Sunday, October 30, 2011

To BEQ authors re Citigroup mortgage fraud settlement

From: RDShatt@aol.com
To: [Business Ethics Quarterly authors per here]
Sent: 10/28/2011 9:19:20 A.M. Central Daylight Time
Subj: To BEQ authors: re Citigroup mortgage fraud settlement


Dear Professors,
This October 20 Wall Street Journal article on the Citigroup mortgage fraud settlement for $285 million against Citigroup also reports that the SEC has negligence civil charges against a Citigroup employee that it is pursuing. The lawyer for the Citigroup employee is quoted as saying, "He was not responsible for any alleged wrongdoing, he did not control or trade the position, did not prepare the disclosures and did not select the assets," and, "We will vigorously defend this lawsuit."
Here are some arguably compelling questions for business ethicists:
1. If there is wrongdoing for which Citigroup is called on to pay $285 million, shouldn't officers and employees who are responsible for the wrongdoing be held liable to some extent?
2. If responsible officers and employees are not held liable to some extent, is that not a signal to all officers and employees, "Go ahead, put your thinking caps on, and come up with your next idea for making the company money, don't worry too much about whether it is ethical or not, ideally the company will make some good money from it and be able to pay you additional compensation for the year, and no one will be the wiser, of, if your idea does come a cropper and a liability has to be paid, it will come out of the hides of the stockholders and not you, so again don't worry"?
3. If there is wrongdoing by Citigroup, are there legitimate reasons why responsible officers and employees should not be held personally liable?
4. Is it possible that the legal system works so badly that there is fact no wrongdoing but a $285 million payment still gets extracted from Citigroup? If so, and there is no wrongdoing, can that have any adverse effect on attitudes and efforts related to Citigroup and its officers and employees being more ethical?
5. Will a meaningful determination be in fact made of wrongdoing, or not, in this matter, which will provide guidance to other officers and employees of Citigroup and of other banks and corporations, relative to future decisions and actions of such officers and employees?
Rob Shattuck

Thursday, October 27, 2011

WSJ: Citigroup mortgage fraud settlement

  • The Wall Street Journal

Citigroup to Pay $285 Million to Settle Fraud Charges


Wall Street's total price tag on settlements with U.S. securities regulators for allegedly misleading investors about mortgage bonds churned out ahead of the financial crisis surged past $1 billion with a deal by Citigroup Inc. to pay $285 million.
The New York company agreed to the payment to end civil-fraud charges by the Securities and Exchange Commission related to a 2007 deal called Class V Funding III. The SEC claimed Citigroup sold slices of the $1 billion mortgage-bond deal without disclosing to investors that the bank was shorting $500 million of the deal, or betting its assets would lose value.
Several Wall Street firms have settled similar claims by the SEC, which has generally stuck to the strategy used by the agency to get a $550 million settlement last year with Goldman Sachs Group Inc. over a collateralized debt obligation called Abacus 2007-AC1.
And the SEC's investigation of the Wall Street mortgage machine isn't over yet. Lorin Reisner, deputy enforcement director at the SEC, said civil mortgage-related cases against Goldman, J.P. Morgan Chase & Co., Countrywide Financial Corp., New Century Financial Corp. and other companies "read like an index to unlawful conduct in connection with the financial crisis." He added in an email: "Our work in this space is continuing."
As a result of the deal with Citigroup announced Wednesday, the SEC has collected a total of $1.03 billion through mortgage-bond-deal settlements. In addition to Citigroup, the total includes Goldman, J.P. Morgan, Royal Bank of Canada, Wells Fargo & Co. and Credit Suisse Group AG.
The companies neither admitted nor denied wrongdoing.According to the SEC, Citigroup helped to rig the bet on Class V Funding III in its favor by exercising "significant influence" over the selection of $500 million of the assets, according to the agency's civil complaint. The agency said investors were assured that the assets were selected by the deal's collateral manager, a unit of Credit Suisse.The assets in the deal, a CDO, were linked largely to other CDOs that in turn invested in pools of subprime mortgages. The SEC complaint quoted one unnamed, experienced CDO trader outside Citi who described the portfolio as "a collection of "dogs—" and "possibly the best short EVER!"The deal became largely worthless within months of its creation, the SEC said. As a result, about 15 hedge funds, investment managers and other firms that invested in the deal lost hundreds of millions of dollars, while Citigroup made $160 million in fees and trading profits, the SEC said.The biggest loser, with a $500 million stake from guarantees sold on the deal, was insurer Ambac, part of Ambac Financial Group Inc., which collapsed because of its exposure to billions of dollars of mortgage-linked investments that went sour, according to the SEC.The assets that Citigroup helped to select performed "significantly worse" than others in the CDO, according to the SEC's complaint.
Citigroup said Wednesday that it suffered some losses on more than $100 million invested by the company in Class V Funding III, while profiting from its bet against $500 million of the portfolio. Citigroup added that it had "very substantial losses" on investments in other CDOs.
Citigroup said it was pleased to resolve the matter. The SEC also filed civil charges of negligence against Brian Stoker, referred to by the agency as the Citigroup employee primarily responsible for structuring the CDO. The SEC alleged that Mr. Stoker described Class V Funding III as a "prop," or proprietary deal, meaning a trade undertaken for the firm's own account, rather than to benefit its customers.
The SEC complaint quoted from an email Mr. Stoker allegedly sent to his supervisor as the deal was being discussed in November 2006, writing that Credit Suisse "agreed to terms even though they don't get to pick the assets."
Mr. Stoker's lawyer, Fraser Hunter of law firm Wilmer Hale Cutler Pickering Hale Dorr LLP, said there was "no basis for the SEC to blame" his client for the alleged disclosure failures to investors. "He was not responsible for any alleged wrongdoing, he did not control or trade the position, did not prepare the disclosures and did not select the assets," Mr. Hunter said. "We will vigorously defend this lawsuit."
If it goes to trial, Mr. Hunter's case is due to be heard by U.S. District Judge Jed Rakoff. Judge Rakoff, who also must approve the Citigroup agreement, has previously criticized the SEC's approach to certain enforcement actions.
Credit Suisse agreed to pay a total of $2.5 million to settle civil charges in relation to the CDO. It didn't admit or deny wrongdoing. The Swiss bank doesn't expect to face enforcement action from the SEC in relation to CDOs that it created or marketed, according to a person familiar with the matter. A spokesman for Credit Suisse declined to comment.
The SEC also filed civil-fraud charges against Samir Bhatt, a former Credit Suisse employee. Mr. Bhatt agreed to a six-month suspension from associating with any investment adviser, as part of an agreement to settle the charges. He didn't admit or deny wrongdoing. Mr. Bhatt's lawyer, James Masella of law firm Blank Rome LLP, declined to comment.

