Investigations Gone Wrong!

What do these situations have in common:

• Sally, one of your employees, accuses her co-worker Bob of sexual harassment.
• A warehouse inventory reveals that supplies are missing.  You review footage from the security camera, and it looks like Mike has been removing company property without permission.
• Jessica and her boss Mary never hit it off.  Now Jessica comes to you in tears, with a doctor’s note, requesting a leave of absence for stress.  She attributes her ill-health to Mary’s persistent harassment.

In each situation, the employer must undertake an investigation, and bungling the investigation could have serious legal and likely financial consequences.

A couple of recent decisions highlight the need for a fair investigation carried out by a neutral party.  (Please note that I am not a lawyer and none of this is intended as legal advice.)

Here are some things to keep in mind:

You must inform the respondent (i.e. the person who is accused of harassment, etc.) of the accusations against him or her.

In Elgert vs. Home Hardware Stores, Elgert was accused of sexual harassment by a young woman he supervised.  The investigator (more about him later) interviewed the alleged victim and some of her associates, and on that basis, fired Elgert, without ever telling Elgert what he was accused of doing.  Instead, the investigator repeatedly told Elgert, “You know what you did.”  Elgert was escorted off the premises and not allowed to return to collect his belongings.

If the investigator had done a little more digging, he might have found that the complainant (the woman who made the accusation against Elgert) had been heard to say that she would “get even” with him after he gave her a negative performance review and moved her to a work area away from a young man in whom she had a romantic interest.  I can’t provide every detail of Home Hardware’s bungling of this case, but suffice it to say that an Alberta jury awarded Elgert two years’ pay in lieu of notice and substantial damages.


After informing the respondent, you must give him or her a chance to tell their side of the story.

Home Hardware is not the only employer who failed to realize that there might be another side to what looked like a clear case.  Allied, a maintenance company, terminated five employees after a surveillance video seemed to show the men removing cans of soda from a vending machine on a client’s property by reaching up into the dispenser.  Allied argued that its policy of zero tolerance for theft justified the firings. 

However at the hearing before the Labour Relations Board of Quebec a representative of the soda company testified that the machine in question was known to be faulty and that cans of soda would sometimes get stuck in the dispenser or not be released at all.  Moreover, the amount of money in the machine corresponded pretty closely to the cost of the missing cans.  The Labour Relations Board overturned the terminations.  No word yet on damages for the employees.

Hat tip:  I first read about this case in a blog post by Diana Theophilopoulos who is a lawyer with Stikeman Elliot in Montreal. 

It is not enough that the investigator is a neutral party.  The investigator must also be perceived as being neutral.

Back to Elgert vs. Home Hardware Stores:  The executive who was given the task of investigating the complaint against Elgert had no training in investigating sexual harassment complaints.  What’s worse, he turned out to be an old friend of the complainant’s father. 

Even if the executive were a thoroughly trained and highly experienced investigator of such claims, he should not have been selected for the job.  Many reasonable people would argue that, as an old friend of the complainant’s father, it would be difficult for him to remain neutral.  This is not to say that such a relationship would inevitably mean that the investigator was biased.  It is enough that the relationship raises a reasonable doubt about his neutrality.  In other words, it doesn’t pass the “smell test.” 

Think carefully about the investigator’s mandate.  Is this primarily a legal issue, or is the organization’s reputation also at stake?

You may have read about Mike Rice, the university men’s basketball coach at Rutgers who was filmed behaving in an abusive manner towards the young men on the team.  It turns out that Rice had been investigated for abusive behaviour before the video surfaced.  But the investigators’ mandate had been to discover whether Rice perpetrated a “hostile work environment.”  (The answer was no, largely because student athletes are not “employees”).  The investigation focused on a narrow, legalistic question, rather than on wider issues of whether Rice’s conduct made him appropriate as a representative of the university and a suitable role model for young athletes.  Rutgers has had legal costs in getting out of the mess; more importantly, its reputation has suffered.

The main lesson for employers:  Investigations are serious matters.  Personal reputations are at stake and the stress level – even for those not directly involved – is likely to be high.  If an investigation is warranted, do it properly to avoid future legal hassles and costs.

Related Posts:

Bill 168 – Investigating Complaints under your Policy

Workplace Sexual Harassment: A Problem for Management 

Bill 168: A Recent Arbitration Decision

Note:  I offer investigations of complaints related to workplace harassment, bullying, sexual harassment, and other matters covered under bill 168.  See my website for more information, or contact me directly to discuss the situation in your workplace.

Drug Companies & Discontinued Products

A sign that one is getting older is that retailers start to discontinue your favourite products.  The Gap no longer carries the most flattering style of jeans; the LCBO stops importing the French rosé you prefer; and the hair conditioner you once swore by is now nowhere to be found.  It can be frustrating when a familiar product is discontinued for seemingly little reason other than changing tastes.  But when the product in question is a drug that one relies upon to control a serious medical condition, “frustrating” takes on a new dimension.

According to a recent article in the Globe and Mail, more than 1,000 Canadians rely on disopyramide (trade names Norpace and Rhythmodan) to control the effects of hypertrophic cardiomyopathy.  In this condition, the muscles of the heart walls become abnormally thick, causing chest pain, shortness of breath and sometimes fainting.  About half of the patients who try the inexpensive drug find it to be so effective that they can delay or even forgo open-heart surgery.  Disopyramide is made by Sanofi Canada, and this past February the company discontinued the drug, claiming weakened demand.  Patients who rely on disopyramide are scrambling to find supplies and at least one patient quoted in the Globe article, unable to track down a reliable supply, is booked for surgery next month.

Sanofi has promised to resume production, but they haven’t said when this will happen.  They have also committed to importing the drug from Europe and offering it for free (under Health Canada’s special access program) until production starts up again.

The Globe and Mail article quotes two cardiologists (Dr. Harry Rakowski at Toronto General and Dr. Lee Benson at the Hospital for Sick Children) who both expressed frustration with Health Canada’s current regulations.  Drug companies do not require any approval to discontinue their products, even when there is no alternative drug available.  And while companies are obligated to give 30 days notice before discontinuing a drug, they are not required to provide any rationale for their decisions.

