The Business Ethics Blog

Lobbying (and in particular the Obama administration’s limits on employing former lobbyists) is making headlines, again.

I blogged about the basic issue earlier this month: Obama’s Lobbyist Rules & the Baby/Bathwater Problem.

…in effect, Obama’s well-intentioned restrictions on lobbying mean not just restrictions on lobbyists for Walmart, Exxon, McDonalds, etc., but also restrictions on lobbyists for Ducks Unlimited, the Boyscouts, and Anytown USA.

Here’s the update, from the NY Times: Nonprofit Groups to Push for Exceptions to Lobby Rule. Here’s a key paragraph:

A coalition of nonprofit groups has started a campaign to exempt lobbyists for charitable and social welfare organizations that have tax-free status, meeting with presidential aides and sending them a package of ideas for rewriting the policy.

One of the non-profit groups involved is Citizens for Responsibility and Ethics in Washington (CREW). Here’s their take, including their own clarificatory letter to the White House: CREW’S POSITION ON SUGGESTED REVISIONS TO ADMIN’S LOBBYING RULES

CREW’s letter to the White House states that the coalition they belong to wants Obama to make a blanket exemption for all…

…individuals who lobbied solely on behalf of an organization determined by the IRS to be a qualified organization under Section 501(c)(3) (public charities) or Section 501(c)(4) (social welfare organizations) of the Internal Revenue Code.”

That seems reasonable in principle. After all, there’s a world of difference between lobbying for Monsanto and lobbying for Mothers Against Drunk Driving, right?

Whitehouse officials balk at the idea of an exemption. The NY Times story says:

…White House officials said there had been no internal debate on the matter and flatly dismissed the proposals, adding that they would not consider any changes because it would start the administration down a slippery slope of declaring some lobbyists acceptable and others unacceptable.

“You can’t have a value judgment,” said Rahm Emanuel, the White House chief of staff.

Of course, there would be nothing wrong, in principle, with making ‘value judgments.’ Presumably what Emanuel means is that it would be hard to do so in a consistent and publicly-defensible way.

One key problem with the view expressed by the non-profit groups is the assumption that for-profit corporations are malignant and that not-for-profit groups are always benign. Regardless of your political leanings, it’s pretty easy to find counter-examples. After all, 501(c)(3) organizations include The National Rifle Association, Planned Parenthood, the marijuana activist group “Hemp Evolution,” the Institute for Energy Research (whose biggest supporter is Exxon Mobil) and any number of other organizations surely dedicated to some vision of the public good, but not necessarily a vision shared by all. So: is your favourite corporation really more dangerous than your least-favourite non-profit group?

What makes a company great? “Great” clearly doesn’t mean “perfect.” (See also what’s known as “Great Man Theory,” which has to do with the historical significance of influential — not always morally upstanding — individuals). A company, just like a political leader, might be considered great, even if flawed, perhaps even tragically flawed. Surely we can at least imagine calling a company “great,” even if we weren’t entirely approving of its behaviour. Then again, at some point, grand accomplishments won’t always outweigh questionable methods. So, what makes a company great?

Earlier this month, investment advice site, the Motley Fool, had this to say:
The Greatest Company in the History of the World

“It’s the world’s greatest company, period.” — Arjun Murti, Goldman Sachs

I’m what a lot of folks would call “obsessed” with finding great stocks. So when I heard Goldman Sachs oil oracle Arjun Murti boldly label a company as the world’s greatest company, you’d best believe I paid attention.

That’s pretty high praise, but the facts speak for themselves. In fact, my research led me to take Murti’s claim one step further: This is the greatest company in the history of the world.

The corporate titan in question produced modern-day history’s greatest fortune and earned double the combined 2008 profits of Google (Nasdaq: GOOG) and Microsoft (Nasdaq: MSFT). If you’d invested $1,000 in this company in 1950, your shares would now be worth about $2,400,000. And, incredibly, this giant still has decades of slick profits ahead of it.

Meet the world’s greatest company: ExxonMobil….

I can hear the question echoing across the world: “Exxon? ‘Scuse me? The greatest…??”

