“The rules by which servicers are reimbursed for expenses may provide a perverse incentive to foreclose rather than modify”

Recent paper published by the Federal Reserve Bank of Boston, quoted by The New York Times, July 30, 2009.

I’ve written about the distinction between law and ethics before.  But shrinking English muffins and the “grocery shrink ray” pale in comparison to the hidden incentives lenders have to push struggling mortgage holders into foreclosure. 

According to the legal experts, the Obama administration’s loan modification program incentives are outweighed by the revenue stream banks derive from collecting mortgage late fees.  The longer the lender waits before foreclosing, the more late fees can be collected. 

Once the property is foreclosed on, the same mortgage company often participates in the transfer and resale process.  According to one insider, one mortgage company established its own title company so that it could keep more of the revenues from foreclosures – charging for a title search when the property was foreclosed on and titled transferred to the mortgagor, and again when it transferred to a new buyer, along with title insurance.  Ca-ching!

I’m sure there was plenty of contract language somewhere that allowed these lenders to justify raking in all of those fees.  But you can’t help question the ethics and social conscience underlying those business decisions when the collateral damage they create (undermining the loan modification program, exacerbating the borrower’s financial distress, and depressing housing values) far exceeds their own narrow interests.

©2009 Corporate M.O., LLC.

It’s nice to see ethics and corporate social responsibility rising to the top of MBA student agenda.  In case you missed it,  the NY Times  recently reported that nearly 20% of the graduating class at Harvard Business School had signed The MBA Oath.  Other top tier MBA programs have similar honor codes and pledges.  Basically, they promise to act responsibly, ethically and avoid conflicts of interest.

Bravo!

The real test of course is what happens in the real world.  It’s very easy to be judgmental when sitting in the safety of the classroom with a case study in front of you, especially on the eve of graduation.  It’s much more difficult when when deadlines and projects compete for your limited time and resources.  Often, it’s much more difficult to even see potential pitfalls, because you’re so intently focused on the job at hand. 

It’s like the famous experiment where individuals were asked to count how many times a basketball was passed between players on a basketball court.  During the course of the experiment, someone dressed in a gorilla suit walked across the room.  At the end the participants were asked if they saw the gorilla.  Most of them didn’t because they stayed tightly focused on the ball.   

And therein lies the leadership challenge for MBAs and all managers and executives.  To avoid ethical and legal pitfalls it’s critical to keep your eye on the ball as well as on the complexities of the big picture.  It’s not easy.

But getting back to Harvard’s MBA Oath, what I really want to know is what’s the story with the remaining 80% of the class?  Will they see the gorilla in the room?

Today is Election Day in the United States.  Those participating in democracy by casting their vote for president will be making history today.  We will either have the oldest president to take the oath of office or the first African-American president.  Either will be a first and both require looking past stereotypes about age and race.

Stereotypes are mental shortcuts and broad brush generalizations about what certain characteristics represent.  They are an opinion.  Opinions are fine.  But in the workplace, when decisions are based on such generalizations without additional objective support you can wind up with bias and unfair favoritism.   

The law bans certain biases.  It calls them illegal discrimination and employers looking to avoid lawsuits will profit from understanding what type of behavior constitutes illegal discrimination and how to avoid it.

The first part of the task, identifying what is illegal discrimination is relatively easy.  Figuring out how to avoid it is much taller order because it challenges stereotypes we may have grown up with, “comfortable” ways of thinking, and in some cases deeply entrenched cultural expectations. 

Take for example the subject of pregnancy discrimination.  Thirty years after discriminating on the basis of pregnancy, childbirth, or related medical conditions was made illegal in the U.S., data shows that between 1995 and 2007 the number of pregnancy discrimination cases increased 65% even as national birth rates dropped.  That’s sad. 

You’d think avoiding pregnancy discrimination would be pretty straightforward, but it’s not as Michael Maslanka points out in his humorous article titled Check Assumptions at the Door in Employment Law Matters.

The laws may differ internationally, but persistent gender stereotypes continue to hamper gender equality in the workplace and often contribute to actionable pay gaps. 

Most employees don’t bring an economic, tax, or other political agenda to work with them.  They just want to do a good job and be treated fairly.  So let’s jettison the stereotypes and get down to business.  Objective decision making is not just the smart thing to do; it’s the ethical and right thing to do. 

“Read this and let me know if they can really do it,” my assistant said as she handed me the front page of the local paper.  The headline: “MLB says kids teams can’t adopt nicknames.”

We’re in the middle of the World Series between the Philadelphia Phillies and the Tampa Bay Rays and the headline makes it sound like the Grinch Stole Christmas.  Kids can’t emulate their heros?  It doesn’t sound fair.

Actually, the headline is a bit misleading.  It says teams can’t adopt nicknames.  When you read the article you realize its really about trademarked names, not nicknames per se.

Part of every professional sports team’s franchise, or marketing platform, is it’s team name and logo.  Those assets are closely guarded and usually trademarked for added legal protection.

Using someone else’s name without their permission is really a form of identity theft.  It causes confusion and misleads others and that’s where the trademark infringement comes in.

Oh, ‘common you might say.  When Al’s Garage sponsors the local youth baseball team and their team jerseys say “Al’s Yankees” everyone knows it’s not the real NY Yankees.  And besides, how can they own the word “Yankees”? 

True.  They know it’s not the world famous NY Yankees — but seeing the word “Yankees” in the context of a baseball uniform makes people think of the NY Yankees and there’s the rub.  It’s very different than, for example, seeing a Yankees Cheese Shop sign.  It’s a different product and, in legal terms, a different class of goods.  When it comes to baseball, the NY Yankees can own that Yankee space.

Most ethical people would not dream of driving someone else’s car or moving into someone else’s home without permission.  Yet when property is not three dimensional, when you can’t pick it up and hold it, when it’s intellectual property like copyright, trademark, and patents; more people are inclined to rationalize use without permission.

Rather than banning use of Major League Baseball team names on pint size jerseys, the MLB might consider offering a limited license for a very nominal license fee — an amount that could be raised in a bake sale.  In the process they would be teaching the kids that stealing a name is not the same as stealing a base. 

They would also hit a home run for legal literacy by reminding players, coaches, and sponsors that the law, like baseball, has rules that need to be followed if you want to stay in the game.