Update: Ethics & Corporate Jets
The controversy over corporate jets hasn’t died. (Back in November I blogged about corporate jets and moral outrage; then in early December I blogged about silly behaviour that outrage prompted on the part of certain auto execs.) Corporate jets are back in the news this week. See this story, from CNN Money, today: Bank CEOs Taking Commercial Flights, Amtrak To DC Testimony.
Here’s a good story summarizing the case to be made in defence of corporations making use of private jets, by Colin Campbell, in MacLean’s: In defence of the corporate jet. Here’s a good paragraph, quoting a certain business ethics blogger:
For a lot of companies, the benefits of the corporate aircraft far outweigh the costs. Wal-Mart, for instance, uses private jets, and is “probably the most penny-pinching, efficient company on the planet,” says Chris MacDonald an ethics expert and visiting professor at the Keck Graduate Institute in Claremont, Cal. Even companies that have taken public money aren’t necessarily engaging in unethical or inappropriate behavior by flying corporate jets, argues MacDonald. “If the decision to have an executive jet was the right decision last year when the company was beholden only to its shareholders, what would make it the case that it’s suddenly an unwise decision?” asks MacDonald. “At a well-governed corporation, those sorts of moves would be carefully thought out and cost-benefit analyses would be done.”
Boards of Directors ought to be ensuring that jets are really necessary; otherwise, shareholders are being poorly served. But it’s just silly to think that corporate jets are always a bad idea, or that they always represent some sort of corporate excess. Even when public money is being handed out, it’s not clear that the rules should change.
The Business Ethics Blog 
A good post, however, here is an opposing view. It would seem to me that when a bank has received 80 billion dollars to assist the bank to stave off insolvency, then why wouldn’t we assume that the board and the senior management has done everything they can to reduce costs in order to remain solvent. However, it appears (and I underline appears)to many people that money given to the banks (AIG in particular)is only to keep all business practices the same as usual. That is where I believe the problem lies, the perception that the board and senior management is unwilling to tighten their belts when asking for government money. Companies must manage their image as well as the income, balance sheets and cash flows.Jerry van Rossum, MA, MBA
Jerry:Fair enough.But “tightening your belt” would only imply getting rid of the corporate jet IF the cost-benefit ratio of the jet is unfavourable (compared with other means of getting execs from place to place).Chris.
in this case, with public money being poured into these institutions, it public perception might weight into the cost-benefit analysis.so if I want to buy a car in the next month, I might favour the executive who took a commercial flight thinking “gee, they’re really getting their act together”.so the difference between now and last year is that now <>everyone<> is watching.
Adnan:Does that mean appearances count for their own sake?I mean, yes, people might react badly. But those might just be uninformed reactions. Should they count?Chris.
For companies of a certain size they are almost a necessity to stay competitive. They allow you to go to airports your competition might not be able to fly direct to without their own jet. If there is some forest land in an area not served by a major airport and you can get there first, secure a deal on logging land then the jet’s costs for the year might be paid for in the profit. It is demagoguery by some (most Democrat) politicians that use of these jets must be ended or curtailed. – Kevin McDonald
It seems that a corporate jet is either a matter of convenience, cost, or prestige. If a company takes government money, then I think that convenience and prestige are ethically out the question. It’s no longer their money. Otherwise if a company wants to ride a jet for the prestige, it’s their prerogative and they’ll have to answer to their shareholders. I guess the question is whether cost is always justified.
another poster wrote: “If a company takes government money, then I think that convenience and prestige are ethically out the question. It’s no longer their money. Otherwise if a company wants to ride a jet for the prestige, it’s their prerogative and they’ll have to answer to their shareholders. I guess the question is whether cost is always justified.”~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I would raise the following: 1.Taking some government money should not meant the government then decides your business practices – if a jet can be justified, tell the govt. (if they ask) or avoid it if the p.r. would be too bad.2. There is nothing wrong with certain elements of “prestige” – if you want to entertain execs of companies you are negotiating with, flying them around in the jet, or arriving in a swank Gulfstream 5 might win you the deal, keep your factory going and save jobs. Sometimes you have to spend money to get money. Seen dispassionately, most jets are just tools to do biz faster. – Kevin G. McDonald, Halifax
Do we trust the judgment of senior managers who did such a great job that they had to get bailout money to decide if that cost/benefit for the corporate jet is an honest calculation?The jet has become a symbol of the manager who did such a great job that they need the bailout but still gets that huge “bonus” for a performance that would get a lower ranking manger fired for incompetence.Companies weren’t started with corporate jets, they decided that they had the resources to afford that tool. When their finances no longer support that particular tool, it should be sold to support the core business functions such as factory modernization, employee training, and new product development.
<>Does that mean appearances count for their own sake?I mean, yes, people might react badly. But those might just be uninformed reactions. Should they count?<>from the company’s perspective they count in as far as how these uninformed reactions affect the cost-benefit ratios. so if bad public perception (as uninformed as it may be) is causing people not to buy the company’s cars or shares, then it matters.does it count for it’s own sake? I’m not sure, do corporations do anything just for the sake of it?
Okay, I apologize. I could have summarized my whole point thusly: “If they want to suckle at the government teat, they will have to negotiate specifically whether they may maintain bonus limits, corporate jets, spa retreates etc.”But then, if it is widespread, the economy essentially becomes quasi-statist and semi-socialistic — somewhat like Japan where bureaucrats in MITI or the Finance Ministry make major decisions that affect entire industries and companies. – Kevin McDonald
Corporate aircraft ARE business tools for a lot of companies, especially these days when there is so much “hubbing” for commercial flights. Our company, Avicor Aviation Inc., does assessments for companies–reviewing their corporate travel, both commercial and on corporate aircraft (owned, leased, chartered, fractional, etc.) and shows companies where the best choices are. Many times management has a very full schedule, especially today when companies are trying to do more with less, and it actually ends up costing some companies LESS to use corporate aircraft than commercial because they are able to accomplish more—without spending nights in hotels due to airline connections (along with additional expenses like meals, car rental, etc.). And many companies DO use aircraft responsibly. Everyone has been too eager to “throw the baby out with the bathwater” when it comes to corporate aircraft.Lillian TammAvicor Aviation Inc.
For cost calculating purposes you can use the following hourly ratio: 2.5:1 commercial vs. private.
So, for every hour spent on a private plane you save 2.5 hours of company time per employee.
Average exec pay might be $350/hr, 4 execs per trip. Round trip quote of 5 hours for private travel leaves 12.5 hours of commercial travel.
5*2000/hr + 5*4*350/hr = $17,000 for private
4*850/ticket + 12.5*4*350 = $20,900 for commer.
18% cheaper going private on this trip analysis.
Some trips into large hub cities might be cheaper etc. but over an entire year the private option makes huge sense. It may have a bad PR image right now but there is no way big corporations can afford to have dozens and dozens of employees clogged up in the commercial airline system.