Tuesday, December 18, 2007

Email to National Association of Attorneys General

[Below is form of email I sent today to members of Executive Committee of National Association of Attorneys General]

To Attorney General ________, NAAG Exec. Comm. member

Dear Attorney General ________,

I am writing this email to you in your capacity as a member of the NAAG Executive Committee.

I have ideas I am trying to propound about how the law undermines business ethics and about what state attorneys general can do in order to lessen this untoward consequence in the law. My ideas are set out in an article I have written that is appended below.

I hope you will read my article, and, if you think it is meritorious of presentation to and consideration by NAAG members, I would be very interested in speaking at a NAAG meeting or having my article published on or linked by the NAAG website and otherwise participating through the auspices of NAAG regarding the same. I hope you will write me back.

Thank you very much.

Sincerely,
Robert Shattuck
3812 Spring Valley Circle
Birmingham, AL 35223
(205) 967-5586
rdshatt@aol.com



State Attorneys General and Business Ethics
Does the Law Undermine Business Ethics?


By Robert Shattuck

I address this article to state attorneys general.

I believe that an important role of those officials is to use their legal powers to promote the practice of ethical business behavior. I doubt that any would disagree with that.

I further think the law is an impediment to the achievement of the societal goal of ethical business behavior and that state attorneys general can make a contribution to lessening the impediment.

What impediment am I talking about here? What do I have in mind about state attorneys general?

The law undermines business ethics

Let me first turn to my contention that the law undermines business ethics.

Not all of the law does, but certain aspects do, in a material way, I believe.

I base this contention on common knowledge about human nature and a common sense analysis of what is needed for society to obtain ethical behavior. The work of state attorneys general provides them with first hand, real world experience to evaluate my contention. I hope, among other things, that they will take the time to reflect on my contention and decide what they think. Their opinion will carry much weight.

Human nature; how society regulates behavior

The starting place for my contention is human nature and why and how society tries to regulate behavior that grows out of human nature. Let me lay out what I think we commonly know.

Probably growing out of the self-preservation instinct, self-seeking motivations in the human species are powerful and predominant; altruism is weak.

Societal organization entails a suppression of some of an individual’s self-serving motivation and action in favor of a greater common good. This is because promotion of the well being of a group can contribute to the well being of the individuals in the group.

Society has various mechanisms to mitigate self-seeking behavior and to alter it to promote a greater common good. These include religion; the promulgation of codes of conduct; bestowal of honors and esteem on exemplary individuals; formal education programs that teach ethics; and systems of shame and legal punishments for individuals who violate society’s strictures.

In evaluating these mechanisms, and their effectiveness, one needs to articulate a little about the organizational structures and substructures in which behavior regulation is sought, and how the human motivators work in those contexts.

The organizational structures include families, corporations, political parties, churches, and labor unions. An entire nation can be considered a smaller unit within the world community. The family is the smallest unit in which an individual is called on to subjugate self for the good of the group. At this smallest unit level, there can develop a strong sense of identity between the individual and family interests. As one moves up the organizational scale, the individual’s interests and those of the larger unit are less susceptible of conflation, and the more cognate tools referred to above are employed to articulate and implement society’s prescriptions relative to self-seeking behavior.

An individual’s powerful self-seeking motivators are money, power, material possessions, social standing, sex, honor, esteem, aesthetic refinements, recreational pleasures and ego gratification. The first listed motivator of money can contribute significantly to the procuring of the other desired objects. Much of the motivation at a larger unit level, such as a corporation, is a collective expression of the constituent individuals’ motivations to obtain money and other objects of their desires.

Lying, cheating, stealing, defrauding, misrepresentation, concealment, breach of fiduciary obligations, bribery, blackmail, harassment, and lack of proper regard for the interests of third parties, have great potential for individuals and larger units such as corporations to obtain money. This is done, however, at the expense of other individuals and other units in the society.

The role of human intelligence is a very significant factor. Equipped with that intelligence, the human species is excellently endowed to conceive and implement dishonest activities and to exploit knowledge and information that others are lacking.

The extent and pervasiveness of dishonest, self-seeking activities by human beings is difficult to gauge.

Dishonest activities that are carried out successfully are concealed, and any researcher trying to estimate the quantum of dishonest behavior by human beings is ignorant of what has been concealed.

Dishonest activities on a large scale that are discovered get reported in the news. There is an unending procession of publicity about wrongdoing in the commercial world. It seems extensive and exhibits interesting combinations of novelty and repetition, and sometimes surprising audacity and scope. In the “boom and bust” cycle of the past decade, we have been inundated during the “aftermath” past four years with exposures of many instances of large scale wrongdoing that was perpetrated during the “boom” part of the cycle.

In the daily news about commercial wrongdoing, gauging the aggregate amount is complicated by the presence of large swaths of gray areas of right and wrong and varying degrees of culpability of involved individuals. Also, to repeat, one never knows about wrongdoing that has taken place and that is not found out.

Dishonesty that occurs on a smaller scale is not newsworthy. Sometimes many small-scale activities of a similar, wrongful nature get reported in the aggregate. Most of us are aware of significant amounts of fraud that occur related to car insurance and car repairs, Medicare and Medicaid claims, identity theft and credit cards, cheating on taxes, overbilling on government contracts, and bribing of government officials to obtain commercial contracts. From lots of everyday experience, people are distrustful in hundreds of commercial transactions they enter into over their lifetime. All in all, it is fair to say that the total quantum of small-scale dishonesty is unknowable but that there is a lot of it that goes on.

Business ethics and the role of the law

Business ethics is supposed to counter and lessen the perpetration of dishonest activity in the commercial world.

As referred to above, business ethics, along with other forms of moral instruction imparted through religion and other institutions, are taught in society, and society has practices for bestowing honors and awards on exemplary individuals.

It is submitted, however, that, without legal punishments for individuals who violate society’s strictures, society would be feckless in its efforts to lessen dishonest commercial activities, and that society needs to be rigorous and exacting in designing and implementing its regime of legal punishments for this purpose. In this regard, it would be a troublesome sign if society was fooled into thinking that its system was functioning effectively.

What is needed in the law for it to be rigorous and exacting?

One component is close attention to whether something is done deliberately and intentionally, or whether it is done negligently, or whether it is without fault. If a party who is without fault is punished and forced to pay a cost, that can undermine the regime of legal punishments. First, it can deflect attention from making sure that intentional wrongdoers are punished (i.e., the potential for societal self-deception to the effect, well, costs were paid so punishment must have been meted out so the law must have been doing its job). Further it offers opportunity for guilty parties actively to avoid punishment by accomplishing a shift to innocent parties. Would be wrongdoers will be encouraged by the idea that the responsibility can be shifted away from them if they decide to go forward with their wrongdoing and it is found out. When innocent parties are punished while guilty ones escape responsibility, a general disrespect for the law is engendered, and that disrespect is detrimental of the law performing a purpose of fostering ethical business conduct.

As to intentional wrongdoing versus negligent wrongdoing, a regime of legal punishments might rightfully be less strict with negligent wrongdoing. This is on the basis that people, as regards intentional wrongdoing, can and should be required in an absolute way to choose consciously not do the wrong, whereas everyone is negligent to some degree from time to time and “zero tolerance” is not a realistic objective. In the case of negligence, the law can and should look closely where, for example, the negligence is slight and other intentional or other more negligent actions (including of the plaintiff) caused a loss, and the law might also take into account that available resources for investigating and punishing wrongdoing are limited, and intentional wrongdoing should have priority.

Further, the law needs to be a definite as possible in advance about what is wrongful and what is not wrongful. Unless a person is able to know what is wrongful and what is not wrongful, there the person is disabled from being able to make a decision not to do something that is wrongful, and the law will fail as a tool for fostering ethical behavior.

Differentiating among intentional wrongdoers, negligent wrongdoers, and parties who are without fault should be in the foreground in dealing with entities that represent conglomerations of individuals, such as corporations. Any corporate act of wrongdoing is designed and implemented by particular individuals in the corporation, but lots of other individuals may be wholly without fault and costs and punishments imposed on the corporation will be ultimately borne by these latter individuals. The discussion above about the importance of punishing guilty individuals, and of not punishing innocent individuals while guilty ones escape, applies in the context of a corporation, and the legal system needs to strive to impose costs and punishments on individuals who design and implement a corporate wrongdoing and to try to be sparring in imposing them on innocent individuals.

The environment in which corporate wrongdoing happens

A corporation’s main objective is to operate as profitably as possible. The greater the profits, the more shareholders and employees can be rewarded monetarily. There are pressures on a daily basis for employees to advance the corporation’s business. Time frames are relatively short, typically for the corporation to achieve the current year’s revenue and profit goals. Bonuses for the contributions that employees make are paid on an annual basis. The employees’ jobs are their means of livelihood and of providing for their families. Plugging away every day to keep the business running profitably and to give security for this year’s source of income is a top priority for employees.

A corporate wrongdoing will be something intended to benefit the corporation financially by increasing revenues, reducing expenses or avoiding or lessening losses in the business. The corporate acts that comprise the wrongdoing are conceived of, authorized by, and carried out by officers and employees of the corporation, frequently a small fraction of all the corporation’s officers and employees. Of the perpetrating group, some have fuller knowledge of the wrongful activity and others will have very limited awareness. Many employees will be completely ignorant of the wrongful actions of the corporation, as well shareholders and customers being ignorant that wrongdoing is going on.

