Archive for the ‘disaster’ Category
Joe Fresh: is Compensation for Bangladesh an Admission of Guilt?
Filed under: accountability, brands, capitalism, corporate citizenship, disaster, employees, public relations |
Leave a Comment Loblaw Companies Limited, the company that owns the Joe Fresh retail clothing line, has announced that it will pay compensation to the families of victims of last week’s factory collapse in Bangladesh. Details are sparse at this point, but it’s an interesting development.
The move will of course garner the company plenty of praise. Some of that praise will be offered only grudgingly, by those who will see it as the least that can be done by a money-hungry corporation in the habit of squeezing profits out of the labour of Bangladeshis with few other options. But still, there will be praise. For it is easy to see the good in a transfer of wealth from a multibillion dollar Western corporation to several hundred exceedingly poor families. Any plausible amount of compensation will be trivial to the company, but an enormous boon the those in Bangladesh who were affected.
But I for one still have questions, in particular questions about what is motivating the move. As I’ve said, the move will do a lot of good, but there are many different principles that might underlie any given action that does good. And we typically care not just about outcomes, but about principles too. Upon what principle is Loblaw compensating the victims in Bangladesh?
Cynics are already assuming that the move is pure PR, aimed at deflecting criticism (however unfair) and dissociating the Joe Fresh brand from the grimy reality of developing-country sweatshops. That’s one possibility.
It might also be that the company sees such payment as a form of charity. The building collapse last week resulted in horrible human suffering. Most big companies donate to charitable and humanitarian causes. And even if Loblaw doesn’t see itself as responsible for the collapse, it must see a connection, emotionally at least, and so the families of the dead are an especially apt target for the company’s charity.
But for me, the word “compensate” raises questions. That word can mean many things. But in contexts like this, it is perhaps most naturally read as referring to payments aimed at offsetting a loss, payments from someone who is either responsible for that loss or who at least for some reason owes such a payment. “Compensation” is not quite the same as “restitution,” of course. The latter word clearly implies culpability. But still, the word “compensation” seems to imply a level of regret, if not guilt. Is that what the company is implying? After all, Loblaw could have opted simply to say “We’re going to help those affected,” or even more neutrally, “We’re going to send money.” But “compensation” is the word the company itself is using. Is that really what they mean? And if so, why specifically do they think they owe compensation? What level of responsibility do they take — do they plan on taking — for the actions of subcontractors on the other side of the planet?
This is more than mere semantics; it’s about the principles underlying corporate behaviour. If, as seems inevitable, we are to regard corporations as entities capable of taking action, and of meriting praise or blame, then we need to be able to talk about what motivates them, and to ask them about the principles upon which they act. In a way, to seek a principled explanation in a situation like this is even more demanding than simply to ask that the company pay up. As I’ve already noted, the money in this case is a drop in the bucket. Giving voice to a set of values and principles upon which corporate behaviour is based is a lot harder than writing a cheque.
Storms, Global Warming, and Corporate Citizenship
Filed under: corporate citizenship, disaster, efficiency, environment |
Comments (5) Humans are (very likely) changing the earth’s climate. And changes in climate are (very likely) making storms worse. And worse storms are (definitely) a bad thing. Granted, it’s hard — in fact, foolish — to try to draw a straight line between any individual’s or even any corporation’s behaviour and the Frankenstorm that just slammed New York and surrounding areas, but the fact remains that the devastation that storm wrought was not the effect of a mere freak of nature. As Businessweek bluntly put it, “it’s global warming, stupid.”
But what matters more than the cause of global warming is what we can do about it. In particular, what can business do about it?
Large-scale problems tend to require large-scale solutions, and so there’s a natural tendency to leave such issues to government. This is so for two reasons. First is simple scope: you driving a hybrid car or switching to CFL bulbs just isn’t going to accomplish much. Second is the nature of collective action problems: each of us benefits from a wasteful, energy-intensive lifestyle, and it seems narrowly rational to let other people (or other companies) bear the costs of doing things differently. But the fact that it’s tempting, or even narrowly rational, to let others bear the burden, or to wait for government to act, doesn’t make it the right thing, or even the minimally decent thing, to do.
