Archive for the ‘honesty’ Category
Product labels are important, both practically and ethically. Reading the label is a key way to make sure the thing you’re buying meets your needs. Labels on products can help inform consumers about what they’re buying, reducing what economists call information asymmetries between buyer and seller. Where substantial information asymmetries exist, voluntary exchanges can fail to live up to the promise of mutual benefit, and society as a whole suffers from the resulting reduction in market efficiency.
Of course, not everything that could be said about a product could possibly be crammed onto a product’s label, so generally the information provided consists of what the maker of the product really wants to brag about, what consumers insist on knowing, and anything beyond that that regulators have seen fit to insist upon.
So precisely what gets labeled, and what form the labelling takes, matters a lot. Now while the moral significance of labels in general is not disputed, just what should be included on labels is hotly debated.
Take, for instance, the question of whether a food product has been genetically modified (GM). Or, more precisely, whether the ancestor of the organism from which a food product was derived was genetically modified by means of a particular set of laboratory procedures. It’s important to be precise, here, because there is virtually nothing that we eat today that hasn’t been ‘genetically modified’ by humans in some loose sense.
If you thought the question of GM labelling had gone away with the demise of California’s Proposition 37 this past November, think again. Washington State is apparently about to hold a vote on the issue, and there are reports that the anti-GM faction has been energized by the battle in California, and perhaps even galvanized by the massive sums of money that ‘big food’ and ‘big ag’ apparently spent to help defeat Prop 37. But as I’ve argued before, the demand for mandatory labelling of GM foods is misguided: the broad scientific consensus is that there’s no reason to worry about GM foods. Making such labelling mandatory, just because some people want to know if their food’s genes have been tweaked in certain ways, would be unjust.
Contrast this with the stunning report recently released by the ocean conservation group, Oceana. Nevermind subtle genetic modifications. Oceana found that a very high proportion of the fish sold in American retail outlets isn’t even from the species indicated on the label. So consumers are buying “snapper” that isn’t really snapper, and “tuna” that isn’t really tuna. Here, consumers are being lied to. Information isn’t just being omitted; the information being given is actually a lie, and so consumers are being cheated.
If the food companies of the world are going to expend money and effort to provide consumers with information, it’s pretty clear which kind of issue they should expend it on.
Toronto mayor Rob Ford will apparently be keeping his job. An appeals court has overturned a previous court decision that had said that Ford had violated the province’s conflict of interest law.
The decision came down today from the Divisional Court which heard Ford’s appeal of his November conviction. The panel of three judges has now concluded that the original trial judge had made an error in finding Ford guilty under the Municipal Conflict of Interest Act.
Many Torontonians were bewildered by the original verdict, and by the fact that it could result (as required by the Act) in Ford’s removal from office and a multi-million dollar by-election. Ford’s offence, after all, was hardly armed robbery. He was merely accused of participating in a city council vote on a relatively small financial matter. The question under consideration at that vote was whether he, Ford, should return a few thousand dollars’ worth of donations that the city’s integrity commissioner says were improperly gathered. So it’s not as if Ford had stolen the money, or embezzled it. And garnering the donations was not itself a legal offence. The problem lay solely in his having voted on this matter, a matter in which he had a personal stake. Many people wondered how it could be that Toronto could lose its duly elected mayor over such a small procedural matter.
But bewilderment about that initial verdict says more about public understanding of conflict of interest than it does about the substance of this case. Conflict of interest isn’t about numbers; it’s about loyalty. And when we think someone has violated a conflict of interest rule it’s not necessarily because we think he or she has made an improper decision, but rather that we think he or she has failed to keep personal business and official duties separate, and that as a result we cannot be sure about what factors may have influenced that decision. It is also, in the end, about public faith in the decision-making processes of our most important institutions.
Be that as it may, today’s decision means that Ford is not guilty of violating the Act, and hence gets to keep his job. My non-lawyer’s understanding of the verdict is this. The decision seems to turn on a technicality. Ford had been accused of wrongfully participating in a February 2012 debate and vote by Toronto city council over whether he, Ford, should return the improperly-gathered donations. A council vote 2 years earlier had required Ford to pay back that money. But, according to today’s ruling, Council didn’t have the authority to engage in that earlier vote. So it was legally null – effectively, it never happened at all, from a legal point of view. And if the earlier vote “didn’t happen,” then the February 2012 vote that essentially responded to that earlier vote was really moot. And if that vote was moot, it cannot have been improper for Ford to participate.
But the court’s decision today is far from a vindication. Ford keeps his job on a legal technicality, the sort of thing that a layperson could never foresee from a reading of the plain wording of the relatively brief and clear Municipal Conflict of Interest Act.
