The Business Ethics Blog

From the NY Times: A Promise to Be Ethical in an Era of Immorality

When a new crop of future business leaders graduates from the Harvard Business School next week, many of them will be taking a new oath that says, in effect, greed is not good.

Nearly 20 percent of the graduating class have signed “The M.B.A. Oath,” a voluntary student-led pledge that the goal of a business manager is to “serve the greater good.” It promises that Harvard M.B.A.’s will act responsibly, ethically and refrain from advancing their “own narrow ambitions” at the expense of others.

(The link to the Oath itself is here: The MBA Oath. Take a minute to read it.)

Overall, this strikes me as a good project. If nothing else, it serves as a focal point for discussion, both for the students involved and for others interested in ethical behaviour in business. So my critical comments below are not intended to denigrate the overall usefulness of the code in any way.

First, a note about the title of the NYT story: I know of no credible evidence that we live in an “era of immorality.” Or at least, I know of no credible evidence that the present era is any more immoral than previous eras. If anyone knows of any evidence to the effect that this is an “era of [business] immorality” please let me know. And “I saw it on CNN” doesn’t count. Nor does “everyone knows it’s true!” We no more live in an era of (business) immorality than we live in an era of plane crashes. The fact that something makes the news often doesn’t imply that it’s happening often. But ok, on to the topic at hand; regardless of whether the current era is more or less immoral than previous ones, it’s certainly clear that business could be doing better. Will the MBA Code help?

My first point about the MBA Code is really a question: why have so few Harvard MBA students signed on? The article says about 20% have signed on. What’s up with the other 80%? Why not sign on to a code of ethics that (as far as I can tell) has no teeth? It’s got no enforcement mechanism, and it’s pretty vague. All of which is fine: the code is aspirational, not regulatory. But it does make me wonder why so few MBA’s have the relevant aspirations, or are at least willing to claim to have them. This is not unrelated to my next point…

It’s kind of unclear just what the Code demands. But the demands will have to be clearer if — and it’s a big “if” — this code is supposed to lead to concrete changes in behaviour. Note, for example, the Code’s second point: “I will safeguard the interests of my shareholders, co-workers, customers and the society in which we operate.” What does that mean? Does “safeguard” mean “safeguard at all costs?” It can’t. And the promise to safeguard all of these interests leaves open the question of what to do when the interests of “shareholders, co-workers, customers and … society” conflict.

Finally, a word about professionalization. The NYT notes that “student advocates contend [the Code] is the first step in trying to develop a professional code not unlike the Hippocratic Oath for physicians or the pledge taken by lawyers to uphold the law and Constitution.” The analogy with physicians and lawyers is instructive. The codes of ethics of most — probably all — true professions include a promise of some sort to promote the public good. But the means by which professionals such as physicians and lawyers aspire to promote the public good is indirect. When lawyers know their clients are guilty, they don’t promote the public good by telling the cops. Their code of ethics forbids that. They play a role in a system of justice, and that role involves defending vigorously even guilty clients. Likewise, physicians are expected to contribute to the public good by advocating for their patients. They’re not supposed to abandon their patients, even if they think it would be socially best to do so. In such cases, there are of course limits on what professionals may do to help their clients or patients. Lawyers can’t suborn perjury, and physicians can’t steal drugs for their patients. But those are side-constraints on what is unquestionably their primary obligation. So if managers aspire to professionalism, that doesn’t, on its own, imply that they should adopt the public good as their first-order goal. What they need to do is to figure out how best to play a role in the larger institution that promotes the public good.

Here’s a smart & balanced piece on executive compensation by Ray Fisman, writing for Slate: Comparison Shopping: The real reason CEO compensation got out of hand.

The popular (and populist) perception is that of America’s CEOs greedily rubbing their hands together as they approve their own paychecks, and there certainly has been some of that. Others argue that in most cases CEOs are richly compensated because they’re so good at what they do.