So what can businesses do — what is it possible for them to do — in response to a trend in global warming that is clearly posing increased risks?
To begin, of course, they can work to avoid making things worse, by avoiding burning carbon and adding to the load of carbon dioxide in the atmosphere. This means looking at relatively small, obvious stuff like seeking energy efficiencies in their operations, promoting telecommuting, reduce air travel, and so on. Luckily, most such efforts are relatively painless, since they tend to reduce costs at the same time. Sometimes mere laziness or a focus on “how we’ve always don’t things” gets in the way of making such win-win changes. Don’t be lazy. Innovate. Share best practices with your suppliers, with other companies in your sector, and if you’re a B2B company, with your customers.
The second thing that businesses can do is to work with, rather than against, government efforts at making things better. In particular, it is a fundamental obligation of corporate citizenship not to block government action aimed at effective action at slowing climate change, and in particular action aimed at dealing effectively with the effects of climate change. If, for example, a government wants to pass rules forcing businesses to pay the full cost of their energy usage, or rules that impose industry-wide energy efficiency rules, business should welcome rather than oppose such changes. Energy inefficiencies impose costs on other people, and hence count as the kind of externalities that go against the fundamental principles of a market economy.
It’s also worth noting that asking what business can do is not quite the same as asking what your business, or any particular business, can do. Business organizations and trade associations abound, and there’s plenty they can do to a) help members share best practices and b) foster industry-wide standards that can help businesses live up to their social obligations while at the same time maintaining a level playing field.
Finally, business can do the things that business is supposed to be good at: efficient management, synergistic use of a range of kinds of human capital, and innovation. That stuff isn’t just a good recipe for commercial success. It’s an absolute obligation. And innovation is clearly the key among those three aptitudes. Efficiency — tightening our belts — will only get us so far. We desperately need a whole slew of truly brilliant new ideas for products, services, and productive processes over the next decade if we are to meet the collective challenge posed by changes in our environment. And it’s foolish to expect government to provide those ideas. It’s time for business to step up to the plate. There can be no better way to manifest a commitment to corporate citizenship than to be the kind of corporate citizen that sees a business model in trying to help us all cope with global warming.
Business Obligations During Natural Disasters
Filed under: corporate citizenship, disaster, employees, philanthropy, safety |
Comments (1) As Hurricane Sandy bears down on Atlantic City, New York, and (eventually) parts of eastern Canada, thousands of businesses large and small are faced with dilemmas related to doing business before, during, and after a potential state of disaster. Certainly some businesses won’t have a choice, as flooding either wipes them out or makes access impossible. The NYSE and Nasdaq have both made the unusual move of staying closed for the day today (Monday).
But others will have hard choices to make, and no easy formula for making such choices is at hand.
Choice #1 pertains to the basic issue of staying open. Here, business owners need to balance the safety and security of their employees and buildings, on one hand, with the needs of their customers on the other. The weight given to the needs of customers must of course depend on just what you’re selling. If you sell water and flashlight batteries, a sense of social obligation ought to keep you open ‘as long as possible.’
The second choice has to do with the closely related question of whether businesses should require employees to work before, during, and after a natural disaster. Sometimes being at work will pose risks to health and safety, and sometimes the risk lies in getting to work. The transit closures that go with severe weather are a factor here, too. Lack of access to public transit can make it difficult, and sometimes dangerous, for employees to get to work. But then again, in some cases employees — especially ones earning an hourly wage — will prefer to work, in which case telling them to go home may be overly paternalistic.
