The Business Ethics Blog

Ethics-based investing is a big deal these days. Individuals and institutions know that the money they invest isn’t an abstraction, but actually amounts in some way to participating in the production of goods and services, and so plenty of them care what sorts of companies and what sorts of industries they invest in. If you wouldn’t work for Haliburton, why would you invest in them? If you wouldn’t take tobacco-company money, why would you give the tobacco industry your money?

The latest news on this front: U.S.-based aviation & defense industry giant Textron is under fire from a large Norwegian fund for making cluster bombs.

Here’s the story, from Defense News: Defense Stocks and Ethics: Norwegian Pension Fund Objects to Cluster Bombs

Textron has become the latest defense firm to be blacklisted by Norway’s $380 billion Government Pension Fund-Global (GPFG), the largest of Norway’s sovereign wealth funds.

The decision to divest $36 million in Textron shares, announced by the GPFG’s administrative board Jan. 31, was based on a report and an exclusion recommendation from the fund’s Ethics Council, said Kristin Halvorsen, Norway’s finance minister.

“Textron produces cluster weapons, which are banned pursuant to the Convention on Cluster Munitions,” Halvorsen said. “We cannot participate in the funding of this type of production.”

The convention was signed Dec. 3 by more than 100 countries, but not the United States, China or Russia.

(FYI, here’s the Wikipedia page about the Convention on Cluster Munitions.)

Now, $36 mil is a lot of dough. But to put this into perspective, that amount constitutes about 1/3 of 1% of Textron’s $12 billion market capitalization. So it’s not like Textron is likely to care much. But then, the GPFG’s goal can’t plausibly be to punish Textron, anyway, or to change the way the company does business. The fund’s goal is surely symbolic, and perhaps an attempt to keep its hands clean. How to keep one’s hands clean in a complicated world is clearly a big topic. For now, I’ll just point back to my posting from last week, about bulldozers, and ask: which company is “dirtier”? A hypothetical company that makes 99 civilian products and one nasty weapon, or a hypothetical company that makes only civilian products, 1% of which end up being used for military tasks?

Yesterday I blogged about companies (and witch doctors!) selling things without sufficient reason to believe they actually work. Among other things, I said “There are good reasons why drug companies are forced to do randomized, double-blind, clinical trials.”

Some of you may have inferred from that blog entry that I love Big Pharma and Big Medicine (because, after all, they use science) and hate purveyors of “natural” medicines with their reliance on “traditional” and “folk” knowledge.

Not true.

Here’s a story from yesterday’s NYT, slamming crappy practices in high-tech medicine: Regardless of Quality, Medical Scans Cost the Same

When Gail Kislevitz had an M.R.I. scan of her knee, it came back blurry, “uninterpretable,” her orthopedist told her.

Her insurer refused to pay for another scan, but the doctor said he was sure she had torn cartilage that stabilizes the knee and suggested an operation to fix it. After the surgery, Ms. Kislevitz, 57, of Ridgewood, N.J., received a surprise: the cartilage had not been torn after all.

She had a long rehabilitation. And her insurer paid for the operation. But her knee is no better.

The focus of the story is on the use of outdated machines, and on the conflict of interest inherent in physicians ordering expensive (i.e., profitable) tests conducted on machines they themselves own. The neglected angle is the poor state of knowledge about the kinds of ailments such scans are often used for. Note that Ms. Kislevitz’s doctor was “sure” she had torn cartilege, which she didn’t. Sometimes fancy scans just add an illusion of certainty in situations like that.

Now, as to the distinction between high-tech medicine and “traditional” medicine: at least people (and companies) in high-tech medicine don’t (i.e., can’t) deny that having evidence would be good.

This is a horrific story. And maybe I’m about to make a horrific comparison. Feel free to let me know.

Here’s the horrific story, about thugs dismembering Albino children in Tanzania, because of the black-market value Albino body parts have for their supposed medicinal value and luck-bringing properties: Halting the slaughter of Albino innocents.

Under cover of darkness, a group of men charge into young Viviana’s room in the middle of the night, pin her pale form immobile, and hack off one of her little legs as her sister screams in horror.

Viviana, shockingly, is among the lucky ones. The commotion draws the attention of neighbours, and the attackers slip off into the night without finishing the job. She is left an amputee, but alive.

