FLATLAND, ETHICSLAND, AND LEGALLAND Robert A. Prentice Abstract: |ohn Hasnas's fine article, "Up from Flatland: Business Ethics in the Age of Divergence," fails in its stated goal of challenging the mainstream business ethics community's methods of analyzing normative issues. However, it achieves what is likely Hasnas's true goal of alerting both business ethicists and managers of the bigger stakes now in play when the federal government indicts employees and seeks their employers' cooperation in establishing the prosecutor's case. While prosecutorial overreaching is a legitimate concern that deserves to be highlighted, it requires no qualitative change in normative ethical analysis. That analysis now involves different inputs (greater stakes for firms and employees), but continues to involve a familiar but complicated weighing of shareholder interests against employee interests and, sometimes, a weighing of both against the requirements of the law. John Hasnas's provocative Up from Flatland: Business Ethics in the Age of Divergence^ makes me want to read Edwin Abbott's famous book, but fails in its stated goal of challenging "the proper method of analyzing normative issues by the mainstream business ethics community."^ On the other hand, it succeeds in what I suspect are Hasnas's true objectives, which I believe are to get the reader riled up about current abuses of prosecutorial discretion and to remind ethicists and business managers to consider those abuses in their writing and decision making. Before I explain why I believe that Professor Hasnas fails in his stated aspiration, let me emphasize that I admire his article very much. His basic premise that legal implications are crucial to ethical decision making is indisputable. Furthermore, I share Hasnas's antipathy for criminal statutes that punish merely negligent behavior and his suspicion of so-called "secondary" offenses such as money laundering and violations of false statements and obstruction of justice statutes. Like Hasnas, I find recent prosecutorial abuses disturbing.' I also find Professor Hasnas's conceit a clever one. Just as A Square tries to bring the perspective of the third dimension to Flatland in Abbott's book. Professor Hasnas purports to bring the knowledge of Legalland to the world of Ethicsland. While I myself have been known to exaggerate a tad here and there in service of a rhetorical flourish, I believe that Professor Hasnas goes too far. Although philosophers who write in the business etbics field could no doubt be well served by more legal knowledge (just as I could profit by more knowledge of philosophy), it is unfair © 2007. Business Ethics Quarterly, Volume 17, Issue 3. ISSN 1052-150X. pp. BUSINESS ETHICS QUARTERLY and largely inaccurate to imply that ethicists with philosophy and social science backgrounds have generally ignored legal implications in their analysis. Proper deontologists would naturally tend to consider legal rules in their analysis, for these rules are one potentially legitimate source of duty."* And certainly utilitarians generally incorporate the consequences of violating the law into their consequentialist analyses.' Hasnas does not provide any examples where consideration of legal factors has gone wanting in Ethicsland. Professor Hasnas's actual desire, I believe, is simply to emphasize how far overboard he believes that federal authorities have gone in using aggressive prosecutorial tactics. The abuses he cites do make for difficult ethical choices, but they are not difficult because current methods of analyzing ethical issues are inadequate to the task. Nor are they difficult because they are particularly complicated or novel. Rather, these choices involve the same types of ethical questions with which ethicists and managers have long wrestled. The reason these new tactics present difficult ethical choices for managers is simply that the stakes can now be so high. The consequences of a wrong choice can be staggering for both the employee and the firm. Nonetheless, it is the same ethical choice with the same principles at stake whether the consequences of betraying an employee in the service of the corporation is to subject the employee to six months in jail or six years in jail; or whether the consequence of failing to do so is a big fine for the firm or a criminal indictment. While Hasnas builds a strong policy argument for curbing prosecutorial abuse, he makes no case that I can see for a new method of analyzing ethical dilemmas. Hasnas accuses traditional