Corporate Morals and the Great Morass

Happy New Year! And wish you all a great 2019! I'm looking forward to some interesting discussions on LinkedIn.

A recent discussion about the behavior of companies as well as a book that I've been reading prompted me to write about the morals of a corporation. Increasingly, we hear more about morass that corporations find themselves sinking into. There were plenty of revelations in 2018 about corporate misbehavior. Some of the headliners:

  • Facebook's handling of Cambridge Analytica and the resulting political mess, creating an alternative universe by disseminating fake news and disinformation all over the world, and the egregious campaign launched against George Soros for being critical of its policies
  • Google's handling of sexual misconduct (and handiness with a payout of $90 million for an exit package for Andy Rubin, the creator of Android, after the company's investigation into his conduct) and its handling of foreign policy (that is, planning for Project 'Dragonfly', a censor-friendly search engine for China)
  • Uber stealing trade secrets from Waymo for its self-driving car initiative (that reached a settlement), and the screw-up that led to the death of a pedestrian
  • Musk's bizarre behavior at Tesla that led to the changes in his role there and the company's governance structure
  • How CBS mishandled the Les Moonves sexual misconduct allegations (and almost gave him big send off with a $120 million parachute)
  • The 1MDB scandal that is rocking Malaysia and the role played by Goldman Sachs in the large scale embezzlement (to the tune of $4+ billion, perhaps more)
  • The money-laundering by EU banks (HSBC and Deutschebank), about which David P. Weber, a leading expert on fraud (and 2017 Pulitzer Prize winner for Explanatory Reporting), offers this opinion: "the largest corporate scandal of 2018 is the involvement of EU banks that have been centrally involved in the Panama and Paradise Papers, in laundering billions of dollars for kleptocrats, money launderers and ordinary everyday tax cheats".

The embezzlement and money laundering stories mentioned above highlight the role played by professionals (see the article by David P. Weber for details). This point is pertinent to a story about McKinsey discussed below.

The New York Times came out with this story two days ago: 'Exhibit A': How McKinsey Got Entangled in a Bribery Case. The full article is a good read and here's the gist: when McKinsey was asked by Boeing to come up with an evaluation for a proposal for mining titanium in India, financed through a partnership with an Ukrainian oligarch, the 'purveyor of "best practices"' promptly came up with the rich guidance to "respect the traditional bureaucratic process including the use of bribes" and identifying the "key Indian officials" for this 'best practice'. The best practice was summarized on a Powerpoint slide, now part of an ongoing investigation launched years ago with charges against and extradition proceedings for the Ukrainian oligarch accused of bribery. The article underscores that "should he be brought to trial, McKinsey, and the document it produced, stand to play a major role in the outcome — a well of potential embarrassment that underscores the risks that McKinsey and other American consulting firms face as they, and clients like Boeing, do business in countries where ethical standards and practices diverge from those at home."

The NYT article in the end takes the rather silly line about international business risk and variance of ethical standards faced by innocents abroad. David Weber's article referenced above actually discusses the "misconduct of professionals" -- reputable banks structuring extremely questionable deals and laundering money worth billions, expert auditors who cannot seem to find these misplaced billions, and trusted advisors who recommend bribery as the best practice. Such misconduct becomes compounded by gullible corporations that lap up such 'expert' advice without question. Whatever happened to internal corporate strategy and advice to balance external input and calibrate that at the basic level of common sense?

Accommodating the hubris of founders, the inability to handle sexual and other forms of misconduct at the top level, and illusions about professional integrity are creating a toxic mix for corporations with effects that are extremely damaging. If we add the scandals that linger from 2017 to the list, it becomes a distressing picture of the corporate world.

One sign of progress in corporate morals in this bleak landscape is the rapid response of Starbucks to a really racist incident at one of its stores in Philadelphia this May that resulted in closure of all its stores for a day and mandated implicit-bias training for all its 175,000 employees, as the starting point of a new long term anti-bias effort within the company.

On the legal front, a new California law that goes into effect from today (January 1st, 2019) brings to an end secret sexual harassment settlements. Secret settlements in the past that covered up sexual misconduct (potential felony harassment or discrimination) will no longer be possible. Even attorneys who offer such a way out face potential disbarment. And California usually offers a model for the nation.

It'll be great to hear your thoughts on this topic.

-- Suresh

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