The Business Ethics Blog

The Guardian had this interesting piece today on corporate ethics during economic downturns: Hard times turn spotlight on business ethics.

Most major U.S. companies have an ethics officer, but as investors survey the wreckage of a deepening financial crisis that has exposed behavior ranging from risky to downright illegal, one might ask “What were they doing?”

Laying the blame on ethics officers is probably unfair, but it is fair to ask, of the companies whose wounds seem self-inflicted, just what their ethics officers have been up to for the last few years, how much authority ethics officers were given within the organization, and how well-resourced ethics officers’ offices were.

Interestingly, the article discusses both the ethical failings that might have got companies into their current messes, and also the extent to which financial difficulties make unethical behaviour more likely. Talk about a vicious circle.

Last Friday, I blogged about Layoffs at Profitable Companies. That same day, I did a series of interviews with CBC radio on the topic. One of them is archived here. (Scroll down to the Jan 23 section. The interview is a .ram file & requires the free Real Player. Thanks to the folks at CBC Cape Breton for making it available.)

It’s a good time to give the subject more thought. Witness today’s NY Times: “Layoffs Spread to More Sectors of the Economy”. In the current gloomy economic climate, it’s entirely likely that more companies — including profitable ones — will choose layoffs as a way to guard against what they worry will be worse times to come.

See that molecule at left? It’s sucrose. Sugar, a.k.a. “C₁₂H₂₂O₁₁” to you chemists out there. Sucrose can be derived from lots of plant sources, such as sugar cane, sugar beets, sorghum and sugar maples. But wait! Is the sucrose molecule pictured at left from a regular sugary plant, or from, like, a genetically modified sugary plant? The short answer is: it doesn’t matter. Sucrose is sucrose. It’s chemically identical whether it comes from sugar cane or sugar beet or sugar maple trees, and it’s chemically identical whether it comes from a genetically modified plant or a “normal” one. Plants also give off oxygen, you know. But genetically modified plants don’t give off genetically modified oxygen: it’s just good old-fashioned oxygen, plain & simple.

But don’t bother trying to explain this to groups currently lobbying businesses to promise only to use non-genetically-modified sugar. Check out there story, here:
Coalition of Ethics-Based Investors Aim to Stop Planting of Genetically Modified Sugar Beets

An investors’ coalition called the Interfaith Center on Corporate Responsibility (ICCR) has launched a campaign to secure promises from companies not to use sugar from genetically modified (GM) sugar beets.

The http://www.DontPlantGMBeets.org campaign encourages consumers to write to 63 U.S. beverage, food and restaurant companies and ask them to swear off the GM beets for the spring 2008 planting season.

Now, why would anyone genetically modify sugar beets in the first place? The main reason (as explained here) is to render sugar beet crops more resilient in the face of herbicides. Why would anyone object to that, you ask? The groups protesting are concerned about “weak governmental review and oversight, and the lack of long-term, independent and peer-reviewed safety studies.”

Now, I’ve blogged about GM foods before. At this point, I’ll only say that of all the foods to worry about, sugar — sucrose — is very far down the list. If you’re eating a genetically modified potato, I guess you could wonder whether, of all the many many things that make up a potato, there might be something in there that could hurt you. Science says “no,” but at least it’s not crazy to wonder. But sugar — from genetically modified plants or not — is just that: it’s sugar. And hopefully the companies being lobbied, here, will have the good sense to state that in their replies to this campaign.

Last weekend, I ate at an excellent Ottawa-area burger joint (“The Works”). A family member asked for her all-beef burger “medium rare,” and the waitress cheerfully said, “OK, no problem…you don’t mind signing our waiver?” Pictured below is the waiver:

The picture’s a little blurry. But the text says:

I HEREBY DECLARE MY LOVE OF ALL MEATS RED!

To that end I request that my beef burger be cooked rarer than the Ottawa Health Department prescribed doneness of 165 Degrees Fahrenheit.

I make this decision freely, and will not hold “The Works” or any of it’s managers, employees, shareholders or directors responsible or liable for any illness, side-effects or sickness that may occur as a result of the eating of an undercooked ground meat burger as requested by me.

I declare that I am at least 16 years of age.

This isn’t unique. For articles about restaurants in other countries doing the same thing, see:

• Hotel serves up rare meat waiver (2008) and
• Burger-loving Britons signing waiver to enjoy rare delight (2002).

(For those who don’t know, the standard advice is to cook beef well to kill off potentially deadly bacteria such as E. coli and salmonella. But people who are serious beef lovers will tell you that cooking beef as well as health officials suggest essentially ruins it.)