The single albino leg will fetch upwards of $1,000 in a gruesome market controlled by powerful Tanzanian witch doctors, who grind the bones into potions and repurpose them as good luck charms for struggling miners and fishermen.

What to say? Horrific. Unspeakable. I mean, the murder & dismemberment is awful. But it makes you want to pull your hair out when you realize that the reason for these deaths is so ridiculous: the attribution of “magic” powers to Albinos. I mean, those potions and charms won’t work, right? Right? Hmm, but the witch doctors say they work. And they’ve got plenty of satisfied customers, apparently. I mean, what could be better than first-hand experience to prove that a product works?

OK, you see the issue. Now, hop across the ocean with me, from Tanzania to Texas…

From the Wall Street Journal Law Blog: Man Oh Mannatech! Company, Founder, Settle False Marketing Claims

The multi-level marketing world – the same industry that gave forth Amway and other home selling networks – got a black eye this week.

Mannatech Inc., a maker of dietary supplements, agreed to pay $6 million to settle a lawsuit brought by the Texas attorney general. The state alleged that the Coppell, Texas company made false claims about its health benefits and marketed products as cures and treatments for diseases.

What evidence did Mannatech have for its claims? Why, first-hand experience, of course.

…the company’s annual employee-sponsored event, called MannaFest. Part bonding session, part Christian revival, Mannafest in 2007 in Dallas included numerous sales associates and consumers who stepped on the stage and testified how they had taken Mannatech products and recovered or had found relief from their paralysis, their tumors, and their lesions.

I don’t want to belabour the comparison. Mannatech didn’t murder anyone. They’re not witch doctors. But they still were making claims they couldn’t support, and taking people’s money. What such companies and their customers need to learn about is the limits of personal testimonials. There are good reasons why drug companies are forced to do randomized, double-blind, clinical trials. To understand better, you just need to take a peek at the enormous literature on cognitive bias, which details the enormous number of ways in which first-person testimony can go awry. People have a tendency to see correlations, and even causes, where none exist. They tend to mis-estimate relevant probabilities. They tend to mis-remember key events. Reputable companies test their products in ways that minimize those effects. When you’re selling things — especially when you’re taking money from people desperate for help — you owe them a higher standard of evidence.

What does the public think made the dinosaurs to go extinct? Does the public believe that the Second World War could have been avoided? Does the public believe that the charge on an electron is positive, or negative? Does the public believe in ghosts?

Do the answers to those questions about the public tell you anything about how the world really is?

But check out this story, from Reuters:
Wall Street rates poorly for ethics, honesty: poll

Americans hold a dim view of business executives, giving them poor grades for honesty and ethics and blaming them for business failures, according to a survey released on Thursday.

Nearly 60 percent gave the worst grades to Wall Street executives for honesty and ethical practices, according to research conducted by the Marist College Institute for Public Opinion in Poughkeepsie, New York.

Seriously, folks: who cares? Does it actually matter what the average person thinks about corporate ethics in general or about Wall Street ethics in particular? What are they going to do, not buy things anymore? Not invest their money on Wall Street anymore? Do you think Wall Street cares what the average person thinks? It’s just not useful information. You could take everything the average person knows about the functioning of Wall Street, plus everything they know about the sources of the recent troubles there, and fit it into a box of matches without first taking all of the matches out.

In particular, it’s worth pointing out that the fact that the public thinks poorly of Wall Street ethics proves something about the public, but it proves nothing about Wall Street. I’m not saying the public is wrong. I’m just saying public opinion isn’t informative, here.

Employees can be understandably hurt & confused when profitable companies lay off workers. Imagine how they feel when, after having been sent packing with a meagre severance package, they’re notified that the company overpaid them, and wants some of that severance back.

Here’s a story about just that, from the Globe and Mail: Microsoft asks laid-off workers for cash back

A few weeks after launching the first wide-scale layoffs in its history, Microsoft Corp. admits it screwed up a key part of the plan.

The company is asking some laid-off employees for a portion of their severance back, saying an administrative glitch caused the software maker to pay them too much.

According to this version of the story, the overpayments “ranged from hundreds of dollars to $5,000 per employee.”

