Dell, Inc

Michael Dell, the longest-tenured chief executive in the computer hardware

industry, founded Dell in 1984. With a little more than $1,000 in start-up capital and an idea, it

all started in Michael’s college dorm room where he built and sold computers from stock

computer parts under the company name “PC’s Limited”. Michael managed all aspects of the

business from the production of the computers to sales. This enabled Dell to provide his

customers with computers built to their custom specifications. Dell saw the benefits of this type

of operation in the cost advantage over his competitors and kept the direct business model as the

company continued to expand. In 1992, with annual sales of nearly $1 billion, Dell Computer

Corporation first appeared on the Fortune 500 list. The name “Dell Computer Corporation” was

eventually shortened to Dell Inc. when the company expanded into other markets and by 1999,

the company earned revenues in excess of $25 billion.

Though no longer on an exclusive basis, Dell continues to use this “direct” business

model by selling and shipping their personal and laptop computers and accessories directly to

consumers. Dell has been successful in gaining market share by listening to and efficiently

meeting consumer needs, thereby sustaining their niche in the PC industry, which comprises

approximately 80% of their business. Of this 80%, individual consumers represent

approximately 15%, with the balance being business to business or government contracts. The

success of their initial product line, the personal computer (desktop), has allowed Dell to

embrace new standardized product categories that include laptops, network servers,

workstations, mobility products, printers, electronics and accessories.

By all appearances, Dell seems to have a strong commitment to being an upstanding

corporate citizen. The company has gone to great efforts to make a positive impact on the
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environment. Programs such as free recycling of any Dell-branded computer hardware, the

design and implementation of “green” packaging, as well as efficiency standards that help limit

the amount of waste generated and reforestation efforts show that the company is willing to put

in the effort to make a difference. Dell’s commitments to the community are equally admirable.

The company gives millions of dollars back to the community each year through programs such

as Youth Connect, as well as a long-standing policy to match any employee donations to a

recognized charity up to $10,000. Dell also rewards employee involvement in community

service by making a donation to charity for every 10 hours of community service performed by

employees.

The company’s code of conduct, entitled “How We Win”, is a brief but thorough

description of how Dell expects its employees to act in a law-abiding and ethically responsible

manner. According to the code, “Dell’s success is built on a foundation of personal and

professional integrity. We hold ourselves to standards of ethical behavior that go well beyond

legal minimums.” This is followed by the six main ethical principles of the company. They are:

We are honest. What we say is true and forthcoming — not just technically
correct. We are open and transparent in our communications with each other and
about our business performance.

We are trustworthy. Our word is good. We keep our commitments to each other
and to our stakeholders. We do the right thing without compromise. We avoid
even the appearance of impropriety.

We treat others with respect. We value their contributions and listen to their
point of view. We maintain fairness in all relationships.

We are courageous. We speak up for what is right. We report wrongdoing when

we see it.

We use good judgment. We think before we act. We use our purpose, values and
ethical principles as decision filters to guide our behavior.
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We are responsible. We accept the consequences of our actions. We admit our

mistakes and quickly correct them. We don’t retaliate against those who try to do
the right thing by asking questions or raising concerns.

The code does not stop at this half-page list of ideals. Rather, as a supplement, Dell has

published a 55-page resource guide to help clarify and solidify the company’s position on a

number of matters, such as bribery, money laundering, conflicts of interest, theft, and fraud.

There is a step by step procedure to help employees make a decision if they are unsure if they are

engaging in ethically-questionable behavior. Finally, the guide directs employees on the process

to report questionable activity to the company’s Chief Ethics Officer.

Dell’s Code of Conduct, paired with the supplemental resource guide, makes Dell’s

commitment to “winning with integrity” well-known, and should remove any doubt in regards to

the company’s goal of operating in a profitable, efficient, legal, and ethical manner. It is clear

that the leadership of Dell put a lot of time and thought into anticipating any questionable

situation in which an employee might find themself, as well as providing solid advice on how to

evaluate the situation and make the appropriate decision that best serves the company and

community. There is nothing I can think of that could be left to interpretation, and if the code is

followed, all employees certainly will be both legally and ethically compliant.

In addition to the Code of Conduct, Dell has also established the “Soul of Dell”, a

statement that defines the “kind of company we are, and what we aspire to be.” The Soul of Dell

lists the core elements of the organization’s success. They are:

Customers: We believe in creating loyal customers by providing a superior

experience at a great value. We are committed to direct relationships, providing
the best products and services based on standards-based technology, and
outperforming the competition with value and a superior customer experience.
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The Dell Team: We believe our continued success lies in teamwork and the
opportunity each team member has to learn, develop and grow. We are committed
to being a meritocracy, and to developing, retaining and attracting the best people,
reflective of our worldwide marketplace.

Direct Relationships: We believe in being direct in all we do. We are committed

to behaving ethically; responding to customer needs in a timely and reasonable
manner; fostering open communications and building effective relationships with
customers, partners, suppliers and each other; and operating without inefficient
hierarchy and bureaucracy.

Global Citizenship: We believe in participating responsibly in the global

marketplace. We are committed to understanding and respecting the laws, values
and cultures wherever we do business; profitably growing in all markets;
promoting a healthy business climate globally; and contributing positively in
every community we call home, both personally and organizationally.

Winning: We have a passion for winning in everything we do. We are committed

to operational excellence, superior customer experience, leading in the global
markets we serve, being known as a great company and great place to work, and
providing superior shareholder value over time.

