Santa Clara University


Business Ethics in the News

A discussion on the week's top business ethics stories by Professor Kirk O. Hanson, Executive Director of the Markkula Center for Applied Ethics, and Patrick Coutermarsh, Fellow in Applied Ethics and recent graduate of Santa Clara University.

  •  IMMIGRATION REFORM: Retraining vs. Hiring Abroad

    Friday, Jun. 28, 2013

    Thursday, the Senate passed a comprehensive immigration bill, which among other effects will allow Silicon Valley companies to hire more foreign engineers. Tech firms have long been voicing concerns about the shortage of skilled workers in America, and have lobbied for the ability to import more foreign talent by increasing the cap on H1-B visas. Labor groups have been pushing back by arguing that equally qualified Americans be offered jobs before firms look abroad. They also argue that firms should retrain current employees before looking abroad for the most up-to-date workers. Some studies, such as one published by the Brookings Institution, have found that the presence of high-skilled guest workers does not have a negative impact on the employment levels of college educated-Americans of that area. Do tech firms have an obligation to hire Americans over foreign talent?

      Kirk: I believe companies should commit to some level of retraining. Too many Silicon Valley companies see foreign engineers as the solution to all hiring needs, and even as low-cost temporary labor. At minimum companies ought to be working with academic institutions, including online learning companies, to prepare American engineers for the latest technologies.

      Patrick: Companies should invest in their people, but those people do not necessarily have to be American. While Americans do not have a special claim to jobs at American firms, the rate at which American employees are being left in the dust by new technology is problematic. Firms must embrace that there is a dual responsibility in keeping employees up-to-date: it’s on the firm to offer the opportunity for continued training, and on the employee to take them up on it.

    A Bill Allowing More Foreign Workers Stirs a Tech Debate

    A Framework for Thinking Ethically



  •  SJSU: Corporate Transparency in High Profile Terminations

    Monday, Jun. 24, 2013

    After ten months since the initial accusation of sexual battery, San Jose State University (SJSU) has ended its relationship with lecturer Jeffrey Mathis. Last August, Mathis allegedly sexually assaulted a female student during a private meeting set up to discuss the student’s grade. SJSU took little action over the first nine months and refused to discuss the matter publicly; although, a university spokeswomen confirmed that there was no formal disciplinary hearing or punishment for the accusations. In response to heightened public scrutiny, spurred by a NBC Bay Area report and a student-led petition, the university has informed students “Mr. Mathis is no longer employed by SJSU.” While many are pleased with Mathis’ departure, there is growing concern over the lack of transparency in SJSU’s decision, including whether Mathis left voluntarily. In cases that raise important questions about boss-subordinate or professor-student relations, are employees or students entitled to know how the issue was resolved? Is the public entitled to an explanation of Mathis’ departure?

      Kirk: Companies and universities often resolve situations informally and with no formal admission of guilt. That can be the right solution, but it can also be a cover for letting the perpetrator off easily, and can create distrust in management. It’s a close call, but I think managers have to have the ability to resolve cases quietly and informally. Remember, that in 1973, the Attorney General let Spiro T. Agnew resign as U.S. Vice President rather than prosecute him, in order that they could get him out of the line of presidential succession immediately.

      Patrick: The details of this incident demand more transparency than SJSU has offered. For one, SJSU is a public institution that should be accountable not only to its students, but also the taxpayers that support it. Also, there appears to be grounds for at least investigation into criminal charges, making transparency even more critical. Incidents such as this are opportunities for institutions to “put their money where their mouth is” when it comes to mission statements and compliance agreements, and students/employees are entitled to know that they did right by the organization’s values.

    No Discipline for Faculty Member Who Admitted Crossing the Line

    Faculty Member Accused of Sexual Assault No Longer at San Jose State

    A Framework for Thinking Ethically



  •  BOOZALLEN: Rethinking Corporate Policy Toward Whistleblowers

    Friday, Jun. 21, 2013

    Edward Snowden, National Security Agency whistleblower, has been fired from his job at Booz Allen Hamilton. This month, Snowden went public with details on the NSA’s PRISM, a government surveillance program, which he gained through his work at the firm. Booz Allen released a statement confirming that Snowden had been terminated due to “violations of the firm’s code of ethics and firm policy.” With its primary business involving highly sensitive government information, it is no surprise Booz Allen places a premium on discretion. Nonetheless, news of NSA’s PRISM program has been embraced by the public, and has sparked calls for open debates on the program from both members of Congress and President Obama. Whistleblowing is often detrimental to a firm’s short-term financial position, but has proved to be a valuable practice, from society’s perspective, in keeping firms and governments accountable. Did Booz Allen handle Snowden’s whistleblowing case correctly? Should companies leave room for principled whistleblowing on some issues?

      Kirk: It would be very hard to construct a policy that allowed employees to violate some obligations of confidentiality or specific performance for clients. Snowden had opportunities to raise his concerns internally within Booz Allen, or to resign and end his complicity with a system he felt was unethical. If Snowden felt he had an obligation to violate his own contractual obligation to secrecy, he should be willing to be tried and even prosecuted. Civil disobedience is most powerful when it demonstrates the whistleblower’s willingness to pay a price to get the word out.

