Archive for the ‘transparency’ Category
Should Penn State’s Board Resign?
Filed under: accountability, boards, education, ethics, excuses, governance, public relations, sports, stakeholders, transparency, trust |
Comments (4) In the wake of the Sandusky sex-abuse scandal the question has arisen whether Penn State University’s Board of Trustees should tender its collective resignation. And now, following the death of Coach Joe Paterno on Sunday, the question has taken on additional emotional resonance. The university’s Faculty Senate is scheduled to discuss a motion to strike an independent committee to investigate the Board’s role in the whole affair, and indeed has seen at least one motion calling for the entire Board’s resignation.
So, should the members of the Board be asked to resign? And if not, should they do so of their own volition?
To answer these questions, here are some questions that need to be considered:
Fist, did indeed the Board fail in its fiduciary (‘trust-based’) duties? It’s worth noting that the Board has been under fire from two different directions, here. Some think the Board failed in not staying sufficiently ‘on top of’ the Sandusky situation, and in resting satisfied with whatever dribbles of information the university administration saw fit to feed them. (The only detailed account I’ve read so far paints the Board in a rather sympathetic light, in this regard.)
Others think the Board failed in firing — in their eyes, scapegoating — the beloved Paterno. Both sides think the Board screwed up, but for very different reasons. Of course, both can be right at the same time. Perhaps the Board has just generally done a bad job, first by letting the situation get out of hand and then second by botching the task of responding to it. Rather than cancelling each other out, maybe these two sets of complaints just compound each other.
Next, we need to ask, if the Board failed, was it a failure of people or a failure of structure? A board, after all, is both an institutional structure and a set of people occupying that structure.
If it was a failure of structure (and, as governance expert Richard Leblanc wrote back in November, there are serious problems with how Penn State’s board is configured) then there’s little reason to think that a change of personnel on the Board is either necessary or sufficient to fix the problem. And if instead it was a failure of people, then getting rid of them all is a blunt, but perhaps effective, way to solve the problem — providing, of course, that the new people brought in to replace them are better.
Of course, the problem is that it’s difficult to distinguish between a failure of people and a failure of structure, in a case like this. Perhaps people better-suited to the job would have risen above the confines of a poorly-structured board, or lobbied to have its structure revised. Human behaviour and institutional structure shape each other.
And finally, regardless of the above questions about the sources of failure, it might be the case that the removal or resignation of the Board is necessary in order to restore public confidence. That is, even if the individuals currently on the Board are not in any way to blame, the fact that key stakeholders have lost faith in the Board might be sufficient grounds for calling for the entire Board to go. Without the confidence of key stakeholders, any Board is going to find it hard to do its job.
But then, while the current Board certainly faces challenges, so would an entirely new Board. The loss of continuity that would result from a 100% change in membership could seriously impair the Board’s functioning, and make it even more reliant on — and susceptible to control by — university administrators. There’s a good reason why well-governed boards have careful plans in place to make sure that new blood is brought in regularly, rather than en masse. In the end, it seems to me that the best prescription is this. The Board of Trustess at Penn State needs to see substantial structural change. It also needs enough new blood to restore confidence, while retaining enough of the old guard to ensure continuity. Beyond that, the Board is just going to have to do its best to muddle through whatever challenges lie ahead, with whatever strengths and limits it possesses, just like any other board.
Walmart, CSR Reporting, and Moral Grey Zones
Filed under: accountability, CSR, reporting, transparency, values |
Comments (2) It’s very hard to report on the good things you’ve done, when not everyone is sure that those things are actually good. Cutting CO2 emissions is pretty unambiguously good, as is working to reduce fire hazards in your suppliers’ factories. But in the realm of corporate responsibility reporting, there’s still lots of room for controversy.
Case in point: I recently had the chance to indulge in a careful reading of Walmart Canada’s 2011 Corporate Social Responsibility Report. Here’s a bit from the document’s intro, by CEO David Cheesewright:
We see this report as a powerful tool for corporate good. Our size gives us considerable influence and with it comes considerable responsibility – a role we embrace in order to help Canadians save money and live better.
