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September/October 2004 - By Andrew W. Singer
An Ethics Officer of Olympian Proportions: Pat Rodgers and the USOC Scandal
To some in the business ethics community, Patrick Rodgers is a hero. Early in the decade he held a high profile position as ethics compliance officer at the scandal-plagued United States Olympic Committee (USOC). In 2002, he
was called upon to investigate the organization’s chief executive officer, Lloyd Ward, who was alleged to have steered USOC contracts to his brother’s business. Rodgers did find a conflict of interest—a violation of the USOC’s ethics code. But when the organization’s ethics committee failed to discipline Ward, by a 16-4 vote in January 2003, Rodgers resigned from his post. It was a matter of principle.
“It clearly, in my judgment, was a violation,” Rodgers told USA Today at the time.
“It couldn’t be clearer.”
The USOC was plunged into turmoil. Ethics committee members John Kuelbs, Edward Petry, and Stephen Potts also resigned. Senate hearings were held. CEO Ward eventually lost his job. Peter Ueberroth was brought in to restore stability to the organization.
Today, Rodgers, a former chairman of the Ethics Officer Association (EOA), is retired from the ethics profession. He lives in Nevada, and is in the process of setting up a coffee business.
An earlier scandal
There is some irony to all this. Rodgers was brought on board after an earlier USOC scandal in which bribes were paid to help secure the 2002 Winter games for Salt Lake City. (See ethikos, March/April 2001, “Learning from the Salt Lake City Olympics Scandal.”) In 2001, he spoke with ethikos about the Salt Lake City Organizing Committee, which was overseen by the USOC. That committee “had all the traditional things in place”—audits, ethics committees, and the like.
“The problem was that none of it worked.”
Reforms initiated after that first scandal called for Rodgers to report to the Olympic Committee’s CEO in ethics or compliance matters regarding USOC staff, and to the Ethics Oversight Committee for any issue involving the CEO. As this publication noted in 2001:
Because the Ethics Oversight Committee is composed entirely of outsiders, there is no ‘stone wall’ to knock against in a worst-case scenario—if
corruption is found at the highest executive levels. This reporting structure is spelled out explicitly in the USOC’s charter—and it is unusual. It solves a problem that “lots of ethics officers have,” i.e., the problem of investigating your own boss.
But it didn’t work. Again.
“I was as connected as anyone could be,” reflects Rodgers, in a recent interview. He reported to the ethics committee of the board, after all, the gold standard for ethics officers,
‘Don’t put them in that position’
It may be time to re-think the proper role of the corporate ethics officer, he suggests. What is and isn’t feasible, particularly when it comes to investigations. Rodgers now believes that an ethics officer should never be put in the position of having to investigate his or her own boss, as he was.
“Don’t put them in that position to start with. They should never have to say whether allegations regarding the boss
should be reported up.”
Why not? “Ethics officers aren’t really equipped to deal with these sorts of things.” They do have the opportunity to bring about some facilitation of the process. But it’s best to bring in someone from the outside when such a sensitive investigation is required.
Rodgers held a number of corporate positions before taking the USOC post. He was ethics officer at Hughes Aircraft for many years. He was close to retirement age when he took the USOC job. “I
didn’t have a financial interest in taking this job and have no financial interest in leaving it,” Rodgers told the Associated Press in 2003, after he resigned.
But many ethics officers are in a different situation. Often they are in their 40s. They have families to support, mortgages to pay. “There’s a conflict there.” Some are a little naïve when they arrive at their new positions. They don’t realize that an ethics officer simply isn’t empowered to make many of the required
changes at the highest organizational levels.
If not the EO, who?
If it’s not the ethics officer’s job to investigate wrongdoing at the highest reaches, then whose job is it? The task should not even fall to the company’s regular outside counsel, suggests Rodgers, because they, too, have a potential conflict of interest. They want to keep the company as a client, after all. Alienating the chief executive officer doesn’t further that purpose. Such an investigation should
therefore be conducted by an outside third party, a law firm that specializes in such investigations, for instance.
The ethics officer should play a role, of course. He or she should be able to screen out certain things—charges that are clearly unsubstantiated, for instance. A situation should never arise, however, where a senior vice president can pressure the ethics officer to squelch certain matters.
To ensure the integrity of the process, a contingency plan should be drawn
up in advance and employed if and when the company has a situation like that which arose at the USOC. If it’s done in advance—before any wrongdoing is alleged—then it’s an easy sell, says Rodgers. “But when it happens, it’s, ‘No, no, no.’” It’s too late.
Responsibility of the board
Accountability for big risk issues, including CEO wrongdoing, properly resides with the board. And board members should certify that they have no conflict of interest when such issues arise. This
sounds simple. It isn’t.
Nearly everyone who is successful in the business world has some conflict of interest, Rodgers suggests. Nonetheless, “everyone has an obligation to ensure objectivity in their decisions.” Business and personal relationships should not be absolutely excluded when it comes to such decisions, but they should be revealed to the full board. Had that been done, the head of the USOC’s ethics committee, Ken Duberstein, would not have been able to vote on the CEO’s
alleged improprieties, Rodgers notes.
