The Business Ethics Blog

I never thought I’d see an ethically-interesting story about shoplifting. For those of us who study ethics, stealing stuff is not exactly a subtle moral issue.

A story in today’s NY Times, “Some Leeway for the Small Shoplifter”, changes that.

Wal-Mart refuses to carry smutty magazines. It will not sell compact discs with obscene lyrics. And when it catches customers shoplifting — even a pair of socks or a pack of cigarettes — it prosecutes them.
But now, in a rare display of limited permissiveness, Wal-Mart is letting thieves off the hook — at least in cases involving $25 or less.
According to internal documents, the company, the nation’s largest retailer and leading destination for shoplifting, will no longer prosecute first-time thieves unless they are between 18 and 65 and steal merchandise worth at least $25, putting the chain in line with the policies of many other retailers.

The reason for Wal-Mart’s change of policy? The article cites two:
1) It’s not economically feasible to enforce zero-tolerance. According to one Wal-Mart exec quoted in the story: “If I have somebody being paid $12 an hour processing a $5 theft, I have just lost money….I have also lost the time to catch somebody stealing $100 or an organized group stealing $3,000.”
2) The zero-tolerance policy was putting a strain on some police departments, whose officers would need to be called in everytime some kid got caught swiping a pack of gum. “At some of the chain’s giant 24-hour stores, the police make up to six arrests a day…”

A few thoughts about the ethical dimensions of this story, in no particular order:

• Both of the reasons offered above serve to remind us that, from an economic point of view, there is pretty much always going to be some non-zero efficient level of crime, whether in a given store or in society more generally. That is, from a financial point of view, it’s almost never worth it to put in place sufficient enforcement mechanisms to drive the crime rate to zero.
• The change in policy is apparently based purely on localized economic factors. So it leaves aside questions like whether theft is a moral wrong that ought, morally, to be punished. Some would argue that retailers have an obligation to do their part in punishing wrong-doing, independent of whether doing so is strictly efficient.
• Some will see the amount of law-enforcement effort expended on arresting shoplifters at Wal-Mart as a “further” way in which Wal-Mart is subsidized by public coffers. In a sense, that’s true. But it’s only true in the same sense that your own security costs (and mine) are subsidized by public coffers. The fact that the city I live in has an effective police force is part of the reason I don’t need a full-time security guard at my home. The more interesting question, regarding Wal-Mart, is whether there’s something about Wal-Mart that makes it a disproportionate drain on law-enforcement budgets. That is, does your average Wal-Mart use up more law-enforcement resources than other stores its size, or than however many smaller stores you’d have to add up to equal its size? Is anything about Wal-Mart especially criminogenic?

(Note: See also the interesting blog entry on this over at the Freakonomics blog.)

Relevant Books:
Shoplifting: A Social History, by Kerry Segrave
The Sociology of Shoplifting: Boosters and Snitches Today, by Lloyd Klemke
Retail Security: 150 Things You Should Know, by Louis A. Tyska, Lawrence J. Fennelly

Law prof and blogger Stephen Bainbridge has some interesting, brief comments on Google’s plans to build an office and research centre in Ann Arbor, Michigan. Google co-founder Larry Page apparently has close ties to the town, having gone to university there, etc. The new project is also anticipated to give a political boost to Michigan’s Democratic governor.

Writes Bainbridge:

So Google’s bosses are spending the shareholders’ money to boost (a) one of the bosses’ hometown and (b) one of the many liberal politicalians the bosses espouse.

Of course, it’s not like Google is building a new opera house, or even endowing a hospital foundation or something…they’re building an office, and a research centre…both projects that you’d think would have a legitimate business purpose.

Here’s the NY Times story on Google’s new centre.

I just watched the 2004 documentary “A Decent Factory”.

This bare-bones documentary examines efforts by Finnish cell-phone maker Nokia to monitor its own supply chain. The film follows Nokia’s internal ethics advisor and a British ethics consultant on a trip to Shenzhen, China, to audit the operations of a factory making parts for Nokia phones.