The third question is about prices. In a reasonably free market, prices tend to go up when goods are scarce and when demand is high. And natural disasters have a way of both limiting supply and raising demand. As supply chains get cut off, it may be reasonable for businesses to raise prices somewhat in order to cover additional costs. But stores need to be careful to stay on the right side of the law — most jurisdictions have anti-price gouging laws that put limits on just how much you can raise prices in the wake of disaster.
All three choices involve difficult decisions about how to balance the competing interests of various groups. But in terms of fundamental motivation, it’s also worth pointing out that staying in business as long as possible can be a great way to build goodwill. A business that is there for its community in times of crisis is likely to reap rewards for a long time to come.
The business I happen to work for — Ryerson University — is an unusual kind of business when it comes to questions like these. I asked our VP Administration & Finance, Julia Hanigsberg, about the criteria Ryerson uses to decide whether and when to close.
“The safety of our community is the primary consideration on whether to close the university or cancel classes during extreme weather conditions or other emergency situations,” Hanigsberg told me. “Our Integrated Threat and Risk Assessment team monitors the situation by scanning publicly available sources and consulting with expertise available in the broader public sector about road conditions, availability of public transit, information from Emergency Services etc.”
One particularly interesting point that Hanigsberg made had to do with the fact that, really, the university never fully shuts down. Hanigsberg says: “Unlike most businesses, even when we ‘close’ the university is operational 24/7 with students in residence, research labs operational etc.”
The same is true for hospitals, of course, as well as other public services like shelters. But the same is true for businesses such as hotels and kennels and airports. Anything charged with the 24/7 sheltering and feeding of humans or animals — is unlikely to shut down entirely. The same obviously goes for essential services, such as police, fire, and ambulance. They’re not businesses in the traditional sense, but they face the same dilemmas, albeit with a much stronger public service impetus pushing them to keep the wheels turning.
The inability to shut down entirely brings special obligations, of course. For starters, it puts a premium on planning for disasters. Businesses that can’t shut down need to have plans in place, and need to train employees both in safeguarding their own health and safety, and in looking out for the customers who may be entrusted to their care in the most trying, and ethically challenging, of circumstances.
Must the CEO Go Down With the Ship?
Filed under: accountability, CEOs, contract, decision-making, disaster, ethics, excuses, governance, leadership, shareholders |
Comments (2) 
Two days ago, I asked — in the wake of the Costa Concordia disaster — whether the captain is duty-bound to “go down with his ship.” The question, I said, bears not just on the obligations of sea captains, but on individuals in positions of responsibility at organizations of all kinds. It also has implications for how organizations enculture individuals so that they see following through on promises as more than just a contractual obligation.
But today I’ll make explicit the analogy that is likely on the minds of most readers of this blog: never mind sea captains…what about CEOs? Does the CEO of a “sinking” company have a duty to “go down with the ship?”
First, it’s worth pointing out that sea captains don’t literally have to go down with the ship: closer to the truth is that they’re supposed to be the last ones off, or as close to last as is possible and permits them to do their duty to preserve the lives of crew and passengers. Similarly, bankruptcy for the company doesn’t literally have to imply bankruptcy for the CEO. In some cases, surely, bankruptcy isn’t the CEO’s fault, and there’s no reason to think that justice demands that a blameless CEO walk away penniless. But they should stick around to see the job done, even if that implies some financial risk to themselves.
Second, it seems to me that, as in the case of sea captains, the answer here has to depend a lot on the details of the situation. Sometimes staying aboard will genuinely help, and sometimes it won’t. Also, a CEO’s ill health might be a decent excuse, in some cases. And indeed, some corporate “captains” aren’t even wanted on a sinking ship: in 2008, for example, the US government forced Robert B. Willumstad to resign as CEO of the faltering AIG, and replaced him with Edward M Liddy. The idea that the captain should stick around to help only makes sense where the captain’s services continue to be seen as having value.