Wednesday, October 26, 2011

WSJ: Bank of New York currency probe

  • The Wall Street Journal
  • OCTOBER 12, 2011

Secret Informant Surfaces in BNY Currency Probe

For a decade, Grant Wilson toiled on a small trading desk at Bank of New York Mellon Corp. in Pittsburgh, buying and selling currencies for the bank's biggest clients.
Mr. Wilson also had another job: For the last two of those years he was a secret whistleblower, assisting currency-trading investigations of BNY Mellon, according to people familiar with the matter.
A secret whistleblower, Grant Wilson, is at the heart of allegations that BNY Mellon overcharged clients on billions of dollars of currency trades.
His input culminated with the filing last week of separate civil lawsuits by the Justice Department in federal court and New York attorney general in state court alleging that BNY Mellon systematically overcharged investors on billions of dollars of currency trades, defrauding or misleading them for a decade.
The suits seek a total of more than $2 billion from the bank. BNY Mellon denies wrongdoing and is fighting the legal actions.
The allegations against BNY Mellon represent one of the broadest enforcement efforts ever against banks that trade in global currencies—one of the world's biggest financial marketplaces. Massive pension funds that oversee hundreds of billions of dollars for teachers, police and firemen and retirees now are questioning whether they got a fair shake on currency transactions that generated profits for the banks.
Until now, Mr. Wilson's identity remained a closely kept secret. His role as a lone whistleblower against BNY Mellon went undetected even as the bank's lawyers looked for a whistleblower.
The Justice Department and New York's attorney general filed separate civil lawsuits against Bank of New York Mellon Corp. alleging that the bank fraudulently charged clients for currency transactions, David Reilly reports on Markets Hub. Photo: Getty Images.
He left the bank this year after providing information and documents that helped the government and a whistleblower legal group. To pull off two years of secrecy, he and his legal team used a shell partnership in Delaware, met on a Saturday so Mr. Wilson wouldn't be missed at the office, and talked strategy at anonymous restaurants.
 