This is a case where knee-jerk reactions are easy, in one of two directions. Some will say, basically, “Finders keepers, losers weepers! Tough luck, Microsoft!” Others will say “It’s Microsoft’s money. Crappy mistake, but it’s gotta be paid back.” I don’t find either of those responses fully satisfying.

Two quick points:
1) This might be a case that illustrates well the difference between having a right, on one hand, and it being right to exercise it, on the other. Microsoft has a right to ask for the money back; but that doesn’t necessarily mean it should do so.
2) This might be a case where thinking in terms of corporate character & virtue is useful. That means, don’t focus on the actual action in question, or at least don’t start there. Ask instead, “What kind of corporation does Microsoft want to be? How does it want to present itself to the world?” Then, and only then, should we ask, “And how should that kind of company behave in this kind of case?”

(To personalize this, think of an analogous case: a homeless guy asks you for a dollar. Chatting away on your cellphone, you absentmindedly reach into your pocket hand him what you think is a dollar bill. You walk a little farther, and then realize it wasn’t a dollar. It was a twenty. Oops. Honest mistake. Do you now go back & ask the destitute man for the money back? You have a right to. But maybe you shouldn’t.)

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Thanks to both Garrett & Will for suggesting this story.

Two days ago I asked, Is Every Product a Potential Weapon? (I started with a story about Caterpillar bulldozers being used by the Israeli army, and suggested some principles for deciding whether, in particular cases, companies are responsible for the eventual uses to which their products are put.)

Today’s New York Times has a story that serves as a good follow-up: U.S. Is a Vast Arms Bazaar for Mexican Cartels

The Mexican agents who moved in on a safe house full of drug dealers last May were not prepared for the fire power that greeted them.
When the shooting was over, eight agents were dead. Among the guns the police recovered was an assault rifle traced back across the border to a dingy gun store [in Phoenix] called X-Caliber Guns.

Recall the two principles I suggested on Tuesday:

• 1. The general principle of moral responsibility that says we’re responsible for “the foreseeable outcomes of our intentional actions.”
• 2. The “principle of intervening action.” That principle says roughly that if someone else gets to make a choice along the causal chain between my action A and some outcome Z, my own causal responsiblity for Z is diminished, along with my moral responsibility for Z.

Clearly the deaths in Mexico were, under the circumstances, foreseeable outcomes of selling military-grade firearms to people known to be supplying them to Mexican cartels. What about the “principle of intervening action?” After all, the gun dealers didn’t kill anyone. Someone else did. Someone else’s intentions interrupt the causal chain between the sale and the deaths. True, but when the “intervening action” (i.e., the choice to use the guns to kill people) is fully predictable, we reach the limits of the exculpatory force of that principle.

Yesterday I blogged about a new cherry-flavoured malaria drug, made by Novartis and marketed in Senegal, that kids (especially) would be less likely to spit out. (I suggested that, in some cases, yummy flavours might result in kids seeking out meds & overdosing, but that for a life-saving drug administered in less-than-ideal circumstances, the move made sense.)

OK, same story, but whole new angle:

According to this brief report, the new cherry-flavoured pill by Novartis threatens to put a Senegalese factory, which manufactures the yucky-tasting old-fashioned anti-malarial pills, out of business:

Launch of child malaria drug threatens local industry

…a child-friendly anti-malarial medicine, has been received with mixed feelings.

The medicine, launched in different African countries, is a product of Medicines for Malaria Venture (MMV), a Swiss non-profit company and Novartis, a multinational pharmaceutical.
…
“The only fear is that we have a factory manufacturing Anti-malarial drugs (Luzira-based Quality Chemicals),” Otaala [a government official] said.

OK, normally people think it a bad thing when big, foreign companies put small local companies out of business.

But in this case, the foreign product could save lives.

But wait a minute…the foreign product might save lives. But in a very poor country (and Senegal is one of the poorest in the world) local industry is really important. Local industry is what allows locals to afford anything, including medicines for their kids.

But…

Well, let’s just say that this story has the makings of a terrific case-study.

It typically sounds like a dangerous move when pharmaceutical companies decide to make medicine in yummy flavours for kids. After all, yummy flavours could entice kids and result in overdoses. Here we see an exception, a case where the candy-coating really does make sense. See the Associate Press story here:

Cherry-flavoured malaria drug launched for kids

Swiss pharmaceutical company Novartis is launching a new cherry-flavoured malaria drug that it says children will be less likely to spit out.