The website of Sanofi Canada describes the company’s commitment to corporate social responsibility.  (For more on this vexed but possibly useful concept, see “Two Problems with CSR” by Chris MacDonald over at “The Business Ethics Blog.”)  And Sanofi takes ethical issues seriously enough to have a vice-president of evidence, value, and access.

Businesses need the freedom to discontinue products that are no longer profitable.  However, if a financially healthy company makes a decision to discontinue a product, and that decision has serious social ramifications, then considerations besides corporate autonomy come into play.  While Sanofi seems prepared to do the right thing and resume production of disopyramide, is it right that patients who depend on the drug have to rely on the company’s willingness to consider their interests?  Should Health Canada have some role in protecting patient access to vital but perhaps unprofitable drugs?  A month’s supply of disopyramide costs about $30.  What would be the comparable cost for even one patient to have open-heart surgery instead?

Workplace Sexual Harassment: A Problem for Management

This weekend’s Globe and Mail contained an excellent example of how not to handle a sexual harassment complaint:

RCMP Constable Janet Merlo says she felt compelled to respond when a supervising officer made a sexist remark to her in the company of a high-ranking official from the force.

“You know, if I were to make a complaint, I could probably retire on just what you say to me alone,” she said.

“What was that?” her boss replied. “Did you say you want to retire on me? Does that mean you like it on top?”

It was at this point that the senior RCMP officer in the room interjected.

“If you’re going to talk to her like that, do it somewhere else,” he said to the male officer. “I don’t want to be a witness to stuff like that.”

Honestly, I don’t think I could invent a better example of how not to handle an incident of sexual harassment.  First, the remark by the Constable’s supervising officer clearly fits one definition of sexual harassment, which is remarks of a sexual nature which are known (or should be known) to be unwelcome.  It is clear that the remark was unwelcome, as the Constable communicated as much when she referred to the possibility of making a complaint.  Second, the “high-ranking official” clearly knows that the remark was inappropriate – that’s why he told the supervisor not to speak to Constable Merlo in such a way in his presence.  But while he communicated to both that he understood the remark to be inappropriate, he also communicated to both that it was fine for the supervisor to go on making such remarks, as long as he did it “somewhere else”!  No wonder that the Globe reports that the biggest challenge facing the RCMP’s new Commissioner is the history of allegations of harassment by female Mounties.

As I wrote about workplace bullying in my previous post, workplace sexual harassment is a problem for management.  While I believe that women should be encouraged to speak up in the face of inappropriate remarks, expecting employees to deal with sexual harassment on their own is both unrealistic and an abdication of management’s responsibilities.  As is the case with workplace bullying, how management approaches the problem can make the difference between a flourishing and respectful workplace, and a workplace with low morale, low productivity, high employee turnover and a host of other problems.

Happily, I also have an example of an organization that was more successful in its response to an allegation of workplace sexual harassment.  A friend who was at the time in C-level of a flourishing start-up told me that he had a number of complaints by different female employees about a male co-worker who was making sexually-charged remarks.  My friend spoke to the employee in private, told him that the remarks were inappropriate and unacceptable, and that his behaviour would have to change.  When my friend learned that the remarks had continued and that the employee in question had made no effort to change his behaviour, he felt that he had no choice but to let him go.  It wasn’t easy for my friend to confront the employee.  And it certainly wasn’t an easy decision to let him go.  But my friend really felt that he had no choice.  He realized that if he failed to act, that would have been sending a message to his female employees that he tolerated sexual harassment and that he didn’t care about their discomfort.

Dealing with complaints of sexual harassment probably tops the list of things that a manager would rather not do.  No one looks forward to this kind of difficult conversation, but such conversations can become easier with communications training.  Having a code of conduct or other policy document in place is also crucial, as is making sure that all employees are aware of it.

Bullying and Workplace Culture

You can find a lot of information and advice about workplace bullying on the internet. Unfortunately while most of the information and advice is good so far as it goes, I find that much of it nonetheless misconstrues the nature of the problem.

Most discussions of workplace bullying start with a definition of bullying. Basically, bullying is “persistent harassment”, and “harassment” is conduct that is unwelcome or ought to be known to be unwelcome. Harassment might include insults and demeaning remarks, comments of a sexual nature, offensive jokes, or intimidation. Most discussions of bullying then move on to advice: “What to do if you are a victim of workplace bullying.” The advice usually amounts to four basic points:

• Document what is happening – keep a record of the harassment as it occurs, with names of witnesses if applicable. 
• Stand up for yourself. 
• Reach out and let someone know what is happening. Contact a union rep, or the Human Resources Dept, or the Employee Assistance Dept. 
• If possible, try not to be alone with the bully. 

As one-size-fits-all advice, this is pretty good. The problem is that the focus is on individuals – bullies and their victims – rather than on the workplace culture that makes both kinds of roles possible. Bullying is problem of organizational structure or culture; it requires management-level intervention and solutions. Expecting the victims of bullying to solve their own problems is both unrealistic and an abdication of management’s responsibilities. How management approaches the problem can make the difference between a flourishing and respectful workplace, and a workplace with low morale, low productivity, high employee turnover and a host of other problems.

I was once called in to a workplace where Mike, a recent hire (and not his real name) was persistently harassed by his immediate supervisor. The supervisor insulted his work, made a big deal out of minor mistakes, denied him information that was necessary for completing work properly, and generally treated him horribly. Mike liked the actual work and seemed to be pretty good at it, but things got to the point where he dreaded having to show up in the morning and had to take an unpaid stress leave. Luckily for Mike, he had the support of his co-workers who could see the supervisor’s bullying behaviour for what it was.

Mike wasn’t so fortunate when he approached management about the problem. The manager and the supervisor had a history together that Mike and the manager did not. The manager assumed that the supervisor’s behaviour was justified, that Mike was a “hot head” who didn’t know the job yet and couldn’t take constructive criticism. You can imagine the messages sent by the manager’s failure to investigate properly. The bully got the message, “Your behaviour is just fine and there is no need to change.” Mike got the message that he was not valued in the organization. And his co-workers got the message that, if they were in a similar situation, management would not support them.