Our goal is to present an open look into the impact of our operations in Canada over the past year. This latest report frames our diverse activities into four broad categories of CSR: Environment, People, Ethical Sourcing and Community.
In each area, we highlight our efforts and actions, both large and small – and summarize our current programs and challenges while outlining plans to keep improving in the future….
It’s a very readable 35-page document (more reader-friendly than some others I’ve read, which I think is really crucial if you want people actually to read the thing.)
One of the things that struck me about the Report is that there’s a genuine difficulty in reporting on this sort of stuff in a world replete with grey areas. There’s lots of lovely win-win stuff in the Report. But some of the stuff reported proudly is actually ethically controversial. A trio of examples will illustrate my point.
- Under the heading of “Community,” Walmart Canada proudly reports that “Walmart Canada thinks locally,” and that the retail giant does a lot to boost the prospects of Canadian businesses, to whom it funnelled just over $15 billion in 2010. This goes some distance toward countering a common criticism. But as I’ve pointed out here before, a focus on “supporting Canadian business” is often a mistake, both economically and ethically.
- Likewise, the Report indicates that their ‘Standards for Suppliers’ absolutely forbid the use of child labour. But there’s a good argument to be made that in at least some desperate parts of the world, child labour is a sad necessity. An absolute prohibition can make some kids’ lives worse.
- The Report also brags about its new line of organic baby food, despite the fact that there’s little clear evidence that organic foods are ethically better than other foods. The question is controversial, to say the least.
In all three cases, the company is portraying as ‘socially responsible’ something that, well, might or might not be, depending who you ask. But of course, child labour, healthy foods, and impact on local communities are precisely the sorts of things that critics (and maybe consumers more generally) want to hear about from Walmart. So it’s hard to fault them on doing, and reporting on, those things.
The point here really is not about Walmart Canada, but about the challenges of CSR reporting more generally. If CSR reports stuck to the unambiguously-great stuff, the reports would be vanishingly short and only minimally useful. And that would be a shame. The point of such reporting, I think is not to show that you’re doing everything right. It’s to show us what you’re doing.
Toronto’s Mayor in Pocket-Sized Conflict of Interest
Filed under: conflict of interest, corruption, government, transparency |
Comments (6) The Toronto Star recently reported that the city’s beleaguered Mayor, Rob Ford has stumbled yet again. The Mayor, it seems, opted not to use the city’s standard (cheap) method of having business cards printed. He opted, instead, to go his own route. That might not be surprising a surprising move, coming from a maverick mayor, except for two facts. One is that his way cost a fair bit more. The other is that his way meant giving the contract to his own family’s printing business.
Three additional points are worth making.
First, this is an actual, bona fide conflict of interest. The Star reports City Councillor Josh Matlow as being critical of Ford’s decision, and wondering if the decision carried the risk of “a perceived conflict of interest”. Perhaps Matlow was pulling his punches, attempting to be collegial. But the term “perceived conflict of interest” is properly reserved for situations in which the concerned observers might understandably but wrongly think that the decision-maker had an external interest that could have influenced his decision-making, perhaps because outsiders are misinformed about who was responsible for what decisions.
Second, as always, it’s important to differentiate conflict of interest from corruption. The term “corruption” implies a level of intentionality not required to establish conflict of interest. You can be in a conflict of interest through no fault of your own. Whether there was fault, in the present case, is for voters (and quite possibly the city’s city’s integrity commissioner) to decide.
Finally, it must be acknowledged that the dollar amounts here are pretty small. The total cost of the business cards Ford ordered is just a tad over $1500. Compared to the city’s budget, or even just the budget for the Mayor’s Office, that’s pocket change. But one thing that corruption and conflict of interest share in common is that size isn’t always the issue. What’s at issue in conflict of interest is the need to protect the integrity of the institution, and in particular the way key stakeholders perceive its decision-making processes. Whether in business or in public office, it is crucial not just that top executives make the right decisions, but that they be seen as making decisions on the right basis.
Banks, Image Problems, and the Ethics of Lobbying
Filed under: banking, brands, CEOs, lobbying, public relations, transparency |
Comments (1) Ethics in public relations can mean two different things. It can mean managing your firm’s reputation, since a reputation for ethical behaviour is of course a central part of the reputation that any company wants for itself. It can also mean ethics in the way you go about managing that reputation, since there are good and bad ways to do that. Sometimes the two go hand-in-hand.
