Category: business ethics

Kleptocrats

On By southwerkIn business ethics, Capitalism

Paul Krugman –

These days, we’re living in the world of the imperial, very self-interested individual; the man in the gray flannel suit has been replaced by the man in the very expensive Armani suit. Look at the protagonists in the global financial meltdown, and you won’t see faceless corporations subverting individual will; you’ll see avaricious individuals exploiting corporate forms to enrich themselves, often bringing the corporations down in the process. Lehman, AIG, Anglo-Irish, etc. were not cases of immortal hive-minds at work; they were cases of kleptocrats run wild.

I like the word, kleptocrat. It captures the sound of what it is, someone who can’t resist the lure of money, no matter what the cost.

The 21st Century might well be a hundred years devoted to kleptocracy in America. That’s pretty sad.

Do we have choices? Yes, but not the ones most people think of.

There is no return to a simpler moral age. There may be spots in American history where this virtue or another was more predominant than now but I promise you the trade offs are not anything you would want to play with.

What needs to be done is a combination of looking forward and looking backward, a fancy way of saying we should learn from experience but not react identically.

What am I talking about? Well, we’ve had kleptocracy before, roughly 1918 to 1929 maybe as late as 1931. We reacted by changing the balance of power between industry and government, imposing a large regulatory structure so as to never let the disaster happen again. Once that structure was abandoned, we fell into the trap once more. Except this time the force of the financial industry is such that no power moved to the government. We are at a stand still in the same spot where disaster struck in 2007.

There are three things that need to be done.

One – Corporations are creatures of the state, nothing more. They have the same living essence as a can opener if not less. The usurpation of human power by these moble documents is a pathetic farce a child can see through.

Return corporations to organizations under law, not as persons, as contracts. (which is what they are)

Two – Return morality to the law. First enlarge and enforce the duty of fair dealing, honesty and loyalty in business agreements. Those already exist in case law and often in statutory law. Let them be reborn as an integral part of contract law. But more than this, let us also revive the doctrine of unconscionability. The fees and contracts imposed on Americans regularly violate the basic standards of fairness. It is time to rein in those practices. If a practice “shocks the conscience,” a business, a corporation, shouldn’t be doing it.

Three – Give the owners of the corporations some say in what they do. Right now, a CEO and a board of directors are essentially unencumbered by oversight. The actual owners of the corporation have little say in the operation, major decisions and salaries of a company that are supposed to own. Isn’t a basic element of capitalism that the owner of property should be able to exercise rights in it?

That’s a start. Really, we’ve already been through these kinds of crisis before. Generally we know what to do. But there is no willpower, intelligence or wisdom to do it.

James Pilant

Rogue Columnist Recommended Reading!

On By southwerkIn business ethics, Capitalism

From the Rogue Columnist –

The shelves groan under the number of books written about the financial crisis, its aftermath, causes and needed fixes. My favorites are Freefall: America, Free Markets and the Sinking of the World Economy, by nobel laureate Joseph Stiglitz; 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, by Simon Johnson and James Kwak; Crisis Economics: A Crash Course in the Future of Finance, by Nouriel Roubini and Stephen Mihm, and Aftershock: The Next Economy and America’s Future, by Robert Reich. It’s a soup-to-nuts telling of the bought-off politics, bad policy, deregulation and greed that brought on the crash, to the steps we must take in order to save ourselves. Not that we will.

I recommend these books a well. I particularly recommend Joseph Stiglitz.

Happy Holiday Reading!

James Pilant

Benjamin Franklin, Business Ethics and Bearing Grudges

On By southwerkIn business ethics1 Comment

An excerpt from Benjamin Franklin by John Torrey Morse, Jr.

