CORPORATE LEADERSHIP,VALUES AND DECISION-MAKING--at Harvard Bus. Sch.-Hewlett/ EXXON/Richard Branson/Tyco

Hewlett Packard settled a lawsuit involving it's improperly obtaining telephone records of Business Week and N.Y. Times reporters in order to discover the sources of their reporting on the company. The amount of the financial settlement was not disclosed.

The New York Times said it sued H-P in part to send the message that "corporate misconduct aimed at silencing the press is not acceptable and will not be tolerated." The Times pursued the suit on it's reporter John Markoff's behalf. Mr. Markhoff did not seek compensation. The Times donated its settlement money to groups including the Center for Investigative Journalism Program at the Journalism school of the University of California, Berkeley.

[From a report by Matt Richtel in the NY Times, February 14, 2008.]

12-18-06 WorldCom settlement tops $6 billion from

Citigroup- $2,575 billion

JP Morgan $2.0 billion

Bank of America $460 million

DeutchBank $325 million

Plus 11 other banks. Here's a complete list of settlements

http://www.claimscompensation.com/WorldcomSettlement.htm

12-18 OUTSIDE DIRECTORS ALSO GOT BACKDATED OPTIONS ACCORDING TO HARVARD LAW SCHOOL PROGRAM ON CORPORATE GOVERNANCE

http://www.nytimes.com/2006/12/18/business/18options.html?_r=1&oref=slogin

12-16 A PUSH TO FIX THE FIX ON WALL STREET

http://www.nytimes.com/2006/12/17/opinion/17stahl.html?th&emc=th

SEC HELPS COMPANIES, NOT INVESTORS floyd norris

http://norris.blogs.nytimes.com/?ref=business

12-14 SEC AND JUSTICE DEPARTMENT LIGHTEN UP ON SARBANES-OXLEY REQUIREMENTS PROSECUTION PROCEDURES

On successive days this week the Justice Department eased up on prosecution procedures for corporate officials, and the Securities and Exchange Commisssion relaxed its interpretation of Sarbanes-Oxley requirements for smaller companies and issued a rule permitting communications with investors via the Internet. These moves were made in response to a clamor from business over the cost and competitive disadvantage resulting from Sarbanes-Oxley and Justice Dept procedures.

Justice Department Curbs Prosecutors

http://www.nytimes.com/2006/12/13/business/13legal.html?n=Top%2fReference%2fTimes%20Topics%2fOrganizations%2fJ%2fJustice%20Department%20

SEC Relaxes Requirements

http://www.nytimes.com/2006/12/14/business/14secure.html?ref=business

12-1 WINDS BLOW FOR ROLLBACK OF REGULATION; HARVARD LAW PROFESSOR HAL SCOTT HEADED PANEL WHICH PRODUCED REPORT FINANCED IN PART BY OUSTED AIG CEO HANK GREENBERG AS A RESULT OF REGULATORY ISSUES OVER HIS QUESTIONABLE ACTIVITIES.

Floyd Norris, NY Times' lead finance writer's column today and his on-line blog question the objectivity of the recent report by the Committee on Capital Markets Regulation formed at the request of Treasury Secretary Henry Paulson (former Goldman Sachs CEO). Norris's column pointed out that the unofficial report which recommends a number of steps which would reduce government regulations and lawsuits against accounting firms was financed in part by contributions from former AIG CEO Hank Greenberg who was ousted from AIG due to issues raised by NY attorney general, Elliot Spitzer about legally and ethically questionable practices by Greenberg's company. The committee that produced the study recommending reduced regulation was co-chaired by Harvard Law School professor Hal Scott and former chairman of Bush's council of economic advisers, Glen Hubbard, Columbia University economist. Norris's column questions the objectivity of the regulatory rollback report based on the composition of the committee which prepared it and questions the propriety of its financing by Hank Greenberg and another donor who requested anonymity. Professor Scott told Norris that Greenberg's Starr Foundation's gift for the project was approved by Harvard, not by him. Perhaps the people at Harvard who accepted the grant should sit in on Harvard Business School's new course in business ethics!