Third, there are several different ways in which a CEO can “abandon ship,” and they might not all be equally ethically bad. Abandoning ship could mean selling shares that are about to tank, or it might mean resigning prior to bankruptcy. Or it might mean resigning prior to an inevitable criminal investigation: several rats are known to have abandoned Enron’s sinking ship — Jeff Skilling, for example. Worst of all, perhaps, are “take the money and run” situations. Arranging a bonus for yourself just prior to declaring bankruptcy is the moral equivalent of looting the ship’s safe (or perhaps scuttling all the lifeboats) prior to prematurely abandoning ship.
As always, we need to be careful when engaging in moral reasoning by analogy. A company is not a boat, and bankruptcy is not the same as sinking. But what’s certainly true is that in both cases, the ethical requirements of leadership don’t end at the first sign of trouble.
Must the Captain Go Down With His Ship?
Filed under: accountability, CEOs, character, codes of ethics, contract, decision-making, disaster, employees, ethics, excuses, leadership, professionalism, risk, workplace safety |
Comments (6) 
Italian cruise-ship Captain Francesco Schettino is in jail, following an incident that left 6 dead and (at present) 29 missing. Among the accusations levied against is that he fled the foundering vessel before it was empty. (According to maritime law, a captain doesn’t literally have to “go down with the ship,” but he or she is supposed to be the last one off after ensuring the safety of others.)
Legal requirements aside, is there an ethical obligation for a captain to risk life and limb to stay on board until the last passenger and crewmembers are off? The answer is pretty clearly “yes.” Like many jobs, the job of captaining a ship comes with a range of risks and benefits. As long as the risks were understood when the job was taken on, you’re obligated to follow through.
There’s a more general point to be made here about the nature of ethics, and about ethics education and training.
Ethics often requires of us actions that we’d rather not carry out. You should tell the truth, even when it would be more convenient not to. You should keep your promises, even when breaking them would be more profitable. This is necessarily the case: if ethics only ever required you to do things you already wanted to do, there’d be no need for ethical rules (or at least no need to think of them as rules in the prescriptive sense).
But there’s at least a superficial tension, here, with the idea that ethics should be useful. After all, if having and following an ethical code doesn’t benefit us in some way, why bother? Sure, it’s easy enough to say “The right thing to do is the right thing to do,” but a system of ethics needs some justification in terms of human well-being or it’s just not going to be very credible, not to mention stable. Indeed, some ethical systems are subject to serious criticism precisely because their implications for human well-being are negative. Yes yes, I understand that your code of honour requires you to kill the man who killed your brother, but don’t you see how crazy this all is?
So there’s got to be some connection between ethics and benefit. And it’s not enough to point to social benefit. After all, pointing out that the community benefits from me taking ethics seriously merely pushes the question of justification to a second level: why should I care about the good of the community, especially if doing so requires significant self-sacrifice?
None of this should engender skepticism or cynicism. It just means we need to think carefully about who benefits, and how, from a system of ethics.
It also means that we need to think about how we can help individuals keep the promises that it was in their interest, initially to make. Captain Schettino found it in his interest to make certain promises (albeit perhaps implicit ones) when he signed on to be captain of the Costa Concordia, but then all of a sudden found himself in a situation where it was not in his interest to keep that promise. Threats of punishment were understandably insufficient, here. Staying out of jail is no great incentive if you’re free-but-dead.
Organizations of all kinds — including especially corporations and professional associations — need to work hard to help members think of the relevant ethical rules as something more than the terms of a contract, to help members become the sorts of people who simply would never abandon ship when they are needed most.
How Should Companies Memorialize 9/11?
Filed under: advertising, brands, corporate citizenship, corporations, disaster, marketing, philanthropy |
Comments (3) The day has passed, but it’s a question that’s sure to arise again — just under a year from now, and the year after that, and so on.
