DIFFICULT MORAL QUESTIONS
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Question 108: What should an executive do about superiors’ misuse of corporate resources?
While still in high school, I began working part time as an office boy at one of the regional offices of a large, nationwide, nonprofit organization. Upon graduation, I became a full-time employee, and worked my way up to regional manager while studying in the evenings for a B.A. and then an M.B.A. I believe wholeheartedly in the organization’s purpose, and working for it has been gratifying. Moreover, I always have been treated very well.
In January, after six good years as a regional manager, I was transferred to the national headquarters and promoted to administrator for the eight regional offices. Since regional managers have a certain degree of autonomy, that does not quite make me the regional offices’ general manager, but I now am the organization’s top executive after the president and three vice-presidents. All of them have been supportive, and I have had no problem settling into my new job.
However, I have encountered an unexpected ethical issue. I knew the organization took a lavish approach when people from here visit the regional offices or regional managers come here for semiannual meetings. Believing less extravagant arrangements would be more appropriate for a nonprofit organization, I hoped to get everyone involved to agree to cut back. But after taking over here, I discovered that I had seen only the tip of the iceberg. There are many other instances of extravagance in doing essentially legitimate things, and the officers, whose salaries are quite adequate, enjoy remarkably generous fringe benefits, authorized by the board. But there also is something far more troubling. All the officers are diverting resources from the organization for their personal benefit.
I don’t just suspect this. I know it is going on. The president has talked to me quite freely about some of these matters, and I cannot help overhearing other things. Having become good friends with the accountant, I asked him about the situation, and he confessed to knowing about it for over three years and becoming increasingly anxious about it. During that time, the abuses have grown steadily and currently include the following. The president and his wife regularly take vacations and entertain relatives and personal friends at the organization’s expense. All the officers frequently charge to their budgets items of office furniture, equipment, and supplies sent as gifts to relatives and personal friends, or taken home permanently for family use. One of the president’s secretaries spends most of her time working on his and his wife’s family histories and other nonbusiness affairs, including activities involving the officers’ children and help with their school and college assignments. Three other people on the payroll seldom come to the office; they almost always are at one of the officers’ homes doing maintenance, yard work, housekeeping, and so forth. Over the past twelve months, these and other, smaller abuses have cost the organization more than two hundred thousand dollars. The figure for this calendar year will be significantly higher, because the officers (except one vice-president) are going to take their wives on a European vacation in October. As cover, they are arranging some brief meetings with leaders of counterpart organizations in each of the six capital cities they will visit. These meetings will serve no real purpose, and the junket will cost over a hundred thousand dollars.
Though I am now responsible for the extravagant arrangements for meetings with the regional offices, my office has not been involved in any of the clear-cut abuses and will have nothing to do with the European vacation. I also declined when the president invited me and my wife to go along on that trip, saying I felt I should stay here to back up the vice-president who will remain on duty. And, though my predecessor personally participated in some abuses, I have not taken advantage of any opportunity to do so. But what the officers are doing is troubling, and I have been wondering what if anything to do about it.
I often deal directly with the president. I could talk privately with him about my concerns, to which he seems oblivious. But I very much doubt that I could get him to do anything. He obviously is accustomed to these perks and is hardly likely to welcome the idea of giving them up. Moreover, even though he is the prime culprit, he is not in the least embarrassed about what he and the others are doing. If I put the matter to him gently, I am sure he would brush it aside and send me off with a friendly pat on the shoulder. Only a sharp confrontation would get him to take my concerns seriously. But anybody who gets into a sharp confrontation with him is likely to lose both the argument and his or her job. Even though he has treated me as a protégé since we met seven years ago, it could happen to me.
I feel torn by my feelings toward the president. I am saddened by his venality and afraid of what he might do to me, but I still like him and am enormously indebted to him. I would not want to betray his trust. But if I confronted him and he reacted as I expect, I could threaten to tell the state’s attorney everything I know unless the abuses are stopped.
My personal feelings aside, there are good reasons for not making that threat. If it worked, my relationship with the president and the other three officers would be so strained that continuing to work with them, if possible at all, would be difficult and unpleasant. And if the threat didn’t work, I would have only two alternatives: not carry it out or carry it out. Not carrying out the threat would leave things here just as they are—except that I would, at best, have strained relationships and probably even no job—while carrying out the threat almost certainly would lead to a criminal investigation and prosecution. That would not only ruin the lives of all four officers but greatly disrupt my own life and, most important, produce devastating publicity for the organization. Eighty percent of its income comes in small donations from middle-class people, who are likely to react by finding other beneficiaries for their philanthropy.
