Corporate Governance

Corporate Reputation

On this page

• Will Nigeria Act now that Haliburton Has Paid Recvord Fines for Bribery in US
• Bank of America Sued by US's Two largest Pension Funds - Shareholder Transparency at Issue
• Record Fines in Halliburton Nigeria Settlement
• BAE Independent Review Attempts to Establish New Direction for Company
• Adidas defends China Olympics Partnership, Chides Demonstrators
• Botnia's 'Pulp Mill War' Turns Ugly
• Fortune Most Admired US Companies 2007
• The HP Scandal
• Best of European Business Awards
• Fortune's Most Admired US Companies 2006
• Exxon Mobil's PR Over Record Profits
• Bird Flu And Corporate Ethics
• FT 100 Most Respected Companies

Will Nigeria Act?

Revenue Watch issues highly critical editorial

NIGERIA: Halliburton, Bribes and the Deceit of "Zero-Tolerance" for Corruption

By Dauda Garuba, Revenue Watch Nigeria Program Coordinator

(for background on this article please see Ethicsworld story below on Halibnurton paying record fines to the US Justice Department and Securituies & Exchange Commission and the story on the original charges against Haliburton and its former subsidiary, KBR at at Corruption Investigations.)

The Revenue Watch article starts by highlighting the Haliburton-KBR crimes in Nigeria and other cases of bribery, then the author writes -

While all of these cases speak to the efforts by corporations' home governments to shine a spotlight on interactions with corrupt politicians and public officials in Nigeria, it remains bewildering and disturbing that the situation did not, until recently, spark any serious reaction from the appropriate Nigerian authorities whose "zero-tolerance" claims have been defied so blatantly. Not even the sentencing of Nigeria's former minister of petroleum, Dan Etete, for laundering Halliburton bribes in France was sufficient to attract the attention of Nigeria's government.

Thus, in the midst of the indictment and conviction of foreign companies and their top executives in Europe and America for graft in Nigeria, the country's own government has not, until very recently, taken any action against its erring public officials or the foreign companies linked to these deals. This failure to act has persisted in spite of the government's 2004 assurances that its then newly-inaugurated Economic and Financial Crimes Commission (EFCC) would aggressively pursue corruption cases. If the Nuhu Ribadu-led EFCC is accused of not doing enough to deliver on its responsibility to Nigerians on the corruption scandal involving Halliburton, the Farida Waziri-led phase of the Commission should be condemned for not acting at all, barring a recent statement that "investigation into the matter would be professionally executed, without prejudice to the caliber of those involved."

Indeed, one unfortunate message of Halliburton's and KBR's guilty pleas seems to be that, while corporate executives who bribe foreign officials for lucrative contracts may face prosecution and conviction at home, their partners in crime in Nigeria can enjoy the benefits of corruption and graft without fear of being brought to book. It's no wonder that the companies, after facing conviction and fines in their home countries, don't hesitate to return for a second gamble, buying more contracts from the same Nigerian system that they have defied with impunity.

Please see the full editorial and follow the links to more background at Revenue Watch.

Posted 04/14/2009

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Shareholder Transparency Demands rise – Largest US State Public Pension Funds  Act Against Bank of America
CalPERS & CalSTRS manage over $290 billion - jointly file lawsuit

During an extraordinary weekend in mid-September, 2008, as efforts failed to prevent the bankruptcy of Lehman Brothers, the major Wall Street investment firm, one of its rivals swiftly and quietly agreed to be bought by a giant bank – Merrill Lynch sold out to Bank of America. The deal officially went ahead at the start of 2009, but just days before the leaders of Merrill Lynch agreed to provide vast bonuses to senior employees and it became known that the final quarter of 2008 registered staggering losses at the firm that Bank of America had not expected.

The New York State Attorney General Andrew Cuomo is investigating, but quite apart from possible illegal activities, there are major questions about the extent to which shareholders should have been informed and to what degree shareholder transparency is meaningful when mega-mergers are underway.

Now, America’s two largest state public pension funds have filed a joint motion with the U.S. District Court, Southern District of New York, to be designated lead plaintiff in class actions against Bank of America stemming from its merger with Merrill Lynch. California Public Employees’ Retirement System (CalPERS) and California State Teachers Retirement System (CalSTRS) have taken this step to protect the retirement security of over two million members, they say.

