, for an inmate to make a phone call, domestic, in state phone call. How is that conscionable? Same company by the way that apparently does it in New York and Massachusetts for 10 cents or five cents a minutes but because they have a sweetheart deal with some prison systems in some states, they're charging as much as three to $5 and then splitting the 99% profit they make with the prison organization. But obviously with social harm done to the inmates who can't afford to phone their families and stay in touch and so on. And you wonder what are the people in that hedge fund and what are the people in that company? Why doesn't somebody stand up and try to bring about a change? So, you'll have the chance to bring about the change. To raise the issue, I'm not suggesting we all need to become whistle blowers, externally. But you can work internally and work for change. The last thing is simply that we all live in a world with a huge amount of, huge number of needs. And we have the opportunity, if we want, to try to make things better. And frankly, this is the narcissism. It's all about me versus it's about what I can do for the world, which is a basic value difference. And so how much of my time do I want to address, use to address those needs that I see in the world? How big is my circle of concern? The compassion I'm willing to give to others. I watch my students that I've taught over these 38 years, a number of them, it's very interesting. They start out narrow. They're concerned just about their own careers. And then they begin to encounter people who don't have as much as they do. And they start to help one or two people. And then they realize that they have some talents that could be dedicated to non-profits. And then they'll maybe be on the board of some non-profits. And after a time they realize they could run that non-profit better and they end up maybe as an encore career at 60 or 65 and end up running a non-profit. This is my wife's pattern over the last few years as well. So in her encore period she created an organization to work with students who were falling behind, primarily immigrants. We each have the chance to decide how much of our wealth will go for the benefit of others, how much of our time will go for the benefit of others. How much of an asset for our broader society we will be, versus how much inward driven we will be. This is the world of philanthropy, volunteerism, and so on. Now, these six dilemmas are only representative. They're the most common, I think, that applies across professions. But there are specific dilemmas that exist if you're a salesperson or you're a first line supervisor, or if you're an ethics officer. There are a set of unavoidable ethical dilemmas in that. If you know what those dilemmas are, here's what it does for you. It helps you prepare to deal with them. It will lead to better decisions, more consistent decisions about those dilemmas, and therefore greater integrity. Integrity meaning faithfulness to your own values. So understanding where those unavoidable dilemmas are is one of the key elements that helps you live your life. And I would argue is a key element of what sometimes is called practical wisdom or Ethics wisdom. If individuals make ethical choices, I think individuals can change the world. I think companies and managers will be held to a higher standard. Companies will need to reflect on whether their products are worthwhile, their services really serve genuine needs. I think companies will need to clean up their toxic cultures because people won't stand for it. I think companies will need to pick managers who operate with integrity and don't put their subordinates in these awkward situations of asking them to do improper things. Companies will need to create processes for improving their own way of doing things. Ethics and compliance will become not just compliance, but ethics and compliance. And I think that would be a huge benefit. Companies will need to contribute to the common good because their employees, their members, will insist that they do. I think those changes are potentially there. Can individuals be a counterbalance? I think they can be the only counterbalance to the kind of pressures our senior executives face today. Which has prevented them from making ethics a fundamental part of business operations of management in the United States. I will stop there and take any tomatoes you wanna throw at me. So thank you very much for letting me talk to you. >> [APPLAUSE] >> Thank you, Kirk, very much for a great presentation. I guess one of the first questions is, given how many years you've been involved with this, and this deeply. And I don't know how long you have felt as strongly as you do about what you presented today. Is what you presented been affected by the presence of technology? To the extent that there are apps now, that folks in this room can press on their smartphone to report misconduct, to whistle blow, that maybe didn't exist before. Or we can use social media to speak up and call truth to power in a way that we couldn't as easily 15, 20 years ago. Do you feel more empowered to speak this way because of technology, or is it just your years of experience that have led you to where you are? >> My accumulated frustrations, yes. I think what's happened is my hopefulness for a long period of time that the enlightened self-interest argument would bring companies along. That they would see it was in their self-interest to do good, to be responsive to society, the kind of message that Ken Goodpaster gave here last year. My hope in that, for my whole career, I've always said enlightened self-interest will get us 95% of the way there. I no longer think it'll get us 95% of the way there. I think the record of the last 10 to 15 years is very discouraging, and maybe it's because the globalization and the technology make the competitive environment so much tougher. I'm actually quite sympathetic to these executives who say, I can't afford to do that. I'm very sympathetic to that. I'm sympathetic to people like Greg, even to Greg, I'm sympathetic. That the challenge that ethics officers have is one of the