Having spent a few years as a compliance professional in the financial sector, I was intrigued to read about the detail of the Pfizer settlement.

The drug company Pfizer, you'll recall, has just settled with the US Department of Justice for a total financial penalty of $2.3 billion - the largest ever. The allegations against Pfizer concerned illegal marketing of painkiller Bextra and several other drugs.

What did not come through in the original reports was that in one part of the settlement, the inspector general  of the US Department of Health and Human Services  (HHS) required Pfizer to change the reporting line of the company's compliance department from the General Counsel to the Chief Executive. 

In-house compliance professionals are often in a bit of a bind. They are supposed to advise the business on how it needs to conduct itself if it is to remain within the letter of the regulations. Their reporting line, however, is often to someone with a strong personal interest in the short-term financial success of the business development to which the advice relates. Although compliance departments inevitably attract the label of "business prevention", their reporting lines (and remuneration and retention prospects) in fact incentivise them to bend over backward to accommodate the concerns of their superior. So much for independence.

In Pfizer's case compliance reported to the general counsel. As Lewis Morris, general counsel for the inspector-general's office put it:

"The lawyers tell you whether you can do something, and compliance tells you whether you should ... We think upper management should hear both arguments."

If that is what the lawyers are there to do, then they will be rewarded on the basis of their overall contribution to business development. Compliance reporting into that setup risk ending up singing the same tune, or leaving.

I predict regulators will become more prescriptive about the precise reporting lines of compliance professionals. I am not sure, though, that instituting a reporting line to the chief executive is the most effective course though. Although the CEO has a group-wide interest and won't want the actions of a particular division to threaten the overall reputation of the group, the CEO is still guided by short-term financial incentives. A better solution might be a reporting line into the audit committee of the board, which should be majority comprised of independent non-executives.

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Just premiered in Venice...

UPDATE: The Guardian's review is here.

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I received an email from Bentley University in the US this weekend encouraging recipients to get their colleges to embrace a pledge upon graduation.

The pledge goes:

"I pledge to explore and take into account the social and environmental consequences of any job I consider and will try to improve these aspects of any organizations for which I work."

What I like about the pledge is:

• simplicity
• encourages the graduate to explore, i.e. to ask questions. I believe that most ethical (social and environmental) issues at firms begin with people who fail to ask questions
• it encourages the pledgee to recognize their freedom of action, their individual moral agency

What I like less about the pledge is:

• it does not mention ethics or, even more boldly and generally, something like "the firm's negative impacts on other people". Graduates will be faced with many more ethical challenges than solely social or environmental ones
• it does not make explicit that an ethical outcome might result in not taking on a suspect piece of business i.e. that an ethical solution might not be the most profitable, at least in the short term. The email I received makes it clear that some have taken it this way, but something about "not compromising an ethical outcome for profi maximization" would make explicit that the pledge is worthless if maximum profit must be achieved even at the cost of broader ethical concerns.

My only other concern is the "is that all?" point: I know that institutions that encourage adoption of the pledge will often require students to undertake a business ethics course - at least I hope they do. They may even offer a course on corporate social responsibility.

But the pledge seems to me first and foremost to be about being aware of one's agency - of one's choice of action - of having consciousness of that, and that is a tall order for a single sentence.

To my mind, that degree of consciousness emerges from the development of the habit of questioning, and in particular the habit of questioning the "taken-for-granteds" of business.

Not everyone feels comfortable questioning the basic tenets of contemporary business ideology; fewer still are able, even though we insist that contemporary capitalism is about freedom. Freedom begins with free thinking.

Even those who are willing to question need an opportunity to develop the skills for doing so constructively and relevantly. Where else will that occur but in a business school degree?

It is high time we built on the pledge movement by demanding that not just business ethics and CSR, but rather the philosophy of business be integrated as a core foundation stone of every business school program.

Get more information about the pledge from the Graduation Pledge Alliance homepage.

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Does the ongoing anger over bank bonuses suggest the need for something akin to a Truth and Reconciliation Commission on the causes of the crisis?

You might think I have been spending just a little bit too much time outdoors over the summer; “Truth and Reconciliation” is the way nations like South Africa consign to history the egregious, state-supported human rights violations that have been committed against a large section of their people.

But bear with me for a moment and reflect on the breadth and degree of damage that the culture of greed managed to inflict by causing the worst financial crisis since the Great Depression: an increase in the number of people around the world in chronic hunger and poverty by over 100 million, to 1.02 billion; between 200,000 and 400,000 more babies could die each year between now and 2015 if the crisis persists; an increase in global unemployment by between 29 million and 59 million people; one in eight US mortgage borrowers is behind on mortgage payments or facing foreclosure at the end of the second quarter 2009; pensioners relying on developed country stock market returns for their retirement incomes have seen their savings fall by 45%.

Let’s not forget the stories behind the numbers. My friend Mike’s mother has been working for General Motors her whole life and was due to retire this year. Now she has no pension and will likely be working for the rest of her life. For more stories, take a stroll through the New York Times’ Living With Less – The Human Side of the Global Recession.

No wonder people remain angry.

The political will to rein in Wall Street and the City of London’s high stakes culture is lacking, and the financial sector is doing everything within its power to undermine what will remains.