Mr. Wilson, along with two lawyers and two other whistleblowers in a separate case, are part of a group that includes Harry Markopolos—the fraud investigator best known for his early, and correct, suspicions that Bernard Madoff's multibillion-dollar investment empire was a fraud. Mr. Markopolos says his group's currency-trading allegations have roots in a hunch he had in 2006 that currency-trading costs might be causing unusual gaps in investment returns.
The group first filed their own lawsuits against the two banks, using information from the whistleblowers, according to people familiar with the matter. State attorneys general then ultimately filed their own lawsuits in four states, believing the whistleblower claims had merit. The whistleblower group can seek a share of as much as 25% of any recovery the states obtain in many of the cases.
State attorneys general in Virginia, Florida and New York and the Justice Department allege BNY Mellon overcharged major clients by giving them unfavorable currency-exchange rates. The alleged fraud involved banking clients that don't negotiate currency trades themselves, but instead give "standing instruction" to a bank to trade for them. These clients usually aren't trading currencies for profit, but simply need foreign money to do transactions overseas.
Mr. Wilson described to his lawyers, and later, law-enforcement officials, how the alleged scheme worked at BNY Mellon and provided internal documents showing the bank's profits. The Wall Street Journal pieced together this account of his role from court documents and extensive interviews with bankers, lawyers and people familiar with the government inquiries.
Mr. Wilson, 52 years old, declined to comment.
In a related case, state prosecutors in California have sued rival State Street Corp., accusing it of improperly pricing currency trades. The Securities and Exchange Commission also is investigating State Street, according to a regulatory filing. State Street strongly denies the allegations.
BNY Mellon sought to discover the insider's identity and to fight the lawsuits. The 225-year-old bank also set up a website to answer client questions and last week ran full-page advertisements in major newspapers saying the claims against it "are flat out wrong and we will fight them in court."
A BNY Mellon spokesman rejected the notion the bank provided "least favorable" currency rates to clients. "We provide competitive wholesale pricing for retail-sized transactions," he said, adding "our clients and their investment managers have full discretion to execute foreign-exchange trades through us or any other provider."
Mr. Wilson, an expert in trading Japanese yen, worked on a BNY Mellon trading desk in Pittsburgh, some 375 miles from the bank's headquarters at One Wall Street in New York. On that desk, the whistleblower—identified by people familiar with the situation as Mr. Wilson—"had extensive personal contact with the employees and executives" behind the alleged fraud, according to the Virginia attorney general's complaint.
According to the Virginia and Florida attorney general suits, a separate "transaction desk" was responsible for collecting the currency trades made for the bank's "standing instruction" clients and then setting the price at which the bank would record those transactions. The prices often were at or near the day's least favorable exchange rates, state attorneys general and prosecutors allege, with the bank profiting from the difference.
State attorneys general allege that emails and internal communications from BNY Mellon show executives endorsing the alleged currency-transaction practice, favoring certain clients with better pricing, and worrying that profit margins would fall if the bank were more transparent. The ability of bank clients to monitor transactions more closely would "reduce margins dramatically," according to an email in Virginia's lawsuit, filed in August in state court.
As the BNY Mellon currency-trading investigations grew, Mr. Wilson's colleagues in the office wondered who the whistleblower might be, according to people familiar with the situation. Mr. Wilson's lawyers gave him language to use if he were ever questioned: He was to refer to himself as a "relator"—a whistleblower, in legal parlance—and say, "I'm pursuing a false-claims case against this company." The explicit language was designed to give Mr. Wilson legal recourse if the company were to retaliate against him for being a whistleblower, these people say.
The investigations focus on an opaque area of the foreign-exchange business, where $4 trillion is traded daily. BNY Mellon and State Street are two of the world's largest "custody" banks, which specialize in processing trades and handling administrative tasks for global money managers including pension funds, corporations, universities and other banks.
Mr. Wilson's decision to become a whistleblower started with Mr. Markopolos, the fraud investigator, who had the 2006 hunch about currency-transaction costs. Over the past four years, he and his legal team contacted Mr. Wilson and two former State Street employees, Peter Cera and Ryan Gagne, to secretly help build cases against the two banks. The whistleblower group is led by two lawyers, Michael Lesser in Boston and Philip Michael in New York.
Working with the legal team, Mr. Markopolos arranged clandestine meetings with the whistleblowers at a shopping center and hotel restaurants. The secrecy paid off. Messrs. Cera and Gagne's names have remained confidential until now. The two former State Street employees declined to comment.
The group organized Delaware partnerships, with the three whistleblowers as the partners, in order to keep their identities out of public view. Messrs. Lesser and Michael are the lawyers for the partnerships. Mr. Markopolos works as a litigation consultant to the lawyers.
The reconstruction of the whistleblower group's formation is based on court documents, obituaries, real-estate records, currency-trading industry materials and the accounts of 10 people familiar with the situation.
