The Following summaries of VERY IMPORTANT cases, regulations and enForcements can be EXTREMELY BORING.
To help you wade through, we’ve narrowed it down to the MUST KNOWS For the BUSY PERSON responsible For ethical leadership, compliance and corporate social responsibility.
It’s also GREAT MATERIAL if you just want to SOUND INTELLIGENT to your boss at a cocktail party.
ANTITRUST/BUSINESS PRACTICES (GLOBAL)
EUROPEAN COMMISSION FINES “PARAFFIN MAFIA” €676 MILLION
The European Commission announced in early October that it had levied the fourth largest fine against a cartel in the history of the EU. This time, it came out to €676 million and went against the wax industry. This means the wax industry is just below the elevator industry, the vitamin industry and the switch gear industry in the European cartel fine power rankings.
The wax cartel has been operating since 1992, meeting in “top hotels” across Europe between then and 2005. Neelie Kroes, the EU Competition Commissioner, said, “There is probably not a household or company in Europe that has not bought products affected by this ‘paraffin mafia’ cartel, with all that implies in terms of paying over the odds, higher costs and economic damage.”
Of the nine companies involved in the fine, South Africa’s Sasol was burdened with the largest percentage, nearly 50 percent, because the EC deemed it the ringleader. The next largest fine, €128.1 million, was slapped on France’s Total. ExxonMobil landed third place with €83.6 million. The rest was divvied up between Spain’s Repsol; Italy’s Eni; Germany’s Tuda-petrol, Hansen & Rosenthal and RWE; and Hungary’s MOL.
Shell was given immunity because it blew the whistle on the group, avoiding a potential fine of €96 million.
Sasol said if it found grounds to appeal the fine, it would. Apparently the company feels it has enough information to do so, as CEO Pat Davies said, “As we see things now, we intend to appeal.” However, appealing may not be enough to rid the companies of any and all financial damage, as the EC encouraged individuals or companies who were victims of the cartel to seek damages as well.
GLASS PRODUCERS FINED $1.66 BILLION, LARGEST FINE EVER FOR ANTI-TRUST VIOLATIONS
A number of glass producing companies were fined by the European Commission over €1.3 billion for price-fixing. The companies, Asahi, Pilkington, Saint-Gobain and Soliver are said by the EU to control 90 percent of the glass used in European cars. Neelie Kroes, the ever vigilant international cartel-buster, had her usual succinct message: “If you cheat, you will get a heavy fine.”
The largest portion of the fine was levied against Saint-Gobain, who had to pay €896 million because of its status as a repeat offender. That company was involved in at least two other glass cartels since 1984. Saint-Gobain intends to appeal.
Commentary: Remember the good old days last February when Microsoft held the anti-trust fine record of €899 million? It’s got some catching up to do. Still, no company has yet received the maximum possible penalty for anti-trust violations: 10 percent of annual revenue. However, the way that Ms. Kroes and the EU are going, that mark may not be too far off.
FOXES GUARDING THE HENHOUSE; U.S. EGG PRODUCERS BUSTED FOR PRICE-FIXING
If there’s one take home message from 2008 when it comes to compliance and ethics, it’s that price fixing can occur in any industry. One of the more unique cases occurred in egg-production within the United States. Thirteen egg producing companies and three “egg-trade groups” had four different suits brought against them around the United States for allegedly fixing U.S. egg prices.
Specifically the companies allegedly reduced the amount of hens per cage to lower the supply of eggs and raise prices. While the move was reportedly done for animal welfare, no additional cages were built. As a point of reference, Moark has built five new houses which hold 1 million hens. The older houses each have 400,000 hens in them, according to an Associated Press report.
Commentary: Yes, you read right, there are anti-trust fines occurring outside of Europe. Who knew?
CORPORATE CITIZENSHIP/ETHICS
STARBUCKS ANNOUNCES FIFTEEN KEY CSR POINTS WITH A 2015 DEADLINE
Starbucks, one of the World’s Most Ethical Companies, winners two years running (see the 2007 and 2008 Q2 editions of Ethisphere Magazine), announced in October that it would expand its com- mitment to “ethical sourcing, environmental steward- ship and community involvement.” All were told there are 13 new target goals to be achieved by 2015.
Some of the key goals are as follows: 100 percent of all coffee will be responsibly grown and ethically traded, compared to the current 65 percent; provide incentives to farmers for preventing deforestation; 100 percent of Starbucks cups are either reusable or recyclable; and contribute over one million community service hours per year to communities in which Starbucks operates, among other goals.
