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Ethics

And the Theranos Board Walks Away Scot-Free

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Theranos: Elizabeth Holmes Sentenced, Directors Walk Away Scot-Free? Theranos’s Elizabeth Holmes has finally been sentenced to over 11 years in prison. Too bad our corporate law is too narrow to attribute some criminal liability to the company’s board of directors. Such luminaries as former Secretaries of State George Shultz and Henry Kissinger, Marine Corps General James Mattis, and former Secretary of Defense William Perry, once famously portrayed as “the single most accomplished board in U.S. corporate history,” should be partly culpable for Holmes’s malfeasance.

When Holmes explained away her underlying technology as “a chemistry performed so that a chemical reaction occurs and generates a signal from the chemical interaction with the sample, which is translated into a result, which is then reviewed by certified laboratory personnel,” all the board had to do was demand, “Show me.” Determining how a device or service works—exists even—as purported, is the essential obligation of a board member. A truly engaged overseer may have preserved $945 million in investors’ capital and kept a naïve, immoral, and feckless entrepreneur from bullying the press, intimidating her employees, and gambling with the patients’ lives. (Read WSJ reporter John Carreyrou’s excellent chronicle, Bad Blood (2018; my summary.))

The board individually and collectively failed in their responsibilities as trustees of investors’ interests. Undoubtedly drafted as trophy directors to reinforce the company’s standing such as it was, not for any knowledge of blood testing, they now walk away with nothing more than a blot on their illustrated careers.

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  4. Why Investors Keep Backing Unprofitable Business Models
  5. The Checkered Legacy of Jack Welch, Captain of Wall Street-Oriented Capitalism

Books in Brief: ‘Flying Blind’ and the Crisis at Boeing

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'Boeing Flying Blind' by Peter Robison (ISBN 0385546491) Bloomberg investigative journalist Peter Robison’s thoroughly researched Flying Blind: The 737 MAX Tragedy and the Fall of Boeing (2022) offers noteworthy lessons about corporate responsibility and leadership problem-solving.

In a nutshell, starting in the late 1990s, Boeing shifted from a company run by engineers who emphasized product integrity to one run by MBA-types who prized shareholder value over long-term product planning. Inspired by General Electric’s Jack Welch, the company embraced cost-cutting, outsourcing, financial engineering, union-busting, and co-opting regulators. These miscalculated strategies culminated in the 737 MAX disasters and disgraceful corporate responses.

Recommendation: Read Peter Robison’s Flying Blind, but be wary of the author’s broad-brush political biases, which, I found, sidetracked from the storyline. The internal organizational tensions that led to corporate deception and the fateful consequences of federal regulators’ consigning design approvals to Boeing are particularly interesting.

Key Takeaway: Negligent engineering to minimize costs and adhere to a delivery schedule is a symptom of ethical blight.

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When Anonymity Becomes Cowardice

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Faceless Monsters---When Anonymity Becomes Cowardice

A variety of psychological factors contribute to people being nasty online. Rider University psychologist John Suler famously argued that online environments unleash aspects of our personality that we usually keep under guard—a phenomenon he called the online disinhibition effect. With names concealed, there’s no pressure to maintain a public facade. Cyberspace becomes a separate dimension where the usual rules don’t apply. Actions no longer carry consequences. There’s no liability for rudeness and inappropriate behavior.

The disinhibition effect is also called ‘The Gyges Effect,’ after the Ring of Gyges, a mythical invisibility device in Plato’s Republic. The ring grants its owner the power to become invisible at will. Plato considers whether an intelligent person would be just if one did not have to fear any bad reputation for committing injustices.

When Anonymity Becomes Cowardice - The Psychology of Internet Trolls Social media has a way of magnifying some of the worst facets of human nature. By allowing masked identities, as Professor Suler points out, abusers avoid accountability for their conduct and dissociate their online selves from their real-world selves. In real life, combative behavior triggers a victim’s immediate reaction–a change in tone of voice or a counterargument, even aggression. However, these deterrents are missing or delayed in the online world, and social inhibition is removed. Online abusers see their victims as faceless, abstract cutouts with no feelings and undeserving of fairness, compassion, and honesty.

