The Business Ethics Blog

News that Canadian engineering giant SCN Lavalin is facing new criminal charges caused a stir last week, not least because of the penalties that are on the table. The fraud and corruption charges spring from the company’s dealings in Libya. And if convicted, in addition to any other penalties handed out the company could be barred, for 10 years, from competing for contracts with the Government of Canada — a category of contracts that make up an important element of the company’s income.

Jacques Daoust, economy minister for Quebec (where SNC is based) thinks that rule is too harsh, and was quoted as saying, “In 10 years a company might not be the same. Everything can change. And in the case of SNC, they’ve decided to make drastic changes already over a short time…”

But the appropriateness of the punishment depends in part on what your goal is in punishing in the first place.

Some will say that we need harsh penalties as a deterrent. That is, if we punish wrongdoing (including corporate wrongdoing), wrongdoers should be less likely to repeat their offences, and other potential wrongdoers are likely to think twice before stepping out of line. But so far criminologists have been unable to find support for the claim that deterrence actually works. It defies our intuitive understanding of human motivation, but it’s true: we simply don’t have clear evidence (despite having looked for it) that the threat of punishments deters corporate crime.

Another possibility is that punishment is intended to inspire reform. This is presumably what Daoust has in mind: having already suffered significant legal penalties, SNC Lavalin has engaged in a process of reforming itself, making internal changes that (hopefully) will change the organization’s character and make it less likely to offend in future. Will it work? Who knows? But reforming a corporation may be more plausible than reforming a human criminal: after all, you can literally re-engineer a corporation to change the way it makes decisions, but you we don’t know how to do that to a human (and if we could it likely wouldn’t be ethical). And if, as Daoust seems to imply, the key reforms have already been implemented, a prohibition on federal contracts would be baldly punitive, a form of punishment for its own sake.

And to be sure, some will cheer for purely punitive actions. Denunciation — the community, through legal mechanisms, effectively shouting “No!” in the face of wrongdoing — is another of the ‘classical’ justifications for punishment. But in engaging is such denunciation, the Canadian government might be ‘cutting off its nose to spite its face,’ as the saying goes. Because by barring SNC for competing for contracts, just for the pure punitive joy of it, the government would also thereby be cutting itself off from a large, competent, Canadian engineering contractor.

This leaves one possibility, one rationale that would make sense of debarring SNC, in addition to whatever other penalties the company and its officers might suffer. The other classical rationale for punishment — a rationale usually reserved for explaining the value of incarceration — is an interest in removing offenders from settings in which they would be able to repeat their crimes. Criminologists refer to this as incapacitation. When you put the child molester in jail, he no longer has access to children and hence can no longer molest them. Put him away for 20 years, and those are 20 years during which he will molest zero children. By parallel, if you forbid a company from competing for government contracts for 10 years, those are 10 years during which they will engage in precisely zero instances of attempted bribery or other acts of corruption, at least with regard to bribery or corruption of Canadian officials.

As the entire universe probably knows by now, Louis CK released his latest hour-long comedy special, “Live at the Comedy Store,” a couple of weeks ago.

His business model—the distribution mechanism for the video—is by now familiar. As with his previous special, he’s selling this one as a video that can be downloaded via his own website. Not on iTunes, not on Amazon. Just his own website. And the one-hour video is priced not at the $9.99 or $18.99 that the pricing savants at iTunes or Amazon would surely have insisted upon, but at the low, low price of $5.

All of this is pretty amazing. Why, in particular, the $5 price tag? After all, the comedian surely could have charged more, and made more money for himself in the process. Yes, as price goes up, demand goes down, generally. And probably there really are some people who would be willing to pay $5 but unwilling to pay, say, $10. So keeping the price low let demand rise. And indeed this video is apparently selling better than the previous one. But if CK had opted to choose more — even substantially more — relatively few fans would be unable or unwilling to afford the difference (and even fewer such people who have the requisite internet connection in the first place). I’d wager that he could literally have doubled his price and not reduced demand by anything close to enough to offset the gains. But I’ll leave such speculation to the marketing gurus out there. Suffice it to say that as these things go, $5 is a surprising bargain.