Commentary: Just more proof that if there has to be a company that has two or more locations on every street corner, this is the one you want to do it.
PEOPLE’S REPUBLIC OF CHINA ISSUES NEW GUIDE- LINES FOR FOREIGN INVESTORS’ CSR
The People’s Republic of China has announced new guidelines called Guidelines on Corporate Social Responsibility Compliance for Foreign Invested Enterprises (CSRCFIE), suggesting that foreign companies operating in China may be required to incorporate CSR initiatives into their normal business operations. The new guidelines were announced by the Chinese Academy of International Trade & Economic Cooperation, a subsidiary of China’s Ministry of Commerce.
Commentary: The CSRCFIE remains a series of guidelines, rather than required actions. However, there is a good chance that these guide- lines will become law in the near future. At the very least, it gives a sign that a business may have a competitive advantage when dealing with the Chinese government if they take these new guidelines to heart.
EMPLOYMENT LAW/DISCRIMINATION
MANAGING DIRECTOR OF IMF, AKA “LE GRAND SEDUCTEUR,” CLEARED OF HARASSMENT CHARGES
The International Monetary Fund’s Board decided in October that Dominique Strauss-Kahn, the managing director of the IMF, will remain in his post, despite his affair with an IMF employee. Mr. Strauss-Kahn was accused of “seducing” Piroska Nagy, a Hungarian economist, at the World Economic Forum in Davos. She later left the organization, and an outside firm was brought in to determine if Mr. Strauss-Kahn had forced Ms. Nagy out of the IMF. When the firm decided that no, that wasn’t the case, the Board came to its decision. The Board did mention, however, that Strauss-Khan’s actions were “regrettable and reflected a serious error of judgment,” but that there was no harassment, favoritism or abuse of power involved in the relationship.
JUDGE SHRINKS SEXUAL HARASSMENT DAMAGES FROM $6.75 MILLION TO $450,000, APPEALS COURT BRINGS IT BACK UP TO $3.75 MILLION
This case is a little complicated so it’s best to start from the beginning. In 2004, Kendra Lynn, an assembly line scanner for TNT Logistics North America Inc, filed suit against her company, saying that her supervisor would regularly harass her verbally. She said that TNT mismanaged complaints she filed against her supervisor and then fired her in retaliation. After a five-day trial, a Kansas jury sided with Lynn on her sexual harassment claim but not wrongful termination. They awarded her $50,000 in compensatory damages and $6.75 million in punitive damages.
TNT appealed, citing a U.S. Supreme Court decision that claims it is excessive to have punitive damages out weigh compensatory damages by a double digit ratio. The appeals court judge agreed and set punitive damages to $450,000.
Upon further appeals, TNT claimed that even $450,000 was too much and asked the jury to reduce it to $250,000. A three judge panel agreed that $6.75 million was too much, but said that even $450,000 was too little, so it set the punitive damages to $3.75 million. While Lynn has 15 days to accept the $3.75 million, her lawyer claims that she will agree to the amount.
Commentary: This is a precedent setting case for several reasons, most important of which is that a court of appeals rejected a lower appellate court’s decision for punitive damage and set their own amount.
NEW STUDY: ONE IN FOUR AMERICANS DISCRIMINAT- ED AGAINST AT WORK
In November, the results of a survey from FindLaw.com reported that nearly 27 percent of Americans say they have experienced employment discrimination at some point in their lives. This includes some of the usual suspects—interviews, being hired, salaries or being promoted. The most popular reasons could be expected as well: age, gender and race.
Participants included 1,000 Americans in the workforce who responded to questions asking if they felt they had been discriminated against for a number of reasons. Of the respondents, 40 percent of African Americans said they were discriminated against at one point or another for their race, while just 10 percent of women said they had experienced gender discrimination.
NASCAR OFFICIALS FIRED FOR RACIAL DISCRIMINATION AND SEXUAL HARASSMENT
Two NASCAR officials have been fired as part of an ongoing, $225 million, racial and sexual discrimination lawsuit. The two employees, Tom Knox and Bud Moore, are accused by Mauricia Grant of “exposing themselves to her, and making graphic and lewd jokes,” according to the Associated Press.
Grant says in her lawsuit that she was hired “as a symbol of NASCAR’s newfound, purported commitment to diversity” and was regularly featured “at public out-reach programs designed to convince the media, corporate sponsors and others of the company’s diversity.”