Idea for Impact: Keep away from being nasty online. Awareness and activism are vital to civic duty, but you should seek out actual human beings who know how to converse intelligently on anything they disagree with.

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Why Investors Keep Backing Unprofitable Business Models

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Why Investors Keep Backing Unprofitable Business Models Investors have heaped billions into Q-Commerce—especially the rapid grocery startups—hoping to hook consumers on the convenience of groceries that would turn up immediately, sometimes in minutes.

I’ve never really fathomed how the small-basket orders of low-margin groceries can endlessly compensate for the labor costs and overheads, even after discontinuing the generous referral bonuses, discount codes, and freebies enticing customers. The prospects may evolve if these startups subsist on ever more funding and develop massive businesses with efficiencies from scale. But then they’re right in Amazon’s wheelhouse.

Idea for Impact: Some business models are never created to be profitable, and investors should be wary of encouraging—and funding—loss-making propositions. The lure of backing an initial entrant, capturing market share, and then selling out to a more determined fool isn’t viable! Who needs goods delivered in such a rush for such charges, anyway?

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Why Groups Cheat: Complicity and Collusion

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Why Groups Cheat: Complicity and Collusion News broke out that Ernst & Young revealed this week that its employees cheated on ethics exams. The accounting behemoth is being fined $100 million. That’s one of the biggest fines ever levied against an audit firm.

It’s absurd that specialists responsible for keeping things straight and steering moral enterprise cheated on ethics exams! Ernst & Young’s leadership evidently disregarded the internal reports about the cheating. Perhaps because when people identify so strongly with a group, they’re much more swayed to view the group’s actions positively and accept that group’s norms.

Research by Vanderbilt University’s Jessica Kennedy and colleagues suggests that high-flying people are sometimes more inclined than low-ranking people to adopt what their group recommends, even when it represents an ethics breach. Power sometimes provokes people to so strongly want to identify with their group that they’re willing to overlook when the group’s collective actions cross an ethical line. This affinity is, therefore, urged to sustain transgression instead of stopping its spread, especially when the odds of being caught and punished are slim.

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Book Summary: Jack Welch, ‘The’ Man Who Broke Capitalism?

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The Man Who Broke Capitalism (2022) by New York Times columnist David Gelles contends that the pernicious greed spawned by former General Electric CEO Jack Welch is exceptionally responsible for exposing the structural failings of capitalism in recent decades.

'The Man Who Broke Capitalism' by David Gelles (ISBN 198217644X) The danger inherent in any ideology grows stronger when it starts to thrive because it swiftly morphs into temptation—a voracious appetite for ever better “returns” in the present case. Welch was indeed the most visible catalyst and a much-imitated champion of brutal capitalism. But Gelles’s narrative draws his book’s lengthy subtitle (“How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America”) excessively, thrusting ad nauseam the well-founded thesis against Welch’s ploys and “the personification of American, alpha-male capitalism.” See my previous articles (here, here, and here) about how the faults of Welch’s strategy become evident many years after his retirement.

Gelles does an agreeable job of outlining the socioeconomic paradigm that has made modern western capitalism’s shortcomings ever more apparent. Starting with influential economist Milton Friedman’s decree in the ’70s that the one and only social responsibility of a business is to maximize profits, Gelles explains the revering of Welch’s “downsizing, deal-making, and financialization” strategy. Without balance, it provided short-term benefits for shareholders, but the long-term well-being of corporations and society lost out. A sense of restraint is most pertinent to the power of capitalism.

Summary of 'The Man Who Broke Capitalism' by David Gelles Capitalism isn’t irretrievably bound to fail, as Gelles rightly argues, but it needs to be rethought. It’s morally incumbent upon the social order to inhibit the embedded incentives that create powerful tendencies towards short-termism. Gelles offers no more realistic, objective insights than the familiar solutions prescribed by our career politicians.

Overall, Gelles’s pro-Fabian polemic falls short of a fair-minded assessment of the epoch’s economic forces. Indeed, many of Welch’s tactics were timely and necessary, but he pushed them farther and longer. Too, Gelles fails to study counterexamples of many corporate leaders who’ve thoughtfully copied Welch’s playbook and helped their businesses and communities prosper, not least because they were restrained enough to avoid Welchism’s blowbacks.