The class actions allege Bank of America management misstated or omitted important information regarding Merrill Lynch’s financial condition as Bank of America shareholders voted on the merger with Merrill Lynch. If appointed lead plaintiffs, CalSTRS and CalPERS will represent the claims of injured Bank of America shareowners.
“Despite these challenging economic times, we can’t give corporations a pass on their obligations to shareholders,” said Jack Ehnes, CalSTRS chief executive officer. “By moving to be appointed lead plaintiffs, we’re acting to supplement government enforcement of securities laws at a critical time for our nation’s economy. We’ve taken this step to hold the board and its management responsible to their owners.”

CalPERS Board President Rob Feckner said filing for lead plaintiff will enable lawsuits to be consolidated and managed effectively. “Shareowners did not have complete or accurate information prior to approving the merger, and the failure of Bank of America to provide it sent the stock price down dramatically,” he added. “Compounding the harm to shareowners was the fact that bonuses were paid to Merrill executives early and were not disclosed to shareowners prior to the merger,” he said.

The California Public Employees’ Retirement System, with approximately $173 billion in assets as of January 31, 2009, administers retirement for California’s 1.6 million public servants. The California State Teachers' Retirement System, with a $114 billion portfolio, administers retirement, disability and survivor benefits for California's 833,000 public school educators and their families from the State's 1,400 school districts, county offices of education and community college districts.

Posted 02/04/2009

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Halliburton Reveals Massive Fines and Prospective Settlement Agreement in Quarterly Financial Filing - Largest Ever Settlement of its Kind by U.S. Firm

Statement Points to Fines for Violations of the Foreign Corrupt Practices Act of $382 million to the US Department of Justice and $177 million to Securities and Exchange Commission - Case Relates to Bribery in Nigeria

Halliburton, the major global energy services company based in Houston, texas, released information on its prospective settlement in a press release related to its quarterly earnings statement. As so often in these cases in the United States, the company has not formally admitted guilt and thus it had no comments of a ny kind in the statement with regard to any possible sense of guilt, or regret or concern about actions over many years in Nigeria by its former key affiliate KBR (see our earlier detailed story at Corruption Investigations).

The company stated in its press release on January 26, 2009, that as previously disclosed in its public filings, Halliburton has engaged in settlement discussions with the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) with regard to the ongoing FCPA investigations involving Halliburton and KBR, Inc. (KBR). These discussions have resulted in prospective settlements with both agencies.  The settlement with the DOJ has been fully negotiated and Halliburton has been advised that it is being reviewed for final approval.  The settlement with the SEC has been approved contingent upon the completion of the settlement with the DOJ.  There can be no assurance, however, that the settlement with the DOJ will be approved or that, consequently, the condition to the settlement with the SEC will be satisfied. 

To enhance KBR's financial stability and solvency, making possible the separation of KBR, Halliburton indemnified KBR from fines or other monetary penalties or direct monetary damages, including disgorgement, as a result of a claim made or assessed by a governmental authority in the United States and certain other countries related to alleged or actual violations occurring prior to November 20, 2006 of the FCPA or particular, analogous applicable foreign statutes, laws, rules, and regulations in connection with investigations pending as of that date.

As a result of the indemnity and the terms of the prospective settlement with the DOJ, Halliburton would agree to pay $382 million on behalf of KBR in eight installments over the next two years. Pursuant to the terms of the prospective settlement with the SEC, Halliburton would agree to be jointly and severally liable with KBR for and, as a result of the indemnity, to pay to the SEC $177 million in disgorgement.  KBR would separately agree that Halliburton's indemnification obligations with respect to the DOJ and SEC investigations would be fully satisfied.

The prospective settlement with the DOJ would not require Halliburton to engage a monitor.  The prospective settlement with the SEC would require Halliburton to retain an independent consultant to perform a 60-day initial and, approximately one year later, a 30-day follow-up review and evaluation of Halliburton's anti-bribery and foreign agent internal controls and record-keeping policies and to adopt any necessary improvements. 

The company added that "it will not further comment or take questions regarding the prospective settlements, given that there can be no assurance that they will become effective in accordance with their respective terms."

