Several of the highest profile ethics scandals of late have involved the personal lives of executives. Harry Stonecipher of Boeing terminated after an affair with a marketing executive. Julie Roehm of Wal-Mart unceremoniously sacked for (according to Wal-Mart) a variety of misdeeds, including accepting entertainment from vendors and having an intimate relationship with a subordinate. (As most readers of this blog will note, Ms. Roehm is vigorously contesting these allegations.) Paul Wolfowitz forced to resign after he aided a close companion also working for the World Bank. John Browne retired early from BP when news was due to break about a long time relationship of his. And last week David Colby of WellPoint was dismissed for unspecified reasons—but they certainly seem to be linked to the close relationships he had formed with women in Indianapolis and California, and the lawsuit one of them was filing against him.

In many parts of the world, executives, board members and even a voracious media would shake their heads at these terminations. The reasoning is straightforward: judge the executive based on whether he/she is performing the job.

The counterargument we have used successfully in many countries, especially in cases like Stonecipher and Roehm, is to examine the impact the behavior has on other employees. What do other employees think when an executive has an affair with a subordinate? Will the playing field be level? Will the subordinate get assignments, opportunities and compensation based solely on job performance? The issue becomes one of conflict of interest rather than an unsavory personal life.

While conducting a training session in Spain a few weeks ago, however, we were told that Spanish law prohibits penalizing an executive, including a mandatory transfer out of the reporting chain, when he has an affair with a subordinate. So clearly the US standard here is not universally embraced.

And then we come to David Colby. As of this writing, there have been no allegations that Mr. Colby’s pursuits were anything but extracurricular. No subordinates were involved—although he may have had a relationship with an employee at one of the predecessor companies to WellPoint. And still he was let go, presumably for violating his employment agreement which does not allow "conduct which tends to bring us into substantial public disgrace or disrepute."

Does this create a double standard? Absolutely. Presumably a customer service rep at WellPoint could have multiple affairs, and this conduct would not bring his/her employer into “substantial public disgrace or disrepute.”

Is a double standard warranted? Absolutely, as long as executives are held to a higher standard than employees. For better or for worse, executives are role models internally and ambassadors externally, and deserve to be held to the highest standard as a result.

However the Colby case also reaffirms that much of business ethics is cultural. For, as has been pointed out by the French media, for French executives or politicians to have an affair—or several—is not a problem, as long as they do their job. No “substantial public disgrace.” Mr. Colby, France awaits.

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Most of us in the ethics and compliance field spend a lot of our time thinking and talking about the bad things that people and companies do. Some of this even has a noble purpose—we can learn from the misfortunes of others and work hard to avoid their mistakes.

But, contrary to the impression left by the portrayal of business people in movies and on television as greedy, rapacious, and immoral, many ordinary businesses and business people do extraordinary things. Not because it is their responsibility, nor because of PR concerns, but because it is the right thing to do.

I saw this truth again in a story in the Wall Street Journal of June 6, 2007 (After a brain injury, a business plan). Rob Groeschen grew up in the shadow of his handsome, athletic and charismatic older brother Tom in a suburb of Cincinnati. While in college Tom was in an accident that caused brain damage—enough to prevent Tom from normal, full functioning in life. Rob built a nice career with Safety-Kleen in Florida, but wanted to come home to be more involved in Tom’s care. Safety-Kleen was good enough to promote him to a position close to home. (What a difference a simple act for the company made in the lives of a family.)

Rob eventually started his own successful business in Cincinnati—Resource One, a recycling and hazardous waste handling enterprise—but was less successful in helping his brother. After many frustrating years, Rob’s business experience led him to create a nonprofit (In Return of Blue Ash Ohio) that employs his brother and five other brain-injured people in work opportunities that Rob learned about at Resource One. And his dreams and plans are much bigger.

Businesses and business people can and do make a positive contribution—often in their workplace, often out. While our website will continue to help the ethics and compliance community learn from the mistakes of others, we will also be highlighting ethical acts in the business world.

Do you know someone who has done the right thing in business? Please nominate him or her to serve as a positive role model for the rest of us. And thanks for the inspiration, Rob!

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I don’t pretend to be a saint (I couldn’t pull it off, in any event) but as I’ve gotten older, I’ve worked hard to be more tolerant of my fellow man. With one or two notable exceptions (I won’t tell), I try hard not to wish anyone ill. So it is with no great pride that I admit to not even trying to suppress a smile when I read in the July 10 New York Times that a prominent plaintiff’s class action lawyer, David Bershad, pled guilty to conspiracy to provide illegal kickbacks to class action plaintiffs.

