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The Ethics Sage Addresses Unintended Consequences

The Ethics Sage Addresses Unintended Consequences

In an article entitled, Unintended Consequences of the H1-B Visa Program and sub-titled: Are American Workers Adequately Trained to Fill High Tech Jobs?, Steven Mintz, better known as the Ethics Sage, discusses the likely impact of a coming Trump executive order.

Here is (what I think is) the most critical paragraph –

Trump is taking a short-term view of a long-term problem, which is our colleges and universities are not training an adequate number of American students to fill jobs in technology and the sciences to meet the growing needs of American companies. However, no one is addressing the real problem which is American colleges and universities give preference to foreign students, especially public institutions. The reason is they pay about four times the tuition of residents of a state. Given the magnitude of state budget cuts for public colleges and universities in the aftermath of the financial recession, foreign students are highly sought out for their financial wherewithal thereby crowding out American students.

The Ethics Sage
The Ethics Sage

As always, when I give you a brief selection from Steven’s work, you should take the opportunity to go to his site and read the whole thing. I am confident my quick summaries of his work and choice of selections never do full justice to the quality of his efforts.

I have not decided quite how to deal with the new administration and I’ll probably wait to see the executive order itself since I’m trained as an attorney, I firmly believe the devil is in the details. So, it could be just as Steven says, worse or (most likely) a whole lot worse. The drafting of these executive orders has not been impressive. In fact, there is a theory running about that they are Leninist political maneuvers designed to divert attention from the real issues while damaging and dividing enemies of the new administration. I don’t know, myself, whether this is true but I will be watching to see if a pattern forms.

Please LIKE, Favorite and re-blog if you like.

I enjoy the attention and any allies I can find who believe in business ethics are very welcome to join the struggle.

James Pilant

The Steven Mintz Edition!

The Steven Mintz Edition!

The Ethics Sage

The Ethics Sage

My friend, Steven Mintz, better known as The Ethics Sage, has a beautiful new web site which can be found here. For a good number of years now, Professor Mintz has published a blog on ethics, particularly focusing originally on accounting ethics but broadening his focus as time went by.

He also has a Facebook page which like his new web site is quite beautifully laid out.


I highly recommend his work and he is a prolific author. So there is a lot to see and read.

So visit, share and add to your favorites!

James Pilant

This is Steven’s self introduction from his new web site –

Known as “The Ethics Sage” to many, Dr. Steven Mintz is a well-known Professor Emeritus from California Polytechnic State University in San Luis Obispo. His blog, The Ethics Sage, was voted number 49 out of the Top 100 Philosophy blogs and one of the top 30 blogs on CSR. Steve provides insights on workplace issues with his blog “Workplace Ethics Advice.” He has written articles for various media outlets including the Pacific Coast Business Times, Chronicle of Higher Education and The Magazine of Corporate Responsibility’s Business Ethics Online. Dr. Mintz is an ethics expert and available to speak on a variety of ethics issues including workplace ethics. . He offers courses on accounting and workplace ethics through “Geniecast.” 

Are Shifting Cultural Values Creating an Entitlement Society? (A Guest Column From the Ethics Sage!)

Are Shifting Cultural Values Creating an Entitlement Society?

(This is a guest column by Steven Mintz, the Ethics Sage. I am proud to have one of his columns appear on my site. I strongly recommend you visit his site (listed below), favorite it and visit regularly. jp)

We often hear that an entitlement society has developed in the U.S. over a number of years. In a casual sense, the term “entitlement” refers to a notion or belief that one is deserving of some particular reward or benefit—if given without deeper legal or principled cause, the term is often given with pejorative connotation (e.g. a “sense of entitlement”).

Philosophically, entitlement theory comes from the Theory of Justice. John Rawls argued that the state should have whatever powers are necessary to ensure that those citizens who are least well-off are as well-off as they can be(though these powers must be consistent with a variety of basic rights and freedoms). This viewpoint is derived from Rawls’s theory, one principle of which is that an unequal distribution of wealth and income is acceptable only if those at the bottom are better off than they would be under any other distribution. Hence we have the viewpoint to tax the rich and transfer resources to the least well off amongst us. This view of Justice Theory would justify the reallocation of resources in society.

The issue I deal with here is what is behind the entitlement mentality. I am not saying some people do not want to work and feel entitled to benefits from the government out of a sense of justice. Rather, I believe the entitlement notion stems from a shift in cultural values brought on, in part, by what we see on television and in social media. People with wealth flaunt it. TV shows glorify it. Social media exacerbates the feeling of jealousy for those without it. It’s in our face all the time from the housewives of wherever to the grossly over-the-top CNBC program The Secrets of the Super Rich.

