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A Different Kind of “Ceo”
Getting ethical.


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Deroy Murdock

The ceaseless parade of financial scandals recently inspired this graffito on a Manhattan newspaper vending machine: “God bless our brave stockbrokers.”

These days, sarcasm is the least of corporate America’s worries. The low share prices and legal troubles that have plagued ImClone, Merrill Lynch, Tyco, and other enterprises are far more menacing.

Dell Computer and Deloitte & Touche, among others, have responded to this tawdry atmosphere by recruiting chief ethics officers. On balance, appointing these sentinels of virtue seems worthwhile.

One counterargument is that every employee, starting with the CEO, should possess high standards.

Relying on a chief ethics officer “is a hopeless task,” says Tibor Machan, a business professor at Chapman University in Orange, California and co-author of last year’s A Primer on Business Ethics. “It is a question of the individual’s character,” he adds. “It is at the hiring stage that these things have to be taken care of…To have someone up there saying what’s right and wrong — by then, it’s too late.”

Veteran economic commentator Louis Rukeyser observes that many business issues are highly subjective, potentially leaving chief ethics officers lost among the shades of gray.

“Is it more ethical,” he asked me, “for a bank to make a loan to a person of questionable credit or to tell that person ‘No’ and thus preserve the stock investment of an elderly widow on a low income?”

Corporate philanthropy is also bereft of moral absolutes.

“Is ‘the right thing’ to give away a portion of corporate profits without close attention to a company’s legitimate bottom line business interest,” Rukeyser wonders, “or to use that money to increase shareholder wealth so that shareholders can donate to their own favorite charities, if they wish? I always liked Milton Friedman’s so-called 11th Commandment: ‘Everybody should be free to do as much good as he wants to — with his own money.’”

For that matter, is it more ethical to support left-leaning Amnesty International or right-leaning Freedom House? Assume that a CEO’s daughter has multiple sclerosis. Is it okay for him to use shareholders’ money to help cure a disease that torments his little girl?

Those who oppose chief ethics officers note that scandal-scarred Global Crossing and the U.S. Olympic Committee had such moral watchdogs on duty. Yet they failed to bark as shenanigans swirled around them.

While these questions challenge this concept, a chief ethics officer could indeed provide another powerful pair of eyes to scrutinize a company’s actions. Even better, their involvement alone could deter wrongdoing.

Just as “visual enforcement” — the mere presence of a cop walking his beat — can cut crime, knowing that a chief ethics officer might notice irregularities could make personnel think twice before trying something unusual.

A chief ethics officer also could demand better conduct than would a chief counsel focused primarily on legality. Corporations can fly into moral turbulence without breaking the law.

Just ask American Airlines (AMR). Last spring, its management gave 45 top executives $100 million in bonuses and pension payments even as it sought federal bailouts and secured labor concessions.

“My trust is gone,” one AMR employee told ABC News. “They’re going to have to really, really rebuild my trust, and I don’t know if that’s going to come back.”

These emoluments were buried in an SEC filing that arose after union members ratified $10 billion in wage and benefit cuts over six years to keep AMR from landing in bankruptcy court.

Faced with embarrassing headlines and enraged employees, AMR’s brass abandoned these bonuses but initially kept their Supplemental Executive Retirement Plan payments. Unlike the standard workers’ pension fund, SERP was shielded from bankruptcy.

“I have apologized to our union leaders for this and for the concern it has caused our employees,” AMR’s then-chairman Don Carty said April 18. Seven days later, he resigned.

Was this humiliating? Obviously. Illegal? No. Wrong? Yes. Top managers should not shower themselves with extra cash and favors while workers and taxpayers struggle to keep companies aloft amid economic wind shear.

If chief ethics officers can grab CEOs by their lapels and talk them out of lawful wrongdoing like this, then this idea comes not a quarter too soon.

— Mr. Murdock is a columnist with the Scripps Howard News Service.



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