Mr. Markopolos's hunch came from a book by Yale University's chief investment officer, in which a description of currency transactions stuck out: "Foreign exchange translations may influence returns in a substantial, unpredictable manner." Mr. Markopolos also noticed that pension funds using outside money managers reported slightly lower returns than the money managers themselves.
He asked a friend who had worked at State Street, who told him that custody banks typically charge pension funds unfavorable foreign-exchange, or FX, prices. The friend told Mr. Markopolos, "No one ever checks FX."
He strategized about how to find bank insiders who could help him look into his suspicions. A key tactic: Looking for traders who might be sympathetic, then cold-calling them and saying, "I have a better job for you."
Working from a small home office in Whitman, Mass., he began to try to contact whistleblowers, including Mr. Cera whom he knew through the Boston securities and banking community. A former senior currency researcher at State Street, he told Mr. Markopolos that allegedly improper currency trading was one reason he had left State Street.
Mr. Wilson's role went undetected even as the bank's lawyers looked for a whistleblower.
Mr. Markopolos asked Mr. Cera for another State Street insider. He suggested Mr. Gagne. By this time, Mr. Gagne also had left State Street, where he was a currency salesman and worked with the bank's computer systems. Mr. Gagne eventually agreed to join.
In April 2008, the whistleblower team, using information from Messrs. Cera and Gagne, filed a sealed lawsuit against State Street on behalf of two major pension funds, California State Teachers' Retirement System and the California Public Employees' Retirement System, or Calpers.
The suit was filed by an anonymous Delaware partnership called Associates Against FX Insider Trading. It alleges State Street charged the two California funds unfavorable currency rates, determining the prices between 4 p.m. and 5 p.m. each day so the bank could take advantage of daily price fluctuations. The complaint says State Street referred to public pension funds as "dumb" clients compared with "smart" clients who negotiated currency trades to get a better rate.
In a statement, a State Street spokesman said, "Neither Mr. Cera nor Mr. Gagne's job responsibilities included managing or executing indirect FX transactions." She said Mr. Cera left in 2001 and Mr. Gagne left in 2004, well before the 2008 complaint filed in California. She said the bank offers "clients and their investment managers a range of FX execution options and transparency as to our pricing methods" and that the bank will defend against the California allegations.
Meantime, Mr. Markopolos and the legal team contacted Mr. Wilson. Both Messrs. Cera and Wilson had worked at State Street.
On Sept. 12, 2009, Mr. Wilson met with the two lawyers, Messrs. Lesser and Michael, in Boston on a Saturday at Mr. Lesser's firm, Thornton & Naumes. Mr. Wilson didn't take much time away from work and didn't want to raise any suspicions by being out, according to people familiar with the situation.
Mr. Wilson and the lawyers discussed what was at stake during a three-hour meeting. Mr. Wilson claimed that all the standing-instruction trades were made at the same time in the afternoon, according to court documents.
In fall 2009, California's then-attorney general, Jerry Brown, sued State Street in Sacramento state court. In a news release, Mr. Brown cited the whistleblowers's earlier suit and alleged that the bank had charged the state's pension fund at or near the "highest rate of the day." The state estimated that damages and penalties could exceed $200 million.
The State Street lawsuit in California quickly caused headaches over at BNY Mellon. An internal BNY Mellon monthly business report in November 2009 said, "The fallout from the State of California vs. State Street lawsuit continues. To date BNYM has received 42 queries from clients questioning our policies and procedures."
In late October, the whistleblower group finalized suits against BNY Mellon in several states. The group filed papers to form a Delaware general partnership called "FX Analytics" to provide anonymity for Mr. Wilson. They soon filed suits in Virginia, Florida, New York and several other states, according to people familiar with the matter, all of which remain under seal.
The Virginia and Florida filings alleged that BNY Mellon cherry-picked the least-favorable rates for pension funds. Using the whistleblower's information, the suit listed specific amounts of standing-instruction trades—$5.375 billion—that had been processed through a Pittsburgh desk in July 2009. The lawsuits referred to a "relator" who "possesses extensive knowledge and experience regarding (BNY Mellon's) bank offices, businesses and personnel, including personal contact with the employees and executives of BNY Mellon ... who have committed the alleged violations."
The whistleblower suits remained a secret until earlier this year. In January 2011, Virginia Attorney General Kenneth Cuccinelli II intervened and took control of the suit against BNY Mellon in a move that unsealed the 2009 FX Analytics complaint. Florida Attorney General Pamela Jo Bondi did the same.
Those moves were the first public indication that someone inside BNY Mellon was aiding litigation against the bank. Inside BNY Mellon, Mr. Wilson feared his role would be revealed. Friends and colleagues openly discussed who the insider might be.
However, Mr. Wilson was never confronted. Earlier this year he told his boss he was retiring. He moved from Pittsburgh to New England in July.
On Aug. 11, Virginia's Mr. Cuccinelli sued BNY Mellon, alleging the bank had given a fake currency-transaction price to Virginia funds on more than 73,000 trades. The complaint said the "relator" was "employed in the FX trading department at (BNY Mellon) in Pittsburgh" and that "the relator observed (BNY Mellon's) FX trading for its custodial clients and learned directly that the FX scheme described herein was orchestrated and demanded by the senior executive staff of the Bank."
Last week, New York's attorney general intervened and filed its own suit, and the Manhattan U.S. attorney's office also filed suit. Both lawsuits kept secret the role Mr. Wilson played.
Write to Carrick Mollenkamp at carrick.mollenkamp@wsj.com

