Blog - Page 2 of 3 - Urs Mueller

February 20, 2014May 29, 2022

The challenge of setting the right fine for corporate misbehavior and the role of national interests

In a recent article in the DealB%k of New York Times, Peter J. Henning (Professor at Wayne State University Law School) discusses the very interesting issue of government fines for corporate misbehavior. (Peter J. Henning: “For Settlements, Companies Sketch Contours of a Black Box”. February 18, 2014.)

Next to pointing to the fact that reserves in corporate balance sheets provide interesting insights into fines and/or settlements, Henning also refers to some of the structural problems in the current system of settlement. He quotes the NGO Better Markets that filed a law suite against the US Department of Justice’s settlement with JP Morgan Chase that claimed: “In effect, the DOJ acted as investigator, prosecutor, judge, jury, sentencer, and collector, without any check on its authority or actions, even though the amount is the largest in the 237 year history of the United States.”

History provides some powerful lessons about the value and importance of the segregation of power. And there is certainly no good reason, why this system shouldn’t be applied to settlements for all sorts of corporate misbehavior (e.g. corruption, tax evasion, manipulation of interest rates, cartels etc.). But in addition to Henning’s correct observations and comments, the cases that he mentions also allow for the discussion of some of the possible root causes for the violation of this fundamental principle.

According to standard thinking, a fine should be determined as a function of (a) the profit that was gained on basis of the misbehavior and (b) the likeliness of getting caught plus a certain premium. Clearly the problem is to determine the likeliness of getting caught. Assuming that the dark figures can be quite high for some sorts of violations, the discovery of a single case could demand a enormously high fine.

And this is exactly why governments and government agencies suddenly might have an interest in not being too specific and explicit about fines and settlements: In many cases – including many of those mentioned by Henning like JP Morgan Chase, Avon or BNP Paribas – the government find themselves in the position of having to fine companies that are of national significance in terms of workplaces, tax income, domestic investments etc. And suddenly they are faced with a clear conflict of interest: Imposing really high fines might possibly harm (or possibly even kill) national champions which in turn could harm governments and societies.

Quite a few cases of really high corporate fines have been imposed on “foreign” companies (such as Microsoft in the European Union or Siemens in the US). In such cases governments might also be much more willing to disclose details of the process and fine.

In order to prevent this special form protectionism, governments will need to come to harmonization, i.e. to supra-national agreements on how to deal with corporate fines.

November 22, 2013March 19, 2018

A shortcut to writing a great case: use case teaching for case writing

One of the things I love about participant-centered learning is that the instructor learns while teaching. I teach mostly executives and it is exciting to collect their experience and insights during a case discussion. In fact: I quite often use case discussions also for my own case writing. In text books and seminars on case teaching and case writing these two topics are treated as completely separate/independent. But I believe that the power of case teaching is getting particularly evident when using case teaching for case writing and vice versa.

Whenever I’m thinking about writing a new case study, I’m waiting for an opportunity to try the case a few times in class in order to
(a) fine-tune the case itself, and
(b) get insights for the teaching note.

Re (a): Fine tuning of case

I often use the basic situation of a case way before having a traditional text case. Frequently I will just prepare a set of slides, present this to my students/participants and then open the discussion. Then I make a few modifications and try it again. This approach has several benefits:

1) You start with only a few slides (you will only be able to show a few slides as introduction to the session, so it cannot be hundreds of slides) – and this will help you to write a short and concise case (which is in line with the current trend of using rather shorter case studies).

2) During the discussion you will get a good feedback about which elements of the case work well and which aspects need to be worked on. This is particularly true for:

Protagonist/perspective: Sometimes you can write a case from the perspectives of different people (e.g. headquarter versus business unit perspective; marketing versus finance perspective; company versus stakeholder perspective; more senior versus less senior protagonist). Try different perspectives in different courses and you will get a good feeling which perspective is leading to the most fruitful discussions.
(E.g. in a case about “Vodafone in Egypt” during the revolution in 2011 (forthcoming in 2013), we had to decide between the perspective of the local management in Egypt and the perspective of the Vodafone group headquarter. Using the case in class, I realized that the local perspective was much more engaging and controversial.)

Content: Quite frequently individual case situations can be discussed from different conceptual angles. Dependent upon your specific interest you might want to try different variants in order to find the one that resonates best.
(E.g. I co-authored a case on the German football club “Borussia Dortmund GmbH & Co. KGaA”. All kinds of topics seemed to be interesting, e.g. the accounting specialty of recognizing players in the balance sheet, the strategic question of how to run a football club as business, the purpose question of which stakeholder should define the purpose of the organization (and the potential principal agent problems in this specific situation), the governance question of how to involve the different stakeholders in the formal organization, the question of executive remuneration, the ethical challenges connected with treating players as assets (incl. buying and selling them), etc. – It did take quite a bit of testing to identify which topics worked best in which contexts for this particular case study.)