Recommendation: Speed Read The Man Who Broke Capitalism for a necessary reappraisal of the legacy of Jack Welch. There isn’t much eye-opening here, but author Gelles affords a relevant parable about the power of restraint and the time- and context-validity of ideas.

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The Ethics Test

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Texas Instruments Ethics Test Since 1961, Texas Instruments has had a multi-step guideline that it wants employees to use to decide whether or not a contemplated decision is ethical. One version:

  1. Is the action legal?
  2. Does it comply with our values?
  3. If you do it, will you feel bad?
  4. How will it look in the newspaper?
  5. If you know it’s wrong, don’t do it!
  6. If you’re not sure, ask.
  7. Keep asking until you get an answer.

Idea for Impact: Use such decision-making models for clear direction about ethical behavior when the temptation to behave unethically is strongest.

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How to Reliably Tell If Someone is Lying

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How to Reliably Tell If Someone is Lying There isn’t one reliable behavioral cue that consistently reveals that a person isn’t telling you the truth, but the most expected sign of dishonesty is evasiveness.

Does the other person evade answering direct questions or declare, “I don’t know,” “that’s about it,” or “I don’t remember doing that?”

Instead of making direct denials, do they seem to have been caught off guard and take more time to think up a believable response?

Idea for Impact: To detect a lie, listen and pay attention. If lying is nothing more than communicating false information, dwell on what’s being said. Does it make sense? Does it align with other facts you’ve mustered or anecdotes you’ve heard? Do the answers to your probing questions stand up to scrutiny? Does the story begin to shift?

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Let’s Hope She Gets Thrown in the Pokey

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The Elizabeth Holmes-Theranos criminal trial hasn’t been without its share of theatrics.

Yes, Holmes’s massive fraud is obvious. She entranced (read WSJ reporter John Carreyrou’s excellent chronicle, Bad Blood (2018; my summary)) journalists, investors, politicians, and business partners into believing her fantasy science. She may even be responsible for negligent homicide if people died because of her company’s fake test results.

Elizabeth Holmes / Theranos criminal trial

Then again, these sorts of cases generally hang on subtle distinctions between hyperbole and outright dishonesty and whether such deceit was deliberate.

Holmes’s lawyers will argue that she was merely an ambitious entrepreneur who failed to realize her vision but wasn’t a fraudster. Her lawyers will make a case that she is not to be blamed because people took her puffery and exaggeration as factually accurate. At what point do her wishfulness and enthusiasm go from optimism to intentional fraud? That’ll be the critical question.

'Bad Blood' by John Carreyrou (ISBN 152473165X) At any rate, the Theranos verdict is unlikely to deter others from the swagger, self-assurance, hustle, and the “fake it till you make it” ethos that is so endemic to start-up culture. Investors will never cease looking at people and ideas rather than the viability of their work.

Idea for Impact: Don’t be so swayed by story-telling that has a way of making people less objectively observant. Assemble the facts, and ask yourself what truth the facts bear out. Never let yourself be sidetracked by what you wish to believe.

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The #1 Reason Why Employees Don’t Speak Up

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The #1 Reason Why Employees Don't Speak Up---Self-Preservation

Notwithstanding management’s well-intended open-door policies, employees avoid voicing concerns when they don’t feel safe doing so. They think it’s more harmless to “duck and cover” than to speak up and help the organization.

Employees don’t want to jeopardize their jobs. They don’t want to be labeled troublemakers and alienate themselves from co-workers and supervisors. In some cases, employees’ fears may not be of immediate retaliation but instead a deferred reckoning that could upset their careers years down the line.

The self-preservation motive is so dominant that the perceived risks of speaking up are very personal and immediate to employees. In contrast, the potential benefits to the organization from sharing concerns seem distant and abstract.

Consequently employees often instinctively play it safe by keeping quiet. Often, they rationalize their implied compliance by saying that the concerns are none of their business—and wishing that somebody else would speak up.

Idea for Impact: The freedom to raise questions, concerns, and ideas is at the heart of an open organizational culture. Unless employees are convinced that they’ll be supported to do the right thing, they could hesitate to speak up and help remedy problems before they can blow up.

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