Archive for October, 2011|Monthly archive page
Toronto’s Mayor in Pocket-Sized Conflict of Interest
Filed under: conflict of interest, corruption, government, transparency |
Comments (6) The Toronto Star recently reported that the city’s beleaguered Mayor, Rob Ford has stumbled yet again. The Mayor, it seems, opted not to use the city’s standard (cheap) method of having business cards printed. He opted, instead, to go his own route. That might not be surprising a surprising move, coming from a maverick mayor, except for two facts. One is that his way cost a fair bit more. The other is that his way meant giving the contract to his own family’s printing business.
Three additional points are worth making.
First, this is an actual, bona fide conflict of interest. The Star reports City Councillor Josh Matlow as being critical of Ford’s decision, and wondering if the decision carried the risk of “a perceived conflict of interest”. Perhaps Matlow was pulling his punches, attempting to be collegial. But the term “perceived conflict of interest” is properly reserved for situations in which the concerned observers might understandably but wrongly think that the decision-maker had an external interest that could have influenced his decision-making, perhaps because outsiders are misinformed about who was responsible for what decisions.
Second, as always, it’s important to differentiate conflict of interest from corruption. The term “corruption” implies a level of intentionality not required to establish conflict of interest. You can be in a conflict of interest through no fault of your own. Whether there was fault, in the present case, is for voters (and quite possibly the city’s city’s integrity commissioner) to decide.
Finally, it must be acknowledged that the dollar amounts here are pretty small. The total cost of the business cards Ford ordered is just a tad over $1500. Compared to the city’s budget, or even just the budget for the Mayor’s Office, that’s pocket change. But one thing that corruption and conflict of interest share in common is that size isn’t always the issue. What’s at issue in conflict of interest is the need to protect the integrity of the institution, and in particular the way key stakeholders perceive its decision-making processes. Whether in business or in public office, it is crucial not just that top executives make the right decisions, but that they be seen as making decisions on the right basis.
Banks, Image Problems, and the Ethics of Lobbying
Filed under: banking, brands, CEOs, lobbying, public relations, transparency |
Comments (1) Ethics in public relations can mean two different things. It can mean managing your firm’s reputation, since a reputation for ethical behaviour is of course a central part of the reputation that any company wants for itself. It can also mean ethics in the way you go about managing that reputation, since there are good and bad ways to do that. Sometimes the two go hand-in-hand.
Businessweek recently reported that Brian T. Moynihan, CEO of Bank of America, has said he is “incensed” at public criticism of his bank, and has called upon 135 ‘market presidents’ (presidents of local business units) to lobby local officials and remind them of how much good the bank does for local communities. Call it reputation management, call it lobbying. Either way, it’s not at all clear that it is a good substitute for changing the practices that have been angering critics in the first place. It’s also not clear that a focus on ‘all the good we do’ is the right approach. Why not tackle the issues head-on?
Yesterday, at Canadian Business for Social Responsibility’s annual Forum, I got the chance to ask keynote speaker Stephen Lewis about the ethics of lobbying. (Lewis, in addition to being a former diplomat and a UN special envoy is also a former parliamentarian, so he seemed a good person to ask.) Lewis said that, in his experience — both as a parliamentarian and as someone who has lobbied hard on behalf of many causes — the best approach to lobbying is honesty. Put your agenda on the table, he said, and you’re likely to get a fair hearing.
That rings true, especially in an era in which just about everyone is cynical about corporate motives. Even people who believe fully in the crucial role that business plays in making the world a better place — and yes, that includes banks — are likely to respect you more if you admit that you’ve got an agenda, and that that agenda is not, and properly is not, direct pursuit of the public good.
Ice Cream, OxyContin, and the 3 Big Questions of Business Ethics
Filed under: crime, ethics, markets, philanthropy, pricing, regulations, values |
Comments (1) 
Sometimes it takes a really minor story to illuminate the basic issues at stake in business ethics. Like, for instance, a recent story about a guy selling both ice cream and serious street drugs out of his New York city ice cream truck. Here’s the story, by Jonathan Allen for Reuters: Ice cream vendor gets prison for selling drugs with treats.
That story highlights nicely one of three really fundamental questions that must be asked by anyone seriously interested in business ethics.
The three big questions of business ethics are as follows:
- 1) What may I do, and what may I not do, in attempting to make a living?
- 2) In what ways do my obligations change when I act on behalf of others, including employers, shareholders, etc.?
- 3) What should I do when I see inappropriate business practices that don’t directly affect me?
