That question is the topic of a big academic literature, but the question itself is far from academic. In fact, it has enormous practical importance. Take, for instance, the recent news that Target is leaving Canada, news that puts a rather fine point on the question.
Surely for the top executives (and presumably the Board) at Target, the decision to pull out of Canada was a tough one. But one suspects it was also entirely a ‘business’ decision — that is, one driven entirely by bottom-line considerations. CEO Brian Cornell pointed out, as part of the rationale for pulling out of Canada, that projections indicated that, if the company stayed in Canada, Target Canada would not expect to be profitable until 2021. Presumably shareholders were simply not going to put up with that. And from a fairly standard view about the purpose of the corporation, the wishes of shareholders matter a great deal. After all, or so the story goes, the entire purpose of a corporation is to make money for shareholders.
But of course, shareholders aren’t the only interested parties in this story. Consumers, too, have a stake. And despite the fact that many Canadians were sorely disappointed in Target’s initial efforts, many held out hope that Target Canada would eventually live up to the standards of their US counterparts, stores that are in fact a favourite cross-border shopping destination.
But among various stakeholder groups, the move is perhaps felt most acutely by Target Canada’s employees. Pulling out of Canada means Target is closing 133 stores and eliminating 17,600 jobs. For employees, the company was a source of jobs — jobs ranging from cashier to admin assistant to fairly senior executive posts. To the holders of those jobs, Target was a valued employer — a way to feed a family and pay the bills and maybe save for a vacation.
So now ask, again, what’s the purpose of a corporation? We’ve mentioned already the shareholder-wealth-building view. A more modern, critical view is to say that the purpose of a corporation is something more than the pursuit of shareholder wealth. Corporations, on this view, have a higher purpose as part of a community. The corporation has a social role, and that role goes far beyond attending to the interests of shareholders. Adherents of this view are indeed typically indignant at the very thought that anyone could think that corporations have so lowly a purpose as to merely make money.
And those critics are right, at least in part. It really is foolish to think that the purpose of a corporation is to make money. But that’s only because it’s foolish to think that corporations have purposes at all. That is, it’s foolish to think of a large, multifaceted organization as having a single, unitary “purpose” in the universe, rather than thinking of it as serving many purposes for many interested parties. Arguing over what a corporation is “really for” — building shareholder value? making products to make people happy? providing jobs? etc. — is a fool’s errand.
There are of course exceptions. If an individual or small group files the paperwork to form a corporation to serve some single, stated purpose, then it’s probably fair to say that that is what the corporation’s purpose is. But that’s seldom what’s at stake, at least as far as this debate goes. When you’re talking about a widely-held, multibillion dollar corporation like Target, talk of the organization’s “real purpose” just sounds silly.
But the fact that the corporation is many things to many people doesn’t mean that everyone is bound to consider all of those purposes, all of the time.
To see what I mean, consider a different, parallel question. What is the purpose of a job? Say, your job. If we think of your job as an abstract thing — a position in the marketplace that happens to be filled by you — what is its purpose? Does that question even make sense? You’ve got the job, and it (hopefully) helps you achieve your goals. How you should behave yourself in the course of that job, in pursuit of those goals, is a question of ethics. And that question is much more enlightening than some grand question about purposes.
Retailer American Apparel has announced a new code of ethics. The move comes, not coincidentally, just a month after the board sacked controversial CEO and founder Dov Charney. Charney had been at the centre of a string of employee sexual harassment suits.
And the new code contains — again, not coincidentally — a substantial section on sexual harassment.
The move by AA to beef up its Code is an opportunity to emphasize several key points about the role and significance of a Code of Ethics in general.
The first point has to do with the insufficiency of a code, in spite of the admitted necessity of having one. A company the size of AA can’t not have a code. Having one is effectively ‘table stakes,’ at this point, and in some jurisdictions it’s legally required. But AA’s board also shouldn’t dream for a second that simply having a new code is going to fix the company’s problems, any more than simply removing Charney from the helm will do so.
