What Theory of Business Ethics do you follow? University Business Ethics Speaker Chuck Gallagher comments!

January 23, 2010

While standing in line for a dinner/reception at a well know Canadian University (I was there as their keynote speaker for a business ethics symposium), the Dean of the Business School asked me – “What theory of business ethics do you follow?”  Most of the time I’m fully prepared to answer questions posed about ‘ethics’, but in this case – that question caught me off guard.

I wanted to be respectful with my answer while thinking to myself – “the more academic we make ‘business ethics’ the less effective it will be for students to learn and apply.”  My response – “I follow the theory of business ethics that keeps one out of federal prison.”

The look I received in response was – priceless.  “I see,” he responded and from there the discussion seemed to change direction.

The next day it all made sense – not only to the Business School Dean, but the students in attendance – as I walked in dressed in an orange jump suit and handcuffs.  (you can see some of my presentation here).  As I explained I took 23 steps from the curb into federal prison, it became clear that every choice does have a consequence.  And, as I explain, the choices you make today create the consequences you experience tomorrow and into the future.

But…I was still plagued with the answer to the question…”What theory of Business Ethics do you follow?”

BUSINESS ETHICS THEORIES:

The other day, I ran across an excellent article that outlined different theories of business ethics in “the star online” – the full article written by John Zinkin is here.  The following is a reprint of excerpts from the various theories of business ethics he espouses.  Thanks and credit to Mr. Zinkin for his work.

Machiavellian ethics

These are pragmatic, weighing probable consequences and the likelihood of achieving given outcomes, often regardless of how the ends have been achieved. People practising this type of ethics will argue that the ends justify the means.

The merit of this system is that at least any decision being taken can be assessed in terms of whether it will achieve the desired ends; and if it fails this basic test, then it should not be taken.

However, there are two problems with this approach. First, it does not recognise that organisations need codes of conduct and rules to help people to make predictable and consistent decisions.

Second, it can lead to a failure of “Tone at the Top” with people encouraged to “do whatever it takes” – the kind of thinking that contributed to the recent failures of governance in Wall Street that have hurt us all so badly.

Utilitarian Ethics

These are a more moral extension of Machiavellian ethics, where the outcomes are weighed up by calculating how to “achieve the greatest good for the greatest number” for both the company and its customers. Principles are important only as rules of thumb.

The problem with this type of approach is that it encourages the tyranny of the majority and can lead to ignoring the needs of minorities and so be used to justify persecuting minority shareholders, which is poor governance.

Kantian rules-based ethics

Rules-based ethics (associated with the German philosopher Immanuel Kant) go one step further in that they also consider the effect actions have on the rules of the organisation and whether they adhere to given principles.

This approach tends to be bureaucratic and perhaps overly legalistic, sometimes with a rigid adherence to the rules without due regard for particular circumstances that may justify exceptions.

Of course, the problem is that if there are too many exceptions or waivers, the rules themselves and the system they represent are discredited; outcomes become unpredictable; and corruption and free riding are encouraged.

Rousseau’s social contract ethics

Social contract ethics recognise the need for mutuality and reciprocity if companies are to flourish: both within the organisation itself, where “Do unto others as you would be done by” is as good a rule as any for behaviour, and between the company and the community it serves.

They also recognise that no company is an island and it must therefore behave responsibly towards the community, minimising the external costs the company creates, lest it create a “tragedy of the commons” with its associated risk of systemic failure.

The problem with this type of approach is when it leads to the kind of loyalist, tribal thinking within a profession so that bad practices are covered up and justified in the name of loyalty to the group (a favourite topic of films with rogue cops who are protected from Internal Affairs for example).

Personalistic ethics

Personalistic ethics reflect what an individual feels about the decisions being taken. As such they often share the following three characteristics:

First, they are driven by the individual’s personal sense of virtue and how the decision will reflect on the person’s character and sense of self-worth;

Second, they may be based on empathy where the decision maker puts himself/herself in the shoes of the other person when deciding what to do;

Third, they may be based on intuition driven by conscience – asking the question “will I be able to sleep at nights” when making a decision.

