Archive for November 2009

The Ethics of Obesity Part One: CPK’s Gotcha Menu

November 30, 2009

First in a three-part series about the ethics of obesity

Restaurant CEOs have to determine what leadership, if any, their companies will take in America’s obesity crisis. More than two-thirds of Americans adults are categorized as obese or overweight; mounting medical research links eating habits to several preventable diseases. Estimates are that most Americans eat out at least 50% each week.

Restaurants’ leaders have a social responsibility to determine how they will do business differently while still fighting for market share and profitability.

Restaurateurs have been dealing with the issue of whether customers have the right to know the nutritional content of food they order. Some 30 cities, counties, and states believe that customers do, and have passed or are considering some form of menu labeling laws. California was the first state to pass a menu labeling law last year; July 1, 2009 some provisions went into effect and by 2011 all restaurant chains with more than 20 locations will be required to post calorie information on their menus. As of this month, both the U.S. Senate and U.S. House versions of the Health Care Reform bill include menu labeling provisions.

In the battle against obesity, we need leaders, not foot soldiers who retreat at the first scrimmage. This month, California Pizza Kitchen (CPK) retreated when it could have stayed a leader.  In July 2009 – not waiting until 2011 – its restaurants in CA printed menus with the calories of each item offered.  This month, CPK dropped the calorie counts from the menus.  Some customers had complained about their inclusion on the menu, said Larry Flax, CPK co-chief executive. Flax said he looks at the restaurant business as entertainment; so “why make the customer feel guilty?” CPK nutritional information is now available on the website and to those who ask, The Los Angeles Times reported.

Restaurants aren’t responsible for a customer’s guilt. If they play the role of enablers, or purveyors of denial, and offer food very high in calories and sodium, restaurants may entertain, but they risk losing trust. High blood pressure, high cholesterol, strokes, heart disease, and diabetes change lives or end lives. Our food choices contribute to those outcomes. While we are responsible for what we put in our mouth, we are making decisions with too little information.

Say you go to CPK with the intention of making a healthy food selection and order the Field Green Salad.  (In CA nutritional information is available separate from the menu, in other states you’d have to be premeditated and check the website before leaving home.) Would you guess it is 998 calories, and 805 mg of sodium? If you had figured that by choosing a salad, you had leeway to splurge on dessert and ate the white chocolate strawberry cheesecake (hey, it has fruit right?), would you guess it has 1,101 calories and 600 mg sodium?  Those two selections consume approximately a whole day’s recommended level of calories and salt.

While most people would say that if you go to McDonald’s and order a medium coke, medium fries and a quarterpounder, you aren’t making a healthy food selection, but that meal has the same calories in CPK’s Fiesta Green Salad. Gotcha.

CPK’s decision to drop nutrition information from its menu in California is a giant step in the wrong direction. Some customers may have complained, but studies show most people want that information to make better choices. CPK gave up a leadership role that they could have turned to a significant business advantage. Feeding customer denial is a toxic diet.

The Ethics of Obesity Part II will address, responsibility, McDonald’s, and the recently-released Sundance Film Festival award-winning movie “Precious.”

Gael O’Brien, November 30, 2009

The Congressional Record: Genentech’s House Organ?

November 17, 2009

Genentech, the biotechnology behemoth, has been caught ghostwriting and mass marketing its ideas on health care reform and putting them into the mouths of a few dozen congressmen, many of whom entered the statements into the Congressional Record as their own.

The repetitiveness of the statements triggered a New York Times reporter’s investigation which found Genentech behind the voice. The reporter also found a link between congressmen making statements Genentech sent and those receiving campaign contributions from Genentech and its parent Roche; a connection Genentech denies.

When an 11-year old is caught doing something wrong, the lament is “but everyone does it;” a lobbyist affiliated with Genentech had the same response: “This happens all the time. There was nothing nefarious about it.” Some congressional staffers and lobbyists weighing in on this agreed: no big deal.

Intellectualizing here is a slippery slope: you can be pragmatic and keep trust, but in this case trust was broken.  Lobbyists are great resources; advancing their companies’ agendas, they seek the sweet spot to anticipate or accommodate what an elected official needs as well as their company. But the system breaks down when the public doesn’t know whose unattributed voice comes out of the leaders’ mouths we elect. It breaks down in an orchestrated effort to enlist as many statements as humanly possible from legislators using Genentech’s words as their own. It breaks down without transparency.

This isn’t a case where the orchestration impacted a vote. But Genentech’s example is illustrative of a larger issue: a potential for an Orwellian spin on groupthink, how influence can manipulate and why the bar needs to be raised. A company’s actions may stop far short of showing “undue influence,” which is illegal. However, that doesn’t mean they aren’t corrupting the channels of communication.

The story has another cautionary aspect. When U.S. Representative Bill Pascrell Jr. from New Jersey was asked by the New York Times why his statement was nearly identical to so many of his colleagues, he said he’d gotten it from his staff but he didn’t know where they’d gotten the information. “I regret the information was the same,” he said. Any elected official or CEO who doesn’t know where his or her information comes from is inviting manipulation or turning a blind eye to plagiarism. Both explanations undermine the potential for ethical leadership, and both squander trust and credibility.

One would think it is an embarrassing episode for the congressmen involved, but I don’t presume to know anymore what is capable of embarrassing a congressman. And Genentech management, are they embarrassed? Roche acquired the company earlier this year, replacing highly regarded, long-time CEO Arthur Levinson – under whose leadership Genentech regularly won top spots on the most admired, best companies to work for, and other lists – with a Roche executive. Would this have happened, one wonders, under Levinson’s tenure as CEO?

