The Business Ethics Blog

Two months ago I blogged about Business Ethics and the Science of Climate Change. I asked in general how businesses should deal with scientific controversy, and used climate change as an example.

Here’s an interesting story about a businessman who, tired of being confused by the climate change issue, decided to spend some money on getting top-notch scientific input on the matter.

Here’s a print version of the story, from Scoop: Gareth Morgan delivers his climate change verdict.

If you want to get it from the horse’s mouth, check out this podcast interview, from New Zealand’s ABC National Radio’s Life Matters: Poles apart: Gareth Morgan.

Of course, Morgan’s method of getting the advice he needed isn’t generalizable. Most companies don’t have the resources, and even if they did it would be terribly inefficient for thousands of companies each to host their own conferences on the topic. I’m curious to know why Morgan thought he had to do so himself — surely there are suitable conferences going on already? More generally, though, it makes me wonder how many businesses (ones, say, who don’t already employ relevant scientists) know where to access good scientific information.

(p.s., here’s Gareth Morgan’s book: Poles Apart: The Great Climate Change Debate.)
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Thanks to Mark Edwards for passing this along to me.

Are charities responsible for the beliefs of the groups they sponsor?

An upcoming event being held at the University of Toronto, and co-sponsored by the SickKids Foundation is raising a few eyebrows. And raising questions about how careful charitable organizations need to be in deciding what other organizations to partner with.

The event in question is this conference: “Changing the Course of Autism In Canada”.

Autism (or more formally, Autism Spectrum Disorder) has been in the news a lot lately; it’s an important health issue, and a good one to hold a conference on. Here’s a bit from the conference brochure:

The conference features two dozen of the most highly respected names in the autism community and provides the most up-to-date information to help children, adolescents and adults diagnosed with ASD. You will hear lectures related to clinical and basic science, epidemiology, educational therapies, advocating for autism, and much more.

Sounds like most conference brochures. The difference: this event is being co-organized by a controversial organization called Autism One — an organization that promotes the now-discredited notion that autism is caused by vaccines.

(I won’t get embroiled in the scientific evidence here. But the Science-Based Pharmacy blog, of which I am a big fan, discusses the issue under the provocative title, The University of Toronto Embraces Autism Quackery. You get the picture.)

This may prove embarrassing for the SickKids Foundation (which is the fundraising branch of Toronto’s world-renowned Hospital for Sick Children). On the face of it, it’s odd for a research-funding Foundation to provide funding to an organization that has a reputation, within the scientific community, of turning a blind eye to what that community believes to be well-established research results (i.e., that vaccines don’t cause autism). One indicator of the tone of the conference: one scheduled presentation is about using homeopathy — water — to treat autism.

Of course, in all fairness, no funding agency can know everything about every group or event it sponsors. And the list of speakers at the conference does include people with relevant credentials and so on. But in terms of stakeholder relations, the SickKids foundation may nonetheless find that it is alienating some of its most crucial stakeholders — namely the vast majority of scientists and health professionals, along with well-informed parents.

(I’ve blogged before about Ethics for NGOs & Charities. I’ve also blogged about Guilt by Association.)
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Late-breaking news: Science blogger Orac has posted this, about the SickKids Foundation’s response to the controversy: The SickKids Foundation supports woo

I finally saw Food, Inc. Frankly, I didn’t expect to like it much. I expected a one-sided, misleading anti-corporate tirade, along the lines of The Corporation. I was only partly correct. The main message really does seem to be that big companies are ruining everything, and that things would be better if we all just realized that we should be buying directly from the kindly farmer/sage down the road. But in spite of that slant, the movie does contain some useful stuff. So, my conclusion: a grudging endorsement. I think the film is flawed, but worth seeing.

First, I’ll note a couple of worthwhile take-away lessons, points that are made by the film and that seem well-justified.

Number one is that the meat industry is pretty disgusting. Most of the people who might be tempted to see Food, Inc. likely already knew that. But it’s a rotten industry. Injury rates for workers are high. Animals are treated badly. And quality control can be dodgy. The causes are pretty clear. Competition drives companies in all industries to cut corners in order to attract and keep customers. Sometimes that has undesirable effects. In the food industry, those effects can be pretty bad. Food, Inc. doesn’t tell us much that’s new, here, but it’s a useful reminder.