Several recent studies stake out a middle ground, assuming that CEOs are neither villains nor business masterminds. These studies argue that the seemingly innocuous practice of benchmarking pay against other companies’ CEOs may be to blame…

I heartily recommend reading that entire article. It’s enlightening. And it’s enlightening on an issue about which many of us have strong opinions. And opinions without understanding are useless, perhaps dangerous.

I think there are 4 factors that go into explaining public outrage at executive compensation.

1) Corporations sometimes screw up, in which case any executive compensation, never mind 6-figure compensation, seems outrageous. (If you think “sometimes” is an understatement, you’re falling prey to the same fallacy that leads people to believe, falsely, that plane crashes are common.)

2) Executives sometimes are paid too much — too much, that is, by any standard other than cronyism. That is, sometimes Executive Compensation Committees make bad decisions, in some cases because they’re insufficiently independent of the CEO.

3) Many people hate the rich. And many (not all) corporate CEOs are rich. Hating them leads naturally enough to believing they don’t deserve what they have. (This typically involves a philosophically controversial assumption that justice in the distribution of wealth is a matter of how much we each end up with, rather than how we each got what we have.)

4) Most of us don’t understand enough basic economics. I include myself in that category. (So read this book.) One consequence of this is that many people don’t know that there just is no other, well-worked out theory of the value of labour beyond “What The Market Will Bear.” (The notion of benchmarking CEO salary based on what other relevantly-similar companies are paying is part of figuring out just how much the market will bear.) Even the notion of tying salary to performance leaves open the question of how much reward for how much performance of what kind. Also, this helps explain why reason #1 above can be a mistake: base salary is related to expected performance: it’s a gamble, based on what the company expects the CEO to be able to do. Failure on the part of the CEO doesn’t necessarily mean the salary was unjustified in the first place.

All that being said, the salary-ratcheting phenomenon discussed in Fisman’s article strikes me as a genuine problem, because the feedback loop implies a kind of self-fulfilling prophesy regarding what, in fact, the market will bear. And if CEO compensation looks, to corporations, like it’s rooted in a reliable methodology, it will tend to trump, and hence squeeze, other, less-readily quantifiable, corporate objectives.

What do Starbucks and Walmart have in common? I mean, beyond being wildly successful chains. And beyond being corporations with a tendency to polarize commentators into Lovers and Haters. What, for example, do the two have in common in terms of labour relations?

The stopstarbucks.com website features an open letter to Starbucks CEO, Howard Schultz. It begins like this:

Dear Mr. Schultz (Starbucks CEO),

You have repeatedly intimidated and terminated your employees for seeking to unionize, taking a page from Wal-Mart’s unethical playbook. That does not foster trust among workers.

We insist you allow your workers to organize and stop opposing the Employee Free Choice Act.

Instead of allowing your workers to unionize and negotiate fairer wages, health benefits, and hours, Starbucks spends millions in legal fees settling labor complaints that would expose your atrocious labor practices. That does not foster trust among workers….

Here’s an example, from the NYT, of the kind of behaviour they’re talking about: Starbucks Loses Round in Battle Over Union. According to the story, Starbucks was found to have “illegally fired three baristas and otherwise violated federal labor laws.”

Now, union-busting is illegal, or at least certain union-busting activities are. But being anti-union in a more general sense is not. But is being anti-union unethical?

As a starting point, notice the comparison: the stopstarbucks.com website compares Starbucks to Walmart, a company widely criticized for its tough anti-union stance.

Now here’s the difference between Starbucks and Walmart: the customers. Walmart customers are, well, not wealthy. They’re primarily the working poor, the underemployed, and those on a fixed income. (In the US, Walmart customers have annual household incomes well below the national median.) Unionization at Walmart would mean higher wages, which would translate into higher prices, which would hurt Walmart’s not-very-wealthy customers. Resisting unionization is one of the ways Walmart keeps their prices low, to the benefit of many poor families. That doesn’t mean its OK to violate workers’ rights. But it explains why it’s not wrong for Walmart to resist unionization in general.