The film is worth watching if you’ve got an interest in the subject matter, and would be a great teaching tool for a business ethics class or a class on supply-chain management. But don’t expect the slick production values of The Smartest Guys in the Room (the Enron movie) or even Wal-Mart: The High Cost of Low Price. Don’t expect much flash: just a camera following the auditors around the factory, interviewing managers and workers, examining safety and environmental practices.

One of the most striking things about the movie is that working conditions in the factory are, well, so-so. This isn’t a sweatshop: workers are under-paid a little (compared to what’s required by Chinese law) and they complain that the food in the factory cafeteria is bad. But there are no 16-hour days, no oppressive heat, and no beatings. In part, that’s what makes the auditors’ (and, in the end, Nokia’s) position so difficult, and is likely to leave many viewers feeling somewhat ambivalent. If the factory were a real sweatshop, it would be easy to abhor it, and perhaps easy for Nokia to cut it out of their supply chain. If, on the other hand, the factory were a model of progressive working conditions…well, then it wouldn’t have been in the movie. As it is, Nokia is faced with a dilemma: as a socially conscious company with socially conscious customers, they can’t just turn a blind eye to violations of minimum-wage laws or ignore lax enforcement of safety standards, but neither can they simply insist that the factory’s owners simply eat the full cost of bringing their practices up to par.

This, in part, is what makes this movie interesting. It illustrates why business ethics (or at least the ethics of supply chain management) is so challenging. Foot-stomping criticism of brutal sweatshop labour is easy. Cases like the one shown in A Decent Factory are much harder. Grey areas where things aren’t perfect and improvement is possible-but-not-easy demand thoughtful problem-solving and a serious commitment to improving (rather than perfecting) performance and having better, rather than worse, answers at hand when called to account.

Links:
IMDB’s page about “A Decent Factory”
Nokia’s Supplier Requirements
List of other movie reviews on this blog.

Relevant Books:
Nokia: The Inside Story
The Nokia Revolution : The Story of an Extraordinary Company That Transformed an Industry
Essentials of Supply Chain Management, 2nd Edition
Implementing Codes Of Conduct: How Businesses Manage Social Performance In Global Supply Chains

Corporate Knights (“the Canadian magazine for responsible business”) has just released its Best 50 Corporate Citizens for 2006. [Link repaired Nov. ’08]

Amazingly, tobacco giant Rothmans Inc. ranked #2 on the list (just behind Shoppers Drug Mart, Canada’s largest chain of drug stores, and just ahead of Reitman’s, a major chain of retail clothing stores). Apparently, killing a lot of people (sorry, I mean supplying an addictive product that just happens to kill a lot of people) doesn’t prevent you from being considered a good corporate citizen.

Now, as I’ve discussed here before, these sorts of rankings are a difficult thing. What sorts of things make a company ethical or a good corporate citizen? How much weight should be attributed to various factors. No easy answers here.
But you have to remember that, whatever your ranking system, it is essentially a model, a theory of corporate ethics (or citizenship or sustainability or whatever). Developing theories of ethics is a notoriously difficult problem. But one sign of a decent ethical theory is that, in addition to providing guidance on issues where we seek greater clarity, it should fit reasonably well with our most well-established moral intuitions. That’s not to say that we should build theories that simply replicate our current views and biases. But a theory that conflicts badly with our most deeply-held moral views is off to a pretty rocky start. Conflict with deeply-held moral views is a good reason to consider tweaking your theory; similarly, if our intuitions conflict with well-thought-out theories, we may have reason to consider whether our intuitions are really all that dear to us, or whether they perhaps represent biases that ought to be revised. (In John Rawls’ terms, theory and intuition should be brought into “reflective equilibrium”.)

Well, here’s a hint, folks. If your system of ranking “best corporate citizens,” “most sustainable companies” or “most ethical firms” results in a major tobacco company scoring near the top of the list, it’s time to consider revising your system.