In Philadelphia Franklin soon found opportunity to earn a living at his trade. There were then only two printers in that town, ignorant men both, with scant capacity in the technique of their calling. His greater acquirements and ability, and superior knowledge of the craft, soon attracted attention. One day Sir William Keith, governor of the province, appeared at the printing-office, inquired for Franklin, and carried him off “to taste some excellent Madeira” with himself and Colonel French, while employer Keimer, bewildered at the compliment to his journeyman, “star’d like a pig poison’d.” Over the genial glasses the governor proposed that Franklin should set up for himself, and promised his own influence to secure for him the public printing. Later he=7= wrote a letter, intended to induce Franklin’s father to advance the necessary funds. Equipped with this document, Franklin set out, in April, 1724, to seek his father’s coöperation, and surprised his family by appearing unannounced among them, not at all in the classic garb of the prodigal son, but “having a genteel new suit from head to foot, a watch, and my pockets lin’d with near five pounds sterling in silver.” But neither his prosperous appearance nor the flattering epistle of the great man could induce his hard-headed parent to favor a scheme “of setting a boy up in business, who wanted yet three years of being at man’s estate.” The independent old tallow-chandler only concluded that the distinguished baronet “must be of small discretion.” So Franklin returned with “some small gifts as tokens” of parental love, much good advice as to “steady industry and prudent parsimony,” but no cash in hand. The gallant governor, however, said: “Since he will not set you up, I will do it myself,” and a plan was soon concocted whereby Franklin was to go to England and purchase a press and types with funds to be advanced by Sir William. Everything was arranged, only from day to day there was delay in the actual delivery to Franklin of the letters of introduction and credit. The governor was a very busy man. The day of sailing came, but the documents had not come, only a message from the governor that Franklin might feel easy at embarking, for that the papers should be sent=8= on board at Newcastle, down the stream. Accordingly, at the last moment, a messenger came hurriedly on board and put the packet into the captain’s hands. Afterward, when during the leisure hours of the voyage the letters were sorted, none was found for Franklin. His patron had simply broken an inconvenient promise. It was indeed a “pitiful trick” to “impose so grossly on a poor innocent boy.” Yet Franklin, in his broad tolerance of all that is bad as well as good in human nature, spoke with good-tempered indifference, and with more of charity than of justice, concerning the deceiver. “It was a habit he had acquired. He wish’d to please everybody; and, having little to give, he gave expectations. He was otherwise an ingenious, sensible man, a pretty good writer, and a good governor for the people…. Several of our best laws were of his planning, and passed during his administration.”

Governor Keith lied repeatedly to Franklin, mislead him into the dangerous and unnecessary journey to England, and decieved a great many others as well. Yet, Franklin’s account of him is kind, balanced, and gives the man full credit for the good things he did. Would any of us have been so kind?

But don’t take this as a compliment on Franklin’s generous personality. It is far more serious matter.

Franklin can take a step back from a situation and view it unemotionally. For an ethical man, this is critical. There is a tendency to assign all evil to an opponent, to never think of him positively, to never consider the situation from that person’s point of view. That tendency throws off judgment and turns the mind away from justice and morality.

A generous view of humanity is often the more accurate one. Viewing one’s enemies as devoid of value puts one surely in the wrong. Viewing with accuracy and balance ennobles the mind and gives substance to decision making.

James Pilant

Retailer Replaces Stolen Nativity Scene!

On By southwerkIn business ethics, Corporate Social Responsibility, Philosophy of Business

OVERLAND PARK, Kan. — KMBC.com
Costco has given an Overland Park family a miniature ox and donkey to replace the ones stolen from nativity set while they were at church.

Wendy Connelly said her children, Wendy, Lorelei and Gryffin, were disappointed when the animals were taken from their yard. The nativity set was a gift from their grandma.

“They’ve been praying and praying for this, and they even said a prayer again last night and on our way to school. So, it was really exciting to see it happen,” Connelly said.

Connelly said they called Costco headquarters to find the replacement and there was only one display left in the country.

Connelly said her daughter, Lorelei, was heartbroken when the animals disappeared.

“It’s very heartwarming to see her now with her animals back and taking good care of them as usual,” Connelly said.

The family told KMBC’s Kerri Stowell said they’ve rigged a special system so the new pieces don’t wander off.

This is the kind of business philosophy we need, the kind of thing you can show as an example to others.

Congratulations, Costco!

James Pilant

Benjamin Franklin, Business Ethics And How To Approach An Opponent!

On By southwerkIn business ethics, ethics

An excerpt from The True Benjamin Franklin

Author: Sydney George Fisher

Franklin was by nature a public man; but the beginning of his life as an office-holder may be said to have dated from his appointment as clerk of the Assembly. This took place in 1736, when he had been in business for himself for some years, and his newspaper and “Poor Richard” were well under way. It was a tiresome task to sit for hours listening to buncombe speeches, and drawing magic squares and circles to while away the time. But he valued the appointment because it gave him influence with the members and a hold on the public printing.

The second year his election to the office was opposed; an influential member wanted the place for a friend, and Franklin had a chance to show a philosopher’s skill in practical politics.

“Having heard that he had in his library a certain very scarce and curious book, I wrote a note to him, expressing my desire of perusing that book, and requesting he would do me the favour of lending it to me for a few days. He sent it immediately, and I return’d it in about a week with another note, expressing strongly my sense of the favour. When we next met, in the House, he spoke to me (which he had never done before), and with great civility; and he ever after manifested a readiness to serve me on all occasions, so that we became great friends and our friendship continued to his death. This is another instance of the truth of an old maxim I had learned, which says ‘He that has once done you a kindness will be more ready to do you another, than he whom you yourself have obliged.’” (Bigelow’s Franklin from his own Writings, vol. i. p. 260.)

