Archive for the ‘trust’ Category
Business Ethics Lessons from G20 Cop’s Arrest
Filed under: crime, government, protest, trust, Uncategorized |
Leave a Comment What lessons can we take from a story about police brutality and apply to the world of business?
As many readers will know, the meeting of the G20 here in Toronto last summer was not, on the whole, a happy experience. Protestors, both peaceful and otherwise, were plentiful, and there were serious questions about the way the Government, and in particular the Toronto Police Service, conducted themselves. No one came out looking very good. Protestors torched cop cars and broke shop windows. Some of the tactics used to quell the riot resulted in accusations of police brutality.
Nearly a year later, after a fraught investigation by Toronto Police’s Special Investigations Unit, one police officer has been charged with assault. See this story by Jennifer Yang, for the Toronto Star: Toronto police officer charged in G20 assault:
After nearly one year, two closed investigations, and a public squabbling match between Toronto police and the agency tasked with investigating them, criminal charges have finally been laid in the case of Dorian Barton.
On Friday, the Special Investigations Unit charged Toronto police Const. Glenn Weddell with assault causing bodily harm in connection with Barton’s arrest during the G20 summit last June. The charge came on the same day the Toronto Star publicly revealed Weddell was the previous unnamed officer photographed during Barton’s violent arrest….
Strictly speaking, this isn’t a story about business ethics, but still it provides plenty of fodder for discussion of issues that are centrally important to business ethics. Issues such as:
- Who watches the watchers? Any regulatory system — whether a system of policing criminality or a system of vetting new pharmaceuticals — requires safeguards to make sure that those who wield regulatory power wield it wisely. That’s why police forces have systems for hearing complaints from citizens and for investigating wrongdoing by their own officers. And it’s also why regulatory decisions are typically subject to parliamentary oversight and judicial review.
- With great power comes great responsibility. Self-regulation is crucial for those given the power to enforce rules. Such self-regulation can take many forms. First and foremost, it needs to include individual self-regulation and the adoption of principles of integrity and good conduct. But individual ethics needs to be bolstered by an informal system of peers reminding each other of their obligations. When one regulatory bureaucrat or police officer edges too close to crossing a line, it is essential that colleagues be ready to point out that “That’s not how we do things around here.”
- What are the limits of team loyalty? It is no exaggeration to say that modern civilization is built on something akin to teamwork. And the number one challenge in literally every organization involves getting a number of people with different personalities, talents, and points of view, to work together effectively. Fostering loyalty is a key part of that. But loyalty must have limits. Lawyers are supposed to act as zealous advocates, but are not allowed to suborn perjury. Police and soldiers and firefighters often depend on teamwork for their very lives, but they jeopardize their social value if they put fraternal loyalty above the public good. And corporate employees are expected to help build shareholder value, but not to break the law in doing so.
One of the worst mental habits that can be adopted by people who proclaim an interest in business ethics is that of thinking that the ethical issues found in business are categorically different from those found in other walks of life. Commercial contexts do raise a number of special issues, but we can learn a lot about those issues by thinking about the ethical issues that arise in seemingly quite different domains.
Buffett, Sokol, and Virtue Ethics
Filed under: character, conflict of interest, employees, ethics, finance, honesty, trust, values, virtue, white collar crime |
Comments (8) 
Warren Buffett (photo by Mark Hirschey)
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.
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.
Insider Trading at the FDA
Filed under: conflict of interest, employees, ethics, finance, intellectual property, investing, law, science, trust, white collar crime |
Comments (3) A scientist employed by the US Food and Drug Administration has been arrested and charged with insider trading.
Here’s the story, from Diana B. Henriques at the New York Times: U.S. Chemist Is Charged With Insider Stock Trades
A 15-year veteran of the federal Food and Drug Administration and his 25-year-old son were arrested on Tuesday and charged with systematically using confidential information about pending drug applications to reap millions in illegal trading profits since 2007.
As part of its drug-approval process, the FDA is given sensitive information by companies seeking such approval. And the status of a company’s application within the FDA’s own decision-making is itself sensitive information. Since FDA approval is essential to getting a drug to market, the announcement that a company’s drug has been granted, or denied, approval by the FDA can have a huge impact on the value of a company’s stock. And what FDA chemist Cheng Yi Liang did is to use information available only to FDA insiders to make profitable trades on the stock of companies then seeking FDA approval.
Just what was so wrong with what went on here?
In a statement announcing the case, Lanny A. Breuer, the assistant attorney general for the criminal division, said: “Cheng Yi Liang was entrusted with privileged information to perform his job of ensuring the health and safety of his fellow citizens. According to the complaint, he and his son repeatedly violated that trust to line their own pockets.”
Now Mr Breuer is clearly engaging in a bit of prosecutorial rhetoric. He’s right of course that Cheng Yi Liang was entrusted with privileged information, but there’s no obvious reason to think that his use of that information for personal gain jeopardized anyone’s health or safety. But fair enough: Mr Breuer is playing his role in an adversarial system, and that licenses a certain amount of hyperbole.
But what really is wrong with the kind of insider trading that Cheng Yi Liang engaged in? The precise worry about insider trading is the subject of some debate, and I’ve blogged about that before. (See: Ethics of Insider Trading.)
