The Business Ethics Blog

Every business major should be required to memorize this.

From the Associated Press: Text of Bernard Madoff’s court statement. Here’s the first paragraph:

Your Honor, for many years up until my arrest on December 11, 2008, I operated a Ponzi scheme through the investment advisory side of my business, Bernard L. Madoff Securities LLC, which was located here in Manhattan, New York at 885 Third Avenue. I am actually grateful for this first opportunity to publicly speak about my crimes, for which I am so deeply sorry and ashamed. As I engaged in my fraud, I knew what I was doing was wrong, indeed criminal. When I began the Ponzi scheme I believed it would end shortly and I would be able to extricate myself and my clients from the scheme. However, this proved difficult, and ultimately impossible, and as the years went by I realized that my arrest and this day would inevitably come. I am painfully aware that I have deeply hurt many, many people, including the members of my family, my closest friends, business associates and the thousands of clients who gave me their money. I cannot adequately express how sorry I am for what I have done. I am here today to accept responsibility for my crimes by pleading guilty and, with this plea allocution, explain the means by which I carried out and concealed my fraud…

(I first blogged about Madoff back in December: Madoff: Biggest Financial Scam in History)

Some people hate advertising. Others love it. But one thing that tends to make even zealous defenders of advertising cranky is advertising to kids.

But it’s good to see contrarian views. So, here’s Giles Gibbons (a consultant at Good Business), writing in Ethical Corporation magazine: BrandWatch focus: marketing to children – Why brands should sell to kids

Marketing to children is an issue that’s not going anywhere. Whenever we conduct research with consumers into whether they think companies should be able to target promotional messages directly at children the overwhelming reaction is that this is something that no responsible company would do.

And commentators are no different. They also tend to react in a knee-jerk way….

Gibbons basically argues that the concerns tend to be overstated, and responsible advertisers already know how to avoid key problems. He may have a point there. Of course, part of the reason advertisers know what behaviours to avoid is that consumer activists have hammered them for their excesses.

Gibbons ends with a less-convincing point:

Not only do many products and brands have a positive impact on children, they are also often best placed to get through to them. The very influence brands have over children and their appeal can be turned to deeply positive ends.

The example he chooses is an unfortunate one:

McDonald’s happy meals have been subject to barrages of criticism in the past on the grounds that they encourage children to eat unhealthy food. Rather than remove them altogether, the company has moved to ensure they include healthier options – water and carrot sticks as opposed to soft drinks and fries. No doubt many still feel that the very existence of McDonald’s is an outrage but this would be to ignore the possibility that they might be an excellent way to introduce some healthier options to the very children that are hardest to reach.

I don’t see how marketing an unhealthy meal to kids, and then caving in to critics by marketing a less-unhealthy (but still not great) meal to kids teaches them anything positive about nutrition. That might just be one weak example. Gibbons ends with a more general point:

The potential to effect positive change holds true across all child-friendly brands. Messages on bullying, or the environment, or online safety that come from a cool brand – like Hello Kitty – can have far more impact than the strictures of parents and schools.

That’s a more promising, but still unsubstantiated, claim. Besides, it might well be that cool brands can have a positive impact. But what we should be concerned with is the net effect, not just finding an upside to an otherwise worrisome trend.

Information asymmetry — big differences in knowledge about a product — is a big problem in the marketplace. Consumer empowerment basically boils down to finding various remedies to such asymmetries. Jim Sabin over at the Health Care Organizational Ethics Blog had this nice blog entry 2 days ago, on an attempt to empower patients by letting them post comments, online, about their experiences with particular physicians: Up with Zagat! Down with Patient Waivers!

I recently discussed the collaboration between Wellpoint and Zagat for rating physicians and concluded that the benefits of web-based rating systems outweigh the risks. Since writing that post I have come upon (a) a very informative report about physician-rating websites by Ruth Given and (b) a seven year old physician protection enterprise called “Medical Justice.”

Anonymous online rating systems can make your mouth go dry, if you’re the one being rated — regardless of whether you’re a business whose product is being rated, a professor whose teaching is being rated, or a physician whose bedside manner is being rated. For docs, that’s where Medical Justice steps in. According to that organization’s website, the solution is what they call (and what they charge to facilitate) a “mutual privacy contract” between physicians and patients. According to the organization’s website…

Mutual privacy agreements are designed to address the emergence of now over 40 generally anonymous physician rating sites. “Mutual privacy” means that patients are granted additional privacy protections by the doctor above and beyond those mandated by law.

In return, patients agree not to post to anonymous doctor-rating websites. Good idea? Sabin (himself a physician and educator) says “no.”