That’s fair enough, from a procedural point of view, but it doesn’t mean that the mayor didn’t do anything wrong. He still took part in a decision in which he had a personal stake. And as a man in a position of power and trust, he not only should not have done so, but he should have known better than to do so. Even if he knew in his heart that his vote in the matter was unbiased, he should have known that that’s beside the point. What matters is that trust in the system requires decision makers to remove themselves from decisions that pertain to their own affairs. Doing so is essential for maintaining public trust in the system.
We can only hope that Ford will proceed now with uncharacteristic humility, and with more eagerness to learn the rules that govern his position than he has thus far demonstrated.
The makers of POM Wonderful want you to use your heart, not your brain.
At least, that’s the distinct impression we get from the company’s recent battle with the US Federal Trade Commission. Last week, an administrative law judge for the FTC found that at least some of POM’s ads made “false and misleading” claims about the health benefits of the trendy, branded pomegranate juice. And the company is fighting back with a series of ads that, by quoting the judge out of context, makes it look like he actually looked favourably upon their product.
The tagline for these ads: “FTC v. POM: You be the judge”.
So POM wants you to be the judge. On the surface, that sounds like they want you to think for yourself. And who could complain about that? But context matters. So when the company is pushing back against the FTC’s assertion (and the court’s finding) that the health claims made on behalf of its juice just don’t stand up to scientific scrutiny, the implied message is that yes, you the consumer should decide, but you shouldn’t use your head in doing so. After all, if you used your head and thought it through rationally, you would want to look at the evidence. And, well, the evidence doesn’t look so good for POM. But the makers of POM, it seems, would rather you look inward instead of looking at the evidence. C’mon, you’ve tasted it. It’s delicious. It must be good for you. And you, dear customer, are smart enough to know that, right? Forget what the science says.
This kind of thing is arguably part of a larger social trend. See this recent essay by Joseph Heath and Andrew Potter, on the way politicians, in particular over the last decade, have found new ways to play fast-and-loose with the truth. Heath and Potter point out the new popularity of the trick of using stubborn repetition as means of bullying your way past awkward facts. A lie can be convincing, in particular when it feels right, when the claim being made fits with your world view or how you want the world to be. And who wouldn’t like to believe that a tasty serving of fruit juice could prevent heart disease or cancer?
The makers of POM are certainly not unique among advertisers wanting you to use your heart, rather than your brain. But they are unusually bold about it, going on the offensive and thumbing their noses at the people whose job it is to do the fact-checking. So consumers beware: when a company wants you not to take a hard look at the facts, it’s usually time to do just that.
Most of us rely on accredited professionals for a range of services. Doctors, lawyers, accountants and so on play a huge role in our lives, giving us advice and rendering services that we would be foolish to provide for ourselves. Some topics, in other words, are beyond the ken of even the dedicated do-it-yourselfer. Financial planning is in that category. If you plan to do anything much beyond storing your money in a mattress, you probably want help from a professional. And you hope — really, really hope — that that professional is on the ball and has your best interests at heart.
A recent story highlights some of the difficulties in this regard. The story is about an independent insurance agent facing jail time for selling a particular kind of investment — an indexed annuity — to an 83-year-old woman. The catch: prosecutors say the woman showed signs of dementia, and the implication is that the agent took advantage of the fact that the buyer may not have understood the limits and disadvantages of the investment instrument she was buying.
Even minus the question of the buyer’s competency, there are worries here. For perspective on this story, I talked to Prof. John Boatright, who literally wrote the book on ethics in finance. He pointed out to me that Equity-Indexed Annuities are so complex that they’re a dubious product quite generally. He also pointed out that such annuities are investment instruments sold by people in the insurance industry who are not truly investment specialists. Most investment instruments are regulated such that they can only be sold by investment professionals with suitable training and credentials.
But regardless of the kind of professional you go to for investment advice, the underlying ethical question is whether that professional is going to have your best interests at heart. When the thing you’re buying is too complex to understand, you have to put your trust in the seller. Such trust is best underpinned by what are called fiduciary duties. A fiduciary, roughly speaking, is someone to whom something of value is entrusted. And a professional who bears a fiduciary duty has a stronger obligation than a mere salesman. Someone out to sell you something — a car, a stereo, whatever — has a plain obligation not to deceive you, but generally isn’t obligated to make sure that the product is right for you. Whether the product is right for you is up to you to decide. But a fiduciary is held to a higher standard. As Alexei Marcoux points out, we are vulnerable in various ways to professionals of various kinds, and that vulnerability generates duties on the part of those professionals, not just to be honest to us but to put our interests first. The transaction between a professional and a client is not a regular market transaction; rather, it is (or ought to be) governed by the higher standard implied by a fiduciary relationship.