I do not know what to do, and am beginning to think maybe I should just get on with my job and ignore the abuses.
Analysis:
This question calls for clarification of a duty pertaining to the questioner’s role in the organization. The abuses constitute a grave breach of trust by the organi~zation’s officers. They should be stopped. The questioner is well informed about the problem and has the highest managerial position in the organization after the officers, all of whom share guilt. Therefore, it is the questioner’s duty to stop the abuses. If the questioner judges that he need not at once tell relevant public officials about the abuses, he probably should bring the matter to the attention of the organization’s board, which can deal with it decisively. If the board is reluctant to act, he should be prepared to communicate with other parties interested in the organization and, if necessary, with public officials.
The reply could be along the following lines:
Apparently, God is calling you to imitate Jesus, who was sent into our corrupt situation to redeem us. Since even he shrank from suffering and death, your thought that you might ignore the abuses and simply get on with your job is understandable. Still, I think you should regard it as a temptation to which you must not give in. Probably several, perhaps most, of your colleagues experienced a similar temptation and gave in. If you did, you would miss a unique opportunity to try to save the organization you work for and, almost inevitably, would be drawn into the corruption that imperils it.311
Morally, at least, the abuses not only constitute a regular practice of theft, very similar to embezzlement, but are a very serious betrayal of the organization. It has a purpose—its common good—for which different groups of people should cooperate in diverse ways: those people the organization is meant to serve, by gratefully accepting and making good use of benefits; suitable potential donors, by generously supplying necessary means; and employees, by efficiently using donated means to deliver benefits. Corresponding to each group’s contribution to the common good is its own legitimate interest in the organization. Those it serves enjoy the benefits they receive; donors make good use of some of their wealth and receive an appropriate recompense (honor, gratitude, growth in virtue, and/or merit with God); employees do worthwhile and fulfilling work for which they receive appropriate compensation.
Any corporation should have policies and procedures to protect its common good and forestall problems of the sort that concern you. Your organization has a special need for such safeguards. Abuses of its resources betray donors and cheat those they meant to help. But apparently the needed policies and procedures are lacking. At the appropriate time, you ought to do what you can to remedy this defect.
By diverting resources for their personal benefit, the officers act contrary to their fiduciary responsibility to use donated means efficiently in order to provide benefits. Thus, they violate the organization’s good and directly deprive other participants of part of their legitimate interest. Some potential beneficiaries either are not served or benefit less than they otherwise would; donors’ intentions are partially frustrated; and the good efforts of other employees become somewhat less fruitful. Moreover, as you point out, publicity might greatly injure the organization, and the prospect of such publicity is hardly negligible, since the abuses are ongoing, increasing, carried on openly, and known to various employees. So, besides the direct harm they are doing, the officers are taking a grave and unjustifiable risk of additional injury to the organization and all who have a stake in it. Their abuses should be stopped.
Of the considerations you mention in favor of tolerating the abuses, only one is grounded in the organization’s good: the prospect of harmful publicity. In my judgment, it should not prevail in your thinking. The abuses already violate the organization’s good and injure those involved. Action adequate to stop them might be possible without publicity. And even if they cannot be stopped without publicity that harms the organization, the damage is likely to be less if the abuses are brought to light sooner rather than later and not allowed to continue and increase. Moreover, if you can end the abuses without deliberately publicizing them, the likelihood of harmful publicity over the long term may well be significantly lessened.
You also mention your personal feelings for the president and the prospect of losing your job, straining your working relationships with the president and other officers, and suffering great disruption of your life. But both true self-interest and duty argue against simply getting on with your job while tolerating the abuses.
If you fail to act now, you probably will be pressed eventually to facilitate and conceal the officers’ wrongdoing, even if you refuse personally to take part in it. Then too, your long-range career prospects may be far better if you take prompt and vigorous action to stop the abuses. If you do nothing and they eventually are brought to light by someone else, you might lose your job; if you take action and the present officers are discharged, you might be promoted or, at least, retained by new officers, with whom you might develop a good working relationship.
Your personal relationship with the president and your duty to be loyal to him do not require tolerating his wrongdoing. As long as he continues peacefully to enjoy its fruits, he is hardly likely to repent and very likely to become increasingly obdurate. Your ties with him demand that you seek his true welfare by putting a stop to his abuses and encouraging him in genuine repentance.