ethical analysis of falsely assuming that the criminal law prohibits only morally blameworthy behavior, but he overstates the case. Surely most ethical analysis is able to safely make that assumption because most criminal laws do prohibit morally blameworthy behavior. However, ethicists realize that some criminal laws do not require morally blameworthy behavior and analyze those statutes on their own terms.'' It is Hasnas who proceeds fi'om a false premise, assuming as he does that the business ethics literature is plagued by a long-established convention that inaccurately conflates legal and ethical imperatives. Business ethics texts often make observations along the lines of: "Law enshrines many of the ethical judgments of a society, but it is not coextensive with ethics."' If most writing in Ethicsland assumes an alignment of ethical and legal rules, it is because in most situations that alignment exists:" murder is illegal and unethical; bribery is illegal and unethical; insider trading is illegal and unethical; sexual harassment is illegal and unethical. But the literature in Ethicsland has long recognized the occasional exception, such as the Fugitive Slave Acts of the nineteenth century' and, more recently, federal laws banning medicinal use of marijuana.'" The substantial literature on the ethics of civil disobedience obviously recognizes that legal and ethical standards are not always coextensive." Situations where legal and ethical urges conflict have received FLATLAND, ETHICSLAND, AND LEGALLAND relatively little attention simply because they are, fortunately, fairly rare.'^ Hasnas does not establish to the contrary. Hasnas argues that federal prosecutors are so harsh with corporate defendants that they require managers of those defendants to act unethically. I do not believe that to be true. Hasnas's key argument is that when a corporation faces a huge fine that can be mitigated under the U.S. Sentencing Guidelines for corporations and the (now discarded, or at least modified) Thompson Memo only by throwing employees under the bus, a whole new analytical paradigm must be brought to bear in order to properly account for the legal considerations involved. To the contrary, I believe that this issue requires no different analysis than many other ethical issues, such as the question of whether afirm may ethically outsource (or "offshore") jobs to Asia. In both instances the managers must resolve the conflict between the responsibility to treat workers justly and the responsibility to maximize profits for shareholders. The ultimate ethical conflict is the same in both cases. Therefore, managers and ethicists need not change modes of analysis when moving from the outsourcing dilemma to the prosecutorial misconduct dilemma. Hasnas makes much of a situation where a company tells its employees that it will keep information that it receives from them confidential, but then, in order to avoid near death penalty punishment, turns that information over to federal prosecutors and waives the attorney-client privilege. I believe that this is unethical treatment of the employees. But it is no different in kind from a company telling employees that it will not outsource their jobs, but then doing so when economic pressure becomes too great. The conflicting interests are analogous in both cases and can be analyzed in exactly the same manner. Again, reasonable minds might differ on just how unethical it is for afirm to break its word to employees in order to save its own existence in either situation, but the ethical question presented is identical. The best approach, it seems to me, is for companies not to lie to their employees. Executives should tell employees that because of the McNulty Memo and the Sentencing Guidelines they may well be forced to turn over all information to prosecutors and to waive the attorney-client privilege in order to save the corporation. Then they can comply with federal demands without being dishonest with employees. While Hasnas writes that "[m]anagers are now often forced to choose between their ethical obligations to stakeholders and their obligation to obey the law or aid law enforcement,'"' in truth managers have always had to weigh the interests of shareholders and employees against one another, as well as to weigh the interests of both against the requirements of the law. For example, managers have long had to decide whether or not to follow environmental regulations if doing so would cut profits for shareholders and/or require employees