What is the average person expected to think when they see such a television program that glorifies over-the-top wealth? Last Wednesday one segment featured a $200 million-plus ridiculously lavish yacht. The reality is that if that amount was split between 5,000 people it could clothe, house and feed them at the rate of $40,000 per year.

The entitlement mentality also comes from the way in which many Millennials were brought up and given just about anything and everything they wanted. Moreover, today we are debating whether children should be rewarded not for winning a competition but for just competing, even if they come in last. They are entitled to be recognized for their effort. But, is that how the real world works? Do you think in China and other Asian countries youngsters are rewarded for finishing behind the pack or last? I doubt it.

The Ethics Sage
The Ethics Sage

Students on college campuses feel entitled to voice their views in a way that shuts other voices down. The administration of many such colleges give in for fear of alienating one person or one group without thinking about the rights of others.

So, the key becomes how to define “entitlement.” In this regard we can turn to the theory of “moral rights.” Rights theory provides that human beings have certain fundamental rights that should be respected in all decisions: the right to free consent, privacy, freedom of conscience, free speech, and due process. A right is a capacity, a possession, or condition of existence that entitles either an individual or a group to enjoy some object or state of being. For example, the right to free speech is a condition of existence that entitles one to express one’s thoughts as one chooses.

The moral force of a right depends on its strength in relation to other moral considerations applicable to the context in question. According to rights theory, as long as the distribution of wealth in society is achieved through fair acquisition and exchange, the distribution is a just one regardless of any degree of inequalities that may ensue. The morally correct action is the one that a person has the moral right to do, that does not infringe on the moral rights of others, and that furthers the moral rights of others.

So, in my view entitlement is linked to having a fair and equitable opportunity to reach one’s God-given potential within the free exercise of one’s will. The goal is best achieved through persistence and practice. As the ancient Greeks knew, we develop good habits and ultimately success by applying them in a variety of situations.

Especially in a capitalist society, people must be free to develop their God-given talents without interference from the government. All well and good but does this occur by giving those who may not have earned it a reward or other form of recognition? No, but it does, in fact, occur because of our social-media conscious society which reflects a shift in cultural values.

All too many act in a way to achieve their fifteen minutes of fame whether it is a You Tube posting or other form of social media exhibitionism. We want what we want and no one should get in our way less they violate our rights. Unfortunately, the pursuit of wealth and fame take over and shove hard work and responsibility into the background. This is a narcissistic approach to life and one that leads to the entitlement mentality. I believe it is dangerous and threatens the values we have long aspired to such as to act with integrity and develop a strong work ethic.

Dr. Steven Mintz, aka Ethics Sage. Professor Mintz is on the faculty of the Orfalea College of Business at Cal Poly San Luis Obispo. He blogs at: http://www.ethicssage.com.

The Ethics Sage and the Ethics of Affirmative Action

The Ethics Sage and the Ethics of Affirmative Action

The Ethics Sage and the Ethics of Affirmative Action

The Ethics Sage and the Ethics of Affirmative Action

Ethics of Affirmative Action

(A Guest Blog by My Colleague, Steven Mintz. Visit his site here!)

University of Texas Affirmative-Action Program is upheld by a Federal Appeals Court

Are considerations of affirmative action ethical policies for a university to follow? This is the overriding question to be addressed in evaluating race-based decisions about admission to colleges and universities. I raise the issue because a federal appeals-court panel handed at least a temporary setback to critics of affirmative action last Tuesday by ruling that a race-conscious admissions policy at the University of Texas at Austin had passed a strict-scrutiny analysis ordered by the U.S. Supreme Court.

Critics of the ruling might believe that the ethical principles of justice and fairness work against race-based policies because people should not be treated differently because of race. The ethical support for this kind of opinion holds that equals should be treated equally and unequals should be treated unequally. In other words if there are legitimate reasons to treat one group differently than another, then such treatment is justified.
The problem with this argument is by saying one group (i.e. minorities) should be given preference over another group (i.e. whites) we give credence to the idea that certain groups are inferior because we then assume that the favored groups cannot reach the required level of achievement through their own efforts. Moreover, affirmative action policies lead to lower standards since some less qualified candidates will be admitted if race is allowed to override general standards applied to all.