Posted 02/0202009

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Key Steps Taken Toward Ethics Reform: BAE Systems

Former British Chief Justice Lord Wolf Details Actions in Landmark Governance Report

Almost exactly two years ago, former US Senator Warren Rudman issued an independent report on ethics and governance reform at one of America’s largest companies, Fannie Mae Corporation, who had become embroiled in scandal (see Managing Workplace Ethics). Now, across the Atlantic, Lord Wolf has released a report that is as far-reaching and as comprehensive and which, like the 2006 Rudman report, should become a “must read” for corporate managers and business schools.

BAE Independent Review Attempts to Establish New Direction for Company

The largest British defense corporation, BAE Systems, has embroiled in bribery allegations for more than two years, with critical decisions on further action now pending before the UK’s highest court, the House of Lords. The company commissioned former British Chief Justice Lord Woolf to pursue an independent investigation designed to restore its damaged reputation.  The Ethical Business Conduct report contains detailed recommendations on how BAE can improve its governance, and thereby its reputation for integrity. 

The report is far-reaching and covers all aspects of corporate governance.  The first section lays out global standards for governance and then addresses some of the significant challenges unique to the defense industry.  BAE insists it was never involved in any criminal business dealings, but senior leaders have admitted to past lapses in adhering to high ethical standards.  The report emphasizes the complexities of defense industry transactions.  It lists particular areas of risk such as the practice of hiring outside advisors, offsetting, making “facilitation payments” (bribes), offering gifts and hospitality to customers and acquiring new acquisitions, joint ventures and contractors. 

Despite these areas of risk, the Woolf Committee issues “The Future Challenge”:

• The rate of progress to achieve ethical business conduct must be accelerated.
• Internal and external assurance of high ethical standards is required.
• Greater openness and transparency must be achieved.
• The company must match benchmarks set by other global companies in other sectors.
  
  

In addition to these general guidelines, the report lists a number of specific recommendations which are organized below.  The Board of BAE, before the commencement of the report, has already committed to implement this report’s recommendations in full.  Adherence to this promise will be key to restoring trust in the global community.

Key Recommendations from the Woolf Committee

Posted 5/8/08

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Adidas Defends China Olympics Partnership, Chides Demonstrators

Adidas puts its reputation on the line as a key sponsor of the 2008 Olympics, but CEO insists his company’s partnership with China is an ethical move

The CEO of Adidas, the global sports brand with a significant vested interest in China, recently criticized pro-Tibetan demonstrators in a Der Spiegel interview.  The German-based company is a main sponsor of the Beijing Olympics and is contributing $108 million to the event.   

With the 2008 Olympics only three months away, the host country cannot escape the spotlight.  Just recently, Steven Spielberg announced he would step down as artistic director of the Beijing Olympics in protest of China’s human rights record, including its relationship with Sudan (see EthicsWorld coverage).  After the Olympic torch made a tumultuous trek around the globe, bypassing large crowds of protestors, other business leaders are also having to take a side.

In the Der Spiegel interview, Adidas has become the latest company to defend its actions publicly for its involvement in the Beijing Olympics.  CEO Herbert Hainer believes his company’s actions are completely legitimate.  Spiegel reported that Hainer had “no guilty conscious” about China’s violent crackdown on pro-Tibetan protestors.  He also mentioned in the interview “It is our goal to have over €1 billion in sales in China per year by 2010." 

Based on Hainer’s comments, Adidas’s corporate policy seems to be to steer clear of politics. Hainer said taking a stand against Chinese policies is a slippery slope toward political involvement in many other countries where Adidas does business.  But in the follow-up to an event that is receiving enormous attention, it will be hard for companies to ignore politics and come away unscathed. 

This year’s Olympics could be a rare opportunity to witness corporations’ genuine dedication to human rights.  How they respond to China could be the real test, as opposed to lofty declarations published in annual reports and commitments to human rights conventions which are so commonly touted.  With the Chinese market as attractive as it is, the profit potential may just be too tempting for many companies to resist.     

Posted 5/6/08

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Botnia’s ‘Pulp Mill War’ Turns Ugly

Finnish pulp mill operation in Uruguay unleashes local wrath, tarnishing Finnish reputation for being environmentally and socially friendly investors.