Here are links to Norris's article and blog.

http://norris.blogs.nytimes.com/?p=94#comments

http://select.nytimes.com/2006/12/01/business/01norris.html?ref=business

HARVARD BUSINESS SCHOOL ANNOUNCES NEW ETHICS COURSE REQUIRED FOR ALL FIRST YEAR MBA CANDIDATES

Coincident with the the trial and conviction of Harvard Business School alumnus, Jeffrey Skilling, and major hits on the business community over sleazy practices uncovered by Eliott Spitzer in the mutual fund, investment banking, brokerage and insurance industries, Harvard Business School instituted a required MBA course in business ethics. [To be fair to HBS this is not the first time corporate ethics has been a course topic. In the 1950s and sixties the first-year required curriculum included a course entitled BRAS--Business Responsibilities in American society.]

The course challenges students "to analyze business problems from three overlapping perspectives--economic, legal and ethical--and to understand that enterprises can be sustained only when aligned with all three criteria. That triple-lens framework is perhaps the LCA course's defining intellectual feature."

A description of the new HBS course and articles describing some of the recent big settlements by big banks that preceded the announcement, if not the development, of a new required course at Harvard Business School are linked below.

Improprieties, conflicts, questionable, illegal and fraudulent practices uncovered in the past several years involve accounting practices, late trading and market timing of mutual funds, back-dating stock option grants to executives, and the use of corportate funds as a personal piggy bank as in the case of Tyco's Dennis Kozlowski and American International Group's Hank Greenberg. The list of such unethical conduct is quite long and sordid.

11-8 TXU PLANS 11 NEW DIRTY COAL FIRED ELECTRIC POWER PLANTS, IGNORING GLOBAL WARMING CONCERNS

Texas open pit coal mine and electrict power company TXU is rushing to build 11 dirty coal-firned power plants, ignoring concernes over global warming. http://www.nytimes.com/2006/11/07/business/07coal.html?_r=1&oref=slogin

10-24 Jeffrey Skilling of Enron sentenced to 24 years for fraud, but he maintains his innocence and will appeal. Some say his arrogant demeanor contributed to the long sentence. [Article linked below.]

HEWLETT-PACKARD CAUGHT SNOOPING ON BOARD MEMBERS

Another type of ethics issue which I imagine may become a case for Harvard Business School's corporate ethics course is the recent resignation of Hewlett Packard's CEO, Patricia Dunn over snooping to discover a leaking board member. Articles on the HP imbroglio are linked below.

[Ms. Dunn is perhaps too young to recall the scandal at GM in the 1960s when the Corporation's chief counsel. Al Power, authorized a private detective to try to dig up dirt on Ralph Nader. GM's chairman Jim Roche, accompanied by Ted Sorensen, JFK adviser and speech writer, appeared before a Senate committe to apologise to the committee and Nader. Reportedly, Roche and Power, friends and Bloomfield Hills neighbors, hardly spoke again after Power refused to acknowledge his error in having Nader tailed.]

11-1 According to Ben Stein's column today in the NY Times, Treasury Secretary, Henry Paulsen, former CEO of Goldman Sachs has convened a blue ribbon committee of business friendly academics to study whether the law should be changed to lighten up on corporations like Enron which defraud their stockholders. His column is entitled "Has Corporate America No Shame? Or No Memory." It's well worth reading.

http://www.nytimes.com/2006/10/29/business/yourmoney/29every.html

10-27 Halliburton and Kellog Brown and Root abused regulations in Iraq. http://chron.com/disp/story.mpl/front/4292513.html

9-13 "A HUGE SUBDIVISION OF INVESTIGATIVE SKILLS" IS AVAILABLE IF YOU CAN AFFORD TO PAY FOR THEM SPOT-LIGHTED BY HEWLETT-PACKARD SNOOPING CASE

The NY Times article linked below details how, through layers of smaller and smaller investigation subcontractors, money can buy telephone, medical, driver's license, credit and virtually any other personal information on any of us.