Relevant Links:
More information on Corporate Knights’ rankings, including methodology. [Dead link deleted Nov. ’08]
Rothmans’ CODE OF BUSINESS CONDUCT AND ETHICS

Relevant Books:
Corporate Citizenship: Successful Strategies for Responsible Companies
Business And Society: A Strategic Approach To Corporate Citizenship
Business Ethics: A European Perspective : Managing Corporate Citizenship and Sustainability in the Age of Globalization
Smokescreen: The Truth Behind the Tobacco Industry Cover-Up
Assuming the Risk : The Mavericks, the Lawyers, and the Whistle-Blowers Who Beat Big Tobacco
———-
Thanks to Joe Heath for bringing this one to my attention.

A story in the current Guardian Weekly points to more business-ethics troubles in the pharmaceutical industry: Report reveals tricks of pharmaceutical trade, by Sarah Boseley

The Consumers International report says drug companies use unscrupulous and unethical marketing tactics not only to influence doctors to prescribe their products but also subtly to persuade consumers that they need them….

The report examines the marketing practices of 20 of the world’s biggest drug companies. It alleges that:

– Drug companies are promoting their products through patients groups, students and internet chatrooms to bypass the ban on advertising except to doctors.

– They offer information to the public on “modern” lifestyle diseases, such as stress, to encourage people to ask their doctors for medicines.

– They make inaccurate claims about the safety and efficacy of their drugs.

– Doctors are offered incentives to prescribe and promote drugs including kickbacks, gifts, free samples and consulting agreements.

– Many companies have been implicated in anti-competitive strategies, including cartels and price hikes.

Violations of industry-wide drug promotion codes occur with regular frequency, says the report. The 20 companies were involved in 972 breaches of the ABPI’s rules on ethical drug practices between 2002 and 2005. More than 35% of those breaches, the largest category, had to do with misleading drug information.

I’ve asked it before, I’ll ask it again: just how did pharmaceutical companies — companies supposedly dedicated to improving human life — end up in roughly the same moral category as tobacco companies, oil conglomerates and arms dealers? Depressing.

Relevant Links:
Branding the Cure: A consumer perspective on Corporate Social Responsibility, Drug Promotion and the Pharmaceutical Industry

From today’s NY Times, yet another story about physicians, drug & medical device companies, and conflict of interest: Charities Tied to Doctors Get Drug Industry Gifts

Around the country, doctors in private practice have set up tax-exempt charities into which drug companies and medical device makers are, with little fanfare, pouring donations — money that adds up to millions of dollars a year. And some medical experts see that as a big problem.

Now of course, many corporate donations are well-intentioned, and many of the foundations funded through corporate largesse do important research, educational work, and so on. But others are clearly thinly-veiled ways for companies to funnel money to physicians — money they can’t legally simply hand over to them — as part of a marketing strategy.

Patrick L. Meehan, the United States attorney in Philadelphia, whose office has a long history of prosecuting health care fraud, said the doctors’ charities could warrant scrutiny. “What we would be concerned about are end runs around the system,” Mr. Meehan said. “We want to be sure there is independent and fully informed medical judgment at the heart of the physician-patient relationship.”

Why this is a business ethics issue:

a) In most places, doctors are business-people, too. Even if they practice solo, they run offices, hire staff, and so on. And many become involved in larger partnerships, run major clinics, etc. They’re engaged in business, so they need to know (and help improve) the ethical rules that apply to the world of commerce.

b) The other side of the coin: for every physician (or every hundred physicians) involved in a conflict of interest, there’s a pharmaceutical or medical device company generating that conflict. Bioethicists are welcome to focus on the choices physicians make in getting themselves into such conflicts, and what they should do to avoid them. But from a business ethics point of view, there are serious, serious questions about corporate behaviour here. Whenever corporate actions — a donation, a consulting contract, whatever — put a professional or other trusted decision-maker into a conflict of interest, they are arguably doing a disservice both the the public that relies upon that decision-maker, and to the group of decision-makers (professionals, politicians, etc.) whose trustworthiness & integrity needs to be maintained.