Grant’s suit names over 23 NASCAR employees, ranking from top to bottom within the organization, who allegedly participated in racial, sexual harassment and discrimination. In the lawsuit, most of the individuals are connected to the shocking racial epithets that they used. So far, Knox and Moore are the only two to have been let go.
It remains to be seen what will happen to the rest of the employees named in the lawsuit. Grant is asking for between $25 million and $50 million for seven different charges, for a total of $225 million.
ENVIRONMENTAL, HEALTH & SAFETY
WAL-MART INVESTS HEAVILY IN TEXAS WIND POWER
Wal-Mart announced in late November that it would make a large purchase of energy from a wind farm being built in Notrees, Texas. The move would supply up to 15 percent of the company’s energy needs in 360 company stores and facilities around Texas.
The specific amount of energy that Wal-Mart is purchasing comes out to 226 million kilowatt-hours (kWh) each year. This equates to eras- ing 139,000 metric tons of carbon dioxide emissions per year—which comes out to taking 25,000 cars off the road.
Commentary: In a statement issued from the company, Kim Saylors- Laster, vice president of energy for Wal-Mart, says, “The wind power purchase will result in a significant decrease of greenhouse gas emissions and aligns perfectly with Wal-Mart’s long-term goal of being supplied by 100 percent renewable energy.”
If they only could have tagged on a deadline for their 100 percent renewable energy goal…
LARGE CHINESE COMPANIES SIGN ONTO INTERNATION- AL CLIMATE AGREEMENT
Three of China’s largest companies in October joined The Climate Group, a coalition of businesses and governments dedicated to cutting emissions in all levels of their operations. The three companies are China Mobil, the world’s largest mobile phone company and majority owned by the Chinese government, Suntech, a solar energy company, and Broad Air Conditioning, a large manufacturer of air conditioning. If nothing else, this is a symbolic issue as a Chinese-government owned business joined the coalition. While the Chinese government has announced goals to reduce CO2 emissions, it still remains a fact that the growing number of cars and unclean power plants are contributing a very unhealthy amount of emissions from China. These companies should be lauded for taking a further step, which includes joining organizations with their head in the right place, such as The Climate Group.
SARKOZY PUSHES BACK AGAINST EU NATIONS THAT WANT TO LIMIT CARBON EMISSION GOALS
Living up to his spot on our list of 100 Most Influential in Business Ethics (see page 49), French President Nicolas Sarkozy made the news in October for holding fi rm during France’s rotating EU presidency when other European nations lobbied for loosened regulations on carbon emission goals. The EU nations, citing the slowing global economy, said that if current carbon emission reduction goals are kept in place it will further hurt their national economies.
The goals in question include cutting carbon emissions by 20 percent by 2020 compared to 1990 levels, and to have 20 percent of all energy coming from renewable sources. Sarkozy says he is aware of other countries’ concerns, but says they can not use the financial crisis as an excuse to curb emission regulations.
“On the climate package, we have obtained unanimity… It is now for President [Jose Manuel] Barroso and myself to find solutions for those countries which have expressed concerns,” Sarkozy said.
FINANCE & FRAUD
SIEMENS SETTLES $1.3 BILLION WITH U.S. AND GER- MAN AUTHORITIES
Siemens has finally ended the very high profile charges brought against it by U.S. and German authorities. The company pleaded guilty to violating the U.S. Foreign Corrupt Practices Act (FCPA). The $1.3 billion that Siemens agreed to pay will be split into $800 million to the United States and $540 million to Germany.
Siemens now has the distinction of holding the record for “largest FCPA violation payment ever.” The previous record was Baker Hughes’ $44 million payment last year.
Commentary: Most analysts who followed this case express shock that Siemens’ stock actually went up immediately following the announcement of the billion dollar settlement. That’s most likely be- cause of the relief that the case is fi nally over, and the fact that it was originally reported Siemens could pay as much as $4 billion.
FORMER GOLDMAN SACHS ANALYST ACCUSED OF INSIDER TRADING IS MISSING
A former analyst for Goldman Sachs is thought to have fled the United States after being convicted of a $6.7 million insider-trading charge, according to the Securities and Exchange Commission. The analyst, David Pajcin, reportedly led a team (six of which were convicted in the case) who traded securities based on leaked information coming from a Merrill Lynch analyst, a postal worker, and employees at a BusinessWeek printing plant. They leaked information regarding companies that were about to appear in the magazine.
Pajcin’s former civil and criminal defense lawyers both say they have no idea where he is. What makes this extra unusual is that Pajcin cooperated with authorities during the investigation—he even received a lighter sentence because of it.