Gael O’Brien,       November 17, 2009

The Week In Ethics

World Series Meltdown: McCourts Strike Out

November 4, 2009

Frank and Jamie McCourt are a classic case study in how to abdicate leadership and undermine the reputation of a franchise by trashing their own.

They presented themselves to Los Angeles five years ago as a duo committed to building the Dodgers franchise into the greatest ballclub. Their timing stripping away their marriage’s veneer in mid-October while the Dodgers played the Philadelphia Phillies in the National League Championship was irresponsible.

How they handled their separation and divorce filings last month put narcissism on home plate. The Dodgers lost the National League Championship, making more than their share of errors. But no one struck out in this World Series more often than the McCourts.

Granted, it is no easy challenge for any couple to reign in ego when a business and marital partnership collapse; however, it is what leaders operating in the public domain are expected to know how to do.

Allowing festering problems to erupt out of control was reckless and put their soap opera power struggle in the media, instead of with private mediators. Not to work behind closed doors with the best advisors money could buy on how to handle their separation and division of assets abdicated leadership that the Dodgers and fans have a right to expect.

Jamie McCourt, who never let anyone forget she was the highest ranking woman in baseball, violated a basic leadership principle by abusing her power if as alleged she had a romantic relationship with a subordinate. Starting the relationship with her driver before her separation from her husband was announced, and then letting him continue to work in the Dodger organization showed poor judgment and disrespect for the Dodger workplace.

Frank McCourt’s tactics revealing his wife’s affair, undermining her role as CEO, and making public their asset allocation business strategy while married, may be designed to strengthen his hand as sole owner, but it also has the take-no-prisoner price of escalating the public battle which disrupts and makes more vulnerable the franchise they are fighting over.

Filed petitions and motions, Marie Antoinette-like demands for perks and spousal support, rolled out legal artillery in response, all the ingredients of the war each is fighting for what they believe is his or hers alone. And the legacy from this will be what?

Leaders who don’t know how to lead lose the public’s trust. Millions of Dodgers fans want to know if Manager Joe Torre will be able to put the competitive team on the field that he wants. They want to know where the leader is who will devote the skills, passion, and financial resources to making the Dodgers the number one priority. That question has yet to be answered.

Gael O’Brien        November 4, 2009

The Week in Ethics

Broadcom’s Backdaters: The Trials of Many Tears

November 2, 2009

Options backdating is about failure of ethical leadership. And, according to a study released in August 2009, the act of uncovering and disclosing stock option backdating can lead to improvements in management and financial performance. Aren’t leaders who lie about options backdating more likely to cut other corners?  Even if their goals undermine their organizations’ financial strength? What boundaries could they be expected to have?

The reality is that ethical leadership contributes to effective and sustained business performance.

The backdating scandal consumed headlines in 2006 when the U.S. Securities and Exchange Commission (SEC) began investigating more than 140 companies, and filed civil charges against 24 companies and 66 individuals.

One of those companies was Broadcom which has since restated its financial results reporting more than $2 billion in additional compensation expenses. Broadcom settled with the SEC, agreeing to a $12 million penalty.

The first of the trials of former Broadcom executives has begun with former CFO Bill Ruehle pleading not guilty to charges he conspired to conceal and understate compensation expenses from 1999 to 2005. He is charged with 21 counts including fraud, internal control violations, false certifications, falsifying records, and lying to investigators. The SEC brought similar charges against Broadcom co-founder and former CEO Henry Nicholas, who will stand trial early next year. Nicholas, an eccentric billionaire, is also facing drug charges.

Broadcom’s other co-founder and former chairman Henry Samueli has pleaded guilty to one count of fraud and awaits sentencing. Also awaiting sentencing is the former VP of human resources who pleaded guilty to obstruction of justice. Broadcom’s former general counsel has settled with the SEC.

In opening statements the prosecutor said about Ruehle, “The defendant wanted to have employees, the best and the brightest, highly skilled engineers without showing any expense on Broadcom’s report card.” He added, “This is not a case about accounting. It is not a case about business. It is a case about lying.” However, Ruehle’s attorney argued that the case is about “unintentional misapplication of the rules.” He added that “Witness after witness will say he always tried to do the right thing.”

Emails are the currency of an individual’s words. When shown emails linking him to the options backdating,  Samueli changed his plea to guilty. In opening statements at Ruehle’s trial, the prosecutor read the jury emails from Ruehle using them to show Ruehle’s complicity in the backdating activity.

With so many former Broadcom leaders involved in the options backdating scandal, this culture of complicity  and leadership style will inevitably be on trial as well. Several former executives, including Ruehle, benefited financially from how the backdating was calculated. Ruehle’s attorney has already pointed the finger at Nicholas and his management  style.

Broadcom in 2006 at the conclusion of its internal investigation that exonerated Samueli and others still there, but didn’t address Ruehle or Nicholas who had left, said it lacked adequate controls between 1999 and 2003. The company said their record keeping and documentation were insufficient. The internal investigation also indicated that certain individuals could have done more to address inadequacies in the option granting process.

In the dance of finger pointing, Ruehle’s defense has a steep hill to climb to justify why as CFO adequate controls weren’t his responsibility, why he isn’t accountable for attesting to the accuracy of financial filings that weren’t accurate, and how the actions he took were “the right thing to do” for the company and its investors.

Ethical leadership, don’t leave home without it.

Gael O’Brien   November 2, 2009

The Week in Ethics


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