c) Finally, this is a business ethics issue because business may well be better able to respond to it than the medical profession is. The medical profession is relatively fragmented, and made up by tens of thousands of individual decision-makers, all bound together only quite loosely by a relatively vague code of ethics. In addition, despite the fact that (as noted above) physicians are typically also business people, they’re not always the most savvy about the ethical perils of the world of commerce. Pharma and medical device companies may also be better able to respond to this problem just as a matter of numbers. Ask yourself this: which is easier to change, the behaviour of a single large company, or the behaviour of the dozens or hundreds of individual physicians and foundations to whom or through which that company funnels money?

Relevant Books:
On The Take: How Medicine’s Complicity with Big Business Can Endanger Your Health, by Jerome Kassirer
The Truth About the Drug Companies: How They Deceive Us and What to Do About It, by Marcia Angell

From today’s Financial Post:Social activists flex their muscle: Firms unprepared for rising boardroom influence (by Jason Kirby)

When Nortel Networks Corp. hosts its annual general meeting in Toronto this week, investors will have plenty to discuss, what with the company’s accounting woes, multi-billion-dollar lawsuits and red ink.
Add to that list a 1,142-km railway linking Tibet to the rest of China. The train route, which uses wireless-communications equipment provided by Nortel, has raised the ire of Tibetan activists who worry Beijing will use it to strengthen its grip on the region.
On Thursday Nortel investors will be asked whether they support a shareholder proposal calling on the telecom giant to adopt a human rights policy. If other recent company AGMs are any indication, a significant number of Nortel’s investors may vote “yes.”

This isn’t just social activism: this is activism with teeth. This sort of shareholder proposal is becoming more common, driven by fund managers for various Socially Responsible Investment (SRI) funds. The FP story notes that although such proposals seldom carry the day (so far), they generally garner enough support for wise managers to take them very seriously: in some cases such motions have been defeated at the AGM, only to be adopted later by managers.

Interestingly, of the handful of cases mentioned in the FP story, none of them involved resolutions calling for specific, concrete action. They’re all calls for enriched procedure: adopting a human rights policy, assessing the local impact of a mine, etc. The fact that companies — and those shareholders who vote against such moves — are so resistent to vague commitments of this kind is pretty interesting. On the face of it, committing to adopt a policy is a pretty small commitment: the policy could range from very strict to very permissive. Are companies so gun-shy of issues like human rights that they just don’t even want to talk about it? One wonders what percentage of these companies are merely (unwisely?) sticking their heads in the sand. You’d think that having a policy — or better, going through the process of developing a policy would be the best way for a company to prepare itself for any future controversy over its activities.

Relevant Books:
Shareholder Activism Handbook
The Emperor’s Nightingale: Restoring the Integrity of the Corporation in the Age of Shareholder Activism

This one’s not about business ethics per se, but about ethics in institutions more generally:
At Ethics Camp, Not-So-Tall Tales From the Dark Side

It’s a story about an

…Ethics Camp, for politicians and public officials here at Santa Clara University.

The two-day camp, at which counselors wore “moral compasses” slung around their necks, was perhaps the most novel effort to create “a culture of ethics and accountability,” said Judy Nadler, a former mayor of Santa Clara and a senior fellow at the university’s Markkula Center for Applied Ethics, the host and sponsor.
…
The camp, which the university plans as an annual event, reflects a growing municipal ethics movement. Over the past five years, for instance, those who serve as “city ethics officers” — there are about 15 now — have joined state and city ethics commissions, federal prosecutors, whistle-blower hot lines and inspectors general in an effort to prevent municipal ethical lapses before they start.

Among items at the camp’s show-and-tell was an Enron ethics T-shirt, bought on eBay, emblazoned with the words “respect” and “integrity.” And instead of synchronized swimming and lanyards, there was talk about creating time for moral reflection and exercises on “taking ethics to the next level.”