Of course, the key to the claim is that it’s rooted in profits. Exxon is undeniably a great profit-earner. Then again, Al Capone made lots of profits, too. But he murdered a lot of people along the way. So profits aren’t all that matters. But nor is profit utterly irrelevant, morally speaking. If profits are earned without force or fraud, then profits signal that a company has provided people with something they wanted. Profits are never one-sided: they’re always one half of a win-win scenario, given the basic economic idea that all voluntary economic transactions are mutually beneficial. None of this is to say that big, profitable companies are morally in the clear. Far from it. Exxon has done plenty wrong. But it’s worth at least contemplating the notion that the most profitable companies are, other things being equal, the ones that have provided the most people with stuff they wanted.

On the other hand, it would be good if we all wanted less of what Exxon sells. The environment we hand down to our children and grandchildren depends on that. But it’s not clear that those sorts of aggregate effects can easily be laid at the feet of a particular company, supplying a useful (indeed, necessary) product to each of us on a sale-by-sale basis.

Last month I blogged about the story of a shopkeeper in a small town in England who had found an innovative way to get customers (mostly kids) to take responsibility for litter. (Here’s that blog entry: Taking — And Enforcing — Responsibility for Litter.) Soon after, I was interviewed about the topic by CBC Radio. Here are some further thoughts that came out of that interview.

My opening paragraph from last month bears repeating, because it lays out some basic economic ideas:

Litter is a classic example of what economists refer to as a “negative externality.” A negative externality is basically a cost, resulting from a transaction, but imposed on people not party to the transaction. Voluntary transactions are efficient when all the costs and benefits are borne by those who are part of the transaction. When others are forced to pay costs, that means the buyer isn’t paying the full cost of the good, and so too much of that good is likely to be purchased, from a social point of view. Economists call that “inefficient.” The rest of us call it annoying, and unfair.

The idea that litter results ultimately from a transaction between a buyer and seller is important. When we ask “what can we do about litter?” it’s important to identify it as an unwanted outcome of a transaction between two parties. To some extent, that means that the rest of us can essentially put the responsibility for litter on the buyer/seller duo. So rather than ask what the right solution is, one option is to say that litter, like many other forms of pollution, is a problem foisted on the rest of us by a buyer/seller duo, and that that duo has the responsibility to fix the problem. In other words, what’s the solution to candy bar wrappers in the street? I have no idea. But I’m justified in being angry about it, and candy sellers and their customers need to figure it out. It’s their shared responsibility.

Now, to say it’s a shared responsibility doesn’t mean that it’s shared equally. My local convenience store can’t be totally responsible for what I do with a candy-bar wrapper once I’m out the door and far away. And as a consumer, there are limits to what I can reasonably be expected to know about the waste-reduction efforts of the people who package the foods I buy.

Also, it’s worth considering that, even though we might consider litter the shared responsibility of buyer and seller, we (society) still have the option of imposing penalties if the buyer/seller can’t figure out, between themselves, how to (literally) clean up their act. Where that penalty is best applied — to the buyer or to the seller — is likely to vary depending on the case.

Finally, it’s also always worth looking for (though not always possible to find) win-win solutions (or win-win-win solutions, ones that are good for buyer, seller, and society). I suspect that the practice by some coffee stores of offering a discount to people who bring a reusable mug (and who therefore don’t use a paper cup) is an example. Stores reduce the amount of cups they go through in a day; consumers save 5 or 10 cents per cup of coffee, and society benefits from a reduction in the number of cups going into landfills, a reduction in (potential) litter, etc. People who can find & point out those kinds of solutions are making a real contribution.

Here’s an interesting blog entry, by by Claudio Fernández-Aráoz for Harvard Business School:
Make Ethics a B-School Admissions Requirement.
Here’s the key paragraph:

In order to assure that the people they line up for positions of power do good for all stakeholders, business schools should drastically revamp their admissions processes. Schools should make sure that they admit a larger proportion of individuals with the right values in the first place. In my book, a demonstration of ethical values is more important than brilliant academic and even professional credentials. (Applicants come in with their values pretty fixed. You can’t hope to change people’s values by the time they reach graduate school, even if you can inspire them to reach for excellence.) Admissions committees should check to see whether applicants have in the past demonstrated altruistic values in practice – on the job, in their personal activities, in contributions to valuable social causes, and in community service. In order to correctly assess this evidence, proper interviews and reference checks should be a must before any final admission decision