**UPDATE: The Botnia pulp mill is a complex issue with many different interests involved. The following summary is only one perspective. To read about another side, surveys are available in Spanish that show a signficant amount of support for the pulp mill from the Uruguayan population.

Having been given the green light to set up a pulp mill on the river border between Uruguay and Argentina, Botnia president Erkkis Varis called the mill "one of the most modern cellulose plants in the world" and said it would set an example for environmental control, reported the Associated Press on November 9, 2007.  The article said the project is intended to create 600 jobs and boost Uruguay's exports by 15 percent. The paper it produces is to be exported to the United States, Europe and Asia. However, the AP also reported Argentine television showed live footage of the plant spewing hazy smoke from a tall stack, apparently in preparation for the launch of operations. Mountains of eucalyptus trees were piled nearby, the AP reported.

In a press release issued November 12, 2007, the Center for Human Rights and Environment (CEDHA) exposed the turmoil the pulp mill dispute has caused and the stark opposition to Botnia from the local population. The following are excerpts from the CEDHA press release:

“Hundreds marched to the international bridge linking Argentina and Uruguay protesting the Uruguayan government decision to extend the Finnish pulp mill company Oy Metsa Botnia an operating permit. The Spanish King, which had reprimanded the Uruguayan President last week for attempting to do as much before the King's mediation attempt was finished, was informed via an envelope passed under his ambassador's door at a hotel at the Latin American Summit in Chile that his mediation effort to broker a solution to the cross-border dispute caused by the Finnish company, had come to an abrupt end, in failure.

The mill, which began operations Friday, is one of the world's largest, three times larger than any in Finland.  Smoke spewed from the chimney towers as early as Friday morning, just hours after Botnia received the green light to fire up its kilns and begin producing 1 million tons of ECF pulp, a grade less than what the World Bank recommends for the pulp mill sector.

President Kirchner of Argentina met with community stakeholders to protest against Uruguay's imminent operating permit issuance. Moments later, Tabaré Vasquez, President of Uruguay, infuriated by Kirchner's agreement to meet with his own citizens to discuss the mill situation, called his Environment Minister Arana to sign the operating permit, and in an unprecedented move, decided to close borders with Argentina at the San Martin International Bridge, and is even considering closing the only remaining two bridges, in fear of possible border conflicts with disgruntled community groups.

The conflictive project is led by Botnia's Finnish CEO Erkki Varis, who has set his eyes abroad for constructing the first pillar of an industry that is no longer welcome in Western Europe, where pulp mills have contaminated for years. Botnia would have to pay Finnish workers up to 10 times more at home for equal work. Botnia even gets its own private port facility to export pulp (tax free) to a market that consumes more than 10 times the amount paper consumed in Uruguay.

Thousands of local stakeholders in Uruguay and Argentina, have marched against Botnia's project. Locals complain of contamination to come, cultural insensitivity of the Finnish CEO, as well as Botnia's total disregard for local and diplomatic sentiment. The international financial community supporting Botnia, including IFC, MIGA, Calyon, Nordea, Finnvera, NIB, and SEB has also ignored local sentiment, attracted by the financial promises made by Botnia.

The project is presently the focus of nearly two dozen international complaints in just about every procedural forum available to communities. It is also the source of regional bilateral instability, sending shock waves into the Mercosur Trade Agreement, the regional trade block, which Uruguay now threatens to abandon.

Yet Botnia's headaches come from more than community groups. Eleven of its workers seriously injured last August following a lethal gaseous accident, and left alone to tend to the escalating medical problems they have faced since, held a press conference to protest against Botnia's refusal to provide medical assistance. A string of accidents in fact, are at the center of mounting concern over Botnia's operations in Uruguay from its own workers and allies, even government, and the mill has only just begun to operate. Rushed construction and lax security controls employed by Botnia in an effort to beat the International Court of Justice ruling that is expected later this year, resulted in the death of one worker, amputations of limbs of others and several other serious injuries. Botnia refuses to assume any responsibility for the incidents. “

Posted 11/12/07

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Fortune's Most Admired US Companies 2007

In March 2007 Fortune Magazine Released its 2007 version of America’s most admired companies (see below 2006 coverage for information on rankings and methodology), ranked according to eight categories.

GE topped the list again this year, while Starbucks and Toyota moved up, and Apple moved up into the top 10.