Let me explain what this is about. America’s legal system allows lawsuits – called class action suits – to be brought on behalf of a large numbers of plaintiffs where the individual claims would be too small to make it worthwhile for individual plaintiffs to bring their own suits. So, for example, if you paid $2 more than you should have for tube of toothpaste because the toothpaste companies conspired to raise prices, you’re not likely to sue the bastards yourself – why bother. But you can be a member of a class of plaintiffs, represented by one or more lawyers who are supposed to represent your interests. You don’t have to pay the lawyers, but you do get to share in whatever is recovered, or so the story goes.

Here’s where it gets interesting (to me, at least, but then, I’m a lawyer…). Lawyers can’t just bring a class action case on behalf of a class. They must actually have a client (referred to as the “named plaintiff”) who was injured by the activity that allegedly injured similarly situated class members. Just like the rest of his “classmates” this named plaintiff doesn’t have to pay his lawyers. But the rules provide that the named plaintiff’s interests must not diverge from those of the rest of the class, meaning that he or she cannot recover any more than his individual fellow class members receive as a result of the lawsuit. Seems fair, right?

If, for example, the named plaintiff (let’s call him “Cooperman”) knew he was going to receive a healthy share of the millions of dollars that plaintiff class action attorneys (let’s call them “Bershads”) typically recover as attorney’s fees, he might not be likely to reject a proposed settlement whereby his fellow class members receive a coupon for their next toothpaste purchase. But he would almost certainly feel differently if all he got was an identical coupon. Thus it is for good and valid reasons that named plaintiffs – whose role is to represent the interests of similarly situated class members – must, by law, be well and truly similarly situated.

So guess what? Are you sitting down?? It turns out – you’re never gonna believe this – it turns out that at least one “Bershad” was involved in a conspiracy to pay at least one “Cooperman” huge sums of money to be a named plaintiff in class action lawsuits (in a 20-count indictment, prosecutors have claimed that Bershad’s law firm paid $11 million to named plaintiffs in more than 150 class-action lawsuits over the years. Personally, each of those numbers sounds low to me.)

Why would this news make me smile? Well, I used to be a defense lawyer, and I spent the first 15 years of my professional career defending companies against cases brought by the likes of David Bershad (and by Bershad himself). I’m not a knee-jerk defender of corporate America, but what I learned and saw during that 15 years was, shall we say, eye opening, and knocked my idealism down a notch or two.

I never doubted for a minute that the named plaintiffs – whose depositions I occasionally took – were lying to me when I asked them, under oath, if they were being compensated for their role as named plaintiffs. And I never doubted for a minute that their lawyers – the Bershads and their ilk – were behind the scam, and permitted the perjury to take place without blinking an eye. And I never doubted that these plaintiffs and their lawyers were laughing themselves to the bank while pretending to negotiate hard for settlements that provided little if any value to their clients – the true class members – but rewarded themselves with astronomical attorneys fees.

I have no doubt that many class action cases have merit. Indeed, I have good friends who are plaintiffs’ class action lawyers (though, as they say, I wouldn’t want my sister to marry one…). But it was a very poorly guarded secret that, as often as not, my clients were being shaken down by unscrupulous charlatans who were gaming a system that was originally and legitimately designed to help the little guy.

So I did not stifle my smile at Mr. Bershad’s ignominious fall. Nor did I do so when I read, the next morning, that Mr. Cooperman had similarly pled guilty for being Mr. Bershad’s dance partner. (I note for its amusement value the fact that Bershad’s law firm – Milberg, Weiss & Bershad – shed the “Bershad” from its name following its partner’s guilty plea. The firm was, no doubt, shocked – shocked that such shenanigans were going on under its nose. Stay tuned – that shoe will soon drop as well.)

I should be saddened by this turn of events – every story about unethical lawyers feeds a stereotype about the species that I believe is profoundly misguided and wrong. But I don’t believe that lawyers are above the law, or above ethical norms, or above fundamental notions of decency and integrity. To the contrary, rather than being above these principles, true lawyers should serve as their foundation. The rule of law is what holds civilized nations together. Its absence is what tears civilized nations apart. And lawyers are – first and foremost – guardians of the rule of law.