Whether financial advisors and financial planners proclaim and live up to such a high standard is another matter. It certainly seems they should. In some places, financial professionals are explicitly expected to live up to the standard applied by a fiduciary duty, and other jurisdictions are moving in that direction. If ever there were a circumstance in which we were vulnerable, a situation in which we are trusting a stranger to tell us what to do with our life’s savings seems to fit the bill.
Is it ethically OK for a manufacturer to reduce the amount of product in a package, but to keep charging the same for it?
Here’s an interesting example. The image shown here shows three varieties of Kraft Peanut Butter — Smooth, Extra Creamy, and Whipped. Notice that all three varieties are in jars of the same size, and all three cost the same. The ingredients are also virtually the same. But notice also that the one on the right — the Whipped peanut butter — includes one special ingredient not listed on the label. That ingredient also happens to be one that is free to the manufacturer, and that takes up a lot of space in the jar. That ingredient is air.
Yes, whipping peanut butter (like whipping cream or anything other liquid or paste) adds air to it. It fluffs it up. So if you look closely you’ll see that the label on the jar of Smooth peanut butter indicates that its contents weigh 1 kilogram (1000 grams). But the label on the jar of Whipped peanut butter indicates that its contents weigh just three quarters of a kilo, or 750 grams. The result is that when you buy a jar of whipped peanut butter, you’re getting 25% less peanut butter, or a jar that is effectively 1/4 full of air.
From a manufacturer’s point of view, this is wonderful. Being able to charge just as much while reducing the amount, and cost, of ingredients by a quarter is something of a coup.
Is it fair to the consumer? Or is the consumer being ripped off, getting less peanut butter for the same price? Is the consumer getting less value?
Well, no, I don’t think the consumer is being ripped off, though I suspect some will disagree with me. The 750g jar of Whipped peanut butter contains no less value than the 1000g jar of Smooth peanut butter precisely because there’s nothing to say that 750g of the one is less valuable than 1000g of the other. They’re different products, despite having the same ingredients. The value of a thing is absolutely not determined by its ingredients; all that its ingredients (or rather their cost) determines is the lowest level at which the product could be sold without the seller suffering a loss. A thing’s ingredients no more determine its value than does the amount of labour that went into it.
Or rather, no one can say that 750g of one thing is worth less than 1000g of the other, other than the customer. What matters is how the customer values those two things. If the customer finds 750g of Whipped PB to be as useful to them as 1000g of Creamy, then charging the same price seems perfectly fair. Consumers who disagree are naturally free to object — that is, to refuse to make a purchase. But that, I’m afraid, would be akin to cutting off their noses to spite their faces.
Recycling is cool, right? It’s hip to be green, right? Well, apparently that’s not always the case.
I spotted this sign at a carwash here in Toronto yesterday. This carwash (the labour-intensive handwash kind) is proud of the fact that its water is always fresh, never recycled. In 2011, it’s a striking way of bragging.
Two points worth making:
First, any business that brags about using a resource in the least frugal way possible is perhaps, just perhaps, paying too little for it. Now, from what I understand, water usage by businesses in Toronto is metered, though I don’t know just how expensive the water is for businesses. But it’s at least worth contemplating that, for a sometimes-scarce resource (and water counts as one of those, even in Canada) a business can only brag about maximal usage if it’s not paying very much for it in the first place. If we want to encourage people (and businesses) to use less water, the first step is to make sure usage is metered, and the second step is to make sure that prices are sufficient to discourage waste. Water is a public utility, and pricing is often subsidized in ways that encourages waste. Notice there are precisely zero airlines bragging about how much fuel they use.
The second thing worth noting is the basic value conflict here. Why is it that this company is bragging about using only fresh water? Presumably it’s because they or their customers associate fresh water with a better product, i.e., a better wash. Now, that belief might be mistaken. In fact, I strongly suspect it is mistaken. I suspect that recycling and filtering can easily get water clean enough to get your car 100% sparkly clean. But the perception that recycled water is inferior is out there, and it may be difficult to change. In the meantime, this remains an example of what many will experience as a difficult values-based choice: do you want the best product, or the greenest one? Sometimes, the greenest choice is also the best product, and when that’s true it’s either a happy coincidence or the result of really smart product development. But we must not allow clever marketing to convince us that that will automatically be the case, that green = ethical = happy = socially progressive. Life is full of choices, and that truth is one that we cannot afford to water down.