So, in other words, the relevant health authority (Ottawa Public Health, in this case) says what you’re about to eat is unsafe. Do you want to do it anyway? A waiver like this seems a reasonable approach: public health authorities issue guidelines that are risk-averse, probably setting a standard that allows for a substantial margin of error. It’s not insane to deviate from such standards — as long as you know what you’re doing. On the other hand, it’s not clear that this waiver does anything to ensure the latter. It is a consent form, but its use does nothing to ensure that consent is informed.

For true die-hard fans (hi, Mom!) here’s a brief radio interview [dead link deleted] I did last week, on the CBC radio show Maritime Noon. (The interview is in Real Audio format; it requires the free Real Player.) The topic was this blog, why I write it, my goals, etc. The interview is about 8 and a half minutes long.

(For more of my reflections on the whole ‘blog thing, see this short newspaper piece: Prof feted for blog.)

[Aug. 2010, dead link to radio interview deleted]

I just recently watched the movie Good Night And Good Luck, and we laughed at how funny it looks, now, to see 1950’s news icon Edward R. Murrow portrayed as smoking while delivering his on-air editorials. I mean, seriously… smoking, on the job! In a white-collar job! Looking at it by 2009 standards, it seems ludicrous.

So, today, most workplaces forbid smoking in the workplace. Fair enough. Smoking is unhealthy, and there’s a fair bit of evidence against 2nd-hand smoke, too. But what about employers insisting that employees not smoke at all, even in their private lives?

From The Canadian Press: ‘Non-smoker’ stipulation for job is discriminatory: smokers’ rights group

The job requirements are on par with what would be expected for any company looking for a webmaster, with one notable exception: smokers need not apply.

And a Quebec group that defends the rights of smokers is fuming over the job posting by an anti-smoking organization, calling it discriminatory.

Arminda Mota, president of mychoice.ca, a website dedicated to smokers’ rights, says the advertisement that says the successful applicant must be either a non-smoker or an ex-smoker opens the doors to all sorts of discrimination by employers….

As much as I’d like to applaud an employer’s attempt to dissuade people from an unhealthy habit/addiction, I think the smokers’-choice group is in the right, here. An employer has no business telling employees what to do on their own time.

Now, the employer in question here — the Quebec Council on Tobacco and Health — is essentially claiming that being a non-smoker is a bona fide job requirement, given the Council’s mandate. That might make sense if they’re hiring a President, or a Spokesperson. (The news story is actually vague on just what sort of job is at stake, here.) But beyond such high-profile roles, private behaviour contrary to the organization’s mandate is just that — private.

Is it ethically OK for a profitable company to lay people off? People tend to understand it as a necessary evil when managers of a beleaguered company, awash in red ink and heading for bankruptcy, resorts to layoffs as a way of salvaging the company. But what about layoffs when times are good?

Case in point: both Microsoft and Viacom — profitable companies — have recently announced layoffs. And at least one CEO has been harshly critical. Here’s the story from Yahoo! Finance: Mass Layoffs by Profitable Firms a ‘Horrible Act,’ Diller Says

This week has brought another round of big layoffs from companies in diverse industries, including Sony, Rio Tinto, and our parent, Yahoo.

The mass layoffs are obviously a response to a steep economic slowdown but are causing a rethinking of the very role of capitalism in society: Do businesses serve the greater good, or merely the bottom line?

At the Reuters Media Summit last week, Barry Diller, CEO of IAC/Interactive, slammed other media executives for their “preemptive” layoffs:

“The idea of a company that’s earning money, not losing money, that’s not, let’s say, ‘industrially endangered,’ to have just cutbacks so they can earn another $12 million or $20 million or $40 million in a year where no one’s counting is really a horrible act when you think about it on every level,”

Not surprisingly, Diller’s assessment was not shared by all. Another corporate exec, Gawker Media’s Nick Denton, thinks Viacom should have laid off more employees, in recognition of coming changes in the market; and stock analyst Walter Pritchard argued that Microsoft should have cut deeper, too.

A couple of comments:

1) Diligent pursuit of profits — within the limits of the law and morality — is a central principle of corporate governance in widely-held companies (i.e., in companies where shares are owned by lots of people). It’s generally seen as important to give CEOs a clear mandate, a mission to which they can be held accountable. This implies a presumption in favour of letting CEOs do whatever they think is necessary to generate profits in the long run.