Now, consider Starbucks. Starbucks customers are, well, not poor. Not typically, anyway. Starbucks caters to those willing to pay $5 for a fancy cup of coffee. So Starbucks can’t exactly claim to be protecting its impoverished customers from greedy unions. But then, that doesn’t make it a slam-dunk, ethically, for the union side either. It’s still a zero-sum game, and a raise for employees means the price of a cup of coffee goes up. Well, prices don’t necessarily go up. Starbucks could, instead, cut how much it pays farmers for coffee beans and for milk. Or stop donating to charities. Again, the point here is not to justify union-busting: workers’ rights are important, and Starbucks has done some bad things in this regard. I’m just using this example to point out what ought to be obvious: that higher wages are not always, on balance, an obviously good thing, ethically speaking.

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HT to the Organic Consumers Association.

I’ve realized I need the help of a homeopath or a naturopath.

Not help with anything related to my own health, of course. There’s no good evidence that homeopathic or naturopathic treatments work, so relying on them for that would be foolish.

Here’s why I think I need their help.

I’m willing to assume that most homeopaths and naturopaths (and other practitioners of new-age medicine, like crystal therapists, and those who practice “therapeutic touch”) are honest and sincere. I’ll willing to assume that they’re not intentionally defrauding anyone. They’re mistaken, perhaps, about their work having anything beyond placebo value, but I’ll assume they’re not con artists.

So, here’s my question: how can I tell the difference? Surely such practitioners have to acknowledge that there are charlatans out there. Con artists do exist, right? Surely no one thinks that everything offered as health-promoting actually works. So, my question for practitioners of new-age medicine: how do I tell the difference between their services, and the services of a true snake-oil salesman?

Seriously, if any of you homeopaths or naturopaths (etc.) out there can answer this question, you will be doing a very significant service to consumers.

Should restaurants serve foods that a subset of the population finds distasteful? Animal rights activists think not, especially with regard to foie gras, that supposed delicacy made from the fattened livers of geese and ducks. To be fair, activists don’t just find foie gras distasteful, they think it’s unethical — though the ethical framework from which they draw that conclusion is far from uncontroversial itself. So, are they justified in pressuring restaurants to stop serving it? And more importantly, what methods are they justified in using to do so?

From the Ottawa Citizen: Out of the frying pan: Beckta bows to foie gras protest

One of Ottawa’s most celebrated restaurateurs swore off serving foie gras Wednesday following a targeted campaign by animal rights activists who aim to erase the controversial delicacy from menus across the city.

After months of finding himself on the receiving end of protests, dozens of abusive phone calls and hundreds of e-mails — many of them aggressive and even threatening — Stephen Beckta told the Ottawa Animal Defense League he would no longer serve foie gras once his supply runs out.

“It was a personal rather than a business decision because it didn’t really hurt our business,” said the owner of Beckta Dining & Wine and of the three-month-old Play Food & Wine. “In my mind, this is as much a story about intimidation and harassment as it is about animal cruelty….”

Though Beckta was the immediate target, the activists hope other restaurants will get the message. As one of them put it, apparently without irony, “I hope that the compassionate vibe will just catch fire and they’ll take it off voluntarily.” Of course, there’s no evidence that compassion has anything to do with this (or any other) restaurant’s decision, in the face of bullying.

(Here’s the Wikipedia article on Foie Gras, which includes a section on the controversy.)

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(p.s. for the record, though this is technically irrelevant, I personally don’t eat foie gras, or meat in general, but that’s mostly because I think the farming practices involved are ugly, not unethical.)

Business is a rough game. Competitors are in it to win, and a certain amount of pushing and shoving is to be expected. But sometimes the ref just has to blow the whistle.

From CNN: European Commission fines computer chipmaker Intel $1.45B

(CNN) — The European Commission found leading computer chipmaker Intel guilty Wednesday of violating European anti-trust rules and ordered that it pay a fine of 1.06 billion euros ($1.45 billion).
…
The commission found Intel abused its dominant market position in the market for computer chips known as the x86 computer processing unit (CPU), Kroes said. The abuse lasted more than five years, she said.
…
“That Intel had such a large market share is not a problem in itself,” Kroes said. “What is a problem is that Intel abused its dominant position. Specifically, Intel used illegal anti-competitive practices to exclude essentially its only competitor, and that reduced consumer choice — and the whole story is about consumers.”