Number two: the corn subsidies in the U.S. are apparently insane. Those subsidies result in overproduction of corn (and hence of High-Fructose Corn Syrup). The result is that crappy food can be more affordable than nutritious food. Politically-powerful food companies like the subsidies (since they keep the price of ingredients down) so the food-buying public is likely to go on being subject to all the wrong incentives.
(For more on that topic, see the excellent 2007 documentary, King Corn.)

But in several ways the movie is less than satisfying.

My first worry has to do with the film-makers’ decision not to bring relevant expertise to bear. With the possible exception of journalist/authors Michael Pollan (author of The Omnivore’s Dilemma and In Defense of Food) and Eric Schlosser (author of Fast Food Nation), both of whom are knowledgeable guys, the movie’s cast of characters is seriously lacking in experts. Instead, it uses regular folks — people knowledgeable about their own experiences, to be sure — to talk about matters regarding which, as far as the audience can tell, they have no particular expertise. A bereaved mom (with no apparent legal training) explains legal issues. A farmer explains food economics. And so on. Now I’m not just worshipping at the altar of expertise, here. The experiences of the “regular folks” interviewed for the film are powerful and important and I’m glad they were included in this film. But food is (as is increasingly apparent) a complicated topic. So why not, in addition, feature interviews with experts in the relevant issues? Why not a food economist? Or a policy analyst with expertise in agricultural policy? Why not a lawyer or two?

My second concern (not unrelated to the previous one) has to do with factual accuracy. I kept wondering: could an organization with the journalistic standards of, say, the New York Times have made this movie? Would all the claims made in Food, Inc. stand if they had to be verified by two independent sources? Maybe they were carefully verified. Who knows? The audience can’t tell. Part of that has to do with the format: a film format occasionally requires that documentation be sacrificed in favour of drama, and there’s no easy way to provide footnotes in a documentary. In one segment, for example, a union official claims — in so many words — that law enforcement officials were conspiring with a meat packing company to make sure that just enough of its illegal-immigrant workers were arrested to keep up appearances without interfering with production. If that were verifiable, it would be cause for legal action.

Finally, the movie is also lamentably short on solutions. The movie’s complaint is clear: industrial-scale food production is the problem. But there are no serious suggestions about a different way to produce this much food, without the efficiencies of scale that come from factory farms, massive tracts of corn, and the huge corporations that are required to turn those inputs into dinner. So, we’re left with simplistic stuff like “buy local” and “buy organic”, neither of which is really much of a solution. There’s nothing wrong with the idea of ‘voting with your fork’; but it would help to know what we should be voting for. I suppose a film like this isn’t obligated to propose solutions: it’s goal is to raise awareness. But still. By now, we know many of the problems. Without viable, large-scale alternatives, we’re left with the vague feeling that the bad stuff Food, Inc. talks about might just be the lamentable side-effects (hopefully some of which are remediable) of an imperfect-but-generally-useful system.

Now to be fair, Food, Inc.’s shortcomings are pretty clearly part of the film-makers’ rhetorical strategy. It’s not an accident that they relied on the voices of real folks instead of experts, and that they point to problems but not solutions. The film is trying to raise awareness, pointing out problems in an enormous industry with potent political allies. In going for the gut, in not bothering to seek out experts, in leaving out important truths, the documentary fights dirty. But when your opponents are companies like Monsanto and Tyson, it’s hard not to admit that the film makers are fighting dirty in what is undeniably bound to be a dirty fight.

p.s. I liked this review of Food, Inc. by Marc Gunther: Food Inc: tasty but unsatisfying.

Exploitation is a potent moral category: to engage in exploitation is, by definition, wrong. Not only that, but the very word is often taken as an argument-stopper: once a behaviour or activity has been labelled as exploitative, its wrongness is supposed to be self-evident, and no further ethical analysis is required. Classic examples of activities taken to be exploitative include things like sweatshop labour, buying a kidney from someone in desperate financial need, or tow-truck drivers demanding unusually high payment to rescue motorists stranded by a showstorm.

Exploitation can be defined roughly as taking unfair advantage of someone else’s vulnerability. It’s crucial to see that exploitation is different from extortion (which involves a threat to cause harm), and different from stealing from someone or enslaving them: in standard examples of exploitation, the person exploited voluntarily accepts the deal, because the deal being offered really does make them better off. The Mafia don makes you an offer you can’t refuse; the exploiter makes you an offer you don’t want to refuse.

If the person “exploited” doesn’t want to refuse, you might ask, then what’s the problem? The problem, in cases labelled as exploitation, is that the deal they accept doesn’t seem fair. The feeling is that no one should want to work in a sweatshop; no one should need to sell a kidney in order to put their kid through school.