Friday, October 21, 2011

Emails to Business Ethics Quarterly authors



From: RDShatt@aol.com
To: Sean.hannah@usma.edu, bavolio@u.washington.edu, Fred.Walumbwa@asu.edu
Sent: 10/1/2011 12:41:10 P.M. Central Daylight Time
Subj: "Relationships between Authentic Leadership, Moral Courage, Ethical and Pro-Social Behaviors"

Dear Col. Hannah and Professors Avolio and Walumbwa,
I have initiated this project to investigate the perspectives, views, analyses, and information that multiple interested parties have concerning the subject of entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing.
Parties who have an interest or should have an interest in this topic include lawmakers, judges, regulators, state attorneys general, criminal prosecutors, corporate management, ethics and compliance officers, corporation lawyers, various academics, plaintiffs' lawyers, tort reform organizations, and consumer protection organizations.
My project has been undertaken following my unsuccessful effort to get my article "Whither the Quest of Business Ethicists?" published in Business Ethics Quarterly in 2009. See my correspondence with Professor Weaver here.
While I appreciate that your above referenced article concerns an "internally oriented approach" to engendering ethical behavior, as opposed to an "external sanctions oriented approach," I am contacting you to inquire whether you could refer me to any academic colleague of yours who you think would be interested in helping me with my project and eventually trying to publish a paper growing out of the same.
Thank you for your attention to this email.
Sincerely,
Rob Shattuck

From: Sean.Hannah@usma.edu
To: RDShatt@aol.com, bavolio@u.washington.edu, Fred.Walumbwa@asu.edu
Sent: 10/1/2011 3:05:05 P.M. Central Daylight Time
Subj: Re: "Relationships between Authentic Leadership, Moral Courage, Ethical and

Rob, I know of nobody working on civil law liability. There is plenty of literature on ethical climates and ethic cultures that take a transactional/punitive stance or focuses on codes and policies in the organizational behavior literature that a quick search will produce. The corporate social responsibility (CSR) lit also has some discussion of laws and regulations that may be of use.
Cheers, Sean
COL Sean T Hannah, PhD.
Director, Center for the
Army Profession and Ethic




From: bavolio@uw.edu
To: Sean.Hannah@usma.edu, RDShatt@aol.com, Fred.Walumbwa@asu.edu
Sent: 10/1/2011 3:10:26 P.M. Central Daylight Time
Subj: RE: "Relationships between Authentic Leadership, Moral Courage, Ethical and

Rob
I would say the same, but I am not familiar with the literature on civil law liability.
Bruce



From: RDShatt@aol.com
To: msh@rouenbs.fr, tom_lawrence@sfu.ca
Sent: 10/6/2011 4:18:55 A.M. Central Daylight Time
Subj: UNDERSTANDING WIDESPREAD MISCONDUCT IN ORGANIZATIONS: AN INSTITUTIONAL THEORY OF MORAL COLLAPSE"
Dear Professors Shadnam and Lawrence,
I have initiated this project to investigate the perspectives, views, analyses, and information that multiple interested parties have concerning the subject of entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing.
Parties who have an interest or should have an interest in this topic include lawmakers, judges, regulators, state attorneys general, criminal prosecutors, corporate management, ethics and compliance officers, corporation lawyers, various academics, plaintiffs' lawyers, tort reform organizations, and consumer protection organizations. 
My project has been undertaken following my unsuccessful effort to get my article "Whither the Quest of Business Ethicists?" published in Business Ethics Quarterly in 2009. See my correspondence with Professor Weaver here.
In your article's section "Implications of Arguments about Regulation", you say:
In our model, a second set of conditions associated with moral collapse are those that lead to breakdowns in regulation. These are conditions that involve failures to adequately support morally charged institutions with social controls that enforce compliance. We argued that breakdowns in regulation are more likely when the social and economic costs of accusing individuals of misconduct accrue significantly to the organization or the moral community within which it operates, and when the working conditions of organizational members diminish the costs to members of expulsion and/or reduce the effectiveness of organizational surveillance.
My project is greatly concerned with whether "economic costs . . . accrue" to the organization or to individuals; however, I am not clear about the extent to which the regulation you are talking about is intra-organizational versus extra-organizational regulation, and the importance you attribute to whether extra-organizational regulation (i.e., regulation imposed by government and the law) imposes cost on the organization or on the individual. (As the above link to my project indicates, it seems that the Obama administration believes more cost should be imposed on responsible officers and employees.)
Would you care to elaborate for my benefit where extra-organizational regulation fits into your thinking?
Thank you for your attention to this email.
Sincerely,
Rob Shattuck



From: RDShatt@aol.com
To: hasnasj@georgetown.edu, rprentice@mail.utexas.edu, strudler@wharton.upenn.edu
Sent: 10/10/2011 8:34:41 A.M. Central Daylight Time

Subj: "New Directions in Legal Scholarship"

Dear Professors Hasnas, Prentice and Strudler,
I have initiated this project to investigate the perspectives, views, analyses, and information that multiple interested parties have concerning the subject of entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing.
Parties who have an interest or should have an interest in this topic include lawmakers, judges, regulators, state attorneys general, criminal prosecutors, corporate management, ethics and compliance officers, corporation lawyers, various academics, plaintiffs' lawyers, tort reform organizations, and consumer protection organizations.
My project has been undertaken following my unsuccessful effort to get my article "Whither the Quest of Business Ethicists?" published in Business Ethics Quarterly in 2009. See my correspondence with Professor Weaver here.
I am endeavoring to determine what the current state of research is on the question of entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing. I have not found the full text of your above 2010 forum paper and have seen only the synopsis on the Business Ethics Quarterly website. If you can lend me any help in tracking down relevant literature on the above subject, I would be very appreciative.
Thank you for your attention to this email.
Sincerely,
Rob Shattuck