What can, or should, businesses do with regard to a relatively recent tragic event like 9/11? The cultural significance of an event like 9/11 is hard for anyone to ignore, especially on the tenth anniversary of that fateful day. And companies thrive on raising their profiles, a feat that can most readily be accomplished by riding the coattails of cultural significance. But when the culturally-significant event in question is a tragic one, corporations need to tread carefully.
This general topic can be split into two more specific questions:
1) Can or should companies use references to an event like 9/11 in their advertising?
2) Can or should companies do something to memorialize such events?
The pure advertising question seems easy. Using references to 9/11 in ads is tacky, if not outright unethical. (For some examples, see this nice slideshow by Jim Edwards for Bnet: “10 Advertisers Exploiting the Sept. 11 Attacks to Push Their Brands”.) Profiting from other people’s pain and grief just isn’t a socially-constructive business strategy.
The problem of course is that it’s hard to separate questions 1 and 2. Naturally, any effort on the part of a company to memorialize an event is likely to be seen as an attempt by that company to raise its own profile.
But memorializing an event like 9/11 in some way seems unobjectionable, and perhaps even obligatory. The hard question is what form such memorializing should take. The best ways, perhaps, are the small-scale and personal ones. Giving employees time off work to attend memorial services, for example. The same principle applies to expressions of sentiment: small and local seems best. A simple sign on your front window that says “Never Forget 9/11″ seems to make the point best — better than, say, splashing that same slogan across millions of product packages — and is much less liable to engender suspicions that the expression of sentiment is self-serving.
As an final point, notice that this is precisely the kind of question for which the term “corporate citizenship” provides the right fulcrum. Some people try to use that term to cover all questions of corporate right-and-wrong , but that’s a mistake. Not all obligations or rights are rooted in a weighty concept like citizenship. But this one is. How we respond to national and international tragedies is clearly an issue of citizenship, in the full political sense of that word, the sense that implies a set of rights and responsibilities related to participation in public life. An alternative word like “sustainability,” which some people take to encompass all ethical questions, just doesn’t cut it here. How companies choose to respond to the anniversary of an event like 9/11 says a lot about how they see themselves as corporate citizens, as participating members of a still-grieving community.
Post-Hurricane-Irene Business Ethics Roundup
Filed under: corporate citizenship, CSR, disaster, economics, pricing, profits |
Comments (2) 
Natural disasters put all kinds of pressures on the behaviour of otherwise-civilized people, and they almost always raise business ethics issues. Here are a few little issues that popped up over the weekend, while hurricane Irene was wreaking havoc on the east coast of North America.
First, a bit of price gouging: Brooklyn’s posh Hotel Le Bleu squeezed Irene shelter seekers for $999 per room
A trendy Brooklyn hotel generated a flood of cash from Irene, jacking up the price of a room to $999 a night on Saturday as the powerful storm zeroed in on New York, employees said….
As I’ve written before, raising prices during a disaster isn’t always unethical — sometimes higher prices provide an incentive for others to rush to send resources to disaster-stricken areas, and sometimes higher prices give citizens an incentive to avoid overusing scarce resources. I’m pretty sure neither of those rationales applies here. [Update: see the hotel's reaction, in the Comments section below.]
The flip-side of the price-gouging story is this one: “Generators, batteries big sellers ahead of Irene”. You can learn a lot about the ethics of pricing by contemplating why hardwares stores generally didn’t jack up their prices. (Yeah, there are anti-price-gouging laws in many jurisdictions, but that’s likely not enough to explain why prices stay stable.) Note that this story mentions that “…an Ace Hardware in Nags Head, N.C., the store sold out of portable generators.” The fact that the store sold out pretty certainly means that some customers went away disappointed. And it’s entirely possible that some of the disappointed needed the generators a lot more than the people who actually got them. Should Ace have found some way of asking customers how badly they needed a generator, or should they have raised the price a bit to make sure that people who bought one really needed one?