Timing/hook: Quite often the stories that you want to use for your case writing would allow for different cuts in time (using different hooks, e.g. opening of business, first consideration to move into new country, financial issues etc.). Trying different hooks/timings in different sessions will again help you to see which discussions are better in stimulating learning and development.
(E.g. I wanted to write a case study about a Berlin based snack bar called “Konnopke’s Imbiß”, but for a long time I was missing a hook that would stimulate an interesting discussion. Then I quickly had two alternative hooks: The company was asked to move its location and the son of the owner was opening a competing business. But which hook offered the more interesting discussion? Which hook would lead the discussion closer to the intended use of the case in class? Only use in class would help to clarify these questions.)

Structure: Especially when developing cases about events that unfold over longer periods of time, it is often difficult to slice the content well. Cases like these are often transformed into case series. But sometimes it is a bit difficult to decide about the specific split of content. Similar to the question of timing/hook, you might want to experiment with different cuts and then finally pick the one that was the most logical and resulted in the most intense discussions.
(E.g. I wrote a case series about some corruption issues of “IKEA in Russia” (forthcoming in 2014). Starting with an individual event, the story is getting more and more complex over time. Only after several usages in class, I was able to come up with the final split of the story into four case parts: case A (single and rather external corruption event), case B (rather internal aspect of corruption), case C (corporate responsibility vis-à-vis corruption) and case D (outlook).)

Now given all these possible variations, I believe that summarizing/telling the cases with the support of a few slides, will make your life much easier: If you were to test all these variants on basis of somewhat polished text cases, you would have to do a whole lot of editing, writing and re-writing. But just changing a few slides usually requires significantly less work. And in many situations you would have had to prepare quite some of these slides anyway for your regular teaching.

Of course you need to make sure that this testing of a new case takes place in the right environment (e.g. seniority of students/participants, position of case in course etc.). Pick a few situations with limited exposure for your testing.(E.g. at my institution [ESMT European School of Management and Technology] we do host events for the general public (such as the “Long night of science”) and for the last few years I used material for new cases in these open lectures. After that I had a pretty good feeling if it was worth turning the lead into a full case study or not.)

Once I have used the case in class successfully a few times, I will produce the formal text case study – but frequently I would still wait a bit longer with the production of the teaching note.

Re (b): Getting insights for Teaching Note

While using a new case in the classroom I pay particular attention to documenting the contribution of the participants on a blackboard. After the class I take pictures of the blackboards and immediately make notes about what went well during the discussion, which subjects/aspects should rather be skipped during the discussions and what should be added. Over time – i.e. when using the case in different sessions – I make small variations to the sequence.

How about you? Can you share tips and tricks how to use case teaching for case writing?

June 27, 2013March 19, 2018

Law versus ethics – a visual approach: Part 1 Venn diagrams / Set theory

When teaching business ethics – especially when using moral dilemmas from business life -, the class discussions often touch the topic of the relation between law and ethics. Even when I explicitly ask for moral/ethical arguments, many participants respond with references to legal frameworks. In the last few months I have repeatedly used this topic for a short visual exercise. I have asked my students/participants to draw a picture to illustrate their understanding of the relationship between law and ethics. And the results are just great!

From now on, I will post every once in a while a few pictures that I collected during these exercises. Today I will start by sharing the broad set of responses that use some sort of Venn diagram, i.e. that would roughly fall into the set theory, i.e. all those visualizations that use circles, squares etc. to put law and ethics into a relation by referring to their relative dimension.

The classic visualization, that typically about 20% of all participants will develop, roughly looks like this:

The basic point of this illustration is usually the overlap. As explanation for such illustrations, participants will typically mention, that there is an overlap between law and ethics, but that both of them can also be isolated. Accordingly the picture allows for:

actions that are legal but not ethical
actions that are ethical but not legal
actions that are legal and ethical
actions that are neither legal nor ethical

Sometimes the same idea is brought into slightly different forms, such as this squared version:

The artist of the picture above did two important modifications compared to the classical version: (1) He drew the law box to be significantly smaller than the ethics box. (2) He positioned the two boxes in a way, that the law box is almost completely included within the ethics box (only a small portion of law is not ethical to his understanding), while the ethics box has lots of space outside of the law box.

And very much in line with this last point there are often quite a few variations of the classical picture that either rather focus on the overlap or on the discrepancies between law and ethics. One participant brought this into the following nice picture:

The three different variants are supposed to illustrate differences between different countries (law) or societies (ethics) – different being understood as different in history or geography. The participant explained that in some countries/societies there is/was more overlap than in others.

