Ethics and Corporate Responsibility
Presenters: Paul Stillman, Dave Borghese, Neil Funnell
Moderator: Cindy Pettit
Board chairman Gordon Haist introduced Cindy Pettit, moderator, who introduced:
Paul Stillman, former president and board member of Preferred Mutual Insurance Company and former chairman of the National Association of Mutual Insurance Companies.
Dave Borghese, former partner of Arthur Andersen, former director and treasurer of ASPPO, current director and treasurer of World Affairs Council.
Neil Funnell, former IBM executive in the international division.
Cindy started the discussion by saying that only 20 percent of employees live in a corporate structure that overtly professes an ethical culture responsible for business practice and relationships. So what are we to make of that information?
Paul offered a few examples of dilemmas that strike the insurance business.
Suppose that a car owner loses tires and hubcaps to a thief. Standard practice is for insurance to pay the owner for the depreciated value of the loss. At the request of the agent who sells policies, one company paid, instead, the replacement cost. That, he said, was considered an unethical action because it violated company policy and cut into the company’s profit.
An insurance company prohibited agents from selling insurance policies on non-owner occupied properties. One agent who worked for him violated that rule and Paul fired him. With no non-compete clause affecting the relationship, the agent went to work for another company, sold policies Paul’s company would not have allowed and made “a ton of money.”
Cindy asked, “How did you communicate to your staff the importance of ethics? How much control do managers have over the agents?”
Paul answered that companies often fail to communicate anything about ethics to employees and have little leverage over insurance agents. He also said that his company left the coast of South Carolina after Hurricane Hugo struck in 1989, not willing to absorb more such losses. In response, one member of the audience said that insurance companies should build up their cash reserves in order to pay out claims from a disaster instead of building up value in stock.
Paul answered that the problem for insurance companies is “unpredictability.”
Dave, the accountant, said right off the bat that in business school at the University of Wisconsin there is no syllabus with the word “ethics” in it. “I heard a story,” he joked, “about a CEO needing to replace a CFO and interviewing two equally qualified candidates. To the question of how much is four plus three, one candidate answered ‘seven,’ and the other answered, ‘How much do you want it to be?’ “
Ethics, he added, involved honesty, trustworthiness, the Golden Rule, the Seven Habits of Highly Effective People. We know the bad actors, he said: tobacco companies, pharmaceuticals pushing opioids, Enron. The Trump Organization’s tax schemes show a “cooking of the books.” “Here’s the thing,” he said. “You never find a CEO to tell an employee to break the law. The CEO just tells the employee to meet or beat the recent quarterly earnings report. Need he say more? There is an indistinguishable line between capitalism and ethics.”
Cindy pointed out, on the other hand, that CVS Pharmacy no longer sells tobacco, supposedly on the principle that a business in the health care field should not contribute to disease. She added that Walmart, supposedly in response to the news that many of its employees qualified as the “working poor,” began paying higher wages. Later, she mentioned Patagonia and Warren Buffett as examples of a business and a CEO who used their enormous profits to benefit others.
Dave responded that other businesses, in addition to Walmart and CVS, that treat their employees fairly tend to get and keep the best employees.
Cindy mentioned the 2008/2009 financial business “meltdown” as a tough impact on the whole country, caused, in part, because mortgage company employees, in order to benefit themselves, approved mortgages to people who could not afford them. When the customers missed payments, their interest rates increased, and they began to lose their homes. That process, along with the packaging of mortgages into derivatives, totally confused even savvy investors, and ultimately brought down the system.
She added that “regulators get captured.” The Securities Exchange Commission apparently simply looked the other way as Bernie Madoff beat investors out of millions of dollars with phony investment stories.
Neil’s presentation focused on non-compete agreements between employees and employers and the often accepted principle that whatever an employee creates while employed belongs to the employer.
He believes, he said, in the Federal Trade Commission’s unofficial motto, that economic liberty is at the heart of the American experiment, and he would recommend that non-compete agreements be eliminated, as has been done in California. Such clauses in employment contracts reduce wages and hold down innovation, he said.
“Some of these agreements are prevalent even in low-wage jobs,” he said. “For example, in one company security guards could not leave a company to go to work for a competitive company within 100 miles! A 22-year-old Technical College of the Low-country graduate working as an A/C tech might want to go into business for himself or might have an offer of a 30% wage increase from another business. Should he be bound by a non-compete contract?”
From the audience came the observation that businesses that train employees understandably don’t want to lose those employees to competitors. Someone else suggested that it seems unfair to prohibit low-wage employees from moving to better jobs but it might be reasonable to restrict highly skilled workers with intimate knowledge of their employers’ businesses to take their knowledge directly to a competitor.
Our sincere thanks to Dave, Neil and Paul for their very informative and interesting presentations and to Cindy Petitt for moderating. Additional thanks to Fran Bollin for her always excellent note-taking and summary.