Opponents of race-based policies hold such views because they value the equal treatment of every person on the basis of common standards. It’s hard to argue this position from a fairness point of view. On the other hand, I believe a diverse population in colleges and universities add to all students’ experiences as they learn in their classes how some groups historically have been discriminated against. I believe the motivation for affirmative action is to right a past wrong and not to give one group preference over another in admissions decisions.

The federal appeals court decision that brought to the fore the affirmative action policies of the University of Texas means that consideration of some applicants’ race are necessary to achieve sufficiently diverse enrollments there. In a 2-to-1 decision revealing continued disagreement among the judges over the appropriate standard for evaluating such policies, the panel of the U.S. Court of Appeals for the Fifth Circuit In response to an overwhelming Supreme Court decision Supreme Court decision that faulted the Fifth Circuit’s previous endorsement previous endorsement of the undergraduate admissions policy as too deferential to the university, the two judges in the majority said the policy withstood stricter scrutiny than applied before.

The appeals-court panel affirmed, for a second time, a 2009 summary judgment by a U.S. District Court dismissing the lawsuit brought by Abigail Noel Fisher, a white applicant who had accused the Austin campus of illegal discrimination after being denied admission as a freshman the previous year.

The ruling Tuesday’s ruling in the case, Fisher v. University of Texas at Austin, almost certainly does not mark an end to the legal battle over the policy. the legal battle over the policy. The Project on Fair Representation, an advocacy group that brought the lawsuit on Ms. Fisher’s behalf, said it expected to appeal the decision all the way back to the Supreme Court, if necessary.

“This panel was proven wrong last year by the Supreme Court, and we believe it will be proven wrong once again on appeal,” said Edward Blum, the organization’s director.

Judge Emilio M. Garza, the dissenting member of the Fifth Circuit panel appeared to lay some of the groundwork for an appeal with an opinion arguing that the majority had again failed to treat the university’s assertions with sufficient skepticism.

“By holding that the university’s use of racial classifications is narrowly tailored, the majority continues to defer impermissibly to the university’s claims,” he wrote, adding that such deference “is squarely at odds with the central lesson” of last year’s Supreme Court ruling in the case.

In that ruling the U.S. Supreme Court ruled, 6-2, that Michigan voters have a right to amend their state Constitution to ban racial preferences in admissions at public universities. In so doing, the court affirmed laws in eight states that have 29 percent of America’s high-school population and more than 40 percent of its Hispanic residents.

In the case, Schuette v. Coalition to Defend Affirmative Action, the court’s only Hispanic member, Justice Sonia Sotomayor, wrote a widely acclaimed dissent, in which she challenged Chief Justice John Roberts’s colorblind approach to college admissions as “out of touch with reality.”

A new report by the Century Foundation and the Lumina Foundation, suggests, however, that the concerns of both justices can be met: Alternatives to race-conscious affirmative-action, if properly structured, would produce more diversity than just concentrating on race.

According to a chapter by Anthony P. Carnevale and his colleagues at Georgetown University in the new report, The Future of Affirmative Action: New Paths to Higher Education Diversity After Fisher v. University of Texas, using socioeconomic preferences and/or plans that admit a top percentage of students from every high school, if structured properly, could produce even higher levels of black and Hispanic representation at the most selective colleges than racial preferences now achieve. That approach would work because it reflects economic disadvantages that are often shaped by racial discrimination.

Sotomayor’s dissent in Schuette is a strong reminder of the importance of race. “Race matters to a young man’s view of society when he spends his teenage years watching others tense up as he passes, no matter the neighborhood where he grew up,” she wrote. “Race matters because of the slights, the snickers, the silent judgments that reinforce that most crippling of thoughts: ‘I do not belong here.’ ”
In Schuette, Sotomayor wrote that preferences provide the only realistic path to racial inclusion in higher education, correctly noting that race-neutral alternatives have failed to produce adequate diversity at three high-profile institutions—the University of Michigan at Ann Arbor, the University of California at Berkeley, and the University of California at Los Angeles.

The question of whether affirmative action policies, whether based on racial differences, to right past wrongs, or socio-economic considerations, is a complicated issue from an ethical perspective. Like most contentious issues each position can be argued from different points of view in part, I believe, because the motivation for such preferences underlies the issue of ethical ‘rightness’ or ‘wrongness.’

In virtue ethics, motivations are an integral part of the ethical equation. If we can say the motivation for race-based decisions is the inherent goodness of such policies, then the Fisher ruling is ethically supportable. On the other hand, doesn’t Fisher have an ethical right to be given preference based on higher achievement of admissions criteria (i.e. SAT scores)? Doesn’t the University of Texas have an obligation to Fisher to admit her because she was more qualified and denied admission based on socio-economic factors that enabled less qualified candidates to be admitted?

