A few days ago USA Today joined the ranks of the terrorists by outing that the government was keeping track of phone call records in a massive database at the NSA. I can imagine that this helped the bottom line at more than a few companies; the free markets work best when they’re infused by taxpayers money in black programs where there is virtually no oversight.
But that’s not the really interesting part. Having devined that Gimme-Five is full of future CEOs (except for george which appears destined to a CIO position based on his technical nerdiness), I was curious what the future leaders thought about the behavior of ATT, Verizon, BellSouth and Qwest. In short, ATT, Verizon and BellSouth handed over records while Qwest did not, despite sizeable threats to their core business — such as witholding black contracts from the companies if they did not cooperate silently. This type of arm-twisting looks unseemly from the civil liberties perspective, but even more so from the standpoint of these companies being money printing machines.
A comment from Schneier’s blog:
What is new here is Qwest’s stand on principle. I had not realized that
this sort of ethical barrier still existed in the corporate world. Make no
mistake, this is a seriously risky position for a corporate officer to take
– quite aside from the courage required to stare down the 9/11 patriotic
stampede, the threat of loss of government contracts is a matter of concern
with regards to the fiduciary obligation of corporate officers to safeguard
shareholder value. Pissed off hyperpatriot shareholders could conceivably
sue over this. Nacchio appears to be a civil rights hero, whatever other
trouble he may be in.
So my question is — is this behavior compatible? What happens when a company has a responsibility to print money and the government goes up to them and says, “Violate the client privacy agreement and the standing public laws, or we’ll impact your ability to get contracts and under the table bricks of cash.” (Lets leave the secret laws for a later discussion.)
What’s to be done? Is this an ethical issue from the perspective of internal governance? Can a CEO stand on principle that hurts the bottom line of the public corporation? Have we reached the point of paradox relative to public corporations (setting aside the semi-paradox of maximizing profit at the expense of the environment for a while)? Should the government offer to extend sovereign immunity to these companies? The court won’t be stacked forever you know….
Looking at my portfolio I don’t know if I should be looking at the class-action lawsuit that would get me a slice of the $1000 penalty for violating the Stored Communication Act or the class action lawsuit that centers on Qwest’s irresponsibly civil libertarian stance.
Help a brother out with some advice from the classrooms of America’s hollowed education institutions. What answer gets you the “A” in your class?
11 Comments for Surveillance Shmerveillance…
Author comment by george | May 12, 2006 at 10:10 am
Author comment by Z | May 12, 2006 at 11:15 am
george, you’re skirting the point.
I appreciate your analisys but frankly, I’m not sure I expect civil liberties to be taught in business schools or that one can get a civil liberty outlook in their formative years (whenever they are). I would expect this civil liberty analysis to be the staple of some state liberal arts college staffed with irresponsible Marxists and liberals. From our cream business schools, I expect a compelling defense of capitalism argument and protection of a business friendly infrastructure.
I still solicit comments relative to the financial aspects of this: the morality that may get in the way of some CIO acting contrary to my desire to make money as a stockholder. If I want a moral sermon, I’ll listen to Jackson Browne whine — I expect the board and the CEO to be focused on providing me an unreasonable return on my speculative investment or else I have a severe misunderstanding of how the system works. Help me understand.
Should the government extend sovereign immunity to companies such as telcos (and I’m sure credit tracking agencies soon to follow — next we’ll be shocked to learn that the Gov’t tracks your purchasing history) so that money can continue to be made without regard to following existing laws? After all it’s the executive branch that has requested this data and it’s related to hot pursuit, no?
If the executive branch (law enforcement) can bypass burdonsome congressional laws through presidential signing statements shouldn’t the byproducts of those signing statements be extended to those that the law enforcement agencies require to comply? Why should the risk of lawsuit be borne by the publicly held corporations?
Waco Kid | May 12, 2006 at 11:43 am
Well this brings up many issues and I’ll try and tackle some of them.
You are reffering to the Principal Agent problem. In this case the owners of the firm desire profits but the Manager of the firm is concentrating on something else (ostensibly civil liberties). However, the owners only have the right to demand the profits so far as they are achieved legally.