…the idea of asking new patients to sign a contract eschewing physician-rating sites and sweetening the deal with “additional privacy protections” is unseemly. Meaningful privacy protections are fundamental moral obligations – they’re not chits to use as enticements for patients to sign a contract. If a physician greeted me by asking me to sign such a contract I’d be out of the office in an instant and badmouthing the physician shortly thereafter.

Sabin is right. Contractual solutions might be apt for many kinds of straightforward commercial transactions. But the relationship between physician and patient is a special one, one that necessitates a level of trust that seems incompatible with crude contractual solutions.

Lobbyists are not the most beloved creatures on earth. The very word “lobbyist” is practically an accusation these days. And that’s too bad, because there’s nothing bad, in principle, about what they do for a living. Fundamentally a lobbyist is a spokesperson. They speak to lawmakers and regulators, on behalf of a company or interest group, and thereby attempt to influence laws and policies. The worry, of course, is that they’re too good at their jobs, and that that gives the people they work for too much influence.

Here’s the story, from the Associated Press: THE INFLUENCE GAME: Lobbyists defend earmarks

What’s it like to be at Washington’s political ground zero? Ask Dave Wenhold, who trudges to work with two bull’s-eyes pinned to his back.
He’s a lobbyist and he earns part of his living fighting for special-interest earmarks, those prized pots of money that lobbyists vie for and critics decry.

So, why not just keep them away from lawmakers entirely? Well, first, because to petition your government is a fundamental democratic right. And if it’s my right to have my say, it’s also got to be my right to send someone to speak for me — after all, we’re not all eloquent, and we can’t all travel to where the lawmakers are. Note also that decision-makers actually need input, lest they make poorly-informed decisions. And it’s not just drug companies and such that employ lobbyists: so do charities and universities and municipal governments, for example.

So, what can we do?
1) Governments can put safeguards in place. Countries like Canada and the U.S. (and many others) have rules governing the behaviour of lobbyists. They usually have to register, for example: no secret lobbyists are allowed. Also, they’re allowed to talk to lawmakers, but not to give them money. Further, there are rules to limit the “revolving door” phenomenon, which sees lobbying firms and government agencies swapping personnel and practically guaranteeing conflict of interest. And so on. Of course, figuring out just the right set of safeguards — to maximize benefit and minimize risk — is hard.
2) The lobbyists can exercise ethical restraint. Individual restraint in a competitive domain is hard. Acting together is a little easier, though by no means trivial. The American League of Lobbyists, for example, has its Code of Ethics. Yes, plenty of room for skepticism there.

I think this might be one of the hardest problems in and around business ethics. Everyone agrees that businesses ought to obey “the rules of the game.” But how should they, and their representatives, behave when they get the opportunity to influence the rules themselves?

When hard times come along, should ethics be the first thing you cut, or the last thing?

Over at the Research Ethics Blog, my friend Nancy Walton has posted an interesting (and frightening) story about cuts in the world of bioethics: Ethics on the chopping block.

Here are the basics:

The University of Tenneessee is considering closing down The Department of Human Values and Ethics in the College of Medicine along with a number of other science and medicine programs.
….
Across the globe in New Zealand, the government will sign off on disbanding the country’s Bioethics Council on Monday. The Bioethics Council was created in 2002 in response to public concern that the government was making decisions — in an ad hoc and unadvised manner — on complex and controversial biotech and genetic issues ….

Nancy’s analysis of why these are stupid moves is thought-provoking, and goes beyond the obvious. She points out that, in the world of bioethics, at least (and I would argue elsewhere too), ethics departments serve outreach, advocacy, and educational roles that go beyond their literal job descriptions.

My own question is whether we should expect the same bad moves in the corporate world, during this global economic downturn. We already know there have been layoffs. But has anyone heard of any CSR or Ethics & Compliance departments being cut at major corporations? If anyone knows of any current examples, post a comment below or email me.

How much water does it take to make a latte? That’s the question asked (and answered) in this cool little flash video from the World Wildlife Fund: How Much Water?.

The answer: 200 litres (about 53 U.S. gallons). That number is shocking, and it’s intended to be. What the video points out is that each ingredient of the latte — from the milk, to the coffee beans, to the paper that makes up the cup — requires water to grow or manufacture it. But the video is a wonderful little piece of awareness-raising, and a good opportunity to highlight an economic concept that is crucial to understanding questions about sustainability:

Cost-free (or underpriced) resources get overused. It’s significant that the video chose to highlight water inputs, rather than, say, petroleum inputs. All the ingredients of your latte also require petroleum inputs (for energy to run the factories, for transportation, etc.) But petroleum products always cost money, and in fact are relatively expensive, so manufacturers have a built-in reason to use less, wherever they can. But at least some water-inputs are essentially free (e.g., water drawn from a private well) or are subject to flat-rate municipal pricing (such that using more doesn’t cost more). Manufacturers have no intrinsic reason to conserve a resource like that. So, you either need to a) find a way to charge, or to charge more, e.g., by taxing the product, or b) rely on changing attitudes and raising ecological awareness.