These are difficult questions to answer. I am conflicted because each argument has some merit. As a college professor I have seen first-hand how having a diverse population in my ethics class adds value to the learning experience of all students. On the other hand I can understand the position of a student denied admission because other considerations allowed another student to be given preference for whatever reason.

Blog posted by Steven Mintz, aka Ethics Sage, on July 22, 2014. Dr. Mintz is a professor in the Orfalea College of Business at Cal Poly, San Luis Obispo. He also blogs at: www.workplaceethicsadvice.com.


Steven Mintz Has Written a Textbook

The Ethics Sage

The Ethics Sage

Steven Mintz Has Written a Textbook

My friend, Steven Mintz, has a new textbook. Below is a segment of the review. Please share my pleasure at the accomplishments of a colleague.

James Pilant

Steve Mintz Accounting Ethics Textbook Reviewed – Ethics Sage

From a review by W. Steve Albrecht in the Journal of Business Ethics, March 2014

One of the book’s great strengths is its excellent cases. The first seven chapters include 10 cases each, many of them famous ethical cases where accountants, executives, and corporate directors have been sued or held liable for their decisions and actions. I have personally been an expert witness in several of the cases covered in the book and so I studied the authors’ treatment of these cases in detail. Their write-ups were always accurate, presented in an interesting manner and provided great references for further study by students. The accuracy of the cases led me to follow up on several of the references cited in the chapters which I also found helpful. My conclusion after reading the book, examining in detail some of the cases and reading the 20 discussion questions per chapter was that this book would work equally well as a stand-alone ethics text or as an excellent supplement in auditing, corporate governance, financial reporting, or other business and accounting classes.

via Steve Mintz Accounting Ethics Textbook Reviewed – Ethics Sage.

From around the web.

From the web site, Cal Poly.


Dr. Mintz enjoys an international reputation for research and teaching ethics in business and accounting. He has published two textbooks the most recent publication is Ethical Obligations and Decision Making in Accounting: Text and Cases. Dr. Mintz has published dozens of research papers in the areas of business ethics, accounting ethics, corporate governance and international accounting. Dr. Mintz teaches courses on accounting ethics and international accounting.


The Ethics Sage Discusses the SAT Changes

The Ethics Sage

The Ethics Sage

The Ethics Sage Discusses the SAT Changes

Steven Mintz, better known as the Ethics Sage has some criticism of the changes in the SAT’s. Please read his work and go to his web site and become a follower!

James Pilant

Do Changes to the SAT Better Reflect the Skills Needed in Today’s World? – Ethics Sage

One of my concerns is the common core standards may lead to “teaching to the test” rather than engaging students in a way that challenges their analytical reasoning skills. Also, making the essay optional sends the wrong signal at a time professors like myself and recruiters bemoan the loss of writing skills in today’s college students. Even a simple memo can be a challenge too great for some graduates.

via Do Changes to the SAT Better Reflect the Skills Needed in Today’s World? – Ethics Sage.

Mintz, S. (2014, March 25). [Web log message]. Retrieved from http://www.ethicssage.com/2014/03/do-changes-t-the-sat-better-reflect-the-skills-needed-in-todays-world.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed: EthicsSage (Ethics Sage)

From around the web.

From the web site, Gas Station Without Pumps.


Although the College Board says that this overhaul is not prompted by their shrinking market share (ACT now sells more tests than SAT), I’m sure that is the primary driving factor.  If the College Board behaved more like a non-profit than like a corporate monopoly (smaller executive salaries, pricing for distributing scores to college that was close to actual costs rather than the price gouging that they currently engage it), I’d be more inclined to believe that this was not just a “market share” phenomenon.  Since all the changes make them look more like the ACT, it seems to be entirely profit-driven, not based on a desire to more accurately predict the success of college applicants.

Eliminating the essay should make the SAT much cheaper to grade, but I’ve not heard any announcements about them reducing the price of the exams.

Gas Station Without Pumps. (2014, March 5). Sat is changing in 2016 . Retrieved from http://gasstationwithoutpumps.wordpress.com/2014/03/05/sat-is-changing-in-2016/


The Ethics Sage Discusses Ethical Organzational Leadership

The Ethics Sage Discusses Ethical Organzational Leadership

My colleague and friend, the Ethics Sage, has a new post which I am privileged to be given early. Please visit his site and join those who follow his blog.