If disgraced hedge-fund manager Raj Rajaratnam were good at his job, couldn’t he have done well without insider trading?
Unethical (and illegal) behaviour in business is often compared to breaking the rules in sports. And it has always seemed to me that the sportsman who cheats is basically admitting he’s not good enough to win any other way. Same goes for the student who cheats on a test — she cheats because she knows she hasn’t got what it takes to get a passing grade any other way.
Too often, in the world of business, those caught doing something unethical end up being regarded as “great but flawed.” The story that gets told is usually a Shakespearean one of a talented business mind driven to the dark side by greed, ambition, etc. So Rajaratnam gets described as “brilliant”. And Enron’s Jeff Skilling was, after all, “the smartest guy in the room.”
Now, this line of thinking has occurred to me before, namely that if you have to do something unethical to make a profit, then you’re just not very good at your job. But I was reminded of it by Andrew Potter’s recent blog entry on countersignalling, and how refusal to use modern, high-powered hunting bows might be a way of signalling the hunter’s true skill, and consequent refusal to ‘cheat’.
I sense there’s an opening for a potent new narrative here. When someone is caught doing something unethical in business, we should, in addition to criticizing their lack of character, and perhaps worrying about the institutional structures that facilitated their wrongdoing, also mock their lack of business acumen. Yes, mock. We should mock them the same way we might mock the hunter who uses a sniper rifle to take out a deer. Or maybe the guy who shoots fish in a barrel. Oh, congratulations, tough guy. And we should reserve our praise not for the shrewdness of the Rajaratnams and Skillings and Madoffs of the world, but for the quiet sagacity of the other guy, the truly talented one who quietly goes about building and maintaining a thriving business without having to resort to cheating.
The world’s most successful investor, Warren Buffett, was recently caught up in a scandal. He himself is not accused of any wrongdoing, though some have accused him of responding to the scandal — one involving a senior employee of his, one David Sokol — in a lackadaisical manner.
For the basics of the story, see here:
Berkshire doesn’t plan big changes after scandal (by Josh Funk, for the AP)
Berkshire Hathaway CEO Warren Buffett says he doesn’t think his reputation has been hurt much by a former top executive’s questionable investment in Lubrizol shortly before Berkshire announced plans to buy the chemical company….
Sokol is accused of a form of insider trading, essentially a kind of betrayal that is unethical at best, and illegal at worst. Now, Sokol himself is, not surprisingly, keeping pretty quiet, and speaking only through his lawyer. I’m more interested, at this point, in Buffett’s response, and what it says about his character. I’m not the first person to suggest that you can learn a lot about a person by the way he or she responds to a crisis. But when the man in the spotlight happens to be one of the world’s most successful businessmen, there’s some reason to think that the lessons learned might just be more interesting than most.
For more about Buffett’s response, see here: Buffett Takes Sharper Tone in Sokol Affair (by Michael J. De La Merced, for the NYT.)
Despite the critics, I think Buffett comes out of this looking pretty good. To begin, Buffett gets points for demonstrating his loyalty to a long-serving employee:
[Buffett] was harsh in his assessment of Mr. Sokol’s trading actions, he pointedly declined to personally attack Mr. Sokol, instead highlighting the executive’s years of service and good performance.
Buffett also has a sense of context and proportion. Not that the wrong of which Sokol is accused is small. But it is wise, and ethically correct I think, for Buffett to resist the urge to pounce on an employee who has, in Buffett’s own experience (up until the present crisis), been a diligent and morally-upstanding employee:
“What I think bothers some people is that there wasn’t some big sense of outrage” in the news release, Mr. Buffett said. “I plead guilty to that. But this fellow had done a lot of good.”
Buffett’s business partner, Charles Munger, likewise gets points for showing restraint:
“I feel like you don’t want to make important decisions in anger,” Mr. Munger said, defending Berkshire’s press release. “You can always tell a man to go to hell tomorrow.”
All of this is set against a background of Buffett insisting on the importance of having a reputation for integrity in business. Buffett is no slacker when it comes to ethical standards. The NYT piece quotes Buffett from 20 years ago, on the topic of the significance of reputation in business:
“Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”
Finally, it’s worth pointing out that this focus on Buffett’s character, and on the example he sets, represents an importantly different approach to business ethics. The approach here is akin to what philosophers call “virtue ethics,” a stream of thought that goes back to Aristotle. The idea here is that, rather than focusing on principles (or, more cautiously, in addition to focusing on principles), what we really ought to do when thinking about ethics is to focus on character. Rather than asking, “what rules apply to this situation?” this way of thinking asks, “what would a good person do in a situation like this?” And in between crisis points, we should be asking, “when a crisis comes, what kind of person do I want to pattern my behaviour after?” I don’t know nearly enough about Mr Buffett to hold him up as a moral exemplar, but I think that the kind of character he has displayed in the Sokol affair is worthy of emulation.