Note that the video isn’t particularly an indictment of lattes or latte drinkers. All foods and manufactured products and indeed all services require resource inputs. So don’t leap to feeling guilty about your 200-litre-latte. Whatever you might have had in lieu of that latte would have taken up some water resources, too. I suppose that means that we need not just “awareness,” but awareness of differences among products, and awareness of differences that can actually lead to changes in our behaviour.

I’m a Visiting Professor this term at the wonderful Keck Graduate Institute of Applied Life Sciences (KGI). Yesterday afternoon I gave a talk there, called “Direct-to-Consumer Genetic Testing: Consumer Empowerment or High-Tech Fortune-Telling?”

I didn’t talk about genetic testing in general, but rather specifically about at-home genetic tests (a.k.a. “personal genomics” services) sold by companies like 23andMe, Navigenics, and deCode.

The scientific consensus (among academic and clinical geneticists, anyway) seems to be that such tests aren’t worth much. You see, these services involve doing genetic tests based on a statistical method known as “genome wide association studies” (GWAS). Basically, rather than identifying a gene responsible for a particular illness, such studies look for statistical correlations between certain genetic “markers”‘ and illnesses. Sometimes those correlations are “suggestive” but statistically weak: it’s very often not clear that testing “positive” for a genetic marker associated, statistically, with some disease, actually tells an individual much about personal risk, or what to do about it.

So, is it ethical (or under what conditions is it ethical) to sell a product the utility of which is very much in doubt?

In my talk yesterday, I examined a range of possible comparison classes & categories of products currently on the market to which we might compare personal genomics services. Are they like pharmaceuticals: potent, potentially dangerous, and in need of serious regulation? Are they more like medical scans (x-rays, MRIs) and tests like home-pregnancy tests? Are they more like self-help books, which are never guaranteed to help, but which are (probably) harmless and might just help some people? Or are they like the “services” provided by fortune-tellers: utterly uninformative, but hey maybe fun? I don’t think the answer is easy.

I suggested in the talk that one of the keys to this, from a business ethics point of view, is framing it in terms of the information available to the buyer and the seller. Though they’re optimistic about what customers will gain from their products, these companies are mostly pretty modest about that, and acknowledge that they just don’t know how useful their products will be to individuals. Maybe individuals who get tested will be more health-aware as a result. Maybe they’ll reevaluate lifestyle choices in positive ways. The companies are — and ought to admit to being — a bit uncertain about this. But if they’re uncertain, and if they’re open about that, then there’s no clear sense in which consumers particularly need to be protected. Information asymmetry is dangerous: when the seller knows a lot more about the product than the buyer does, the buyer can find themselves duped. And certainly there will typically be huge information asymmetries with regard to the science behind personal genomics. But it seems to me that there isn’t much asymmetry regarding knowledge about how useful the product is. And it seems to me that it’s not unethical to market a product in the fact of shared (honest) uncertainty.

(Here are 2 previous blog entries on the topic: Genomics & Personalized Medicine and Genetic Testing: Ethical to Market a Not-Very-Useful Product?.)

This is a good (and awful) story. Here are some good bits. Commentary will follow.

From the NY Times: Food Problems Elude Private Inspectors.

When food industry giants like Kellogg want to ensure that American consumers are being protected from contaminated products, they rely on private inspectors like Eugene A. Hatfield. So last spring Mr. Hatfield headed to the Peanut Corporation of America plant in southwest Georgia to make sure its chopped nuts, paste and peanut butter were safe to use in things as diverse as granola bars and ice cream.

The peanut company, though, knew in advance that Mr. Hatfield was coming….

And while Mr. Hatfield was inspecting the plant to reassure Kellogg and other food companies of its suitability as a supplier, the Peanut Corporation was paying for his efforts….

Federal investigators later discovered that the dilapidated plant was ravaged by salmonella…nine are believed to have died and an estimated 22,500 were sickened.

Funniest quote from an un-funny story:

“The contributions of third-party audits to food safety is the same as the contribution of mail-order diploma mills to education,” said Mansour Samadpour, a Seattle consultant who has worked with companies nationwide to improve food safety.

See also:

Robert A. LaBudde, a food safety expert who has consulted with food companies for 30 years, said, “The only thing that matters is productivity.” He added that “you only get in trouble if someone in the media traces it back to you, and that’s rare, like a meteor strike.”

OK, here’s the problem. A big, big part of what allows the productivity levels enjoyed in modern societies is division of labour. That means, among other things, that most of us don’t product our own food. Plus, we demand an enormous variety of foods. Those two facts together imply an enormously complex food production and distribution system. A system that complex is going to have gaps, and opportunities for negligent, or lazy, or undertrained workers and managers to screw things up. Add to that the fact that we (naturally) want this bounty delivered to us as cheaply as possible (a desire satisfied by a vigorously competitive food retail market). That means an incentive for just about everyone to cut corners. Frankly, I’m surprised how few people die.