Each of these “big” questions can of course be subdivided into an entire category of questions. Question 1, for instance, implies a whole range of more specific questions — not just questions about the basic ethics of commerce (Can I lie, cheat or steal? No. Can I exaggerate, or put important details in fine print? Not so clear!) but also questions about Corporate Social Responsibility and corporate philanthropy. The second question covers all the issues that crop up once businesses are staffed by more than a single individual. And the third concerns third-party critique, the work of consumer advocates, and government regulation.
The news story cited above illustrates beautifully Question 1, the question of what you can and cannot do to make a dollar. Louis Scala was, after all, just trying to make a living. There’s nothing wrong with that, of course. The catch was the method he chose.
Scala chose to sell two products. One was soft-serve ice cream, a dessert treat sold primarily to kids, who just can’t get enough of the stuff. The other was OxyContin, a highly-addictive narcotic, sold primarily to adults who just can’t get enough of the stuff. Selling the former is considered a reputable way to make a living. Selling the latter (out of the back of a truck!) is what earned Mr. Scala three and a half years in jail. But then, neither of those products is uncontroversial. Ice cream isn’t exactly healthfood, and child obesity rates are on the rise. But on the other hand, it’s a harmless treat, when consumed in moderation. But on the other hand, it’s not always consumed in moderation. But on the other hand…you get the point.
Figuring out what constitutes a legitimate way to make a living — taking into consideration all reasonable details — is far from straightforward. But realizing that the questions we want to ask about business ethics all fall under one or another of the fundamental headings listed above is, I think, a useful bit of mental bookkeeping, which is increasingly important in a world where criticisms, and defences, of business practices are becoming more and more diverse.
Should Americans Buy American?
Filed under: activism, consumers, critical thinking, economics, trade |
Comments (2) One of the most amazing — and perhaps depressing — facts of current American politics is that the Occupy Wall Street folks and the American political right are apparently unified in their support for a “buy American” policy. The need to appease the political right is reportedly the entire reason for the “buy American” provision in Obama’s new jobs bill. The very same sentiment is embodied in the recent 99 Percent Declaration. (See Point #14: “End Outsourcing.”)
The “buy American” thing is just a special case of the more general plea we often hear to “support your local economy.” But maybe even less well-justified. And more cynical.
There are plenty of reasons to worry about the “buy American” slogan. For a start, it’s the slogan for the kind of protectionism that is generally understood to reduce economic efficiency (and hence to reduce human well-being). Bigger markets are generally better, and the right solution to the negative side-effects of globalization isn’t to build walls around your economy. Plus, protectionism tends to result in arms races, in which Country A erects trade barriers, to which Country B responds, and so on and so on. And in some cases, “buy American” (or “buy Canadian” or “buy UK” or whatever) is a thin disguise for xenophobia, and perhaps racism. As in, “Buy American rather than from…you know…foreigners.”
But the flip-side of the consumer-oriented question posed in the title of this entry is the question faced by businesses (and this is, after all, a blog about business ethics.) Should businesses play into the protectionism implied by the “Buy American” slogan? As I’ve pointed out before, one of the most general obligations businesses have is not to reduce the efficiency of markets, for it is that very market efficiency that provides the moral underpinning for their general pattern of aggressively competitive behaviour. So businesses generally have a responsibility not to play upon consumers’ lack of economic sophistication, or their xenophobia. So, on the lips of a captain of industry, “buy American” betrays either a lack of understanding, or a cynical willingness to damage the public good in order to turn a profit. What it betokens on the lips of politicians or protestors, I leave for others to speculate.
Do Corporations Shield Against Personal Responsibility?
Filed under: accountability, corporations, crime, employees, government, shareholders |
Leave a comment One of the key criticisms lobbed in the direction of corporations is that they’re essentially a mechanism for avoiding personal responsibility.
But this property is hardly unique to corporations. And it’s certainly not always a bad thing.
The notion that corporations shield individuals from responsibility actual has two components: one about moral and legal culpability for wrongdoing, and another about financial responsibility.
On the financial side, the lack of individual responsibility goes by the legal name of ‘limited liability.’ Limited liability applies most famously to shareholders, who generally cannot lose more than whatever they have invested in corporate shares. When corporations do well, shareholders may be paid dividends; but no matter what happens, shareholders are never expected to pay the corporation’s debts. That’s what makes it relatively safe to invest. But less commented-upon is that the same principle applies to another important group, namely front-line employees. Corporations shield them from financial liability too. If the company you work for goes bankrupt, you’ll lose your job, but the company’s creditors general cannot go after your savings, or your house.
What about responsibility for wrongdoing? In cases of actual wrongdoing, do corporations shield individuals from being held responsible?