Some people have professed to be very much shocked at this disingenuous trick, as they call it, although perhaps capable of far more discreditable ones themselves. It would be well if no worse could be said of modern practical politics.

I confess to have done similar things myself having been a student of Franklin since I was in high school. (It took me an age to figure out what venery was!) 

There was a mail service in the building where I worked. The mail often contained items of some confidentiality so I asked the our version of a postman to give the letters only to me. Well, a few days passed and the office gossip brought in the letters after having gone through them. I was enraged and decided to go out and tell off the guy. Fortunately this thought passed away instantly as I realized that the busybody would have the letters from then on.

So, the next day I went over and told him how much I appreciated his giving the mail to me only, how it helped me with my work and how few people who did his work would have realized its importance and helped me in the matter. The office busybody never got the mail again. (And the postman and I were buddies from then on.)

Needless to say, I don’t consider Franklin’s action a mean trick. I think it is just a good way to get to know someone.

James Pilant

Two More Banks Go Down In Flames To Make The Toll 151 For The Year

On By southwerkIn business ethics, ethics

From CBS news –

Regulators on Friday shut down small banks in Michigan and Pennsylvania, boosting the number of U.S. banks that have failed this year to 151 as bad loans have mounted and the economy has been slow to heal.

The Federal Deposit Insurance Corp. took over Paramount Bank, based in Farmington Hills, Mich., with $252.7 million in assets and $213.6 million in deposits; and Earthstar Bank, based in Southampton, Pa., with $112.6 million in assets and $104.5 million in deposits.

These occasional sideshow events could cast aspersions on the national media narrative of recovery. Let’s see what reality does over the next few days?

James Pilant

Obama Staffer Finds New Job – Citibank!

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, President Obama

From Huffington Post –

Citigroup Inc named U.S. President Barack Obama’s former budget director as a senior global banking adviser on Thursday, strengthening its ties to high-profile former officials the same week the bailed-out bank finished shrugging off U.S. government ownership.

Peter Orszag, currently a senior fellow at the Council on Foreign Relations, is Citigroup’s second hire of a former senior government official this month. Last week the bank hired Carlos Gutierrez, former Commerce Secretary under President George W. Bush, as a vice chairman for its institutional clients group.

Orszag, who had worked as director of the Office of Management and Budget under President Obama, left the White House in July. He was one of the president’s most prominent advisers and remains well-connected in U.S. political circles.

As a presidential adviser, wouldn’t he have a played an important perhaps critical role in the bailout (TARP)? Would it be likely that he had a role in making sure there has been no prosecution of the crimes committed by the banking sector during the past two years? Wouldn’t etc., etc?

Is this pathetic or what? How long has this deal been in place? Did he always know there was a warm place for him at Citibank? Or was it just part of the expectations of the job? What’s he going to get, 5 mil, 7 mil, not counting stock options, the company car and the other goodies?

What is this? What is this place where the people who are supposed to be protecting us are the employees of banks, apparently on some kind of rest cure in the oval office until returned to duty?

Wasn’t this supposed to be a different kind of Presidency, you know not run by lobbyist? Well, they keep the lobbyists at a comfortable distance – inside the White House.

James Pilant

Jon Stewart Explains Aftermath Of Budget Deal

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, President Obama

Jon Stewart
From the Huffington Post –

(Click the link to see the video.)

Have people been too hard on President Obama? On Thursday night’s “Daily Show,” Jon Stewart approached this topic based on the American people’s response to the President’s recent tax cut deal. At his most recent press conference, you didn’t even need to have the sound on to see how annoyed Obama was.

Stewart pointed out that Obama has always been frustrated with Republicans, but now it seems like he’s become disillusioned with his own supporters. At the press conference, he defended his compromise with Republicans that even the richest Americans would keep their tax cuts and unemployment benefits would be extended. When Obama said it was like the public option battle all over again — no one caring if a much-needed bill was passed because of one compromise that was made — you could really see how frustrated he was.

As always with Jon Stewart it is difficult to add anything to what he has to say, so I’ll let the video say it.

By the way, I am troubled by the not clear connection between this and business ethics. But the tax structure and unemployment are vital elements of the business world and whether or not these actions are just and moral. Should the wealthiest of Americans get a tax cut when so many are unemployed? That’s a business ethics question. At what point is there a shared bond between Americans requiring even a minimal sacrifice? That’s an ethics question.

James Pilant

Can A Nation Still Succeed After Letting The Banks Fail? Yes!

On By southwerkIn business ethics, Capitalism, Corporate Social Responsibility, ethics, Government Failure2 Comments

James Saft
<This is James Saft, a columnist for Reuters.

