The Business Ethics Blog

I recently had the pleasure of helping out at a student-run event where the focus of discussion was ethical assessment of Wal-Mart.
I had the unenviable (but not impossible) task of saying some nice things about Wal-Mart.

Here are the highlights of what I said:

• It’s important to keep separate our moral evaluation of some of the bad business practices that have been observed at Wal-Mart (forced overtime, discriminatory hiring & promotion, etc.), on one hand, and our moral evaluation of Wal-Mart’s business model and its large-scale impact. The former are indefensible, and must be changed. The latter are at least worthy of debate.
• Wal-Mart’s business model is to focus on price. Low, low, prices, mostly for consumers who are very sensitive to price. (Contrast this with Starbucks; their business model is to sell boutique coffee to those of us willing to spend $5 for a shot of caffeine.) The primary beneficiaries of this business model are Wal-Mart’s low-income customers. (Not all of their customers are low-income, of course. But for those who are, Wal-Mart’s prices can mean saving as much as a couple thousand dollars a year, per household. That has a very, very significant effect on quality of life.)
• Wal-Mart has been criticized for its anti-union stance. But we have to remember that while unions may typically benefit employees, they typically hurt consumers. Unionization would mean Wal-Mart’s costs would go up; and in a retail environment in which even a successful company like Wal-Mart has only a 3.5% profit margin, that can only mean that prices would have to rise (which, of course, would hurt the working poor).
• Wal-Mart didn’t get where it is by being a monopoly (it’s got lots of competitors), or by advertising (it does very little advertising, for a company its size). It got where it is by being really good at delivering decent products at very, very low prices. It’s done that by adopting excellent supply-chain management techniques (including cutting-edge information systems), and by forcing suppliers to become more efficient.
• A lot of the frustration with low wages and poor health benefits at Wal-Mart are off-target. We have to remember that retail jobs, in general, are not well-paying. Nor is Wal-Mart a laggard in terms of health insurance, compared to others in that industry. A lot of the troubles experienced by Wal-Mart employees are the sad result of having few opportunities, and living in one of the few industrialized nations without universal health insurance.
• Finally, my prediction for Wal-Mart? You can quote me: within 5 years, Wal-Mart will be at the TOP of at least some business ethics / corporate social responsibility / corporate citizenship rankings. (They currently lag just barely behind their major competitors.) It has the resources, both financial and organizational. And it’s facing intense public scrutiny. It’s got a lot at stake. Those are the ingredients that turned Nike from a sweat-shop horror-story into an model of socially responsible apparel manufacturing. My guess is that, 5 years from now, Wal-Mart will be a leader (at least in terms of the standard, measurable indicators), and will be pushing its competitors and suppliers alike to meet their standard.

Here are some relevant links:

• From The Economist Opening up the big box:
• From The Washington Post Progressive Wal-Mart. Really.
• The Wal-Mart Effect : How the World’s Most Powerful Company Really Works (a book by Charles Fishman)
• Measuring the Economic Impact of Wal-Mart on the U.S. Economy (a study by Global Insight)
• From Maclean’s magazine: Why Wal-Mart is Good.

(Thanks to Joe Heath & Wayne Norman for useful feedback & discussion on this.)
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(Edited April 2010 to remove one dead link and fix a broken one.)

Reuters had this story today, “Scientists seek biotech answer to hunger”, about researchers in the U.S. working to genetically tweak sorghum (a cereal crop) to make it richer in essential nutrients.

An estimated 300 million people in arid regions of Africa rely on sorghum as a food source along with other crops. But while conventional sorghum is already known to do well in drought conditions, it lacks certain key nutrients.

By taking genes from other crops as well as manipulating genes within the sorghum plant itself, scientists believe they can remake sorghum into a more easily digestible crop richer in vitamins A and E, iron, zinc and amino acids and protein.

Pioneer Hi-Bred International, a subsidiary of Dupont, is a key U.S. partner and the sole commercial player in the endeavor. Pioneer has donated $4.8 million in gene technology, and is lending manpower and facilities for visiting African scientists at its Johnston headquarters.

The claim is often made that biotechnology will bring huge benefits to the world’s developing nations. In particular, it’s often — too often — claimed that genetically modified (GM) foods will do wonderful things for the starving millions in Africa. It seems to me that the question is not whether biotechnology could help the developing world, but rather whether it will. For biotech actually to help developing nations, it seems that one of two things has to happen. Either governments and NGO’s need to spend a lot of money to donate biotech products or know-how, or companies need to find business models that let them a) do good, while b) making a profit. The company involved in this story (Pioneer Hi-Bred) is frank about its business model:

Pioneer will have no rights to revenues from the biotech sorghum once it is developed and commercialized, said Anderson. But the company, already locked into tight competition in the commercial seeds market, hopes that success with biotech sorghum might help open doors for other biotech crops in countries currently skeptical of genetically altered crops.