The officers and employees who know what is going on participate as part of their job to do things to benefit the corporation’s business. Their participation evidences their value to the corporation, and their assumption is that they will be rewarded for that in the compensation they receive from the corporation.

If an officer or an employee who is part of the group that perpetrates the corporate wrongdoing thinks the activity is questionable or that it is a clear wrongdoing that has risks of being discovered, and if the officer or employee has qualms about what is being done, there is significant internalized pressure nonetheless to go along with what the corporation is doing and to not try to block the activity. Raising objections can be viewed negatively by one’s peers in the corporation or by higher ups and result in adverse impact on the employee’s status and compensation in the corporation. The actions in question may be in a gray area and not clearly wrong. A tipping factor for the employee to go along can be a perception that, if something untoward happens as a result, only the corporation as a whole will bear the brunt and the employee will escape any personal punishment for his role in the corporate wrongdoing.

In short, all corporations are in the business of earning profits, by going along the employee is just doing his job and what others want him to do, the requested action is possibly in a gray area anyway, his employer will not punish him for what he did, and any other corporation that might learn of his willingness to go along with what others wanted to him to do will not hold that against him in getting another job.

Where and how the law undermines business ethics

Let us focus on where and how the law goes awry in trying to attack corporate wrongdoing. As previously stated, not all of the law goes awry but a very significant component of it does. This is a component in the law that has, by and large, been wrought by lawyers, and in particular by plaintiff’s lawyers. Let us consider them, their motivations and what they have wrought in the law.

Plaintiffs’ lawyers are part of the human species and their most powerful motivations are the same self-seeking motivations that are the most powerful for the rest of us. For plaintiffs’ lawyers, the big money is in suing the corporation. This big money comes in small bits out of lot of different pockets, many of which are entirely innocent of the wrongdoing, including shareholders who may receive slightly reduced dividends, innocent employees who may suffer slightly reduced wages, or customers of the corporation who wind up paying slightly higher prices.

To the extent that is all that happens, and no special punishment is ever imposed on the group of officers and employees who have personal culpability in the wrongdoing, there is going to be a substantial failure of deterrence effect, to wit, the officers and employees who were responsible are confirmed in their previous view that the wrongdoing they participated in had short term favorable financial results for the corporation, they the officers and employees got rewarded for the year in the compensation they received, the wrongdoing might never come to light and everything would be the rosier for it, and it is too bad the wrongdoing was discovered, but the officers and employees have come away basically unscathed, and either their current employer corporation may try a new trick next time, or else they have proved their mettle and the next corporation that employs them will be interested in seeing what they can come up for it.

The question presented is the extent to which plaintiffs’ lawyers have an effect of undermining society’s efforts to be rigorous in fining, jailing and otherwise punishing corporate officers and employees who are responsible for conceiving, authorizing, designing and implementing corporate wrongdoing.

Insight into answering the foregoing question can be obtained through a comparison of plaintiffs’ lawyers with governmental regulators, criminal prosecutors, state attorneys general and legislators, with a focus on their respective manners of compensation. The latter parties work on behalf of the public to design, implement and enforce laws and regulations and a regime of legal punishment to curtail dishonest commercial practices and conduct. The compensation they receive is reasonable for the work done, and in particular it is not geared to the dollar amount of economic activity that their public work affects (i.e., legislators and regulators don’t get paid millions of dollars because they put into effect large governmental budgets, levy commensurate amounts of taxes, and write and enforce laws and regulations that affect billions of dollars of economic activity and that impose and allocate large economic costs on and among businesses, consumers and other parties.)

Plaintiffs’ lawyers perform a similar public role in the design, implementation and enforcement of legal punishments to curtail dishonest commercial practices. Their compensation, which is huge, is geared to the amounts of economic activity that their work affects and to the economic costs that they get shifted around among various parties; the larger the scope of their lawsuits and the greater the dollar amount of the costs they can get shifted around, the greater their compensation. This manner of compensation of plaintiffs’ lawyers creates very powerful incentives for them to seek the objectives of (i) expansion of harms or detriments for which a payment should be made, (ii) higher rather than lower amounts that should be paid, (iii) expansion of liability where there is no fault, (iv) disregard of distinctions between intentionally culpable, negligently culpable and faultless parties, especially in the context of corporations comprised of a conglomeration of employees, shareholders and customers , (v) disregard of culpability of plaintiffs in their own injuries and harms, (vi) not having clear rules in advance about what is wrongful and what is not wrongful, so that a person does not know what is wrongful and cannot make a decision not to do a wrongful act, and exposing every decision and action to an ex post facto determination that it was wrongful and for which there is liability, (vii) disregard of rational cost/benefit principles, (viii) the invocation of junk science, and (ix) usurpation by them and the courts of the powers of the legislative branch and the executive branch regulatory apparatus.

These objectives of plaintiffs’ lawyers are inconsistent with the need, as discussed, for the law to be exacting in punishing and imposing costs on guilty individuals and in not punishing innocent individuals while guilty individuals are not held responsible, and of providing clear rules in advance about what is wrongful and what is not, in order that people may make a decision not to do a wrongful act. The plaintiffs’ lawyers have been very successful in achieving their objectives. This has bred contempt and disdain for the law, swallowed up large amounts of resources that could be available for other activities more effective for promoting business ethics, and has been otherwise distractive and undermining of society’s use of legal punishments to curtail commercial wrongdoing.

The Vioxx case as an example of how the law fails business ethics

Take for example the Vioxx litigation that now seems to be playing out its endgame in the judicial pipeline.

Let us start with all the shareholders who purchased Merck stock in the weeks leading up to the Vioxx announcement and who suffered an immediate 30% or so decline in value following the announcement. Profits that Merck made from Vioxx did not accrue to those shareholders, and they are entirely innocent of whatever wrongdoing Merck committed regarding Vioxx; nonetheless the legal liability system that is entrenched will give no consideration to those factors and results in that 30% being taken from them and contributed to the recovery that the plaintiffs eventually make.

Next consider, if Merck is guilty of wrongdoing, whether any officer or employee of Merck will be personally punished for his participation in the wrongdoing. There has been no indication that this is going to happen.

Next consider the hundreds of millions of dollars that plaintiffs’ attorneys will receive in the Merck litigation. Think how those sums might be alternatively expended in order to pay for programs and activities that would concretely advance protective and preventive objectives related to drugs such as Vioxx. These might include: greater FDA funding for post-drug approval monitoring and studies to detect adverse drug effects; design and implementation of better safeguards at the physician and patient level relative to decisions for a drug to be prescribed in a particular case; development of concrete protocols and guidelines for testing of drugs that drug companies could follow that would protect them against subsequent liability; development of concrete “conflict of interest” rules for researchers and physicians involved in testing or promoting a drug and punitive enforcement of the rules against researchers and physicians individually.

Ultimately, there is a question of what exactly the wrongdoing of Merck was, articulated with sufficient specificity, that Merck and other drug companies can have advance notice of such specifics so they can avoid “wrongdoing” in the future. For the billions of dollars that will wind up getting paid in the Vioxx litigation, no such concrete guidance may be forthcoming at all from the litigation, and, if that is so, all that happens is effectively a huge transfer from one set of parties without fault to other parties who have suffered a harm not caused by any wrongdoing of the first parties.

The problem of the plaintiffs’ lawyers

The situation with Vioxx is emblematic of how plaintiffs’ lawyers cause a huge consumption of manpower, economic resources and mental attention and effort that has little or nothing to do with accomplishing reduction of corporate wrongdoing and is a corresponding enormous diversion of those resources from society’s efforts to reduce corporate wrongdoing.

In evaluating this argument that plaintiffs’ lawyers undermine the promotion of business ethics, we should not listen to the plaintiffs’ lawyers. Our country has seen enough in recent years of baneful effects of large amounts of compensation that create conflicts of interest and that that cause the recipient to advocate or follow a course of action that will increase that compensation and contrary to the better interests of other individuals and groups. Corporate executives standing to gain fortunes from stock options committed massive accounting frauds that contributed to maintaining and increasing lofty stock price levels that would enormously benefit them under their stock options and other compensation arrangements. Accountants have been charged with faulty accounting work arising from the conflict of having lucrative consulting work with the audit client. Stock analysts have been inappropriately influenced in their stock reports by reason of getting compensation based on investment banking business their employer gets from companies the analyst covers. Brokerage firms corrupted the IPO market by allocating stock in hidden exchanges for inflated commissions on unrelated transactions. Mutual funds and insurance brokers have acted in wrongful disregard of conflicts of interest in order to increase their revenues and profits.

Plaintiffs’ lawyers are no different. They are conflicted to the core by their compensation arrangements and are incapable of rendering to society any honest evaluation of how well the current civil liability system is in serving society’s objective of promoting ethical business behavior.

What can state attorneys general do

The above is a very descriptive, common sensical, common knowledge based explication of how the current state of the law undermines the promotion of ethical business conduct, and how the law results in a significant diversion of economic resources away from beneficial ethics programs and activities and misallocates those resources to wasteful and counterproductive uses.

State attorneys general are in a special position to judge the validity of my arguments. They have first hand, real world experience that specially enable them to discern circumstances and factors that abet or that impede the inculcation and practice of ethical business behavior. They have experience that should allow them to evaluate my descriptions of how the law affects the psychology and thinking of employees when it comes to deciding to engage in an unethical activity or not.