So, owners have a right to be mad if the program is legal but not if it is illegal. This is assuming, as we do in econ, that the goal of a firm is maximize profit. Issues of Corporate Responsibility are also at stake. Is the firm acting in a responsible manner in this situation, thats open to debate and different viewpoints.
To George’s issue of Civil Liberties. I think several poitns are worth mentioning.
-This program was already “exposed” back in december when the international wiretappings was leaked.
-Leaders of Congress on both parties were informed and have oversight of the program
-You’re argument is premised on the idea of the slippery slope. Is the slippery slope argument valid in a liberal democracy?
I would say that it is not. This is because the ultimate deciding power resides with the people. They ultimately have the control to reign in excessive “abuses”.
History has borne this out. Probably the greatest infractor of Civil Liberties in the US was Abe Lincoln who suspended the rights of Habeous Corpus among other things. However, the US did not descend into a authoritarian regime. Quite the contrary.
Likewise FDR interned Japanese-Americans. However, continued infractions of civil liberties never occured. Rather the ship of state returned to normal.
Certain differences do exist between those examples and the current situation, for instance both the Civil War and WWII had definable finite conclusions. The War on Terror does not have this, necessarily.
However, the manner in which these infractions was done (through congress) bodes well. The fact that we can sit and have an open and frank discussion of them without freak of reprecussion bodes well. We can do this because the slippery slope does not apply to liberal democracies.
If you want to oppose this govt policy do it because you don’t feel that the govt should have a phone database. But don’t oppose it because you fear the US will end up in a 1984 situation.
Author comment by george | May 12, 2006 at 11:47 am
Ahh ok I didn’t really read your question correctly.
That’s an interesting point. Just to be sure, you’re asking: “is it ok for a company to take a moral high road when in turn they are negatively affecting their stockholders?”
It depends on who is answering this question, I suppose. If I were a stockholder, I would want to make the most amount of money on my investment. Thus, a company taking a moral high road wouldn’t mean much to me if it meant I lost $5000 where all of my friends investing in Verizon made $5000 off of my loss. However, in the future, Qwest’s integrity may result in more people willing to purchase service from them, and in turn higher earnings in the future, and in turn higher returns on their stock (this is a very optimistic analysis). Even so, shareholders probably wouldn’t be happy at the loss of potential profits.
If I were observing from afar, I would hope that every corporation would be honest. In fact, after Qwest’s earnings might drop due to government interference, I might hop in and buy a few shares in Qwest after I hear that they have been honest…
Shaniqua | May 12, 2006 at 6:18 pm
Obligatory leftist post with multimedia presentation.
http://video.jacksonbrowne.com/lives/wmv
The general consensus among some of my friends is that it makes their head throb thinking that Qwest acted morally. Qwest is affectionately known as Qworst and Mr. Nacchio has plenty-o-problems to go with his questionable plenty-o-money.
http://www.nytimes.com/2006/05/12/washington/12cnd-phone.html
Mr. Nacchio’s statement today made a point of saying that the N.S.A. requests occurred “at a time when there was no investigation of Qwest or Mr. Nacchio.” Mr. Nacchio, who left Qwest in 2002 amid allegations of fraud at the company, was indicted in December on 42 charges of insider selling.
Prosecutors say Mr. Nacchio did not make investors aware of warnings from his managers that the company’s revenue and profit forecasts were too optimistic. They say Mr. Nacchio kept this information to himself yet also sold 2.5 million shares of Qwest stock over five months in 2001 that netted $100 million. The case could go to trial later this year.
Mr. Nacchio looks to be a poster boy for honest behavior. Or maybe it’s the govm’t punishing him.
sina | May 13, 2006 at 12:46 am
couple things I’d contribute as I’m bored:
one individual said business school don’t teach this kind of stuff. this individual obviously has no contact with business school. all of the top 100 business schools discuss the matter in depth, and no, in fact, it is capitalists (not the marxists) that believe in civil liberties. furthermore, such a dichotomy is so simplified as to be (almost) completely worthless in any academic or even practical sense. no business school would advocate that a CEO act in a way opposed to his moral integrity in order to bring in profit — not even a public one. if his decision is a bad one, he can be voted out. as for me, i will look into qwest stock and services in order to support a company that believes in all things american, even in dangerous times.