9-19 The Wall Street Journal reported today that a former FBI agent and computer crimes specialist in Hewlett's global security office in Roseville, California, emailed his superiors this year warning that the company's investigation of board leaks--then still in progress--was being conducted in a manner that could be illegal...Specifically,...he wrote that acquiring people's phone records through false pretenses could be against the law....H-P has since admitted tht investigators working for the company used such a method...in obtaining phone records of its directors, two H-P employees, nine journalists and an unspecified number of outsiders...(From WSJ article by Peter Waldman and Steve Stecklow 9-19-06)

9-19-06 Apparently none of our personal records are safe from scrutiny by whomever has the money to pay to get them--credit records, bank records, medical records, phone records, driver's license records, and just about anything else you might imagine. Shame on Hewlett Packard!

Another thought on the H-P snooperama: From what I've read about the H-P scandal and others, the primary concern of many top executives and their lawyers appears to be whether or not I can go to jail for doing this if I get caught. And perhaps, what are the odds of getting caught. There's nothing wrong with checking on the law, but what about going a bit farther, using the Harvard Business School "triple lens" and asking whether or not the particular action is morally right or wrong; whether or not the action is dishonest or misleading although legal; whether or not it is wise policy likely to assure the economic success of the company in the long run; what would be the result if everybody acted similarly; and would I resent being spied on (or misled, swindled or whatever).

CEOs and their lawyers, more and more, seem not to be bothering with going beyond asking whether a particular action or policy is legal. That is, they seem to equate morality and sound policy only with legality. Whatever they can get away with under the law is okay. The Golden Rule is apparently not considered in these days of accounting tricks, underfunded pensions, strategic bankruptcies and other decisions designed to make a killing in the short run.

9-20 The NYTimes reports that H-P hatched a plan to plant spies disguised as cleaning employees in the San Francisco offices of the Wall Street Journal and CNET. It is not clear whether the company implemented the plan.

In another article, the NYTimes reports that some H-P lawyers and managers knew about the investigative tactics "as early as January 2006 when a second phase began." Kevin T. Hunsaker, a senior counsel in Hewlet-Packard's legal department and the company's chief ethics officer, "in supervising the operation, communicated frequently with Patricia C. Dunn, the company's chairwoman, about it's progress. But they said It was not clear when Ms. Dunn, who ordered the investigation learned of the methods used." [The NYT article is linked below.]

9-21--H.P. INVESTIGATORS SOUGHT MEETING WITH TOP LEADERS--Feedback Wanted on Search for Leaks

"Internal investigators in the Hewlett-Packard spying case sought in January to meet with and describe the particulars of their operation to the company's chief executive and chairwoman, according to e-mail messages between the investigators and a senior company lawyer...

"One exchange, from the company's chief ethics officer to a lead investigator, also underscored that those overseeing the new phase of the operation were worried their efforts could invite legal scrutiny..[NYTimes article linked below.]

9-21 BRITISH SCIENCE GROUP SAYS EXXON MISREPRESENTS CLIMATE ISSUES

"A British scientific group, the Royal Society, contends that Exxon Mobil is spreading 'innacurate and misleading' information about climate change and is financing groups that misinform the public on the issue.

"The Royal society, a 1,400-member organization that dates back to the 1600s and has counted Isaac Newton and Albedrt Einstein as members, asked Exxon Mobil in a letter this lmonth to stop financing these groups and to change its public reports to reflect more accurately the opi9nions of scientists on the issue.

"There is a 'false sense somehow that there is a two-sided debate going on in teh scientific community' about the origins of climate change, said Bob Ward, the senior manager for policy communication at the Royal Society.

"The reality is that 'thousands and thousands' of scientists around the world agree that climate change is linked to greenhouse gases, he said, with 'one or two professional contrarians' who disagree."

[NYTimes article by Heather Timmons linked below.]

9-22 RICHARD BRANSON PROMISES $3 BILLION TO FIGHT GLOBAL WARMING

"Sir Richard Branson, the British magnate and adventurer, said yesterday that his personal profits from airlines and a rail company that he controls--a sum estimated at $3 billion over the next 10 years--would be invested in developing energy sources that do not contribute to global warming. [NY Times article by Andrew Revkin and Heather Timmons linked below.]