James Pilant

The Ethics Sage

The Ethics Sage

Ethical Leadership in Life and the Workplace

Creating an Ethical Organization Culture

Ethical leadership means to set high standards for ethical behavior and establish a corporate culture that supports ethical values such as honesty, trustworthiness, responsibility, and accountability. Gael O’Brien, a frequent blogger on ethics issues, points out that ethical leadership draws on a high level of “emotional intelligence” and the capacity to own an organization’s values as well as one’s own, linking the means and the end in business strategy.

In organizations where the management sets a good example, significantly less unethical behavior is seen in the rest of the organization than when the management sets a bad example. At the same time employees and outsiders are often critical of the lack of role-modeling at the top. The positive side of this criticism is that it conceals an expectation: employees and outsiders expect top management to provide a good example. That means that there is a need for ethical leadership.

Ethical leaders have a moral compass. They explore their environment, with a well-developed vision of right and wrong. They have a clear sense of direction when it comes to deciding what can and must be done to establish an ethical corporate culture. They see and hear what others do not see or hear. They not only draw a clear line between what is and what is not permissible, but at the same time push the boundaries, and raise the bar, for others as well as themselves to become more ethical.

Ethical leaders have courage. They not only know that things must and can be different, but they do things differently themselves. They have the drive and the guts to persist where others give up. Where others are silent, they speak. They demand responsibility.

Ethical behavior is not only for people in management positions. Ultimately ethical leadership should show people that they are not the product of their environment, but are capable of creating an environment in which they can get the best out of themselves and others.

Creating an ethical environment in one’s organization occurs when top management pays attention to the values they set for the ethical behavior of employees. An interesting approach to doing just that is known as Giving Voice to Values (GVV). GVV is an innovative, cross-disciplinary business curriculum and action-oriented pedagogical approach for developing the skills, knowledge and commitment required to implement values-based leadership. The curriculum was developed by Mary Gentile, the director of Giving Voice to Values at Babson College.

I use GVV in the classroom and provide the opportunity for students to script and practice in front of peers, equipping future business leaders not only to know what is right, but how to make it happen.

Ethical leaders pay special attention to finding and developing the best people precisely because they see it as a moral imperative – helping them to lead better lives that create more value for themselves and others. In other words, ethical leaders know the ethical development of those in their organization begins with making them more ethical people in a variety of situations and establishing a framework to make ethical decisions. That foundation can then carry over to the workplace and enhance ethical behavior in relationships with stakeholders – suppliers, customers, employees, and others who rely on the ethics of the organization to treat them honestly and fairly.

Ethics is not a spigot we can turn on and off at a whim. True ethical leaders know this and they cultivate ethics in everything they do in directing the organization to accomplish ethical goals.

Ethical leaders ‘walk the talk’ of ethics. They demonstrate through actions and words that unethical behavior will not be tolerated and those who witness such behavior within the organization must report it to higher-ups so that appropriate action can be taken.

This leads to my final point, which is that whistle-blowing is the key to improving the culture within organizations. That is why the Sarbanes-Oxley Act and Dodd-Frank Financial Reform Act include protections for whistle-blowers and, in the case of Dodd-Frank, financial rewards for blowing the whistle on corporate wrongdoing where the government can bring a successful lawsuit against the organization for fraudulent behavior.

Former Supreme Court Justice, Potter Stewart, said it best in commenting on ethical behavior: “Ethics is knowing the difference between what you have a right to do and what is right to do.

Blog posted by Steven Mintz, aka Ethics Sage, on November 12, 2013

From around the web.

From the web site, SORSONGB.


In every business, leaders are the key driving force of the business, because they can be the one to drive their employees and the decision they make will affect the organization. Recent research (Resick, Hargis, Shao Dust, 2013) shows that, ethical leader are the one who “use their social power to represent the best interests of their organization and employees, set a personal and professional example of ethically appropriate conduct, and actively manage ethical”. Ethical leaders can create important positive effects on both individual and organizational effectiveness. The word “Ethic” may have many definitions but the main point of the word is “knowing and doing what is right”.

Leader-Member Exchange (LMX) is the quality of exchange between a supervisor and an employee (Walumbwa et al., 2011). The LMX theory explained that the “more frequently employees interact with their immediate supervisors, the more likely the relationship will be stronger (Walumbwa et al., 2011)“, this show that with ethical leadership can lead to better relationship with the employees. Ethical leadership always encourages opinion from the employees, which will boost the individual effectiveness and may boost organizational effectiveness as well.