Commentary: The kicker for all of this is that Pajcin already served the two years and two months in prison at the time that he was sentenced, as he was arrested in 2005. Now, by leaving the country he violated his parole and is looking at more jail time.
PETTERS GROUP ALLEGEDLY COMMITS THREE BILLION DOLLAR FRAUD
In September, the FBI raided the Minnetonka, Minnesota-based head- quarter of Petters Group, and the residences of several Petters executives, over fraud. As of December, at least four executives have pleaded guilty to a number of different charges, including Deanna Lynn Coleman, the whistleblower that led to the arrests.
While Tom Petters, the CEO of Petters Group, pleaded not guilty in court, he is considered the central figure around the case. He was arrested by authorities and ordered to remain in jail until his trial. Although his lawyers and family members argued that he wasn’t at risk of fleeing the country, Assistant U.S. Attorney John Marti reportedly played a tape recording of Petters discussing ways to leave the country with another individual involved in the fraud.
The company allegedly engaged in a $3 billion Ponzi scheme. While promising investors that their money would be used to purchase new merchandise, the money was instead diverted to pay off older investors and help support the many businesses that the Petters Group owned. The company owned several well known businesses, including Polaroid and Sun Country Airlines. It’s not clear if any of the money in question was illegally diverted to those companies.
Commentary: The one upside of the current credit crisis? It’s balancing out the economy by uncovering a number of fraudulent business operations that have otherwise been fl ying under the radar.
FORMER GC OF MCAFEE ACQUITTED IN STOCK-OPTIONS BACKDATING CASE
Kent Roberts, the former general counsel of McAfee, the provider of a popular anti-virus software program and other computer security solutions, was found not guilty in October on two of three felony charges against him. The San Francisco jury was hung on the third count, which accused Roberts of falsifying accounting records. All three charges related to fraud and a 2007 stock option backdating charge.
The judge who presided over the case, Judge Marilyn Hall Patel, declared a mistrial and strongly advised Assistant U.S. Attorney Laurel Beeler not to pursue the case further. “This was not a case where any money was lost as a result of this,” Patel said.
Commentary: The jury felt that Roberts knew what he was doing wasn’t right, but decided that the government didn’t prove that he had “a scheme to defraud” McAfee. On top of that, Roberts never cashed out the shares in question. He’s not out of the woods yet as he still faces an upcoming case that the SEC brought against him.
GOVERNANCE, BOARDS & CEOS
WPP ENDS DISPUTE BETWEEN CEO AND FORMER ITALIAN DIRECTOR
News reports finally came out in October that uber-advertising company WPP and its former Italian director, Marco Benatti, have privately settled an ongoing dispute involving libel, wrongful termination and interoffice romance.
WPP alleged that Benatti secretly took for his personal gain the majority of the proceeds from a £17 million takeover of an Italian advertising company. Benatti fired back, alleging that he was dismissed improperly.He claimed that he was let go because he “had fallen out” with the company’s COO in Italy, Daniela Weber, who was allegedly involved in a relationship with company chief executive, Sir Martin Sorrell. According to the story, after a five-day hearing, Benatti and WPP have reached a confidential settlement, thus ending the case.
Last year Sorrell also filed a libel suit against Benatti after Benatti allegedly distributed “a computer-generated image showing [Sorrell] with Ms Weber labeled ‘the mad dwarf and the nympho schizo.’” In that case, Benatti paid £120,000 to Sorrell, but didn’t admit liability.
GOVERNMENT CONTRACTING & RELATIONS
GOVERNMENT AUDITOR FOR OIL INDUSTRY SAYS HIS FORMER AGENCY IS CORRUPT “FROM TOP TO BOTTOM”
A new report from the U.S. Interior Department’s inspector general re- leased in October says that “employees at the agency received improper gifts from energy industry officials and engaged with them in illegal drug use and inappropriate sexual relations,” according to a story on the topic published by CNN. One government auditor told the 24-hour news station that the Minerals Management Service (MMS), a branch of the Department of the Interior that manages some of the United States’ natural mineral resources, was a “cult of corruption” and that he “believe[s] the management we were under was showing favoritism to the oil industry.”
The report by the inspector general alleges that almost a third of the government workers in the MMS received some kind of gift from the oil companies they oversaw. While the report says “the dollar amount of gifts and gratuities was not enormous, these employees accepted gifts with prodigious frequency.”