It is unfortunate but hardly surprising that things got worse for Mike before they got better. Eventually, it took all of Mike’s co-workers in the department together going to the manager to let him know what they’d seen. And I have to give credit where it is due: When the manager understood the reality of the situation, he made it clear to the supervisor that the bullying behaviour could not continue. When the supervisor received that message, clearly and in no uncertain terms, his behaviour changed.

The lessons for managers: Bullying is a problem of workplace culture; it is not a problem that you should expect employees to solve between themselves. Everyone, at every level of the organization, needs to know what kind of behaviour is unacceptable. And when someone crosses the line of acceptable behaviour, management needs to be willing to back up their words with action.

Bill 168 – Investigating Complaints under your Policy

OK.  You have a policy about violence and harassment in the workplace.  You’ve got a program in place to implement the policy and to make employees aware of it.  Now someone has made a complaint under the policy.  What are your next steps?

With any luck, the policy will have been written so that your next steps are already laid out.  The complaint will have to be investigated, and based on the investigation, some remedy may be called for.  The investigator will speak to the person who has made the complaint (“the complainant” ) and to the accused person (“the respondent”).  After each interview, the investigator will draw up a statement for each party, which they will sign.  The investigator may also speak to witnesses and have them sign statements as well.  Finally, the investigator will study your policy, and then determine whether the behaviour in question constitutes a violation of it or not.  The investigator’s decision will be in the form of a written report.  The report is delivered to whomever is in charge of sanctions under the policy.  The investigator may be a supervisor, someone from the Human Resources team, or an outside party.  (I offer investigations through my company Principled Dispute Resolution and Consulting.)

An example might be useful here:  Mike is an employee, and Mary is his immediate supervisor.  After learning about the sections of the policy regarding harassment, Mike makes a complaint that Mary has, on several instances, made negative, hurtful, and belittling comments about his recently acquired tattoos.  Some of these remarks were made in private, but some were in the presence of his co-workers Sam and Jill.  The investigator interviews Mike, asking him to describe these incidents.  Based on the interview, the investigator writes up a statement.  Mike reviews it and signs, or asks the investigator to make changes before he will sign.  Next the investigator interviews Mary, to get her perspective on the incidents in question.  Again, the interviewer draws up a statement for Mary’s approval and signature.  Depending on what Mary has said, (“I did make the comments and I’m very sorry,” or “I respectfully asked Mike to observe our dress code and never belittled him”) the investigator may interview Sam and Jill about the incidents that they witnessed, and draw up statements for them.  Finally, the investigator studies the workplace policy on harassment in light of the relevant legislation (in Ontario that means Bill 168). and makes a decision about whether Mary’s behaviour is in violation of the policy.  (Your policy might be stricter than the relevant legislation, but it cannot be weaker.)

What happens after the report is submitted?  Again, your policy should describe the possible sanctions or consequences for violations.  Mediation may or may not be appropriate at this point, depending on the nature of the incidents.  It might be good for Mike and Mary to sit down together with a neutral third party and to discuss, in a controlled environment, what happened between them.  Mediation is an option, whether or not the investigator finds that Mary’s behaviour was inappropriate.  Mike’s hurt feelings are real, whether or not Mary intended him to feel badly, and whether or not her actions crossed the line into harassment.  Mike and Mary may still have to work together, and clearing the air between them is a good idea.

Once you have a policy on workplace harassment and programs in place to implement it, don’t be surprised if you start to receive complaints.  Employees may feel that they no longer have to put up with behaviour that they have endured for some time.  And don’t be dismayed to receive complaints.  Although it isn’t nice to think that harassment occurs in your workplace, being aware is the first step in stamping it out.

Defining Workplace Violence and Harassment – What Bill 168 Says

Ontario’s Bill 168 is an amendment to the Occupational Health and Safety Act and has been in effect since 2010.  Its aim is to establish minimum standards and to set out the rights and responsibilities of all those who have a role dealing with violence and harassment in the workplace. Although you may feel that you “know it when you see it” when it comes to violence and harassment in the workplace, it is a good idea to familiarize yourself with the legal understandings of these terms.

“Workplace violence” means the use, attempt to use, or the threat to use physical force that causes or could cause injury, in a workplace.  The “threat” of violence includes threatening notes, emails, or telephone calls.  (The legislation is silent as to Facebook postings and threats via Twitter.)

It is important to note that the relevant factor here is that the violence occurs in a workplace.  Who commits or threatens the violence is not relevant.  A violent act or threat may originate with another worker, a supervisor, a customer or client, an acquaintance of someone in the workplace, or a random stranger. When employers assess the risk of workplace violence (as they are obliged to do), they must consider all of these possible sources of violence.  It is worth noting that domestic violence that takes place in a workplace is covered under the Act, and that employers have a duty to protect workers from domestic violence in the workplace.

Although workplace violence can have deadly consequences, thankfully it is relatively rare.  Workplace harassment doesn’t often make the news, but I suspect that it contributes more often than we realize to low morale and low productivity.  (See my previous posts on Workplace Strife and What makes for a “good job”?)  “Harassment” is defined as a course of “vexatious” (bothersome) comment or conduct that is unwelcome, or ought reasonably to be known to be unwelcome.  Examples include bullying, intimidating or offensive jokes or innuendos, displaying or circulating offensive pictures or materials, and making offensive or intimidating phone calls.  A “course” of comment or conduct implies that the behaviour in question has happened more than once.

Does this mean that a supervisor can no longer criticize a worker’s job performance?  No.  Reasonable actions on the part of a supervisor that are part of his or her normal work are excluded.  These include changes in work assignments, scheduling, job assessment and evaluation, workplace inspections, implementation of dress codes and disciplinary action.  For example, it is perfectly acceptable for Mary to tell her employee, Mike, that the company’s dress code requires him to cover up his new tattoos while on the job.  It would not be acceptable for Mary to belittle or ridicule Mike for getting tattooed in the first place.  Nor would it be acceptable for Mary to allow or encourage others in the workplace to hassle Mike about the tattoos.

I am not a lawyer and none of this is intended as legal advice!  The Ontario Ministry of Labour has some excellent resources for Bill 168 on their website.