What the company surely needs is a change in culture. Charney’s departure will surely help — tone at the top, etc., etc. — but it likely won’t be enough. Charney has surely left his imprint on the corporate culture, and it will take time for that to change. A new code may serve as a focal point for such change, but only if the code is noticed and taken to heart. And that will only happen if sufficient training takes place. In other words, AA needs to not do what too many organizations do: simply post the new code on the wall. Even sending each employee a copy and “requiring” them to read it won’t be enough.
The final point has to do with the relationship between ethics and the law. As should be obvious, ethics and the law are not identical. What’s legal isn’t always ethical, and vice versa. An ethics code typically tries to bridge the gap: they tell employees what’s ethically required, but they also typically threaten a penalty, most often termination of employment. Further AA’s code effectively advises employees to think of the code as a legal document:
“…we ask that if you have questions, ask them; if you have ethical concerns, raise them; if you believe something to be suspicious or inconsistent with the Company’s best interests, report it to the General Counsel…” [or to contact the company’s outside ethics hotline provider].
That’s fine, but given the importance of culture, it’s important that the legal implications of a code not dominate. And unfortunately, AA’s code was pretty clearly written by a team of lawyers. The wording is often legalistic. That’s not surprising. Ethics policies often are. The most we can hope is that the ethics training that should accompany the code’s launch focuses on the values that underpin the code, not on the punishment that could result form its violations.
So is American Apparel’s new code good news? Absolutely. Are the company’s worries over? Far from it.
Uber’s “UberX” program hit a horrifying bump in the road this week, as one of its drivers in Delhi allegedly raped a female passenger. The incident earned the company a complete ban throughout the Delhi region, and is sure to send shockwaves through a much broader global community of users and potential users of UberX.
For all its success, Uber has had plenty of troubles. It’s been accused of anti-competitive behaviours. It’s been accused of privacy violations. Some of these problems can be overcome through smarter use of technology — and after all, that’s what Uber is supposed to be good at. But it’s important to see that the key to Uber’s success isn’t its mobile app. It’s the ability to get strangers to trust each other. If Uber wants to keep its recent $40 billion valuation, it’s going to have to figure that out.
Because commerce — all commerce — relies upon trust.
When I hop into a taxi, I’m not just getting a ride to a destination. I’m getting an exchange of trust. Think about it: I’m getting into a car with a stranger. But the branding of the cab company, plus the municipal licensing, give me some assurance that a) I’m going to get where I ask to go; b) I’ll arrive there alive; and c) I’ll be given the correct change even if I fail to count it. Uber got big by leveraging that pre-existing trust that most of us have in taxis.
The key question, then, is whether Uber will be able to sustain that trust.
I should add that it’s not just about customers. Trust has to be built and maintained with drivers, too. I spoke to one Uber driver recently who said that some drivers have left Uber because of how the company has treated them. He suggested such drivers feel that in introducing UberX, the company has effectively turned its back on the professional drivers that built the brand. Maybe the company doesn’t care about the professional drivers — maybe its long game lies with UberX. But if informed and experienced professional drivers don’t trust Uber, it’s hard to see how amateurs are going to do so.
So, Uber needs two things in order to build and maintain trust.
First, it needs to make smarter use of the technology at its fingertips. Some of that is already in place — simple, trustworthy financial transactions are clearly a key component of the company’s success to date. But it also needs to assure users that, for example, the company can be trusted with the vast amounts of data it gathers on their travel behaviour. Finally, the company needs not just the technical infrastructure of trust, it needs to engage in the behaviour that will signal to users that the company is here to stay, here to be trusted, here to be a reliable and trustworthy service provider for the long run.
The grand jury in Ferguson, Missouri failed to indict police officer Darren Wilson for the shooting of unarmed teenager Michael Brown. Then a grand jury in New York failed to indict Officer Daniel Pantaleo in the choking death of Eric Garner.