I hope state attorneys general will take the time to reflect on the matter and decide what they think. Their opinion will carry much weight.

If they agree with my contention, they can, within the constraints of their official positions, articulate first within their attorney general office and to others in the executive branch of their state government their views and opinion on this subject.

A next further step is attorneys general can articulate publicly such views and inform their state judges and legislators of those views. The judges may have their own judicial thinking and actions modified by what state attorneys general say. The state legislatures are the branch of government that has the duty and authority to set out the significant rules related to the operation of the legal system, and to alter the same as the legislature deems in society’s best interest, and they may be persuaded by what state attorneys general have to say.

Finally, state attorneys general need to evaluate their own conduct in light of the discussion made in this article and particularly the alliances they have made with the plaintiffs’ lawyers.

I hope that there are state attorneys general who will take me up on my suggestions.

Saturday, December 8, 2007

To ethics persons

Subj: Blogging about law undermining business ethics
Date: 12/ /2007 ______.M. Central Standard Time
From: RDShatt
To:

Dear ___________,

I continue with my efforts to disseminate my ideas. One email correspondent said, if I cannot get my article published by an ethics journal or on an ethics organization website, I should do a DIY with a blog. I have now done that. See F. Ethics Organizations

I hope my blog will advance my efforts. You could help that if you cared to post a comment on my blog. A good place to do that would be here .

Thank you very much.

Sincerely,
Robert Shattuck

Monday, November 26, 2007

Tort reform organizations and their efforts

Take a look at Point of Law's listing of tort reform organizations. There are lot of organizations doing a lot of work in the field. What is their effectiveness? How could they be more effecive? What additional contribution could a little guy like me make?

Quantification of societal costs

If the civil liability system ill serves societal purposes, and it is grossly exploited by the lawyers to enrich themselves, how does one calculate the economic costs to the society in order to try to quantify the magnitude of the problem?

This is an important question and probably not one that is easy to answer. In some sense, I am asking about "excess" or "unjustified" costs, and it would take an economist or two to come up with an appropriate defintion for "excess" or "unjustified," and who knows what kind of data assembly and analysis is needed to make estimates using the definitions in question.

For the time being, I will be free wheeling and speculative and say $250 billion a year.

A next question is, once there is some quantification, how much of a collective motivation is there for the body politic to strongly desire change? If $250 billion a year is a reasonable estimate, I think that amount makes determined efforts worthwhile.

Sunday, November 25, 2007

Starting this blog

I think I am getting close to a break through with the work I have done in 2007 with academics and professionals who work in the business ethics domain. F. Ethics organizations After I completed that work that is now indicated in this blog, I have, however, been at a loss as to the next step to take. I decided to start this blog as a next step.

Responses to email sending Judge Pauley letter

From an ethics officer who had previously written me
Hi, Mr. Shattuck. I read your very lively cover note, but fear that I may not be able to conduct a diligent reading of your letter to the judge for a few weeks. I hope you find a satisfying forum for your views. Maybe it would be even more effective if you could find a positive spin on this situation. Rather than coming across as saying that the entire legal system law works against ethics, what could we do so that the law and ethics would work with each other instead of against each other? I'm sure you at least imply a solution to the problem, but perhaps if you put the solution up front, there could be something to be gained. I realize that the problem with putting the solution first is that you haven't familiarized people with the problem. But I think it might be worth considering whether you should give people a taste of the positive up front: "Law and ethics would work together better if BLANK." Then go into why you're interested in this, stating the problem, and then come back to the positive solution.

At least in your cover letter, you adopted a tone that I think works best when you are preaching to the choir, creating enthusiasm in people who are already convinced. For the unconvinced, it seems to this one humble reader that a gentler approach might be more persuasive.



From a professor

Robert--

That is an interesting and thought-provoking email. I am on my way to speak at the Ethics and Compliance Officer Association. Maybe, when I get back, we can touch base--



I replied
Thank you very much, Professor ______. I would be very interested in having further communication with you. I am sorry I am not able to be at the Los Angeles conference myself.

My most recent pitch sent my Judge Pauley letter

My last pitch to date at the academics and other professionals in the business ethics domain was this:

Subj: Case study of law undermining business ethics

Dear ________,

As you know from prior emails, I contend that certain aspects of the law undermine the inculcation and institutionalized practice of business ethics in corporations. I have detailed my argumentation in articles I am trying to publish and present in other ways, for consideration by ethics organizations, ethics officers, consultants and academics.

Set forth below is the text of a letter, dated September 10, 2007, I have sent to The Honorable William H. Pauley, III, United States district court judge for the Southern District of New York.

I think the subject matter of my letter presents an excellent case study of a situation in which the law has proceeded in a fashion that undermines the goals of ethicists and ethics officers to promulgate ethical behavior by corporations and employees.

This consequence happens from a combination things. These include a craven failure by the law to grapple with and make determinations for society's benefit of what is and is not wrongful or unethical, and a mindless willingness and propensity to penalize masses of innocent individuals and at the same time to let the few individuals who are actually culpable to go scot free and laugh their way to the bank. In this particular case, the ethical mockeries perpetrated by the legal system and its conservators are deliciously encapsulated in the way those outside the legal system (the defendants) are hauled into court for allegedly skimming millions and millions of dollars in little amounts from little people, and the way the insider judge then turns around and puts his stamp of approval on a skimming off by his insider lawyer cohorts of comparable millions and millions of dollars in little amounts from the very same little people.

I hope your consideration of this case study will influence you to give further consideration to the contentions I have been making that the law undermines the inculcation and institutionalized practice of business ethics in corporations. If you are at the ECOA conference in Los Angeles, I hope you will talk about this with others there.

Thank you.

Sincerely,
Robert Shattuck

[text of letter to Judge Pauley]

September 10, 2007 letter to Judge Pauley

Saturday, November 24, 2007

Responses I got

Although I felt frustrated and stymied in the end, my interchanges with professionals working in the business ethics field were more respectable than what I encountered with the law professors. Below is a sampling of the former:

A corporate ethics officer to me:
Dear Mr. Shattuck - _______referred your email to me as I am _____'s North America Compliance Officer. We appreciate your contact. _____ has adopted a comprehensive Code of Conduct, the link to which I have attached. One of the central principles in our Code is that employees have a responsibility to ask questions and raise concerns ("Speak Up") if they become aware of conduct that does not seem right to them. Once and issue is raised, the Company investigates it to takes appropriate action, depending on the outcome of the investigation. While your article raises a number of interesting questions, the subject of the role of plaintiffs lawyers in our society is beyond the role of our Compliance & Integrity program at _______. Thank you.


Me back to him
Thank you for your reply, Mr. ______. I will look at the link you have provided. I know I am probably tilting at windmills, but I think there is a significant impediment out there to your achieving your business ethics goals. The impediment is very possibly something you can absolutely do nothing about. Ethics officers such as yourself are in the best position to know. I am striving mightily to get them to speak up. I have revised my article to do this in a more pointed fashion. I can only wish you will pass it on to fellow ethics officers and others, or give me names and I will send it to them.

Best wishes,


From an ethics magazine to me
We should definitely talk. We at ______ ran a feature story on "has compliance killed ethics." The law vs ethics debate is endless in its forms & length of the debate. I'd be happy to discuss this. But I think a more important question is why compliance & ethics officers are generally in such weak positions, & so unable to prevent serious executive crime. Regards, ___


From an ethics center to me
Hi Robert,
Thanks for the inquiry. Are you in a doctoral program that you're undertaking this research? I am not an ethics person (nor, actually, a staff member at the Center, though I do have an affiliation with them) and the Center doesn't really deal with ethics officers per se. If you have some university standing, you may want to contact teh Ethics and Compliance Officers Association, which is the professional organization for ethics officers, or the Ethics Resource Center in Washington, which deals with ethics officers. Their functions are pretty specific and they are typically not the same people as the corporate responsibility officers (or community relations, or corporate social responsibility, or corporate citzienship, by whatever name they go by).

But if you're sending them the document below, you are setting up a bias for their responses (a survey should be neutral so you get at least ostensibly objective answers, or at least not pre-biased)--and also not establishing the basis of your inquiry. Who is sponsoring this work? Why should they respond? Where is the survey instrument?

There may have been some work done on that question, but I don't follow the ethics literature all that closely. Two good sources would be Business Ethics Quarterly and the Journal of Business Ethics. If there's work like your question, those are likely outlets, as might be Business & Society (and Business and Society Review).

Best of luck, with your work,


From an academic to me
Robert,



You’ve raised an interesting question. I think the reason this is tough is that the answer “depends.” And there are too many depends. Here is one: what do we mean by ethics? I like to define it as doing good. This is very different from the way most people implicitly define it: not doing bad. The more laws you have the more you need to focus on compliance (not doing bad) leaving less time for doing good. It also depends on the law. You will see in the current issue of Ethix (on the web at www.ethix.org) where I interviewed _______, she says SOX is a good thing, forcing corporate officers to take the responsibility they should have taken all along. Others have said SOX is overly restrictive—and you can find lots of examples of this. In the next issue of Ethix, Rob Pace from Goldman Sachs implies that many companies today are not going public because of the constraints of SOX. So taking one law, it would appear that it has both effects. So it is not clear to me that the question is clean. I am on my way back to the Central African Republic. There the lack of the rule of law is a major deterrent to doing business—you can’t enforce a contract. So some law is necessary to do business. Too much law complicates business and causes people to just try to meet the letter of the law. Every law has a loophole, and those looking to exploit it (e.g., Enron) will be able to do so. Susan Collins (US Senator from Maine) talks about this in an Ethix interview in the archives.

