Thinking Ethics

Executive pay - how much is enough ?

Executive pay is going to be the hot topic at shareholder meetings in 2006. The revolt of shareholders in the face of excessive severance packages (Coca-Cola company to pass all executive severance packages above 2.99 times annual salary + bonus in front of shareholders) got another boost with the Texas bankruptcy ruling on Enron (more). Apparently 40 former traders will have to return $ 20 million that they received as bonuses right before the bankruptcy. In fact, Enron paid out $ 105 million in the days preceding the filing. What were they thinking of ? That nobody would notice ? This surely will influence board memberse as they give out bonuses for the results of 2005. Corporate Library, a corporate governance watchdog, does an annual survey which shows the median total compensation increase of chief executives in 2004 to be 30%, compared to 15% in 2003 and 10% in 2002.

Another sticky issues is the transparency of total executive compensation. The SEC wants clarity, and this will extend to the valuation of pensions and stock options; the first update of the disclosure rules is expected to be published soon. The treatment of options has been in the news again, because the new rules requiring companies to expense options take effect on Jan. 1, 2006.  Some companies dispute the new rule, saying the effect of options is the dilution of other shareholders and not an additional cost to the business. In any case, it is going to make comparisions difficult, especially in the high tech sector. A lot of restatements are going to be presented in order to explain the numbers. If nothing else, it will influence the boards of directors, and so the bonanza of stock options is probably over, and companies will be less generous in granting them.

Executive pay reform

The Teamsters have announced that they have won executive pay reform at the Coca-Cola company (link). This would oblige the company to submit all executive severance packages that exceed 2.99 times annual salary + bonus to the shareholders for approval. Somehow I feel that the board has not done a proper job in this matter if the shareholders are now taking this decision competence back...

Good summing up

A very good article in Ethical Corporation entitled "Leaders: ten years from 1995 - Corporate responsibility in modern time" gives an overview of the main developments and watershed events in the area since 1995. Besides concluding that ethics cannot be legislated - it is not a box ticking exercise - it stresses engagement, communication and partnership between society's groups as the way to go. The articles also looks forward 10 years...

Measuring performance in science

The scandal of the South Korean clone scientist, Dr. Hwang Woo Suk, who faked stem cell experiments, is fostering a much needed debate on how to prevent and catch scientific fraud. Research is mostly self-monitored - which means that peers, or experts in the same scientific field, review to work to see if the studies are ethical and conducted well. We already heard about the ethical debate of Dr. Hwang's research in that he used eggs donated from researchers working in his lab (considered unethical because they might have been forced to do it) . The part about how the research was conducted is usually reviewed when the work comes up for publication. Most journals give the articles out to review boards who rely on experts in that particular field. But the researchers and the journals want to be first to publish, so the review boards are under a lot of time pressure, and mostly only review the material submitted to them (no side trips to check the data, etc...). Most often the fraud cases we hear about are denounced by colleagues in the same lab, who catch on to something and speak out (again, the need for whistlerblower protection).  A lot of the discussion is now going towards the compulsory teaching of ethics at universities and research labs, and one cheater can ruin the reputation of the whole organisation. But as it has always been in all fields, the moment you measure performance, there will be people trying to bias the system. In order to maintain credibility in the measurement systems, education will not suffice, we probably will need a combination of education, regulation, peer pressure and public opinion.

Ethical Fashion

Check out www.ethicalfashionshow.com , which seeks to be a unfying event with three objectives: promote ethical fairness, foster dialog and information exchange between companies concerned by fair trade and sustainable development, and provide an information base for interested parties.

Whistleblowing at the UN

Björn Rohde-Liebenau, of Risk Communication in Germany,  just sent me the new regulation (effective January 1, 2006) of the UN on whistleblowing. Lots on when and who to report to, as well as protection of the whistleblower. Took a long time coming - but well worth the wait.

Blog ethics movement afoot

After launching the Bloggers Code of Ethics in 2003, CyberJournalist.Net informs us of Nick Denton's (publisher of Gawker Media) call for the creation of a Blog Ethics  Committee.  Jason Calacanis has just registered  blogethics.org and has asked Jeff Jarvis of www.Buzzmachine.com to join in. Great news - but how will it be enforced ? If the net is an open space where everyone can voice an opinion, will the collective view of what is considered bad behavior in the blogosphere be sufficient to drive out the perpetrators ? Or are we going to need some virtual tar and feathers ? If they develop into some form of moral authority, will this be very un-net ?

Ethics vs fight against terrorism

Most people working in the field of ethics will agree that you can't hold individuals in survival mode to the same standards. But what about the fight against terrorism ? Does this situation justify the suspension of basic human rights ? A good summary of the issues on intelligence gathering, role of the free press in disclosing secrets and interrogation of suspects in the US battle against terror is given in this article from globalethics.org. The "national security" argument used by the US administration to counter any disclosure by the press, or complaints by groups or citizens is beginning to feel a bit lame...

Assisted Suicide

The university hospital of Lausanne, Switzerland, has just announced that it will allow assisted suicide on its' premises as of January 1, 2006. The Swiss Medical Association and the National Committee on Ethics have both backed the university's stand. The difference between euthanasia and assisted suicide is that doctors do no directly administer the fatal dose of drugs, but give the patients the means to do it themselves. The university believes this respects the wishes and independence of patients. It will only  apply to patients who are incurably ill and of sound mind. This is the first time in Europe that a hospital will be providing assisted suicide. It is not against the law in Switzerland, but the other two organisations, EXIT and DIGNITAS in Zurich, are not in hospital environments.  more

Checks and Balances

The problem with the same party being in power and having a majority in congress, is the perceived and actual favoritism of the oversight responsibility. An interesting article by Dana Milbank in today's Washington Post entitled "Bush's fumbles spur new talk of oversight on Hill" gives a good description of the problem. Apparently it seems nothing was too small to investigate under the Clinton administration, and nothing is too big to ignore under the Bush's presidency. We are talking 1052 subpeonas to prove misconduct under the Clinton administration during the period 1997-2002 at a cost of 35 million dollars, compared to 3 under the Bush's administration.  The legislative branch has abandoned most of its oversight responsibilities because of agressive actions by this administration and  acquience by congressional leaders. The House ethics committe really needs to be reformed: it has not opened a new case in the past 12 months ! If bipartisan oversight cannot be achieved in order to reform the House, then there should be some mechanism for independent enquiry and oversight.