The point here is that African countries have been very, very wary of GM foods — in some cases, African governments have rejected donations of GM food that would have saved lives. So, Pioneer is hoping GM sorghum will be the thin edge of the wedge. Some people will find this alarming. I don’t (since I don’t think there’s any good reason to worry about GM foods in general.) But you’ve got to admit, the company’s candour about its business model is pretty disarming.

A couple of days ago, MSNBC featured a commentary by Art Caplan (director of the Center for Bioethics at the University of Pennsylvania), on a couple of recent clinical drug trials that went very wrong. One of them happened in London, and the other in Montreal.

Caplan writes:

Last week, six very healthy men suddenly wound up in a London hospital in critical condition. Earlier this month, 11 otherwise well people tested positive for tuberculosis, according to Montreal’s health department. What do these people have in common? All were human subjects in research paid for and conducted by private companies. These mishaps mean that the time has come to take a closer look at how commercialized research involving human subjects is being conducted all over the world.

Caplan’s very reasonable conclusion is to call for tighter regulation of the companies that now conduct so many drug trials for pharmaceutical corporations:

The recent events in London and Montreal make it clear that it is time for Congress and other regulatory bodies here and overseas to take a hard look at how clinical research is being done these days. Many of those in the for-profit business of conducting clinical research may be doing their best, but they and their sponsors had best be putting the safety and welfare of their subjects first. Otherwise they should have no business doing clinical research.

Tighter regulation is of course a great idea here. This is a situation where vulnerable lives are being put in the hands of the lowest bidder, and research subjects are being recruited by physicians who often receive finder’s fees that place them in a very, very serious conflict of interest. But I can’t help wondering if a public-policy response is the only response available.
From the point of view of business ethics, we might ask the following questions:

• What can the industry do to towards better self-regulation? (And what moves on the part of government — legislative, exhortative, or financial — could inspire better self-regulation?)
• What factors have resulted in the failure of leadership in these corporations? We all know that the tone is set at the top. What are pharma CEO’s doing wrong?
• Has anyone, either in academia or industry, written up anything like a set of ‘best practices’ for the business side of commercial clinical trials?
• Is there anything peculiar (or just inadequate) about the ownership structure or governance structures of the pharmaceutical industry that makes failures of this kind more likely? (There is a literature on these issues for corporations in general. See, for example: “Why do corporations become criminals? Ownership, hidden actions, and crime as an agency cost”)

(See also my previous posting on “What Causes Unethical Behaviour.”)

My friend Andrew continues to have trouble with customer service at Dell computers.

Reports that he’s not alone in his dissatisfaction with Dell got me thinking about Dell overall, Dell customer service (such as it is) and the company’s commitment to ethics. What relationship is there between Dell’s overall commitment (or lack thereof — I have no idea) to ethics, on one hand, and the quality of their customer service, on the other? Sounds like a great student project, to me.

So, just in case anyone wants to take on an overall assessment of ethics at Dell, here are some resources:

• Here’s a story about Dell’s Chief Operating Officer, Can Kevin Rollins Find the Soul of Dell?, with a focus on values.
• Here’s a notice of an environmental award that Dell won at the 16th Annual Business Ethics Awards.
• Here’s the page for Thurmond Woodard, Dell’s Chief Ethics, Privacy & Compliance Officer and Vice President, Global Diversity.
• Here’s Dell’s corporate governance page.
• A complaint website, http://www.ihatedell.net/
• Electronics Industry Code of Conduct, to which Dell subscribes.
• Dell’s Higher Standard (Code of Conduct)
• And finally: The Soul of Dell, which includes the following commitment:
  

  Customers: We believe in creating loyal customers by providing a superior experience at a great value. We are committed to direct relationships, providing the best products and services based on standards-based technology, and outperforming the competition with value and a superior customer experience.

The Globe & Mail’s Report on Business magazine just published its latest Corporate Social Responsibility Ranking, in collaboration with Jantzi Research, Inc. The focus is on Canadian companies (or Canadian branches of international companies), and companies in just 5 sectors (Big Retail, Shoes & Clothes, Fast Food, Food Production, and Food & Drug.)

Companies are evaluated and scored in six key areas: community and society, corporate governance, impact on customers, treatment of employees, the environment and human rights. Jantzi translates the combined scores into a letter grade that is meant to convey the overall impact of a company’s social and environmental practices on employees, consumers, investors and communities, as well as the company’s success in tackling ongoing CSR issues. The scoring criteria are weighted differently for each sector, but the letter grades give some indication of a company’s performance relative to those in other sectors. Companies in the same sector with the same letter grade are ranked by their underlying numeric score.