In my next post, I’ll talk about employers’ responsibilities under Bill 168.

"Droit de Suite" in the UK: Economic Impact So Far

I’ve written here before about “Droit de Suite” or artist’s resale rights. These are fees paid to artists when their work is resold. And I’ve written about some of the bad arguments often made against the adoption of droit de suite. In 2006 the UK adopted artists’ resale rights for living artists, and in 2012 they plan to extend the legislation to benefit the heirs of artists who have died within the past seventy years. At the time that droit de suite was implemented in the UK, many artworld figures made dire predictions that prices for the work of living artists would fall, and that those with artworks to re-sell would leave the UK for markets (such as China, Switzerland, and the U.S.) where artists’ resale rights did not apply. Either of these consequences would have been bad news for the UK art market, and for the many artists, designers, dealers, and others, whose livelihood is linked to it.

Have any of these dire predictions come true? Chanont Banternghansa, an economist at the National Bureau of Economic Research, and Kathryn Graddy, a professor in the Department of Economics at Brandeis University, decided to investigate the effect of artists’ resale rights in the UK. Their paper, “The impact of the Droit de Suite in the UK: an empirical analysis,” appeared recently in the Journal of Cultural Economics (2011) 35:2. (It is also available here, on Professor Graddy’s website.) Their results should be encouraging for those who argue that the Canadian government should adopt similar legislation to that already in force in the European Union.

Banternghansa and Graddy focused on works sold by the two major auction houses, Christie’s and Sotheby’s, from August 1, 1993 until July 31, 2007. (They excluded works sold by dealers, as prices paid and quantities sold are difficult to verify.) They made two different comparisons. First they compared those works that would be subject to droit de suite after February 1, 2006 with all art works in the UK that would not be subject to droit de suite. Next, they compared those same works (those subject to the droit de suite after February 2006), with works that were sold in other countries, but would have been subject to droit de suite if sold in the UK.

Banternghansa and Graddy found no evidence that the adoption of artists’ resale rights had a negative impact on price. They speculate that art buyers, in determining what they will pay for a given work, may not calculate the effect that the droit de suite will have on future re-sales, or that the effect may be too small to measure. As they say, given the inherent difficulty of pricing art and the high commission fees paid by both buyers and sellers, the droit de suite may not figure very largely in sellers’ thinking. Banternghansa and Graddy also found no evidence that those wishing to re-sell works subject to droit de suite had deserted the UK for other markets. However they caution that this might change when the UK extends artists’ resale rights to an artist’s heirs after his or her death.

The impact of droit de suite on the UK art market seems to have been minimal so far. Certainly, the most pessimistic forecasts have not come to pass. This might give some confidence to those who would like to see Canada also adopt a policy of artists’ resale rights.

The Cost of Workplace Strife

I have a friend who works in construction and recently moved from one company to another. (I’ll call him Jerry.) I was surprised when he told me, because I knew that the job he left was well-paid. I wondered why he would give it up. Jerry explained that the job had involved driving out to the site with his immediate supervisor, and the guy was a total jerk. He would make nasty remarks to Jerry and put him down on the drive to the job site. This was bad enough, but having to face it first thing in the morning was too much. Rather than confront his supervisor, Jerry quit as soon as he found a comparable position. Jerry is not someone who avoids conflict at any cost and he can more than take care of himself. Like a lot of people, he expects some basic civilities in the workplace. He told me that he was now making less money, but was much happier. A well-paid job didn’t make up for feeling stressed and aggravated at the end of the day.

I hesitate to call what went on between my friend and his ex-boss “conflict” because conflict usually implies mutually hostile interactions. In other words, it takes two to have a conflict, as it takes two to tango. And “bullying” doesn’t seem correct either, because bullies tend to single out particular victims. The ex-boss was apparently nasty in an equal opportunity way and Jerry was not treated particularly worse than anyone else. While I don’t know if “workplace strife” is the best term for this problem, I do know that the cost to businesses is huge. The company lost the investment it made in training Jerry, and had to assume the cost of training his replacement. Who knows how many other employees were lost for similar reasons?

The connection between employee happiness and a company’s profitability may be closer than many have realized. In an article in Perspectives on Psychological Science, published last summer, researchers analyzed the relationship between employee satisfaction (examining surveys and retention rates) and the companies’ financial performance, for over 2000 business unit. They found that if employees had positive perceptions of their jobs, the companies benefited through better retention rates, increased customer loyalty, and better financial performance. Now, you might suspect that the employees were happy because the companies they worked for were doing well – but that wasn’t the case. The researchers found that employee perceptions affected financial outcomes, more than financial outcomes affected perceptions. (You can read more about the research here.)

The nature of the construction business is such that the work is in different locations all the time. I don’t know whether management was aware that Jerry’s supervisor was a problem. I don’t know if they noticed a higher-than-normal attrition rate from the work sites where he was in charge, or if they ever addressed his behaviour. When management is aware of such problems and they don’t act, this is extremely demoralizing for employees. It sends the message that management condones the bad behaviour, or at least isn’t very bothered by it.

I don’t know what the ultimate solution is when dealing with someone like Jerry’s supervisor. Probably, someone would have to confront him about his behaviour and let him know the affect he was having on others. Many people would rather undergo dental surgery without anesthetic than confront a difficult person. But doing so is part of being a good manager, and I firmly believe that we can all gain the necessary skills. It might never be something you look forward to doing, but failing to do it can have very high costs.

Unintended Consequences, the Common Good and Cell Phones in Africa

I just read a fascinating article: “Mobile Phone Diffusion and Corruption in Africa” by Catie Snow Bailard, published in the journal Political Communication in 2009. The author looked at data from 12 countries from the period 1999 to 2006. She found that there was a relationship between the number of people in a country who had access to cell phones and the country’s level of perceived corruption: The greater the level of cell phone penetration, the lower the level of perceived corruption. In a second study, she analysed the degree of mobile phone signal coverage across 13 provinces in Namibia. Again, greater levels of cell phone coverage were associated with lower levels of perceived corruption.

