SECTION 2B – WHAT GETS IN THE WAY OF ETHICAL DECISIONS IN
BUSINESS?
READING 2.4 – HOW LEADERS LOSE THEIR WAY: WHAT PRICE HUBRIS?
Use PowerPoint Slides 51 and 52.
Answers and Key Discussion Items
1. The credo keeps you grounded. Andersen’s credo was that he would never certify statements that
were not accurate and yet the firm lost its way by being willing to sign off on Enron because they were
2. Things that would help – get feedback from front-line employees and allow it to be anonymous so that
employees can speak candidly. A focus on things outside of work can distract from the materialism
that consumes leaders who do not keep values with them. They should also work on developing
3. Mr. McCoy lost his way when the goal and achievement became the sole means of measuring his
success and whether his experience was worthwhile. When he stepped back he realized that he had
Compare & Contrast
There are some obvious differences. Mr. Wilberforce’s grounding came from his involvement in things
other than just Parliament. That power was not the end-all to his existence. He had a purpose for his
position and political power – he had a moral goal that he wanted to accomplish and he pursued that, not
READING 2.5 – MORAL RELATIVISM AND THE EITHER/OR CONUNDRUM
Use PowerPoint Slide 53.
Discuss with the students the dangers of framing an issue by “Either I do this or
________________________” with the “or” spelling out some awful fate.
Answers and Key Discussion Items
1. Students often fall into, “Either I get the homework from someone else or my grade is ruined.” “Either
I get this job interview or my life is over.” “Either I get this GPA or I can’t get into law school.” We
2. One of the lessons from Ikea’s experience is that there are some countries in which you do business
that the corruption is so rampant that you have to face the reality that doing business there will be a
READING 2.6 – P = ƒ(x) THE PROBABILITY OF AN ETHICAL OUTCOME IS A
FUNCTION OF THE AMOUNT OF MONEY INVOLVED: PRESSURE
Use PowerPoint Slide 54.
Discuss the research that shows a company’s vulnerability to ethical missteps if the company has been
on an earnings roll.
High aspirations, high expectations, and prominence are indicators of illegality.
Discuss the U-Haul truck and the eaves example.
Answers and Key Discussion Items
1. You could draw on the example of J.P. Hayes from Unit One – Use PowerPoint Slide 16. John
Adams, second U.S. president noted, “When conscience claps, let the world hiss.” Other examples
2. Tourre felt the pressure of his salary/compensation. He was paid $2,000,0000 per year so he was
unwilling to rock the boat. He had been designated to handle an important client and a large offering
3. Your credo helps you determine in advance what you would or would not do in a particular situation.
Because you have thought about it in advance, you are not as vulnerable when the pressure hits.
CASE 2.7 – MF GLOBAL, JON CORZINE, AND A BANKRUPTCY
Use PowerPoint Slides 55 – 58.
There are two pieces of good news in MF Global’s collapse. The first is that MF Global was a small
enough firm that its demise was not the stuff of market destruction. The second is that a financial firm was
allowed to collapse based on its high-risk, misguided investment strategy. There is some small comfort in
knowing that the market is, on occasion, permitted to discipline those who do not perform well through
consequences, including failure.
However, there is also bad news in the MF Global collapse. Despite all the post-2008 market collapse
regulation, there are neither rules nor regulatory oversight in place to catch these behaviors before the
losses.
The behaviors at MF Global reflect an unwillingness to internalize the lessons of 2008. The highly
leveraged, risky strategies of Wall Street have continued despite the pain of 2008 and amidst the
ever-growing body of evidence.
The qualitative tool that remains untapped by investors in evaluating companies, portfolios, and
developing problems is the ethical culture of companies. The culture of a company is as determinative of
returns (indeed, perhaps more so) than anything an Excel spreadsheet can produce for pro forma
optimism. Quantitative optimism should be tempered by qualitative ethical culture factors whenever we
evaluate a company, an investment firm, or the leadership skills of those running either.