to be laid off. The new prosecutorial hardball does not require managers and ethicists to change their decision making processes. It simply demands that they be cognizant of the new inputs to their decisional calculus that take the form of radically increased adverse consequences for firms that are blindly loyal to employees charged with white collar crimes.''' BUSINESS ETHICS QUARTERLY Nothing in the Thompson Memo or the Sentencing Guidelines requires companies to lie to their employees about their intentions to keep information confidential. '^ Hasnas's argument is that cumulatively these policies give employers a strong financial incentive to mislead employees. Hasnas asserts that unless corporations falsely promise confidentiality, they will not be able to sufficiently monitor and control the behavior of their employees to prevent them from committing criminal offenses. I doubt that this is true,'^ but even if it is, the dilemma neither presents a unique problem nor requires a unique mode of analysis. Top corporate executives might also decide that in order to keep key employees from defecting, they must promise that they will not outsource the employees' jobs, even if they intend to consider that option should current competitive conditions continue to deteriorate. I believe that firms should not make promises they do not intend to keep in either setting. Compare the KPMG situation, where in order to avoid a federal criminal indictment of the type that imposed a functional death penalty on Arthur Andersen, the firm sacrificed the interests of several of its employees by cooperating with aggressive federal prosecutors. Like Hasnas, I am deeply troubled by KPMG's actions and even more so by those of the federal prosecutors who played such hardball." Hasnas tries to make the decision that KPMG faced appear all the more difficult by assuming, in the face of substantial contrary evidence,'* that both KPMG and the individual employees thought the subject tax shelters were legidmate. Even if that were the case, consider an analogous hypothetical. Brady, president of ABC Co., rear-ended a busload of nuns as he drove home from the office. At the time of the accident, he was on the cell phone to his offtce, asking his administrative assistant whether he had completed a personal errand that Brady had asked him to run. The attorney for the class of plainfiff nuns is willing to drop Brady from the suit if ABC will pay a huge settlement. ABC's attorneys believe that under the applicable state law, they can convince the judge to distniss the lawsuit against ABC on grounds that Brady was acting outside his scope of employment, leaving Brady as the sole defendant. If this hypothetical is not difficult enough, assume that Brady is also the founder of the company and nearly 100 percent responsible for its initial success, that medical bills from his wife's unsuccessful battle with terminal cancer have rendered him destitute, that his son had committed suicide the day before the accident and Brady may have been distracted for that reason, etc. No matter how many sympathetic factors we add, the process for determining whether it is ethical to sacrifice Brady's interests to benefit the corporation's shareholders remains pretty much the same, just as KPMG's ethical reasoning process need not have been altered qualitatively no matter how serious the consequences it faced when prosecutors demanded that it undennine its employees' criminal defense. The ethical processes to be used to resolve the dilemmas need not change with the new facts. But the decision makers must be careful to consider the new inputs—the greater fine or the potential for indictment of the firm. Consider Hasnas's argument about ethical audits. He observes that a cogent argument can be made that managers have an ethical obligation to do ethical audits even FLATLAND, ETHICSLAND, AND LEGALLAND if they create more costs than benefits for the corporation. But, he states, under the new aggressive federal criminal policies the costs of undertaking an ethical audit increase radically. That is true, but again is quite familiar. Assume Sam is a brave, clean, loyal, trustworthy employee who has been with the company for twenty years. Assume that his hard work and innovative thinking saved the company from bankruptcy last year. Assume further than the company has just learned that Sam is an alien illegally present in the U.S. Whether the company should report Sam to immigration authorities is an ethical dilemma. The decision