A number of organizations and publications produce such rankings. Methods of evaluation vary, as does depth of research and degree of diligence.
A few things worth noting about this particular ranking:

• Apparently, just a single company (adidas-Salomon) earned a score in the A range. The calibration of such scares is of course somewhat arbitrary: to set the scale so that even industry leaders don’t get an A+ may well be a reasonable choice, but we should at least note that it is a choice.
• Having a policy on a particular issue is not enough. A number of companies got slammed for having good policies, but bad practices. For example: “Wal-Mart has a strong charitable donations program and is top-ranked for its workforce diversity policies. But it rates poorly on diversity performance and currently faces a U.S. class-action lawsuit filed by 1.6 million women alleging wage discrimination.”
• Lack of transparency is nearly fatal as far as these rankings go. A company might have great policies & practices, but if they’re unwilling to talk about them, their score sinks into the basement. The Forzani Group, for example, earn a grade of “E” (the second lowest possible), because the company does “not report any policies or programs that address the treatment of customers, suppliers or the environment.” [emphasis added]
• This isn’t very scientific, but there seems to be a correlation between high scores and a history of bad publicity. It seems likely that Starbucks, Nike, and the Gap score very well these days because they’ve cleaned up their act in response to pressure from the public, the press, and NGO’s.
• A number of firms get credit for impressive rates of charitable donation. But no information is given, here, about the beneficiaries of this corporate largesse. Not all charities are equally socially worthy. There would be differences of opinion, to say the least, about the value of donations given to: the National Rifle Association, PETA, or various pro-life or pro-choice groups.

I’m thinking a lot about social responsibility reports these days.

The vocabulary varies, but the reports I’m talking about are generally annual publications that document a corporation’s social performance. (These get called Corporate Social Responsibility Reports, Sustainability Reports, Triple Bottom Line reports, and so on.) This is part of a larger movement that sometimes goes by the acronym SEAAR: Social and Environmental Accounting, Auditing, and Reporting. The general idea is that a company’s performance can be measured (loosely speaking) not just in financial terms, but in ethical (social and environmental) terms, too.

Such reporting is, of course, not uncontroversial. Some regard it as a crucial part of increasing corporate transparency. Others see such reports as window-dressing. (The reports are, after all, generally written by the corporation itself, rather than by an external assessor.) Also, there is legitimate difference of opinion as to what sorts of measures are the best indicators of good social performance.

Here’s a website that archives social responsibility reports for a lot of companies:
Sustainability-Reports.com
(Note: the site gives reports for the years 2000-2005, but some years there are more than others. For example, there are only 6 listed for 2005, but nearly 40 for 2004.)
And here’s a page I’ve begun, listing CSR reports for companies in the industry that most interests me,Biotechnology.

BusinessWeek Online reports today that Body Shop agrees to L’Oreal takeover deal.

Here is an opportunity for a natural experiment in corporate values.

The Body Shop was built on a very clear — and very well-publicized — set of values (including a commitment to the environment, to fair trade, and to avoiding testing products on animals). L’Oreal‘s public image, at least, includes no such commitment. (I’ve read conflicting reports about L’Oreal and animal testing. This story claims that the company eliminated animal testing — at least testing of products (as opposed to ingredients) as far back as 1989. The company does still face criticism for continuing animal testing. There are signs, however, that L’Oreal has been interested in reducing, if not eliminating, testing on animals.)

The experiment is this: let’s all watch BOTH the Body Shop and L’Oreal over the next, say, 3 years, to see whether the merger results in significant changes in either a) their stated values, or b) the values implied by their behaviour.

I came across this story in the on-line version of a rural Oklahoma newspaper: Cowboy culture still a model of ‘the right thing to do’

The story is about a panel discussion on business ethics, held at Price College of Busines, but a lot of the focus of the story is on the idea of “cowboy ethics,” and old-time cowboys as moral exemplars. (One of the panelists was James Owen, author of Cowboy Ethics: What Wall Street Can Learn from the Code of the West. I have not read the book.)

My immediate reaction to the “cowboy ethics” idea was pretty negative, but now I think my initial reaction was wrong. Here’s why.

Part 1: What’s wrong with the idea of cowboy ethics
Two things struck me as wrong about the idea of cowboy ethics as a moral exemplar.
First, any attempt to harken back to a “golden era” of ethics is probably mistaken. There have always been bad people, and good folks have always struggled, and sometimes stumbled, with hard choices. So, surely, for every cowboy who was honest, upright, and morally courageous, there must have been others who were dishonest, mean, and devious. Ever seen a western that didn’t have a bad-guy? And don’t forget, if you’re picturing the cowboys of the mid-to-late 1800’s (which is when most cowboy movies seem to be set), the cowboys you’re picturing were probably sexist, racist, xenophobic and (Brokeback Mountain notwithstanding) homophobic. So, they weren’t necessarily the pinnacle of ethics.