The MF Global collapse reflects a pattern similar to that of other collapsed companies on Wall Street. The
pattern has repeated yet again and another company has collapsed as it attempted to defy logic, reason,
and the inevitability that its failure to disclose bad news would be its downfall. However, the bright spot is
that we can learn from MF Global the same lessons that we should have learnt from the era of the
savings and loans collapses, the dot-com fraud, the Enron period, and the 2008 collapses.
1. If the numbers sound too good to be true, indeed if they defy market reasoning, they are too good to
be true. Knowing the numbers is not enough – how did they get those numbers and what patterns are
emerging in the reporting of those numbers are two critical pieces of information in assessing
performance.
2. Always question the icon. Past performance and recognition are never good determinants of success
going forward.
3. Watch the philanthropy. Remember the adage of Ralph Waldo Emerson, “The louder he spoke of his
honor, the faster we counted our spoons.”
4. Follow board meetings, board agendas, board activity, and board involvement. Be certain the board is
questioning the icon.
5. Check relationships between and among board members and regulators – the closer the
relationships and the more relationships there are, the more slack the company may have. MF Global
helps us to realize that regulatory slack does not always serve investors or customers well in terms of
risk and protection of funds. Conflicts matter because they affect judgment.
6. How are we performing at a level so much better than others? Why do we pursue aggressive
accounting practices? Do we fancy ourselves different from others? Above the fray? Not subject to
the ordinary requirements and rules of business?
As a result, MF Global customers are left in limbo, unable to withdraw their funds and unclear about
whether they even have any funds to withdraw.
When there are conflicts of interest present between and among those responsible for regulation or
oversight of a company (whether board member or public official), the result is less scrutiny, favoritism,
and a diagnosis bias that prevents an objective look at what is really happening at the company and
examination of vulnerabilities. Conflicts of interest do not always produce the eye-popping
self-enrichment. Often the more damaging conflicts of interest are those in which regulators and board
members choose to think the best, despite signals to the contrary. Those charged with oversight simply
conclude, “Oh, Jon is a friend. He would never do such a thing.” That conclusion ends the inquiries that
are needed, particularly with high-risk companies.
Take a gander at the money management skills at former Senator Jon Corzine’s MF Global firm and you
witness activities that give a whole new meaning to the term “shell game.” What has emerged about the
frantic transfers of funds during MF Global’s final days before bankruptcy is disturbing on so many levels,
but there are two shining exemplars amongst the rubble and now emerging ruffian tactics of the firm
taking money from Peter to pay Paul, even as Peter was clueless about the use of his funds. Oh, what
backbone was demonstrated amongst the desperation!
As MF Global tried to transfer funds to settle accounts with trading partners, the folks at JPMorgan Chase
put out a big, “Whoa, partner!” and questioned the source of the funds being used. The bank with a
backbone inquired as to whether MF Global was using customer account funds in violation of CFTC rules.
JPMorgan wouldn’t even take the assurances of a backroom flunky that MF Global responded with; it
wanted Mr. Corzine to provide a written guarantee that the funds were not coming from customer
accounts. That wily chairman Corzine handed the request for a written guarantee off to MF Global’s
general counsel, Laurie Ferber. Ms. Ferber refused such assurances on the grounds that MF Global did
not provide such special assurances.
Now, the author realizes that Ms. Ferber’s response was both code and protective language because no
lawyer with an IQ over 30 would have signed his or her name to such an assurance when said counsel
had probably figured out that MF Global’s books and records would have finished first over Berford’s Gas
and Guzzle in a contest for seat-of-the-pants efforts on cash-flow accuracy and internal controls. MF
Global filed for bankruptcy two days after the Ferber refusal. Be that as it may, when an elephant flies,
you don’t fault it for not staying up in the air long enough.
The bottom line is that both JPMorgan Chase and Ms. Ferber did the right thing – they refused to allow
transactions to go through that might be in violation of the law – transactions that would result in the
depletion of customer accounts. They both showed backbone and stood up to Mr. Corzine, a powerful
political and Wall Street figure. Through their actions they threw down the penalty flag and stopped the
game. When we are treated to a witness of backbone, hope springs eternal for market trust. Next time,
just throw down the flag a bit earlier so that Peter doesn’t lose so much.