(You might wonder why the author chose to examine “perceived” rather than actual levels of corruption. Corruption is a difficult concept to define, let alone to measure. For one thing, corruption is culturally variable. What is considered a bribe in one place might be seen as a necessary cost of business in another. Secondly, the often private nature of corrupt behaviour can make it difficult to detect. Counting the number of prosecutions for corruption in a given place might tell you nothing more than the quality of the prosecutors. For these reasons and others, social scientists rely on indirect means of getting information about corruption. Transparency International’s Corruptions Perceptions Index is one that is widely used.)

It is easy to understand that improved telephone coverage and greater ease of communication at a distance would improve the lives of Africans. But why would it contribute to lower levels of corruption? Bailard offers some plausible explanations. First, corruption thrives in conditions of secrecy, and opportunities for corruption increase in cases of information asymmetry – when one group of people has greater access to information than another group. Cell phones decentralize information. As more people come to own cell phones (or have access to them) information becomes more readily available. Bailard refers to another study that found that the simple act of posting a newspaper advertisement stating that aid was meant to be dispersed to certain schools significantly reduced the amount of aid lost through misappropriation. (That study, “Fighting corruption to improve schooling: Evidence from a newspaper campaign in Uganda” by R. Reinikka and J. Svensson, was published in the Journal of European Economic Association in 2005).

Another reason why cell phone use may decrease corruption is that they make it easier for ordinary citizens to fight corruption. It becomes relatively easy to contact reformers, government officials, or the news media. It is plausible that individuals contemplating corrupt behaviour will weigh their potential gain against the likelihood of getting caught and being punished. In a climate where exposure and punishment is likely, people who may have been tempted to increase their wealth through corrupt means will think twice. (I made a similar point about insider trading in an earlier post.)

The connections between cell phones and reduced corruption in Africa strikes me as a wonderful example of an unintended consequence. No one involved in the business of providing mobile phones to Africa did so with the aim of reducing corruption. Rather, they saw a good business opportunity and hoped to make a profit. The reduced levels of corruption were a good consequence, but one that nobody intended or even foresaw. When I have taught ethics in the past, many students are very readily convinced by the view that good acts are those that have the best consequences. Indeed, many find this view obviously true. The problem, though, is that the line from an act to its consequences is not always straight or apparent. There are countless examples of good-willed individuals who thought that their actions would produce beneficial results only to be dismayed by the actual outcome. This is the problem of unintended consequences, and it is a powerful reason to act with caution, especially when our actions will effect others. It is good to be reminded that unintended consequences can be positive as well as negative, and that neutral acts can bring about beneficial results.

Another point – we often assume that when people act in their own interest, the benefits they reap will be strictly individual as well. But happily this isn’t always the case. Here, many individuals acquired cell phones for their own purposes and improved their lives. Yet out of their individual actions emerged the collective good of reduced corruption.

How to Write a “Code of Conduct”

Recently I’ve been working with a client on a project that involves codes of conduct, and I’ve reviewed a number of such codes within a specific industry. A “code of conduct” is a set of rules or proper practices that regulates behaviour within an organization. Many large businesses and organizations have codes of conduct, as do armies, street gangs, criminal conspiracies, and groups of professionals. Even pirate ships, often a byword for lawlessness, had codes of conduct to regulate discipline, division of spoils and compensation for the injured.

Here are some of the things I have found about crafting an effective code of conduct, no matter what kind of behaviour or organization is to be regulated:

Purpose: It is worth spending some time thinking about why you need a code of conduct before starting to write. What kinds of activities need to be regulated and why? What values do you want to promote? What kinds of practices do you want to discourage?

Content: The most effective codes I have seen contain both abstract language about values and some clear, concrete guidelines. It is fine to say something along the lines of: “Members of the organization will be honest and scrupulous in financial dealings.” But you might also want to say, “Employees will neither accept nor offer bribes.”

Scope: Don’t try to be exhaustive. The idea is not to regulate every aspect of an individual’s life, or even every aspect of working life. Focus on what you believe is most important.

Consult: Talk to the people who will be using the code. What kinds of ethical challenges do they face? Which work-related situations do they find most troubling? If the code is to be effective it has to be relevant to the experiences of those who are expected to abide by it.

Length: If you want the code to be a document that people refer to and consult on a regular basis, it should not be too long or complex. A good length to aim for is one page, maximum.

Style: I’ve seen several codes of conduct that were all too obviously written by lawyers. While it is a good idea to have a code vetted by a lawyer, it should not require a law degree to understand it.

Keep it current: As your organization develops and grows, members will face new challenges. And technological advances bring their own ethical challenges. Ten years ago, no one needed a company policy about employees’ Twitter activity. Today, it might be quite relevant. Be sure to review and update your code of conduct periodically.

No Girls Allowed?

Recently a Florida lawyer has been getting attention because he refuses to represent female clients. Kenny Leigh built his practice, now employing ten lawyers, with the slogan: “Men only. Family law only.” Mr. Leigh does not have anything against women, he says. The problem is that Florida family law is systematically biased against men. The Florida bar association, which must approve legal advertising, has asked him to drop the “men only” slogan, but it won’t take action against him unless someone files a discrimination suit. (Ontario lawyers who advertised their refusal to represent clients based on sex would likely run afoul of the Ontario Human Rights code, not to mention the Law Society of Upper Canada).

I can’t comment on the fairness of of Florida family law. All too often when someone claims that the law is unfair or that a particular judge is “biased,” what they really mean is, “I’m unhappy that I didn’t get what I wanted.” Some of Mr. Leigh’s critics were particularly upset by his admission that not all of the fathers he represents are “good dads”. He explains, “If I had to base my practice on just good dads, I'd be broke.” It strikes me as misguided to criticize Mr. Leigh for his willingness to represent “bad” fathers. We don’t expect criminal defense lawyers to represent only the innocent. Anyone in family court who needs a lawyer, “good parent” or not, should have access to one.

Mr. Leigh may be a particularly assertive “single sex” lawyer, but he isn’t the only one. David Pisarra is a California lawyer who also focuses on male clients, but for different reasons. Pisarra noticed that men and women approached legal issues differently. When he represented female clients in family law cases he found that they required a lot of emotional support. Meetings would go on for hours because he spent so much time discussing his clients’ personal problems. He found it uncomfortable to be pushed into a therapeutic role. Men, in contrast, didn’t expect their lawyers to be a source of emotional support. Pisarra found he could be blunt and direct with his male clients, and focus on legal tactics. And that is how he prefers to work.