toughest challenges in organizations today. And it's very hard to operationalize ethics when even a lot of founders are not able to tell you exactly what it means. Or the CEOs are not able to tell you how far we're really willing to go to give up business in Asia if we can't do it without bribing. Or not to release this product, because we're not sure what its effect will be, or we're not sure what's the security of the data to be collected really is, and so on. I think it's a very tough world out there. And I think it's gonna take, maybe it's that it's not gonna take one or two or ten or just the senior management. It's gonna take everybody. I think it's gonna take the senior management asking these kinds of questions in the same way it's gonna take everybody in the organization asking them. And then I think we've got some hope. But I think it's that discouragement in recent years that we didn't make more headway in terms of selling the enlightened self-interest has not changed corporate behavior. >> Following up on that point, and at the risk of being more demoralized- >> [LAUGH] >> The issue of balancing, having a culture and driving a culture of ethical behavior. >> Yeah. >> And also maximizing profitability and earnings shares. >> Yeah. >> Your talk presents a case of a real contrast, a real dilemma in not being able to do both. Do you have any optimism- >> [LAUGH] >> That there can be a balance made there? >> Yeah. >> Corporate leaders can really believe they have an ethical business, as well as maximize shareholder value? >> I think there are really two answers to that notion, the sense of, is it possible to do both? And I once ran an organization called The Business Enterprise Trust, which was made up of corporate leaders in America. All household names that most everyone here would know. And they debated this question, extensively. And frankly they split on the point. There was a certain percentage, we had about 15 of CEOs of big, big companies on the board. And about a third of them, when they were out of the public eye, said this is gonna cost money, and it's gonna be a real problem to do that. And a third of them, in a way I think is almost naive, I hate to say that but I think, naive. Said you always do the right thing and it's always gonna be the most profitable. And I guess I don't believe that. There was another group that I think is wise and may be the position you're suggesting. Which said, hey you can make a lot of money either acting ethically or unethically, so why not be ethical? So that suggests your point, about hey, it's possible to have an ethical business and operate ethically and still make money. What I worry about is the temptations at the margins. Yes, that's going great, and then we have a down quarter. The second quarter of 2002 just weighs heavily on my mind because we had so many blue chip companies in Silicon Valley falsify their earnings. It was great and they were companies, a lot of them very strong ethical language. But when push came to shove, how many of them manipulated things and were caught, when their wealth was about to evaporate because of the tech bust in 2002. So I got very discouraged, maybe that's where my, not my cynicism, but my discouragement really began, was at that point. >> So talking about ethics and the responsibility to their customers, to use Verizon's competitors as an example, for Time Warner Cable and the cable companies And how there is a massive outrage between all their customers about how unethical that they essentially hold their customers hostage. To what extent do you think companies have to listen to their customers when it comes to ethics, even if they know that they cannot listen to them and still make a huge profit? Do you think that that will have any incentive for them to act ethically as opposed to looking internally? >> And again I'm not up to speed on this, I would say, on this particular dilemma, so I won't comment on it. I think companies generally need to listen to their customers for some good indicators about where people are in pain. And so one of my favorite columns, and it was in The Haggler in the New York Times Sunday column yesterday, that was about this company that provides prisoners telephone services. But There's case after case in that column of where companies simply are not listening to their customers. And are making suboptimal decisions even for their own long term profitability, that's the thing. In some cases though, the point made here, the point The Haggler made, I can't remember what his name is, the columnist, but writes under The Haggler, was that there is a slow process of regulation that is finally going to solve this problem. But that the companies have been able to hold it off for a couple more years, so they can make a couple more years of these obscene profits off of these prisoners. And that just really discourages me, that kind of an attitude. But I think long term, at least that one, they'll get caught. Regulation will finally resolve it. What happen was there was an omnibus bill put through to solve this problem three years ago, and companies defeated the portion. They said, well all we have to do is cover inner state phone calls. So they're regulated in terms of the amount they can charge, but not inside intrastate. And so now, and of course most, inmate phone calls are made within the state. So they basically avoided the impact of the regulation. So that was discouraging. Sarah, microphone. Please. >> Am I up? >> Sure, although I'd like to encourage the students to jump in, because these are the questions that will be guiding your careers, maybe. >> [LAUGH] >> But, go ahead [INAUDIBLE] >> So one thing you said was that- >> He's young. [LAUGH] >> I appreciate it. You said we have made lots of headway on compliance but not much headway on ethics. So I want to give you an opportunity to revisit that. Many of the examples you gave Enron, WorldCom, Walmart. These are all cases of noncompliance, which was sort of straight up illegality. So what makes you confident that we have made progress on compliance? Why not be even more pessimistic than you say that you