From: RDShatt@aol.com
To: elms@american.edu, Stephen.Brammer@wbs.ac.uk, harrisj@darden.virginia.edu, rphilli3@richmond.edu
Sent: 10/10/2011 8:58:43 A.M. Central Daylight Time
Subj: "New Directions in Strategic Management and Business Ethics"


Dear Professors Elms, Brammer, Harris and Phillips,
I have initiated this project to investigate the perspectives, views, analyses, and information that multiple interested parties have concerning the subject of entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing.
Parties who have an interest or should have an interest in this topic include lawmakers, judges, regulators, state attorneys general, criminal prosecutors, corporate management, ethics and compliance officers, corporation lawyers, various academics, plaintiffs' lawyers, tort reform organizations, and consumer protection organizations.
My project has been undertaken following my unsuccessful effort to get my article "Whither the Quest of Business Ethicists?" published in Business Ethics Quarterly in 2009. See my correspondence with Professor Weaver here.
I have not found the full text of your above 2010 forum paper and have seen only the synopsis on the Business Ethics Quarterly website. Officer and employee individual liability as a means to deter corporate wrongdoing (and improve business ethics) is something that would seem to have a consequence for "strategic management".
Would you care to provide me the benefit of your thoughts on this?
Thank you for your attention to this email.
Sincerely,
Rob Shattuck



From: RDShatt@aol.com
To: BEQeditor@uncc.edu, audi.1@nd.edu, mzwolinski@SanDiego.edu
Sent: 10/21/2011 7:55:17 A.M. Central Daylight Time
Subj: "Recent Work in Ethical Theory and Its Implications for Business Ethics"


Dear Professors Arnold, Audi, and Zwolinski,
Your above article starts out by saying, "Business ethics as an academic discipline originated in the mid-1970's in response to ethical lapses in the practice of business." The article then proceeds to discuss modes of ethical theorizing that have the goal of determining, or assisting in determining, what actions are right or wrong in the business world. This is presumably with the aspiration that the same will be employed in some fashion and result in improving business conduct.
In simple terms, human nature is selfish in great measure, and altruism is frequently absent. This is especially so in the business world, particularly taking into account Adam Smith's enshrinement of the pursuit of self interest as a virtue for achieving a greater good for all.
Selfishness can harm others, and mankind, for many centuries, has endeavored to mitigate human selfishness, including through religious and philosophical teachings, and also by means of law and punishments.
I would submit that most of the "ethical lapses in the practice of business" that the first sentence of your article refers to involve easily discernable manifestations of human selfishness that society is in agreement should be mitigated, and that these "ethical lapses" do not require much "ethical theorizing" for identifying the lapse and what the "ethical" action or decision is that society desires. I would say these "ethical lapses" can be identified by the presence of dishonesty, conflicts of interest in which self-interest is put ahead of obligations owing to other parties, and/or improper concealments.
The different modes of "ethical theorizing" that your article describes are not, in my view, needed for purposes of determining or identifying these "ethical lapses" in the business world.
Such modes of ethical theorizing, I think, are more aptly directed towards lawmakers regarding the laws they enact for society (and towards citizens to help them decide who their lawmakers should be and the laws that should be enacted, and possibly even for their personal lives), rather than towards the business world.
Take, for example, your article's lengthy discussion of rights. Isn't it primarily a function of government and the law to define what rights exist or don't exist? Are you saying that business ethicists who are propounding their various modes of ethical theorizing as regards rights should endeavor to persuade actors in the business world to give recognition to rights that government and the law, through the political system, have chosen not to recognize?
I would say similarly about the environment and climate change that you discuss in your article. Those, I believe, are primarily in the domain of government and lawmakers to address and make societal decisions about in the form of laws, and then actors in the business world need to obey those laws.
I would recast the matter and say I think that business ethicists should believe that they have largely accomplished their goals if actors in the business world would merely obey the law, with the law spelling out prohibitions and limitations related to dishonesty, dishonest business practices, conflicts of interest, putting self interest ahead of obligations to others, and disclosure and transparency, as well as spelling out "rights" that exist and embodying societal decisions about such things as the environment and climate change. So long as the actors in the business world follow the law, their selfish pursuit of their self-interests should not be considered much of a problem for business ethicists.
From the foregoing it would then follow that a prime concern, if not the prime concern, of business ethicists should be, "How do we get actors in the business world to obey the law?"
Whether you agree with that as a prime concern or not, the answer to the question, in my view, needs to be rooted in using the selfishness of human nature that will respond to incentives of things that are selfishly desired and the selfish avoidance of punishments. That is not to abandon the use of religious and philosophical teachings to try to influence human beings to be less selfish in their decisions and actions, and those should be continued. Business ethicists can divide as to which branch they wish to dedicate themselves to (i.e., the branch of selfish incentives and punishments to obtain the desired business conduct, versus the branch of purveying religious, philosophical and ethical teachings to mitigate human selfishness), and all business ethicists should be supportive of continued efforts on both branches.
My greater interest lies in the first of the two branches. More particularly, I have initiated this project to investigate the perspectives, views, analyses, and information that multiple interested parties have concerning the subject of entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing.
Parties who have an interest or should have an interest in this topic include lawmakers, judges, regulators, state attorneys general, criminal prosecutors, corporate management, ethics and compliance officers, corporation lawyers, various academics, plaintiffs' lawyers, tort reform organizations, and consumer protection organizations.