For Social Responsibility, one of the eight categories and the only one directly related to ethics, United Parcel Service, leader in this category the last three years, slipped to No. 2 this year.

2007's Top 20:

1 General Electric
2 Starbucks
3 Toyota Motor
4 Berkshire Hathaway
5 Southwest Airlines
6 FedEx
7 Apple
8 Google
9 Johnson & Johnson
10 Procter & Gamble
11 Goldman Sachs Group
12 Microsoft
13 Target
14 3M
15 Nordstrom
16 United Parcel Service
17 American Express
18 Costco Wholesale
19* PepsiCo
19* Wal-Mart Stores

*denotes a tie

For the full list and rankings by category see Fortune's website.

Posted 3/28/07

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The HP Scandal - What Does It Mean for Corporate Governance and Culture?

In recent weeks the Hewlett Packard boardroom scandal, in which the head of the Board of Directors, Patricia Dunn, hired private investigators to discover which member of the board was leaking information to the press, has become increasingly complex leading to the companies admission that the investigators had accessed journalists' phone records without their permission, the resignation of Ms. Dunn, possible lawsuits and a Congressional probe. The ordeal has generated massive media coverage and commentary. Here EthicsWorld has highlighted excerpts from several insightful analyses of the issues surrounding the scandal:

Corporate Governance
In a September 8, 2006 column in the Financial Times by Michael Schrage, a researcher at the Massachusetts Institute of Technology:

"...The precedents here are awful. Does the fiduciary duty of a chairman oblige her to surreptitiously procure the phone records of suspect board members? If one declines to turn over their phone and e-mail records to investigate an unauthorised disclosure, should they be compelled to resign? Legally, the duty of independent directors is not to fellow directors or management but to shareholders. Is good governance best served by practices that conceal board actions and create perverse incentives for leaks and lawsuits?

The answer is no. Clearly, leak-driven corporate politicking can be destructive. But forbidding meaningful public dissent short of resignation leads to Watergate-like boardroom fiascos where the “cover-up is worse than the crime”. If being a director means subjecting oneself to surveillance authorised by the chairman, a disturbing line has been crossed. It is easy to imagine a Russian or Chinese company justifying a crackdown on public boardroom dissent by pointing to HP.

Boards need to encourage more transparency, not less. There should be formal mechanisms where disagreements can be publicly disclosed instead of creating perverse incentives for leaks. Painful? Perhaps. But surely a better direction to go than HP’s bizarre example. The company will survive; the reputation of its board will not."

The Role of the Independent Director
Investors Business Daily (9/14/06, article by Vance Cariaga) on how the scandal will affect the role of the independent director (according to the article, only 7% of the S&P 500 companies have an independent (or non-executive) chairman, which Ms. Dunn was):

"...One likely scenario is a shift in the way companies go about organizing their boards, McGurn says. "There are several major lessons, and the first is probably a loss of momentum of the independent chair," he said. "This is a structure that's very common in the U.K. and Canada, but fairly rare in the U.S."

The move to establish more independent chairs and boards emerged in response to renegade management teams that toppled companies such as Enron and WorldCom. By naming directors from outside the company ranks, the thinking went, a better system of checks and balances would be in place. "Not long ago directors were called 'pet rocks' — they were captive to CEOs," McGurn said. "But the paradigm has shifted. Boards are more powerful than ever before. The focus of power has shifted from the executive suite to the boardroom"......

Corporate board members might also find themselves changing the way they handle company problems. The University of Delaware's Elson says fallout from the HP situation will put boards in "pre-Enron positions," with lines of communication breaking down between those inside and outside the company." Board members are less likely to contact those outside management to find out about management," Elson said, "and those outside management will be less likely to contact the board..."

Silicon Valley's Corporate Culture
Robert Hof, Silicon Valley Bureau Chief for Business Week, on possible changes in the corporate culture of Silicon Valley, known for its aggressivity (9/14/06):

"...For many longtime Silicon Valley businesspeople, the HP mess is emblematic of a bigger clash—one that reverberates well beyond Chairman Patricia Dunn's boardroom battles and what they say about the HP Way...What it exposes is nothing less than a battle for the soul of Silicon Valley.