I think that there are good reasons why a lawyer (or other professional) might want to create a niche for themselves working only for a specific clientele. Both Leigh and Pisarra claim that their specialization allows them to be more effective at what they do. What I found more disturbing about Leigh than his sex discrimination were the attitudes he conveyed about family law: "It's gloves off. It's nasty stuff." So divorce and family breakdown – already very difficult times in the lives of families and children – are characterized as a sport and (worse) as a violent contest. Now, I can imagine situations where family law disputes call for aggressive tactics. But we’ve seen again and again that hostile legal proceedings can make bad situations worse. They make it difficult or impossible for divorced couples to co-parent their children, they cost families a great deal of money, and they prolong emotional turbulence. Aside from the lawyers, does anyone benefit from drawn-out and antagonistic court proceedings? These are just some of the considerations in favour of mediating rather than litigating family law disputes.

Investments, Fraud and Fairness

Bernie Madoff is currently in jail for master-minding the largest Ponzi scheme in history. But the saga is far from over for his investors. Irving J. Picard is the bankruptcy trustee appointed by the court and charged with recovering funds and then ensuring the fair distribution of any recovered money. So far Mr. Picard has filed lawsuits seeking to recover money from Madoff’s immediate family, from the so-called “feeder funds” whose directors profited from the fraud, and from major individual investors who profited. One lawsuit, against the estate of investor Jeffrey Picower, was recently settled for 7.2 billion dollars. Another, against the owners of the New York Mets, is currently in mediation.

One of the features of a Ponzi scheme is that investors who enter the scheme earlier have the possibility to profit from the fraud, whether or not they are aware what is going on. Since the funds of later investors go to pay for the “earnings” of earlier investors, investors signing on later in the fraud have less possibility to recover any “profits” and are at risk of losing more than the earlier investors. Mr. Picard has asked any investors who recovered more money than they invested in the last six years of the fraud to return their “earnings.” For example, if someone had invested $100 000 with Madoff and withdrew the annual “profit” of 11% each year for six years, that investor is being asked to return $66 000. This seems fair. There was, in effect, no profit from investments because the funds weren’t really invested. The $66 000 “profit” was the money paid into the fund by later (unluckier) victims. Even though our $100 000 investor didn’t know what was going on, he or she benefited from the fraud at the expense of others.

Now here is where it gets a little more complicated (and ethically interesting): We can assume that our imaginary investor is fairly unsophisticated. He or she was not in a position to suspect that Madoff was a fraudster. (Presumably, if our investor had suspected as much, he or she would have invested elsewhere.) But not all of Madoff’s investors were equally unsophisticated. Mr. Picard has argued that “sophisticated” investors, such as the owners of the Mets, should have suspected Madoff, although there is no evidence that they did. These investors should be treated, in effect, as if they did know. This would mean treating them as if they acted “with actual intent to hinder, delay or defraud creditors.” Mr. Picard is asking Fred Wilpon and his associates for the return of the “profits” from the last six years (requested from all investors), as well as the $132 million in “profits” from earlier years. He has also argued that because Mr. Wilpon ignored numerous “red flags” about Madoff, he should pay back all of the money he invested – around $700 million.

Mr. Picard suggests, in effect, that there are two kinds of Madoff victims – “sophisticated investors” who should have known better and “unsophisticated investors” who can’t be expected to have known better. The legal issues here are very intricate and turn on past interpretations of the doctrine of caveat emptor (“let the buyer beware”). The ethical issues strike me as just as intricate. If Madoff was not a fraudster, but rather a legitimate investor whose holdings were wiped out in the economic downturn, would we want to say that sophisticated and unsophisticated investors should be treated differently? It can be argued that large investors, such as the owners of the Mets and the various banks who invested with Maddoff, contributed to the perception of legitimacy that the fund enjoyed. I can imagine an unsophisticated investor thinking, “If J.P. Morgan is invested, it must be a good bet.” If the actions of large sophisticated investors did contribute to the losses of unsophisticated investors, should the former be held financially responsible? Perhaps most importantly, what mechanisms should be in place for the future, so that all investors, whatever their level of sophistication, have adequate information to make informed decisions?

Why use Workplace Mediation (as opposed to another solution)?

When I took my mediation training, several of my fellow students were already working in human resources or employee relations. Despite their different perspectives, they could all agree on one thing: microwave ovens are a major source of conflict in the workplace. Whether one person is warming up food that another finds smelly, or someone else is hogging the oven so no one else can warm up their lunch, the microwave is all too often a source of tension.

I found this surprising at the time and I was reminded of the microwave-as-flashpoint when I read about the recent Superior Court review of an Ontario Human Rights Tribunal (OHRT) decision. In the original decision Maxcine Telfer, a small businesswoman, had been ordered to pay $36,000 to a former employee because of alleged discrimination and harassment. Among other things, the OHRT arbitrator found the staff microwave use policy to be discriminatory. The complainant said that she began to feel targeted after her boss complained about the smell when she warmed some curry in the microwave. Apparently Ms. Telfer is extremely sensitive to smells and the office had a strict “no scents” policy in place.

Conservative commentators have had a field day with this story, and I won’t say more about the original decision or its reversal by the Superior Court. What I found most interesting about the episode was how a relatively trivial matter can blow up into something much more serious. If they’re fortunate, employees will find ways to get along despite microwave abuse and other sources of tension. But what to do when a low-level conflict intensifies? Usually it isn’t possible or desireable simply to fire or transfer everyone involved in a conflict. Better yet, how to devise policies in such a way as to avoid unnecessary conflict in the first place?