At least this is the way I see it. I hope it was helpful.


From a business professor to me
Dear Dr. Shattuck,

I would recommend three sources to read before going further:

1) Prof. Gary Weaver at the University of Delaware has published some work on this topic. Libraries that use the search engine Proquest or database ABI/Inform would enable you to find this quickly. His work, like the others below, includes citations to other existing studies.

2) They might also have the book "The Legalistic Organization" by Robert Bies and others.

3) There is research in law journals about the effects of various laws and whether these effects matched lawmakers' intentions. To find these, you would probably need to go to a university law school's library and ask the librarian for assistance.

I hope this is helpful to you!



From an assistant professor of management to me
Robert,

I think this sounds very worthwhile. A lot of discussion has been happening about how S-OX encourages a compliance mentality rather than an ethics mentality. But, despite your kind words, I'm merely friends with a lot of business ethicists, I'm don't really do research in BE, so I'm not really up to speed on what topics have been researched in the area. Given publishing lag times and the recency of S-OX I wouldn't be a bit surprised if you can't find much on this. It would certainly be worth investigating post-S-OX no matter what previous work has been done. However, I'm not an expert in BE, my main work in the fields of CSR and Corporate Social Performance. So, I can't give a "for certain" answer on the state of extant work. You might ask Robert Phillips at the University of Richmond for some further advice. Also, I'm leaving SCU this summer so I can't help you with any of your access problems.

Have you tried contacted the Ethics Officers Association (or whatever the name of their professional group is)? They might be able to help facilitate the distribution of your survey. That said, I have no idea if they help with stuff like this.

Best of luck,


From a corporate lawyer to me
There are several issues raised by your questionnaire;
1. I get several questionnaire's a week and avoid most of them. The recipients of your questionnaire, probably just don't have the time. A half hour here, a half hour there. It really adds up for buy people who don't have enough time to do their work.
2. Anyone faced with these things are worried about confidentiality. You don't even suggest the answers will be confidential let alone assure them of that. No one reading your questionnaire has the slightest idea who you are, what you are going to do with their answers, etc.
3. It takes too long to get into your questionnaire and it is too open ended. People are more like to answer short definite questions.
4. My only suggestion is you get some know, trusted entity to run a questionnaire for you, but they probably wouldn't take to your long philosophical wind up. Good luck.


From a professor
Dear Robert:
You have an interesting question and a worthwhile one.

Another person that is working on a similar theme is John Hasnas from Georgetown University who recently wrote the book: "Trapped: When Acting Ethically Is Against the Law By John Hasnas".

If the e-mail you sent me is more or less like the e-mails that you have been sending to corporate ethics officers, I am not surprised that you have gotten a poor response. There is just too much text that takes too long to read. If I were you I would cut the text back to nothing longer than a quarter of a page. Better yet, I would not send out any text, but would instead send out a series of quick, short questions that I would like the ethics officers to respond to. It should take no more than one or two minutes to fill out your questionaire. Anything more than that and no one is going to want to respond. After all, each officer has to consider whether to spend the time responding to your question, or instead spend the time doing what his employer is paying him to do, or, perhaps, interacting with family, friends, etc. Would you, if you had the choice, spend perhaps half an hour reading a stranger's e-mail, or would you rather spend the time reading and responding to a friend's e-mail?


From a lawyer
Mr. Shatt:
Your research project may be an appropriate subject of inquiry, though it appears you have prejudged the issue before beginning. I am afraid that I cannot give you an introduction to a publication or or organization that might be interested in your work. Regards


From a professor of business ethics
Mr. Shattuck:

I have reviewed your email message and can only say that I am not surprised at your results thus far. I think the nature and complexity of your inquiry (and your request that those being surveyed read your accompanying essay) makes the task too onerous for busy people. You seem to be asking those to whom you send this email to respond to your point of view – not to the simple question with which you start off the communication.

You might be better advised to separate your survey aspirations from your essay aspirations. The latter can take the form of an article in an appropriate periodical. The former may require a more economical questionnaire with clarity about how the information will be used in pursuit of what ends (academic, other). It is still not an easy thing to obtain statistically reliable responses from the audience you seem to have in mind. These people are being polled a lot, I would think, and are understandably selective in their choices about answering such questions.

Best wishes,



From a professor
What you are doing isn't entirely clear, which may be why you are meeting with resistance. What you call a survey is really a request to comment on an argument that you are making that is highly critical of the corporations for which they work. It would take many hours to respond in writing, and you have given no explanation of what you are proposing to do with their responses. Is it for your own edification? Are you writing a book? Are you an investigative journalist who will write the great expose of corporate hypocrisy? Are you a blogger who will put their responses on the web with snide commentary on the side? Therefore, you have given no good reason why someone should put serious time into responding to you. So you are asking some association for assistance in, to put it unkindly, spamming its membership with a very time-consuming request that might be used to embarrass their employers. Posed that way, are you surprised that you are not getting a lot of help?

You have something to say. You should say it in an op-ed piece. If you are genuinely unsure about your convictions, think harder about your argument, and check your ideas with some insiders. Read the academic literature on the subject. Figure out how to have a few conversations with some ethics officers. But don't expect the S&P 500's 500 ethics officers to respond to an email.

All the best, and good luck.


From an editor of a business ethics journal
Dear Mr. Shattuck,



Thanks for your query. I’ve two general comments about the project:



My own experience shows that it often is very hard to get corporate officers to respond to ethics surveys, especially if they’ve little sense of the source of the survey (e.g. your survey vs. one authorized by, say, ECOA). There are a variety of reasons for this, but in part it involves the potential legal exposure for the company with regard to anything they might say. My book with Linda Trevino (Managing ethics in business organizations, Stanford University Press), has a few pages (or maybe paragraphs—I don’t remember exactly without looking) of discussion on this kind of data collection issue. If you’ve not done survey-based research before, I strongly encourage you to consider teaming up with another scholar who has a track record with it, as survey research on ethics in organizations raises a variety of extra issues.
The topic is a good one, I think, and of potential wide interest, though it’s not one I’ve specifically addressed with any care myself. John Hasnas at Georgetown U. recently published a book on this kind of issue, though, looking at how federal sentencing policy, RICO, etc. force managers into actions of questionable ethical quality. See his “Trapped: When acting ethically is against the law.” Hasnas approaches the issue from a legal and philosophical perspective, rather than with survey data, but his overall framework and analysis might give you some good insights. Also, by using a citation tracking source, you can see who else has citied his work, and thus get leads for other research on the topic. Hasnas probably has published some articles on the topic as well; there is one forthcoming in Business Ethics Quarterly.


I hope this is helpful to you. It’s a potentially important topic, so I wish you well with it.



I replied
Thank you very much for replying to me, Professor ________.

At this juncture, I appreciate that I am proceeding in a very amateurish fashion concerning my research project. I would like to give you a little background explanation for this.

I am a retired lawyer who is very much anti-plaintiffs lawyers. During the 2004 presidential campaign and at other times, I have done a lot of emailing in a more direct fashion on that issue, but with very little effect or response.

More recently, I gained awareness of the substantial domain of business ethics and of corporate ethics officers and academics who worked in that domain, and I perceived a wedge there for the propagation of my anti-plaintiffs' lawyers views. I thought that those ethics officers and academics would be open to consideration, discussion and debate as to whether the travesty in our legal system that has been wrought by the plaintiffs' lawyers and their aiders and abetters undermines achieving the goals that those ethics officers and academics are trying to achieve.

I spent a fair amount of time and effort trying to present my ideas in article form to ethics organizations, centers and academics, but to no avail. Having made no headway there, I decided I would try to contact ethics officers directly and converted my article to a survey email. Then, in the course of trying to disseminate my survey email to ethics officers (which, on my own, I am very handicapped in trying to do), I proceeded to go back to ethics organizations and academics, reporting the "research" I was undertaking, and to see whether that could get their interest when I could not get it before.

I believe that publication in article form in an ethics publication and/or the making of a presentation at an ethics conference should precede any serious research project. I am hoping that will still come about.

I am pleased that you think my topic is a good one and of potential wide interest.

You are the second person to mention Professor Hasnas. I need to check my records to see whether I have already tried to contact him, and, if I have not, I will be sure to do so.

Again, thank you for taking the time to offer your comments.

Sincerely,


From an academic
The part of your argument that strikes me as the most interesting is your assertion that innocent employees are harmed by lawsuits against corporations embroiled in scandal and that civil suits tend to be directed against companies rather than individual perpetrators simply because that’s where the money is. If you focus on this aspect, you might be able to get a newspaper to publish this as an Op-ed. The piece would need to be shortened to around 650-750 words and it would be helpful to frame it around the anniversary of an actual case where employees were harmed in this way (perhaps your Merck example) in order to provide a news hook for the editorial staff. Targeting the local paper where the particular case occurred is probably your best bet.