According to the report, so far only one former MMS employee has pled guilty to a criminal charge, and a few more were referred to the Department of Justice.
WORKPLACE, CUSTOMER SAFETY
DELTA AIR LINES NEWEST OSHA VOLUNTARY PROTECTIONS PROGRAM MEMBER
Delta Air Lines and the U.S. Occupational Safety and Health Administration (OSHA) announced in November that Delta has become the eighth participant in OSHA’s Voluntary Protection Programs (VPP). According to the organization’s website, VPP “promote[s] effective worksite-based safety and health. In the VPP, management, labor, and OSHA establish cooperative relationships at workplaces that have implemented a comprehensive safety and health management system. Approval into VPP is OSHA’s official recognition of the outstanding efforts of employers and employees who have achieved exemplary occupational safety and health.”
Some of the tools that Delta uses in regards to workplace safety include an analysis and risk management tool that tracks several different factors, including damage to parts, accidents, near misses and other incidents that occurred anywhere that Delta flies. The company also uses a tool that tracks every piece of equipment in use, creates a maintenance schedule for each piece and notifies the proper personnel when its time to perform maintenance.
Other members of VPP are Dow Chemical Company, Fluor Corporation, General Electric Company, Georgia-Pacific Corporation, Parsons Corporation, The United States Postal Service and The Washington Division of URS Corporation. Nice to see a few World’s Most Ethical Companies on that list.
Commentary: Not a bad idea for an airline to advertise their endorsement by OSHA. Combine this with the free in-flight trivia game that passengers can play against one another and you have a very consumer-friendly airline.
CONSTRUCTION INDUSTRY RESPONSIBLE FOR THIRD OF UK WORKPLACE DEATHS
A new report by the UK’s Health and Safety Executive (HSE) claims that the construction industry accounts for nearly a third of all workplace related deaths in the country. The most common workplace injuries reported across the board were in the “slips and trips” category. In construction, 29 percent of injuries came from “handling,” and 25 per- cent came from “slips and trips.”
While the overall number of workplace fatalities decreased to 72 in the 2007/2008 reporting period —compared to 77 in the 2006/2007 time frame —the percentage that came from the construction industry didn’t go down.
Judith Hackitt, chair of the HSE, said, “In the difficult and uncertain months ahead I urge employers not to take their eyes off the ball. Good business management will be vital and good health and safety management is an integral part of that. Health and safety contributes positively to competitiveness and should not be sacrificed in times of financial pressure.”
INSIDER TRADING
MARK CUBAN CHARGED WITH INSIDER TRADING
This year may have been a record for insider trading cases brought by the SEC, but the 2009 fiscal year is already starting off with a bang after Mark Cuban, the outspoken owner of the Dallas Mavericks, was officially charged by the SEC over insider trading. Cuban allegedly was contacted in 2004 by the chief executive of Mamma.com, an online search engine, who filled Cuban in with knowledge regarding a private placement offering which would dilute the value of existing shareholders.
Cuban, who owned over 600,000 shares in the company, immediately contacted his broker and sold off his shares. The day after Mamma.com’s announcement went public, share value dropped by nine percent.
Commentary: The ironic part of this is that Cuban is the publisher of sharesleuth.com, a website that investigates impropriety in business dealings and reports on it. Cuban will publicly admit if he intends to trade stock based on the reports of sharesleuth.com (similar to disclaimers at the end of Motley Fool articles). Still, U.S. regulators aren’t too fond of that business model.
NORWAY GOVERNMENT CHARGES LARGEST NORWEGIAN BANK WITH INSIDER TRADING
Norwegian authorities announced last October that they raided the nation’s largest bank, DnB NOR, and charged it, along with two of the bank’s employees, with insider trading charges. The bank allegedly enacted bond deals before a planned federal bail out of Norway’s banks.
Specifically, the bank sold a large amount of government bonds, allegedly knowing that after the bailout announcement the value of Norwegian government bonds would decline. The sale of government bonds was worth approximately $329 million. The profit was reported to be anywhere between 20–70 million crowns (approximately $2.86– $10 million), based on the decline of government bonds after the bailout package was announced.
Commentary: Let’s face it; Norway does a lot of things better than the rest of us. Cases like these just remind us that it’s still not a perfect place.
INTERNATIONAL/FCPA
FRENCH-BASED ALCATEL BUSTED WITH FCPA VIOLATIONS BY UNITED STATES FOR BRIBING COSTA RICAN GOVERNMENT
Just in case anyone forgot that the U.S. government applies the FCPA to foreign companies that operate within the United States, here is a reminder.