Workplace mediation can help. In mediation, each party in the dispute has a chance to express their point of view. Parties get the opportunity to listen to and understand each other’s perspective, and then work together to come up with creative ways of resolving their difficulties. Bringing in a mediator to facilitate discussion, whether this means an outsider or someone already in the company with mediation training, is a good idea for a number of reasons. Research indicates that people are more likely to respect a policy or decision that they have had a hand in crafting. If the boss simply devises and hands down a policy inevitably there will be someone who doesn’t feel that their concerns were taken into consideration. This can be bad for morale. A policy that the boss has devised without fully consulting employees may not really address all of the issues that are important to them. A group of people working together is more likely to devise a workable solution than a single person working alone. Moreover, while having a fair and reasonable, say, “microwave use policy” may be the single most important element in a happy workplace, it is not the sort of thing that most employers will want to spend a lot of time thinking about. Mediation is a way of sharing the burden.

Ethics and the Culture of Overwork

A friend recently told me that she hadn’t seen much of her husband lately. At first I wondered if their relationship was on the rocks. Instead it turns out that the new head of his division insists on 12-hour days from all the senior people. Now, I’ve put in my share of 12-hour days. When I had my first jobs teaching philosophy in university I had to work very hard and sometimes kept long hours. But I liked the work and I didn’t mind that much. I understood that many people have to keep even longer hours at jobs that they don’t find so rewarding, and I realized that companies sometimes have “crunch” times when they must make excessive demands of their staff.

My friend’s husband – I’ll just call him “Simon” – does not work for a struggling start-up, and he doesn’t have the kind of job (like, say, in a law firm) where there is a direct relationship between the hours he works and the amount of money he brings in. He works for a major company in a profitable industry. And while the industry does provide a socially useful function, it isn’t as if he’s about to find a cure for AIDS or devise a way to stop global warming. Simon is good at what he does and well compensated for it. I suppose that if the long hours bothered him that much he might decide to seek work elsewhere.

So while I understand that 12-hour (and longer) days might sometimes be necessary, I find it a bit troubling that a 12-hour day is the expected norm. What will they do when a crunch really does arrive – provide sleeping bags and a catered breakfast so that employees don’t even have to go home? I imagine that Simon’s boss has made his demand in order to establish a certain culture in the company. Any ambitious man or woman a little lower down in the hierarchy need only to consider the hours of the senior people to know what they must do to get ahead.

The boss’s ukase strikes me as bad management for a number of reasons. Demanding that employees put in twelve-hour days is not the same as demanding that they do 12 hours worth of work. The jobs that are affected are knowledge-based, requiring creativity and advanced problem-solving skills. It is not the sort of work that you can do effectively for long hours many days at a stretch. This means that some of those compelled to put in a 12-hour day are doing their usual seven or eight hours of work and stretching it out to take up 12 hours. What a waste of time and human potential! It probably also means that some of the twelve hours are taken up by non-productive, time-wasting exercises. I can imagine endless boring and irrelevant meetings and long back-logs of unread emails that one should never have been sent in the first place. When you factor in the stress of long days, resentment at the fact that employees can no longer make time for the gym or other interests, and the added strain on their families, you end up with a pretty unhappy (not to say dysfunctional) workplace.

It is puzzling to me that a company would hire people they believe to be smart and capable, and then treat them like coal miners who must spend a certain number of hours chipping away underground. Let’s set aside the question of whether this amounts to bad management. Are such demands unethical? There are reasons to think so. The company Simon works for is in an industry in which there is a certain amount of hand-wringing at the under-representation of women. I’m willing to bet that every major company in the industry has a policy to address this concern. Insisting that employees regularly spend twelve hours at the office if they want to get ahead is especially hard on women, who often have non-negotiable family obligations. A corporate culture of overwork is just one more barrier to their success.

Bad Arguments Against "Droit de Suite"

When I teach critical thinking and argumentation, I often tell students that nothing bothers philosophers more than bad arguments in support of positions they agree with. Well, bad arguments against positions one cautiously supports can also be pretty annoying. A couple of weeks ago I discussed droit de suite – a royalty that visual artists or their heirs receive when their work is resold at auction. Since then I’ve tried to learn more about droit de suite and I’ve come across a few persistent bad arguments against it.

1. Droit de suite benefits established, older artists, not the young and struggling artists who really need financial support.

Any policy will benefit some people more than others. That, in itself, is not a reason to be against a particular policy. This objection would only have force if we were choosing between droit de suite and some other policy that would in fact benefit younger artists. But so far I’ve heard nothing about a possible alternative.

2. Droit de suite is not a substitute for a proper retirement plan.

The folks at Fidelis Art Prints in Vancouver make this objection in an article on their website. They make some excellent points about the importance of pricing one’s art properly and about financial management for artists. And they’re right - droit de suite is definitely not a substitute for a proper retirement plan. Neither is winning the lottery. But it simply doesn’t follow that the Canadian government should resist efforts to institute droit de suite here.

3. Art collectors have a right to make a profit from their investments.

Art collectors are an important part of the art world. When collectors purchase works, they help support artists and galleries. Some collectors generously lend or donate their collections to museums where they can be viewed and enjoyed by everyone. Collectors most definitely should have the chance to reap a financial gain if they choose to sell. In countries were droit de suite is the law, the amount of money that goes to an artist when a work is resold is quite small – usually four to five percent of the resale price up to a certain maximum. No one is asking collectors to stop making a profit, only to make a somewhat smaller profit.

4. Why should droit de suite apply to artworks, but not to works of fine design?

Perhaps works of fine design should also be included in resale royalty schemes. I tend to think that there are important differences between artworks and design objects that would make droit de suite inappropriate for design objects. Yet whether I’m correct about this or not has little bearing on the main question: Would droit de suite be a good thing for Canadian artists and the Canadian art market, or not?

5. Droit de suite is difficult to administer and enforce.

Again, this is probably true. Yet many other jurisdictions have found a way to administer droit de suite. Canada might learn from their experiences. Also, the fact that a policy is difficult to enforce is not necessarily a reason to reject it. The administration and enforcement of child support payments by non-custodial parents can be extremely difficult; yet this is not given as a reason to change existing family law.

These five arguments against droit de suite are low-hanging fruit, so to speak. Most of them are “fallacies of relevance.” Even if the point they make is true, it is of little or no consequence for the issue at hand. I don’t mean to suggest that all arguments against the policy are bad. In fact, some of the arguments against it, such as those raised in an article by Jonathan Tepper, are very subtle and complex, and would require a lot more attention that I can give them here.