would be made more difficult if the federal penalty for hiring illegal aliens were increased by a factor of five, but that would not change the ethical issue or require a new mode of ethical analysis any more than increased aggressiveness in federal criminal enforcement changes the process of deciding whether there is an ethical duty to perform ethical audits. Hasnas argues that because etbical audits will now trigger a legal duty for tbe corporation to aid in the prosecution of its own employees, the financial and ethical costs they impose will become too great for them to be undertaken. This is a sound policy argument for urging federal authorities to back off, but it does not require new ethical analysis. The inputs to the decisional calculus change, but the process of resolving the ethical dilemmas does not. If ethical analyses are ethically required when they create costs that exceed benefits by a little bit, they similarly are ethically required when they create much greater costs, if we are tending toward a deontological approach. If we are leaning toward a utilitarian approach, the analytical process remains the same, but there are more costs to put on one side of the scale than before. A virtue ethics analysis would be similar in either case." In other words, in all the scenarios that Hasnas posits there is a standard conflict in business ethics—employees' interests conflicting with owners' interests and both conflicting with the duty to obey the law. Because of the increased pressures that prosecutors are bringing to bear in the post-Enron era, the stakes have gotten greater, thereby putting more pressure on managers than ever before to sacrifice employee interests for the financial good of the corporation. However, the factors being weighed are exactly the same in kind, just not in amount. There are many models for the ethical decision making process.^" No matter which model is applied, the first important step in the process is to input accurate facts.^' Hasnas provides no persuasive reasons to embrace his stated goal of challenging traditional modes of analyzing ethical issues in the business ethics community. But he does accomplish what I believe are truly his main goals. First, he makes us question on policy grounds the especially aggressive prosecutorial tactics exerted in some recent white collar criminal cases. Second, he reminds us (a) that the facts inputted into traditional ethical reasoning processes must include legal consequences,^^ and (b) of the relative harshness of some modem prosecutorial tactics. Perhaps a reminder of the dangers of prosecutorial excesses is not completely necessary. Mike Nifong^' and John Grisham^" have recently highlighted the topic for the general public. Furthermore, the ethics of prosecutorial misconduct have BUSINESS ETHICS QUARTERLY been subjected to scrutiny in Legalland via law review^^ and legal ethics journal articles.^^ Nonetheless, Hasnas does a good turn by reminding those of us who teach Right and Wrong 101 in Ethicsland during the post-Enron era that we also should be a little more persistent in shining our analytical lights upon the type of prosecutorial abuses that he addresses. Notes While I was preparing this piece, my friend and colleague Robert C. Solomon died. He was a great philosopher, an influential business ethicist, a fabulous teacher, and a fine man. I dedicate this article to him. 1. John Hasnas, Up from Flatland: Business Ethics in the Age of Divergence, 17 Bus. ETHICS Q. 399 (2007). 2. Id. at 399. 3. Apparently, so did a federal judge in New York. See U.S. v. Stein, 435 F.Supp.2d 330 (S.D.N.Y. 2006) (criticizing handling of KPMG tax shelter prosecution). Even the Justice Department must have been persuaded, for it put self-imposed restraints on its procedures;, see the "McNulty Memorandum" at http://www.usdoj.gov/dag/speech/2006/mcnulty_memo.pdf. The changes made do not quell the fears of prosecutorial abuse that many share with Hasnas. See Pamela A. MacLean, McNulty Memo on Attorney-Client Privilege Blasted for Lack of Change, NAT'L L.J., Jan. 26,2007 (noting that "few believe that what has been dubbed the McNulty memorandum .. . will resolve the simmering anger among corporate counsel over what has been called a 'culture of waiver'"); Brooke Masters & Patti Waldmeir, Rules for Fighting Corporate Crime 'Still too Tough,' FIN. TIMES, Dec. 13,2006, at 6 (noting signs "that the changes would not quell debate on whether the department should be forced by Congress to make bigger changes"). 