Archive for the ‘taxpayers’ Category

Ethics Lessons from Toronto Mayor’s Ouster from Office

Toronto Mayor Rob Ford has been found guilty of violating the Municipal Conflict of Interest Act, and will be removed from office. The much-anticipated court decision was handed down this morning.

Regrettably, this is unlikely the end of the story. Ford had announced, prior to the decision, his intention to run again should the judge remove him from office. The judge had the option to include, as part of Ford’s sentence, a prohibition on running again, but opted not to do so.

Ford has plenty of detractors. Some don’t like his politics. Some question his aptitude for the job of mayor of Canada’s largest city. Others worry about his being implicated not just in one but in a string of conflict of interest violations. But he also has plenty of defenders — after all, there are an awful lot of people out there who voted for him, and many of them are sticking to their guns on that choice. So the debate will rage. Plenty of ink is sure to be spilled in by both camps in the wake of this decision. I’ll limit myself here to just two quick points. One is about leadership, and the other is about governance.

First, leadership. Whatever your views of Ford, and whatever your views about the severity of his breach of the Conflict of Interest Act, you pretty much have to agree that Ford demonstrated a disappointing lack of leadership ethics, here. Yes (as his lawyer pointed out) people do make mistakes, and even a mayor can be forgiven for an incidental breach of a rule now and then. But what’s particularly worrisome here is that Ford, who by all rights ought to be the guy who leads Council in understanding its ethical obligations, seems to be utterly clueless about them. And he doesn’t seem terribly worried about that, either. According to a report of the court proceedings, Ford “testified he never read the Conflict of Interest Act or the councillor orientation handbook. Nor did he attend councillor training sessions that covered conflicts of interest.”

My second point has to do with governance. As Marcus Gee pointed out in the Globe and Mail recently, bumping Ford from office might be a case of ‘out of the frying pan, into the fire.’ Turmoil is likely to ensue. Council is now faced with the choice of having someone else — someone not elected to be mayor — serve out the rest of Ford’s term, or spending several million dollars of taxpayer money to hold another election. The result of turfing Ford seems especially troubling when we compare Ford’s ethical cluelessness with the out-and-out corruption that has brought down mayors in other major cities.

But what was the alternative? A judge has no choice but to call ‘em like he sees ‘em. Ford violated important rules, and those rules say he should be removed from office. Note that the judge in this case would have had the same range of sentencing options if the dollar amount at the heart of this case had been $3.15 rather than $3,150. A more sane system would perhaps allow for a broader range of penalties. Examples could be found in other systems and at other levels of government. A fine? Censure? Limitation of future mayoral discretion? Mandatory ethics training? I don’t know the answer. But a governance system that allows a political leader to blunder this way and then throws a city into turmoil is not a good system. Principles matter, but so does the way we implement them.

The True Cost of Conflict of Interest

What does conflict of interest cost?

It was recently reported that certain employees of the Chicago Public Schools food services department were going to be required to undergo ethics training, after it was revealed that they had accepted improper gifts from contractors.

The worry, naturally, is that accepting gifts put those CPS employees into a conflict of interest, a situation in which they were trusted to make good decisions on behalf of CPS, but in which they had an ‘outside’ interest — in this case, gratitude to the gift-givers — that might reasonably be thought likely to warp their judgment. The behaviour here was more specifically a violation of the section of the CPS Code of Ethics that specifically forbids accepting gifts, but the moral root of the problem is conflict of interest.

Now, in addition to the trouble the employees are in, it’s been reported that Chicago Mayor Rahm Emanuel wants to go after two food services companies that had given improper gifts.

Just what have those companies done wrong? What’s wrong with putting someone else in a conflict of interest? I’ve argued before that we might think of this as analogous to suborning perjury. When you intentionally put someone else in a conflict of interest, it means that even if you’re not violating any duties yourself, you’re encouraging other people to violate their duties.