2) When times are good, the interests of shareholders and employees very nearly line up. What’s good for one tends (imperfectly) to be good for the other. When times are tough, their interests can more easily diverge. It’s important to see the difference in how law & corporate governance structures protect those different interests. The interests of employees are protected by labour law, workplace health & safety laws, minimum wage law, etc., but they have no guarantee of permanent employment. The case is almost exactly the opposite for shareholders: shareholders can be “permanent” if they wish (they can hold onto stock as long as they want), but they have almost no other legal protections: for example, while employees are guaranteed at least minimum wage, there is no legal guarantee of any profits or dividends at all, for shareholders. All shareholders get is the promise of corporate executives to do their best to make a profit. The lack of other legal protections makes that promise pretty important.

3) Critics of profitable companies who lay off workers may well be guilty of precisely the kind of short-term thinking for which we so often (and rightly) criticize corporate executives. There’s a certain irony in criticizing CEO’s for thinking not just at current profitability, but also about the future of the company and its stakeholders.

4) The presumption noted above in favour of letting CEOs do what they think necessary (within the limits of law & morality) to generate profits is just that: a presumption. It’s not carte blanche. When layoffs are the mechanism chosen by a CEO in pursuit of profits, that CEO at very least owes us recognition of the fact that that mechanism implies some very significant human costs. So it’s reasonable to hold corporate executives accountable and to expect them at the very least to justify their regrettable decision to lay off employees.

On Inauguration Day, I raised the issue of just how, or how much, the new President would influence business ethics. I noted that, at least in principle, the President has two mechanisms for doing so: example setting and legislation. On the first full day of his administration, he took a stab at the former.

Here’s Obama’s very first Executive Order: Ethics Commitments by Executive Branch Personnel.

Here’s the story of Obama’s first day (with emphasis on the ethics stuff) from the LA Times: President Obama swiftly sets course on Day One

Obama used Day One as well to signal his commitment to a central campaign promise: upending the way Washington does business. He announced tough new restrictions on lobbying activity.

“This is big,” said Meredith Fuchs, general counsel of the National Security Archive, a nonprofit research institute at George Washington University that has challenged Bush administration policies on the release of information. “No president has done so much on the first day in office to make his administration transparent.”

(For more, see this from Bloomberg.com: Obama Freezes Pay, Toughens Ethics and Lobbying Rules.)

Here are the opening paragraphs of the Executive Order:

By the authority vested in me as President by the Constitution and the laws of the United States of America, including section 301 of title 3, United States Code, and sections 3301 and 7301 of title 5, United States Code, it is hereby ordered as follows:

Section 1. Ethics Pledge. Every appointee in every executive agency appointed on or after January 20, 2009, shall sign, and upon signing shall be contractually committed to, the following pledge upon becoming an appointee:

“As a condition, and in consideration, of my employment in the United States Government in a position invested with the public trust, I commit myself to the following obligations, which I understand are binding on me and are enforceable under law….

These aren’t exactly the kind of inspiring words for which Obama is famous. But that’s to be expected: this is the dull, administrative part of government ethics. The Order is detailed, including a long “Definitions” section, and a number of references to obligations that apply under other federal regulations. (e.g., for guidance on receiving gifts, it points to 2635.203(b) of title 5, Code of Federal Regulations). Of course, orders and regulations can never be sufficiently detailed to obviate the need for judgment. Judgment comes from experience and from understanding the spirit and intention of the regulations. Whether Obama can inspire members of his administration in this regard, the way he inspired voters this past fall, remains to be seen.

I blogged back in October about Apple’s & Google’s public opposition to California’s Proposition 8: Apple & Equal Marriage Rights. (And more recently I blogged about a donut company taking a risk by apparently commenting on a touchy subject.)

Now this new announcement, from the Official Google Blog: “Supporting equality”

Here it is, in its entirety:

1/15/2009 05:00:00 PM
In September of last year, Google announced its opposition to California’s Proposition 8. While the campaign was emotionally charged and difficult for both sides, in the wake of the election many were concerned with the impact Proposition 8 could have on the personal lives of people they work with every day, and on California’s ability to attract and retain a diverse mix of employees from around the world.

That’s why we’ve signed an amicus brief (PDF file) in support of several cases currently challenging Proposition 8 in the California Supreme Court. Denying employees basic rights isn’t right, and it isn’t good for businesses. We are committed to preserving fundamental rights for every one of the people who work hard to make Google a success.

Please join us in continuing to fight for equality for all Californians.

Posted by Kent Walker, General Counsel

I have little new to add to my earlier comments, except to note that while back in October Google’s statement focused on equality and discrimination, this new statement seems to focus a bit more on the business case against Prop 8.
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Update: comments are now closed.