From Reuters – em>

Iceland’s remarkable return to growth shows once again that in this crisis the best policy is often the one that will make international partners most angry.

Having been reviled and chastised when it refused to make good the outsize debts of its banks, Iceland this week capped a striking turnaround when it announced that its economy expanded by 1.2 percent in real terms in the most recent quarter, its first such rise in two years.

This is in stark contrast to Ireland, whose pliability and inability as a member of the euro zone to act unilaterally leaves it with a still crashing economy which must service ever more debt by making ever deeper cuts to public spending.

Iceland, which sailed into the crisis in 2008 as essentially a small fishing fleet with a massive hedge fund attached, looked its predicament square in the eye and followed a set of policies seemingly designed to tick off both its friends and enemies, doing its small but mighty best to beggar its neighbors by letting its currency crash, imposing capital controls and, crucially, refusing to make whole the global creditors of its three failed international banks.

While an International Monetary Fund and multilateral package was eventually agreed, and a deal with Britain and the Netherlands over debts from Icesave Bank are currently being hammered out, Iceland’s leaders, at least the current ones, seem convinced that making bank creditors share its pain was the right course.

“The difference is that in Iceland we allowed the banks to fail. These were private banks and we didn’t pump money into them in order to keep them going; the state should not shoulder the responsibility,” Iceland’s president, Olafur Grimsson, said last month, tweaking the nose of EU officials who are insisting that Ireland make good all senior creditor calls on its own distended banking system.

“Bondholders should not rely on the government stepping in and bailing them out,” Iceland Central Bank governor Mar Gudmundsson said last week. “They should do their due diligence.”

“I think the Irish are accepting that they were probably too fast in guaranteeing the whole liabilities of banks. Now this is turning out to be a big burden because the assets of these banks turned out to be much worse than they thought.”

Indeed. Though Iceland has a 6.3 percent budget deficit this year, it is on track to soon record a surplus, while Ireland’s deficit this year is 32 percent if the cost of bank bailouts is included. Similarly, Iceland’s unemployment rate has fallen by almost a quarter to 7.3 percent, as against more than 14 percent in Ireland.

Iceland let its banks fail and refused to use public funds to save them. Now, they are making an economic comeback.

They held the shareholders responsible for what their corporate leadership did. Isn’t that bizarre? That you could make people who own banks pay for the losses they incurr? Now we here in the United States suffer with a exceptionally healthy profitable financial sector now sitting on hundreds of billions of dollars it was expected to loan to small businesses and they have paid not one farthing for the terrible crimes they have committed.

James Pilant

Obama To Lower Corporate Tax Rate!

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, President Obama, Teaching

From Reuters –

Democrats and Republicans should begin a conversation next year about a broad overhaul of the tax code that would involve lowering rates while eliminating tax breaks for favored groups, President Barack Obama said in an interview broadcast on Friday.

The Republicans now have a majority in the House. Shouldn’t this have been something done during the first two years?

Obama said any effort to streamline the multilayered U.S. tax code would be challenging but if successful, it could set the stage for more robust growth.

Okay guys, I’ve been around the block a few times and when ever someone talks about simplifying the tax code, the middle class is about to get nailed hard. By the way, “robust growth” is a code word for lower corporate taxed and business benefits like subsidies.

Tax reform is an idea backed by many in the business community who say the current corporate tax structure puts American firms at a competitive disadvantage.

For “many in the business world,” read every corporate lobbyist is salivating like a hungry German Shepherd in front of filet mignon.

“Typically, the idea is, simplifying the system, hopefully lowering rates, broadening the base — that’s something that I think most economists think would help us propel economic growth,” Obama told National Public Radio in an interview. “But it’s a very complicated conversation.”

Verbiage – means nothing.

“So what I believe is, is that we’ve got to start that conversation next year. I think we can get some broad bipartisan agreement that it needs to be done. But it’s going to require a lot of hard work to actually make it happen,” he said.

For “work” read continuous concessions stretched out over months so that the lack of backbone, resolve and political intelligence of the Obama White House will be fully revealed.

“Change You Can Believe In.” Yes, in the same way I believe in post-apocalyptic waste lands.

Explain this to me. For decades large corporations have been directly evading, off shoring their corporate headquarters, sometimes just not paying taxes, and blackmailing every State, county and city humanly possible to cut their taxes, so we reward them with lower rates?

And here I am again trying to teach business ethics to my students who will observe the real life machinations of our President, which means, I get to say, “Okay, do the right thing, everyone from the President on down will reward the other guys, but you still be good.”

Then I get to go into “good for your soul” argument which is pretty much all I got left at that point.

Writing a business ethics web blog under this Presidency has all the benefits of being a medieval flagellant.

James Pilant