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Deposition Designation Station

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This subject is prompted by a concern for the corrosion of character observed in our society and, more particularly, in our professional practices. The post World War II ethic that included loyalty, honesty and commitment as portrayed by William H. Whyte in "The Organization Man" has long disappeared. While the current goal centered, individualistic employee has contributed significantly to our entrepreneurial environment, one that is more creative and interesting, it has resulted in significant social and economic instability. Are loyalty, security and ethics casualties of our times?

Webster defines power as domination over others to achieve personal gain. Greed is avarice, a voracious desire with few, if any, boundaries. Ego is defined as a sense of self that exceeds reality.

The news continues to be replete with examples:

  • The New York Times reports a "wunderkind" of Silicon Valley who migrated to the Czech Republic, expressing disdain for the "corrosive human effect of the region�s workaholic, dollar-obsessed culture." "The Valley is all about power and money and work, all false Gods."
  • The members of the "Clinton Congress" found it necessary to conduct a multiday retreat on "civility." It then returned to Washington and quickly retrogressed into its "politics of personal destruction."
  • Corporate misrepresentations, fraud and other management schemes continue even after the events of last year involving Enron, WorldCom, etc.
  • Our clergy talk of our having abandoned our values of compassion, modesty, repentance and forgiveness.

In 1835, Alexis de Tocqueville commented that the love of wealth is the motivation for all Americans. This need to accumulate took on more significance and covered more segments of our society as our economy grew. He also suggested that we are better at spending than other peoples. As a result, our greed seems to have undermined the concern for others� human condition. It is important to note that greed and ambition are vastly different. Without boundaries, greed often infects beyond an individual to poison the entire body upon which an institution is built.

"Ethics" encompass a belief system defined by honesty, responsibility, and trust. Further, sincerity, truthfulness, competence and reliability should be at the root of our professional lives. Winning the trust and confidence of the constituents we serve, among whom are clients, creditors, customers, employees and community, requires a pattern of behavior based upon an acceptable belief system. Quality in any relationship will be missing in direct proportion to the degree that the belief system is by-passed.

Four (4) ethical systems are discussed in the literature.

  • End result ethics (John Stuart Mill) by which morality is judged by considering the consequences of one�s actions.
  • Rule ethics (Immanuel Kant) are established through laws and standards.
  • Social contract ethics (Jean Jacques Rousseau) by which morality is determined by the norms of the community.
  • Personalistic ethics (Martin Buber) allows one�s conscience to define morality.

It is often said that the ethical tone of any organization is set at the top. The case law, most notably In re Caremark International Inc. (1996), effectively compels directors to ensure that a legal compliance program is in-place and is effectively monitored to prevent/control corporate misbehavior (imposed rule ethics). While fraud prevention may be the principal concern of such a compliance program, other aspects of unethical behavior have become more highly visible and, therefore, are being increasingly scrutinized (social contract ethics). Reports of unethical conduct to agencies responsible for adjudicating such complaints are increasing. Likewise, malpractice complaints are increasing in all of the professions.

"Values," beliefs that specific modes of conduct are personally or socially preferable to some alternate forms of behavior, are usually enduring and reflect both behavior (personalistic ethics) and objectives (end-result ethics). Thomas Watson, reflecting on values for IBM, considered (1) respect for the individual (2) customer service and (3) excellence in all pursuits as core values.

What happens in a corporate culture where constraints are violated and improper conduct is left to percolate? These are not only social issues. Organizational failure becomes apparent with discord between stated values and practices of its leadership.

Ethical dilemmas are faced often. Even more common are decisions that present an economic-ethical conflict. A "right" course of action requires fortitude, skill and a commitment to give priority to ethical values above other personal influences.

Good right decisions resolve conflicts present in the decision making process. Four (4) spheres of influence must be considered:

  • End results (end-state values) measured by economic value, quality, schedule, health & safety.
  • Organization (stakeholders) including impacts on employees, customers, owners, community.
  • Society as it is affected by price, health & safety, quality.
  • Individuals whose needs include security, self-esteem, and psychological needs.

A professional represents to his/her client certain values and benefits, including:

  • Independence, implying that no commitment to any potential party at interest could influence decisions related to the welfare of the client;
  • Realizable gains, expected by the client in exchange for some PREDEFINED value received, e.g. monetary fees.

Any condition that could result in undue benefit to the professional or a party related thereto, is considered to be a conflict of interest, or at worst, malpractice. Biased recommendations, misuse of confidential information and misrepresented credentials are just a few examples.

  • Any obligation to or active relationship with creditors, vendors, customers, competitors of the prospective client that could bias recommendations.
  • Conflicting roles of the consultant, e.g. as a possible investor/acquirer; serving as a vendor of hardware related to a client�s problem.
  • Serving multiple clients in a narrow market, even if not directly competitive.
  • Misuse of client information; subsequent use of confidential or proprietary information without approval.

Is full disclosure an adequate defense against conflicts of interest?

In my opinion, no! Full disclosure does allow selected parties at interest to evaluate the potential risk involved in a relationship. Disclosure may introduce to the parties the fact that potential damage could be inflicted. This should set in place an early warning system to detect any potentially miscreant behavior. It serves as a signal "buyer beware!"

Research indicates that there is a strong correlation between performance and a strategic reliance on ethical behavior. There are, however, enormous pressures faced daily that serve as motivations to violate one�s integrity. Meeting earnings expectations that force basic business practices to be overridden, lead to misreporting of financial information, or aggressive interpretations of otherwise sound and conservative reporting standards. Compensation plans for management and sales personnel often sacrifice the longer-term health of an organization in favor of more immediate results. Social pressures affect accepted patterns of behavior and, as financial risks expand and commitments become more burdensome, foundations in our society are fractured.

Recent research attempting to discredit Leo Durocher�s motto "Nice guys finish last" found that one�s ability to manipulate people correlated with financial success. Where so many businesses and social situations may equate to a zero sum game, i.e. when someone wins, there must be a corresponding loss, it is no wonder that interchange is viewed as a battle to be won.

There is a change in our practice environment. We discuss fees that are reasonable and legitimate (both arguable when viewed by the client) but ignore our responsibility to provide value to the client. To what degree will we assume leadership to protect our client from abuse? Our vocabulary has even changed from one dominated by venture to that of vulture. The social implications of such shifts in an ethical base may not be realized until many years hence.

How often have we heard the credo: "People are our most important asset." As a non-balance sheet asset, people quickly are lost in the asset valuation process. Yet, our people and their behavior can make or break an otherwise successful enterprise. Possibly, then, this off-balance sheet asset has a counterbalancing entry-an off-balance sheet risk. Certainly, loss of key staff or employee related litigation often converts this risk to a true liability.

Then, what of today�s behavior? Ethics are an increasingly important element of many organizations' control and governance structure. The value of ethical codes of conduct is only as great as the organization is willing to police its own constituents and to impose penalties if codes are violated and damage is inflicted upon an unsuspecting victim. The health of our communities, institutions and enterprises is at risk if we permit values to erode. The means and the results are both important. Often, different constituencies are affected as one travels the continuum of "start to finish." As many say "What goes around, comes around." The character we foist on others today may return when we least expect it.

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Gary Brooks, CMC, CTP , is Chairman/CEO of Allomet Partners, Ltd. Allomet provides turnaround/restructuring advisory, interim management and operating due diligence services. Mr. Brooks serves as an expert witness in cases related to management performance and director nonfeasance. More can be found at the website:

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