Good idea in principle. And I can see the value of a certain amount of background-checking. A history of malfeasance — illegal activities, or ethical breaches such as plagiarism — could well be good grounds for denying someone admission. But I’m skeptical beyond that. But looking for candidates who have “demonstrated altruistic values in practice” is probably a bad idea. First, the goal of business isn’t (typically) altruism. Being altruistic isn’t a prerequisite for being a good manager. What you really want is things like:

• Respect for the law (both the letter and the spirit).
• Ability to work cooperatively.
• Dedication to the idea of not using anti-social methods (e.g., fraud & deception) in pursuit of profits.

Ask yourself: how much can you really tell from a candidate’s record of “altruism?” What are you going to look for? Volunteer work? Lots of people do volunteer work for lots of reasons, not all of them noble. That’s not to deny the enormous contribution that volunteers make, in all kinds of organizations. It’s just to say that a history of altruism isn’t a reliable indicator of ethics.

Finally, what kinds of altruism are going to count? Large charitable donations? That signals wealth at least as much as it signals ethics. How about volunteer work for your least-favourite charitable organization? Will work for organizations on both sides of the abortion debate count as signals of ethics? Or the same-sex marriage debate? Or gun control? Or healthcare reform?

Before you sign on to the idea of screening for ethics, make sure you’re comfortable with the idea of someone other than you deciding what counts as ethical.

Ethisphere Magazine just released its 2009 list of the World’s Most Ethical Companies. Accompanying their ranking is the graph pictured here, the caption of which reads:

Need proof that it pays to be ethical? The World’s Most Ethical Companies consistently outperform the S&P 500. The graph…depicts the average stock growth percentile of the public World’s Most Ethical Companies vs. the Standard & Poor’s 500 index over the last five years.

It’s an interesting graph, to be sure, but it doesn’t show what they claim it shows. What it shows is correlation, not causation. I hope their conclusion is right, but the graph they present doesn’t establish that. For this to count as evidence of causation, you’d have to be able to rule out alternative explanations for the correlation: such as the possibility that successful companies are wealthy enough to spend money on the sorts of things that Ethisphere and others measure when they want to do this sort of ranking. Of course, I doubt this cynical, alternative, hypothesis is correct either; I suspect the truth is more complicated than that. But I think truth in advertising is a good thing, even in the promotion of ideals I like.

Here are two propositions lots of people will agree with:

1) Ethical businesses do everything they can to protect the health and safety of their customers.

2) Socially responsible businesses modify their behaviour based on what’s good not just for their profits, but for society.

So, what happens when #1 conflicts with #2? What happens when what’s good for customers isn’t good for society?

From The New Republic: Pick Your Porcine Poison (by Rob Inglis)

What if free-range pork, grown without antibiotics, actually posed more of a health risk than pork produced on industrial farms? That’s what James McWilliams suggested last week in an a New York Times op-ed, in which he discusses a study by an Ohio State University researcher who found that pigs raised in free-range, antibiotic-free environments tested positive for three food-borne pathogens—salmonella, toxoplasma, and trichinella—at significantly higher rates than their conventionally raised cousins.

….

Does it follow that reducing antibiotic use on hog farms isn’t such a great idea? Only if you’re looking at the question solely from a product-safety perspective. If you’re a consumer looking to reduce your risk of getting sick from pork, perhaps it makes sense to buy conventional. …. But the real reason that we shouldn’t be using antibiotics on pig farms has nothing to do with protecting those who want to eat their pork a little rare. It has to do with protecting society as a whole from the threat of antibiotic-resistant bacteria.

Farmers big and small are in a bind, here. Their obligation to produce safe food arguably implies more use of antibiotics. Their obligation to society — to help prevent the growth of antibiotic-resistent bacteria — implies the less use of antibiotics.

Now, the title of this blog entry is somewhat misleading: this story isn’t really about Business Ethics versus Corporate Social Responsibility. But it does highlight the fact that being “socially responsible” and being “ethical” don’t automatically amount to the same thing.
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Thx to Wn for the story.

Criticism is easy when you’re vague and unclear about who you’re criticizing. I mean, that makes it impossible to be wrong, right?