My project has been undertaken following my unsuccessful effort to get my article "Whither the Quest of Business Ethicists?" published in Business Ethics Quarterly in 2009. See my correspondence with Professor Weaver here.
Your article is concerned with the second branch of endeavoring to use religious, philosophical and ethical theorizing and teaching to mitigate human selfishness.
In terms of the "ethical lapses in the practice of business" that have engendered "business ethics as an academic discipline," I would be interested in your citing some lapses that you think are in need of the ethical theorizing your article discusses, as opposed to being subjected to my assertion that what is mainly needed is for actors in the business world to obey the law.
Second, if you think my project is meritorious, I would be very appreciative of your citing me any literature in the business ethics field that you would recommend that I read relative to my project.
Thank you.
Sincerely,
Rob Shattuck



From: DenisArnold@uncc.edu
To: RDShatt@aol.com, audi.1@nd.edu, mzwolinski@SanDiego.edu
Sent: 10/21/2011 9:00:44 A.M. Central Daylight Time
Subj: Re: "Recent Work in Ethical Theory and Its Implications for Business Ethics"


Dear Rob,

Thank you for your message and for reading our contribution to BEQ. The first thing I would note is that the three of us (the co-authors of the article) do not agree on which aspects of ethical theory are most relevant to business ethics. The article is pluralistic in that it presents a range of perspectives that scholars might draw from in advancing business ethics scholarship. Second, as you may be aware, the massive literature in organizational ethics utilizes ethical concepts such as justice, fairness, care, compassion, and integrity, and many organizational ethics scholars have pointed out that the use of those concepts must be grounded in philosophical or theological justification for them to have meaning. Third, you may have noticed in studying business organizations that many companies explicitly identify specific ethical values or principles in their mission statements. For example, over 5,000 companies have committed to adhere to the UN Global Compact which includes respect for human rights as a basic requirement. More recently the UN, after extensive consultation with the business and NGO communities, has promulgated a tripartite framework on business and human rights endorses by many companies and industry groups (see the forthcoming issue of BEQ for six articles on this subject). This framework explicitly identifies the human right responsibilities of business. Various self-regulatory initiatives in different industries also utilize ethical concepts and principles. Fourth, as you no doubt are aware, Smith's account of selfish behavior in the Wealth of Nations was supplemented by a rich discussion of altruism and virtue in The Theory of Moral Sentiments. The contemporary psychology literature includes rich discussion of human motivation and altruism. One of the more important works on this subject that you may wish to consult is CD Batson's Altruism in Humans. Of course, organization culture can greatly shape which human dispositions and values are acted upon in organizations so the study of ethical organizational culture has become quite important for business ethics scholars.

None of this is to suggest that public policy is not important and that ethical considerations are not essential to policy debates and policy implementation. I would think nearly all business ethicists would agree with that judgment. In general, for discussion of these issues, I would recommend to you the rich literature published in Business Ethics Quarterly as well as the Oxford Handbook of Business Ethics edited by Beauchamp and Brenkert. Good luck with your own research.



Kind Regards,

Denis


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Denis G. Arnold, Ph.D. |Associate Professor of Management

Surtman Distinguished Scholar in Business Ethics
University of North Carolina, Charlotte
9201 University City Blvd. | Charlotte, NC 28223
Phone: 704-687-7703 begin_of_the_skype_highlighting            704-687-7703      end_of_the_skype_highlighting
| Fax: 704-687-3123
http://belkcollege.uncc.edu/directory/denis-g-arnold

Editor in Chief, Business Ethics Quarterly
President, Society for Business Ethics




From: RDShatt@aol.com
To: DenisArnold@uncc.edu
CC: audi.1@nd.edu, mzwolinski@sandiego.edu
Sent: 10/22/2011 8:20:02 A.M. Central Daylight Time
Subj: Re: "Recent Work in Ethical Theory and Its Implications for Business Ethics"