Given that understanding of exploitation, consider this: doesn’t it seem reasonable to argue that at least some highly-paid CEOs and Wall Street traders are currently being exploited, in being publicly pressured to accept reduced bonuses?

(See, for example, the story of commodities trader Andrew J. Hall‘s $100 million bonus, and also this story. Back in the spring, there was the controversy over bonuses at AIG.)

Are these people being exploited? Well, they’re being asked to accept less money than they are owed. And, though not exactly helpless, they’re clearly vulnerable — vulnerable to the coercive power of the state, to start with, not to mention the death threats some of them have received. But exploitation usually involves not just disadvantage, but unfair disadvantage. True, and there are at least 2 possible sources of unfairness, here. One is breach of contract; the other is the fact that at least some (and, pending evidence to the contrary, maybe most) of the high-rollers under discussion are entirely blameless, and have done their jobs exceedingly well. Their paycheques may have more zeroes on them than is typical in cases labelled “exploitation”, but you could nonetheless argue that, structurally, there’s something very like exploitation going on here. If you think it’s not exploitation, then explain — by reference to the definition given above — why it’s not.

Now, just to be clear, I am not in any way suggesting that the lot of someone receiving a multi-million dollar bonus is in any way as bad as that of someone eking out a living by labouring in a sweatshop. Nor am I suggesting that highly paid CEOs and Wall Street traders are unique in being exploited in the midst of the current financial crisis. What I’m pointing out is that the structure of the situation some of them face lines up nicely with the definition of “exploitation.” So is the public pressure on these people exploitative, and hence immoral, or is the standard definition of exploitation problematic?

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(I benefited from discussions with fellow philosopher Matt Zwolinski as I wrote this, though Matt is not to blame for the results.)

If you boycott a company’s products, who are you hurting?

Case in point, the recent boycott of Whole Foods in response to CEO John Mackey’s editorial arguing against Obama-style healthcare reform. (I blogged about it a couple of days ago.)

See this blog entry by Waylon Lewis at the Huffington Post: Why I Ain’t About to Boycott Whole Foods
Lewis writes: “…I, for one, am not going to boycott Whole Foods. I’m not throwing the baby out with the bathwater. Why?” His reasons (abbreviated) are as follows:

1. Whole Foods is a vast organization, with thousands of staff, many if not most of whom disagree with John’s idealistic, superior Libertarian views….
2. John doesn’t own Whole Foods. It’s public.
3. Whole Foods, thanks to his leadership, has shown the way for thousands of green-minded companies….

Lewis’s point is a good one: a company is a complex thing, made up of many individuals with a greater or lesser stake. Can all be held responsible for the actions of the company, or of its head? (It’s sort of the inverse of the issue I raised in this blog entry: You Are Starbucks.)

A few thoughts & questions:
1) It might be that boycotters see Whole Foods’ employees and shareholders as “collateral damage” — acceptable “civilian” casualties, injury to whom is foreseeable, but unintended, and hence acceptable consequence of the attempt to reach a noble goal. Does that moral justification work, here?

2) It might be argued that there’s a sense in which no “member” of the organization is an innocent bystander: they’ve all chosen to be involved, and they all have some influence, no matter how small, on who ends up leading the company and on what policies it implements. Is that plausible, either as a causal story or as a moral justification?

3) It might be that no one really expects this call for a boycott to have any real effect. Maybe it’s all symbolic, a matter of concerned customers signaling to Mackey that they could, in principle, abandon his store if he keeps it up. But that only delays the question, rather than avoiding it.

4) The question of who is hurt by boycotts, and whether it’s worth it, is of course not limited to the present case. And it’s not limited to boycotts of particular companies: it also applies to boycotts of products and of countries. See, for example: Palm oil boycott will hurt impoverished farmers.

Was it a mistake for Whole Foods CEO John Mackey to dive into the turbulent waters of the US healthcare reform debate?

I’ve blogged before about companies taking a position on political hot-button issues. (See, e.g., Apple & Equal Marriage Rights and Google & the Business Case Against Prop 8). On one hand, it’s often seen as admirable when companies are engaged in socially-important conversations. On the other hand, there’s clearly jeopardy involved in taking a position on questions that polarize the public — especially when you’re in the kind of business where you rely on regular folks buying your product on a daily basis.