Also, Waco made a historically silly claim that Lincoln and FDR were isolated incidents. Every president from GW to GWB has consistently violated civil liberties afforded by the constitution, and most of them have been rebuked in courts. The “ship” never returned to its original line, and has consistently (as every historian in the past 50 years has been saying) been straying farther and farther from it, replacing the coequal 3 branch system with a govt heavy in executive power. It would be very hard to prove otherwise (think Gulf of Tonkin resolution, “undeclared” wars, Korematsu v. VA and other strings of court deference).
The problem with this debate (and most nationwide) is that we are substituting a nuanced debate with generalized statements. I did, however, appreciate the basic principle of supporting civil liberties/rights (which are inherently tied to our nations success).
Also, lets not put too much blame on Bush. As president, it is EXTREMELY difficult to say no to things that may save your nation. It’s a tough stiuation, and i’m glad there are people that understand the importance of civil rights, even if the president can’t.
Waco Kid | May 13, 2006 at 5:00 am
Nowhere did I make the claim that these were the only two examples. I merely pointed these two out as the most eggregious examples.
Shifting power to the executive branch does not constitute a loss of civil liberties in any real sense.
Also the very fact that those who have infringed on liberties have been “rebuked by the courts” reinforces my point that the slippery slope does not exist.
Lastly the claim of “undeclared wars”. I think this is an important issue because it is largely misunderstood by the general public. When congress formally declares war a whole laundry list of actions occur. These include price controls, censorship and greater police powers.
Nobody wants those rules to go into effect in this instance and yet nobody wants to change the rules. As such you end up with congressionally authorized use of force.
Author comment by Z | May 13, 2006 at 10:16 am
one individual said business school don’t teach this kind of stuff. this individual obviously has no contact with business school. all of the top 100 business schools discuss the matter in depth, and no, in fact, it is capitalists (not the marxists) that believe in civil liberties. furthermore, such a dichotomy is so simplified as to be (almost) completely worthless in any academic or even practical sense. no business school would advocate that a CEO act in a way opposed to his moral integrity in order to bring in profit — not even a public one. if his decision is a bad one, he can be voted out. as for me, i will look into qwest stock and services in order to support a company that believes in all things american, even in dangerous times.
By the numbers –
this individual obviously has no contact with business school. all of the top 100 business schools discuss the matter in depth,
I haven’t surveyed the top 100 business schools to see how much, or how ernestly they discuss it. You seem to be authoritative on this — attended all 100 with attendant classes thereby qualifying to render judgement on all 100? How many years did that take?
in fact, it is capitalists (not the marxists) that believe in civil liberties.
Wow. Capitalists, not marxists. Such as? ACLU, EFF, EPIC, MLK, Cunstler, The involvement of multinationals in the coup in Chile, Guantanamo bay, FISA violations and the MBA president,… and I could go on for a while.
Now your turn. Give me examples of Capitalists as Civil Libertarians. Is Bob Barr a capitalist or a conservative civil libertarian? The founding fathers as capitalists?
Lets see what Wikipedia says:
http://en.wikipedia.org/wiki/Civil_libertarian
A civil libertarian is one who is actively concerned with the protection of individual civil liberties and civil rights. These views are most often associated with the political left, and a majority of civil libertarians are left-wing.
Dichotomy simplified? Don’t know what that means. Feel free to expand.
no business school would advocate that a CEO act in a way opposed to his moral integrity in order to bring in profit — not even a public one
Where do the ideas for cheap child labor in Bangladesh, China and India come from? Relocating to reduce environmental compliance costs? Are these experience based epiphanies? The moral desire to elevate the standards of living in those places while lowering them at home?
no business school would advocate that a CEO act in a way opposed to his moral integrity
Yes, well, the qualifier word in this sentence is the word “his”. The question originally was something like, “Is it compatible to lead a publicly traded company and restrict potential for growth or revenue based on the personal moral choices of the CEO? Does the board have any responsibilities relative to the CEO’s feel-good attitude when it impacts the bottom line. What does the term publicly traded mean relative to private beliefs?”
The problem with this debate (and most nationwide) is that we are substituting a nuanced debate with generalized statements. I did, however, appreciate the basic principle of supporting civil liberties/rights (which are inherently tied to our nations success).
Hmm. Sure looked like a lot of generalized statements in that leading paragraph. And not a lot of examples to back the content up with nuance.