Even as the Valley is properly credited with embodying innovation, entrepreneurship, and growth, its shoot-from-the-hip, push-the-edge culture that grew out of the HP Way has always drawn frowns from the mainstream business world—and the regulatory and legal machinery behind it. More than ever, that latter half of the Silicon Valley Way is under attack. The rebellion against the Valley's means, if not its ends, has been building for years. After the dot-com crash, regulators finally gained the upper hand on their longstanding battle to count stock options as real expenses, with new rules from the Financial Accounting and Standards Board. That has done a number on profits of companies, from newly minted startups to established giants. Should we worry that the erosion of that culture could dim the Valley's ability to remain an innovation engine? Or was that culture just a sideshow, one to which it's best to bid good riddance? No one knows the answer for sure.

But change seems inevitable..." As Silicon Valley contends with the new realities of business, attempting to keep its edge while not stepping over it, its true mettle will be tested."

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The Best of European Business Awards

ICI Wins for Corporate Governance; BAA, OMV, Siemens, UBS Shortlisted

On February 23, 2006 the Financial Times announced the winners of its Best of European Business Awards. The competition, co-sponsored with Roland Berger Strategy Consultants, provides awards, determined by a jury, for several categories, with this year's overall Grand Prix winner being UBS, the Swiss banking group.

The winner in the Corporate Governance category is ICI, the UK chemicals company, which impressed the jury with its code of conduct, transparency of remuneration for board members, outstanding risk management and smooth management information system. Also shortlisted: BAA, OMV, Siemens, UBS.

The judges were: Lord Browne, chief executive, BP; Hanna Gronkiewicz-Waltz, former governor, Bank for the Republic of Poland; Klaus Kleinfeld, chief executive, Siemens; Anne Lauvergeon, chief executive and president, Areva; Kai-Uwe Ricke, chief executive, Deutsche Telekom; Paolo Scaroni, chief executive, Eni; Marco Tronchetti Provera, chairman, Telecom Italia, Pirelli and Olimpia; Daniel Vasella, chairman and chief executive, Novartis; Ben Verwaayen, chief executive, BT Group; Lionel Barber, editor, FT; Burkhard Schwenker, chief executive, Roland Berger Strategy Consultants.

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Fortune’s Most Admired Companies 2006

In February 2006 Fortune released the results of its Most Admired Companies 2006, for both America and the world.

The companies were ranked according to eight categories, only one of which, social responsibility, did ethics clearly come into play. The categories were: innovation, people management, use of corporate assets, social responsibility, quality of management, financial soundness, long-term investment, and quality of products/services.

To create the 65 industry lists, Fortune asked executives, directors, and analysts to rate companies in their own industry on eight criteria, from investment value to social responsibility. To create the top 20 and overall list of Most Admired Companies, the magazine asked the 10,000 executives, directors, and securities analysts who had responded to the industry surveys to select the ten companies they admired most. They chose from a list made up of the companies that ranked among the top 25% in last year's survey, plus those that finished in the top 20% of their industry. A total of 611 companies in 70 industries were surveyed. The results of the survey are below:

20 Most Admired Companies in America:

1 General Electric
2 FedEx
3 Southwest Airlines
4 Procter & Gamble
5 Starbucks
6 Johnson & Johnson
7 Berkshire Hathaway
8 Dell
9 Toyota Motor
10 Microsoft
11 Apple Computer
12 Wal-Mart Stores
13* United Parcel Service
13* Home Depot
15* PepsiCo
15* Costco Wholesale
17 American Express
18 Goldman Sachs Group
19 Intl. Business Machines
20 3M
* indicates a tie in rank

10 Most Admired For Social Responsibility:

1 United Parcel Service
2 International Paper
3 Exelon
4 Chevron
5 Publix Super Markets
6 Weyerhaeuser
7 Starbucks
8 Walt Disney
9 Herman Miller
10 Altria Group

10 Most Admired Companies in the World:

1 General Electric
2 Toyota Motor
3 Procter & Gamble
4 FedEx
5 Johnson & Johnson
6 Microsoft
7 Dell
8 Berkshire Hathaway
9 Apple Computer
10 Wal-Mart Stores

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Record Profits for Big Oil Sparks Heavy Criticism, Speedy Defense

On January 30, 2006 Exxon Mobil Corp. reported record profits for any U.S. company - 10.71 billion for the fourth quarter and $36.13 billion for the year, with total revenues in excess of $370 billion, more than the annual GNP of Indonesia. The company's earnings totaled $1.71 per share for the October-December quarter, up 27 percent from $8.42 billion, or $1.30 per share, in the equivalent previous-year quarter. These results top the former-record quarterly profit of $9.92 billion, which Exxon posted in the third quarter of 2005.