There are several ways we could get at just what was unethical about what Cheng Yi Liang did. One worry is that he profited unjustly, gaining money that he didn’t earn and had no right to. Also, in engaging in insider trading, he traded on information not accessible to others. That means that the people he traded with were at an unfair advantage, and likely lost money as a result. It also means that, subject as it was to significant information asymmetries, the market in which he traded was rendered slightly less efficient, as a whole.
There is of course another ethical worry: if chemists working for the FDA take a personal financial interest in the fate of various approvals, that could quite easily corrupt the work they do. In other words, it puts such a chemist into a conflict of interest. In a conflict of interest, what is fundamentally at stake is our trust in an individual’s judgment. If FDA scientists have a personal stake in their scientific work, then we have reason to doubt their judgment. And, worse, if the judgment of FDA scientists becomes subject to doubt, then the public ends up having a reason (though perhaps not a sufficient reason) to doubt the work of the FDA as a whole.
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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Socially Responsible Investing & Value Alignment
Filed under: corporate citizenship, CSR, ethics, finance, investing, stakeholders, sustainability, trust |
Comments (11) Socially responsible investing (SRI) is a big topic, and a complex issue, one about which I cannot claim to know a lot. The basic concept is clear enough: when people make investments, they send their money out into the world to work for them. People engaged in SRI are trying to make sure that their money is, in addition to earning them a profit, doing some good in the world, rather than evil.
There are a number of kinds of SRI. For example, there are investment funds that use “negative screens” (to filter out harmful industries like tobacco), and there are “positive investment” (in which funds focus on investing in companies that are seen as producing positive social impact). We can also distinguish socially-responsible mutual funds from government-controlled funds, such as pension funds.
(For other examples, check out the Wikipedia page on the topic, here.)
Setting aside the kinds of distinctions mentioned above, I think we can usefully divide socially responsible investments into two categories, from an ethical point of view, rooted in 2 different kinds of objectives.
On one hand, there’s the kind of investment that seeks to avoid participating in what are relatively clear-cut, ethically bad practices. For example, child slavery. Trafficking in blood diamonds might be another good example. Responsible investment in this sense means not allowing your money to be used for what are clearly bad purposes. In this sense, we all ought to engage in socially-responsible investment.
(Notice that investments avoiding all child labour do not fall into the above category, because child labour, while always unfortunate, is not always evil. There are cases in which child labour is a sad necessity for poor families.)
On the other hand, there’s what we might call “ethical alignment” investments, in which a particular investor (small or large) attempts to make sure their money is invested only in companies or categories of companies that are consistent with their own values. Imagine, for example, a hard-core pacifist refusing to invest in companies that produce weapons even for peace-keeping purposes. Or picture a labour union investing only in companies with an excellent track-record in terms of labour relations. In such cases, the point is not that the corporate behaviour in question is categorically good or bad; the point is that they align (or fail to align) with the investor’s own core values.
I’m sure someone reading this will know much more about SRI than I do. Is the above distinction one already found in that world?
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Trustworthy Business Behavior
Filed under: consumers, corporations, ethics, honesty, rankings, trust |
Comments (8) I was recently honoured to be named among the “Top 100 Thought Leaders in Trustworthy Business Behavior” for 2010, by the folks at Trust Across America.
The list is an interesting mix. It includes fellow business ethics profs like Laura Hartman and Mary Gentile, along with business leaders like Jeffrey Hollender (formerly of Seventh Generation), Whole Foods CEO John Mackey and consultants like Charles H Green and Christine Arena, as well as journalist-bloggers like Aman Singh.
The focus on “trust” in this listing is interesting. There’s probably not much to differentiate this list from a listing of thought-leaders in, say, business ethics or CSR. That’s not to say that a different title wouldn’t have changed the list at all; but basically all such lists, whether they’re of companies or of individuals, are about the doing the right thing in business or about promoting and fostering such behaviour.
But I do like the focus on trust. I think the role of trust in commerce simply cannot be overstated. Business — and that includes consumers interacting with any business — simply cannot happen without trust. Consider, for example, how crucial trust is…
- …whenever you buy any consumer product, and thereby trust not just the person who sold it to you, but dozens or perhaps even hundreds of people who helped make that product.
- …whenever one business buys something from another business, just by picking up the phone and saying, “Hey, please send us a box of X, and we’ll pay you at the end of the month.”
- …whenever anyone is employed by anyone else. (In that case, the employer trusts the employee not to shirk as soon as the employer’s back is turned, and the employee trusts the employer to pay the agreed-upon amount at the end of the day or week or whatever.)
- …whenever you give some of your money to a bank, ask them to hold onto it for you, and then (as most of us do) take their word for it when they tell you how much interest you’ve earned (or, more likely, how much interest you owe them on the money you’ve borrowed).
- …whenever you climb into a taxi, or sit down at a restaurant to eat. (The driver or waiter is trusting that you will actually pay your bill at the end, rather than make a dash for it.)
- …whenever you pick up the phone to order pizza. (The fact that it actually shows up means that they trust you to pay for it when it gets there.)
Basically, all of us, in our organizational lives and in our lives as consumers, end up trusting dozens and perhaps hundreds of people (and many many business organizations, too) during the course of our daily lives.
Of course, sometimes we use specific mechanisms to enforce trustworthiness — policies, laws, regulations, warrantees, contracts, etc. But all the formal enforcement mechanisms in the world couldn’t possibly keep a complex modern economy running, in the absence of a fundamental ethical commitment to trustworthy behaviour.