And the companies’ bad behaviour, here, is going to cost them. It may well cost them future contracts, but it may cost them (and other companies that want to compete for CPS contracts) more than that. It’s been reported that they may be required to provide ethics training for their employees, and hire an independent auditor to make sure they’re complying with CPS ethics standards. Neither of those things is likely to be cheap. In an industry with narrow profit margins, such additional costs could well mean the difference between black ink and red.

But the most important “cost” in this case is, of course, the loss of confidence in the CPS and its purchasing procedures. That is always the risk with conflict of interest, namely that when conflicts are accepted and fostered, rather avoided or remedied, they erode confidence in the judgment not just of individuals, but of entire institutions.

How Can Business ‘Give Back’ to Society?

A recent story quotes Fred Green, the CEO of the Canadian Pacific Railway, as saying that he won’t sacrifice safety in pursuit of profits. In his words, he won’t violate the terms of his company’s unwritten ‘social licence’ to operate.

The notion of a ‘social licence to operate’ reflects the notion that in order for a business to be successful, in the long run, the support and goodwill of society is essential. This includes everything from the willingness of a local community to walk into your store to buy things, to the willingness of neighbours to put up with the noise of your trucks driving past, to the willingness of duly elected representatives of the people to pass the kinds of legislation that makes modern commerce possible.

This raises the question: just how does a company earn, and maintain, its social licence to operate? How, in other words, can — or should — a business show its gratitude, or pay its debt to society?

There are a number of ways, and they are not mutually exclusive.

One option is through charitable donations. Corporate philanthropy is as old as the hills, but is generally pooh-poohed by proponents of modern CSR, who favour instead things like collaborative efforts to build local skills and capacity.

Another way is by paying special attention to social impacts, beyond what is required by law. For example: selling junk food is perfectly legal, and arguably fully ethical, at least on a case-by-case basis. But a food seller that looks to the aggregate social consequences of its junk-food sales, and tries to mitigate negative impacts, might be said to be doing so as part of its social licence to operate.

Another way is by paying its taxes. That might seem trivial, a mere matter of following the law. But given the complexity of the tax code, the number of loopholes, and the size of some companies’ accounting departments, a commitment to paying your fair share is probably non-trivial.

Another way a company can earn and keep its social license to operate is by a commitment to looking for ‘win-wins.’ In this category, we could place various efforts at seeking energy efficiency and waste reduction. Of the many ways a company can look to save money, some are socially valuable, and opting to pursue those over others might be seen as supportive of a company’s social licence.

And finally, there’s the old (and true) point made by Milton Friedman years ago, which is that companies contribute socially by making goods and services that people want. What does Merck ‘give back?’ It gives us pharmaceuticals that relieve pain and suffering. What does BP contribute? It finds and refines the oil without which our economy would literally grind to a halt. What does my local coffee shop do for the community? It provides a place to get in out of the rain, have a cup of coffee, and chat with a friend.

Now it’s quite likely that no one of these is sufficient. Each of them is a plus, and counts towards a company’s social licence, but likely some combination is necessary. From this range of options, each company chooses how it thinks it can best earn and keep its social licence to operate. Different mixes will make sense for different companies in different industries. There’s no one right combination that will let a company merit its social licence. Innovation and variety are a good thing, here. Let a hundred flowers blossom!

Conflict of Interest at the Business/Politics Interface

People tend not to trust big business. And they tend not to trust the world of politics. But when those two worlds intersect, people really get nervous.

Witness, for example, this story by Eric Lipton, for yesterday’s New York Times: A Journey From Lawmaker to Lobbyist and Back Again

The story is about Dan Coats, a former corporate lobbyist recently elected to the US Senate.

Dan Coats, then a former senator and ambassador to Germany, served as co-chairman of a team of lobbyists in 2007 who worked behind the scenes to successfully block Senate legislation that would have terminated a tax loophole worth hundreds of millions of dollars in additional cash flow to Cooper Industries.