This isn’t just a matter of two high-profile cases in a row. Generally, grand juries are reluctant to indict cops. Not just reluctant overall, but comparatively reluctant. Because generally, grand juries do indict the people brought before them. Indeed, statistically, it is incredibly uncommon for grand juries to fail to indict. In 2010 (the most recent year for which data exists) U.S. attorneys prosecuted 162,000 cases, and failed to get indictments in just 11 of those cases. But grand juries don’t like to indict cops.
And there’s a certain logic to that reluctance. Police officers generally have a tough job. They are issued deadly weapons and asked to insert themselves into situations that the rest of us want desperately to avoid. This clearly requires a lot of situation-specific judgment. Most outsiders don’t understand the principles of modern policing, nor the challenges presented by life “on the street.” It’s easy to imagine — even absent any conspiracy theory and minus any accusations of racism — why a grand jury, and the prosecutor that guides it, might be reluctant to indict a cop.
This reluctance is part of a general pattern in society. There are circumstances in which outsiders generally are and generally should be incredibly reluctant to judge. Courts are generally quite reluctant, for example, to second-guess the work of licensed professionals. A court won’t typically tell a surgeon she’s done sloppy work, even if the patient died, unless credible expert witnesses — namely other surgeons — swear that the surgery didn’t meet their profession’s own standards. What if those standards are themselves flawed? Here, too, courts are generally reluctant to intervene. Professions like medicine, nursing, and engineering are effectively given monopolies over fields of practice because (or so the story goes) their work is so complex, and requires such nuanced judgment, that only the members of the profession itself are qualified to set standards and to adjudicate violations.
This reticence to judge extends to the business world, too. Under the “business judgment rule”, courts (in Canada, the US, the UK, and elsewhere) are generally reluctant to tell a corporation’s board of directors that they’ve failed in their duty of care vis-a-vis shareholders, because the court lacks the competency to do so. So long as the board is found to have taken suitable care in their decision making process, the substance of their decision will not be second-guessed.
But there’s a proviso, here, a limit. Reluctance to judge from the outside doesn’t imply a license to kill, either figuratively or literally. The set of circumstances in which outsiders should be reluctant to judge the behaviour of a powerful occupational group is pretty strictly limited to circumstances in which the members of that group do a good job of monitoring their own behaviour and enforcing standards that serve the public well.
This means that any group — any group — that wants to be left to set its own standards, and to be largely free from external scrutiny, needs to work incredibly hard to set and enforce suitable standards internally. There are lots of ways of doing that, including codes of conduct, training, mentoring, and so on. Also useful is a general obligation on the part of members of the profession to call out other members who violate the rules. But tight self-regulation is the quid pro quo. Fail at that mission, and you are going to find the public sticking its nose in. This applies to boards who want to be free from meddling shareholders, accountants who resent intrusive financial regulations like those embodied in Sarbanes-Oxley, and cops who think the public just doesn’t understand.
Speaking up is hard. Going against the grain when the team’s mind is made up is harder. And ‘speaking truth to power’ — especially when ‘power’ means someone who can end your career — is harder still. But speaking up is important. Sometimes, it is absolutely morally required. Other times, it might be strictly optional but is a way to demonstrate true leadership. It’s an important skill, and a commitment worth fostering.
On November 24, the Jim Pattison Ethical Leadership Program (of which I’m director) had the pleasure of hosting Mary Gentile, a professor at Babson College and author of the book, Giving Voice to Values. The key message of Gentile’s presentation, and of her book, is that the key ethical skill that business students and corporate employees need to foster is not skill at making ethical decisions, but skill at speaking up. Quite often we know the right thing to do, but have trouble doing it. When the boss wants us to fudge the numbers, or when the team decides to go with a plan that involves playing fast-and-loose with ethical obligations to a client, the problem generally isn’t with figuring out what’s right. The challenge lies in finding the right way, in terms of interpersonal and organizational dynamics, to make it happen.
