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Friday, August 2, 2013

Halliburton: Organizational Culture and Ethics

Human beings are moral agents. Generally speaking, we have consciences and a sense of ought, which according to David Hume is not derived from what is. In other words, ethical principles are not obtained from describing some object or situation. Organizations consisting of human beings do not have consciences; nor are companies able to have a sense of ought that is not reduced to monetary terms. Such terms being empirical, they cannot get to ought anyway. The illusion that corporations are themselves moral agents comes from the failure to distinguish an organization itself from not only its human members, but also its culture. While it may seem that an organizational culture is distant from the people who inhabit the organization, as if culture were somehow based at the organizational level, culture is simply a way of saying that most people in a group share certain basic beliefs, values and ways of behaving. Beliefs, values and conduct pertain to persons. Physiologically, the brain thinks, values, and conducts the rest of the body. There is no “organizational brain.” Rather, culture refers to a critical mass proportion of persons having something in common. This does not mean that the “something” exists apart from, or "above," the persons.
For example, if enough employees of a company believe that breaking the law on the job is not a big deal, it might be tempting to conclude that the company is a criminal. If most employees do not value behaving ethically, it might seem obvious that the company is unethical. I submit the following as a general principle: Only human beings can be criminals or make unethical decisions. Even in the case of a group decision, the members of the group can be identified and held accountable.
Enron is an obvious example of a company whose executives did not value being ethical very much. Nor did they value being law-abiding. Just because many of the managers fit these characteristics does not mean that the company itself was a criminal or unethical.
          As if contributing to this disaster were not enough, people at Halliburton intentionally destroyed test results and other documents to minimize legal liabilities.
 Likewise, when Halliburton pleaded guilty to a criminal charge that the company destroyed documents after the BP Deepwater Horizon disaster in the Gulf of Mexico, in actuality particular employees were the guilty parties. Halliburton did not order workers to destroy simulations that showed little effect from BP going with fewer metal centralizing collars to stabilize the cementing of the well than a manager at Halliburton had recommended. Rather, a particular manager (or a group of managers) gave the order (so BP would be found more liable), and particular employees destroyed the simulations. Furthermore, someone at Halliburton decided to cover up the fact that the cement mix had been unsuitable for the job. The presidential commission that investigated the accident reported that Halliburton officials knew before the explosion that the cement mixture they planned to use to seal the bottom of the well was unstable but still went ahead with the cementing. According to the commission’s report, “There is no indication that Halliburton highlighted to BP the significance of the foam stability data or that BP personnel raised any questions about it.”[1] In short, people at Halliburton were motivated to maximize the civil judgment against BP while minimizing what cash Halliburton would have to pay out in damages.



Longitudinally, a company such as Halliburton can continue to consist of, and attract, a certain kind of person. Again, I am referring to person-characteristics rather than to something intrinsic to the organization itself. As stated by a reporter at the New York Times, “in the not-to-distant past, Halliburton found itself under scrutiny over accusations that it performed shoddy, overpriced work for the United States military in Iraq, bribed Nigerian officials to win energy contracts and did business with Iran at time when it faced sanctions.” The tolerance for unethical conduct within Halliburton may even have been “outsourced” when one of its former CEO’s, Dick Cheney, turned a blind eye as U.S. Vice President to his being personally involved in the Iraq no-bid contract decisions at the White House. Years later, Fadel Gheit, a senior oil analyst at Oppenheimer, could lament, “It’s another bad day for Halliburton.”[2] This should have come as no surprise to the public, given the effect of organizational culture in making it easier to stomach making unethical choices and acting unethically in an organization. This effect of culture is really individuals hinting or saying outright, "don't worry about it." 

1 Clifford Krauss, “Halliburton Pleads Guilty to Destroying Evidence After Gulf Spill,” The New York Times, July 25, 2013.
2. Ibid.