9-22 H-P STOCK DROPS 5% AND PRESSURE MOUNTS ON MARK V. HURD HEWLETT-PACKARD CEO TO EXPLAIN HIS ROLE IN SPYING PROGRAM

"Pressure is mounting on Hewlett-Packard's cheif executive, Mark V. Hurd, to explain what appears to have been a greater role in the company's spying operation than was intitally indicated....In the meantime, H-P lawyers, Ann O. Baskins, General Counsel, and Kevin T. Hunsaker, ethics officer, have hired criminal defense attorneys." [From a NY Times article by Damon Darlin and Matt Richtel 9-22-06 linked below.]

H-P's spy program was apparently instituted by now resigned chairwoman Patricia Dunn who is on the advisory boards of the UC Berkeley Haas School of Business and the Conference Board's Center for Corporate Governance.

9-22 FEDERAL OFFICIALS SCRUTINIZING COMPANY PAYMENTS TO DOCTORS

Pharmaceutical and medical device company payments to doctors and hospital administrators in order to promote their products is a fertile field for scrutiny. Free lunches for doctors and their entire office staffs, payments for giving speeches written by the companies, paid trips to meetings in Hawaii, paid consultancies, etc., have long corrupted the health care industry in this country.

An article in today's NY Times by Barry Meier reports that "Ela Medical, a small producer of implantable heart devices, said this week that it had received a subpoena from federal health care fraud officials seeking information about possible inducements paid by the company to doctors using its products.

[Article linked below.]

9-22- 4:45pm PATRICIA DUNN, CHAIRWOMAN, ENMESHED IN SNOOPING SCANDAL RESIGNS HER POSITION ON THE BOARD EFFECTIVE IMMEDIATELY.

[AP-NYT report linked below.]

9-23 One of my favorite financial writers, Gretchen Morgenson, has an interesting article in this morning's NYTimes entitled "Dangers of a World Without Rules," linked below. The article was prompted by this weeks meltdown of the Amaranth hedge fund's position in natural gas futures.

MORE ON HEWLETT PACKARD SPY SCANDAL

9-26 As two individuals are subpoenaed to testify before a House committee, and others were invited including Patricia Dunn, Ann O. Baskins, Frederick Adler, and Larry Sonsini CEO and General Counsel and CEO Mark Hurd who are testifying voluntarily, the Hewlett-Packard spy scandal is sounding more and more like General Motors' embarrassing experience over the hiring of detectives by it's general counsel, Al Power, to try to dig up dirt on GM critic, Ralph Nader. On that occasion, GM's chairman, James Roche, accompanied by former Kennedy adviser Ted Sorensen, apologized for the company's action in testimony before a Senate committee. Roche was rumored inside the company to have hardly spoken to Al Power, his friend and neighbor after the incident because Power refused to acknowledge the impropriety of his action.

[NY Times article by Damon Darlin and Matt Richtel dated 9-28-06 is linked below.]

SAN DIEGO SPY TECHNOLOGY ATTRACTS A HUGE CROWD INCLUDING PRIVATE AND CORPORATE REPRESENTATIVES AS WELL AS FROM GOVERNMENT CIVILIAN AND MILITARY AGENCIES

9-25--The NY Times reports that a huge spy equipment and technology exposition in San Diego is attracting many corporate and private individuals as well as government intelligence agency and military people.

[NY Times article dated 9-25-06 linked below.]

9-27 Patricia Dunn denies she was supervisor of illegal spying. She was assured information would be obtained by legal means.

[NYT article linked below.]

2-28 HEWLETT PACKARD'S GENERAL COUNSEL AND EXECUTIVE VICE PRESIDENT RESIGNED AND WON'T TESTIFY BEFORE CONGRESS

Anne O. Baskins who supervised the spying operation has resigned and will not testify before the House committee today.

[NYTimes article linked below.]

10-9-06--Patricia Dunn & Carly Fiorina Lash Out at Hewlett-Packard Board

[NYTimes article linked below.]