As part of the Republican wave in this year’s midterm elections, Mr. Coats will join the Senate again and is seeking a coveted spot on the Finance Committee, the same panel that tried to shut the tax loophole and that the Obama administration has pushed to again consider such a move.

The worry alluded to in the NYT piece, but not explored in any depth, is that of conflict of interest. The vague worry is roughly that there is — well, some sort of conflict between Mr. Coats’ old allegiances and his new position.

Coincidentally, here’s a piece (just published today) that I wrote about conflict of interest in the Canadians Prime Minister’s Office: Conflict of Interest in the PMO: Just What is the Worry?

The main point of my article is neither to accuse nor to absolve. It’s to point out that we need to get clear on just what the worry is, in any particular situation. A vague worry that “something ain’t right, here” is fine as a starting point, but if we want to go beyond that, and if we want to prescribe smart solutions, we need to get clearer about what the problem is.

Some scholarly definitions cast the matter as a question of judgment. Under such definitions, conflict of interest is said to occur if there is good reason to think that the judgment of the individual in question will be impaired. In other words, will she be able to exercise judgment impartially, or will her judgment be clouded by other factors that ought to, for ethical reasons, be excluded?

Other definitions frame the issue as one about the interests of those being served: a conflict is said to occur if there is reason to doubt the individual’s ability to faithfully serve the interests of those they are sworn to serve.

Whatever their differences, both definitions focus on service. We worry about conflict of interest when the incentives present in a given situation give us reason to doubt the quality of an individual’s service as a trusted advisor or decision-maker. This analysis suggests that, whatever the Conflict of Interest Act may say, the real question in the case of Wright is whether the judgment that he exercises in his capacity as the chief of staff can reasonably be expected to be skewed (consciously or subconsciously) by the interests of his former, corporate, employers.

The same could, and presumably should, be asked about Mr. Coats. But, as always, I am at pains to point out that a conflict of interest is a situation, not an accusation. If there is reason to worry about Mr. Coats’ judgment, that is not a matter of impugning Mr. Coats’ integrity. Rather, it is a matter of considering what measures (if any) are sufficient to make sure that the value of his service to the public outweighs the risks.

Should Trapped Miners Be Paid?

Most people don’t expect to be paid when they’re not doing work. Sure, most people get paid during coffee breaks, and lucky folks get paid vacations. And some people get paid sick days. But what about when you’re not working for months on end? Does any employer have an obligation to pay you under those conditions? What about when you’re not working, but physically at work, for months on end?

That’s the issue faced by 33 miners trapped 2,300 feet below ground, in a collapsed Chilean mine.

Here’s the story, written by Nick Allen for the Daily Telegraph, but featured in the Ottawa Citizen: Trapped miners may not be paid

The 33 Chilean miners trapped underground may not be paid for months while rescuers try to reach them, leaving their families with no income.

The San Esteban company, which operates the mine, has said it has no money to pay wages and is not even taking part in the rescue.

It has suggested that it may go bankrupt and its licence has been suspended.

Evelyn Olmos, the leader of the miners’ union, called on Chile’s government to pay the workers’ wages from next month….

My initial impulse: yes, of course the miners deserve to get paid. Granted, they’re not exactly doing productive work, but that’s not their fault. Even though they’re not working, they are in fact still on the job. The problem, of course, is that the company seems financially incapable of paying them, not just unwilling. Legal means can be attempted, but if it’s really true that the company is bankrupt — well, you can’t get blood from a stone. (Note also that, for what it’s worth, the mine’s owners have asked the miners for forgiveness.)

So that leaves the government (i.e., the citizens) of Chile. Should they pay? Now, to be clear — and this is a crucial distinction — I’m not just asking whether it would be a good thing if the miners end up getting paid. I’m asking whether Chilean taxpayers have an obligation to pay them. I think the answer to that is less clear than the question of whether a financially-capable company would have an obligation to pay them. Now, this isn’t a public policy blog, it’s a business ethics blog, so I don’t often delve into what constitutes the morally-best decision for government. But it’s worth thinking about what principles might apply to this case not just from the point of view of government’s obligations to citizens in need, but from the point of view of government’s obligations to take up the slack when industry undertakes dangerous operations that can end up requiring considerable financial resources when things go wrong. Is government’s willingness to clean up the mess part of what lets mining companies put miners at unreasonable risk in the first place? Or should we think instead that the government’s willingness to help out is just part of the insurer-of-last-resort role that we want government to take on, and that allows all sorts of companies (responsible or otherwise) to be in business in the first place?