Businessweek recently reported that Brian T. Moynihan, CEO of Bank of America, has said he is “incensed” at public criticism of his bank, and has called upon 135 ‘market presidents’ (presidents of local business units) to lobby local officials and remind them of how much good the bank does for local communities. Call it reputation management, call it lobbying. Either way, it’s not at all clear that it is a good substitute for changing the practices that have been angering critics in the first place. It’s also not clear that a focus on ‘all the good we do’ is the right approach. Why not tackle the issues head-on?
Yesterday, at Canadian Business for Social Responsibility’s annual Forum, I got the chance to ask keynote speaker Stephen Lewis about the ethics of lobbying. (Lewis, in addition to being a former diplomat and a UN special envoy is also a former parliamentarian, so he seemed a good person to ask.) Lewis said that, in his experience — both as a parliamentarian and as someone who has lobbied hard on behalf of many causes — the best approach to lobbying is honesty. Put your agenda on the table, he said, and you’re likely to get a fair hearing.
That rings true, especially in an era in which just about everyone is cynical about corporate motives. Even people who believe fully in the crucial role that business plays in making the world a better place — and yes, that includes banks — are likely to respect you more if you admit that you’ve got an agenda, and that that agenda is not, and properly is not, direct pursuit of the public good.
Values-Based Consumerism as Double-Edged Sword
Filed under: consumers, corporate citizenship, CSR, discrimination, transparency, values |
Comments (2) It’s a game of connect-the-dots. Do you, as a consumer, feel any responsibility for the purposes to which the companies you patronize put their profits? Do you care about a company’s values, beyond the effect those values have on how the company conducts business? What about its CEO’s values, or the values of its biggest shareholder? Do those factors enter into your purchasing decisions? Should it?
To make the question more concrete, consider the following:
- If you’re politically left-leaning, do you want to patronize a store owned by someone on the right?
- If you are a Christian, would you buy a car from an atheist?
- If you’re pro-choice, would you buy groceries from a chain of stores owned by a staunch pro-life advocate?
- If you’re in favour of strict gun control, do you want to boost the profits of a company that donates to the National Rifle Association?
For a less-hypothetical example, see this story (in which I’m quoted) by Nicole Neroulias in the Albany Times Union: “Corporate giving is questioned”. The focus of Neroulias’s story is a recent controversy regarding TOMS shoes. The short version goes like this: Blake Mycoskie, head of TOMS, agreed to be interviewed by Jim Daly, president of the right-wing Christian group Focus on the Family. Feminists and defenders of gay rights protested, and Mycoskie issued an apology. On his blog, he wrote: “TOMS, and I as the founder, are passionate believers in equal human and civil rights for all.” Without questioning his sincerity here, it’s clear that Mycoskie had become aware that his flirtation with FOTF had riled his company’s socially-progressive customer base. Why would someone socially progressive continue to support a company perceived to be in cahoots with the Christian right?
Three quick points:
1) On one hand, it seems to me that, yes, at least in principle, consumers must take an interest in the causes supported by the companies they patronize. We are responsible for the causes we support, even indirectly. Of course, most of us contribute far too little to the coffers of even our favourite companies to make any appreciable difference at all. If a company has a 1% profit margin, and gives 1% of that to some cause, that means that one penny out of every hundred dollars you spend goes to that cause. But then, even merely symbolic contributions matter.
2) People who want corporations to adopt social causes should be careful what they wish for. It’s all well and good to say that companies should do something to “give back” to the community. But when they agree to do so, what’s to say that they’re going to give to a cause that you believe in, rather than one you find abhorrent? Would you rather your favourite software company contributed to your least-favourite charity, or just stopped contributing to charities at all?
