Episode One: Ethics in Management

Summary

Three employees of Winston Industries, a fictional government contractor, await the start of an ethics training session. A fourth employee joins them, and remarks that he thinks the company is “missing the boat” with its ethics training. While waiting for the ethics instructor to arrive, the four employees discuss what they perceive to be conflicts between the company’s code of ethicsand actual company practice, including renovating executive offices while laying off employees, being advised by the company’s lawyers to file a different site conditions claim when the company itself was at fault for failing to inspect, awarding an incentive trip to Hawaii while laying off employees, providing business gifts to customers, supplying defective products but denying financial responsibility, and ignoring an employee’s complaints until she finally filed a whistleblower suit against the company.

Discussion Objectives

One of the challenges facing DII signatories has been to elevate their ethics programs beyond compliance with laws and regulations. This scene is designed to encourage a discussion on that topic. More particularly, the episode should be used to review the contractor’s own ethics training program and elicit employeesi suggestions for making it more meaningful to them. Additionally, the episode is useful for highlighting the types of corporate decisions and actions which raise ethical issues. Finally, the episode raises the question of the contractoris responsibility to employees who report unethical behavior.

Suggested Discussion Questions

Do DII programs go beyond compliance with laws and regulations in meaningful ways? Is it necessary or desirable that they do so?
What is “ethics training”? How is it different from compliance training? What experience have signatories had with ethics training, and what types of training seem to be effective and well received?
The vignette asks whether certain issues have ethical content. Do the following situations raise ethical issues? If so, what are they?
1. Renovation or remodeling of executive office space when large layoffs are occurring
2. Reward trip to a resort location for a project team that has done well when large layoffs are occurring
3. Not treating legitimate supplier complaints seriously, on the theory that the supplier has little leverage in the relationship with the customer
At one point in the discussion, one character suggests to another that raising certain issues at Winston Industries would not be well received. The other character later says that, in fact, he doubts that sensitive matters could be raised in an open way for discussion purposes.
1. If a company has a culture that discourages employees from raising concerns, or makes employees feel that such concerns would not be addressed seriously, should this be considered a problem? Is it in any way an ethics concern? One character says that if Winston Industries were an ethical place open discussion of all issues would be encouraged. Do you agree with this?
2. How do companies convey to employees whether sensitive issues can be raised and discussed?
3. Is it clear that encouraging open discussion of all issues is an organizational value that is desirable? Might such a culture turn the workplace into a debating society, with an attendant loss of employee efficiency? Might it promote minor discontents? How should companies view the relative advantages and disadvantages of open discussion to achieve the right balance?
The CEO has sent out a letter stating certain company values.
1. Are such statements generally useful?
2. If general commitments to a value like fairness are made, how do individual employees decide what is fair? If the company articulates a general value like fairness, does it need an institutionalized process to measure its decisions against this value? If so, how would such a process work?
3. If a company articulates its values, does it obligate itself to consider complaints that it is not following them? Do complaints from anyone have to be considered seriously (for example, what about complaints from suppliers)?
One character discusses a situation where management does not pursue a differing site conditions claim, notwithstanding encouragement by legal counsel to do so. Another character discusses an issue on NASA contract performance, to which a colleague replies that the company acted reasonably because NASA contract clauses contemplated the government, not the company, bearing the risk involved.
1. To what extent do companies have an obligation to assert legal rights? Can it ever be unethical to do so?
2. In the vignette, one character says that management believed it was at fault for overlooking the true site conditions. Another character says that the company was careless in devising a computer algorithm. How should companies balance the competing concerns of fairness under the circumstances with legal rights?
One character mentions a golf tournament for commercial customers in which lodging and gifts (of an unspecified type or amount) are provided. This employee’s concern is that the tournament may not be “appropriate to the situation,” which is the guideline in the Winston code for business courtesies offered. The employee also is concerned that the code apparently states that the intent of the business courtesy should not be to obtain favorable treatment from customers, though the employee reasonably observes that the tournament (and for that matter most business courtesies) are crafted with some favorable treatment in mind. The point of this is not whether golf tournaments are legitimate business courtesies, but rather the following issues:
1. How do companies decide a reasonable policy in an area as ambiguous as offering business courtesies? Companies recognize that offering clear kickbacks or bribes would be wrong, but how do you decide when a business courtesy crosses the line from appropriate to inappropriate? For example, if the golf tournament involved no lodging and only a very modest memento gift, perhaps a dozen golf balls, is that appropriate? What if Winston pays for one night lodging? What if the memento gift is a putter (value $75); a golf bag (value $150); a driver (value $250)? Does it matter if the business courtesy is extended as a widely attended activity rather than a targeted group of clients? What are the ethical issues raised in setting such policies?
2. Is it helpful to have very general statements such as “appropriate to the situation” in a code of conduct? In effect, isn’t such a statement no policy at all?
3. How do we guard against essentially meaningless statements in a code of conduct? For example, is a statement that business courtesies offered are “not intended to obtain favorable treatment from customers” a meaningful statement?
One character at the end of the tape mentions a whistleblower law suit (qui tam suit) brought under the False Claims Act by an employee. It appears that at least some of these suits arise because employees raise matters internally and feel that they are not treated seriously or respectfully for raising a concern. In the case of someone like Kathy Grant, the whistleblower at Winston, how should the company deal with the complaint? What are the company’s ethical obligations to the complainant? What specifically could the company do to minimize the likelihood of a qui tam lawsuit?

Comments

Question 8 raises the issue of a qui tam suit brought by an employee under the False Claims Act. The False Claims Act, as amended in 1986, 31 U.S.C. §§ 3729 et seq., provides both civil and criminal penalties for any person found to have knowingly submitted a false claim, submitted falsified records or documents to get a claim paid, used falsified records or documents to avoid or decrease an obligation to pay or turn over property to the Government, or received public property from a Government employee without authorization. The Act provides civil penalties of up to $10,000 per false claim, plus three times the amount. The qui tam provisions of the False Claims Act allow a private individual with knowledge of fraud against the Government (the “relator”) to commence a civil action against the suspected perpetrator in the name of the United States. The term qui tam is from the Latin “qui tam pro domine rege quam pro sic ipso in hoc parte sequitur,” and means “who as well as the King for himself sues in the matter.” Under the 1986 amendments, the qui tam “relator” is entitled to recover up to 30% of the proceeds of the action, plus costs and attorney fees. As a result, there is often a tremendous financial incentive for a company’s present or former employees to file a civil false-claims suit against the company.

The “whistleblower” provisions of the False Claims Act prohibit a company from discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating against an employee because of the employee’s participation in qui tam lawsuit or in the investigation preceding such a suit. Companies found to have violated the “whistleblower” provisions are required to “make the employee whole.” Such relief may include reinstating the employee at the same seniority status he or she would have had but for the discrimination, two times the amount of back pay lost by the employee, interest on the back pay, compensation for any special damages suffered by the employee, and litigation costs and attorneys fees.