10-19-O6 HUMAN GREED IN THE BUSINESS WORLD KNOWS NO BOUNDS--RICHARD GRASSO ORDERED TO REPAY $80 MILLION ILL-GOTTEN GAINS TO N. Y. STOCK EXCHANGE

[NYTimes article linked below.]

10-20-06 INCENTIVES FOR THE DEAD, op-ed by Paul Krugman

"...In the 1960s and 1970s, E.E.o.s of the largest firms were paid, on average, about 40 times as much as the average worker. But executives wanted more--and professors at business schools provided a theory that justified much high

"They argued that a chief executive who expects to receive the same salary if his company is highly profitable that he will receive if it just muddles along won't be willing to take risks and make hard decisions. 'Corporate America,' declared an influential 1990 article by Michael Jensen of the Harvard Bushiness School and Kevin Murphy of the university of Southern California, 'pays its most important leaders like bureaucrats. Is it any wonder then that so many C.E.o.s act like bureaucrats?'

"The claim, then, was that executives had to be given more of a stake in their companies' success. And so corporate boards began giving C.E.o.s lots of stock options.

The result was..."In the 1990s, executive stock options proliferated--and executive pay soared, rising to 367 times the average worker's pay by the early years of this decade.

"But the truth was that in many--perhaps most--cases, executive pay still had little to do with performance. For one thing, the great bull market of the 1990s meant that even companies that didn't do especially well saw their stock prices rise.

THEN THERE WERE THE TRICKS

"Then there were the tricks that companies used to ensure lavish executive pay even if the stock simply seesawed up and down. For example after a sownward move in the stock price, EXECUTIVE STOCK OPTIONS WOULD OFTEN BE REPRICED OR SWAPPED (emphasis added)--that is the price oat which the executive had the right to buy stocks would be reduced to the new market price. Heads the C.E.O. wins, tail he gets another chance to flip the coin.

"What the BACKDATING SCANDAL (emphasis added) reveals is that for many executives even that wasn't enough. lto ensure that executives profited from newly issued options, COMPANIES WOULD PRETEND THAT THE OPTIONS HAD IN FACT BEEN ISSUED AT AN EARLIER DATE

"What's wrong with backdating stock options? There's a tax evasion aspect, but the main point is the bait-and-switch. The public was told that gigantic executive paychecks were rewards for exceptional performance, but in parctice exec utives were lavishly paid simply for showing up at the office.

"And in some cases,even that wasn't required. CABLEVISION SYSTEMS GAVE OPTIONS TO A DECEASED EXECUTIVE (IN OTHER WORDS, TO HIS HEIRS0, BACKDATING THEM TO MAKE IT APPEAR THAT HE HAD RECEIVED THEM WHILE STILL ALIVE.

"THE MORAL OF THE STORY IS THAT WE STILL HAVEN'T COME TO GRIPS WITH THE EPIDEMIC OF CORPORATE MISGOVERNANCE REVEALED FOUR YEARS AGO BY THE ENRON AND WORLDCOM SCANDALS, THEN DROWNED OUT AS A POLITICAL ISSUE BY THE CLAMOR FOR WAR WITH IRAQ. EVEN NOW, WE'RE STILL LEARNING HOW DEEP THE ROT WENT..."

(Emphasis added.)

http://select.nytimes.com/2006/10/20/opinion/20krugman.html

Comment: Harvard Business School would have performed a greater public service had it followed the theories of its great organizational behavior pioneers Elton Mayo and Fritz Roethlisberger who demonstrated that there are many complex factors in human motivation in organizations rather than the simplistic motivational theories handed to us by traditional economists. I wonder if Professors Michael Jensen and Kevin Murphy are well grounded or have even read Mayo, Roethlisberger, George Homans ("The Human Group") or William Foote Whyte ("Money and Motivation")? If they had, they might not have been so quick to sell us such a bill of goods.

An additional pernicious effect of stock options not specifically mentioned in Krugman's piece quoted liberally above is that they provide a great temptation for companies to "cook the books" to pump the stock price thus assuring a high payout on their executives' options.