If you prefer to keep the entire piece intact you might research online publications, particularly blogs, to see if any are a good fit. If not, you can always publish this yourself by creating a Web site or a blog of your own.

I hope this is helpful.



From a corporate ethics officer
Mr. Shattuck, thank you very much for sending us this very painstakingly
and diligently written article.

I think perhaps what might be keeping people from asking you to make a
presentation is that you haven't shared with us what might be called
your credentials. When organizations get these seminars together, which
can be quite expensive, they like to advertise speakers who are making
their living in business conduct, as ethics officers, professors,
consultants, attorneys, etc.

If I am reading your article correctly, I believe you are saying that
the law should not punish innocent people along with the guilty in a
corporation. It seems that the unspoken reference here would be to Enron
and its accounting firm. But it wasn't really the law that punished all
those people. The fraudsters at Enron made it go broke, and that's what
punished the innocent people there. Companies did not want to do
business with the tainted accounting firm, and that, more than anything,
is what put it out of business. You mention Vioxx and Merck in this
regard, pointing out that it was not fair to the innocent shareholders
that their stock fell thirty percent. But the law did not make the stock
fall. Some innocent Investors were disgusted or worried and sold their
shares; that's what drove them down for the other innocent investors who
held onto them. And, although the article doesn't explicitly mention it,
"the law" has put scores of executives behind bars in the last few years
for various forms of skullduggery.

You should probably also consider seeing if tort reform publications are
interested in this article. I am no expert on tort reform, but I think
your points about it would probably reach a wider audience if you first
acknowledged that the American justice system is predicated on having a
lawyer to argue each opposing position in a case, and both lawyers
should be compensated for their services.

Mr. Shattuck, I will take the liberty of answering your questions as to
whether I see things as you do. I do see the points you're making. But
things look a little different to me, standing in my own shoes. Perhaps
I am sheltered, working for a company that really does make integrity,
and earning the trust of our stakeholders, top priority. We have spent a
lot of time on various types of communication, training, and having
quite a number of people involved in justly looking into concerns that
employees raise regarding whether a particular thing is the right thing
to do. We are making integrity a conscious part of our way of life at
work and we are not alone. The papers are filled with bad news; we won't
make headlines for this. However, I'm not trying to say that everything
is rosy, or that you shouldn't be raising these issues and expounding
your views. Exchanging views is salutary. Perhaps you will figure out
how to make the legal system work the way it should.

I wish you the best of luck in your communications efforts. I wonder if
it would help if you told more of your own personal story along with
your "common sense" perspective. What sparked your interest in business
conduct and tort reform? That human interest touch might help you in
your search for publication.


From another corporate ethics officer
I apologize for the delay in responding to this message. I've been out of town. I've now read your article and congratulate you for a very thoughtful and well-written piece. The tension between legal compliance and ethics is an interesting one and you eloquently express many of the key issues. Unfortunately, I am at a loss as to where you can go to get this piece published. I do not know any publishers and am not closely aligned with any publications. I'm sorry I can't be more help to you.


From a third ethics officer
Robert,

First let me apologize for taking so long to acknowledge receipt of your note . In my position as Manager of Business Integrity for ________ Corporation, I receive several requests, some similar to yours.

Although I have read your email in its entirety, I respectfully prefer to abstain from commenting on the efficacy of your article, as we do not feel _______ is necessarily qualified to judge the merits of its content. Also, _______'s Ethics and Business Integrity policies are clearly outlined on our Web site if you would like to review them in the context of your article.

With that said, I wish you well in your endeavors.


I noted a Wall Street Journal article about the above corporation and I wrote back:

I noticed the below Wall Street Journal article reporting on ______'s settlement with the CFTC concerning alleged price manipulation. The article does not report any sanctions against ______ employees.

As you may remember, my article argues that the law undermines business ethics insofar as it does not penalize individuals who perpetrate corporate wrongdoing and instead penalizes innocent individuals, such as stockholders, other company employees and customers of a corporation who are penalized when the corporation is penalized. Insofar as employees see that happening, the efforts of corporate ethics officers such as yourself to inculcate the institutionalized practice of ethical behavior by employees is undermined, as my article argues.

As my article states, you are in a better position than I to evaluate the validity of my article's contentions, and I regret that you feel you must abstain from commenting.

Again, however, I thank you for taking the time to read my article.


From a consultant
I think you have something interesting to say. Why don’t you try Ethisphere magazine? They are “out there” with original stuff, not just regurgitating the stuff every organizational ethics professional has read a thousand times before. You’re nothing if not original. I think your blurb about your position would help editors want to take a closer look. If you can’t find the name/contact info for the Ethisphere magazine editor, let me know and I’ll try to dig it out.


From an academic
Dear Mr. Shattuck,

I’m afraid I’m unable to offer any special access to the ECOA or other organisations in this area. I’ve read your article and while suggestive, if I may offer a couple of comments, I believe it would benefit from rigorous editing as it is very dense; clearer distinctions need to be made about what you are suggesting re the connection between plantiff lawyer compensation and the bottom line impact on business ethics programs: this is not at all clear. Companies regard lawsuits as a cost of doing business and I cannot from the article alone draw conclusions about how business is impeded thereby. The Vioxx case is an interesting one, but what’s the connection? To be blunt, arguments from a commonsense perspective have no weight as there should be a way to document behaviours and outcomes, so a review some of the relevant literature on this subject might serve to strengthen the article. Finally, and my suggestions are by no means exhaustive, you might want to consider establishing your qualifications and experience at the outset of the article—are you a business executive or lawyer, for example—which would lend weight to your observations. I’m afraid these are simply observations based on my very limited knowledge of the subject matter, and you should take them accordingly. I wish you all the best in moving your article to print, but can offer no further assistance.

Kind regards,


Part of my response to above academic
My article has gone through much editing and revision, and I am sorry if there remains a lack of clarity.

If the law undermines business ethics in the manner my article describes, the link with plaintiffs' lawyers' compensation is that such compensation is, in my opinion, the main driving force in causing the law to have the undesirable aspects that contribute to the adverse consequence for business ethics. When there is an adverse effect on something, it is usually helpful to understand the root cause, as will better inform an overall evaluation of the situation.

When you say lawsuits are a cost of doing business, that only begins the inquiry of whether they are reasonable costs from a societal point of view. If the costs are reasonable, then any adverse ramifications for business ethics may simply be required to be tolerated. Whether the costs and other aspects of our civil liability system are reasonable and justifiable is not something normally within the purview of ethics officers and academics, but it certainly becomes a consideration in evaluating the thrust of my article.

The Vioxx case is an excellent example for asking the question of what would best serve societal interests in a balanced way with respect to such situations (including the desirability of defining and promoting ethical business behavior by employees and punishing them for unethical behavior). My article is highly suggestive of some of my views. Further, I think any intelligent and reasonably informed layperson is capable of having worthwhile opinion on this question. Do you have a view on the Vioxx case?

I agree that more is required than argumentation based on common knowledge and experience about human nature and a common sense analysis of what is needed for society to obtain ethical behavior. My article says that and it expressly solicits input from ethics officers and academics in the field. ("You have front line involvement with employees, the environment in which they work, elaborate corporate codes of business ethics, and employees' thinking, psychology, decision making process and resultant actions. Accordingly, I want to ask you, is my answer that is based on common knowledge and common sense analysis borne out by what you see up close that happens?") I am more than willing to spend time documenting behaviors and outcomes, but to do so I first need information at the source. I will continue plugging away trying to get it.

Again, thank you for your thoughtful response.

I emailed with various prefatory material

In some cases I emailed Does the Law Undermine Business Ethics? without any prefatory explanation.

In other cases, I cast my emailing of Does the Law Undermine Business Ethics? in the form of a survey project I was attempting and prefaced it with:

Dear Sir or Madam,

I am surveying corporate ethics officers on the question posed below of whether the law undermines business ethics, such survey being in the form of an email to such officers as set out below.

Would the ______ Center for the Study of Media Ethics & Law be in a position to sponsor and/or publish my research?

Thank you.

Sincerely,


I also used:

Dear Professor _____________,

I am writing you this email because of your Scholar or Associate status at the __________ Center for Applied Ethics and your other standing in the field of ethics.

I am surveying corporate ethics officers on the question posed below of whether the law undermines business ethics, my survey being in the form of the email set out below.

This project is slow going for me. Among other things, I don't have ready access to email addresses for corporate ethics officers, and my email is going out in a very inefficient fashion. Also, I am having difficulty eliciting any interest or support of an organization or publication having a presence in the business ethics field, such as the Ethics and Compliance Officers Association.

I am trying to find if other persons have investigated or written about my research question of whether the law undermines business ethics. As yet I have not found anything.

I don't know if the reason for the foregoing situation is because the question I pose has such an obvious "yes" answer that no one is bothered to spend any time delving into it, or further whether such a yes answer simply reveals an elephant sitting in the middle of the room that no one wants to talk about.

Please tell me, if you would take the time: Is my research project a worthwhile area for inquiry? If you think it is worthwhile, could you give me a reference or introduction to an organization or publication that I might work with in pursuing my project? Do you have any other suggestions that might help me out?

Thank you.

Sincerely,

Does the Civil Liability System Undermine Business Ethics?

A question for ethics officers, consultants and academics:

Does the Civil Liability System Undermine Business Ethics?