3) One of the most interesting things about all this is that what we’re seeing here is the undoing of the competitive market’s tendency to prevent people from acting out their biases. One of the best things about modern markets is that they punish prejudice, and make it more difficult. It’s easy to discriminate against the minority cobbler down the street by traveling a few extra blocks to buy from “your own kind”; it’s much harder to act out your racist biases when buying shoes at a big department store because, well, you have no idea what colour or sex or sexual orientation of the person who made those shoes is. Market transactions today are effectively anonymous and depersonalized, in a way that makes biases of various kinds effectively impotent. The push for certain kinds of corporate social responsibility, accelerated by moves toward corporate transparency and social media, is effectively undoing this.
In the end, it’s not at all clear whether it is a good thing that the market is becoming another avenue for acting out our ideological disagreements.
Corruption and Ethics in the Russian Economy
Filed under: culture, economics, fraud, international, investing, transparency, white collar crime |
Comments (2) Back in February I blogged about Russian Business Ethics, and about the way that watching a developing economy helps us see the significance of ethics in the functioning of any economy. If you want to understand the role of honesty, trust, and transparency in a market, you just need to look at a society experiencing a severe deficit of those things.
Here’s more in a similar vein, by Sergei L. Loiko, for the LA Times: Taking on Russian corruption
Moscow lawyer and blogger Alexei Navalny has been singlehandedly taking on Russia’s state-controlled energy giants, accusing them of large-scale embezzlement and corruption….
(See also this piece on fighting corruption in India: Wake-up call on anti-graft laws, from The Hindu Business Line. I also blogged last year about Business Ethics in China.)
It’s perhaps worth pointing out that there really is no ethical debate over corruption: there is no pro-corruption case to be made. No one is in favour of corruption, generally — though of course the corrupt are in favour of those instances of corruption that help them. There just is no systemic upside to bribery, embezzlement, and unremediated conflict of interest. But this fact sometimes go unnoticed when people lump bribery, for example, in with various other dubious practices that North American companies might engage in overseas. I recently had a senior academic suggest to me, in the context of a discussion of labour standards, that third-world sweatshops are just another money-grubbing technique that corporations use whenever they can get away with it — just like, you know, bribery. But there is an important distinction to be made there: sweatshops may sometimes play the role of unfortunate-but-necessary engine of economic growth. Bribery is just a drag on an economy. As seen by competing businesses, it’s a zero-sum game: either my bribe works or yours does. From a social point of view, it results in misallocation of resources: contracts go not to the most efficient producer, but to the producer that excels at the bribery game. This is another example of why it’s so important, in our normative evaluation of business practices, to maintain a mental distinction between things that are unfortunate, and things that are wrong.
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Bragging About Not Recycling
Filed under: environment, honesty, marketing, quality, transparency, values |
Comments (4) 
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.
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Honesty, Reputation, and Ethics
Filed under: character, corporations, ethics, honesty, regulations, transparency, trust, values |
Comments (6) 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.
Russian Business Ethics
Filed under: accountability, corporations, economics, ethics, international, transparency, trust |
Comments (3) 
We can learn a lot about the fundamental nature of business ethics by looking at its operation in various countries at different levels of economic development and with very different histories. Former members of the USSR are a good place to start. Russia, for example, was once at the heart of the Soviet empire, yet today — 20 years after the fall of that empire — Russia continues to struggle. The country’s per capita GDP is middling (i.e., about 1/3 of American GDP), and the economy has been growing steadily for years, but it’s far from free of problems. Law and order (including the functioning of its basic democratic institutions) continues to be a challenge there. Note also that Russia fares very badly on Transparency International’s Corruption Index.
So what about the role of business ethics in civilizing (and hopefully growing) the Russian economy?
See this story by Khristina Narizhnaya, for the Moscow Times: Business Ethics Get Codified
Business ethics are improving in Russia, on paper at least.
More local companies are emulating Western standards and adopting ethics codes to help them operate in a corrupt environment and create the appearance of trustworthiness.
Such codes regulate everything a company’s employees do, from how they dress to how they act in case a bribe is offered….
In the last three years, state companies, including Sberbank and Rosneft, have established codes for their workers as part of President Dmitry Medvedev’s initiative to increase transparency. Gazprom has begun putting together its ethics guidelines, which could take more than a year to deploy. Private companies have followed suit….