Author comment by george | May 13, 2006 at 11:24 am
Does it really matter what the stereotype of people that go to certain schools is? Not really. I don’t really think I fit the mold of half the stuff that a stereotypical William and Mary student comes off as.
jon h | May 13, 2006 at 2:46 pm
right george…
not a stereotypical W&M student…
I’ll list the characteristics I think of.
a) from Northern Virginia?
b) going to law school?
c) majoring in econ/gov’t/international relations?
d) somewhat civicly minded, but not a radical protester type.
e) white, middle class
f) drives their parents hand-me-down car
g) is probably going to W&M because they didn’t get into UVA and too many of the people in their high school were going to JMU/GMU
h) may have a small to large chip on their shoulder.
*** you have some environmental leanings, that gives you some unique qualities, but most students have 1-2 things that are different.
Author comment by Z | May 24, 2006 at 8:09 pm
The MBA preznit comes through.
http://www.businessweek.com/bwdaily/dnflash/may2006/nf20060523_2210.htm?campaign_id=rss_daily
President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye.
…
Securities-law experts said they were unfamiliar with the May 5 memo and the underlying Presidential authority at issue. John C. Coffee, a securities-law professor at Columbia University, speculated that defense contractors might want to use such an exemption to mask secret assignments for the Pentagon or CIA. “What you might hide is investments: You’ve spent umpteen million dollars that comes out of your working capital to build a plant in Iraq,” which the government wants to keep secret. “That’s the kind of scenario that would be plausible,” Coffee said.
AUTHORITY GRANTED. William McLucas, the Securities & Exchange Commission’s former enforcement chief, suggested that the ability to conceal financial information in the name of national security could lead some companies “to play fast and loose with their numbers.” McLucas, a partner at the law firm Wilmer Cutler Pickering Hale & Dorr in Washington, added: “It could be that you have a bunch of books and records out there that no one knows about.”
You probably wondered how Dr. Evil was able to construct that secret underground complex in the desert or the hollowed out mountain. Now you know.
The memo Bush signed on May 5, which was published seven days later in the Federal Register, had the unrevealing title “Assignment of Function Relating to Granting of Authority for Issuance of Certain Directives: Memorandum for the Director of National Intelligence.” In the document, Bush addressed Negroponte, saying: “I hereby assign to you the function of the President under section 13(b)(3)(A) of the Securities Exchange Act of 1934, as amended.”
A trip to the statute books showed that the amended version of the 1934 act states that “with respect to matters concerning the national security of the United States,” the President or the head of an Executive Branch agency may exempt companies from certain critical legal obligations. These obligations include keeping accurate “books, records, and accounts” and maintaining “a system of internal accounting controls sufficient” to ensure the propriety of financial transactions and the preparation of financial statements in compliance with “generally accepted accounting principles.”
Good article. I just read the article in the Washington Post about this.
1) In the past (1-3 years ago), I had been relatively indifferent on the issue of the government keeping track of what I do. I figured, hey, if I’m not doing anything wrong, why should I care?
2) Now I do not feel that way, partially because I have been infused with common sense. Each time we take away one of our civil liberties, it opens up the door for another one to be taken away.
Let’s say we become cool with the government eavesdropping on international calls and checking call logs of domestic calls. Maybe in a few years once we get used to this, the government might push its luck and start eavesdropping on domestic calls. And maybe a little later that makes it easier for the government to do this not only to stop terrorists, but to stop 18 year old kids trying to get beer?
By allowing one of our civil liberties to fall, we’re basically saying it’s ok if our civil liberties are altered, and this opens the door for the entire type of life we know as Americans to change.
1984, anyone? (I actually just read that book for the first time just recently. GREAT book. I can’t believe I hadn’t read it before.)
3) I think it is truly noble what the CEO of Qwest did, assuming that he wasn’t just hoping the whole thing got found out and more people would subscribe to Qwest’s telephone service because they know their privacy will be safe.
4) Finally, I believe that what the government has done is totally wrong, if what you state in this article, and what is in the Washington Post is true. Basically, it all comes down to the government threatening corporations to act in a way that their customers would not like. Yes, maybe this will help catch a terrorist or two, but is it worth giving up our civil liberties? I say no.