Witness this odd little rant in the Boston Globe, (by a philosophy professor named Gordon Marino) apparently aimed at someone vaguely labeled as “business ethicists,” and the role they (failed to) play. The business of business ethics.

Here are a few key paragraphs:

In a recent New York Times column, Nicholas Kristoff observed that of the great multitude of economic talking heads, next to none of them recognized the pavement that we were rushing toward. Finally, there is some public scrutiny of our overreliance on expert opinion.

However, there is one cadre of experts that has not been asked to approach the bench: namely, that brigade of briefcase-toting philosophers known as “business ethicists.”

Back in the ’80s, just after the Michael Milken scandals, the business of business ethics took root on Wall Street and in MBA programs around the nation. Within a few years, philosophers began setting up shop in the financial districts. Every corporation worth its exec bonuses had ethics codes and workshops run by some Socrates in a suit. Many companies put ethicists on retainer and insisted that their employees sit through seminars for continuing-education credit in ethics. By the ’90s, MBA programs began requiring courses in business ethics. Soon the business of business ethics was a booming multi-billion-dollar business. To what avail…?

I’m probably inflating the significance of this editorial, just by commenting on it. But the piece is so misleading that it’s hard not to comment.

The first error worth noting lies in the author’s understanding of the field of business ethics — or rather, the fields of business ethics. Is his target philosophers, or the people performing business-ethics roles in corporations, who in fact are overwhelmingly not philosophers? Though there is some overlap, the academic study of business ethics (within which philosophy professors like me play a significant role) is quite distinct from the business ethics function carried out within corporations (often by “Ethics & Compliance” departments). To the best of my knowledge, those departments are staffed by lawyers and accountants and so on. That’s not an attempt on my part to shift blame from philosophers onto others: it’s just pointing out that the author of the editorial is a bit confused.

Fast forward to the current economic crisis, and the unethical behaviour that facilitated it:

Did we hear a peep from the experts on ethics while these shenanigans were in play? Hardly. The silence is understandable.

Again, to evaluate this we need to know who the author is talking about. But regardless, it’s an odd charge. If he’s talking about corporations’ internal ethics advisors, why on earth expect that “we” would hear a peep from them? If he’s talking about academics, he’s just uninformed. Business ethics scholars spend pretty much all their time promoting ethical behaviour on the part of corporations. As for commenting, after the fact, on the financial crisis and its sources, I’m guessing the author just hasn’t noticed the conferences, the special issues of scholarly journals, and the blog entries.

Finally, the author ends off with a totally wrong-headed prescription:

…if business ethicists cannot do anything to diminish the tendency toward greed, they ought to close up shop.

To say that business ethics, or any other field, ought to “close up shop” if it cannot change fundamental facts about human nature demonstrates a deep and dangerous misunderstanding of what we can, and should, expect of that field. Does advising an organization on what policies to implement in order to deal with conflict-of-interest require changing human nature? No. Does helping managers balance their obligations to shareholders against their obligations to other stakeholders require changing human nature? Thankfully no. Does reminding corporate leaders about the importance of visibly modelling the virtues they wish employees to imitate (advice they certainly don’t always follow) require changing human nature? No.

I think reflection on the role(s) of business ethics is an excellent thing, overall. But it’s rather unseemly to tell business ethicists that their job is to tilt at windmills, and then criticize them for not hitting their targets.

Discrimination based on sexual orientation is illegitimate in the world of commerce — when talking about humans, at least. What about when talking about animals? To discriminate based upon human sexual orientation is an affront to human dignity, and to ideals of human moral equality. But our views about animals are different. Even though many of us love animals, and think they warrant good treatment, we generally don’t object to discriminating among animals the same way we object to discriminating among humans.

So, check out this story, from Reuters, via Yahoo! News: Polish politician fumes over “gay” elephant in zoo

WARSAW (Reuters) – A Polish politician has criticised his local zoo for acquiring a “gay” elephant named Ninio who prefers male companions and will probably not procreate, local media reported on Friday.
“We didn’t pay 37 million zlotys (7.6 million pounds) for the largest elephant house in Europe to have a gay elephant live there,” Michal Grzes, a conservative councillor in the city of Poznan in western Poland, was quoted as saying.
“We were supposed to have a herd, but as Ninio prefers male friends over females how will he produce offspring?” said Grzes, who is from the right-wing opposition Law and Justice party.
The head of the Poznan zoo said 10-year-old Ninio may be too young to decide whether he prefers males or females as elephants only reach sexual maturity at 14.