By Robert Shattuck

I address this question to corporate ethics officers and consultants and academics who work at developing systems and programs for the promulgation, inculcation and institutionalized practice of business ethics.

Do you think the law is an impediment to achieving your business ethics objectives?

I believe it is.

You, however, are better situated and equipped to investigate and answer the question than I.

I base my answer on common knowledge about human nature and common sense analysis of what is needed for society to be able to regulate behavior to be ethical. You can do me better. You who are ethics officers have front line involvement with employees, the environment in which employees work, and their thinking, psychology, decision making process and resultant actions in that environment. You who are academics may have done psychological studies or be aware of studies that tend to support or not support my answer.

Is my answer that is based on common knowledge and common sense analysis borne out by what you are able to discern close up and/or is it supported by psychological studies?

I very much hope you will take the time to consider this article and tell me what you think. I believe that the civil liability system is in need of further reform, and if business ethicists have views that the system undermines business ethics, I would want to use those views as an additional basis for advocating further reform in the civil liability system.

Human nature; how society tries to regulate behavior

The starting place for my inquiry is the common knowledge that people have about human nature and why and how society tries to regulate behavior that grows out of human nature. Let me lay out what I think we commonly know.

Probably growing out of the self-preservation instinct, self-seeking motivations in the human species are powerful and predominant; altruism is weak.

A fundament of societal organization is subservience of an individual’s self-seeking motivation to a greater common good. This is based on an analysis that promotion of the well being of a group can contribute to the well being of the individuals in the group.

Society has various mechanisms to mitigate self-seeking behavior and to alter it to promote a greater common good. These include religion; the promulgation of codes of conduct; bestowal of honors and esteem on exemplary individuals; formal education programs that teach ethics; and systems of shame and legal punishments for individuals who violate society’s strictures.

The attempt to regulate behavior occurs at the individual level and within organizational structures, such as corporations.

An individual’s powerful self-seeking motivations are for money, power, material possessions, social standing, sex, honor, esteem, aesthetic refinements, recreational pleasures and ego gratification. The first listed motivator of money can contribute significantly to the procuring of the other desired objects. Much of the motivation at a larger organizational level, such as a corporation, is a collective expression of the constituent individuals’ motivations to obtain money and other objects of their desires.

Lying, cheating, stealing, defrauding, misrepresentation, concealment, breach of fiduciary obligations, bribery, blackmail, harassment, and lack of proper regard for the interests of third parties, have great potential for individuals and larger units such as corporations to obtain money. This is done, however, at the expense of other individuals and other units in the society.

The role of human intelligence is a very significant factor. Equipped with that intelligence, the human species is excellently endowed to conceive and implement dishonest activities and to exploit knowledge and information that others are lacking.

The extent and pervasiveness of dishonest, self-seeking activities by human beings is difficult to gauge.

Dishonest activities that are carried out successfully are concealed, and any researcher trying to estimate the quantum of dishonest behavior by human beings is ignorant of what has been concealed.

Dishonest activities on a large scale that are discovered get reported in the news. There is an unending procession of publicity about wrongdoing in the commercial world. It seems extensive and exhibits interesting combinations of novelty and repetition, and sometimes surprising audacity and scope. In the “boom and bust” cycle of the past decade, we have been inundated during the “aftermath” past four years with exposures of many instances of large scale wrongdoing that was perpetrated during the “boom” part of the cycle.

In the daily news about commercial wrongdoing, gauging the aggregate amount is complicated by the presence of large swaths of gray areas of right and wrong and varying degrees of culpability of involved individuals. Also, to repeat, one never knows about wrongdoing that has taken place and that is not found out.

Dishonesty that occurs on a smaller scale is not newsworthy. Sometimes many small-scale activities of a similar, wrongful nature get reported in the aggregate. Most of us are aware of significant amounts of fraud that occur related to car insurance and car repairs, Medicare and Medicaid claims, identity theft and credit cards, cheating on taxes, overbilling on government contracts, and bribing of government officials to obtain commercial contracts. From lots of everyday experience, people are distrustful in hundreds of commercial transactions they enter into over their lifetime. All in all, it is fair to say that the total quantum of small-scale dishonesty is unknowable but that there is a lot of it that goes on.

Business ethics and the role of the law

Business ethics is supposed to counter and lessen the perpetration of dishonest activity in the commercial world.

As referred to above, business ethics, along with other forms of moral instruction imparted through religion and other institutions, are taught in society, and society has practices for bestowing honors and awards on exemplary individuals.

It is submitted, however, that, without legal punishments for individuals who violate society’s strictures, society would be feckless in its efforts to lessen dishonest commercial activities, and that society needs to be rigorous and exacting in designing and implementing its regime of legal punishments for this purpose. In this regard, it would be a troublesome sign if society was fooled into thinking that its system was functioning effectively.

What is needed in the law for it to be rigorous and exacting?

One component is close attention to whether something is done deliberately and intentionally, or whether it is done negligently, or whether it is without fault. If a party who is without fault is punished and forced to pay a cost, that can undermine the regime of legal punishments. First, it can deflect attention from making sure that intentional wrongdoers are punished (i.e., the potential for societal self-deception to the effect, well, costs were paid so punishment must have been meted out so the law must have been doing its job). Further it offers opportunity for guilty parties actively to avoid punishment by accomplishing a shift to innocent parties. Would be wrongdoers will be encouraged by the idea that the responsibility can be shifted away from them if they decide to go forward with their wrongdoing and it is found out. When innocent parties are punished while guilty ones escape responsibility, a general disrespect for the law is engendered, and that disrespect is detrimental of the law performing a purpose of fostering ethical business conduct.

As to intentional wrongdoing versus negligent wrongdoing, a regime of legal punishments might rightfully be less strict with negligent wrongdoing. This is on the basis that people, as regards intentional wrongdoing, can and should be required in an absolute way to choose consciously not do the wrong, whereas everyone is negligent to some degree from time to time and “zero tolerance” is not a realistic objective. In the case of negligence, the law can and should look closely where, for example, the negligence is slight and other intentional or other more negligent actions (including of the plaintiff) caused a loss, and the law might also take into account that available resources for investigating and punishing wrongdoing are limited, and intentional wrongdoing should have priority.

Further, the law needs to be a definite as possible in advance about what is wrongful and what is not wrongful. Unless a person is able to know what is wrongful and what is not wrongful, there the person is disabled from being able to make a decision not to do something that is wrongful, and the law will fail as a tool for fostering ethical behavior.

Differentiating among intentional wrongdoers, negligent wrongdoers, and parties who are without fault should be in the foreground in dealing with entities that represent conglomerations of individuals, such as corporations. Any corporate act of wrongdoing is designed and implemented by particular individuals in the corporation, but lots of other individuals may be wholly without fault and costs and punishments imposed on the corporation will be ultimately borne by these latter individuals. The discussion above about the importance of punishing guilty individuals, and of not punishing innocent individuals while guilty ones escape, applies in the context of a corporation, and the legal system needs to strive to impose costs and punishments on individuals who design and implement a corporate wrongdoing and to try to be sparring in imposing them on innocent individuals.

The environment in which corporate wrongdoing happens

A corporation’s main objective is to operate as profitably as possible. The greater the profits, the more shareholders and employees can be rewarded monetarily. There are pressures on a daily basis for employees to advance the corporation’s business. Time frames are relatively short, typically for the corporation to achieve the current year’s revenue and profit goals. Bonuses for the contributions that employees make are paid on an annual basis. The employees’ jobs are their means of livelihood and of providing for their families. Plugging away every day to keep the business running profitably and to give security for this year’s source of income is a top priority for employees.

A corporate wrongdoing will be something intended to benefit the corporation financially by increasing revenues, reducing expenses or avoiding or lessening losses in the business. The corporate acts that comprise the wrongdoing are conceived of, authorized by, and carried out by officers and employees of the corporation, frequently a small fraction of all the corporation’s officers and employees. Of the perpetrating group, some have fuller knowledge of the wrongful activity and others will have very limited awareness. Many employees will be completely ignorant of the wrongful actions of the corporation, as well shareholders and customers being ignorant that wrongdoing is going on.

The officers and employees who know what is going on participate as part of their job to do things to benefit the corporation’s business. Their participation evidences their value to the corporation, and their assumption is that they will be rewarded for that in the compensation they receive from the corporation.

If an officer or an employee who is part of the group that perpetrates the corporate wrongdoing thinks the activity is questionable or that it is a clear wrongdoing that has risks of being discovered, and if the officer or employee has qualms about what is being done, there is significant internalized pressure nonetheless to go along with what the corporation is doing and to not try to block the activity. Raising objections can be viewed negatively by one’s peers in the corporation or by higher ups and result in adverse impact on the employee’s status and compensation in the corporation. The actions in question may be in a gray area and not clearly wrong. A tipping factor for the employee to go along can be a perception that, if something untoward happens as a result, only the corporation as a whole will bear the brunt and the employee will escape any personal punishment for his role in the corporate wrongdoing.

In short, all corporations are in the business of earning profits, by going along the employee is just doing his job and what others want him to do, the requested action is possibly in a gray area anyway, his employer will not punish him for what he did, and any other corporation that might learn of his willingness to go along with what others wanted to him to do will not hold that against him in getting another job.