Why not? Duberstein himself had a business relationship with CEO Ward, which he didn’t disclose. “Duberstein’s company, The Duberstein Group, reportedly has been a lobbyist for General Motors since 1989 and has been paid more than $500,000 by GM since 1999. Ward serves on GM’s board,” noted USA Today (January 26, 2003).
Duberstein proved a doughty defender of CEO Ward, who was accused of trying to help his brother’s company win contracts to
supply power generators to organizers of the 2003 Pan American Games in the Dominican Republic. According to USA Today:
“Rodgers has said that the head of the ethics panel, Ken Duberstein, told him at one point to ‘make this go away.’ Duberstein, White House chief of staff under President Reagan, has denied that.”
An ethics investigation in itself is not inherently difficult, says Rodgers. You know the allegations. You basically know how to find out what happened. But if the
allegations involve the CEO or a director of the organization, things become more problematic. “Everyone is focused on conflicts of interest below the board level,” he observes, but often board members, whether they realize it or not, are involved in such conflicts too.
Part of the problem at the USOC was “they didn’t want another scandal.” They didn’t want it so badly that they were willing to sweep problems under the rug. “Don’t ever take the position that it can’t happen again,”
An organization’s upfront position has to be that things will go wrong. Thus, the company should develop an investigative plan in advance—before things go awry—and while people are still capable of some objectivity.
At the USOC, they should have had outside counsel prepare a plan in advance as to how such a high-level investigation would be conducted. Who participates? There’s board involvement in such an investigation, obviously, but there may be conflicts of
interest even among outside board members. On the other hand, Rodgers doesn’t advise turning things over to special outside counsel entirely; the board should be involved to some extent. Perhaps three board members should be assigned in advance to supervise the process, including a lead director to serve as liaison with the outside third party conducting the investigation.
“There should be no deviation from the plan without the full board’s approval.”
Establish risk criteria
The expectation should be that there will be complaints and that the board will be informed as to these complaints regarding everybody above a certain grade level. Likewise, the board is to be informed if a complaint involves an alleged violation of state or federal law.
A company may have five product substitution issues, for instance, of which two allege that a senior vice president directed the wrongdoing. A review of the documents shows that that is not the case. That
could be brought before the board, and it could be dealt with fairly easily. The board is basically saying: “Of all the things that could go wrong, what are the things we want to know about.”
It’s like the signature authority given to the CEO for a certain dollar level. Beyond that level it must be approved by the board. So too for certain risk levels. If this is done at quarterly board meetings, the whole process might encompass no more than 20 to 30 minutes. A lot of time is lost if
a company is not prepared to do this. “It’s not a bad idea to have an annual review of what transpired, some semblance of a legal audit.”
What about problems that aren’t so easily resolved. Here the board must decide: Do we go to step two? That’s where the investigating third-party firm comes in.
When Rodgers was at Hughes Aircraft, if there was a “major, significant issue, then General Motors came in and did it.” (Hughes was owned by General Motors at the time.) But in
companies where there is no higher corporate entity, they must look elsewhere for help. This isn’t an unprecedented model. It happens often in government. Somebody somewhere does something wrong and the agency or department says, “We’re going to get outside counsel,” and do an investigation.
Vetting board members
The third-party law firm would vet board members to ensure that they had no conflict of interests with regard to the issue at hand (e.g., CEO misconduct). They would
seek a signed disclosure from ethics board committee members as well as board members. The outside firm might interview all board members. The third party would review the board’s investigation plan outline. That plan, developed for just such a contingency, asks things like what subject matter experts are required, what records and information are required internally, and so on. You don’t want the third party outside firm going into the organization, says Rodgers. This needs to be done by the
designated board member.
That designated director who interacts with the 3rd party is “key,” says Rodgers. And it really helps to have “someone of independent reputation” in that position. He was a big fan of former U.S. Senator George Mitchell, who held that position of lead director on ethics issues at the USOC. He helped Rodgers and the organization resolve some very thorny issues. But Mitchell left about a year before the second USOC blow-up.
Would Mitchell’s presence have
made a difference in the second scandal? “If he had been there, the issue would have been appropriately resolved,” and with no untoward publicity, suggests Rodgers. Mitchell wasn’t going to risk a reputation built over a lifetime to protect the USOC committee.
Presumptions versus expectations
Reflecting on events, Rodgers has come to see the inherent limitations in what ethics officers can or can’t do. The bottom line is that “boards aren’t going to sit there and listen to
ethics officers about how to be ethical.” One indication of this: “How many ethics officers are asked to do any board training?” Not many. “They’re not going to hear it from you. They’re only going to listen to someone at their own level.”
Apropos of the USOC experience, Rodgers speaks about the difference between presumptions and expectations. If you hire someone, you expect that person to be capable, you expect that person to be ethical—but you don’t presume it.
At the USOC,
they presumed that the CEO would be ethical, and they presumed that all board members would be objective. That was a mistake.
Of the United States Olympic Committee: “They did get reforms,” says Rodgers. Finally. His resignation helped to move them to that point.
In the future, though, it is hoped an ethics officer won’t be called upon to do what Pat Rodgers did—to sacrifice his job in order to reach a fair and honest resolution.
Andrew W. Singer is Co-Editor of ethikos.
Reprinted from the September/October 2004 issue of ethikos.
© 2004 Ethikos, Inc. All rights reserved.
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