Unfortunately, the most thorough, well-thought policies are only viable if they are

adhered to. Corporate leadership must set the example for all other employees that not only is

this our code, but we actually strive to follow it on a daily basis. Dell has been implicated in a

number of questionable business practices. In some cases, the courts have thrown out the

complaint before arguments were ever heard. In other situations, full-scale investigations have

produced evidence of wrongdoing on the part of Dell. A couple of such examples follow.

In July of last year, the Securities and Exchange Commission (SEC) completed a nearly

ten-year investigation of Dell, resulting in charges of fraudulent accounting practices as well as

intentionally failing to disclose material information to investors. Dell was receiving large

exclusivity payments from Intel to not use central processing units made by Intel’s main

competitor, AMD. These payments ranged from ten percent of the company’s operating income
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in 2002 all the way up to 76 percent in 2007. The SEC audit concluded that Dell would not have

met earnings expectations without these payments, but they were never disclosed to investors.

When Intel stopped making these payments, Dell again did not disclose the true nature of the

decrease in profitability. The company has agreed to pay a $100 million penalty, which is in

addition to the untold millions it has lost as a result of the investigation, investor distrust, and

loss of good will. In addition, the company has been delayed in filing quarterly reports almost

every quarter since the investigation began, resulting in nearly being removed from the

NASDAQ as a punishment. As a result, Dell’s stock price has lost over 50% of its value since

the audit was made public.

In another instance, Dell lost a lawsuit in New York brought by the state Attorney

General. In his complaint against Dell, Andrew Cuomo alleged that Dell misled customers,

failed to provide warranty service as promised, failed to pay advertised rebates, and engaged in

bait-and-switch advertising practices. In May, 2008, an Albany county judge agreed, stating that

Dell “engaged in repeated misleading, deceptive and unlawful business conduct, including false

and deceptive advertising of financing promotions and the terms of warranties, fraudulent,

misleading and deceptive practices in credit financing and failure to provide warranty service

and rebates.” On a consistant basis, Dell advertised low or no interest financing, in addition to

mail-in rebates, all of which were nearly impossible to qualify for, Cuomo said. In addition to

paying an undisclosed amount in restitution, Dell is banned from engaging in such practices

again.

In an ongoing situation, Dell is directly involved in a high-profile labor relations matter.

The company, in addition to other big-name computer hardware companies such as HP and

Apple, purchases components from a factory in China that has long been suspected of human-
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rights violations. In the first five months of 2010, nine factory employees committed suicide,

while an additional two attempts were unsuccessful. Labor organizations have called for an

independent investigation of the Foxconn manufacturing company, but have been met with

resistance. The company has downplayed the suicides, stating that the 9 deaths of over 400,000

workers is lower than the national average suicide rate of nearly 14%. In addition, facility

management has hired 70 psychologists and they opened up their facilities to the media for one

day last summer, in an effort to prove that the manufacturing facility that also houses its

employees is operating within legal parameters. At the same time, Dell has remained silent on

the matter, other than to restate their commitment to human rights, and their internal review

process to evaluate potential manufacturing facilities.

All of these situations, in addition to the many others that I did not mention show that

Dell management has done a poor job of putting into practice the code of conduct they have

prominently placed on their website, and claim to use as a basis for operations. Dell has a long

way to go in attempting to repair its image, not only to investors but to potential customers,

community leaders, and business partners. It is essential that the company’s ethics policies

transform from a set of ideals that sound good when read aloud to a strict policy that corporate

leadership insist upon being followed. Much the same way Dell’s commitment to the

environment and community are more than a well-written policy, but are backed up by

measurable efforts and achievement, so too should be the company’s commitment to acting in a

law-abiding, ethically responsible manner. In the case of the SEC investigation, many of the

named offenders had already left the company, but CEO Michael Dell was personally named as

being aware of and responsible for the entire scheme. It may be in the best interests of the
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company if he were to relinquish his title of CEO in order to help rebuild trust in the company

leadership.

Dell has a responsibility to the nearly 96,000 people it employs worldwide, as well as

their families. Additionally, as a major player in the computer hardware and consumer

electronics industry, Dell’s suppliers employ an additional untold thousands of workers who

depend on Dell to behave in a responsible manner. Dell’s community involvement programs are

quite admirable, but they leave another large group of citizens dependent upon them for their

generous contributions as well as tax revenue. Finally, the holders of the 1.93 billion shares of

outstanding Dell stock depend on the company to act in a manner that is socially, ethically, and

legally acceptable. Spending hundreds of millions of dollars over the past several years as a

result of executive misconduct is not an appropriate use of resources, and is a disservice to all

stakeholders of the company.

The misconduct of Dell was a failure of great magnitude. The company engaged in

questionable practice by accepting money from Intel in the first place. One would assume that

the company would choose the components for their computers based on quality and value rather

than which supplier is willing to pay the most not to use the other’s product. In addition, the

company’s leadership failed to adhere to the policies that it set forth and expected its lower-level

employees to follow. Members of multiple levels of management were involved in the crime,

from accounting clerks to controllers to the CFO and even the founder and CEO. If corporate

responsibility and accountability were truly part of the corporate culture as Dell would have us

believe, surely at least one of those would have questioned the appropriateness of their actions.

Rather, this misconduct went on for nearly a decade, proving that at Dell, ethics is a brochure,

not a way of life.

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Today, the company has a Chief Ethics Officer, a revamped and enhanced ethics policy,

an ethics hotline, as well as an ethics investigation board of review. It would appear that the

appropriate steps have been taken to make ethical conduct a way of life at Dell. The company’s

stock continues to trade at a level of only 20% of its highest point, perhaps showing a continued

lack of confidence in the business practices of Dell. It will be a matter of time to determine

whether the company has amended its business practices to more accurately reflect their written

policies, or if it is business as usual at Dell.