Well, yes and no. Enron’s Jeff Skilling is in jail, and so is Conrad Black. They’ve been held accountable for what they did within their respective corporate structures. But yes it’s still true that individuals behind corporations — including shareholders, executives, and front-line employees — are shielded from responsibility for the corporation’s actions. If, due to someone else’s decisions within the corporation, the corporation does something criminal, you as an uninvolved employee or shareholder can’t be blamed for that. This generally seems right; responsibility requires knowledge and control. If you weren’t involved, you shouldn’t be blamed. People would be extremely hesitant to work together in large groups — something corporate structures facilitate — if they were going to be held responsible for other people’s behaviour.
But still, it remains true that one of the central moral problems related to corporations is their tendency to obscure and diffuse responsibility. Even though individuals within corporations can in principle be held (and sometimes are held) responsible for their actions, the complexity of corporate structures and decision-making can make it hard to figure out just who really is responsible, and hence who to blame. This is a genuine cost of the system. But it’s a system with considerable advantages. Our modern lifestyle would quite literally be impossible without corporations. So rather than reason for despair, the fact that corporations obscure and diffuse responsibility is a challenge to be dealt with.
Finally, it should also be remembered that corporations are hardly unique in shielding individuals from responsibility. Because really, in a sense, that’s what all organizations are for. They’re for achieving things that individuals cannot achieve alone, while avoiding personal responsibility. Think of all the things that governments, unions, nongovernmental organizations and charities do. Generally, most members of an organization (taxpayers, for example, or card-carrying members if Greenpeace) contribute to a joint cause, and contribute to its success, but are shielded from personal responsibility when things go wrong. That’s a cost we may want to try to minimize, but it’s also one to balance against the considerable gains we achieve from structures that allow us to work together towards a common cause.
Are CEO Salaries Too High?
It’s a perennial question, but one that still merits examination, given that one of the big complaints of the Occupy Wall Street movement has to do with the increasing wage disparity between the income-and-or-wealth of the top 1% vs the rest of us.
Economist Mike Moffat offered some new perspective on this yesterday, when he pointed out on twitter that “More NHLers earn 6 million+ a year than Canadian CEOs do.” And while sports commentators and fans sometimes roll their eyes at the astronomical salaries top athletes currently command, they’re not exactly taking to the streets in protest.
So why are people so outraged by executive compensation, but not by the salaries of sports figures?
There are two different questions to ask the question of “are CEOs paid too much.”
One is to ask whether CEO salaries are too high given what they contribute to the firms they manage. That’s a question that primarily concerns the shareholders and employees of a firm, who need to know whether their multi-million-dollar CEO is worth the money. Does hiring “Mr. A,” who insists on $6 million in pay, rather than hiring “Mr. B.”, who would work for a mere $3 million, bring more than an extra $3 million in offsetting revenue to the company? If so, then Mr. A is worth the money. If not, then he’s not. And my non-expert impression of the economic literature on this count is that evidence is mixed. Lots of CEOs aren’t worth the money. Lots are. The correlation, overall, is unclear.
The problem of how much to pay CEOs from this point of view, and what combination of kinds of payment to offer (cash, stock options, etc.), is hotly debated by top business scholars and economists. But it’s worth remembering that the money isn’t just all sitting there in a big pot, waiting to be distributed among the CEO, other workers, and shareholders. Each of those contribute some value to business. The hard question is how much.
The second way to look at CEO compensation is to ask whether CEO salaries are, in some sense, too high from a social point of view. That is, is it simply unconscionable that some people are paid that much? It is in this regard that Mike Moffat’s question about CEOs vs NHL players becomes interesting. Philosopher Robert Nozick famously raised this question of sports figures’ salaries over 30 years ago, as a way of investigating fundamental questions of justice. Modernizing Nozick’s example, we could look at a star player like the Pittsburgh Penguins’ Sidney Crosby, who was paid $9 million for the 2010-11 season. That’s a lot of money, in anyone’s eyes. But consider the process that results in that sum. Imagine how many fans Crosby has, and how many of them would each be willing to pay a dollar to see him play. It’s not hard to imagine 9 million fans, each happy — indeed, eager! — to hand over a dollar to see Crosby play. The net result is $9 million (taxable) in Crosby’s pocket, and no one else involved feels bad about it.