‘Revenge Porn Bill Signed in California: Another Sign of Declining Civility in Society, The Ethics Sage

The Ethics Sage

The Ethics Sage

(This post is written by the Ethics Sage, Steven Mintz, and I am proud to have the opportunity to post his work on my blog. James Pilant)

Here is a link to his full web site – I recommend you add it to your list of favorite sites.

‘Revenge Porn Bill Signed in California: Another Sign of Declining Civility in Society
Are ‘Revenge Porn’ Postings Protected Free Speech?
On October 1, California Governor Jerry Brown signed a bill that would make it illegal for people to humiliate ex-lovers by posting indecent photos or videos online. California is the second U.S. state to criminalize the act of revenge porn, though as a misdemeanor. New Jersey considers it a felony.
Under the new California law targeting “revenge porn,” distributing sexual images “with the intent to cause serious emotional distress” would carry a fine of as much as $1,000 and as long as six months in jail — even if the pictures were originally taken with consent. The law bans only images taken by the person posting them, meaning that self-photos aren’t protected. That’s good news for Anthony Weiner, I guess.
The posting of ‘revenge porn’ photos by a disgruntled ex of a past partner illustrates a new low in civility in our country. It seems as though all too many have lost their sense of right and wrong — they act only in their own selfish interests. And, all too many have lost the ability to reason ethically, assuming they ever possessed that skill.
Whether it’s random and senseless violence against another, road rage, cyber-bullying, or other offensive acts that are occurring with increased frequency in our society, the U.S., as a country, has lost its moral compass.
Whether it’s gratuitous violence, sexually-charged images, hateful speech, and downright rudeness, the U.S. has morphed into a narcissistic country that values self-indulgence above common sense and common decency.
Some will say the generalized examples I cite are the exception to civil behavior and not the rule. I say it is becoming the norm with increasing frequency and the fact that we tolerate it as a society reflects our willingness to go along with declining ethics rather than fight the good fight. The fact that Hollywood and the social media continue to spark the flames of hedonistic behavior simply means that these institutions believe they are giving us, or being used, in ways that we want.
What about the First Amendment issues? The First Amendment guarantees you the right to post naked pictures of your exes on the Internet.
Here’s exactly what the First Amendment of the Constitution says:
The First Amendment provides that Congress make no law respecting an establishment of religion or prohibiting its free exercise. It protects freedom of speech, the press, assembly, and the right to petition the Government for a redress of grievances.
Despite this guarantee, courts have established exceptions to free speech, notably defamation and child pornography. Revenge porn could be held up as another exception, since it obviously wasn’t considered by the framers of our Constitution (even if courts have ruled that some “speech” such as Facebook ‘Likes’ is protected by the Constitution.)
Victims of vindictive pornography distribution, aka revenge porn, are often women who originally shared naked pictures of themselves with their boyfriends. The distribution of the photos online can be thoroughly humiliating for the woman in those pictures.
The U.S. Supreme Court has upheld the right to some pretty offensive behavior including, in March 2011, that that noxious, highly offensive protests conducted outside solemn military funerals are protected by the First Amendment when the protests take place in public and address matters of public concern. In that decision, America’s highest court ruled the Westboro Baptist Church has a Constitutional right to hold hateful protests outside military funerals.
In order to withstand Constitutional challenge, the ‘revenge porn’ law in California was narrowly construed to require the person who posted revenge porn to do so with the intent to “cause serious emotional distress.” The final law also says the other person had to actually experience emotional distress. Well that’s great news. More money for the lawyers to hash out in court exactly what these terms mean.
The bottom line is ethical behavior cannot be legislated. Our desire to act ethically comes from within and not because of an externally exposed measure of acceptable behavior. Each individual must monitor his or her behavior and always strive to act in accordance with societal norms.
No one is perfect. However, the ethical person constantly questions his or her own behavior and evaluates against the norms including honesty, integrity, fairness, respect, and responsibility.
As for our First Amendment right, there is a difference between what we have a right to do and what the right thing to do is.
Blog posted by Steven Mintz, aka Ethics Sage, on October 3, 2013

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The Ethics Sage, KPMG Insider Trading Scandal Damages the Reputation of the Accounting Profession

(I honored to have the Ethics Sage, Steven Mintz, write a post for my blog. Please visit his blog at Ethics Sage.)