Christian Sapsizian, a French citizen and former executive of Alcatel, was sentenced earlier this year to three years in prison, three years of supervised release and ordered to forfeit $261,500 after admitting that he paid over $2.5 million in bribes to officials in Costa Rica between February 2000 and September 2004.
The money was given to an official of the state run telecommunications authority in Costa Rica, who then shared the money with a “senior government official.” Those two then used their influence to allegedly create a favorable bidding process for Alcatel. During the period that the bribery took place, Alcatel was awarded a $149 million mobile telephone contract by the Costa Rican government.
AVON INVESTIGATES ITS CHINESE OPERATIONS FOR FCPA VIOLATIONS
Avon voluntarily reported to both the U.S. Securities and Exchange Commission and the Department of Justice this fall that it was looking into whether or not its Chinese operations violated FCPA laws. The issue in question involves possible improper promotional payments made in China. The company notes in their release on the matter that it hires over 5.5 million independent sales representatives in over 100 countries.
Commentary: Avon has a famously unique system of selling its products around the world. It’s also a profitable system as the company brings in over $10 million in annual revenue. With that many sales reps in so many countries, however, the company needs to be extra cautious about potential FCPA violations. Kudos to them for looking into this issue and reporting it to the SEC and DOJ before either of those agencies beat them to the punch.
MARKETING & CUSTOMER RELATIONS
CEPHALON SETTLES CHARGES OF MARKETING DRUGS LIKE LOLLIPOPS
Cephalon agreed to pay $425 million earlier this year in order to settle criminal and civil charges filed against the company for the way it marketed three of its drugs— Actiq (a painkiller), Gabitril (an epilepsy drug) and Provigil (a sleeping drug). As part of the settlement, the company agreed to plead guilty to a misdemeanor violation of the U.S. Food, Drug and Cosmetic Act. Who knew admitting to a single misdemeanor would be so costly?
According to a story by Reuters on the topic, acting United States Attorney Laurie Magid said in a statement, “These are potentially harmful drugs that were being peddled as if they were, in the case of Actiq, actual lollipops instead of a potent pain medication intended for a specific class of patients.”
The sum is broken down into two parts. The first part, $50 million, will go to resolve criminal charges and the second part, $375 million, will take care of a civil complaint against the company.
That civil complaint was first brought about by a former sales rep who, on the government’s request, agreed to wear a wire to a company sales conference. Three other individuals (two of them also former Cephalon sales reps), later filed suit as well. The four whistle-blowers will share $46.5 million from the settlement.
GLAXOSMITHKLINE AND NESTLE ACCIDENTALLY AIR ADS INTENDED FOR BANGLADESH IN UK, THEN UK GOV’T BANS THE ADS FOR MISLEADING CLAIMS
Ever send an embarrassing email to the wrong person? That’s nothing compared to what GlaxoSmithKline and Nestle did in the UK this year. Both companies unintentionally aired ads in the United Kingdom that were meant for Bangladesh—and both had their ads quickly banned from the UK by the Advertising Standards Authority (ASA). The products being advertised were GlaxoSmithKline’s Horlicks, a malt drink, and Nestle’s Maggi Noodles.
Horlicks made statements like “Children have become taller, stronger and sharper,” by using the product. Nestle’s Maggi Noodles’ commercials made similar claims. While both products are fortified with additional nutrients in Bangladesh, they are not fortified in their UK versions. Because of that, both commercials have been banned in the UK.
The ASA believes a Bangladeshi TV station may have broadcast the two commercials inside the United Kingdom without the companies’ knowledge.
PRIVACY & INFORMATION SECURITY
DUTCH JUDGE ORDERS GOOGLE TO RELEASE USER’S IP INFORMATION
This fall a judge in the Netherlands asked Google to turn over the IP address for the user of one of its email accounts, alfaiscool2002@gmail.com, after the user was alleged to have violated the privacy of a manager at iMerge. When Google refused the company’s request to turn over the information, iMerge filed suit.
The court ordered Google to turn over the information, as well as the IP addresses of every computer that accessed the email account in question. The court found that the user of that email address hacked into iMerge’s servers and had all email that was addressed to the manager rerouted to the alfaiscool2002@gmail.com account. They planned to fine Google €1,000 for every day the information wasn’t turned over. However, Google complied with the request.