Wednesday, July 31, 2013

The Financial Crisis: A Systemic and Ethical Analysis

According to a study by the Dallas Federal Reserve, the financial crisis of 2007-2009 “was associated with a huge loss of economic output and financial wealth, psychological consequences and skill atrophy from extended unemployment, an increase in government intervention, and other significant costs.”[1] The study’s abstract goes on to “conservatively estimate that 40 to 90 percent of one year’s output ($6 trillion to $14 trillion, the equivalent of $50,000 to $120,000 for every U.S. household) was foregone due to the 2007-09 [sic] recession.”[2]
 
Interestingly, the Huffington Post “reports” the study’s finding in the following terms:  “a ‘conservative’ estimate of the damage is $14 trillion, or roughly one year’s U.S. gross domestic product. This is based on how much output was lost during the crisis and Great Recession, along with all the damage done to potential future economic growth.”[3] In fact, the article’s title claims that the crisis cost more than $14 trillion! Lest it be thought that the reporter and editor suffer from a learning or reading disability, the gilding here is notably in the direction of “selling more papers.”
 
Ironically, the Huffington Post also published an article pointing to the lack of accountability in that “the executives that [sic] were in charge of Bear’s headlong dive into the cesspool of subprime mortgage lending hold similar jobs at the most powerful banks on Wall Street: JPMorgan, Goldman Sachs, Bank of America and Deutsche Bank."[4]
 
The upshot is that those stakeholders who played a role in the crisis, most significantly the people running the government, the media, and the banks, have gone on, relatively unscathed, while the systemic risk remained or has actually become even greater.  As a first step toward recovery, a systemic map depicting the interrelated parts in the systemic failure and a related ethical analysis can provide a basis for reforms sufficient to thwart another major financial crisis.

 
 
                                                         


1. Tyler Atkinson, David Luttrell, and Harvey Rosenblum, “How Bad Was It? The Costs and Consequences of the 2007-09 Financial Crisis,” Staff Paper No. 20, Federal Reserve Bank of Dallas, July 2013.
2. Ibid.
3. Mark Gongloff, “The Financial Crisis Cost More Than $14 Trillion: Dallas Fed Study,” The Huffington Post, July 30, 2013.
4. Lauren Kyger and Alison Fitzgerald, “Former Bear Stearns Executives Seemingly Unscathed by Financial Crisis They Helped Trigger,” The Huffington Post, July 31, 2013. The article was originally published by the Center for Public Integrity.
 

Monday, July 29, 2013

Wall Street As More of the Economy: Unjust and Riskier?

The financial sector, which includes banks like JPMorgan and insurance companies like AIG, had the fastest earnings growth in the Standard & Poor’s 500 in 2012.[1] As of mid-2013, the sector comprised 16.8% of the S&P 500, almost double the percentage back in 2009. With the technology sector weighing in at 17.6 percent in 2013, the financial sector was poised to become the largest sector in the S&P 500. The traditional critique of the financial sector having a larger share of the economy is that the sector doesn’t “make” anything. As this argument is well-known, I want to point to two others.




1. Alex Barinka and Whitney Kisling, “Banks Poised to Lead S&P 500 as JPMorgan Beats Microsoft,” Bloomberg, July 29, 2013.

Sunday, July 28, 2013

Congressional Cuts to Food Stamps: Violating a Human Right?

During the debate in the U.S. House of Representatives in June 2013 on a proposed $20.5 billion in cuts over 10 years to the Supplemental Nutrition Assistance Program (SNAP), otherwise known as the food stamps program, proponents of the cuts denied that they would make it more difficult for the poor to feed themselves. Rep. Rick Crawford claimed that the cuts would be “eliminating abuse.”[1] For example, some drug addicts sell their “food stamps” for something like half value and use the cash to buy drugs. The addicts manage to get their food at pantries and soup kitchens. While such fraud exists, the proposed cuts would have hit bone. According to the Center on Budget and Policy Priorities, nearly 2 million people would lose SNAP eligibility were the cuts to become law.[2] After the debate, “Tea Party” Republicans wanting even more cut combined with Democrats against any cuts defeated the proposal.