Second, I worry about the idea of singling out members of one group, one occupation, as if they have (or had) some kind of formula, some sort of special access to moral truth. Sure, there are lots of good values held by cowboys. But the same is true for nurses, truckers, bankers, school-teachers, and so on. Why should we take our cues from cowboys, rather than from these others?

Part 2: What’s right about the idea of cowboy ethics
My initial skepticism about cowboy ethics was the result of thinking about real (old-time) cowboys, and what they were probably like. But of course that’s a mistake: the exemplars being pointed to are not real cowboys, but the heroic cowboys of the classic westerns. Heroes like those portrayed by John Wayne, Gene Autry, Roy Rogers, and Clint Eastwood. At least, I reckon that’s the image most people picture when they hear the word “cowboy.” And those cowboys probably are pretty good moral exemplars. Sure there were the black-hats, but no one’s claiming all cowboys had good ethics. Though sometimes pretty flawed, the iconic cowboy — brave, hard-working, honest, compassionate, chivalrous — does stand out as a pretty inspiring figure.

And, when the goal is to motivate people, and show them an alternative vision of what it means to be a good person, the cowboy’s ability to inspire has got to count for something.

My friend (and fellow blogger) Andrew Potter has had lousy customer service from Dell (or I’m guessing it was actually Dell Canada, if that matters). See the posting on his blog: why i hate dell and so should you.

Is bad customer service an ethics issue? Of course it is. There are at least 3 ways that customer service can be unethical:

1) Front-line CS folks can be unethical; they can do unethical things like lie or “misplace” your order. (My guess is that front-line staff are MUCH more likely to be undertrained, or stuck with implementing bad policies, than they are to be unethical themselves.)
2) Head office can under-staff their CS phone lines, or under-train the folks who staff those lines, which basically guarantees that customers won’t be treated appropriately.
3) Head office can have unethical policies (e.g., policies that make it difficult or impossible for customers to get repairs done under warranty; policies that limit the amount of time a rep can spend dealing with a single customer; failure to have a policy stipulating that customers who have — for whatever reason — been treated badly ought to receive special treatment until the problem is rectified, etc.)

How much should a given pharmaceutical cost? Should that be determined by supply and demand? By the value of the productive factors (raw materials, labour, overhead, etc.) that went into developing and manufacturing it? Or should cost be based on ability to pay, or some other criterion?

(About a year ago, the VP of a mid-sized pharmaceutical company told me that he thought pricing would be “the” ethical issue for pharmaceutical companies for the coming years. I think he was probably right.)

The issue arises in this story in today’s New York Times, A Cancer Drug’s Big Price Rise Disturbs Doctors and Patients, by Alex Berenson

In practice, the question of how prices should be set (and at what level they should be set) gets reduced to the simpler question of whether they should be lower than they are. Many drugs — including many life-saving ones, and ones that greatly improve quality of life — are so expensive that many people who need them either can’t afford them at all, or are driven into financial ruin in the process of paying for them. So, should drug companies lower their prices?

The issue of pricing can be crudely divided into two separate questions, I think.
1) How should pharmaceutical corporations price their products domestically?
2) How should those same corporations price their products for sale overseas (especially in developing nations, where the vast majority of people can’t afford to pay North American or European prices)?

I argued (in a paper I presented at the Annual Meeting of the American Society for Bioethics and Humanities this past October) that those questions ought to be treated separately, and in that order. In the case of the domestic market, consumers who buy a company’s products are also:
a) taxpayers, whose taxes help fund much of the basic science that results in pharmaceutical discoveries, and who might thus make some claim to mere customers,
b) “neighbours”, members of the corporation’s moral community.
Those two factors are both morally relevant (though whether they’re morally convincing is a larger question.) So, if we can’t construct a case for an ethical obligation to reduce prices in the domestic market, then it seems much less likely that we’ll be able to construct a case for reductions in prices overseas. Africans (for example) are generally not (from the point of view of North American or European drug companies) either a) taxpayers or b) neighbours. What about the moral requirements to help those desperately in need? Many people in Sub-Saharan Africa, of course, are in dire need of pharmaceuticals they can’t afford. But (like it or not) North American and European societies accept only fairly weak norms of charity. So, need alone won’t make the case.

In my humble opinion, the amount of advocacy on this issue has NOT been matched by a like amount of good scholarship.