OK, odd story, liable to produce a few giggles here & there. I mean, the notion of elephant sex is funny enough, without the notion that elephant sexuality might be subject to the same wonderful diversity as human sexuality. But then, this is also a story about a commercial transaction — a very expensive one — which brings it into the realm of business ethics. So, a couple of points:

Commodification of animal sexuality is widely regarded as ethically permissible. Paying for the services of a ‘stud,’ for example, is common among horse-owners, as well as in the breeding of dogs, cattle, and other domesticated animals. And if it’s legitimately commodifiable, it seems we’re in the realm where sexuality is subject to ethical & legal questions about product quality. So, does the zoo in question have a legitimate beef over the quality of the product it bought? Well, in a commercial transaction (especially ones with large price-tags), many of the relevant obligations are built in, written into the sales contract. And we don’t know much about the terms of contract for this reluctant elephant stud. We don’t know if guarantees were given, for example. If not, well, given the (apparent) variability of elephant sexuality, it seems this is a case of ‘buyer beware.’ And the buyer in this case is a zoo — a buyer with some relevant expertise, presumably including some knowledge about animal sexuality.

On the other hand, some might choose to look at the elephant as deserving of respect in its own right, rather than as a commodifiable ‘product.’ Looked at that way, is this a case of workplace discrimination, based on sexual orientation? Well, workplace discrimination is generally bad if the basis for discrimination is something irrelevant to the job. It’s not generally considered wrong to discriminate based on a characteristic that is a bona fide job requirement. When hiring airline pilots, it’s not wrong to discriminate against the visually impaired. And presumably if the ‘job’ being done is the job of serving as a stud, having the right sexual orientation (or at least a willingness to play the role!) is a bona fide job requirement. That would mean the zoo in question has the right to discriminate; but acting upon that right really should have meant asking the right questions, or bargaining for the right assurances, up front.
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Business ethics aside, for more on animal homosexuality, see this Wikipedia entry, which includes a paragraph on elephants: Homosexual behavior in animals.
And see also this book: Biological Exuberance: Animal Homosexuality and Natural Diversity by Bruce Bagemihl, Ph.D.

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Update:
Sadly, I’m receiving too many hateful, poorly-reasoned, off-topic comments on this posting. I have neither the time nor the energy. I’m cutting off comments.

Ahh, the good old days. The golden era of goodness & truthfulness in business. Back before business turned Evil and Greedy. Back when a man’s word meant something. When business was guided by men who understood what it meant to pay a fair wage. When the wealthy eschewed opulence and instead lived simple, humble lives. Yes, those were the days…

Surely, no one believes that, right? Well, oddly enough, some people think something close to that. Their message is that things are bad, and getting worse. We’ve lost our way. Etc etc. For example….

Jonathan Sacks (Chief Rabbi of the United Hebrew Congregations of the Commonwealth), writing for The Times: Morals: the one thing markets don’t make

The continuing disclosures about excessive pensions and payoffs, salaries and bonuses for people at the top stir in us feelings for the oldest of human bloodsports: the search for a scapegoat. But they ought to lead us to think more deeply about the values of our culture as a whole.

Often, these past months, I have found myself going back to one of the most painful conversations I have had. It was with one of Britain’s leading industrialists. He had led his company to consistent success for decades. When I met him he had retired and was near the end of his life.

He was not a religious man but he was a deeply moral one. He spoke of the principles that had guided him in business and of the salary he had drawn. It was not negligible, but it was modest. What pained him was that his successor had awarded himself a salary ten times that amount, while systematically destroying the company he had so carefully built.

I recall another conversation with a successful investment banker. He told me that the first thing he had to establish was his character, his reputation for trustworthiness and honesty. Without that, he would have been unable to trade. Nowadays, he said, deals no longer depend on character but on lawyers.