are? >> [LAUGH] Somebody observed, we're making great headway in compliance as it's directed at lower level employees. That's a really cynical attitude. But not with the senior executives who end up at that moment when you're not gonna meet the earnings this month or whatever. I do think companies have done a good job briefing their employees. It's getting better. About five, six years ago, when I began doing the China work, I started to ask big American companies with operations in China, had they even translated their code of conduct into the Chinese language. And most of them were the answer was no. And I said, now how the hell can you communicate the company's commitment to compliance or ethics, if you don't even have it in a local language. So they've made headway on that. And there are many training programs being run now in Chinese around China by large American companies. I think there's progress being made. I think again, hotlines or helplines or reporting lines have improved. This notion of having outside vendors do it so that there's less of a chance of retaliation is a step forward. There are a variety of things that I think have improved in terms of compliance management. I just worry that the overall impression given is, we want minimum behavior. We want you to obey the law and regulation, but we don't know what it means to be ethical in anyway beyond that. I think it's very hard to inspire or motivate people by simply saying, we seek, there was this wonderful corporate value statement a few years ago, and I know Michael knows who wrote this, so I won't give his name, but it was by one of our colleagues, who is a consultant and he helped one of our largest American companies write a value statement that said, To reach beyond the minimal. I didn't think that was terribly inspiring. >> [LAUGH] >> But the concept was right on because he was trying to get them to reach beyond the minimum of compliance and adherence to the law, but it didn't have quite the rallying sense that, anyway. Students. >> [INAUDIBLE] >> [LAUGH] Michael and I have argued with each other for years. So here it comes again. >> I'm not actually arguing with you. I just wanted to pick up on Jeff's point. You see, it's a good question Jeff, but actually it confirms, I think, what Kirk has been saying. When you talk about Enron, they failed in compliance. When you talk about BP, they failed in compliance. But the point is they made those decisions, when ethics could have helped. I mean, they tried to do things that they thought would pass the compliance test or the minimum test. But if they really had strong values, and they were really thinking from an ethical point of view over and beyond just a compliance point of view, I think some of those actions would not have occurred. They did not. And I think that's partly what Kirk has been saying. >> Well, and in the case of Enron and its relationship with Arthur Anderson, for example. Those of you who are accountants, there used to be a large accounting firm called Arthur Anderson that for years was considered the most ethical and the most distinguished of our accounting firms, but which no longer exists because of Enron. And the reason was that their local manager in Houston where Enron's headquarters got talked into a whole series of interpretations of accounting practices, which came back to haunt them. And were improper interpretations, and hid many of the transactions that Enron was accomplishing. And when Arthur Anderson was successfully, prosecuted is not the term, but, charged with having gone along with these abuses, it was the second time in three years, four years, and when they had been caught, Arthur Anderson had been caught in a fraud three years earlier. They had promised that if they ever got caught in another big one, they would dissolve themselves. They thought this was the ultimate committment to, we're gonna be ethical from here forward. And when they had another one, Enron in 2001, Arthur Andersen had to dissolve. It was a sad, sad case cuz it was a very distinguished firm with many, many really ethical and exemplary partners. >> [INAUDIBLE] >> Yes please. So what advice would you give to an employee whose employer puts them in a position where they either act unethically or get fired type of thing? >> We have a colleague by the name of Mary Gentile who is making her contribution today with what she calls giving voice to values. If you put that in a search engine, you'll get a lot of useful information about strategies for raising issues in that kind of context. She believes that what we fail to teach in ethics is practically how to raise an issue and not get fired. And so she's developed a whole series of good tactics for that. So, I think that's part of the answer is no, we don't want to fall on our sword every time we have an ethical issue to raise. What we want to do is and I sort of sequence in this way, you go first and you say, did I understand you correctly? You want me to falsify this record? You want me to skip that test and sign that we did it? And then when he says that, then you say, well, gee, isn't that gonna get us, you act dumb, it's a great strategy, I've made it a part of my life. >> [LAUGH] >> You act dumb and ask a lot of questions and at some point >> the manager that you're dealing with may either realize that he or she is in some really tough territory that they could get in trouble for asking you to do this. Or they realize that it's more trouble than it's worth to try to do it now that you've challenged it. Now, you may hurt your reputation with that manager. But do everything short of threatening to report the bastard to the hotline. I just wanted to add to the point that some companies, in response to those kinds of concerns, many instances in the past, a person would be in that situation and they would do it because the boss told me to. And they felt, well, I didn't have any choice. A lot of corporation codes of conduct now have language in it, as ours does, that stipulates even if you are told to, or informed by your superior, you're still are culpable. So there's not a scapegoat there that someone can say, well, the