Quite often I also see two clearly opposing variants of the classical version: More often law is being embedded within ethics:

Much more rare is the following illustration, where ethics is embedded in law:

It is worth noting that these two concentric models implicitly assume that there is either:

nothing legal that is unethical (1st picture)
or nothing ethical that is illegal (2nd picture)

Another interesting picture was designed by a student who wanted to express his conviction that law can be perceived as the common ground within a society between very different individual ethical belief systems:

Interestingly you could also think about an exact inversion of this model, so that Ethics would bee seen/understood as something universal whereas law would be country specific, multifold and only partially overlapping with Ethics and/or the law in other countries.

The following picture is already a bit of a preview to other versions that I will share in later posts:

This picture also shows two overlapping forms, but has two important differences compared to the classical version:

Ethics is shown as circle and law as triangle: The implicit connotation is that law is more edgy/sharper than ethics.
The ethics circle is shown on top of the law triangle: Law seems to have a certain character as basis for ethics.

In order to provide some structure and stimulate the thinking process, I sometimes also draw a picture that is fairly close to the classical model:

The basic idea of this 2×2 matrix is to not to show relative size of the boxes, but to allow for a conceptual discussion with my participants. The South-West and the North-East corner of this matrix don’t require a lot of imagination. So I typically divide the class into two groups:

one group searching for examples of ethical behavior that is illegal (North-West);
the other group searching for examples of unethical behavior that is legal (South-East).

Re 1: Frequent business-related examples include:

whistle-blowing in all variants,
stories like the German government buying CDs that were stolen in Switzerland and contain information about German tax evaders,
some types of legal violations done by investigative journalists,

or non-business examples such as:

parking in a non-parking zone in medical emergency situations,
mutiny against oppressors,
tyrannicide.

Re 2: Frequent business-related examples include:

higher levels of pollution than technically feasible but within legal framework
some forms of discrimination in international contexts
decisions to shut down mobile telecommunication services during demonstrations/revolution

or non-business examples such as:

marital infidelity in Western Europe,
private waste of resources such as water/energy/food.

When explicitly asking for drawings/visualizations for the relation of law and ethics one shouldn’t be surprised to get pictures such as the ones above. They all have clear messages and important lessons, but in future posts you will find that some participants come up with totally different ways of illustrating this relationship.

Stay tuned and/or send me your pictures!

March 1, 2012March 19, 2018

The just end of a company?

Are ethically suspicious, corrupt or unethical companies less successful than ethical corporations? We might want that – but empirical research is unfortunately inconclusive. Many companies with dubious business practices operate very successfully at the market place. All of us can certainly list some examples.

But as soon as a company goes down the drain that was criticized recurrently as being unethical, the public seems to react with great satisfaction. This is currently the case with Germany’s largest drugstore chain. The company Schlecker is a privately owned business that grew rapidly after its start in 1975 and successfully expanded into several international markets. But at the same time the company repeatedly made it to the press with many different negative news. The highly secretive organization was criticized in particular for the way it treated its employees. Among other issues, trade unions and the press condemned exploitation, low wages, excessive workload and the fact that Schleckerseems to have spied on its employees in several of the 5,400 stores. The company was found to have kept negative lists about “problematic” employees and to have actively prevented the formation of workers councils.

Management tried to play the public criticism down, but new issues surfaced over and over again. – Even after the founder and owner, Anton Schlecker, stepped down as CEO and handed over control to his two children, Lars and Meike, who started remodeling and re-imaging activities. Early 20110 the trade union Verdi accused Schlecker of forcing permanently employed staff members into new contracts as temp workers with lower wages and inferior working conditions. This criticism was picked up by the government – and Germany’s Federal Ministry of Labour and Social Affairs, Ursula von der Leyen, announced to start official investigations. Again Schlecker’s dingy image was confirmed in the public.

Schlecker had ignored an important lesson: All companies are dependent upon several different stakeholders that are relevant for survival. Most importantly next to the owners/investors (in this case the patriarch Anton Schlecker) are employees and customers. To be sustainably successful, companies need to constantly balance the potentially conflicting interests of these – but also many other – stakeholder groups. This is where Schlecker failed: The drugstore giant continuously ignored the interests of its employees – until this even started to have effects on a second stakeholder group: the customers. They finally didn’t want to shop from a company that was famous for treating its employees poorly and stayed away. The business model that was based on continuous growth and expansion was at stake.

The attempt to change the negative image came to late. In 2010 the company started a remodeling of its stores and tried to access new – desperately needed – customer segments. The company stopped the practice of using temp workers and came to a collective agreement with the trade union Verdi. But even now many activities failed: The attempt to access new customers in the internet lead to a major data leakage – sensitive data of 150,000 customers became visible. Schlecker also introduced a new slogan with a wild mix of German and English language: “For you. Vor Ort.” The slogan was criticism by a group of language purists – to which the head of corporate communication responded with a letter that leaked to the public and provoked vivid reactions: The PR person wrote that he – as person with an academic education in humanities – would also disapprove the usage of “Denglish” (a term used to describe the mixture of German and English), but the “average Schleckercustomers” rather had a “low to medium level of education”. Again Schlecker was perceived as company that only focused on the interests of the owner and did not show respect for the other stakeholders.