The entire piece is interesting and well worth reading, but I think couple of issues in particular are worth thinking about. First, what is the point of all this explicit attention to ethics? Interestingly, at least some Russian business people seem to be aware that ethics is a fundamental building block for real success in business:
“It is good for the image — and clients, investors and partners respond with trust,” said Econika chief executive Andrei Iliopulo.
(The reference to “image” is a distraction, there. Iliopulo’s main point is about trust.)
Others see ethics as an absolute necessity on a macro scale, for the Russian economy as a whole:
Some experts see the ethics code trend as an example of transforming the economic model from wild capitalism to socially responsible business.
“Business feels this need and tries to fulfill it,” said Alexander Sergeyev, a professor at the School of Higher Economics. “It might seem strange, but people like to live by the rules….”
And then there’s the question of scope, and focus. What are the key issues to focus on? As the story notes, ethics codes can cover everything from conflict of interest to social responsibility:
[British-Russian conglomerate] TNK-BP’s code outlines a set of principles covering ethical conduct, employee behavior, external relationships, health, safety, security and environmental performance, control and finance.
That’s quite a range of issues. And when thinking about a country still struggling to “find its feet” in terms of business ethics, we might well want to ask about priority-setting. So, question for discussion: of the various issues mentioned above, which one should Russian businesses be focusing on? I’m not suggesting single-mindedness. But for the good of the Russian population as a whole, which business ethics issues is likely to be the most important?
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(For more on the importance of business ethics for economic development, see Nobel Prize-winning economist Amartya Sen’s “Does Business Ethics Make Economic Sense?”)
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Credit Card Laws & Ethics
Filed under: banking, complexity, consumers, ethics, honesty, regulations, transparency |
Comments (2) Credit cards: we love them, and we hate them. We love the convenience, but we hate the high interest rates. But really, based on our patterns of usage, it seems like the love/hate relationship is tilted in favour of love; it looks like our fondness for those super-convenient pieces of plastic is getting the better of us. The result: many North Americans are utterly buried under credit card debt. The natural temptation is to blame the banks, and certainly many financial institutions have preyed upon both our fondness of convenient purchasing, and our lack of attention to fine print, to turn credit cards into a cash cow.
But see this story, by Jennifer Liberto, for CNN Money: Credit card laws working, says bank critic
A year after new credit card laws curbed interest rate hikes and forced new disclosures, consumers are paying fewer late fees and have a better understanding of what their cards cost, according to a federal study released Tuesday.
White House official Elizabeth Warren, best known for her outspoken criticism of the banking industry, is expected to praise that same group during a Tuesday conference on the one-year anniversary of the credit card laws….
Now unless I’m mistaken, what banks are being force to disclose is stuff that would previously likely have been buried in the notorious ‘fine print’ of credit card agreements. And fine print is a hard problem, ethically. We all know that consumers should read the fine print; there can be important information there. But we also all know that almost nobody does read the fine print. Fairness requires at least some attention to what we can reasonably expect consumers to do. But on the other hand, is it really a bank’s fault if they disclose something important and you simply don’t bother to read it? While you could argue the fairness point back and forth, it’s also worth pointing out that there’s an economic efficiency argument here, too. Information asymmetries are the enemy of economic efficiency. (An “information situation” is any situations in which one party to a transaction understands that transaction much better than the other.) So we have here the foundation for an argument that says that, even if it is fair to expect consumers to read all the fine print, the fact that they do not do so is resulting in socially sub-optimal patterns of purchasing. This means a social reason, not just a paternalistic reason, to want to help consumers by forcing banks to change how it is that they disclose information.
The other interesting aspect of this story has to do with the persuasive force of law. According to Warren, “much of the industry has gone further than the law requires in curbing repricing and overlimit fees.” In other words, this may be a case in which the law not only prescribed a certain set of behaviours, but also set the tone for the industry. I think this aspect of law is too often overlooked. This suggests that even when we are skeptical about a new law because, for instance, we are skeptical about the potential for strict enforcement, we ought to consider the possibility that an industry will take the passage of a law as sending a signal about the overall tenor of society’s perspective on their business. We also ought to consider also the possibility that the law will give those subject to it an excuse to do what they thought they ought to be doing in the first place.