So CK presumably had an actual choice about how to price his special, his ‘product.’ Why choose such a low price?

Some will suggest that what’s really going on is something cynically clever, perhaps an attempt to use low prices as a way to build his brand or his market share? Perhaps. But CK’s brand could hardly be bigger. If you hadn’t already heard of Louis CK, and if you weren’t already an ardent admirer, it’s unlikely that being able to access what is by all accounts his least-polished special to date would result in your sudden awareness and conversion.

Another possibility was that CK’s pricing was effectively an act of charity. He “left money on the table,” as the saying goes, and that money stayed in the pockets of his fans. And for those fans (however many there are) who could not have afforded to pay $10 for the video, his pricing effectively amounted to gifting them with access that they otherwise wouldn’t have had.

In other words, this rich entertainer (according to some reports CK is worth over $25 million) just donated a little bit of money to every single person who downloaded his special.

Of course, whether he was thinking of it that way when he chose that price is impossible to tell. Who knows what was going on in that head? This is a good illustration of an age-old debate about what it is that really matters, ethically: outcomes or intentions. In this case, it’s impossible to know what CK intended, but it’s much easier — for fans of comedy and fans of charity — to praise the outcome.

This is good news for consumers, but bad news for makers and sellers of herbal supplements. The New York State attorney general’s office accusing major retailers of selling. The office issued a series of cease and desist orders on Monday, targeting herbal supplements that, according to genetic tests, don’t contain what they claim to and often contained ingredients that don’t appear on the label. Walgreens, Walmart, and Target, along with supplement and vitamin retailer GNC, have been ordered to stop selling “adulterated and/or mislabeled” herbal dietary supplements, and given one week to produce a small mountain of information regarding the methods by which those products are manufactured and tested.

The AG’s investigation was apparently spurred by a 2013 article in the New York Times that cited a University of Guelph study that used genetic analysis to examine various commercial herbal remedies. That study found a striking disparity between what was on the label and what was actually in the bottle. (I wrote about the study here.)

As I wrote back in 2013, the findings of the Guelph study (and now the findings of the New York attorney general) suggest a quality control problem at best, and outright fraud at worst.

As it happens, I gave a presentation last week (with pharmacist and blogger Scott Gavura) on the ethics of marketing complementary and alternative medicines, including things like herbal supplements. You can see the webcast here. One of the key points we made involves the difference between marketing, say, a homeopathic ‘remedy’, which is utterly incapable of having any biological effect because it literally lacks any active ingredient, and marketing herbal products, a category of products which can in some cases be quite potent, but which can be highly variable in content, concentration, and labelling, not to mention the extent to which their effects and side effects have been verified. Marketing the former is unforgivable: you have to be either a huckster or willfully ignorant to market homeopathy as if it actually works. But the ethics of marketing herbal products is a trickier thing.

The heart of the ethical problem here is that herbal supplements are what economists call a “credence good” — that is, a good that most consumers aren’t qualified to evaluate. The only thing you can do, as a consumer who buys an herbal supplement, is rely upon the word of the manufacturer who claims that those pills really do contain ginkgo biloba or garlic or whatever. In other words, it requires trust.

And that trust could in principle be supported in two things, two forces that could make it more likely that those product labels would tell you the truth. The first is the ethics of the manufacturer. Most people are basically honest, so most-of-us-most-of-the-time trust the makers of the goods we consume, and that works out just fine. But as a backup, we have commercial law and various regulations to give makers and sellers of products good reason, from a self-interested point of view, to treat consumers well.

Alas, the herbal supplement industry has demonstrated that it cannot be trusted. So it’s a good thing that the NY state attorney general is stepping in to protect consumers.

Now if only Canadian regulatory and law enforcement agencies would follow suit.