Commentary: Under different circumstances this could have caused a negative reaction. In this case, proper precedent is set, as Alfa broke the law and violated someone’s right to privacy (in this case the manager). Google aided the court in finding the violator. Besides just business damage, the hacker also uncovered personal correspondence between the manager and a person he was having an affair with. The manager is now going through a divorce procedure.
PRODUCT/SERVICE LIABILITY
PYROTECHNIC SPECIALTIES SUED OVER FAULTY FLASH BANGS
A civil lawsuit was brought against Pyrotechnic Specialties, Inc. (PSI) by three FBI agents who allege they were severely injured after a faulty flash bang exploded in the car they were seated in. Lawyers for the three agents argue that PSI knowingly repackaged flash bangs that were banned from military use by the Department of Defense, and sold them to law enforcement agencies that were unaware of the faulty devices. The grenades allegedly explode without warning.
In the case of the three agents, one suffered severe burns on his back and is nearly deaf in one ear. The case is scheduled to begin in January of next year. These charges are added to ongoing charges of conspiracy, money laundering and conspiracy to defraud the government.
J&J PAYS OVER $68.7 MILLION FOR ORTHO EVRA RELATED SUITS
Regular Ethisphere readers are aware of a number of issues that have affected Johnson & Johnson in the past, namely the (still ongoing) problems with their Ortho Evra birth control patch. Along those lines, Bloomberg published an interesting story claiming that Johnson & Johnson has paid —at a minimum—$68.7 million in private settlements over Ortho Evra related claims.
The most common problems associated with Ortho Evra, Bloomberg notes, are:
- Deep-vein thrombosis (blood clots in the legs)
- Pulmonary embolisms (blood clots in the lungs)
- Hearts attacks/strokes
According to the story: J&J’s annual report cited “a significant decline” in Ortho Evra sales because of “labeling changes and negative media coverage concerning product safety.”
Commentary: Worth noting, J&J has never actually gone to trial over Ortho Evra. Because the potential cost of a negative verdict was so steep, the company is very motivated to settle issues as they arrive. Some groups, such as Public Citizen’s Health Research Group, question why the patch is still on the market and have petitioned the FDA to ban it within six months.
TRADE SECRETS & IP
GOOGLE SETTLES LONG-STANDING COPYRIGHT CASE WITH BOOK PUBLISHERS
A few years ago Google announced that it would be publishing a number of high- profile books online—and soon after that a number of publishers announced they would be suing Google. This fall, Google announced that it had settled with the publishers, thus ending the ongoing, very public legal battle. The final agreement was that Google would pay various publishers, including such heavy hitters as Simon & Schuster and McGraw-Hill, a total of $125 million for the ability to publish the literature online.
The money specifically is going to cover legal fees and ongoing cost settlements, as well as set up a not-for-profit group called Book Rights Registry, which will find the owners of the literature Google wants to publish online. The owners can then go along with it, or pass.
Commentary: After 10 years Google has had plenty of cases to put its motto, Don’t Be Evil, to the test. Between this case, the Dutch case (Privacy & Information Security category) and others, the company is learning that its motto may have shades of grey, depending on what side you’re on.
THAI UNION FROZEN PRODUCTS PLC BUSTED FOR TRADE-SECRETS THEFT
Thai Union Frozen Products (TUF) was ordered by a California court to pay $4.5 million to Contessa Premium Foods, a rival food company, for trade secret theft. Contessa sued two former employees of both TUF and Contessa, and TUF itself, accusing the employees of using company resources to sell products for competitors.
The employees, Bryan Rosenberg, former managing director of sales for TUF, and Brenden Beck, former regional sales manager for TUF, were alleged to have used sales calls during their time at Contessa to sell products of rival companies. The two employees were also alleged to have used Contessa resources to develop sales tools for rival companies. According to the law suit, TUF “aided and abetted” the two employees.
The fine was broken up into the following parts: approximately $2.8 million in compensatory damages against TUF, and $1.5 million in compensatory damages. An additional $200,000 in punitive damages was given in response to Bryan Rosenberg’s conduct, specifically.
WHISTLEBLOWERS
TWO VIETNAMESE JOURNALISTS TRIED FOR REPORTING ON CORRUPTION
Two journalists who were arrested last May after reporting on corruption within the Vietnamese government were sent to trial in October. The two reporters, Nguyen Van Hai and Nguyen Viet Chien, are charged with “abusing freedom and democracy,” even after their reports led to the conviction of nine people and forced the Vietnamese transportation minister to step down.
Two police officers who allegedly gave information to the journalists are also going on trial for “deliberately revealing state secrets,” according to an AP report on the story.
