Ethics and the Challenges of Scale

I’m currently attending the Global Ethics Summit in New York. In reality, despite its name, the GES is not just about ethics per se, but about ethics and legal compliance. Those of us who spend time thinking about corporate behaviour in terms of ethics are sometimes tempted to downplay the significance of legal compliance. After all, “compliance” just means “following the law,” and it’s tempting to think that following the law is a pretty low aspiration. After all, shouldn’t we be able to take for granted that companies will follow the law? Shouldn’t the real discussion be about the subtler ethical issues that pop up in areas not covered by law? The answer is not so clear, especially when we think about really big companies.

The first session I attended here yesterday got me thinking about the challenges of compliance, and the challenges faced by big companies precisely because of their scale. The panel was called “Compliance 2011: What’s Next?” and its members included representatives from three truly enormous companies: Kathleen Edmond, the Chief Ethics Officer for Best Buy; Odell Guyton, Director of Compliance for Microsoft; and Haydee Olinger, who is Vice President & Chief Compliance Officer for McDonald’s.

My thinking about scale was stimulated by two comments by panelists. First, Best Buy’s Kathleen Edmond mentioned that her company has over 170,000 employees. Just imagine the challenges that number implies for the people who are going to be held accountable for the company’s behaviour. Imagine being the mayor of a city with 170,000 citizens, and your job is to ensure that all of those citizens know about all the laws that apply to your city and its residents, and that none of those citizens ever breaks any of those laws. And add onto that the likelihood that you as mayor and your city as a whole will be held responsible for the bad behaviour of any of those citizens. Finally, imagine that the citizenry of your city has a yearly turnover rate of, say, 75% (Edmond said that Best Buy’s employee turnover rate is something between 60 and 70%, which she said is well below the retail industry’s average). That implies a tremendous challenge for education and enforcement.

The second comment of interest was from Haydee Olinger of McDonald’s. She pointed out that McDonald’s has “hundreds of thousands” of suppliers. And each of those suppliers is likely to have hundreds or maybe thousands of employees. That means that the quality and safety of McDonald’s product depends on the good behaviour of a lot of people. The same goes for keeping the fast-food giant out of legal trouble, because there are lots of ways in which McDonald’s could end up on the hook, legally, for problems the root causes of which lie with a supplier’s behaviour. The result is that an enormous amount of energy has to go into selecting those suppliers, teaching them about McDonald’s standards, and then enforcing those standards.

Now, we shouldn’t be fooled though into thinking that the problems unique to giant corporations amount to a criticism of such companies. Because the problem really lies with the amount of commerce done, rather than with the size of the organization that does it. If Best Buy’s 170,000 employees were instead employed by 170 companies, each with 1000 employees, there would still be a total of 170,000 potential wrongdoers. The only thing that would really change is that instead of one giant employer with a unified system for training those employees and monitoring them, you’d have 170 small businesses, each of which would likely struggle with figuring out the best way to do so. Likewise, consider the millions of burgers McDonald’s sells each year. If they were instead sold by a few thousand small burger joints, all those ingredients would still have to be bought from a massive number of suppliers. The difference would be that none of those small restaurants would be likely to have the resources required to screen, select, educate, and monitor those suppliers in any rigorous way. They’d probably just, you know, buy stuff from from them, and hope for the best.

So in terms of compliance, while size brings challenges, it also clearly brings advantages.

By the way, Best Buy’s Kathleen Edmond writes her own blog, which is well worth a look.

2 comments so far

  1. Michael Walker on

    Yes McDonald’s workforce is about the same size of Houston’s. It boggles the mind. I recently gave a presentation with a bunch of these statistics, you might find it interesting:

  2. […] Blog, which is worth reading if you’re someone who reads about these things. MacDonald was musing about the challenges of ethics and compliance at global corporations, where one compliance department (and often just […]

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