It’s not hard to translate Nozick’s example into business terms. Imagine a CEO who gets $9 million in total compensation. We’ll simplify and assume that’s all cash, which it never is. We’ll further simplify by looking only at the interests of employees (leaving out customers and shareholders). If the company is a fairly big one, and has 30,000 employees, then the Nozickean question is this: can we imagine each of those 30,000 employees voluntarily transferring $300 to their CEO for the value he adds to their lives? If that CEO leads the company to flourish — or, in tough economic times, even just to survive — then it’s at least plausible. And if so, then (says Nozick) there’s little grounds for complaint by employees, and even less grounds for complaint by anyone else. People might question the end result, but none can fault the fairness of the process that would have (or could have) resulted in it.
Now none of this amounts to saying that all is right in the world of CEO compensation. Many, many people inside the world of business will tell you that the situation is out of hand. And I agree. There have been outrageous abuses. The point here is just this: the fact that someone is highly paid isn’t automatically unfair. Sometimes it is unfair, and sometimes it isn’t. We need to look carefully, on a case-by-case basis, at what that individual contributes to the business they manage, and what that firm contributes to society.
See also: “Executive Compensation,” from the Concise Encyclopedia of Business Ethics.
World Standards Day: Celebrate or Mourn?
Filed under: experts, governance, international, regulations, standards, trade |
Comments (2) Today happens to be World Standards Day, a day that honours the work of the thousands of experts involved in setting the huge range of voluntary international standards that regulate production and trade in a globalized economy. Depending on your view of globalization, it’s a day either to be celebrated or mourned.
The standards in question include various standards established by groups like the International Electrotechnical Commission (IEC), the International Organization for Standardization (ISO), and the International Accounting Standards Board (IASB).
I’m currently reading a very good book on just this topic, namely The New Global Rulers: The Privatization of Regulation in the World Economy, by Tim Büthe and Walter Mattli. The book examines the wide and growing range of international, private (i.e., non-governmental) standards being set by groups like the IEC, ISO, and IASB. As Büthe and Mattli point out, such standards are a double-edged sword.
On one hand, they facilitate the international flow of goods and services, making it easier for companies to ship products overseas or set up branch offices in foreign countries without learning entirely new, idiosyncratic local standards. And (being established by international groups of experts) they do this without the direct participation of governments that may not have the financial or technical capacity to set such standards. On the other hand private, international standards don’t bring benefits equally to all: not all companies are equally-well equipped to switch from older national standards to newer international ones, and some countries’ internal regulatory regimes make the switch even harder. And regardless, as Büthe and Mattli point out, adopting new standards always brings costs, including things like the costs of training, the cost of redesigning products, and even paying licensing fees for proprietary technologies.
It seems appropriate, at this juncture — while the Occupy Wall Street movement is a) lamenting the nature of government-industry interaction, and b) deciding whether it is or is not part of the anti-globalization movement — to give some serious and well-informed thought to the desirability of regulatory regimes that are both non-governmental and international.
A High-Tech Replacement for Sweatshop Labour! Um…yay?
Filed under: activism, employees, human rights, international, technology, values, workplace safety |
Comments (17) When new technology puts sweatshop labourers out of work, is that a good thing or a bad thing? It’s not an entirely hypothetical question.
Here’s the story, from Fast Company: Nike’s New Thermo-Molded Sneakers Are Like Sculptures For Your Feet
The classic Air Force 1, Dunk, and Air Max 90 Nike shoes get the Vac Tech treatment–a thermo-molding technique that produces one-piece, stitch-free sneakers.
…
As a centerpiece for the holiday season, Nike Sportswear has released three of its most venerable brands–the Air Force 1, Dunk, and Air Max 90–constructed using a thermo-molding technique, a kind of vacuum compression method that allows the shoe to be held together without any noticeable seams or stitching. The Nike Dunk VT, above, basically recreates the familiar silhouette of the original design as sculpture around your feet.
Now presumably — though details are sketchy — the lack of stitching will mean these babies will be cranked out by machines, rather than assembled by hand by underpaid people in underdeveloped nations. Critics who think there’s no such thing as a good sweatshop should rejoice. But will sweatshop workers be so happy?
I hasten to add that the word “sweatshop” in its most pejorative sense doesn’t really apply to Nike. Nike, once villainized for having its shoes made by poorly-paid workers working under appalling conditions, is now widely recognized as a garment-industry leader in terms of labour standards. But that’s not to say that a job in a factory that makes Nike shoes is peachy. It’s still a hard life, by western standards. So is it good, or bad, for such labourers if a machine is developed that makes their services redundant?
As I’ve pointed out before, the workers vs machines conflict is, in the grand scheme of things, a false one. Machines can make workers more efficient (and hence valuable), can save humans from dangerous tasks, and can improve net social productivity in a way that stands to benefit literally everyone, in the long run.