Next, from Katy Burne, blogging for the WSJ (just before the storm), “Hurricane Irene Whips Up Trading In ‘Catastrophe Bonds’”. Here’s the technical bit:
Catastrophe bonds, known in the insurance industry as “cat” bonds, are structured securities that allow reinsurers to transfer their own risks to capital-market investors. Investors in cat bonds earn regular payments in exchange for providing coverage on a predetermined range of natural disasters for a set period of time.
Note the similarity here to the controversial practice of short-selling stocks. In shorting stocks in a particular company, a trader is betting that the value of that stock is going to go down — that is, betting that the company will do poorly. Many people find that distasteful. Some have even called it unpatriotic. In buying (or in shorting) ‘cat bonds,’ an investor is wagering on human misery. But note that that’s what insurance companies do, too, and none of us wants to be without those.
Next, there have been a few stories about companies helping out by either donating goods or by fundraising for disaster relief (see here and here, for small examples). Many more such stories have no doubt gone unreported. It’s also been noted that some companies are going to benefit from the storm, especially if (like Home Depot) they sell goods that will be needed for reconstruction. Is there anything wrong with that? (See here for a previous blog entry on profiting from disaster relief.)
Finally, the key business-ethics stories to watch, over the next few days, are about insurance claims. Insurance firms are happy that losses look to be lower than expected. But stories will inevitably pop up about consumers having difficulty getting insurers to pay up. This will, again inevitably, be portrayed as heartless. And in some cases it may well be heartless. In other cases, we’ll simply see that people generally fail to understand the economics — and the ethics — of insurance.
Profiting from Customers’ False Beliefs
Filed under: consumers, critical thinking, disaster, ethics, fraud, marketing, profits, science |
Comments (13) Is it ethical for a business to profit from its customers’ false beliefs? Or, more to the point, is it ethical to profit from your customers’ beliefs when you think those beliefs are false? What if you encourage those beliefs?
Case in point: a number of businesses have sprung up to take advantage of the fact that a number of fundamentalist Christians believe that May 21, 2011 (i.e., tomorrow) is the day on which “The Rapture” will happen, which will involve the return to earth of Jesus Christ, the rescue of believers, and the start of a process culminating in the destruction of the world in October. Enter the profit-seeking atheists. Eternal Earth-Bound Pets, for example, will guarantee (for just $135) to come to a believer’s house, post-rapture, to rescue their pets. Salvation, after all, is for human believers only, so the faithful “know” that atheists and animals will be left behind. (For more details, and more examples, see this item from ABC News: May 21, 2011: Profiting on Doomsday?)
Profiting from this particular set of false (i.e., unsupported) beliefs seems, frankly, pretty innocuous. Those who hold such beliefs are few, and are liable to be mocked by the vast majority of Christians, who scoff at the idea that the exact date of the Rapture can be determined so precisely. When the Rapture ends up not happening (and I realize I’m going out on a limb, there) those who ponied up for the “service” offered by Eternal Earth-Bound Pets will be out $135, but other than that they’ll be no worse for wear. But what about other examples?
Let’s start with a fictional example to test our intuitions. What if I find out that you believe, for whatever reason, and despite the fact that you live far from any indigenous populations of elephants, that your rose garden is in imminent danger of being trampled by elephants. And let’s say you also believe (for whatever reason) that elephants are deterred by he sound of the revving of a Porsche engine. Am I justified in selling you a Porsche that you do not otherwise need, and that perhaps you cannot truly afford? Would that be predatory? Your belief, here, is clearly a crazy belief, and my profiting from your delusion seems not-quite-right. But then, as far as you’re concerned, I’m genuinely helping you. On the other hand, what if the reason you have that delusional belief in the first place is that I’ve convinced you of it?