Case in point: Whole Foods CEO John Mackey wrote this editorial, published recently in the Wall Street Journal: The Whole Foods Alternative to ObamaCare

With a projected $1.8 trillion deficit for 2009, several trillions more in deficits projected over the next decade, and with both Medicare and Social Security entitlement spending about to ratchet up several notches over the next 15 years as Baby Boomers become eligible for both, we are rapidly running out of other people’s money. These deficits are simply not sustainable. They are either going to result in unprecedented new taxes and inflation, or they will bankrupt us.

While we clearly need health-care reform, the last thing our country needs is a massive new health-care entitlement that will create hundreds of billions of dollars of new unfunded deficits and move us much closer to a government takeover of our health-care system….

Whether an editorial of this kind, written by a captain of industry, is likely to have any effect on the course of public debate is unclear. But in this case, it seems likely to have an effect on the fortunes of the company involved. See this blog entry by Richard Blair: Whole Foods Boycott Picks Up Steam

Whole Foods CEO John Mackey shot his company in the face the other day with an anti-health care op-ed screed in the Wall Street Journal. He’s managed to piss off his company’s core demographic: liberals and progressives, and in the process, enabled a boycott that could actually work….

Now, for my purposes here the soundness of the view Mackey presents is beside the point (though as a Canadian I had to roll my eyes at his rather slanted comments about Canada’s healthcare system — our system is imperfect, but generally excellent and much-loved).

I’ll just make these 2 points on the larger issue of corporate (or CEO) comments on hot-button political issues:

1) It seems to me that many of the progressives who frequent Whole Foods are generally in favour of social activism on the part of companies: they like it, for example, when companies embrace Corporate Social Responsibility, when they undertake progressive labour practices, when they donate to charities, and so on. But the present story points out an unstated caveat: corporate social activism is great, as long as you’re on the ‘right’ side of the issue.

2) I was fascinated by Richard Blair’s point about how Whole Food in effect represents a particular bundle of ethical beliefs: social responsibility, healthy food, organic agriculture, altruism, etc. The complaint now is that John Mackey and (most of?) his customers are at odds regarding whether a belief in healthcare reform, and in particular regarding universal coverage, is an intrinsic part of that bundle of beliefs. The general question, here, is whether companies (and more precisely, national brands) can hope to represent big bundles of values/beliefs — or whether consumer diversity is going to necessarily imply greater market fragmentation, as consumers seek out brands that represent just precisely the set of values they believe in.

It’s been said that “an economist is a man who states the obvious in terms of the incomprehensible.” Cute joke, but of course pretty far off-base. Well, at least the part about “the obvious” is off-base. Economists are often able — typically through careful attention to relevant, quantifiable factors — to figure out what’s going on in complex situations, including some situations in which common sense either has little to say, or is notoriously unreliable.

Case in point: the two economic studies described in this story, from The Economist: Firmly hooked (Is it good if bosses feel strongly for the firm?)

Getting bosses to act in the best interests of a company’s shareholders has long been one of capitalism’s trickiest problems, identified early on by Adam Smith. In “The Wealth of Nations” he worried that “Being the managers of other people’s money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private co-partnery frequently watch over their own.” In the 1920s, Adolph Berle and Gardiner Means followed up on the problems of separating ownership from control in their classic study, “The Modern Corporation and Private Property”. From the 1970s, this dilemma acquired its own branch of economics—agency theory, which studied the problems that can arise when “principals” (ie, shareholders) hire “agents” (executives) to run their firm….

The article goes on to explain the findings of two studies, both by economists, that examine a couple of apparently common-sense assumptions. First is the assumption that short-term incentives drive CEOs to make stupid decisions, and that longer-term incentives would work better. The second is the idea that strong self-identification of CEOs with the firms they run makes CEOs more likely to make decisions that are in the best interest of the firm. Lots of people probably find both of those theses plausible. But are they true? It takes an economist to figure that out. So, read the article.

The more general point is that you really can’t say much sensible about a topic like executive compensation without understanding at least the basics of economic concepts such as agency theory. I mean, feel free to have an opinion; but be prepared for that opinion to fall flat when faced with a structured analysis of facts.

(While we’re on the topic of economic literacy, I’d like to suggest that pretty much everyone should read this book, by Joseph Heath: Filthy Lucre: Economics for People Who Hate Capitalism. The sub-title of the book is actually somewhat misleading: it has nothing to do with hating capitalism. The first half of the book is about economic myths of the right; the second half is about economic myths of the left. It’s smart, well-informed, and clear. A good read.)