Once you get past the idea that “ethics camp” is kind of a corny idea (which it definitely is) this is actually a pretty thought-provoking story. Stuffy ethics professors (like me & most of my friends) are likely to find the camp idea at least mildly cringe-worthy. It lends itself too easily to mental images of happy campers holding hands around the campfire, singing “Kumbayah” and reminding themselves just how, you know, important ethics is. But get over it. Organizations of all kinds — corporations, health care institutions, governments — are desperately searching for ways to build “cultures of ethics.” And in many cases it’s a pressing need. If ethics camp is a way to bring people together to talk about common challenges in a comfortable atmosphere, terrific. Who says all ethics education needs to go on in philosophy classrooms? If attention to ethics is important, then we should be encouraging a lot more open-minded experimentation of this sort.

(p.s. Is it just me, or did anyone else have this initial reaction to that headline: what exactly is “ethics camp,” and how is it related to “ethics kitsch?” I’m pretty sure I’ve seen talks at ethics conferences that would count as “ethics camp.” At least they seemed campy to me.)

Relevant Books:
Ethics and Politics: Cases and Comments
Political Ethics and Public Office
The Ethics Challenge in Public Service : A Problem-Solving Guide
Letters from Camp

Here’s a nice story — aimed at business readers — about the business end of going green: Do You Need To Be Green? (from BusinessWeek Online)

Here’s a taste:

Historically, sporting the green label has helped some small companies gain traction in a crowded market. It has allowed them to charge a premium for their products, often one as high as 20% to 30%. Those hefty markups are one reason many green companies have been profitable: A 2003 report by McKinsey & Co. found a portfolio of green and socially responsible companies returned between 5% and 14% annually in a 10-year period.

That’s likely to change as more big players enter the market, bringing competitors to sectors that haven’t encountered them. The enviable markups that have allowed small companies to become both green and profitable may become as endangered as the spotted owl. The onslaught has already started. France’s Group Danone took majority control of organic yogurt pioneer Stonyfield Farms in 2003, and Colgate-Palmolive purchased Tom’s of Maine in March of this year. Also in March, mega-retailer Wal-Mart Stores said it plans to double the number of organic foods it carries, to 400, and to “democratize” organic food by selling it at lower prices than are now readily available. “Larger producers will aim for volume, pushing organic to the mainstream. That means pricing pressure and prices coming down,” says John Stayton, co-founder and director of the Green MBA program at San Francisco’s New College of California. “There will be winners and losers, the losers being those smaller companies that can’t compete with larger producers.”

This story highlights the fact that going green isn’t just a social movement or a personal decision: it’s also a business decision, and a potential marketing opportunity. We can also see signs in this article of what Joseph Heath and Andrew Potter call The Rebel Sell. That is, it’s important and interesting to keep in mind that some people out there are making a lot of money out of selling groovy, organic, 100% post-consumer eco-friendly low-emission whatevers. To a certain extent, “green” is a brand-name like any other. Environmentally-oriented consumers have to remember that, like any other consumers, they are being marketed to.

Now this is not to downplay the importance of environmentally friendly products and services. Nor is it necessarily to devalue the work done by “green” businesses. If your business niche (your way of making money) is to market eco-friendly products to cash in on the eco-friendliness trend, I think that’s a world away from making your money marketing world-conquering SUV’s to cash in on the competitiveness of egocentric car-buyers. But given that business is becoming more green-savvy, and given that bigger businesses, at least, are turning their considerable marketing power to the promotion of the products they say are green, the coming years will demand a lot of consumers who want to make sure their purchases really are doing good, rather than just boarding the train.

Relevant reading:
Natural Capitalism: Creating the Next Industrial Revolution
Cradle to Cradle: Remaking the Way We Make Things
Green Living: The E Magazine Handbook for Living Lightly on the Earth
Nation of Rebels : Why Counterculture Became Consumer Culture