4. It is, after all, "the duty of the legislator to frame laws that reflect morality and therefore provide the citizen with. .. the state-authorised duties to do what morality already obliges him to do in conscience." DAVID S . ODERBERG, MORAL THEORY: A NON-CONSEQUENTIALIST APPROACH 62 (2000) (emphasis in original). 5. De George notes that "[a] utilitarian analysis, as a moral analysis, weighs the good and bad results of an action on everyone affected by it." RICHARD T. DE GEORGE, BUSINESS ETHICS 45 (2d ed. 1986) (emphasis in original). Certainly this would include jail sentences for employees, as De George argues that whereas a business's utility analysis would just look at the pluses and minuses of a particular decision for the firm, a utilitarian moral analysis would look at the impact of the decision on third parties, such as employees. 6. See, e.g., Theodore Y. Blumoff, Justifying Punishment, 14 CAN. J. L. & JURIS. 161, 172 n. 48 (2001) (explicitly noting in philosophical analysis of the ethics of punishment that his analysis necessarily excluded "strict liability crimes for which no mens rea element needs to be provided"). 7. THOMAS M . GARRETT & RICHARD J. KLONOSKI, BUSINESS ETHICS 1 (2d ed. 1986). 8. For this reason. Harvard's Constance Bagley was able to state that the first question the ethical decision maker must always ask is: "Is it legal?" Constance E. Bagley, The Ethical Leader's Decision Tree, 81 HARV. BUS. REV. 18, 18 (Feb. 2003). 9. See, e.g., Walter H. Bennett, Jr., The University of North Carolina Intergenerational Legal Ethics Project: Expanding the Contexts for Teaching Professional Ethics and Values, 58 LAW & CoNTEMP. PROBS. 173, 190 n. 34 (1995) (using Huck Finn's internal monologue regarding whether to turn Jim in as a runaway slave as an ethical dilemma in an ethics course). FLATLAND, ETHICSLAND, AND LEGALLAND 10. See Brian H. Bix, Physician Assisted Suicide and Federalism, 17 NOTRE DAME J. L. ETHICS & PUB. POL'Y 53 (2003) (discussing medical marijuana, physician-assisted suicide, and same-sex marriages as examples of issues where legal rules and ethical mandates might differ); J. Wells Dixon, Note, Conant v. McCaffrey, Physicians, Marijuana, and the First Amendment, 70 U. COLO. L. REV. 975, 978 (1999) (noting that if a "physician believes medical marijuana is the best treatment for the patient, he violates a professional ethical duty when he chooses not to prescribe or recommend it"); M Hayry, Prescribing Cannabis: Freedom, Autonomy, and Values, 30 J. MED. ETHICS 333, 336 (2004) (also analyzing the conflict between physicians' ethical duty to prescribe cannabis to patients when their professional judgment calls for it and their legal do to respect a legal prohibition). 11. See, e.g., R.D.DixiT, CIVIL DISOBEDIENCE: A PHILOSOPHICAL STUDY (1980); RONALD DwoRKiN, A MATTER OF PRINCIPLE 104-18 (1985); Frederick A. EUiston, Civil Disobedience and Whistleblowing: A Comparative Appraisal of Two Forms of Dissent, 1 J. Bus. ETHICS 23 (1982); EDWARD H. MADDEN, CIVIL DISOBEDIENCE AND MORAL LAW IN NINETEENTH CENTURY AMERICAN PHILOSOPHY (1968). Legal ethicists have also addressed the requirement for civil disobedience by attorneys when conflicts arise between law and morality. See Jorge L. Carro, Book Review: Attorneys' Professional Conduct: A Question of Law and Morality—Ethics and the Legal Profession, 56 U. CIN. L. REV. 207, 211 (1987) (making this point); Judith A. McMorrow, Civil Disobedience and the Lawyer's Obligation to the Law, 48 WASH. & LEE L. REV. 139 (1991). 12. The AMA's Council on Ethical and Judicial Affairs notes that "the law seldom requires unethical conduct," but concludes that in "exceptional circumstances of unjust laws, the ethical responsibilities should supersede legal obligations." Council on Ethical and Judicial Policy, Fundamental Elements of the Patient-Physician Relationship E-10.01, available at http://www .ama-assn.org. 13. Hasnas, supra note 1, at 400 (emphasis added). 14. Note that even Milton Friedman would not argue that managers have a duty to maximize profits for shareholders or wages for employees in violation of the law, as Hasnas seems to imply. In other words, there is little evidence of a "growing divergence" between managers' ethical and legal obligations, as Hasnas claims. Hasnas, supra note 1, at 400, 401. 