The profits are widely viewed as the result of several factors including extremely high oil prices, due in part to political tensions in the Middle East, and a steady demand for refined products, which was heightened by Hurricane Katrina and Rita this fall.

However the profits are not all good news for the company - they have spurred a debate over the ethical implications of the worlds largest publicly traded oil company benefiting from economic conditions that harm the majority of American’s struggling to fill their gas tanks. Several high profile lawmakers, including Senators Barbara Boxer (D-California) and Chuck Shumer (D-New York) have openly criticized Big Oil profits and policies and the Federal Trade Commission’s regulation of them. Their criticism joins that of opposition groups such as Expose Exxon, a coalition of 15 environmental and consumer rights organizations, which is calling for new windfall taxes on oil company profits and for Exxon to devote more resources to renewable energy.

Exxon Mobil, anticipating public outrage over the earnings, released an advertisement in several major newspapers and on their website, in an attempt to pre-emptively protect their reputation against attacks. The ad, entitled “Taking a Second Look,” claims that oil industry profit margins are actually on par with those of other industries. This, it asserts, is the due to the large scale of the the industry as well as the high cost of oil production. The ad seems to address future calls for increased taxes, stating, “In 2004 Exxon Mobil paid more in income taxes and other taxes than we earned here.” 

Moreover, the company has responded to suggestions that it reinvest profits into clean energy by citing its funding of research to "identify technologies that can meet growing energy demand and significantly reduce global greenhouse gas emissions." However, Exxon spokesman Russ Roberts said the company believes that pursuing wind and solar power production, as Expose Exxon has put forward, is "not economic to do."

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Bird Flu And Corporate Ethics

There are often no clear paths and simple answers for "doing the right thing" when companies face decisions that could impact the lives of many people. If pharmaceutical companies were simply to give way all their rights and patents and distribute key drugs for free, then they would be out of business quite soon and there simply would not be vital research. But, patent rights and the selling price of key vaccines and medicines is just one of the front page issues of corporate ethics at this time that has a profound impact on corporate reputation. In the EthicsWorld News columns we are tracking stories, for example, that deal with the Tamiflu vaccince by Roche. But there are many other ethical issues involved when one looks at Bird-flu.

Just one perspective on the story is provided by reporters Chris Prystay, Murray Hiebert and Kate Linebaugh of The Wall Street Journal in a January 16, 2006 report titled "Companies Face Ethical Issues Over Tamiflu," which started by noting that last year Procter & Gamble Co. "asked its company doctors whether it should try to secure a private stash of the avian-influenza drug Tamiflu for its staff of 25,000 in Asia. They're still debating the question. How ethical would it be if we were holding supplies that the general public didn't have access to but badly needed?" asks Shivanand Priolkar, the company's medical leader for southern Asia. He even worries that "people could come to know you have a life-saving medicine and you could make yourself a target."

The article continued by noting: Companies are grappling with a host of thorny issues as they prepare plans to keep their businesses operating if employees fall ill during a bird-flu pandemic that could strike tomorrow, in 10 years, or never.

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FT 100 Most Respected Companies

The Financial Times, November 18, 2005 reported in its annual survey of the "World's Most respected Companies" that Microsoft had just squeaked past the previous winner, GE, to be the world's most respected. A few weeks earlier, on September 12, 2005, Barron's in its first annual "The corporate world's most and least, respected," ranking declared that GE was number one, followed by Johnson & Johnson and then Microsoft. The methodologhies used by these business publications is less than totally evident to the reader, yet it seems that issues of perception of strong management, profitability and competitiveness come quite some way ahead of ethics and governance in determining how business leaders rank the "most respected." Barron's noted, for example, that strong management accounts for 33% of the weighting, while ethical business practices is down at just 11%. For similar rankings from Fortune magazine, see our coverage of Fortune's Most Admired Companies 2006 above.

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