Such dilettante mistakes prevented the planned success of the transformation. On January 20, 2012 the company had to file bankruptcy. As the company was operating as a non-incorporated, private firm (“registered merchant”/”eingetragener Kaufmann”) Anton Schlecker will be liable personally. According to press reports he might even run into personal bankruptcy.

This might now be perceived to be the just consequence for an unbalanced or even unethical management style. But we shouldn’t forget one important aspects: Yesterday the liquidator announced that almost half of the employees will need to be laid off and almost half of the store will be closed. The story illustrates that unbalanced management will harm all stakeholders in the long run – but it is very unfortunate that the ones suffering most will again be the employees. So shouts of triumph about Anton Schlecker’s suffering are completely inappropriate.

September 3, 2011April 3, 2019

Offering services – that are “misused”?

Yesterday I was cycling through Berlin when I made an interesting observation:

In two weeks there will be elections for the state and city of Berlin. Only a few major parties are likely to pass the 5% threshold that is set by German election laws. (Any party that collects less than 5% will not make it into the parliament.) But in addition to the 5 main parties there are 13 other parties competing in Berlin. One of them is a far right wing party called “Die Freiheit” (“The freedom”). They are a party that is at the very far end of the political spectrum and intentionally provoking and polarizing, especially with anti-Islam, anti-foreigner and Euro-skeptic propaganda.

Yesterday they were driving through the streets with trucks covered with banners and their slogans, e.g.: “Kick the overly indebted countries out of the Euro”, “Stop islamistic parallel societies” (a poster with a German flag in the background in which you can find the Turkish symbol of the moon and the star in the red part of the German flag), or “Zero tolerance for criminals”.

Non of this would be a topic for a business ethics blog. But while the big, established and rich parties usually buy (or lease) entire buses and paint them, the party “Die Freiheit” obviously decided to rent trucks. And while they were driving around the city everybody could simultaneously see the party banners — AND the name of the rental company: “LEX Autovermietung” (i.e. “LEX car rental”).

Accidentally, I was on my way to a (different) car rental company. And so I was immediately thinking: Would I rent a truck from a company that also rents cars to political parties that subsequently use the trucks for political advertisement (way outside of the the main-stream political spectrum)? The party is legal and can run for the election. (According to German law there is a [very complex and difficult] process to prohibit political parties if they openly reject the constitution; which “Die Freiheit” doesn’t.) But aren’t their political objectives harmful to the friendly coexistence within the city? Is it ok to rent trucks to them?

On the other hand – if the car rental company was rejecting “Die Freiheit”, should they also reject other parties? Which ones? All? All except for those that are represented in the parliament? All except the one supported by the owner of the company? How about the employees? And if the company decided to prohibit the rental of trucks to “Die Freiheit”: How should they enforce this?

Is there any responsibility of the rental company with respect to their customers’ usage of their trucks? For questions like this many quote the legendary knife producing company and its alleged position of not being responsible if somebody uses their knife to kill someone. Is this true for the car rental company? Are they not responsible for the usage of their cars – especially as long as the usage is legal?

These were some of my questions while cycling to the rental company. And as I was preparing to rent a car myself, I was imagining that the party might have fixed the posters on the trucks while still on the premises of the rental company.

I have to confess: implicitly and subconsciously I was inferring that the rental company supported the party and their political agenda.

Fortunately, I decided to use this situation to blog a few questions on a companies responsibility vis-à-vis the usage of its products / services by the customers. I did a bit of research on the rental company and found an interesting website and coincidence:

“Politically Incorrect” is a right wing blog in Germany. In November 2009 they reported about a demonstration of Muslims in the German city of Dresden that was (amongst others) demanding the closure of the website “Politically Incorrect”.

Interestingly most of the users / supporters of “Politically Incorrect” are anti-Muslim, and the webpage makes advertisement for the party “Die Freiheit”. But what do we find in this report about the “Muslim demonstration”? A picture of some people speaking while standing on the cargo area of a truck – rented from the very same rental car company – “LEX Autovermietung”!! Not as a big surprise a user called “Rudi Ratlos” leaves a comment (comment 218) stating that the LEX rental car company will be added to his personal boycott list (“LEX-Autovermietung kommt auf meine Boykottliste.”).

So, ironically LEX-Autovermietung seems to be serving two seemingly opposing camps of the political spectrum. What a nice lesson in neutrality and independence of a company…