In 2012, I was stunned to hear an official of Deloitte place all his faith in the internal firewalls that he had constructed in the CPA firm to inhibit the exploitation of the conflict of interest that exists between the auditing and consulting divisions. A year later, Matt Winkler of Bloomberg apologized because reporters in the news division had used clients’ proprietary information from the Bloomberg terminals to report financial news stories before other news organizations. The firewall between selling terminals and reporting news had not been sufficient to prevent exploitation of the conflict of interest. There is a lesson here for any multi-divisional company or bank that is relying on firewalls.
The New York Times reported in May 2013 that reporters at Bloomberg News had been “trained to use a function on the company’s financial data terminals that allowed [the journalists] to view subscribers’ contact information, and, in some cases, monitor login activity in order to advance news coverage.” Login activity includes email, the content of which could be quite valuable to a hungry journalist. Even though Bloomberg News is a separate division at the company founded by Michael Bloomberg, who went on to be mayor of New York City, reporters were “nonetheless told to use the terminals to get an edge in the competitive world of financial journalism where every second counts.” The journalists’ training “included informal tips on how to use a function called UUID to locate sources who were also subscribers.” In terms of understanding why internal firewalls are insufficient to prevent the exploitation of structural conflicts of interest for gain, the mention of “informal tips” is significant. The overcoming of the walls can be “informal,” and thus beyond the radar screens of the firewalls’ enforcers. It need not be that a company official of sufficient rank over both divisions involved in a conflict of interest sanctions one side to jump over. The people on one side can seep through the semi-porous walls informally, and thus without prodding.
Simply stated, some journalists at Bloomberg News “favored breaking news over strict subscriber confidentiality.” Those journalists, not being based in the division selling terminal subscriptions, had little regard for the subscribers, or at least less regard for them than being the first to break a news story. Like speed-trading, the focus on breaking news at Bloomberg News has been oriented to splicing seconds to gain an advantage over the competition. Whereas the speed-trades are at the expense of individual investors who do not have access to the technology, the “speed-journalism” at Bloomberg has been at the expense of the customers who were subscribing to the company’s financial-information terminals. This is ironic because the news division at Bloomberg had been established to increase terminal subscriptions.
Ethically, both the speed-trading and Bloomberg’s speed-journalism are unethical in that gain is achieved by harming others who do not deserve to be harmed thusly. In Kantian terms, the people harmed are not being treated as ends in themselves, as any rational being should be treated due to the absolute value of reason itself as the assigner of value. Put another way, were every journalist in Bloomberg to exploit terminal subscribers, they would unsubscribe and Bloomberg itself would go out of business, in which case the journalists could not invade subscribers’ privacy because there would no longer be any subscribers (or Bloomberg).
In Humean terms, the exploitation of confidential information could be expected to give a normal bystander a sentiment of disapprobation, or feeling of disapproval, which to Hume is the moral judgment. In utilitarianism terms, the harm to subscribers would probably outweigh the benefit to the relatively few journalists and to the company itself from being the first to break a story. In terms of the company, the loss of subscribers would likely cost more than the company would gain from beating out other news organizations by seconds in breaking news.
With the exploitation of the conflict of interest being unethical, so too is relying on an insufficient firewall. In other words, such reliance is not only naïve, but also unethical. Ethically, companies in which firewalls are being considered would do better in selling off one of the two divisions that are involved in the potential conflict of interest. Admittedly, at Bloomberg this would involve giving up a means of promoting the terminals, but as we have seen, that means could also be used in such a way as to deflate the number of subscriptions. Even if there were no financial downside, giving up the means of promoting the other division’s product could be a good investment, ethically speaking, as the internal firewall could not really be relied on to forestall exploitation of the conflict of interest. Put another way, the investment would pay off in keeping the company’s reputational capital from falling.
Amy Chozick, “Bloomberg Admits Terminal Snooping,” The New York Times, May 13, 2013.