But just what’s wrong with that, ethically speaking? In this regard, the analogy with sports is instructive. (In fact, on CNN this morning I heard one reporter refer to the charge against Intel as one of “unsportsmanlike conduct.”) For a more scholarly take on that analogy, see philosopher Joseph Heath’s An Adversarial Ethic for Business or When Sun-Tzu met the Stakeholder. Heath’s argument is that in business, as in sports, we allow some aggressive behaviour that wouldn’t be allowed in polite company. And we do so because the net effect is socially positive: we get joy out of watching tough, competitive hockey, and we get lower prices out of the scrapping between Honda and Mazda. The limit of that aggressive behaviour, however, is reached roughly when it begins to undermine, rather than to promote, those positive externalities. And that is what Intel did wrong.

File this one under “giving credit where credit is due.”

From Natural Products Insider:
Coalition Says Supplements Not Swine Flu Remedy

WASHINGTON—A Dietary supplement industry coalition advises against using dietary supplements to treat or cure H1N1 flu virus (“swine flu”). A group of trade associations released a statement saying they are unaware of any scientific data supporting the use of dietary supplements to treat swine flu. Furthermore, they said state federal law does not allow dietary supplements to claim to treat any diseases, including swine flu.

The American Herbal Products Association (AHPA), the Consumer Healthcare Products Association (CHPA), the Council for Responsible Nutrition (CRN), the Natural Products Association (NPA) and the United Natural Products Alliance (UNPA) are endorsing the following unified advisory for marketers and retailers of dietary supplements:

• Marketers and retailers of dietary supplements are urged to refuse to stock or sell any supplements that are presented as treating or curing swine flu, and
• Marketers and retailers should refrain from promoting any dietary supplement as a cure or treatment for swine flu.
• Anyone who believes they may have swine flu or may have come in contact with the virus should contact a healthcare professional. More information on swine flu and the proper actions to take if you suspect you are ill is available on the Centers for Disease Control Web site.

“There are dietary supplements that have much to offer in terms of enhancing general immune function,” the released statement said. “However, therapies for the treatment of swine flu should only be recommended by qualified healthcare professionals or public health authorities.”

You could also file this under “stating the obvious,” but that would be uncharitable. True, anyone who thinks that herbs and vitamins are going to cure a sometimes-lethal viral infection is sadly uninformed, but the world is (apparently) full of sadly uninformed people. And given that the natural-remedies-and-dietary-supplements industry tends too often to exaggerate the benefits of its wares, it’s refreshing to see them issuing a statement recommending that people not use their products, even if it’s just for this one illness.
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HT to Dr* T at the Thinking is Dangerous blog.

A couple of times recently I’ve read about pharma executives wondering out loud why their companies get such a bad rap — you know, what with all the good work they do, saving lives and all. The short answer is: we’d give you more credit if you would just stop distracting us by doing blatantly unethical things.

Things like this….

Pharmaceutical powerhouse Merck & Co. recently paid the Australian branch of Elsevier, a company that publishes a wide range of scholarly journals, to put together a bogus journal for them. This is bad behaviour on the part of both companies. No one is really all that surprised about Merck, I take it. But Elsevier should know better.

Physician & columnist, Ben Goldacre, has this nice summary of the situation: Elsevier get into fanzines.

Goldacre first notes that academic publishers like Elsevier have long had an uneasy relationship with Big Pharma. Pharma spends buckets of money on advertising, and according to Goldacre, “there is evidence that all this money distorts editorial decisions.”

But this time Elsevier Australia went the whole hog: they gave Merck an entire publication to themselves, which looked like an academic journal, but in fact only contained reprinted articles, or summaries of other articles. In issue 2, for example, 9 of the 29 articles were about Vioxx, and 12 of the remaining were about another Merck drug, Fosamax. All of these articles presented positive conclusions, and some were bizarre: like a review article containing just 2 references….