Ah, the power of anecdotes! And what, pray tell, do these anecdotes teach us? This:

Common to these stories is the gradual disappearance of the cluster of principles that went by the name of morality. Whatever its source — religion, conscience, custom or code — it meant that there are certain things you don’t do because they are not done….

Now, admittedly, it’s been a bad year. Things look grim. But the idea that this is part of some decades-long trend, some inexorable march from virtue to villainy, is simply unsupported. Don’t get me wrong: encouraging people to think about the values that often do, and always should, underpin business is a very good thing. But I’m not sure it helps to suggest that the current crisis is the fault of a long-term historical trend, rather than the result of a particular set of circumstances resulting from a combination of bad decisions on Wall Street and weak government oversight.

Drug company reps giving physicians goodies to try to convince them to prescribe — oops, I mean, educate them about — their branded drugs is hardly a new story. But it’s one that bears repeating. No one buys the companies’ rhetoric about education; and physicians who categorically deny that they’re not influenced are delusional. Whatever else they may be, drug companies aren’t stupid. And there’s empirical evidence that marketing does work on physicians — if not on every physician, every time, then at least on average.

Here’s a particularly good, detailed account, from the St. Petersburg Times: To move more prescription drugs, sales reps sling swag

The transformation of a Jacksonville psychiatrist from a skeptic on Seroquel into a super-prescriber was marked by months of gentle pestering, generous $1,500 speaking engagements and giveaways of everything from a plastic brain to gourmet chocolates.

A neurologist in Tampa joked with Seroquel sales reps that she doled out so much of the powerful antipsychotic drug for migraines that they probably thought she was psychiatrist. She was rewarded with free trips to Scotland and Spain. “I want to go too ! =)” her Seroquel rep wrote.

Wooo hoooo!

*sigh*

I must say I find these stories depressing, though I can’t say I find them surprising. Companies want to sell drugs. So they reward sales reps for convincing docs to prescribe more. And the reps stroke and coddle the docs into prescribing. And the patient? Well, in most cases the patient is just happy someone is taking care of them, and they haven’t got a clue whether the doc is prescribing what’s very best for them or not. (That’s because many pharmaceuticals are what economists call “credence goods,” goods that the consumer can’t effectively evaluate even after consuming them.)

Now, one thing the Times mostly leaves out is that a few things have changed, at least on paper, since the events recounted in the story. Most significantly, the Pharmaceutical Research and Manufacturers of America (PhRMA) has revised its code of conduct to forbid its members from buying physicians meals at restaurants and giving out non-educational gifts bearing their logos. Here’s the story as reported by USA Today: New pharma ethics rules eliminate gifts and meals. And here’s PhRMA’s press release: PhRMA Revised Marketing Code Reinforces Commitment To Responsible Interactions With Healthcare Professionals.

The change in policy was effective in January (2009). I have no idea whether it’s been effective. But there are two things I’m pretty sure of.

First: as one insider quoted in the Times story points out, the problem isn’t about the value of the gifts. The problem is the personal relationship forged between the drug rep and the physician. When physicians get defensive and object, “Hey, I can’t be bought for the price of a free lunch and a coffee cup bearing a corporate logo!” they are absolutely right. It’s not the freebies, per se. It’s the pat on the back, the chumminess, the “hey, how did your daughter’s violin recital go?” (See also this blog entry by Nancy Walton: Personal relationships, conflict of interest and ethics.)

Second: Like most people, I find it easy to be skeptical about the kind of self-regulation represented by PhRMA’s changes in its code. There is, after all, still one helluva lot of money to be made here, and that means lots of incentive for gaming the rules. But on the upside, notice that the industry, collectively, really does have reason to want this to work. After all, lavishing goodies on doctors to get them to prescribe your drug is a game the companies can’t all win. It’s like athletes taking steroids. If everyone does it, no one has any advantage, but all pay the costs. So they’d be better off as a group if they could stop. (In more technical terms, it’s a zero-sum game.) That doesn’t make playing by the rules easy, because each company may be tempted to bend the rules, just in case the competition is doing so. And then there’s still the issue of convincing docs not just to prescribe your company’s drug, but to prescribe more of it — and that, unfortunately, is a game that all the companies can win at. So, the situation is strategically comlex. But it’s worth noting that there’s at least some reason for drug companies genuinely to support and end to the gifts and free lunches.