Should Executives of Publicly-Traded Companies Undergo Ethics Training?

All too often, those of us who invest are disconnected from a certain aspect of the investment process: we rarely know anything about the executives of the company in which we have placed our trust. We look at numbers, stock performance, historical highs and lows and many other facets, but other than a paragraph or two in the annual report or a slick photograph, what do we know of the individuals who run the company?  The question is should executives of Publicly-Traded Companies undergo ethics training?

Ethics Training ChipolteIt is true, that we automatically may assume the executives of a “successful” company are brilliant or star marketers or are amazing tacticians, but we have all seen companies who have succeeded in spite of management or simply as the result of being at the right place at the right time.  How many execs undergo ethics training?

If we buy and hold a stock for the long-term, we would like to think that the management of the company can manage not only in good times, but in bad and we would hope they make good judgment and not bad choices. That is where good ethics and ethical training should come into effect.

Chipotle Meltdown

Chipotle has certainly had its share of challenges over the past couple of years, including ingredient contamination and labor problems. Once a Wall Street darling and a beacon of light for advocates of healthy, locally-sourced foods, Chipotle is now inadvertently embroiled in the world of cocaine.

In New York City, a narcotics trafficking ring used a rather “clever” method of cocaine distribution: they distributed and sold cocaine in a number of nightclubs, delis and drug stores (well, it is a drug!). The operation was doing about $4.3 million in sales.

The police were wise to the ring, and in fact the dealers sold to them on a number of occasions. The police were simply biding their time to see who was “using the service.” Enter Mark Crumpacker, Chipotle’s chief marketing and development officer. A good looking, athletic, mover and shaker, it is arguable that when people thought of the organization and its fight for responsible food practices, it thought of him.

Crumpacker, a man who traveled the country trying to convince people his chain stood for responsibility, pure ingredients and a whole new way of doing business, was one of the cocaine ring’s most valued customers. In fact and in my opinion, Crumpacker was more reminiscent of an 80’s “coke head” than a 2016 smart guy. To its credit, the company immediately terminated him but not before the story got out and before the stock took a hit and the management was ridiculed.  Ethics training would have been in order here don’t you think?

Why not training?

If you are about to be an investor in a company, I am fairly certain you would prefer those responsible for marketing the company’s products and coming up with new ideas as to how to increase sales, are not snorting lines of cocaine in a men’s room. I am just guessing here, but I would imagine the CEO and CFO – not to mention the brokerage houses making a market in the stock, would probably not endorse the behavior either.  Here’s where ethics training would have at least been helpful.

The problem with a top executive making extremely poor choices (and especially poor, drug influenced choices) is in its “infectious nature.” Ethics training cannot eliminate bad choices, but it certainly can show management’s intent and culture. I am not talking about salmonella in the food ingredients, but the guilt by association of irresponsibility and poor decision making. I am sure more than one shareholder was inclined to think: “These idiots are still making bad choices!”

It leads me to a discussion of mandatory ethics training for executives and high-ranking employees of publicly-traded companies, with updated sessions on an at least an annual basis. Now, could ethics training have prevented Mark Crumpacker’s addiction to cocaine?

I do not know, but I’ve a hunch that others within the company might have suspected his cocaine abuse, and training may have led to intervention or prevention. The cost of ethics training is extremely low, and frankly it has tremendous upside.

One thing is certain: ethics training cannot hurt and it can, if properly instituted, pay dividends on many levels.



Posted by Chuck Gallagher in ethics training and tagged , , , .

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