As we’ve seen from the Jian Ghomeshi affair, speaking up isn’t hard only within organizations. But certain facets of organizational life make speaking up especially challenging. Consider, for starters, the emphasis that every organization — every organization — puts on loyalty. That emphasis is a matter of necessity. You can’t have a well-functioning company without employees who feel some level of dedication to the corporate mission, and you can’t even have an effective team if all the members of that team don’t, to some extent, put the interests and goals of the team above their own. From an organizational point of view, a certain amount of group-think is a feature, not a bug. But loyalty can too easily slide into a herd mentality, when people’s brains shut off and they nod their heads out of habit, rather than true agreement. The result can be disastrous.
In her Giving Voice to Values (GVV) curriculum, much of which is available for free online, and which has been adopted by literally hundreds of business schools and corporations across the globe, Gentile emphasizes practical exercises that build participant’s skill and ability to formulate an effective ‘script’ for speaking up, and to deliver it. Importantly, GVV doesn’t start with a list of abstract virtues or principles. It merely starts from the idea that all of us want to do the right thing, and that each of us has, in the past, found ourselves in situations in which we have drawn upon our own values to do the right thing under tough circumstances. GVV encourages each of us to figure out what our own best self is, what our best stories about ourselves are, and to draw upon those stories in moments of need. It’s a very positive message, and an immensely practical one — one that serves to remind us that ethics isn’t about being a saint. It’s about doing our best to be our best selves, given the enormously complex and ethically challenging organizations that we all inhabit.
He’s upset that the Grocery Manufacturers Association, of which Starbucks is a member, is suing Vermont over the state’s new law that will require labelling of foods containing genetically modified ingredients by summer of 2016.
In an open letter, Young claims that “we have a right to know what we put in our mouths.” As I’ve argued before, that simply isn’t true, at least not as a generalization. You certainly have a right to control what you put in your mouth, but that doesn’t — and cannot possibly — include a right to know every detail of every thing you put in your mouth. If you don’t trust something, don’t eat or drink it. Don’t buy it. But you don’t have the right to insist on knowing everything about it. You might want to know whether your food was harvested by the light of a full moon, but you don’t have a right to that information. A business that refuses to give you that information isn’t violating your rights.
It doesn’t help, of course, that one of the other key players in the lawsuit is Monsanto, a company that for many people represents evil incarnate. As I’ve written elsewhere, I’m no fan of Monsanto. But its involvement shouldn’t blind us to the fact that GMO’s (genetically modified organisms) are, as a category, no less safe than any other kind of food. Nor should it blind us to the fact that the GMO category is both over-inclusive and under-inclusive if what you’re worried about is potentially-harmful forms of genetic modification. Scientists understand this. Neil Young does not.
Young is right about a couple of things, though. He rightly suggests, for example, that public pressure might get Starbucks to change its ways. This is quite plausible. Lots of companies are already caving in to irrational public fears regarding GMOs. Starbucks could be next, so Young’s strategy, regrettably, just might work.
He’s also right that there is more at stake, here, than what can be sold in one relatively small US state. It’s entirely possible that if the Vermont law is allowed to stand, the precedent it sets will help make it easier for other states to jump on the bandwagon.
But what Young is right about is far outweighed by what he’s wrong about. He claims that the lawsuit is trying to “stop accurate food labeling.” That’s a gross misrepresentation. There’s nothing importantly “accurate” about a label that says “this product contains GMOs,” even when it’s technically true. For that to count as accurate labelling, it would have to be a meaningful label (one that distinguishes one kind of ingredient from an importantly different kind) and it would have to have some chance of being understood by customers. Such a label is much more likely to be misunderstood, misinterpreted, and mistakenly taken as a reliable guide to better purchasing decisions.
Consider: what if some jurisdiction foolishly passed a law saying that all foods containing carbon had to be labelled as such? What if someone opposed that law? Would they be fighting “accurate food labelling?” All food contains carbon. Pointing it out helps nobody. And claiming that they have a “right” to be told it is just plain silly.
Canada’s place in the world has been in the news lately, for a variety of reasons.