KPMG Insider Trading Scandal Damages the Reputation of the Accounting Profession

What possesses an audit partner to trade on inside information and violate the accounting profession’s most sacred ethical standard of audit independence from one’s client? Is it carelessness, greed, or ethical blindness? In the case of Scott London, the former partner in charge of the KPMG’s Southern California’s regional audit practice, it was some of each that motivated him to violate ethical standards and, in the course of doing so, causing the audit opinions signed by London on Skechers and Herbalife to be withdrawn by the accounting firm.

This case has a local twist as pointed out by Stephen Nellis in his column “Deckers, PCBC were victims of auditor leaks” in the April 19-25 Pacific Coast Business Times. Nellis notes that two companies affected are Goleta-based Deckers and Pacific Capital Bancorp, the former parent of Santa Barbara Bank & Trust now part of Union Bank.

Overall, Shaw is charged with leaking confidential information to his friend, Brian Shaw, about Deckers, Pacific Capital Bancorp, Manhattan Beach-based Skechers, and Los Angeles-based Herbalife. The leak of information about quarterly earnings information led to Shaw’s unjust enrichment of $1.27 million. Shaw, a jewelry store owner and country club friend of London repaid London with $50,000 in cash and a Rolex watch, according to legal filings.

The leaking of financial information about a company to anyone prior to its public release affects the level playing field that should exist with respect to personal and business contacts of the leaker and the general public. It violates the fairness doctrine in treating equals, equally, and it violates basic integrity standards. The KPMG scandal concerns me because a pattern of such improprieties may be developing.

In 2010, Deloitte and Touche was investigated by the SEC for repeated insider trading by Thomas P. Flanagan, a former management advisory partner and a Vice Chairman at Deloitte. Flanagan traded in the securities of multiple Deloitte clients on the basis of inside information that he learned through his duties at the firm. The inside information concerned market moving events such as earnings results, revisions to earnings guidance, sales figures and cost cutting, and an acquisition. Flanagan’s illegal trading resulted in profits of more than $430,000. In the SEC action, Flanagan was sentenced to 21 months in prison after he pleaded guilty to securities fraud. Flanagan also tipped his son, Patrick, to certain of this material non-public information. Patrick then traded based on that information. His illegal trading resulted in profits of more than $57,000.

The KPMG case is a particularly egregious one because it involves insider trading by an auditor of client stock. This incident jogged my memory and I came up with a characterization of London’s actions as “stupid is as stupid does.” Scott London, the partner in charge of audits of Herbalife Ltd. and Skechers USA Inc., traded on inside information for personal gain.  KPMG resigned as the auditor of both companies after learning that London provided non-public information about the companies to a third party, who then used the information in stock trades. The firm fired London.  

In resigning the two audit accounts, KPMG said it was withdrawing its blessing on the financial statements of Herbalife for the past three years and of Skechers for the past two. KPMG stressed, however, that it had no reason to believe there were any errors in the companies’ books. Both companies said they are moving to find new auditors.

In a statement that should raise red flags for all CPA firms that audit public companies, KPMG stated it had concluded it was not independent because of alleged insider trading. Independence is the foundation of the accounting profession and the cornerstone of an audit conducted in accordance with generally accepted auditing standards. The public (i.e., shareholders and creditors) relies on auditors’ independence, objectivity, and integrity to ensure that the audit has been conducted in accordance with such standards and that the financial statements are free of material misstatements.

I’m having a hard time understanding the stupidity and moral blindness of London in this case. Surely he knew of his ethical obligations. All audit firms supposedly have been carefully assessing independence in the aftermath of financial frauds in the late 1990s and early 2000s (i.e., Enron and WorldCom). Firms generally have quality controls in place to prevent compromises to audit independence.

Trading on insider information for cash and gifts is bad enough, and when done by an audit partner it is unforgiveable. Even more baffling to me is that the quid pro quo for passing along stock tips about clients to a friend for London was to receive cash and gifts in return. According to London, he received a discount on a watch, and the friend bought him dinners from time to time and on a couple of occasions gave him $1,000 to $2,000 in cash. A cynic might say he sold himself cheap.

So, what happens next? Both Herbalife and Skechers will need to have their financial statements re-audited, not an inexpensive proposition. Even though the companies were not at fault, the public may misunderstand and think the companies were complicit in the matter.

For KPMG, the insider trading investigation is a setback. The accounting firm has worked hard to rehabilitate its reputation after coming under scrutiny last decade in a wave of corporate accounting scandals and the firm’s role in the marketing of fraudulent tax shelters. KPMG paid large nine-figure settlements to resolve lawsuits related to accounting scandals at the drugstore chain Rite-Aid and Oxford Health Plans. In 2005, the firm paid a $456 million penalty to the government related to tax fraud.