The child-friendly version of its malaria pill dissolves in water, as well as breast milk, and tastes like fruit juice.
…
Hans Rietveld, director of marketing for Basel, Switzerland-based Novartis’ malaria initiative, said that until now, mothers were forced to crush the anti-malarial pill and mix it with sugar in order to trick children into swallowing it.

Even under a cloak of sugar, the pill still tastes bitter, causing many children, especially infants, to spit it out.

Sometimes it’s useful to see something done for very good (e.g., life-saving) reason, to serve as a source of comparison when companies do something superficially similar but less-well justified.

Just how much responsibility does a company bear for the uses to which its products are put?

For a relatively strict take on that question, see this piece by politics prof Stephen Zunes, writing for the advocacy-oriented online mag, Alter.net: Obama’s Caterpillar Visit a Thumb in the Eye for Human Rights Activists.

Over the objections of church groups, peace organizations and human rights activists, President Barack Obama decided to return to Illinois to visit the headquarters of the Caterpillar company, which for years has violated international law, U.S. law and its own code of conduct by selling its D9 and D10 bulldozers to Israel.

In his speech on Thursday, Obama praised Caterpillar, saying, “Your machines plow the farms that feed our families; build the towers that shape our skylines; lay the roads that connect our communities; power the trucks that deliver our goods.” He failed to mention that Caterpillar machines have been used to level Palestinian homes, uproot olive orchards, build the illegal separation wall and, in some cases, kill innocent civilians, including a 23-year old American peace activist.

OK, let’s veer immediately away from the Israeli/Palestinian conflict, and look at the more general question: is a company responsible for all the uses to which its product is put? After all, lots of products can be used to hurt people, regardless of what they’re designed and marketed to do.

Two noteworthy principles are worth considering here.

The first is about moral responsibility in general. What sorts of things are we responsible for? We’re typically not responsible for things someone else does, and we’re not (generally) responsible for things we do involuntarily (like sneezing) or for outcomes that we could not have foreseen. This is sometimes summed up by the idea that we’re responsible for “the foreseeable outcomes of our intentional actions.” So, applying that principle here: does that mean a company is (other things being equal) responsible for the foreseeable uses of its products. Not quite, because the principle says you’re responsible for the foreseeable outcomes of your actions, not (necessarily) what other people do with the things you sell them. Which brings us to our next principle.

The second relevant principle is what philosopher Alan Gewirth called the “principle of intervening action.” That principle says roughly that if someone else gets to make a choice along the causal chain between my action A and some outcome Z, my own causal responsiblity for Z is diminished, along with my moral responsibility for Z. The easy case is this: if Honda sells me a car, and if I use that car to go on a homicidal rampage, Honda can rightly say “look, we just sold him the car…he decided to do something stupid and immoral with it!” The principle is less convincing at the other end of the spectrum: imagine me handing a knife to a man with a crazed look in his eye. If I said “look, I didn’t stab anyone. I just handed a knife to a dude who made bad choices,” no one would buy it.

In the end, I suspect it’s typically reasonable for companies to point to the principle of intervening action. Companies typically can’t foresee (let alone control) the uses to which there products are put, and hence can rightly claim to have marketed their products in good faith. There will of course be cases where that principle doesn’t make sense. But I doubt that highly controversial political confrontations are going to provide the clear counter-examples.

Talk about controversial products!

Check this story, from the Toronto Star: Hells Angels seek to protect skull logo.

After years of the Hells Angels being the target of police raids and surveillance across North America, the outlaw motorcycle gang has decided to make a stand in an Ontario court – over its logo.

Next month, the Hells Angels Motorcycle Club takes to the courts in a bid to force police to return its vests, jewellery, calendars, scarves, T-shirts, belt buckles, rings, pins, posters, a cuckoo clock, bumper stickers and anything else they have seized bearing the bikers’ trademarked logo of a winged skull….

The question I asked back in November and again last week, was:

“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?”

This story about the Hell’s Angels implies the following question:

“Can we engage in a constructive discussion about protecting the intellectual property rights (or other rights) of a ‘business’ that happens also to be a criminal organization?”

Another way of asking the same thing: Do we care about basic rights enough that we’re willing to defend those rights, even when we don’t like the organization claiming them?