A report by Essential Information and the Consumer Education Foundation found that $5 billion in political contributions over the past decade gained Wall Street freedom from regulation. According to OpenSecrets.org: “Despite the mortgage and banking crises of 2008, the financial sector still managed to donate $468.8 million to federal campaigns and candidates during the 2008 election cycle, an 80 percent increase during the two previous years.”

The Center for Responsive Politics notes that the finance, insurance and real estate sector spent $109.4 million on lobbying in the US during this year's second quarter alone, during which time the industry has been lobbying against the movement for tighter regulation provoked by the financial crisis.

How can we move forward?

We have a precedent for resolving situations where the will of government has been put at the service of powerful minority interests, to the detriment of the majority.

In 1995, after decades of the systematic abuse of economic, social and political rights known as apartheid, the South African government set up a Truth and Reconciliation Commission to give ordinary people an opportunity to air their grievances against a system that institutionalized racial segregation and discrimination in all aspects of life.

According to the then Minister of Justice Dullah Omar, "... a commission is a necessary exercise to enable South Africans to come to terms with their past on a morally accepted basis and to advance the cause of reconciliation."

The TRC was a forum in which anyone who felt that he or she was a victim of the system could be heard. Those on both sides who had done wrong could also give testimony and request amnesty.
Dead babies will never learn to speak, and how do you give voice to the 100 million starving? But that does not negate the need for public, open and free discussion of the causes of the crisis, to confront those responsible with those they have impacted, to raise the question of prosecution and possible amnesty rather than assume as now a cosy settlement between corporations and regulators.

How else do governments and financial institutions expect the results of egregious risk taking at great cost to communities and individuals to be put behind us?

How else can we say that we are serious in our desire to stop this happening again?

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Steven Davidoff at the New York Times reckons the focus on bonuses paid to Merrill staff is not the issue.

Steve is less willing than some to blame the lawyers in the BoA merger.

The elephant in the room, he argues, is the possible non-disclosure of the extent of Merrill Lynch's losses - $15.3 billion at last count.

If these were not disclosed then the bonus disclosure would become altogether more substantial. Steve thinks the SEC is avoiding dealing with that possibility because of the question of whether the Bush administration directed Bank of America to keep Merrill's losses quiet.

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While bankers and politicians seem anxious to get back to business as usual, the current difficulty being faced by Bank of America suggests that “normality” is not going to return any time soon, if indeed it is permitted to do so at all.

The Securities and Exchange Commission is trying to conclude an investigation into Bank of America’s payment of $3.6 billion in bonuses to executives of the sinking ship that was Merrill Lynch upon the former’s purchase of the latter. The SEC and Bank of America have agreed a $33 million settlement – an amount that some might call (and have called) derisory.

The SEC replies that it is unfair to penalize shareholders overmuch for the actions of executives. But hang on, I thought shareholders were supposed to be owners holding risk equity? That is what is supposed to provide shareholders with the incentive to keep an eye on how executives run their business, rather than simply smile while the money comes in. If shareholders don’t end up picking up the tab for reckless risk-taking then you create a moral hazard; shareholders will be better off turning a blind eye than supervising.

Enter Judge Jed S. Rakoff, a United States District Court judge in Manhattan. Whereas most such settlements are simply waved through, he has the temerity to question whether this settlement is really in anyone’s interest. Apparently he would like to take this opportunity to exert what little influence he has to deter further behaviour of this kind.

No doubt he has his own reasons for thinking the time has come to take a stand. Judge Rakoff presided over the SEC’s case against WorldCom – as in “corporate fraud on the scale of Enron and WorldCom” – and took the step of appointing a former SEC commissioner as a Corporate Monitor to oversee the reform of WorldCom’s corporate governance. He will recall that there was much talk after Enron and WorldCom of the importance of not letting big business return to its former ways, particularly the financial and professional advisers who enabled those corporations.

They did, however, and on his watch. And he knows that his courtroom is practically the only venue where pure greed can be stopped in its tracks.
 

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Paranoia strikes deep in the heartland
But I think it's all overdone
Exaggerating this and exaggerating that
They don't have no fun

Paul Simon, "Have a good time"

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The test, developed by a UK psychologist, aims to help employers screen candidates for racism, homophobia or prejudice against disabled people.

Based on associative theory, the test attempts to measure our unconscious biases.

While discrimination needs a solution, there are concerns that the test will penalize those who have prejudicial beliefs or feelings, but who nevertheless manage to surmount these and act within the law.

The test could have value as a way of raising the topic of prejudice in the personnel development context - ie highlighting a concern of which the individual might well not be aware and equipping them with strategies for self-management. Identifying prejudice also opens the way to bridging the knowledge gap that underpins it through, for example, empathic experiences.

But as a recruitment tool? Sounds Orwellian to me, but then I'm a white male.

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French cosmetics giant L'Oreal was found guilty yesterday of racial discrimination for seeking an all-white sales force to promote its shampoos.

The French appelate court held that L'Oreal had tried to stop black, Asian and Arab women from selling its Fructis shampoo in French supermarkets.

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Following the announcement of 550 redundancies at French television broadcast operator TDF, workers detained the executive chairman.

Some 600 workers entered the building and kept Patrick Babin in his office until they departed to join a protest march.

The 550 redundancies are from a workforce of 2,400.

The group is owned by Texas Pacific, the American investment fund, and Axa, the French insurer.

There have been bossnappings at several firms in France this year including Sony, 3M, Caterpillar, and Scapa, the British glue maker.

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