One final thought: Some of the more legally sophisticated arguments against droit de suite turn on the objection that it would be a mistake to treat artworks differently from other types of property. But it is worth noting that we do, in fact, already treat artworks differently, both as a matter of practice and in the law. For example, many countries have laws and regulations against exporting certain kinds of artworks, laws and regulations that do not apply to other kinds of property.

Ethics and Insider Trading

This morning’s Globe and Mail brought the news that Mitchell Finkelstein, a partner in a prominent Toronto commercial law firm has been accused of “tipping” – passing along sensitive confidential information to an old friend from university, who in turn profited from the information. The friend, Paul Azeff, works for the Canadian Imperial Bank of Commerce in their “World Markets” division. He, along with Korin Bobrow (a high school friend and colleague) have been accused by the Ontario Securities Commission of insider trading and suspended by their employer. Two employees of TD Waterhouse were also charged by the OSC in connection with the investigation and have been suspended by the bank.

It is important to note that none of these allegations has been proven.

Insider tipping and trading are both immoral and illegal and certainly no laughing matter. Still, I couldn’t help smiling as I read the Globe’s earnest claim that:

“Nothing in Mr. Finkelstein’s background would have suggested this turn of events.”

Now, insider tipping and trading are, by definition, crimes committed by insiders. That is, by people with access to information that is not yet public knowledge. People without access to privileged information – outsiders – are unlikely to run afoul of the law here. So the very “background” that made Mr. Finkelstein an insider – his private school education, his membership in the same fraternity as Mr. Azeff, and his position of trust in a prominent law firm – are the same things that made possible the accusations against him.

The Globe’s claim is also naïve in its implication that we should be able to find something in Mr. Finkelstein’s background that would allow us to make sense of the allegations. Surely, the reasoning goes, there must be some character flaw or formative experience that separates the vast majority of honest and rule-abiding lawyers and brokers from those who seek to profit from insider information. This idea is comforting, because once we have figured out what that difference is, we should be able to protect ourselves from the cheaters and fraudsters of the world. It hardly needs to be said that the idea is dangerous as well. Men like Bernie Madoff and Earl Jones were able to dupe as many as they did just because there was nothing in their backgrounds to indicate that they would engage in criminal acts.

If an employer can’t tell from a person’s background whether he or she is likely to commit an immoral act or a crime, what is to be done? One answer is to reduce the opportunity that any employee has to get their hands on information that might be profitable if passed along. This passage in another article about Finkelstein jumped out at me:

“In the report the OSC alleges that between November 2004 to May 2007 Finkelstein “actively sought out and acquired” non-public information either through his role as counsel with Davies or by conducting searches on company system.

If the allegations are true, then Finkelstein was able to gain access to sensitive information that he strictly had no right to have. Reduce the number of people who have access to such information, and the potential for insider tipping and trading will also be reduced. Furthermore, taking a leaf out of the Security Services book, every deal file that is of potential value should be marked as such and then meticulous track kept of every person who reads it.

"Droit de suite" and the Canadian Art Market

A composer receives a royalty when her work is played over the radio. A writer whose articles are reprinted is paid a fee. A painter whose work is re-sold at a profit receives….. nothing.

This is the current situation for visual artists in Canada, most of the U.S., Asia, and New Zealand. However things are different in the countries of the European Union, Australia, and California. There artists receive a percentage of the re-sale value when their work is sold at auction. If the artist is deceased, his or her heirs are paid until copyright is expired, usually in seventy years. This fee, called “droit de suite,” is a way for artists and their families to benefit from the increase in value of their work over time. It is different from copyright, which visual artists usually retain over their work. Droit de suite originated in France in the years after WWI as a way to help the widows of artists killed in the war. The amount received by an artist depends on the price of the work at sale, but usually amounts to about four percent. The maximum royalty payment an artist can receive for each re-sold work is 12 500 euros, or about $17 500 Cdn.

The EU agreed on the adoption of droit de suite in 2001, although it was only put into effect in the U.K. in 2006. Australia adopted the Resale Royalty Right for Visual Artists Act in 2010, with the exploitation of aboriginal artists particularly in mind. Here, the Canadian Arts Representation (CARFAC) has been lobbying politicians to add a resale right to Canada’s copyright legislation. As European countries pay resale fees to artists of all nationalities, they would like to see Canadian auction houses respond in kind. The Globe and Mail recently discussed the issue of droit de suite with an article featuring the painter Mary Pratt. A painting she sold for $50 in 1966 is expected to bring between $10 000 and $15 000 at Sotheby’s auction of Canadian art later this fall. Pratt is now 75 and suffers from health problems; I imagine she might appreciate a financial windfall.

There was a lot of controversy in the UK when a harmonization of droit de suite across Europe was first suggested. Because few wanted to be seen as arguing against a measure that would benefit artists, most of the arguments put forth against resale royalty rights tended to be practical or pragmatic, rather than strictly moral. For example, it was said that the fees would be difficult to administer, and that the payments would tend to benefit the heirs of established dead artists, rather than impoverished living artists. It was also suggested that artists already benefit from higher re-sale prices for their work, as they tend to push up the prices for new work as well.

The strongest argument offered in the UK against the adoption of droit de suite came from the auction houses, who argued in effect that it would create an un-level playing field for them in comparison with auction houses in the U.S., Switzerland, and Asia. If the transaction costs for selling a work are higher in the UK than in these other markets, then collectors would be likely to move to these other markets. Imagine a Japanese collector with a Picasso to sell. If it would cost him an extra $17 500 to sell the work in Paris or London as opposed to New York, it is not difficult to imagine that he would opt to sell the work in New York.

It is too early to tell in what ways the adoption of droit de suite in the U.K. has affected the art market there. What would be the effect if Canadian politicians voted to adopt some form of droit de suite? It would be very interesting to see some industry projections. How much would living artists benefit? What percentage of the art market in Canada is made up of Canadian works, and how much is international? If the auction houses do most of their business with Canadian works, then droit de suite might have only a minimal effect on their bottom line.