For starters, Canadian jets have been hitting Islamic State military positions in Iraq. For American readers, who are more used to seeing their military show its muscle, I should clarify: this is newsworthy in Canada. Canadians have historically thought of themselves as peacekeepers — we have a long history of participation in UN peacekeeping missions — but have less often, in recent decades at least, been involved in outright warfare.
And on the economic front, Prime Minister Stephen Harper is just back from visiting China, a trip aimed at solidifying and expanding economic relations between the two countries. Not surprisingly, given the focus of the visit, a press release from the Prime Minister’s Office makes no mention of human rights. But as others have noted repeatedly, China has a pretty bad record in that regard. A liberal democracy like Canada must be concerned (and has occasionally expressed concern) about China’s record on human rights. So the trip to China meant the PM had to smile for the cameras while presumably biting his tongue. It’s not hard to understand that decision: the trip reportedly resulted in $2.8 billion worth of new deals — a big amount for a relatively small economy like Canada’s. The deal is less important for China’s massive economy, naturally. But it is no doubt important for China’s leadership to be seen shaking hands with leaders of respected liberal democracies. As political scientist Charles Burton put it, “the Chinese leadership got the affirmation of political legitimacy that they wanted from Canada.” Is Canada hoping to demonstrate leadership here, helping its new best pal see the way forward on human rights? Or is Canada instead being led by the nose?
But Canada faces other challenges too on the global scene. Canada’s dairy farmers, long protected by a system of quotas and price controls, are currently haunted by the spectre of international competition. In an era of free (or freer) trade, such protections are increasingly coming under fire. Most recently, New Zealand (charmingly referred to by some as the ‘Saudi Arabia of milk’) is pushing to gain access for its milk producers to the Canadian market. Is Canada going to lead in free trade, or in protectionism?
All of this is to say that the role of Canada on the world stage — the military stage, the political stage, and the economic stage — is evolving rapidly. High on the list of related questions is whether there is a leadership role for Canada, and if so, just what that role is. Canadians know that they aren’t going to play a leadership role militarily. We aren’t a superpower (we rank 57th, globally, in terms of active military personnel, and our defence budget is the 15th biggest in the world). And in terms of overall population, our 35 million puts us at 38th in the world, and our GDP is the 11th highest in the world — respectable for our size, but hardly an economic superpower.
But the truth of it is — and this is a point I work hard to impress upon my students — that leadership isn’t a function reserved for the top of the food-chain. In a corporation, leadership isn’t exclusively a function for CEOs and other C-suite executives. Leadership happens throughout an organization. And I don’t just mean that there are managers at all levels. That’s true, but not the point: not all managers are leaders in any meaningful sense. Leadership is a role, not a job title, and you (yes you!) can be a leader if you have the skills and use them to step up to the plate. So Canada (and other non-superpower countries) can still aim to play a leadership role on the international stage, if they are willing and interested to.
That’s why the Ted Rogers Leadership Centre (of which I am Director) is proud to be supporting The Economist‘s first-ever Canada Summit. (You can get a $400 discount on registration by clicking on that link!) The overarching theme is the question, “how can Canada play a larger, global role?” The Canada Summit is characteristically ambitious (I’ve participated in one of The Economist’s events previously), but the organizers have gathered together an impressive lineup of speaker to tackle the Summit’s agenda. Of course, no one event can really answer such ambitious questions. But the conversation is important. Personally or nationally, the question of whether this is your time to lead is always an open one. But the right time to start thinking about it is always now.
Canadians mistrust politicians at about twice the rate at which they mistrust CEOs. Is that good news or bad news for Canada’s business leaders?
The survey, which we believe to be the first of its kind, asked Canadian voters their views on a range of issues related to the ethics of political leadership. The full results of the study will be released on Wednesday, November 5, at a half-day event I’m hosting at Ryerson University, called The Ethics of Political Leadership.