Dear Professor Arnold,
Thank you very much for replying to me. I desire more replies to my email correspondence than I get, and I am very appreciative that you responded to me.
My greatest familiarity is with the unending train of well publicized corporate scandals, wrongdoing, misconduct and other ethical lapses (continuing to the present time) that the first sentence of your article alludes to, and also with the many unethical business practices on a smaller scale that one encounters or becomes aware of in the ordinary course of life.
I am gaining familiarity with the CSR movement, organizational ethics, corporate mission statements, and psychological research about motivation and decision making in the business world. I do not have a basis for an opinion about the extent to which the same are contributing to lessening, or will contribute to lessening, the aforesaid train of publicized corporate wrongdoing and unethical business practices on the smaller scale.
Regarding the importance and relevance of the law and punishments for lessening corporate wrongdoing, and more particularly related to my project, we know that, following the financial accounting scandals that came to light in the first half of the last decade (in which the law was broken by someone), the response of Congress was to pass Sarbanes-Oxley to try to achieve greater deterrence by increasing personal liability of CEO's and CFO's. Also, as the statement of my project indicates, the Obama administration has recently taken actions that may be a shift to more individual officer and employee liability, in order to try to deter corporate wrongdoing.
I sent you my email as a result of looking at the BEQ's tables of contents, starting with the current issue and working backwards, to see what articles there were related to my area of interest. I am continuing with that and other avenues to find try to find relevant literature.
I submitted "Whither the Quest of Business Ethicists?" to BEQ in 2009. I continue to think it is meritorious of consideration by business ethicists, and I have not found any comparable literature.
I will continue to try to propound this topic to other business ethicists.
Thank you.
Sincerely,
Rob Shattuck




From: RDShatt@aol.com
To: brenkg@msb.edu
CC: DenisArnold@uncc.edu, audi.1@nd.edu, mzwolinski@sandiego.edu
Sent: 10/23/2011 5:50:58 A.M. Central Daylight Time
Subj: "The Limits and Prospects of Business Ethics"


Dear Professor Brenkert,
I have not been able to find the full text of your above article and have read only the synopsis that appears when I place my cursor over the article title that appears on this webpage. I particularly noted the sentence in that synopsis that says, "Even if business ethicists can rationally defend what businesses should be doing, unless we can relate this to how businesses can come to operate in those ways, our normative arguments will lack power, persuasiveness and effectiveness."
Without the full text of your article, I am not sure what all the things are that "business should be doing" (the goal "of businesses acting ethically" being referred to in the article synopsis), and, more importantly, I don't know what ideas you have for how business "can come to operate in [the desired] ways."
In email correspondence with Professor Denis Arnold concerning his own co-authored article "Recent Work in Ethical Theory and Its Implications for Business Ethics," I argued for the importance of actors in the business world simply obeying the law, and for consideration to be given to more officer and employee individual liability in order to try to achieve greater deterrence of corporate wrongdoing.
For what it may be worth to you, I append below the email correspondence I have had with Professor Arnold. (I did not mention in the correspondence the possible role of whistleblower incentives to deter corporate wrongdoing, which received extensive public comments to the SEC last year, including my own comment.)
Professor Arnold cited to me your Oxford Handbook of Business Ethics. My public library does not have that in its collection, and I will see if I can get it from a local university library.
Thank you.
Sincerely,
Rob Shattuck



From: RDShatt@aol.com
To: DenisArnold@uncc.edu
CC: carrick.mollenkamp@wsj.com, ethics@bnymellon.com, audi.1@nd.edu, mzwolinski@sandiego.edu, brenkg@msb.edu
Sent: 10/26/2011 9:16:27 A.M. Central Daylight Time
Subj: Bank of New York currency trading matter


Dear Professor Arnold,
I don't know if you are willing to continue our conversation, but I thought I would try.
Please further consider BNY Mellon's Code of Conduct.
Questions:
If there has been wrongdoing (unethical conduct) in this case, how should it be deterred?
Do you think there will be an adequate societal determination of whether wrongdoing (unethical conduct) has taken place, and, if there is wrongdoing, that there will specificity as to the wrongdoing that may guide the behavior of others to avoid similar wrongdoing?
If there is wrongdoing, do you think individual officers and employees should be held personally liable to some extent for purposes of more effective deterrence?
Do you think any individual officer or employee will in fact be held personally liable?
How do you feel about whistleblowing as a tool for trying to deter corporate wrongdoing?
Do you think there is anything you could learn from the BNY Mellon ethics and compliance department that would be helpful in answering the foregoing questions?
What advice would you give to the BNY Mellon ethics and compliance department? What advice would you give to BNY Mellon management?
My reason for asking these questions is that I could not sense from our prior email correspondence the extent to which you believe business ethicists should be concerned with the law and punishments for lessening corporate wrongdoing.
You said in response to my first email that, "None of this is to suggest that public policy is not important and that ethical considerations are not essential to policy debates and policy implementation. I would think nearly all business ethicists would agree with that judgment." You did not respond to my second email to you, and that left me up in the air about what you think about the role of law and punishments.
If law and punishments have a role, I would be interested in whether there is any new thinking or research going on about the law and punishments. (Obviously I thought "Whither the Quest of Business Ethicists?" was meritorious in 2009 for consideration and still do.)
Any information you can give me, or steer me here, will be most appreciated.
Many thanks.
Sincerely,
Rob Shattuck