How the civil liability system undermines business ethics

Let us focus on how the civil liability system goes awry in attacking corporate wrongdoing. Not all of it has gone awry but a very significant component of it does. This is a component that has, by and large, been wrought by lawyers, and in particular by plaintiff’s lawyers. Let us consider them, their motivations that drive what they do, and what they have wrought in the law.

Plaintiffs’ lawyers are part of the human species and their most powerful motivations are the same self-seeking motivations that are the most powerful for the rest of us. For plaintiffs’ lawyers, the big money is in suing the corporation. This big money comes in small bits out of lot of different pockets, many of which are entirely innocent of the wrongdoing, including shareholders who may receive slightly reduced dividends, innocent employees who may suffer slightly reduced wages, or customers of the corporation who wind up paying slightly higher prices.

To the extent that is all that happens, and no special punishment is ever imposed on the group of officers and employees who have personal culpability in the wrongdoing, there is going to be a substantial failure of deterrence effect, to wit, the officers and employees who were responsible are confirmed in their previous view that the wrongdoing they participated in had short term favorable financial results for the corporation, they the officers and employees got rewarded for the year in the compensation they received, the wrongdoing might never come to light and everything would be the rosier for it, and it is too bad the wrongdoing was discovered, but the officers and employees have come away basically unscathed, and either their current employer corporation may try a new trick next time, or else they have proved their mettle and the next corporation that employs them will be interested in seeing what they can come up for it.

The question presented is the extent to which plaintiffs’ lawyers have an effect of undermining society’s efforts to be rigorous in fining, jailing and otherwise punishing corporate officers and employees who are responsible for conceiving, authorizing, designing and implementing corporate wrongdoing.

Insight into answering the foregoing question can be obtained through a comparison of plaintiffs’ lawyers with governmental regulators, criminal prosecutors, state attorneys general and legislators, with a focus on their respective manners of compensation. The latter parties work on behalf of the public to design, implement and enforce laws and regulations and a regime of legal punishment to curtail dishonest commercial practices and conduct. The compensation they receive is reasonable for the work done, and in particular it is not geared to the dollar amount of economic activity that their public work affects (i.e., legislators and regulators don’t get paid millions of dollars because they put into effect large governmental budgets, levy commensurate amounts of taxes, and write and enforce laws and regulations that affect billions of dollars of economic activity and that impose and allocate large economic costs on and among businesses, consumers and other parties.)

Plaintiffs’ lawyers perform a similar public role in the design, implementation and enforcement of legal punishments to curtail dishonest commercial practices. Their compensation, which is huge, is geared to the amounts of economic activity that their work affects and to the economic costs that they get shifted around among various parties; the larger the scope of their lawsuits and the greater the dollar amount of the costs they can get shifted around, the greater their compensation. This manner of compensation of plaintiffs’ lawyers creates very powerful incentives for them to seek the objectives of (i) expansion of harms or detriments for which a payment should be made, (ii) higher rather than lower amounts that should be paid, (iii) expansion of liability where there is no fault, (iv) disregard of distinctions between intentionally culpable, negligently culpable and faultless parties, especially in the context of corporations comprised of a conglomeration of employees, shareholders and customers , (v) disregard of culpability of plaintiffs in their own injuries and harms, (vi) not having clear rules in advance about what is wrongful and what is not wrongful, so that a person does not know what is wrongful and cannot make a decision not to do a wrongful act, and exposing every decision and action to an ex post facto determination that it was wrongful and for which there is liability, (vii) disregard of rational cost/benefit principles, (viii) the invocation of junk science, and (ix) usurpation by them and the courts of the powers of the legislative branch and the executive branch regulatory apparatus.

These objectives of plaintiffs’ lawyers are inconsistent with the need, as discussed, for the law to be exacting in punishing and imposing costs on guilty individuals and in not punishing innocent individuals while guilty individuals are not held responsible, and of providing clear rules in advance about what is wrongful and what is not, in order that people may make a decision not to do a wrongful act. The plaintiffs’ lawyers have been very successful in achieving their objectives. This has bred contempt and disdain for the law, swallowed up large amounts of resources that could be available for other activities more effective for promoting business ethics, and has been otherwise distractive and undermining of society’s use of legal punishments to curtail commercial wrongdoing.

The Vioxx case as an example of how the law fails business ethics

Take for example the Vioxx litigation that is now working its way through the judiciary pipeline.

Let us start with all the shareholders who purchased Merck stock in the weeks leading up to the Vioxx announcement and who suffered an immediate 30% or so decline in value following the announcement. Profits that Merck made from Vioxx did not accrue to those shareholders, and they are entirely innocent of whatever wrongdoing Merck committed regarding Vioxx; nonetheless the legal liability system that is entrenched will give no consideration to those factors and results in that 30% being taken from them and contributed to the recovery that the plaintiffs eventually make.

Next consider, if Merck is guilty of wrongdoing, whether any officer or employee of Merck will be personally punished for his participation in the wrongdoing. There has been no indication that this is going to happen.

Next consider the hundreds of millions of dollars that plaintiffs’ attorneys will receive in the Merck litigation. Think how those sums might be alternatively expended in order to pay for programs and activities that would concretely advance protective and preventive objectives related to drugs such as Vioxx. These might include: greater FDA funding for post-drug approval monitoring and studies to detect adverse drug effects; design and implementation of better safeguards at the physician and patient level relative to decisions for a drug to be prescribed in a particular case; development of concrete protocols and guidelines for testing of drugs that drug companies could follow that would protect them against subsequent liability; development of concrete “conflict of interest” rules for researchers and physicians involved in testing or promoting a drug and punitive enforcement of the rules against researchers and physicians individually.

Ultimately, there is a question of what exactly the wrongdoing of Merck was, articulated with sufficient specificity, that Merck and other drug companies can have advance notice of such specifics so they can avoid “wrongdoing” in the future. For all the billions of dollars that might wind up getting paid in the Vioxx litigation, no such concrete guidance may be forthcoming at all from the litigation, and, if that is so, all that happens is effectively a huge transfer from one set of parties without fault to other parties who have suffered a harm not caused by any wrongdoing of the first parties.

The problem of the plaintiffs’ lawyers

The situation with Vioxx is emblematic of how plaintiffs’ lawyers cause a huge consumption of manpower, economic resources and mental attention and effort that has little or nothing to do with accomplishing reduction of corporate wrongdoing and is a corresponding enormous diversion of those resources from society’s efforts to reduce corporate wrongdoing.

In evaluating this argument that plaintiffs’ lawyers undermine the promotion of business ethics, we should not listen to the plaintiffs’ lawyers. Our country has seen enough in recent years of baneful effects of large amounts of compensation that create conflicts of interest and that that cause the recipient to advocate or follow a course of action that will increase that compensation and contrary to the better interests of other individuals and groups. Corporate executives standing to gain fortunes from stock options committed massive accounting frauds that contributed to maintaining and increasing lofty stock price levels that would enormously benefit them under their stock options and other compensation arrangements. Accountants have been charged with faulty accounting work arising from the conflict of having lucrative consulting work with the audit client. Stock analysts have been inappropriately influenced in their stock reports by reason of getting compensation based on investment banking business their employer gets from companies the analyst covers. Brokerage firms corrupted the IPO market by allocating stock in hidden exchanges for inflated commissions on unrelated transactions. Mutual funds and insurance brokers have acted in wrongful disregard of conflicts of interest in order to increase their revenues and profits.

Plaintiffs’ lawyers are no different. They are conflicted to the core by their compensation arrangements and are incapable of rendering to society any honest evaluation of how well the current civil liability system is in serving society’s objective of promoting ethical business behavior.

Conclusion

The above is a very descriptive, common sensical, common knowledge based explication of how the current state of the law undermines the promotion of ethical business conduct, and how the law results in a significant diversion of economic resources away from beneficial and desirable ethics programs and activities and misallocates those resources to wasteful and counterproductive uses.

Corporate ethics officers are in a special position to judge the validity of my arguments. They have front line involvement and first hand experience that specially enable them to discern circumstances and factors that abet or that impede the inculcation and institutionalized practice of business ethics in their corporation. They are in the best position to evaluate my descriptions of how the law affects the psychology and thinking of employees when it comes to deciding to engage in an unethical activity or not. To the extent ethics officers are uncertain about what I describe, they can conduct interviews and surveys of employees to find out about employee thinking and psychology. Academics working in the business ethics field also have a close in view of things and may may have done psychological studies or be aware of studies that tend to support or not support my answer.

I very much hope you will take the time to consider this article and tell me what you think. I believe that the civil liability system is in need of further reform, and if business ethicists have views that the system undermines business ethics, I would want to use those views as an additional basis for advocating further reform in the civil liability system..

2007 work on business ethics front

The preponderance of my efforts in 2007 has been to try to get the attention of ethics organizations, journals, academics, and corporate ethics officers. I tried numerous approaches. Let me reveal some of these in posts succeeding this post under the label F. Ethics organizations

What I have learned

A first main question is whether I (and other tort reform proponests) are basically right and the extent to which we are right about the civil liability system ill serving societal interests and the need for changes to improve significantly how such societal interests are being served.

In all my efforts I have not been able to elicit any respectable intellectual debate from the plaintiffs' lawyers side. I tried to draw out law professors in such debate, but could not do so. I have yet to find any such respectable debate. To me, this is significant evidence that I (and other tort reformeres) are basically right.

Any reader of this blog can try to decide for him or herself whether I (and other tort reformers) are basically right.

