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Dear Ethix – Issue 48

Kudos for Weiss

I thoroughly enjoyed my most recent edition of Ethix. FYI, I thought the interview with Al Weiss was excellent. As a former Orlando resident (18 years) and a huge fan of Disney and everything they do, I thought his comments and perspectives were very positive. I also thought his five principles for building a life were outstanding. It is no wonder he has had the success he has had both personally and professionally.

Bud Boughton
Greenwood, Ind.

CEO Compensation

What is the ethical approach to CEO/executive compensation? Can a company that behaves responsibly justify enormous executive salaries and benefits that have no bearing on performance?

Geoff Lewis
New York, N.Y.

Editor’s Note: Your questions are important ones in today’s business world dominated by market capitalism. Clearly, enormous salaries and benefits for executives that have no relationship to performance are wrong. They exemplify the arrogance and greed that are so often identified with those at the top, and they are destructive to the company, its shareholders, and its employees. They are often justified in the name of “market salaries” — what it takes to hire someone in a competitive world. Sometimes they are brought about by poorly written compensation plans that result in high performance awards even when the company is doing poorly. John Bogle did a fine analysis of how excessive executive compensation without performance destroys value in his book The Battle for the Soul of Capitalism.

But it is easy to label all executives with the greed brush, and this would be a mistake. There are many great examples, including:

“Since being asked to permanently take over as the Aliquippa Community Hospital president and CEO in mid-November, Dr. Sangodeyi has yet to accept money from the cash-strapped hospital as he works 14-hour days trying to bring the institution out of Chapter 11 bankruptcy.” Pittsburgh Business Times, January 2003

The second implied question is tougher — what about enormous executive salaries when companies are performing well? Some of our colleagues have suggested that executive salaries should be limited to 20 times (or some similar multiple) of the salary of the average employee, but these models are very difficult to administer. One company I know had tried this approach for several years and was not able to maintain it in its most recent search. Another colleague argues that simply opening the search for the CEO would bring in all sorts of great candidates with lower salary expectations. I personally think this is naive regarding the demands on the CEO of a large company. It is challenging to write a performance package that won’t have unintended consequences. So boards must look more carefully at how the performance numbers are achieved in the long-term, and not just whether they are achieved in the short-term.

Cell Phones and Ethics

What are the rights, duties, and responsibilities associated with cell phone use?

David Crosby
Wellington, New Zealand

Editor’s Note: Of course, you have to abide by the conditions of your contract and pay your cell phone bill!

But it goes way beyond this, so here are a few areas to consider. There are few laws other than certain establishments that ban cell phone use and some regions of the world that make it illegal to drive and talk on the phone at the same time. It is surprising that this particular law is not more widely enacted, as studies indicate that driving while talking on a cell phone is worse than driving drunk:

Talking on a cell phone behind the wheel is more dangerous than driving drunk, researchers from the University of Utah conclude in a new study.

And it makes no difference whether the telephone is hand-held or, as permitted by New York State law, used hands-free, researchers say in a paper presented yesterday by academics at an auto safety conference in Park City, Utah.

The conclusions are based on the performance of 41 test subjects on a driving simulator at the university. Each subject “drove” on a multilane highway, with and without each type of cell phone and with and without a .08 percent alcohol level — at which a driver is legally intoxicated in most states, including New York as of July 1. (Newsday article by Tom Incanalupo, July 23, 2003)

There are also few customs. I was at a conference in Singapore (where it is illegal to drive and talk on a cell phone) last year when the Singaporean in front of me answered a call and talked at some length while the speaker was talking. This would be considered rude by my standards, but since no one did anything about it, apparently it was not a strongly held community custom there. Other issues we deal with include junk calls (that cost money to those being called), poor security, unreliable service, etc.

But this just deals with the ethics of the cell phone itself. We could also look at the ethics in the systems that develop around the phone. There are lots of ways you can go with this.

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