OK, three points to make.

1) Some heads need to roll. Don’t want to judge from one or two newspaper stories, but sounds like something pretty close to criminal negligence in some of these cases. I’d like to hear of more people going to jail for it. That might wake a few people up.

2) I need… you need, we consumers need … good stats about which foods are deadliest. Are there patterns? Are some foods just bad wagers? It’s a bad idea to judge based on one or two high-profile cases. Frankly, I’m tempted to avoid anything that a) comes from a factory, and that b) isn’t cooked. But I want more info.

3) As a society, maybe we need to think of food like we think of cars: something we love that just happens to kill some people. Now, our love of cheap, varied food and our acceptance of a certain degree of risk doesn’t mean food producers shouldn’t do better — much, much better even — at producing food safely, any more than our tolerance of thousands of highway deaths relieves auto manufacturers of the obligation to make cars safer.

Lead is a useful metal. It’s also toxic. Lead poisoning is one of the oldest known industrial hazards — the ancient Romans, for example, were aware that lead, though handy, was hazardous to your health. In recent decades, lead poisoning is mostly associated with old paint, and in particular with children being exposed to it. But the phrase “lead poisoning” is also used as a cute term for being shot — most bullets, after all, are made of lead. Grim humour to be sure. But as it turns out, the lead in bullets really is a source of poisoning…but the problem here isn’t with the bullets that hit their mark; it’s with the ones that miss. Every shot that a hunter fires, for example, if it misses its mark, ends up as a pollutant, either lying in a lake or accidentally ingested by some animal.

The solution? See this story, from the Globe & Mail’s Report on Business: Banking on bullets for the granola set.

Stephen Leahy doesn’t want to take guns away – he just want to make their bullets greener.

The chairman and chief executive officer of North American Tungsten Corp. Ltd. hopes demand for the metal his company produces will increase as tungsten’s use as an environmentally friendly alternative to lead gains in popularity.

Tungsten can now be used as a non-toxic substitute for lead in fishing lures, wheel weights and protective X-ray vests.

But Mr. Leahy is most excited about the potential to use tungsten in bullets and buckshot.

A few months ago I asked:

if you think product X is unethical (or maybe just morally “problematic”), can you engage in a constructive discussion about how to make that product more acceptable (while still selling it) or how to sell it more ethically?

Seems to me here’s a good example where the answer is clearly “yes.” I think the world would be a much better place with way fewer guns in it. Fewer guns and fewer bullets. Well, guns & bullets aren’t going away. But if you’re going to make ’em, might as well make ’em green.

The market for organic foods (etc.) continues to fascinate me. For some people, “organic food” basically means “ethical food,” or at least symbolizes the idea that the way food is produced — in particular, whether chemical herbicides and pesticides are used in its production — matters. To other people, organic food is a joke: there’s no evidence that it’s safer, but plenty of evidence that it helps certain yuppies distinguish themselves from the masses.

My main concern is that people know what the “organic” label (or the “GM free” label or the “Fair Trade” label or the “Free Range” label) does and doesn’t mean. So I was interested to see this article, from the NYT: It’s Organic, but Does That Mean It’s Safer?

MOST of the chicken, fruit and vegetables in Ellen Devlin-Sample’s kitchen are organic. She thinks those foods taste better than their conventional counterparts. And she hopes they are healthier for her children.

Lately, though, she is not so sure.

The national outbreak of salmonella in products with peanuts has been particularly unsettling for shoppers like her who think organic food is safer.

Mostly the article is about contamination, and the fact that organic foods, just like “normal” foods, can be subject to contamination by bacteria, rat feces, etc. Maybe that’s not surprising, unless you happen to assume that “organic” really means “grown by hand and lovingly packaged by a sweet old couple who consider themselves stewards of the Earth.” Which, um, it doesn’t. But still, a reminder that crummy business practices abound, even among the organic crowd, is a useful thing.

Another interesting facet of the NYT story is its mention of the fact that there are lots of kinds of food ethics, lots of different things people different people care about with regard to their food:

Some shoppers want food that was grown locally, harvested from animals that were treated humanely or produced by workers who were paid a fair wage. The organic label doesn’t mean any of that.

“They’re questioning the social values around organics,” Ms. Demeritt said.

Local, humane, fair-trade, organic…and safe, too, right?

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p.s., I’ve blogged about organic foods and such a few times previously. See also:

• Ethics of Organic Farming
• Organic Certification & the Role of the Firm
• WalMart & Organic Foods
• Organic Everything: Mattress Edition