Initially, Elsevier denied wrongdoing. According to Goldacre:

In a statement to The Scientist magazine, Elsevier initially said that the company “does not today consider a compilation of reprinted articles a ‘Journal’”. I would like to expand on this statement. It was a collection of academic journal articles, published by the academic journal publisher Elsevier, in an academic journal shaped package. Perhaps if it wasn’t an academic journal they could have made this clearer in the title which, I should have mentioned, was: The Australasian Journal of Bone and Joint Medicine.

Now Elsevier has retreated, and is apologizing.

Here’s a statement, by Michael Hansen, CEO of Elsevier’s Health Sciences Division:

It has recently come to my attention that from 2000 to 2005, our Australia office published a series of sponsored article compilation publications, on behalf of pharmaceutical clients, that were made to look like journals and lacked the proper disclosures. This was an unacceptable practice, and we regret that it took place.
We are currently conducting an internal review but believe this was an isolated practice from a past period in time. It does not reflect the way we operate today.

Here’s some free advice for Elsevier’s “internal review,” and for every other organization that has any dealings with any of the major pharmaceutical companies: beware. This is a group of companies with a terrible, terrible track record in terms of ethics. Does that mean don’t do business with them? No, that would be silly. A publisher or an office supplies company would be crazy to not want Merck (or Lilly or GlaxoSmithKline) as a customer, and a charity would probably be crazy to not want a donation from Merck’s charitable Foundation. So go ahead, do business with them. But be careful. This way danger lies. Take precautions. Ask questions. Doubt what they say. Think twice. And if they suggest doing anything out of the ordinary, be super vigilant. Think carefully about whether you’re being used, or manipulated, or drawn into something that is going to end in scandal. Because you probably are.

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If you like Ben Goldacre’s blog as much as I do, take a look at his book, Bad Science.

Back in July a controversy arose over the fact that British retailer Marks & Spencer was charging more for bigger bras. I blogged about it: Flat Pricing for Bras.

Well, the critics have won.

From CNN: British retailer admits bra boob

Charging chesty women more for their bras doesn’t win a lot of support, British retailer Marks & Spencer acknowledged Friday as it announced an end to the surcharge on its larger lingerie.

“We boobed,” screamed a full-page Marks & Spencer ad, which appeared in British newspapers Friday.

Marks & Spencer gave in to campaigners who argued that the higher prices of the bigger bras was unfair. The retailer charged as much as £2 ($3) more for all sizes DD and up.

“It’s true that our fantastic quality larger bras cost more money to make, and we felt it was right to reflect this in the prices we charged,” the ad said. “Well, we were wrong.”

It follows a nearly year-long campaign by members of the Facebook group Busts 4 Justice.

The basic back-and-forth of the argument went like this: It’s unfair — discriminatory — to charge some people more than others for bras. But bigger bras cost more to make, because they use more material. But that’s true of clothing in general: bigger sizes always take more fabric, but a size 10 dress doesn’t cost any more than a size 2. Why single out bras as an opportunity for price discrimination?

Consumers are used to paying more for bigger things in many product categories: you pay more for a bigger jar of peanut butter or (other things being equal) for a bigger car. Presumably we accept that because the logic of it is clear: it makes straightforward sense to pay more to get more. But for bras, the claim that bigger ones cost more to manufacture falls flat, because we know that for relevantly-similar products (i.e., other items of apparel) manufacturers and retailers don’t bother to charge more for bigger items. We don’t know how or why Levis charges the same for bigger & smaller jeans, despite the fact that one pair might require literally twice as much fabric as the other. Maybe the fabric just doesn’t cost that much to begin with; maybe the labour and shipping and advertising are the big costs, and so it’s not worth the hassle to charge based on size. But consumers tend not to wonder about that. They’ve been taught by experience that flat pricing is feasible for garments, and so there’s a strong presumption in favour of flat pricing, one which I suspect would be difficult for any retailer to get around.