Three months later, the U.S. House voted 217 to 210 to cut food stamps by $40 billion.  Obama had already promised a veto, which the tally could not overcome. Even so, that no vote had been taken to suspend or end foreign aid to Egypt on account of the military coup or to cut corporate welfare is telling in what this says about priorities. Even as some House supporters of the bill insisted that the innocuous decrease in federal funding merely reflects increased enforcement of existing income limits, still other House supporters admitted that the cuts are oriented to getting as many able-bodied (i.e., non-disability) recipients as possible to get a job.

"If you're a healthy adult and don't have someone relying on you to care for them, you ought to earn the benefits you receive," said Rep. Tim Huelskamp (R-Kan.). "Look for work. Start job training to improve your skills or do community service. But you can no longer sit on your couch or ride a surfboard like Jason in California and expect the federal taxpayer to feed you."[3]

That is to say, rather than being a right, sustenance ought to be contingent on work. To the extent that the bill reflects this aim, more was involved in the cuts than merely strengthening enforcement of existing caps. In fact, the proposed decrease in funding could even take a pound of flesh out of the human right to sustenance in a society of interdependence.

I suspect that part of the argument on behalf of earning as a prerequisite reflects a failure to realize that the increased number of food recipients since 2007 was in large measure due to the post-financial-crisis economic downturn.

In 2012, for example, the SNAP program spent around $80 billion on about 47 million Americans—one in seven.[4] According to the Congressional Budget Office, the increased cost and usage of the program over the previous few years was due to the recession following the financial crisis of 2008 and the subsequent nearly-jobless recovery.[5] Nevertheless, the ballooning cost made the program vulnerable politically to being “downsized.” Hence the debate on the U.S. House floor in June 2013 and the claim on the Hill that too many Americans had become dependent on the federal government for food. Meanwhile, people on food stamps were wondering how they were supposed to get off the aid when “there are no jobs.”[6]

A similar catch-22 or double-bind would also apply to the proposal by Rep. Steve Southerland “that would allow—but not require—individual states to test work requirements.”[7] The 1996 welfare law had included work requirements for food-stamp recipients, though most states would be granted waivers by the Obama administration. Getting recipients to attend mandatory weekly “check-in” meetings and fill out weekly job search forms, let alone actually find a job, turned out to be a lesson in futility for state employees. Members of Congress and the Clinton administration had put the front-line employees at the local level in an impossible position of fitting a federal uniform requirement with the actual conditions of the recipients. In regard to Southerland’s proposal in 2013, while it would accommodate the different conditions of the states and respect their portion of sovereignty, a work requirement would not fit with the children, elderly and disabled, who make up a significant number of the recipients. Again, it would seem that members of Congress are out of touch, with ordinary people potentially at risk of having to pay the price.

Rather than expecting an answer from reason to unravel the "earnings/no jobs" double-bind, we need to look at the passions whose role is hinted at by the existence of the logical contradiction itself.

I contend that the earnings-rationale is in part actually exaggerated anger at real abuses. That is, the work ethic is in part a front here for an instinct to retaliate. Plato would point out at this point that a person talking reason to one's own undisciplined passion is necessary to render such a psyche just (i.e., passions and courage ruled by reason). Moreover, a polis (i.e., society) is just if and only if it is ruled by reason rather than passions such as resentment.

As is often the case with vengeance, collateral damage unforeseen by the hypertrophic passion would result. The vote had the potential of triggering a wake-up call of sorts concerning the realization that what happens in Congress can really hit home on Main Street. Sadly, the most vulnerable can indeed fall through the cracks, with the resentment rejoicing as the human right takes a hit.