I have to wonder whether insider trading by partners at Deloitte and KPMG portends a larger scandal on the horizon. It seems every ten years or so the accounting profession finds itself in a “pickle” and hauled before Congress to explain its actions. It is about that time following financial frauds at Enron, WorldCom and a host of other companies. I don’t know how to get the message across to those in the profession that every time such incidents occur, and now insider trading, the public loses patience with the profession and doubts begin to surface about whether the profession truly acts to protect the public interest.

Blog Posted by Steven Mintz, aka Ethics Sage, on April 12, 2013


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The Ethics Sage Addresses Harvard Cheating Scandal


The Ethics Sage Addresses Harvard Cheating Scandal

Should Students who cheated at Harvard be Rewarded or Punished? – Ethics Sage

I do think the students violated the rules in this case and should be held accountable for their actions. However, there were mitigating circumstances not the least of which was from the teaching assistants who seemed to work with those students who came forward asking for help to interpret information and develop responses to test questions.

Perhaps the lesson to be learned from the Harvard cheating scandal is we, in academe, need a new approach to evaluating the benefits and potential harms of collaboration. It can be a great teaching tool and mirrors collaborative effort in the workplace. Test questions in a collaborative enivornment can better assess analytical reasoning and critical thinking skills, two skills essential for success in today’s workplace.

The level playing field argument is key in evaluating the use and purpose of student collaboration. Academic integrity is at stake. Collaborative effort may impair fairness in the grading process unless collaboration is expected of all students. Otherwise, those who “play by the rules” may receive lower grades because they worked individually while those who shared information may benefit from such an approach.

Should Students who cheated at Harvard be Rewarded or Punished? – Ethics Sage

The Ethics Sage, Steven Mintz, discusses the Harvard cheating scandal in his latest post. I find his reasoning compelling and I agree in full with his ethical reasoning in this case. The students’ instructions from their various teaching assistants were less than clear. Further, the modern technique of collaborative learning needs more in depth ethical analysis, and clearer rules. It’s a good piece of work. Don’t be satisfied with this brief section. Go to the Ethics Sage’s web site and read it in full and while you’re there sign up for e-mail alerts for later essays.

James Pilant

From around the web –

From the web site, Janitorial Musings:

Unfortunately, I suspect they’ll find that achieving and maintaining fame and fortune requires just as much corner-cutting as getting their grades at school. After all, those same kids who have no qualms with cheating in school soon enter the business world. And those who tell themselves that they are only cheating to keep up with the cheaters will tell themselves that they must do the same outside of academics. I’ve been involved in a part of business–not as a janitor–where I was surprised to learn how many ways and how often our competitors would do small dishonest things to get the edge over us. It made me think: if people are this dishonest with the small things, I wonder whether it is all the more so with bigger things? (Maybe not. I recall seeing a report that said in relationships men are more likely to lie about small things they deem unimportant and women are more likely to lie about big things they deem important. Maybe when it comes to big things in the business world, people are less likely to be dishonest?)

From the web site, Erik B. Wilson:

Indeed cheating in academia is nothing new and to view this particular instance as somehow extraordinary within greater academia would be naïve. That is not to say that systematic cheating is widespread at Harvard, but odds are there have been plenty of cheaters in Harvard’s history as an institution. Perhaps they were single students acting alone, perhaps they were groups that went unnoticed, but doubtless they did exist. The school’s reputation is of course the underlying factor that makes this story so noteworthy – it is quite difficult to imagine a similar ruckus concerning cheating at a local community college. There is an assumption about Harvard, a presumed integrity that goes along with the status and prestige of the Harvard name, one that places the members of the student body somehow above cheating. However, these students and their actions are informed by society writ large – they do not stand apart from it. And as such if we seek to understand the incentives that compel cheating we must consider the social fabric in which they are embedded.

And finally, from the web site, phoebecurran:

After news broke of the collaborative cheating efforts of over 120 students in an “Introduction to Congress” course at Harvard University last spring, the honesty and conduct of college students are being questioned. University students are typically young, but surely old enough to know right from wrong.

Eric Kester, a recent Harvard graduate, wrote a memoir, published in July, which details many instances where dishonesty dominated good character throughout his four years at the university. He said there were a number of take-home tests that were completed with group efforts, notes passed in bathrooms during exams, and research papers written and sold. Kester said he never cheated, but he certainly understood the pressures that came along with an Ivy league education.


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