As a post-script, I should point out that the moral parallels between the Chilean mine rescue and the BP oil spill cleanup, in this regard, are striking.

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Also of interest, on the Research Ethics Blog:
Could Research be Done on the Trapped Miners?

Bailouts, Corporate Jets, and Moral Outrage

Last year I saw a talk by economist Robert Frank, on “Moral Outrage.” His overarching theme was that moral outrage is a useful thing, and that we therefore ought not to squander it by aiming it at undeserving targets.

That talk came to mind when I read about how the CEO’s of the big 3 automakers got raked over the coals for showing up in Washington to plead for a government bailout — and arriving in 3 sleek corporate jets.

For a glimpse, see this story from Business Week: Auto Bailout: Seeking Signs of Sacrifice

Maybe it would have been a good idea for the chief executives of the U.S. Big Three auto companies and the president of the United Auto Workers to save a few dollars and share a ride to their appearance before Congress, where they are asking for at least $25 billion to keep from going bankrupt.

Three different members of the House of Representatives pointed out on Nov. 19 that the three CEOs and the union chief were flown to Washington in separate, private planes. The representatives used that example to express skepticism that the executives are prepared to make the needed changes in their operations, accountability, and culture to turn around their sinking industry.

(See also: Big Three auto CEOs flew private jets to ask for taxpayer money, from CNN.)

For some people, the initial flash of moral outrage comes from the apparent contradiction involved in showing up in an expensive jet to ask for a handout. But (using rough numbers here) a single CEO to spending $20,000 to fly to Washington to ask for $20billion is spending 1 one millionth of the proposed bailout of his company. For a company the size of GM or Ford or Chrysler, $20 grand just isn’t a lot of money. Pocket change. (Or look at it this way: a CEO who makes $20 million a year is making about $10,000 an hour. Waste 2 hours of time waiting for a commercial flight and you’ve “paid” for your flight on a corporate jet.)

Some people will realize the above — surely the angry members of congress did — and still express moral outrage at the symbolic aspect of the flights. How could these execs each spend, on a single flight, the equivalent of a few months’ salary for one of their workers? Why such a visible show of wealth? Isn’t that unseemly? Perhaps. But at least a partial response to that lies in the surprising fact that these CEOs may not have had much choice. As is the case at many large companies, the Boards of the Big Three actually require their CEOs to fly by corporate jet, for reasons of security and efficiency. See this story from the Chicago Tribune: For many CEOs, private jets the only way to fly.

So, is moral outrage totally misplaced here? The money is a drop in the bucket, and the CEOs were simply following what are arguably reasonable corporate policies. Probably. Outrage is likely better reserved for other aspects of their performance as CEOs, or perhaps for having the gall to ask for public money in the first place.

Still, it’s hard not to find something unseemly here. These CEOs apparently didn’t even see the irony, superficial as it might be. They didn’t even think ahead enough to apologize for their lavish trips, or to make some symbolic act of contrition. Now that’s not reason for outrage. Being out of touch with the sensitivities of regular people on a particular day isn’t necessarily a grave sin. But it’s not exactly great, either. I was once asked if it’s unethical to be rude. The answer to that question seems relevant here: we might not want to label a single lapse in manners as unethical, but we’re quite justified in calling it unethical when we see a pattern of rude — or insensitive — behaviour.

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Thanks to Laura, Lori, Jared, and Ralph on the SBE list for their thoughtful discussion & helpful links. Inadequacies in the stuff above are all mine.

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