Next, let’s get back to real-life examples. But let’s look at one that doesn’t revolve around a single event, like Rapture insurance does. What about, for example, selling homeopathy? Now, it’s one thing for a homeopath to prescribe and sell homeopathic treatments. After all, the homeopath presumably believes that such remedies work, in spite of the lack of evidence for that belief. Now, that belief itself might be culpable — if you’re going to sell a product, then ethically you ought to do what you can to make sure it really works — but at least the homeopath is selling in good (if misguided) faith. What about when licensed Pharmacists, people with the training to know perfectly well that homeopathic treatments cannot possibly work, sell them? That happens all the time. Shoppers Drug Mart, for example — Canada’s largest pharmacy chain — sells homeopathic treatments, and all the franchisees of that chain are required to be licensed Pharmacists. That is, they are people whose scientific training tells them that such remedies have zero scientific credibility. So they, too, are profiting from their customers’ false* beliefs — beliefs that they, the sellers, know to be false. Of course, the difference between selling homeopathy and selling Rapture insurance is that in the case of homeopathy, people’s lives really might be at stake.
Information is crucial to the efficient operation of a free market. Asymmetries of information constitute an entire category of situations in which economists will tell you market failures are liable to occur. Knowledge, alas, can never be perfect. So what we instead insist on is that transactions at least be made in good faith. It’s clear that that means the consumer needs to have enough information to know that the product she is about to buy will satisfy her desires; what’s less clear is whether the consumer must also know enough to know whether the product will satisfy her needs.
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*Note: some of you may want to quibble with my use of the word “false” to refer to beliefs in either a) the Rapture or b) homeopathy. You may point out that saying that there’s a lack of evidence for a particular belief isn’t the same as saying that that belief is false. That’s technically true. But when a belief is implausible on the face of it, is unsupported by evidence, and conflicts with a great number of beliefs that are well-supported by evidence, it is entirely reasonable to call it “false.” At least until the Rapture.
Who Else is Too Big to Fail?
Filed under: banking, complexity, corporations, disaster, economics, finance, government, risk, sustainability |
Comments (13) The notion that some companies are “too big to fail” — too large and too interconnected with the rest of the economy for their failure to be permitted by government — is lamentably familiar to most of us in the wake of the 2007-2010 financial crisis. The term has most famously been applied to the biggest American banks (e.g., Bank of America) and insurance companies (e.g., AIG), and it motivated the multi-multi-billion-dollar government bailouts of 2008/2009. In some ways, it’s a radical notion: for most of modern economic history, the assumption has been that the economy could operate according to something like survival of the fittest. If a company is so mismanaged that it fails, so be it. That’s life in a competitive market. Of course, governments have from time to time propped up companies seen as particularly important employers, but such moves are always divisive. There has seldom been such widespread agreement that certain companies really are so big, and so important, that they cannot be allowed to fail.
But outside of the financial industry, what companies might reasonably be thought of as “too big to fail?” Are there companies the failure of which would be truly catastrophic? What companies are there such that, if they suddenly ceased operations, the result would be disastrous not just for individual customers, employees, and shareholders, but for society as a whole?
I’ll mention a few possibilities, and then open the floor for discussion:
BP, Chevron, and the other very large oil companies. As unpopular as they are, it’s hard to deny that their product is utterly essential, at least for the time being. Any one of the biggest companies going out of business would, I suspect, have a terrible impact on the reliability of supplies of gasoline and heating fuel, and would most certainly result in increased prices. On the other hand, most of the world’s oil supply flows through the big state-owned oil companies of the middle east, rather than through private companies like Exxon and Shell the others, the ones that come most readily to mind for North American and European consumers.
Big pharma. Again, not a popular industry. And much of what they produce — treatments for baldness, erectile dysfunction, etc. — is far from essential. But some of their more important products, including things like antibiotics and vaccines, truly are essential and an interruption in their supply could have catastrophic consequences, from a public health point of view. But then, that industry has enough players in it, with overlapping product lines, that it’s unlikely the collapse of any one company would have a huge impact. But really, I’m guessing here. Perhaps the collapse of the maker of whatever the single most antibiotic is would be catastrophic. (Does anyone know?)