15. Hasnas argues that under both DOJ policy and the Sentencing Guidelines employers are placed in an irresolvable dilemma in that they need information from employees but cannot get that information if they do not make promises of confidentiality that prosecutors may force them to breach. But the policies urge employers to establish an anonymous whistleblower hotline that allows the firm to gather the information necessary to have an effective compliance program without learning the identity of the whistleblowers. Therefore, the firm cannot breach a promise of confidentiality because its managers usually do not know the identity of the whistleblower. 16. I am not sure how Hasnas would prove this proposition true or how I would prove it untrue. It is, in any event, not a new problem. Corporations are already constrained in how closely they may monitor employees, yet they have long faced civil and criminal liability if employees err. For example, there are certain questions that employers may not ask employees when hiring them that might reflect on the employees' ability and desire to comply with the law. Nor can employers promise that they will not monitor employees' e-mail but then do so any way (without courting invasion of privacy suits by the employees). Nor can firms implant computer chips in employees' heads to monitor their off-work activities, although to be able to do so might enable them to avoid various types of liabilities. 17. As noted earlier, fortunately we are joined in our discomfort by U.S. District Judge Lewis A. Kaplan, who had the power to do something about it. 18. There is substantial evidence that KPMG and many of its employees acted criminally with regard to many tax shelters. See generally Tanina Rostain, Travails in Tax: KPMG and the BUSINESS ETHICS QUARTERLY Tax-Shelter Controversy, in LEGAL ETHICS: LAW STORIES 89 (Debora L. Rhode & David Luban eds., 2006); "U.S. Tax Shelter Industry: The Role of Accountants, Lawyers, and Financial Professionals: Four KPMG Case Studies: FLIP, OPIS, BLIPS, and SC2," Minority Staff of the Permanent Subcommittee on Investigations of the Committee on Government Affairs, United States Senate, 108th Cong., 1st Sess., S. Prt. 108-34, at 7-16 (2003). 19. See generally, Robert C. Solomon, Victims of Circumstances? A Defense of Virtue Ethics in Business, 13 Bus. ETHICS Q. 43 (2003). 20. See, e.g., O. C. FERRELL & JOHN FRAEDRICH, BUSINESS ETHICS: ETHICAL DECISION MAKING AND CASES 62-^4 (1991) (discussing various models). 21. 5ee Manuel Velasquez et al.. Thinking Ethically: A Framework for Moral Decision Making, in BUSINESS ETHICS 2 (John E. Richardson ed., 18th ed. 2006/2007) (noting that "[t]he first step in analyzing moral issues is obvious but not always easy: Get the facts."). 22. Again, I stress that I do not believe this proposition to be either novel or controversial. 23. Nifong's conduct as prosecutor of the infamous Duke lacrosse rape case should not be prejudged, of course. The gradual developments in the prosecution of that case make it surpassingly clear that prejudging guilt or innocence can be very dicey business. However, if current appearances are confirmed by later evidence, Nifong's handling of the case may have been a signal example of prosecutorial misconduct. 5ee David Barstow & Duff Wilson, Prosecutor in Duke Sexual Assault Case Faces Ethics Complaint from State Bar, N.Y. TIMES, Dec. 29, 2006, at A22 (noting that a seventeen-page complaint had been filed with the state bar association regarding Nifong's conduct of the case); David Zucchino, State Prosecutors Take Control of Duke Rape Case, L.A. TIMES, Jan. 17, 2006, at A18 (nofing that because of concerns over Nifong's conduct, he had been replaced as prosecutor of the case). 24. Novelist Grisham has, of course, focused attention on prosecutorial misconduct in Oklahoma with his best-selling nonfiction book. JOHN GRISHAM, THE INNOCENT MAN (2006). 25. 5ee, e.g., David Aaron, Note, Ethics, Law Enforcement, and Fair Dealing: A Prosecutor's Duty to Disclose Nonevidentiary Information, 67 FORDHAM L. REV. 3005, 3027 (1999); Ellen Yaroshefsky, Wrongful Convictions: It is Time to Take Prosecution Discipline Seriously, 8 D.C. L. REV. 275 (2004); Rory K. Little, Proportionality as an Ethical Precept for Prosecutors in Their Investigative Role, 68 FORDHAM L. REV. 723 (1999); Fred C. Zaccharias, Structuring the Ethics of Prosecutorial Trial Practice: Can Prosecutors Do Justice?, 44 VAND. L. REV. 45 (1991). 26. 5ee, e.g., Lyn M. Morton, Note, Reconsidering Absolute Prosecutorial Immunity, 7 GEO. J. LEGAL ETHICS 1083 (1994); Ellen S. Podgor & Jeffrey S. Weiner, Prosecutorial Misconduct: Alive and Well, and Living in Indiana?, 3 GEO. J. LEGAL ETHICS 657 (1990).