Answers and Key Discussion Items
1. The decision points and conduct:
a. Corzine overriding the risk officer and his input.
b. The risk officer being fired for raising questions.
c. The new risk officer being relegated to being quiet.
d. The weakness of the board in responding to Corzine.
e. Lobbying the government for changes to increase risk.
2. Michael Roseman, risk officer who raised issues to the board and left the company when no one
would heed his warnings about risk. Laurie Ferber, MF Global’s general counsel who would not
3. When there appears to be no methods in place to stop the misuse of customer funds.
4. With Mr. Corzine – he was following a strategy and trading practices that others were warning him
against, but he could not bring himself to heed their advice. In fact, he did the opposite and got rid of
CASE 2.8 – ON SAYING ONE THING AND DOING ANOTHER: PUBLIC
PERCEPTION AND DECEPTION COVERING FOR THE CEO
Apple’s position is that health is a private matter. Analysts’ position is that if Jobs leaves then Apple’s
stock drops 25%. The SEC’s position is that companies must disclose material information. And so we
swirl. “None of your business,” is not the stuff that puts rumors to rest. Maybe a firm, “You can’t handle the
truth,” would be less controversial. Or maybe Apple needs to escape the either/or conundrum. The
either/or conundrum arises when we have two good values in conflicts. Here, one value is telling the truth
about the health of a CEO. Another good value is preserving shareholder value. Apple assumes that by
keeping mum about the health issue that it can walk a fine line and honor both conflicting values. But
“mumness” can be deceptive. And Apple has been blinded by assumptions as well as by its failure to think
along the lines of succession planning. If all Apple now has is tied directly to Jobs, the company has not
done its work in terms of creating a culture founded on the Jobs’ principles. Jobs’ departure, for whatever
reason, will be a death knell if all Apple has is Jobs. Perhaps, though, Apple could use a little
self-confidence. Perhaps it could also begin communicating that part of the story to shareholders and the
market, to wit – We really can sally forth without Jobs. Maybe Jobs could even lend his voice to
acknowledge that Apple can and will go on, post-Jobs.
Rather than mucking about in the “health is a private matter and not material” arguments about its
close-to-the-vest approach, Apple might try the release of information that is not private but is material.
That information would be that the company has a succession plan in place, that its culture is strong, and
that it will go on to preserve the Jobs’ legacy. The stock drop assumption exists not because Jobs would
leave a void but, rather, because investors, shareholders, and analysts believe there is no “Carry on!” in
place. Dispelling that rumor is the heart of the issue, not the “to disclose or not disclose” whether Jobs is
ill. When we fall into the either/or conundrum, it is almost always because we have not addressed an
underlying problem. The either/or conundrum is the symptom of being caught between a rock and a hard
place, or, trying to preserve two good values by breaching another.
Answers and Key Discussion Items
1. In the cases listed, the reasons given for departure gave a false impression because the conduct of
the departing officers after the departure belied the reason. The family reason does eliminate
questions about what was really happening at the company and may preserve the value of the stock.
However, have the students think through the consequences for the company, if only from the
Yes, the family-time statements do preserve dignity, but there’s that emotion getting in the way of
what really is a clear test: Is this information true? Is it misleading? Why are you using a different
2. The legal issue here is whether the statement is intentionally false. If the executive agrees to the
statement, it would be difficult to establish fraud because there was, at the time, at least some truth to
the statement. However, in the classic ethical sense, shareholders and markets are misled about the
3. Those who occupy high political office or high business positions or are famous athletes or actors or
singers are watched for their examples. This reality may not be popular, but it is a reality
nonetheless. Personal lives are inextricably intertwined. They want to believe that information can be
4. The belief is that the reasons given save face for those involved as well as their companies or
sponsors. However, as noted in all of these situations, the truth does eventually percolate and then
Compare & Contrast
In comparing his conduct with the CEOs, there are remarkable similarities – both are trying to keep
negative information from becoming public. Both are facing some issues that is embarrassing for them or