What about UPS? That one may surprise you, but the company handles something over 5 million packages per day, which I’ve heard adds up to a non-trivial percentage of American GDP. If UPS disappeared tomorrow, of course, Fedex and the USPS would take up some of the slack, but the short-term effect on American business (and hence consumers) would be significant.
Locally, surely, there are lots of companies that might be considered essential. Companies involved in ensuring the quality of municipal water supplies might count (including the ones that provide the chemicals needed for water purification). And in places where fire departments are privately-run, those would obviously count. But really, I’m looking for examples of companies the failure or disappearance of which would have widespread effects from a social point of view.
Of course, the phrase “too big to fail” isn’t just descriptive. In the world of finance, it is seem as having immediate policy implications. In 2009, Alan Greenspan, the former chairman of the US Federal Reserve (and no fan of government intervention in the economy), said “If they’re too big to fail, they’re too big.” Are there companies outside of finance where such an argument could be made?
Business Ethics and the Crisis in Japan
Filed under: aid, charity, corporate citizenship, CSR, disaster, fraud, international, pricing, trade |
Comments (3) 
A couple of people have asked me recently about what business ethics issues arise in the wake of the Japanese earthquake, tsunami, and nuclear crisis. As far as I’ve seen, the media hasn’t paid much attention to business ethics issues, or even on businesses at all, in their coverage of the disaster(s). But certainly there are a number of relevant issues within which appropriate business behaviour is going to be a significant question. Here are a few suggestion of areas in which the study of business ethics might be relevant:
1) The nuclear crisis. Although their role has not been front-and-centre (unlike, for example, the BP oil spill), at least a couple of companies have played a significant role in the crisis at the Fukushima I Nuclear Power Plant. The reactors there were designed by General Electric, who surely face questions about the adequacy of that design and the relevant safeguards. And the plant is owned by the Tokyo Electric Power Company (TEPCO). TEPCO has been criticized for its handling of the disaster, including its notable lack of transparency. TEPCO also faces a difficult set of questions with regard to the ongoing risks to employees, including those who have vowed “to die if necessary” in order to protect the public from further risk. (For more information, see the wikipedia page about the Fukushima I nuclear accidents.)
2) Disaster relief. There is clearly an opportunity for many companies, both Japanese and foreign, to participate in the disaster relief effort. Whether they have an obligation to do so (i.e., a true corporate social responsibility) is an interesting question, as is the question of the terms on which they should participate. I’ve blogged before about the essential role that credit card companies play in disaster relief by facilitating donations; do credit card companies (and other companies) have an obligation to help out on a not-for-profit basis, or is it OK to make a profit in such situations?
3) Pricing. The topic of price-gouging often arises during and after a natural disaster, though I haven’t heard any reports of this in the wake of the earthquake in Japan. It’s a difficult ethical question. On one hand, companies that engage in true price gouging — preying on the vulnerable in a truly cynical and opportunistic way — are rightly singled out for moral criticism. On the other hand, prices naturally go up in the wake of disaster: picture the additional costs and risks that any company is going to face in trying to get their product into an area affected by an earthquake, a tsunami, and/or a nuclear meltdown.
4) Investment and trade. A major part of Japan’s recovery will depend on investment, both investment by foreign companies in Japan and investment by Japanese companies in the stricken areas of that country. This is clearly less of a concern than it would be in a less-economically developed country (like Haiti, for instance), but it’s still relevant. So the question arises: do companies have an obligation to help Japan rebuild by investing? If a company is, for example, deciding whether to build a new factory in either Japan or another country, should that decision be influenced by the desire to help Japan rebuild?
5) Consumer behaviour. Just as companies have to decide whether to invest in disaster-stricken nations or regions, so do consumers. Do you, as an individual, have any obligation to “buy Japanese,” in order to help rebuild the Japanese economy? Does it matter that Japan is a modern industrialized nation, as opposed to a developing one?