      Patrick: Firms like Booz Allen would not exist if they included a “whistleblower clause,” as their business is predicated on secrecy. On the other hand, there is great concern over the efficacy of “internal whistleblowing” and its fairness to the whistleblower. The company retains the power to sweep both the issue and the whistleblower under the rug, through stripping the whistleblower of responsibility and power over an extended period of time. Ideally, the public would band together to provide a safety net to whistleblowers, allowing whistleblowers to speak up despite lacking company support; but, can we trust the masses to get these things right?

    Booz Allen Fires NSA Whistleblower Following Leaks

    A Framework for Thinking Ethically



  •  PRISM: Should Firms Participate in Government Data Programs?

    Thursday, Jun. 13, 2013

    Silicon Valley companies, such as Google, Apple, and Facebook, are under tremendous pressure for their participation in the NSA’s PRISM program. The Washington Post’s news breaking article on PRISM claimed that the NSA and FBI had direct and unfettered access to the servers of nine major Internet companies: some have now denied this. To salvage users trust, a number of these companies are petitioning the Attorney General for to make public the types of requests they have received from the NSA as well as the percentage of those requests that they facilitate. The hope of the disclosure is to dispel the public perception that the NSA has direct access to company servers, and instead portray their participation as both legal and limited. Transparency of the nature of their involvement in PRISM is a positive first step to regaining user trust, but these companies still find themselves in a double bind between assisting matters of national security and respecting their users’ privacy. Going forward, should companies be participating in these national security programs, and to what extent must users be informed?

      Kirk: We are badly in need of a new national debate over what the Patriot Act has authorized. Data on our phone calls, email, shopping, travels, and web surfing sits in the servers of private companies. The key questions are what data can companies keep, how much aggregation of data from different sources will be permitted (data mining, big data), and when will the government be allowed to look at and “mine” the data. Threats to individual privacy are many. The impacts of losing our privacy are not well understood. For now as much “transparency” as possible, and some resistance to overbroad government requests, constitute a good ethical stance, in my view.

      Patrick: I agree with Kirk, as much transparency as possible is the first step. Moving forward, there are a number of things that companies should be doing to preempt future ethical dilemmas between national security and user privacy. First, technology firms should form a coalition to establish a unified stance on this issue. That way, individual firms are not “bullied” by government agencies into sharing user data, and a baseline for future instances will be in place. This baseline will allow users to have a better understanding of the way their data will be used, and will place responsibility on individual firms for making known their policies through user agreements.

    U.S., British intelligence mining data from nine U.S. Internet companies in broad secret program

    Google, Facebook, Microsoft push US for public disclosure of security requests

    A Framework for Thinking Ethically



  •  THE GOOD NEWS: Cisco's Innovative Code of Business Conduct

    Friday, May. 31, 2013

    Cisco Systems Inc. made news this month for publishing their Code of Business Conduct into interactive e-book format for its 73,000 employees. From the start, Cisco had the goal of “bringing the COBC to life,” and through embedded videos, animated content, and intuitive design, they’ve succeeded with flying colors. The interactive e-book allows employees access 24/7 from any platform, a needed feature with 85% of employees working from home or on the road. Annually, employees sign a contract stating that they will abide by the COBC. Simultaneously, Apple has developed an i-Book version of its code of conduct with content that can be continuously updated on recent "cases" at Apple and other companies on each code topic, plus endorsements from selected top executives on each topic. Apple has no plans to make its iBook visible to non-employees. 

    Check out Cisco's COBC with the link below, and let us know what you think! 

    Cisco: Code of Business Conduct

    Cisco E-Book Delivers Ethics on the Go

    A Framework for Thinking Ethically



  •  INTERNSHIP SWAPPING: Is It Unethical to Trade Internships?

    Thursday, May. 30, 2013

    Small business owners and corporate executives have long faced the problem of whether to hire their children for summer internships and entry-level positions. On one hand, executives know the importance of gaining “real-world” experience at an early age, but on the other, hiring direct family raises many concerns of favoritism and conflict of interest. In response, a recent trend has emerged: “internship swapping.” The quid pro quo arrangement works something like this; “I’ll hire your daughter for the summer at my law firm, if you give my son an internship at your accounting agency.” Taken at face value, it appears to be an elegant solution as neither firm has a familial connection to the new hire. Still, some argue that this is just another way of protecting the special opportunities for the well-connected. Should top executives be engaging in internship swapping?

      Patrick: Internship swapping is unethical as it involves manipulating company resources for personal gain. The company misses out on hiring the best available candidate, or worse, the position is created solely for the sake of “the swap” adding to bloat and inefficiency at the company. Hiring based on reputation and personal endorsements will always have a place in business, but internship swapping crosses the line.

      Kirk: Every company with a limited number of internships should develop a way of allocating those spots without favoritism. There is little difference between a top executive telling the head of internships to "hire my son" and "hire my friend's son." Either grants special treatment to the sons and daughters of the wealthy and well-connected. This is but a fig leaf to disguise the exercise of privilege.