People love to quote Shakespeare’s line to the effect that “the first thing we should do is kill all the lawyers.” Gets a laugh every time. But these same people forget that the character uttering that line was a despot seeking to rid himself of those he believed to be his only true obstacle.

So no, let’s not kill all the lawyers. But let’s put the bad ones away for a very long time.

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Most Codes out there—including the many we have helped write—often have a phrase like “Violations of the standards in this Code may result in disciplinary action, up to and including termination.” By this we have always meant “termination of employment.”

The Chinese have a different interpretation. They mean termination as in “The Terminator.” The title in a story from the July 10, 2007 New York Times says it all: China executes former food and drug regulator.

This is not the first time the Chinese government has attempted to send a message that corruption was punishable by death. Last year four bank employees were executed. And yet Transparency International (link) lists China as #70 in the perceptions of corruption index, behind clean countries like Thailand and Columbia.

One would think that the threat of execution would diminish corruption greatly. Research in the U.S., however, finds that the likelihood of major punishment is more of a deterrent than the magnitude of such punishment. That is, if there is a 90% chance that I will be jailed for committing a crime, that is much more dissuasive than a .01% chance I will be executed.

And that’s the problem in China. Taking bribes is seen as a low risk, high reward endeavor. And heretofore there has been little social disapproval to exert informal control.

Which brings us back to your company. Do employees believe that those who do something wrong receive discipline? (Not necessarily termination, in either sense of the word . . .)

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This is Harry Potter month in our home. Next week is the event we have been looking forward to for years, the release of the seventh book, in which Harry and the Good will prevail over Voldemort and all that is Bad. (Yes, I know there are some curmudgeons out there who are hoping for a different dramatic resolution, but that’s just not going to happen.)

Today is the launch of the movie based on Harry at his whiniest, Harry Potter and the Order of the Phoenix. If you can get past the whining and teen angst, the book/movie paints a frightening picture of managing with a compliance mindset.

The Order of the Phoenix introduces a new face of evil: Dolores Umbridge. Ms.Umbridge was sent to Hogwarts (Wizard School) by the Minister of Magic to monitor the staff and students, out of fear that they are engaging in activities contrary to the wishes of Management (capital M, as in the Ministry of Magic.) One of her first acts is to encourage students to come to her if they have any concerns about non-authorized activities at Hogwarts. (Obviously unsophisticated in the arts of corporate compliance, author J.K. Rowling neglects to set up an anonymous reporting channel.)

As the story unfolds, Ms. Umbridge is troubled by events at the school. So she deploys a couple of weapons. One is discipline—a particularly ugly form of discipline that I won’t go into. The other is rules—this Compliance Officer from Corporate Headquarters issues one “Educational Decree” after another in response to a perceived problem. (My favorite Decree is #27: “Any student found in possession of the magazine ‘The Quibbler’ will be expelled.” The result of this is that every student reads the previously obscure periodical.)

The consequences of the “High Inquisitor’s” overzealous and narrow approach are predictable. One, of course, is a tremendous decline in school spirit. What we would call the ethical culture of the school has eroded. And the other is that Umbridge’s efforts, and the response they provoke by students and staff, prevent all from focusing on the true risk they face—the return of Voldemort and the evil he represents.

Look, I know it is just a story. But stories like this are popular because they resonate with readers and viewers young and old. And The Order of the Phoenix resonates because it taps our common distaste for bureaucracy and blind compliance. Let’s face it – our favorite heroes are non-compliant. . And sure enough, in every book Harry has been in trouble for breaking a rule (or two or . . .). He believes he is doing so in pursuit of a larger purpose—and he is largely right in this judgment.

Compliance does not sell in corporations either. People will be compliant—but only when doing so is consistent with the individual’s values—and hopefully those of the company.

I am not suggesting that companies banish compliance from their vocabularies or organizational structures. But they must understand its limits, and must place compliance in a context that employees will embrace—like ethics or integrity (movie buffs love ethics and integrity – just look at Mr. Smith in Washington and George Bailey in "It’s a Wonderful Life,” to focus simply on the Capra/Stewart genre). Great organizations throughout history have allowed room for people to innovate and create, while staying true to a set of shared values. And these stories – whether fact or fiction – generally have the happiest endings.

So ask yourself, what would Harry Potter (or his cohorts from the Millenial generation) say about your company? Would they have room to fly?

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