Even reducing the funding of the SNAP program by a certain percent can set in motion consequences unknown to members of Congress. For example, well into a month in which the state had halved recipient food benefits, I went to a food pantry. The place was inundated with people who had run out of food funds unexpectedly early. SNAP recipients who had never been to the pantry had to wait two hours just to be registered, after which they were told to go to the end of the “regular” line.  The pantry ran out of food, rationing portions to most of the first-times and turning away still others. Recipients I spoke with scoffed at the notion that they were enjoying “being dependent,” and, moreover, had much choice in the matter, given the lack of jobs. As for the pantry’s volunteers, they admitted that their procedure for the first-timers was unfair; however, this did not keep the volunteers from using the occasion nevertheless to spread their Christian beliefs to the frustrated first-timers standing in their second line. Were Congress to reduce funding to the states for the SNAP program, it would not take much for the situation on the ground to get out of hand. From my observations, food pantries should not be relied on to fill up the slack.

Fundamentally, because food is a daily requirement for human beings, a daily supply of food is a human right. To make fulfilling that need contingent at all does not match the lack of contingency in the daily need. Subjecting it to the politics in Congress or a work requirement essentially holds the SNAP recipients hostage. Even just referring to food as nutrition is problematic, as the latter is not strictly speaking as much of a need as food itself. Eating more nutritious food is a worthy goal, whereas eating food is a daily requirement. Distinguishing, or bracketing, those things that are necessary for daily sustenance from all other budget items can thus be justified on the basis of human physiology—and thus human rights.

In dealing with something as necessary and individual as food consumption, small changes in a federal law can have huge, unexpected consequences as front-line state employees translate the changes as they affect particular lives. For this reason, Rep. Ryan’s proposal to move the SNAP program to the states in a block grant makes sense.[8] Besides state legislators being closer to the local contexts, a fixed block grant is more in line than Congressional programs with the dual-sovereignty feature of modern federalism. To be sure, the state governments would have the sole responsibility to see to it that the most vulnerable are not inadvertently blown over by violent political winds making even minor state-wide changes to the programs. As a rule of thumb, representatives in Congress could do much worse than treat food as unconditional in terms of human consumption. Hence, if a person cannot secure enough food on his or her own, the role of government would be to make food-sustenance as close to unconditional in practice as possible.


To venture deeper, down to a foundation for the right, See:
"Food as a Human Right: A Basis in Rousseau"



1. Ned Resnikoff, “House Debates $20.5 Billion Cuts to Food Stamps,” MSNBC, June 18, 2013.
2. Dottie Rosenbaum and Stacy Dean, “House Agricultural Committee Farm Bill Would Cut Nearly 2 Million People Off SNAP,” The Center on Budget and Policy Priorities, May 16, 2013. “By eliminating the categorical eligibility state option, which over 40 states have adopted, the bill would cut nearly 2 million low-income people off SNAP.”
3. Arthur Delaney and Michael McAuliff, "House Votes to Cut Food Stamps by $40 Billion," The Huffington Post, September 19, 2013.
4. Associated Press, “House GOP Considers Food Stamp Work Requirements, Cutting Spending for Feeding Program,” The Washington Post, July 24, 2013.
5. Dottie Rosenbaum and Stacy Dean, “House Agricultural Committee Farm Bill Would Cut Nearly 2 Million People Off SNAP,” The Center on Budget and Policy Priorities, May 16, 2013. “By eliminating the categorical eligibility state option, which over 40 states have adopted, the bill would cut nearly 2 million low-income people off SNAP.”
6.  I heard this complaint from several people when I visited a food pantry run by a non-profit organization.
7. Associated Press, “House GOP Considers Food Stamp Work Requirements, Cutting Spending for Feeding Program,” The Washington Post, July 24, 2013.
8. Associated Press, “House GOP Considers Food Stamp Work Requirements, Cutting Spending for Feeding Program,” The Washington Post, July 24, 2013.