The case comes down to a 2006 scandal at the transport ministry in Vietnam. The two reporters published a story alleging officials at the ministry had gambled public money based on sports games. After the story, at least one Vietnamese official was jailed.
Media watchdog groups rightly argued for the release of the two journalists, arguing that jail time will discourage other would-be whistle-blowers and investigative journalists from reporting on government crimes.
Commentary: The two journalists’ innocence was finally found by the court. The fact that it came down to trial, however, is not a very inspiring symbol of freedom of the press within Vietnam.
CHARLES SCHWAB ORDERED TO REINSTATE WHISTLEBLOWERS
The U.S. Department of Labor ordered Charles Schwab to give jobs back to two employees that were fired in 2007. The DOL found that Charles Schwab violated the whistle-blower provisions of Sarbanes-Oxley by firing the two employees after they refused to create false entries into a company-wide database.
The OSHA (remember the OSHA oversees the whistle-blower provisions of SOX —a curious feature of SOX, but it was brought about because OSHA was the government agency with the most whistle-blower experience) investigated the case and found that the employees’ case had merit.
More than just giving them their old positions back, the Department of Labor ordered Charles Schwab to give the employees back pay, interest, compensatory damages and legal fee reimbursement.
Commentary: These kinds of cases always make us cringe a little bit for the sake of the whistleblower. Sure, they win moral victories when their jobs are reinstated by force, but how long can they really stay around their old work place? Unfortunately, often times the same management and coworkers are around that may have caused the problems in the first place. Very awkward—not an ideal work environment for anyone.
MARKS & SPENCER WHISTLE-BLOWER LOSES CASE INTENDED TO GET HIS JOB BACK
An appellate court in the UK decided that a former employee of British retailer Marks & Spencer would not get his job back after leaking company information to the press. The employee, Tony Goode, leaked details of the company’s plan to reduce redundancy payment by 25 percent to the UK’s The Times newspaper, and was fired in September of this year. Because of the newspaper’s reports, M&S reportedly “watered down” the proposals.
The employee’s union, GMB, a trade union whose initials come from General, Municipal, Boilermakers and Allied Trade Union, says that the case isn’t over yet. The GMB intends to take the case to different courts to attempt and reinstate Goode to his former position at Marks & Spencer.
Commentary: A prime example of how no large company is without its controversy. Marks & Spencer is a World’s Most Ethical Company two years running (see the Q2 editions of Ethisphere from 2007 and 2008). Even in companies that go above and beyond in the realm of ethics and compliance, unfortunate issues such as this inevitably arise.
SUPPLY CHAINS & ETHICAL SOURCING
WAL-MART MANDATES NEW ENVIRONMENTAL STANDARDS FOR SUPPLIERS
Wal-Mart announced this fall that it will be setting new environmental and ethical standards on its Chinese suppliers in order to continue doing business with them. Wal-Mart CEO Lee Scott sums up the new strategy by saying, “A company that cheats on overtime and on the age of its labor, that dumps its scraps and its chemicals in our rivers, that does not pay its taxes or honor its contracts—will ultimately cheat on the quality of its products.”
The new requirements fall in line with existing Chinese law. Aspects include meeting emission standards (this issue alone will require a large amount of work from some suppliers) and increased transparency, including publicly disclosing the names and locations of all factories.
Commentary: It took awhile to gain traction, but taking public responsibility for the entire supply chain is becoming an important issue. With the increasing amount of news stories related to dangerous products coming from overseas suppliers, this issue is only going to become more relevant. Many companies are even developing Codes of Conduct that their suppliers must agree to before becoming a partner (see the Q3 2008 issue of Ethisphere for more information on Supplier Codes of Conduct). We’re going to go out on a limb and say responsible supply chain management will be the hot button issue for 2009 (move aside ‘FCPA’). Kudos to Wal-Mart for being proactive in this area.
MCDONALD’S AWARDS GREEN SUPPLIERS
McDonald’s, a World’s Most Ethical Company winner, awarded its first annual Sustainability Award to Smithfields Food, a pork supplier to McDonalds. The award was announced at McDonald’s Supplier Summit this year and will become a yearly recognition to the supplier that performs and displays the best example of ethics and sustainability.
Suppliers self-nominate to McDonalds and describe several aspects of their company, including encouraging the health and welfare of their employees, the humane treatment of animals and minimizing their environmental impact.
Commentary: Suppliers beware—this is a topic that’s only going to expand in importance on a national scale. Better to be ahead of the curve on this one.
