Business Ethics: Goldman Sachs, NASA, and Ethical Rankings

Goldman Sachs and the Culture of Greed

In "Goldman, Wall Street, and a Culture Crack-Up," Ken Makovsky describes an ethical issue in which a mid-level banker at Goldman Sachs, Greg Smith, alleged that the firm relegated client needs to its search for quick profits. What Smith describes reinforces the idea of a culture of greed permeating Goldman Sachs prior to the financial meltdown. While Goldman had been the subject of significant outside criticism, criticism from inside the company had been rare. Goldman does not appear to have retaliated against Smith, but the firm responded in an inconsistent manner to his claims, which led to speculation that those claims had credence. The article provides useful examples of how the firm should have responded to the allegations.

Goldman did not handle Smith's allegations well. It released an internal memo that seemed to offer conflicting information about Smith and his importance within the firm. The memo first made Smith and his claims seem unimportant — characterizing him as just one of thousands of employees, rather than someone who had worked his way up over twelve years and maintained long-term client relationships — and then went on to say that senior executives would examine his claims of callousness toward client interests. This contradiction raised doubts about how thoughtfully Goldman was addressing what could be similar concerns held by others at the bank.

The article's author offered constructive guidance for how Goldman could successfully manage the ethical issue. He suggested that the firm should publicly invite Smith to speak with top management, create internal structural barriers to the conflicts that face trading houses — for example, by contracting with a prominent outside figure who could dispassionately assess potential conflicts and report directly to the Board of Directors — and that the Goldman board itself should take an activist role in sustaining its reputation and conducting a thorough audit of cultural risks.

The central ethical issue facing the company was how much credence to give to employee complaints about internal ethical conduct. This scenario highlights the potential conflict between firm reputation and the serious investigation of ethical allegations. Taking ethical issues seriously is critical, but appearing to take them too seriously can weaken public confidence in the firm, which could in turn harm its clients. It raises a genuine question: is it always more important to be ethical than to appear to be ethical, particularly when a failure of customer confidence can itself produce negative consequences for those same customers?

NASA, Intelligent Design, and Religious Freedom at Work

In "NASA Intelligent Design Case Raises Business Ethics Question," David Mielach discusses an ethical issue at NASA. NASA is an organization grounded in science, and the most commonly held scientific position is the theory of evolution. Scientists who reject evolution are frequently viewed as lacking credibility in their fields. David Coppedge, a fifteen-year NASA veteran, served as a team leader at NASA's Jet Propulsion Laboratory (JPL) and claimed that he faced discrimination in the workplace because he vocalized a belief in intelligent design — the idea that the complexity of the universe implies an intelligent creator. He distributed DVDs promoting intelligent design to his coworkers and received a written warning after his coworkers complained. He was subsequently laid off as part of a larger reduction in force attributed to budget cuts. Coppedge filed suit, alleging that his outspoken religious beliefs led to the loss of his job.

While it would be illegal to terminate someone because of their religious beliefs — employees are protected under Title VII of the Civil Rights Act of 1964 from discrimination based on religion — the issue in this case extends beyond personal belief. In several respects, Coppedge's conduct infringed upon the religious freedoms of his fellow coworkers. He held a leadership position and distributed religious materials in the workplace. When coworkers complained that his behavior made them uncomfortable, he persisted. In many respects, it can be argued that Coppedge's behavior was actually creating a hostile work environment for his coworkers, whose own rights to religious freedom were being infringed upon.

According to James Craft, a professor of business administration, the exception to religious protection arises when an employee has been warned that the expression of their beliefs is interfering meaningfully with the organization's purpose and activity. In such cases, after appropriate warnings and counsel, it may be both pragmatic and ethical to dismiss the individual. The key moral issue in this case involves an investigation of the boundaries of religious freedom: can one person's exercise of religious freedom be permitted to negatively impact the rights of others? What obligations does a company have to protect employees from religious speech by coworkers, while simultaneously protecting individuals' rights to hold and express religious beliefs?

The World's Most Ethical Companies: Recognition and Its Implications

In "The World's Most Ethical Companies," Jacquelyn Smith discusses the release of the Ethisphere Institute's sixth annual list of the most ethical companies in the world. The article both names those companies and explains how Ethisphere compiled the list. The Institute uses a proprietary rating system called the Ethics Quotient, based on a series of multiple-choice questions in a survey designed to capture company performance in an objective and standardized way. The process includes reviewing codes of ethics, litigation and regulatory infraction histories, investment in innovation, sustainable business practices, and other factors relevant to ethical conduct. Ethisphere independently verifies survey responses and cross-checks results against governance lists from organizations such as GovernanceMetrics International and FTSE for Good. Any company that has had significant legal trouble over the past five years is removed. The 2012 list included 145 organizations — the longest since the award's inception in 2007 — and showed growth in the international arena, with 43 winners from outside the United States, as well as a significant number of repeat honorees.

One notable finding is why companies are as interested as they are in being recognized as ethical. One stated reason is that companies use the recognition in their recruitment materials, as studies show that more and more employees want to work for organizations that align with their personal values and are more loyal to such organizations. Companies also use this status to attract customers, particularly when entering new markets where they are not yet well known. There are, therefore, real competitive benefits to appearing on the list.

This raises an important ethical and moral question: should companies actively seek placement on such a list? Obviously, they should seek to engage in the kinds of behaviors that would warrant inclusion. Whether they should seek the recognition itself, however, is a separate matter. Do these lists increase the likelihood that companies will engage in genuinely higher levels of ethical behavior, or do they primarily ensure that companies will engage in higher levels of visible ethical behavior?

Conclusion: Ethics, Appearance, and Organizational Integrity

Across all three cases examined in this journal, a common tension emerges: the gap between genuinely ethical behavior and the performance of ethical behavior. Goldman Sachs faced a credibility crisis in part because its public response appeared more concerned with managing perception than with honestly examining its internal culture. The NASA case demonstrated that the right to religious expression must be weighed against the corresponding rights of others in the workplace — a balance that requires careful institutional judgment, not simply deference to the loudest voice. And the Ethisphere list raises the question of whether external ethical recognition reinforces real ethical culture or simply rewards its visibility.