On the premise that I (and other tort reformers) are basically right, here are things I have learned.

The legal profession's priorities are first to serve its own economic interests and, in a pervasive and entrenched way, will take action to try to serve those interests and not society's interests when there is a conflict between the two.

In the realm of legislation and lobbying, the legal profession is just another "special interest" group, and a very powerful one at that.

Many judges either don't understand how the civil liability system ill serves balanced societal interests or they understand but are willing to support and advance the lawyers' interests against societal interests.

Legislators succumb to the blandishments and campaign contributions of the lawyers just as they do with other special interest, and legislators repeatedly fail to fulfill properly their obligations to evaluate societal interest and pass laws that advance societal interests and instead continue with their service to special interests.

There is an elitism, snobbism and a type of narrow mindedness in law professors and other academics that results in their unwillingness to lend their names and expertise to public pronouncements that could be helpful to citizens in their formulating their views about tort reform and trying to take action based on such view.

Plaintiffs' Lawyers Are Not That Good

The plaintiffs’ lawyers are not so good that they deserve the pay they get. They get their pay because they have rigged the legal system, and that should be changed.

The plaintiffs’ lawyers are actors in society's systems that, first, make transfers of money to citizens who have suffered damage and, second, punish, in the name of deterrence, persons whose actions cause damage to others.

Society should have these systems. Society does have them, the mechanisms are multi-faceted, and millions of workers are gainfully employed in the implementation of the same. For the most part these persons receive reasonable wages for the work they do.

A major structural component in the overall scheme is private insurance. Insurance works to protect citizens from losses by means of their paying premiums to insurance companies that, in turn, pay money out to insureds who have the misfortune of suffering an insured loss. There are costs in the administration of private insurance that include many employees involved in claims processing (clerical personnel, claims adjusters, investigators, etc.), not to mention battalions of salesmen trying to persuade customers that insurance protection is wise and the insurance offered by the salesman is better than another product. By reason of the regular operation of the laws of supply and demand in the labor marketplace, the employees in the industry generally receive reasonable and justifiable compensation for their work in the implementation of a private insurance system whose object is to make transfers of money as described.

Another money transfer system involves tax dollars, to wit, government welfare programs (including natural disaster relief). In this realm, society, through its elected representatives, decides that people who are needy for various reasons (including natural disaster) should have transferred to them money that comes out of taxes collected from the citizenry at large. Legislatures determine the amounts to be paid, and the programs employ many workers, at modest salaries, to determine who qualifies for welfare and to make and monitor payments. Because the programs cost taxpayers money, and because people do not like to pay taxes, pressures are generally present to keep costs down, including those of administration.
In addition, society has two parallel systems, its criminal law system and its governmental regulatory system, that mete out penalties such as jail sentences and fines to try to deter citizens from doing things that cause damage to other members of society. The governmental regulatory system includes forcing companies to pay for things like environmental clean up or back pay to employees where there has been unlawful discrimination in the workplace. This regulation can involve substantial amounts of money, and companies, which are trying to operate profitable businesses for their stockholders and employees, will resist making the payments.
In these two parallel systems, there are employed hundreds of thousands of police and other law enforcement agents, lawyers, prosecutors, investigators, scientists, researchers, accountants, legislators, judges and other administrative and clerical personnelf. These workers first write the criminal laws and governmental regulations that intimately affect both personal freedoms and trillions of dollars of economic commerce. More extensively, these employees carry out the wide range of activities needed to enforce the law and regulations, including investigating whether violations may have occurred. conducting tribunals to make legal determinations as to whether violations have in fact occurred, and determining and administering sanctions. The army of workers who toil in this area, under the economic laws of supply and demand, do so for reasonable wages. Tops might be $175,000 a year for a senior government lawyer.
This brings us to the plaintiffs’ lawyers, and the compensation they receive for the work they do.
As stated, the plaintiffs’ lawyers are actors in society's systems for making transfers of money to people who have suffered damage and for punishing, in the name of deterrence, those whose actions cause damage.

The question is: Do plaintiffs’ lawyers deserve the ungodly amounts of money they are paid?

Take automobile accidents as an example. Somewhere in the range of fifty thousand people a year are killed; the extent of non-fatal injuries and economic losses growing out of car accidents can only be guessed at. For discussion purposes, put annual aggregate losses at $150 billion (which has a semblance of rationality if the value of a human life is put at $1,000,000 as an approximation of the amount an average person would earn over twenty or twenty five years, which would put the loss of life component of the total loss in the range of $50 billion).
This $150 billion annual amount of losses from car accidents alone is a significant nut to crack for society's mechanisms for making transfers of money and punishing people to deter undesired behavior. A large part of the loss will be covered under private life, medical and property insurance (paid for out of insurance premiums paid by all insureds). A significant portion of the total loss likely goes without any compensation ($35 billion could be a guess of what this uncompensated amount might be).

On the criminal law and regulatory fronts, the police and the courts try to reduce the amount of drunk driving that goes on in the country, and the National Highway Traffic Safety Administration spends substantial amounts budgeted to it by Congress in carrying out extensive regulatory activities to try to improve car and highway safety.

Then come the plaintiffs’ lawyers -- the ones who get a judge and jury to extract $100,000,000 from an automobile company regarding, for example, an accident involving a vehicle whose fuel tanks arguably could have been mounted in an overall safer way (but maybe not, the safety of the totality of the engineering involved being a bit complex to evaluate intelligently), plus possibly a drunk driver plaintiff who was the most to blame for the accident. For his work, the trial lawyer gets to keep, say, $33,000,000, at an effective rate of compensation of, say, $15,000 per hour of work.

That $33,000,000 eventually comes out of higher prices for cars or lower wages for auto industry employees or lower returns to pension funds owning stock in the company's stock. People who do not like paying taxes for welfare programs should also object if they are being nicked by higher car prices or lower wages or reduced stock returns in their 401(k) retirement plan, in order for plaintiffs’ lawyers to be compensated at the rate of $15,000 per hour.
Looked at another way, $33 million could pay for a lot of services of legislators, government lawyers, investigators, judges, and other regulatory bureaucrats, working for reasonable compensation, who are engaged in the serious business of designing and administering the criminal law system and the governmental regulatory system that endeavors to get persons (including automobile manufacturers) not to do things (including building unsafe cars) that damage other members of society.

Do the plaintiffs’ lawyers, for the role they play and the work they do, deserve to be paid what they get paid? If they do not deserve their pay, how do they manage nonetheless to get the pay?
The answer to the first question is, in the opinion of many people, all things considered, categorically, no, plaintiffs’ lawyers do not deserve what they get paid.

The plaintiffs’ lawyers will reply that it is all a free market economy, and, if entertainers and sports stars can command stratospheric levels of compensation under free and open competition of public performers, then, by the same free market principles, the plaintiffs’ lawyers deserve whatever they can obtain by way of what they do in the legal system, it being open to all lawyers to compete there and bid down legal fees if legal fees are too high.

There is a telling difference. People who, by the millions, shell out $50 or $100 of their hard earned money (or their parents' hard earned money) for a ticket to a basketball game or a rock concert do so because of the pleasure they derive from attendance, and, in terms of alternative uses of their money, they choose to buy the ticket as opposed to use for another purpose. That being the case, one is able (perhaps reluctantly) to accept the ungodly amounts received by sports and rock stars who provide the desired pleasurable experience better than anyone else.
The plaintiffs’ lawyers, on the other hand, have rigged the legal system so that the pay they receive is decided by judges and juries who are not spending their own money, who do not think in terms of alternative use for the money, and who frequently act as if the money is not coming out of anyone's pocket. This mentality results in mindless verdicts, and the plaintiff, who stands to have bestowed on him stupendous fortune growing out of his misfortune, is not going to quibble about the prospect of $33,000,000 out of $100,000,000 going to the trial lawyer, the guy who makes it all happen.

A rigged system is the answer to the second question of how the plaintiffs’ lawyers get the outrageous amounts they get.

This brings us to today's mother of all trial lawyer takedowns, namely, the tobacco settlement or settlements. The national settlement has been swept off the table for now, but one can be certain that the mind boggling scores of billions of dollars the plaintiffs’ lawyers have in mind for themselves ($92,000 per hour of work, Senator Gramm recently estimated) will remain on the table in one way or another (individual state settlements, massive fallback tort litigation, renewal of national settlement efforts next year, new targets such as computer keyboard manufacturers and repetitive stress injuries).

Society, through its political, legislative and legal processes, and subject to constitutional limitations, is entitled to decide, and should decide, as a matter of public policy, the amounts, if any, under all circumstances considered, that should be extracted from the tobacco industry (and the tobacco industry's stockholders, customers and employees), and also the use of the money that is extracted.

Society has gone lunatic, however. if it allows plaintiffs’ lawyers to be compensated to the tune of $92,000 per hour for the tobacco related work they have done. More like one thousand dollars per hour might pass for justifiable.

The plaintiffs’ lawyers are just not that good, except in how well they have rigged the legal system over the years and, from there, bootstrapped themselves into a central position in the public policy arena to exact mind boggling tribute in connection with society's public policy decisions related to the tobacco industry. The untrammeled greed of the plaintiffs’ lawyers has been bad enough running amuck in a rigged legal system; to witness its unleashing in entire realms of public policy is positively sickening.