Lying, generally, is wrong. Is it also wrong to facilitate a lie, or to profit from doing so? What if your entire business model involves helping people tell lies? No, I’m not talking about the big accounting firms, who only sometimes help clients lie, and typically do so through creative interpretations of accounting standards. I’m talking about something much less creative, namely bald-faced lies. And yes, there are businesses that are set up to help you do just that — everything from helping you fake your resumé to helping you establish an alibi (if, e.g., you played hooky from work, or need to spend some quality time with your mistress).
Here’s the story, by Marissa Conrad for Time Out Chicago: Businesses that lie — and are proud of it.
Now, this is not the sort of story that I would normally bother with. After all, you don’t need a Ph.D. in philosophy or an advanced knowledge of the history of moral theory to sort through the ‘subtleties’ here. Yes, there are grey zones in ethics. And sure, lying is sometimes justifiable. But the exceptions prove the rule: deception is generally wrong. And deception of the kind that these companies facilitate is no exception.
But what’s interesting about these services, and what makes this story worth even mentioning, is the self-serving rationalizations that the proprietors of these services indulge in, in order to justify their existence. “Is lying on your CV justified?” they ask rhetorically. What if you really need the job? What if you’re a really decent guy who has caught some tough breaks in the past, and your CV needs a little boosting as a result? Who is to say? Well, the owner of one of these businesses is clear about his approach to the question:
“We believe that everyone deserves a second chance,” says [Reference Store] operations manager David Everett. “Is Robin Hood a criminal? It depends on who you ask.”
Now, presumably such companies render assistance to trivially few customers with Robin Hood’s claim to serve the greater good. And besides, Robin Hood-type characters achieve true hero status only in retrospect. We can’t conclude that Robin Hood’s actions were justified just because he himself thought they were. Likewise, the fact that lying is sometimes justified doesn’t mean we can afford generally to be agnostic about the ethics of particular acts of deception, let alone decide to facilitate such acts. The problem here really lies in the fact that these companies are unilaterally appropriating for themselves the right to make that determination, taking shelter in extraordinarily shallow self-serving rationalization, and abdicating their clear responsibilities to engage in at least a modicum of ethical reasoning.
The connection between reputation and ethics is complex. A pattern of ethical behaviour is clearly essential to establishing a good reputation, which for a company means a reputation as the kind of company people want to do business with. But hold on. All that’s really essential, from a business point of view, is to be perceived as ethical. But there are two ways of reading that ancient point. The cynical way is to say that all that matters in business is to give people the impression that you’re ethical, and that can be done through good PR or even outright misrepresentation. The less cynical way of reading that is that you’ve got not just to be ethical, in the sense of doing what you think is the right thing to do; you’ve also got to convince key stakeholders that you’ve done the right thing.
Take honesty, for example. Honesty matters, but so do public perceptions of honesty. In that regard, see this useful piece on corporate disclosure, by Steven M Davidoff for the NY Times: In Corporate Disclosure, a Murky Definition of Material.
Most of the piece is an exploration of the legal standard of “materiality.” Materiality is essentially about relevance. Publicly-traded companies are obligated to reveal certain information to the investing public (typically through filings with the relevant regulatory agency). But not everything they do needs to be reported — not everything is sufficiently important — and there are lots of legitimate reasons why companies don’t want to reveal any- and everything. Figuring out just what needs to be disclosed is a difficult legal problem. But towards the end of the piece, Davidoff argues that companies should avoid focusing on mere legalities. As Davidoff points out:
Companies need to understand that information disclosure is not just a legal game. Failure to disclose important information on a timely basis can harm a company’s reputation.
So, it’s all about reputation, about ‘optics’? “What about ethics?” you ask. But consider: why would a failure of disclosure harm a company’s reputation? In part, it would do so because (or if) the failure harms people’s interests. But even then, harming someone’s interests won’t immediately harm reputation. If, for example, Ford designs a new SUV that’s so good that sales of GM’s SUV’s fall, putting thousands of GM employees out of work, well, that’s bad for GM’s employees, but the harm done to them by Ford is not going to damage Ford’s reputation. Because, after all, the harm done to the employees was the result of fair competitive practices on the part of Ford. A company’s behaviour is only going to hurt its reputation if some critical mass of people see that behaviour as unethical. So in the end, even a concern about “mere reputation” has to be grounded in ethical principles.