boss told me to do it. You have to have some accountability individually, and you can't defer because someone in a higher position directed you to. It doesn't alleviate your accountability. So we're gonna, I can see you maybe felt caught between a rock and a hard place. If you challenge this person, you may hurt your reputation. If you report, you're doing what the company wants, but you still may hurt yourself within that unit or that group because you didn't go along. Let me just tell you one other story. There's a distinguished Army general by the name of Thalia Bu, the first Filipino U.S. Army general. And he was number three in Afghanistan, in Iraq about six, seven years ago. When the Abu Ghraib scandal broke, and the Three Star General called him in and said, we've gotta have a Two Star General run this investigation. And we need for the credibility of the army and for what's ethically right, we've gotta have an honest investigation. And a thorough investigation. And I know this is going to destroy your career, as the investigating officer. But your number came up, I want you to do it. And the guys said, all right, saluted, did it. It didn't have, he felt any more he felt promotional opportunities because of having criticized all the way up to the top of the chain of command. His report was really thorough, a really good ethics investigation. And he did his job. Did his job for the American people. Did his job for the long term interest of the Army. But destroyed his credibility within the organization. And he didn't feel people would touch him. So he went ahead and retired as soon as he finished the investigation. And he feels good about what he did. It was just, his number came up. That was what he was called on. I do believe, maybe it's my religious background, but I believe we're all called upon to do certain things in our lives. And when that happens to you, maybe that's what you've been called upon to do. And I think long-term, you're gonna feel better about having raised the issue. You, hopefully, have the skills to raise it in a way that reduces the chance you pay a high price. But it may be that you, in a particular circumstance, you do pay a high price. If I could speak to that a little bit. As one of the investigators who's done investigations where people have come forward and have said, we have a problem. I've been able to do those investigations and not put my career at risk because, I'm sorry, all right. Sorry. I wasn't speaking close enough to the microphone. On those investigations, where Greg has talked about corporation with the codes of conduct with standards that we want, need, insist that employees follow. There is also, in our neck of the woods, a system of having people come forward to report where they feel free to do so. So that you, as the person who has this ethical dilemma, can speak to it and we can work with it, get to the bottom of it without you putting your career at risk. And what I started as, as the officer doing the investigation. I'm not putting my career at risk in doing the right thing either. If you don't have that mechanism, and that is a compliance mechanism that is there to enforce those ethical standards, it can become a loop which works. >> Mm-mm. >> So where you speak, do I have this problem? What do I do? The corporation that you have chosen, that has chosen you, if it's worth its salt with that mechanism to get to the bottom of it, to do the right thing. And, hopefully, you will able to, it'll protect you at the same time. So when I would start an investigation, one of the first things that I would say is, listen, you have not only a right but a duty to come forward if you know something. And the company has a duty to protect you once you have come forward. And we say that, we insist on it, and I think that day by day, we make that work. >> One last question. This will be the last question. Right here in the back. My question is, what type of corporate processes or structures are necessary to harness the power of ethical dilemmas? >> Of ethical? >> dilemmas. >> Well, what you hope for >> is an openness on the part of the company to having all of us raise these questions. Put yourself in the shoes of either of these corporate executives in front of you, or of any of us as we go to work in a company, what we hope for is >> that if we come across something that is not right, that there is an openness to hearing from us. If there's a mechanism for investigating a compliance question, that's great. But beyond that, we hope that there's an openness and a willingness to talk about an ethical violation. Back in the 70s, one of the issues was integrating the private clubs. Companies would buy memberships for their executives in private clubs. Well, it was immediately clear, I was in Chicago trying to integrate the private clubs in Chicago, that some companies were willing to talk about that issue. And others were not. So you hope that your company will be open to that or that your particular boss, your supervisor will be open to that. That's really the most important thing and I guess what I try to pitch to senior managers is, hey, you may not necessarily feel at first blush this is an ethics issue or that it's an important ethics issue, but you better listen cuz somebody in your organization does think it's important. And you better take the time to listen and help that person think it through. So I think that's a structure, if you like, or a culture of acceptance on the part of managers and supervisors. You do hope there's an effective, ethical and compliance organization that'll investigate your reports. The good ones both have anonymity possible and guarantee you no retaliation. So those are a structure, if you like. I think those are some of the things. There's a whole set of tools that I argue a manager has to manage the ethical culture of the organization and those are amongst them. So, thank you all very much. I've greatly enjoyed being here. >> [APPLAUSE]
The Six Ethical Dilemmas Every Business Professional Faces - 02/03/2014
From Kaltura MediaUser March 21st, 2017
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