Obviously it is important that board members must be personally comfortable with the decisions they are involved with.

The problem is that often people who decide on Personalistic ethical grounds become impatient with other people calculating what to do using either a rules-based or utilitarian approach, and may be uncomfortable with Machiavellian thinking.

SO – WHAT THEORY OF BUSINESS ETHICS DO YOU FOLLOW?  Having spent time in federal prison for unethical choices…I stand by my response to that question.  I follow the theory of ethics and choices that keep you out of prison.

COMMENTS WELCOME!


University Ethics Presentations – A Report from the University of Florida on Business Ethics Speaker Chuck Gallagher

January 14, 2010

I must admit, as a speaking professional, I enjoy presentations to University students.  First, they are open to exploring ideas and generally eager to explore what is put before them.  Their questions are wide open and that makes the presentation fun.  But, more important, from my perspective, if a life can be changed early in a young career, then I will have paid it forward.  That inspires me!

I was privileged to speak to business students at the University of Florida and no long there after a young student wrote the following in the Greenback University blog.  His article (printed below) is a reflection of the presentation I made the reaction from the perspective of a student participant.

“I learned a lot of things in prison,” said motivation speaker Chuck Gallagher as he crossed the stage. “I found out what it meant to be Chuck Gallagher.”

Gallagher’s words to UF students rang true as he discussed the turbulence of his life in the past ten years.

Formerly a successful CPA and instructor, Gallagher was sentenced to federal prison for embezzling over $254,000 in a Ponzi scheme that later he reflected was a life-changing experience.

How might he be this week’s success profile? Simple. Gallagher’s story reflects a momentous ability to turn the tables after a horrific downfall.

On October 2, 1995, Gallagher took what he calls his “twenty-three steps” to federal prison, losing his CPA license, his relationship with his wife, and his colleagues’ trust.

“I’d absolutely considered myself an ethical person and an honest person at the time,” Gallagher said. “In the mind of a fraudster, I was always going to be able to pay it back.”

Gallagher’s life before his arrest for embezzlement can be said to be a success, built on the motivation to become educated and rise from the lower class.

“My dad died when I was two. My mother didn’t have a high school education,” Gallagher said, explaining his mother’s persistent pressure on him: “She would always say, ‘you can be somebody. Do not be concerned about your circumstances.’”

He took that lesson to heart, becoming the youngest tax partner in a CPA firm at age twenty-six.

One day while Gallagher was teaching a tax course in Boise, he noticed a note on his door from his partner asking him to call the office. During the break in between lectures, he called back. One of the clients had had an emergency. “I need the money,” his partner said.

Gallagher was quiet on stage, expressing the silent hysteria he felt in that moment almost twenty years ago.

“God and I knew the truth,” he said. “I had stolen the money.”

For months following the revealing of his Ponzi scheme, Gallagher considered suicide. “I picked up the telephone and started calling people.” Gallagher received six answering machines before reaching someone, whose immortal words lived on in Gallagher’s conscience: “You have made a terrible mistake, but you are not a mistake. The choices you make today will define your wife and children.”

Gallagher knew then that suicide would not be an option. “I had to admit to everyone, to my wife and children, that I was a liar and a thief.”

Gallagher stressed how simple it was for him to lose sight of ethics. “Everything I had created was an illusion,” he said. “I didn’t recognize it until it was too late.”

Prison is often said to turn a person’s life perspective around, and Gallagher was no exception. “After five years of a normal life, I was sent to an eight by eight holding cell made of cinder block with a toilet and a bench.”

Gallagher went on to explain his experiences in prison and his interactions and friendships with the other inmates. “I was paid twelve cents an hour. I would get up at 6:00 and clean toilets and urinals,” he explained.

When Gallagher was released after sixteen months, he had to start from the bare beginnings. “I worked for a company before prison. They hired me as a sales associate. I went door to door selling cemetery spots.”