Our goal in doing the survey was to go beyond the facile truism that voters don’t trust politicians. We wanted to know more. Which ethical issues do Canadians believe to be the most serious? Do Canadians have greater faith in their federal, provincial, or municipal leaders? How common do Canadians think various ethical infractions are? How much do Canadians (mis)trust politicians, compared to other members of professions, such as CEOs, judges, and journalists? It turns out that politicians overall don’t fare well: 50% of respondents said that they “do not trust” politicians, whereas only 25% said the same of CEOs. Journalists, and especially judges, fare much better.
How happy should Canada’s business leaders be about the fact that they fare so much better than our widely-mistrusted politicians? The truth is that CEOs should be worried. Only 22% of Canadians say they trust CEOs, compared to the 36% who trust public servants and the 65% who trust judges. The numbers put CEOs just below the middle of the pack, among the 9 professions we asked about. That’s higher than some of us might have expected, surely, but it’s also much lower than we might have hoped for. The world of business, after all, runs on trust. Contracts and warrantees only go so far: without trust, markets suffer.
For that matter, CEOs should be worried too about the low numbers for politicians. Not only is a lack of trust in politicians bad for democracy: it’s bad for business. How effective can politicians be in effecting smart regulations, smart tax policies, and smart public policy frameworks for economic development if they don’t have the trust of the electorate?
Canadian democracy is in the midst of a crisis of trust. And while CEOs may be more widely trusted than politicians are, but they have little reason to celebrate overall.
*The survey was conducted between Oct 17 and 22, 2014, using an online panel. A nationally representative sample of n=1039 was surveyed. More information about the survey is available on the Ted Rogers Leadership Centre site.
Canadians were caught off-guard recently when Jian Ghomeshi, the popular host of Canadian Broadcast Corporation’s radio show “Q” was fired by the public broadcaster. This was not the traditional “he’s moving on to other projects” kind of departure, but a clear and abrupt severing of ties. The statement issued noted that “The CBC is saddened to announce its relationship with Jian Ghomeshi has come to an end.” Boom.
Just a day later, Ghomeshi fired back via Facebook, making clear that his departure was not amicable. Ghomeshi also revealed his version of what was at the heart of the matter: his sex life, and in particular his preference for rough sex. He said he was into BDSM, and asserted that those who shared his bedroom had participated in some rough play entirely consensually. He implied that his former employer, the CBC, was simply stuck up and couldn’t handle his edgy lifestyle. That same day, Ghomeshi’s lawyers filed a $55 million lawsuit against his former employer, for defamation, breach of confidence, and more. In the days since, a number of women have come forward to claim that they were subject to various kinds of abuse and assault by Ghomeshi—all of it decidedly non-consensual.
The case is ethically interesting—or is at least fodder for an interesting discussion—in a couple of different ways. Ghomeshi is of course just one case, and his firing was far from your run-of-the-mill dismissal. But the case helps us see a couple of different dimensions along which cases might vary.
One dimension has to do with, well, what in fact went on between Ghomeshi and the women involved. If—hypothetically, because the evidence really is mounting against him—Ghomeshi were telling the truth, then what happened was some “sexual practices that are mutually agreed upon, consensual, and exciting for both partners.” And if that were the case—again, hypothetically—then the question would arise whether it is OK to sack an employee for participating in some sexual practices of which you (or your customers) might disapprove. The CBC is, by all accounts, a somewhat conservative organization (though Ghomeshi was part of the CBC’s attempt, over the last decade, to become more hip). But even a conservative organization needs to be careful about holding an employee’s off-the-job activities against him.
At the other end of the spectrum, if the worst case scenario is true, then the CBC was faced with the prospect of an employee being potentially charged with multiple accounts of both common and sexual assault. Here we see shades of the Ray Rice case, and need to ask whether criminal acts are sufficient reason, ethically, to terminate an employee whose on-the-job performance has been otherwise satisfactory. Legally, of course, guys like Ghomeshi and Rice often have a “morals clause” written into their contracts—clauses that permit their employers to terminate them if they cause substantial embarrassment to the organization. But ethically, it’s not so clear: if someone does something illegal, the legal system has a million bits of due process that ensure that the investigation and trial are fair, and that the punishment fits the crime. Most employers are likely to be less thorough, and firing is a serious outcome. Ethically, firing isn’t always going to be OK.