Furthermore, in accepting your present position, you assumed a responsibility for the organization as a whole. That responsibility should prevail over self-interest and your personal relationship with the president. When the officers cannot or will not do something essential for the organization’s good, their responsibility devolves on you as the next ranking executive. Since all of them are involved in the abuses, they cannot be expected to put a stop to them. And while in other matters lack of information or power might keep you from acting, you make it clear that you are well informed about this matter and can act in various ways. So, putting a stop to the abuses falls within your sphere of responsibility.
Given that responsibility, failing to take action would be, morally speaking, a grave omission, and you might also incur legal liability, criminal and/or civil, for the abuses. With a view to taking action, you obviously must be ready to make your case and to protect yourself against possible false accusations. For these reasons, you probably should get a lawyer’s advice, which may lead you to conclude that you ought to communicate at once with a suitable public official. But, if it does not, the following thoughts might be helpful.
Since your friend, the accountant, has known about the abuses for over three years, he almost certainly has failed to fulfill his legal responsibilities—for instance, his duty to present accurate information to the auditors. He probably should consult his own lawyer. But since he shared information about the situation with you and both of you are anxious about it, you might be able to work together to rectify it. If feasible and successful, such cooperation would be mutually advantageous. The accountant could extricate himself without paying too high a price, and you could avoid the onus of acting alone.
Whether or not you get the accountant’s cooperation, you must proceed without delay. If you judge that you need not communicate at once with a public official, you must try to terminate and rectify the abuses by taking action within the organization. I see two ways of doing this. You have a strict moral duty, in my judgment, to attempt at least the first. Yet I do not consider it entirely adequate, and I also suspect that your legal duty will require the second—though, of course, that also is a matter on which you will need legal advice.
You could forcefully communicate to the president, and perhaps to the other officers, your deep concern as a loyal colleague and good friend. To avoid sharply confronting the president, you could prepare a careful memorandum for him and perhaps some or all of the other officers, pointing out that confidentiality often is breached and many people know about various things that have gone on in the past and about the planned vacation. You need not judge and condemn; you could simply sketch out how these things would be perceived by the media, by people who support the organization, and by various governmental officials. You could call attention to the great risk the officers are taking, both to themselves and to the organization, and add that you also are anxious about possible bad consequences for other employees, including yourself. Without including any explicit threat, such a careful, written statement would focus attention on the issue. If addressed to at least two of the officers, it certainly would lead them to discuss the problem. Undoubtedly, they would be anxious about what you might do, but for that very reason might hesitate to dismiss you. And once the officers focused their attention on the risk they are taking, they might well put a stop to the abuses.
In my judgment, though, that would not be sufficient to rectify the situation and vindicate the organization’s interests. The officers and your predecessor owe the organization full restitution, with interest, for the resources they have wrongly diverted, and they are not likely to be willing to repay all they should. They probably also would wish to treat any repayments as tax-exempt donations, but that would be tax fraud, to which the organization should not be a party. Moreover, because these abuses constitute a grave breach of trust, indicating that the officers are not fit to continue in their positions, they should be replaced, something that cannot be done without action by the organization’s board.
Therefore, it seems to me you should not take the first approach, but should address your memorandum to the board. It should be carefully drafted, so that you could swear to the truth of everything it says. It should list only clear abuses, not extravagances in carrying on the organization’s legitimate business. It should be as specific as possible, including dates and the names not only of those profiting from the abuses and involved in them but of everyone who could give testimony about them. Briefly sketch the probable disastrous consequences for the organization if the abuses continue and become public knowledge, and point out the board’s legal responsibility to take decisive action, including replacing the officers and requiring full restitution. When you send the memorandum to the board, whether or not all the officers are on it, you probably ought to hand them copies and do your best to express your personal concern for their true well-being and encourage them to fulfill their responsibilities voluntarily by resigning and making restitution.
What if they refuse and the board is reluctant to act? The regional managers, with whom you deal regularly, plainly have a significant share in responsibility for the organization. Presumably they would be interested in the problem and inclined to trust you. Even if they are not members of the board, they might well be able to influence it. Somewhat similarly, some large contributors are likely to be both concerned and influential with board members. Moreover, both the regional managers and large contributors would have motives similar to yours for avoiding or minimizing bad publicity. Therefore, you might seek their support, if necessary, to motivate the board.
If such private efforts do not succeed, I think you should communicate with an appropriate public official, despite the publicity that would result. Of course, you should also try to mitigate the bad effects of the publicity, and should enlist the cooperation of others to do that.