Gallagher claims he was only able to move up because of his ability to outperform everyone else. “When you perform, you will get other people’s attention. When you get out of school, your degree will help you get that first job, but after that, it doesn’t matter. It’s all about performance.”

Gallagher is now the senior sales executive for the company, and lectures across the US not only on business ethics but on sales and marketing as well. He lives by the moral guidelines instilled in him from his experience as a white collar convict. “I learned that every choice has a consequence. If you are 100% truthful, you’ve got nothing to lose, but if you break someone’s trust either in business or in a relationship, that relationship will not survive.”

I appreciate the report, but more importantly I am thankful for the opportunity I have to share with students in both the US and Canada.  It’s funny, but in a presentation at another University a professor asked me, “What theory of ‘ethics’ do you follow?”  I pondered the question for a moment and then replied.  “I follow the theory of ethical choices that keeps you out of prison.”  Somehow that response seemed to stiffle the professor, but was incredibly well received by the students.  I guess when you get down to it, my job is to influence the students!

Here’s the link to the Greenback University blog.

YOUR COMMENTS ARE WELCOME!


Former Auburn University Professor Given Five Years In Prison and Over $1.3 Million in Restitution! Comments by Ethics Speaker Chuck Gallagher

February 23, 2008

Commit a fraud – make that choice – and a consequence you won’t want – will follow! That’s exactly what happened to a former Auburn University Professor and Army Lt. Col. Loyd Frank Lawing, Jr., age 53, was sentenced to 63 months in federal prison, required to pay nearly $1 million in restitution and over $300,000 to the IRS.

Seems that Lawing embezzled nearly $100,000 from the Small Business Administration (SBA) in 9/11 disaster relief funds and over $940,000 from the Auburn University branch of Alpha Tau Omega (“ATO”). Lawings sentence is the longest sentence handed down for a case arising from fraud involving SBA 9/11 disaster relief loans in the nation, according to SBA’s Office of Inspector General.

“Mr. Lawing misused his fiduciary position with ATO and the SBA to embezzle funds,” said U.S. Attorney leura Canary. “His abuse of trust was reprehensible. Mr. Lawing’s sentence should serve as a warning to anyone else who is tempted to use their position to steal.”

According to a press release from the U.S. Department of Justice, Loyd Frank Lawing used the $940,000 embezzled funds for myriad purposes, such as a luxury SUV and $124,199.63 down payment for his new house. Apparently, Lawing also used the stolen money to help keep Bold Horizon Aerospace, Inc., where he was the president and CEO, afloat. Employees of Bold Horizon had no comment.

As a business ethics speaker, I often get asked the question: Is there a personality flaw that causes someone to engage in white collar crime? My answer: No. There are generally three things needed in order for white collar crime to exist: Need; Opportunity and Rationalization. Apparently, Lawing found one, if not more, of those items in order to pull of a fraud of this magnitude.

Before disbanding, ATO owned property at 730 W. Magnolia Ave. In July 2002, the fraternity sold the property for $1.4 million. ATO retained more than $930,000 from the sale, which was intended to eventually be used to buy or build another house, the warrant stated. That money should have been sitting in the bank, growing,” said Paul Kittle, coordinator of Greek life. “Only one person (Loyd Frank Lawing) was responsible for the account. All this does is sort of reinforces the point that when you have money being controlled, have more than one person in charge of the account.”

Rebecca A. Sparkman, Special Agent in Charge for the IRS, Criminal Investigation Division, stated, “The prosecution of individuals who intentionally conceal their income, even if obtained from an illegal source, is a vital element in maintaining public confidence in our tax system.”

Special Note: The comments by Special Agent Sparkman rings true. Not that I am proud of my past, but having spent time in federal prison for tax fraud – the reality is I embezzled funds and didn’t pay taxes on them. Frankly, it never crossed my mind. Regardless, one is taxed on income from all sources – hence, Lawing, much like I, will spend time thinking about his choices and wondering if was ever worth the price.

It is not worth the price! Every choice has a consequence. Make your choices count!

Business ethics speaker, Chuck Gallagher, signing off…