(This is not the first time the CBC has fired an employee for behaviour that threatened to cast a bad light upon the organization. In 2003, a CBC reporter was fired for rubbing raw chicken and dirt onto some chocolates and mailing them to a critic. After a protracted legal battle, the reporter was eventually reinstated.)
This brings us to the second dimension of this case, which has to do with fame and responsibility. Ghomeshi is a famous broadcaster, a man once plausibly on-course for one day being declared a bona fide Canadian icon. His face is—or, rather, was—plastered all over the walls at the CBC’s headquarters. And as I suggested recently with regard to the Ray Rice scandal, cases involving famous men doing awful things don’t necessarily help us understand the ethical subtlety of the more general problem of whether to fire employees who do bad things off the job. Famous people evoke all sorts of odd and perhaps extreme moral judgments in us. “He’s famous and should have known better.” “He’s powerful and abused that power.” “He’s rich, so I hate him and he deserves what he gets.” And so on. And all of those intuitions may, of course, be entirely on-target with regard to Ghomeshi. But to the extent to which they are intuitions, rather than conclusions reached based on careful reasoning, we ought to be wary of them.
For those of you who aren’t familiar with it, Keurig’s business model is pretty much the same as the business model used by most producers of desktop printers. Desktop printers have become almost trivially cheap — you can buy a laser printer for under a hundred bucks now — but the cartridges cost a bundle. That’s where they make their money. Likewise, Keurig sells its popular single-cup coffee makers at astonishingly reasonable prices, and makes its money on the coffee pods. Naturally, given that the pods are lucrative and easy to make, there have been imitators. A large number of companies have sold, over the last few years, their own “K-cups,” pods of coffee designed specifically to work in Keurig’s machines. Consumers love this, both because competition lowers prices and because it expands the range of roasts and flavours available.
To fight the onslaught of packagers of (perfectly legal) pirate K-cups, Keurig recently starting selling its “Keurig 2.0″ line of coffee makers. The 2.0 machines incorporate a digital rights management (DRM) system, designed to ensure that Keurig machines work only with Keurig branded and Keurig licensed pods, effectively shutting out the competition, at least temporarily. The result is that all those non-licensed Keurig imitators won’t work in the new 2.0 machines.
Who ultimately loses in this fight? Arguably the consumer. Not only has choice been restricted, but there’s also an enormous information gap. Keurig has done a less than stellar job — I’m being charitable, here — of informing consumers about their new DRM system. The result has been frustration, both with the newly-limited choice of pods, but also with coffee machines that don’t work as expected.
Take me for example. My beloved Keurig died a couple of weeks ago. Its high-pressure water pump moaned and groaned and finally gave up the ghost. So I promptly bought a shiny new Keurig 2.0 (with a number of fancy new features) at Costco. Nowhere on the packaging did Keurig inform me that most of the dozen or so boxes of coffee and tea currently in my basement (well over $100 worth) simply will not work in the new machine. And it’s not just ‘pirate’ pods that won’t work; nor will older Keurig-licensed K-cups, ones that bear the Keurig logo but that don’t have have the DRM-ready labels that the new machines require. Those are essentially garbage now.
A call to Keurig resulted in an offer of three gift certificates, each good for a box of pods (worth $12 or so). But that doesn’t come anywhere close to covering what I’ve lost, never mind the frustration.
And it’s not just Keurig itself. Retailers have been complicit in this abuse of customers. Many of them still stock the ‘pirate’ pods, as well as older Keurig-licensed pods. In some cases (and Canadian Tire for example is guilty of this), they do this while aggressively selling the 2.0 machines, without any hint to the consumer of what the problem is.
The battle of the K-cups is about a bunch of things: intellectual property, competition, and innovation for starters. The back-and-forth of those things is pretty much standard fare in a thriving market economy. But ethical businesses — not to mention smart businesses — need to work harder to stay true to their goal of providing good value to their customers.