    The Great Internship Swap

    A Framework for Thinking Ethically



  •  THE GOOD NEWS: Ethical Marketing at Coca-Cola

    Tuesday, May. 28, 2013

    This month, Coca-Cola CEO Muhtar Kent announced four worldwide business commitments toward promoting global health and well-being. In the press release, Mr. Kent sees the new commitments as “an evolution, not revolution—an elevation, not a revelation,” in Coca-Cola’s goal of making a positive difference in the communities they serve. The four commitments are:

    1. Offer low- and no-calorie options in every market we serve.
    2. Provide transparent product information, with calorie counts on the front of all of our packages.
    3. Help get more people moving by supporting physical activity programs in all of the 200-plus countries we proudly serve.
    4. Market responsibly, including no advertising to children under 12 anywhere in the world. 

    We think this is a step in the right direction for Coca-Cola, and a sign they are taking their social responsibility seriously. What do you think?

    Coke CEO on Global Well-Being Commitments

    A Framework for Thinking Ethically



  •  P&G: The Rise of the Activist Shareholder

    Friday, May. 24, 2013

    In an unexpected turn of events, Proctor and Gamble CEO, Robert A. McDonald, announced his resignation Thursday. Proctor and Gamble has faced a great deal of scrutiny from Pershing Square Capital’s hedge fund manager William A. Ackman, who faults Mr. McDonald for not addressing the company’s widespread inefficiency and excessive marketing costs. In a meeting in September, Mr. Ackman urged the board to replace Mr. McDonald, and again in a presentation this month where he argued that Mr. McDonald has been distracted by external commitments, among them serving on the boards of other companies. Mr. Ackman’s open battle versus Proctor and Gamble and its board leadership is hardly an isolated incident. Activist investors are becoming more prominent and outspoken: ranging from Mr. Einhorn calling for dividends at Apple; Mr. Loeb for splitting up Sony; to Mr. Ackman’s role in J.C. Penney’s failed transition. Activist investors are on the rise, and they are using tactics which some argue do damage to the company. Should the investing public welcome the rise of the activist investor? Or seek to limit their ability to make trouble?

      Kirk: The rise of hedge funds and other accumulations of capital has allowed some large investors to manipulate short-term stock prices to serve their own self-interest while damaging the well being of long-term investors. They act more like day traders than those investors in it for the long haul. Their objective is often just to raise the stock price long enough for them to get out. The rise of social media and other new media help their game. Management and long term investors must stiffer their backbones to resist such tactics.

      Patrick: I share Kirk’s concerns, but I think there’s an upside for everyday investors here. The current framework for communication between shareholders is fragmented and ineffective, making coordinated action difficult: probably intentionally. Prominent investors have the power to “round up the troops” and work toward collective shareholder goals. In response, companies will have to facilitate better communication between investors in order to check the power of individual activist investors. That way, companies will be insulated from rogue investors and shareholders get their voice heard.

    Abruptly, P.&G. Chief Ends Career of 33 Years

    A Framework for Thinking Ethically



  •  APPLE: The Ethics of Exploiting Tax Loopholes

    Tuesday, May. 21, 2013

    Monday, Congressional investigators disclosed a report finding that Apple avoided tens of billions in taxes on overseas earnings through a web of subsidiaries unprecedented in scope and complexity. Among the subsidiaries is Apple Operations International, AOI, which was incorporated in Ireland but is run by top executives in Cupertino. AOI’s income between 2009 and 2012 was $30 billion, yet has not filed tax returns in the past five years. In the US, corporations are taxed depending on where they were incorporated, whereas in Ireland it is dependent on where they are operated and managed. Accordingly, Apple has used the gray area between the two countries tax codes to create a “stateless” corporation exempt from taxes, record keeping requirements, and tax return filings. The panel has not accused Apple of breaking any laws, and Apple is certainly not the only company with similar tax practices. Nonetheless, some argue Apple is failing to pay its “fair share” of taxes to the US and other countries where it generates revenue. Does Apple have an ethical obligation to pay more taxes?

      Kirk: No one has argued that Apple disobeyed the law and no company is obligated to pay more taxes than legally required. However, Apple is exploiting outdated tax laws and the lack of coordination between countries to shield its profits. The result is that Apple pays far less than its “fair share.” Real people suffer when tax revenues are low. Apple’s ethical obligation is to take a public-minded role in the creation of a new tax regime that closes the loophole it’s exploiting.

      Patrick: Apple’s not the problem here: it’s the symptom of a failing tax code. To date, the tax code sets the rules of the game and companies play within them. The tax code needs to consistently adapt and change to companies’ behavior to ensure the desired results are achieved and that the proper incentives for those results are in place. Apple’s ethical failing, in this case, is their reluctance to call it like it is: Tim Cook at Tuesday’s Congressional hearing, “We don’t use tax gimmicks.” If the shoe fits . . .

    Apple's Web of Tax Shelters Saved It Billions, Panel Finds

    A Framework for Thinking Ethically