But such generalizations don’t obviate the fact that there are some cases in which a new technology comes along and puts you out of work.
Unemployment is bad. Sweatshop jobs are bad. So do we celebrate or mourn when someone with a sweatshop job is put out of work? And is this a matter of choosing the lesser of two evils? Or the greater of two goods? And what does our answer to that question imply about the ethics of buying products made in the sweatshop jobs that remain?
Bullying in Pursuit of the Public Good
Filed under: accountability, activism, corporations, government, international, NGO |
Comments (5) Should we celebrate when a powerful NGO convinces a powerful corporation to change its mind on something?
Here’s an example. Greenpeace recently… um, persuaded Mattel to stop using packaging sourced from companies that contribute to deforestation in Indonesia. (See the story by Angelina Chapin: Greenpeace wins battle with Mattel.) Mattel is a major toymaker, selling millions of products wrapped in cardboard, so the company’s decisions on where to get that cardboard stand to have a significant environmental impact. And Greenpeace managed to get the company to change its ways.
I suspect — but only suspect — that this is a good thing. I don’t know much about the facts of this particular case, but I think generally it’s good that there are well-intentioned nongovernmental organizations (NGOs) like Greenpeace working hard to get companies to think twice about the environmental impact of their business practices.
But it’s not always a good thing when NGOs badger and cajole a big company. Consider, for example, another case involving Greenpeace, namely the battle over the dismantling and disposal of the massive Brent Spar oil-storage buoy in the mid-90s. In that case, Greepeace launched a global campaign to pressure Shell, owner of the Brent Spar, to dispose of the floating oil-storage facility in a way that contradicted the company’s own environmental impact assessment. Greenpeace later changed its mind and apologized, but it was too late: Shell’s original disposal plan had already been scrapped, and the company’s share price damaged. In other words, Greenpeace had bullied Shell into doing the wrong thing.
Now most people are generally not very worried about major corporations, or large institutions of any kind, being bullied. And it’s easy enough to understand why. We’re usually more worried about corporations having too much power, rather than too little. But to uniformly celebrate victories of NGOs over corporations is to assume that NGOs are always right. And that’s a mistake. It’s also a mistake to assume that NGOs are in any important sense democratic, or automatically representative of the public interest.
Now this point must not be mistaken for a general critique of NGOs. There are many good NGOs out there, doing invaluable work. It’s just a reminder that the leaders of NGOs are not elected representatives, but rather self-appointed defenders of what they see as the public good. (I’ve written about how to assess NGO legitimacy before.)
Think of it this way. Companies sometimes do dumb things, and sometimes they do unethical things. There are lots of ways that can happen. Sometimes it’s due to flawed internal decision-making processes. Sometimes it’s a blind focus on profits or on expanding market share. Sometimes they do bad things in response to poorly-constructed regulations, or pressure from governments. And sometimes they’re bullied by other organizations, including NGOs.
And when a major corporation is bullied into making a bad decision, that bad decision can have enormous implications. So we should all watch with a careful eye when lobby groups, whether corporate or populist, attempt to use powerful non-democratic means to get their way.
Ethical Investing and Values-Based Investing
Filed under: accountability, certification, experts, film, investing, values |
Comments (9) If you’re an investor, and if you want your money invested in companies that will not just bring you a return on investment, but will also some good in the world, that means you’re interested in what is variously called “responsible investing” or “ethical investing” or “values-based investing.”
I was recently interviewed for a documentary on the topic. Here it is: “Responsible Investing: An Evolving Story.” The 20-minute video was produced by the Ontario Teachers’ Pension Plan (OTPP). OTPP (colloquially known as “Teachers”) is one of the biggest institutional investors in Canada, managing a fund of just over a hundred billion dollars.
One of the main points I tried to make in the segments I’m in is that the key to thinking about values-based investing is to think of it as a mechanism for value-alignment. That is, it’s a way for investors to invest in companies whose values are like their own. It allows pacifists to avoid investing in arms manufacturers, and allows anyone who is stridently anti-tobacco to avoid investing in that industry. It’s not about all of us investing in products or industries that are “more ethical”, overall. Such global judgments are difficult to arrive at, and even harder to find consensus on.
That is, it’s best not to think of values-based investing as “ethical” investing, as if in contrast to all that other, unethical, investing. Indeed, referring to it as “ethical” investing probably makes the same mistake as references to “ethical oil” or “ethical food” does: it confuses the fact that there is ethical reasoning involved in such investing with a much grander claim that your investments are the only (or most) ethical ones.
The Business Ethics Blog 