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Thanks to PY Néron for alerting me to the Economist story.

From Reuters: Madoff firm’s CFO pleads guilty, denied bail

Bernard Madoff’s long-time deputy, Frank DiPascali, on Tuesday pleaded guilty to financial crimes including helping others carry out Wall Street’s biggest investment fraud, but shed little more light in court on the decades-long swindle.

“I’m standing here today to tell you that from the early 1990s to 2008 I helped Bernie Madoff and other people carry out a fraud that hurt thousands of people. I am guilty,” DiPascali, 52, said in Manhattan federal court in a dark suit and reading from a prepared statement.

U.S. District Judge Richard Sullivan denied DiPascali bail. He was handcuffed and escorted out of court after pleading guilty under a cooperation deal with the government….

The story notes that DiPascali faces 10 charges, and “faces a maximum possible sentence of 20 years each on some of the charges”. Madoff himself has been sentenced to an “effective life term of 150 years.”

A few years ago, when I wanted to understand more about punishment for white-collar crime, I went to someone who understands the issue, quite literally, “from the inside.”

Some of you may have heard of Walt Pavlo, who spent two years in jail for fraud and money laundering at MCI. He now works as a lecturer and consultant on white-collar crime. Nearly 3 years ago, I interviewed Pavlo about the 24-year jail term handed out to former Enron CEO, Jeff Skilling. Here’s the interview: Business Ethics Blog Interview with Walt Pavlo.

(As it happens, Pavlo served his time at the same facility where Bernie Madoff is currently located: the medium-security federal penitentiary at Butner, North Carolina.)

What was my favourite donut chain doing sponsoring an anti-gay-marriage event?
Or wait, is the question, what was a donut chain doing sponsoring a pro-straight-wedding event?
Or, then again, was the question really, why was a donut chain doing something other than making donuts?

From the CBC: Tim Hortons backs out of anti-gay marriage event

Tim Hortons has reversed its decision to sponsor a Rhode Island rally held by a U.S. group that opposes same-sex marriage, after encountering fierce criticism for the move.

The August 16 event, organized by the National Organization for Marriage, is billed as a “Celebrate Marriage & Family Day.” Held in suburban Providence, the rally is to include speeches, a cookout and a ceremony in which married couples are invited to renew their vows.

The National Organization for Marriage is a non-profit organization “with a mission to protect marriage and the faith communities that sustain it,” according to its website.

According to the company’s press release explaining its decision to bow out of the event,

…Tim Hortons has not sponsored those representing religious groups, political affiliates or lobby groups. It has come to our attention that the Rhode Island event organizer and purpose of the event fall outside of our sponsorship guidelines.

Now, we should distinguish clearly the content of this particular mini-scandal (sponsorship of an anti-gay-rights event) from the shape of it (a company sponsoring an event put on by a charitable organization). On the former, I’ll only say what Tim Horton’s HQ has now realized: it was a dumb move — both because the anti-gay-rights movement doesn’t have an intellectual leg to stand on, and because gay marriage is a clear hot-button issue that any sane company, regardless of its beliefs, should want to stay away from.

Now, on to the larger question of sponsorship. Sponsoring community events is pretty common thing for companies to do — I’m sure a company like Tim’s must get thousands of such requests every year. The standard economic argument is that companies should sponsor events if-and-only-if doing so serves as good advertising, boosts their reputation (rather than, say, drawing criticism), etc. The modern “progressive” view is that companies should donate to charities as a way of “giving back” to the community. But clearly the idea of “giving back” to the community comes with caveats: companies should “give back” by donating to, well, suitable community groups and events. What counts as “suitable?” There might be some obvious cases: a white supremacist group at the clearly-unethical end of the spectrum, and an adult literacy program at the clearly-unobjectionable end. But lots of groups, evens, & causes in between will be controversial (the NRA? PETA? Planned Parenthood?). And at least some of the controversial ones may not be obviously controversial. So, research may be required, and judgment will need to be exercised. What makes anyone think that Tim Horton’s, or any company, is going to be particularly good at that? And keep in mind that the money for sponsorship doesn’t get pulled out of thin air: it comes from the price they charge you for their products. So if Tim Horton’s didn’t sponsor events at all, that money could be left in your pocket, and you could donate it as you see fit.

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p.s. Sorry, but comments are closed on this one. Postings in this area typically attract only loony and/or venomous comments.