The Business Ethics Blog

I just watched “Sicko”, the latest installment in Michael Moore’s “poke-tragic-fun-at-the-Establishment” series. For those of you who haven’t already seen it (or read about it ad nauseum), Sicko is a two-hour critique of the American healthcare “system” (though whether it deserves to be called a “system” is subject to debate, I guess.)

The film makes a lot of points, some more fair than others. Key take-home messages include:

• People in the US who lack private health insurance get pretty lousy healthcare.
• People in the US who have private health insurance sometimes also get pretty lousy healthcare.
• Insurance companies in the US are trying to make lots of money, and not so much trying to help sick people.
• All the politicians work for the insurance companies (or the drug companies, or both).
• People in countries such as Canada, the UK, France, and Cuba (yes Cuba) get access to very good healthcare, without having to pay out-of-pocket.
• In the US, even rescue workers who worked the wreckage of the Twin Towers after 9/11 can’t get decent treatment for the illnesses resulting from that work. Unless they go to Cuba, where they can apparently get treated very well, for free.

It’s an entertaining movie overall, of course. But the parts of the movie that are relevant to this blog involve the behaviour of insurance companies. The critique offered there — insurance companies are just out to make money, not to help people — was pretty seriously lacking in subtlety. As I watched, I kept seeing the behaviour of those companies as the sad but inevitable consequence of leaving health insurance to the market. It’s not generally wrong to do your best to make a profit, and to limit the benefits you offer consumers. All companies do that; it’s just that stories about insurance companies denying coverage to women with breast cancer are a lot sadder than stories about Wal-Mart failing to accept merchandise returned without a receipt. But one aspect of the behaviour of insurance companies that is seriously unethical involves their use of information asymmetries. Insurance companies seemingly rely upon the fact that insurance is a complicated product, and that they know much more about the value of the good they’re selling than consumers do. So they can get away with selling me an insurance policy that doesn’t meet my needs, because in some ways they know my needs better than I do. This is what Joe Heath calls a [socially] “non-preferred competitive strategy.” That is, when companies make profits by capitalizing on consumer ignorance, they’re failing to engage in the kind of socially-beneficial competitive behaviour that makes the free market worthwhile.

That alone makes Sicko worth a look by anyone interested in business ethics.

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Joe Heath’s argument about non-preferred competitive strategies can be found in his paper, “Business Ethics Without Stakeholders,” Business Ethics Quarterly, 2006 (Vol. 16, No.3).
Note: I was offered and accepted a free advance copy of the DVD of Sicko by the film’s distributer, to review on this blog.

By now you’ve likely heard about this story that broke over the weekend: it’s been revealed that one of the factories making garments for clothing retailer The Gap has been using unpaid child labour.

Here’s CNN’s version: Gap: Report of kids’ sweatshop ‘deeply disturbing’

The president of Gap North America says a subcontractor accused of using child labor to sew Gap clothes in India has been fired and the Gap will not sell clothes made in the New Delhi sweatshop.

“It’s deeply, deeply disturbing to all of us,” Gap President Marka Hansen said after watching video of the children at work. “I feel violated and I feel very upset and angry with our vendor and the subcontractor who made this very, very, very unwise decision.”

Hansen blamed the alleged abuse on an unauthorized subcontractor for one of its Indian vendors and said the subcontractor’s relationship with the Gap had been “terminated.”

A couple of comments:

1) Is this story an indictment of outsourcing, or of globalization more generally? Clearly not. As I suggested in my blog entry about toy recalls, the amazing thing isn’t how often things go wrong in a globally ramified supply chain, but how often things go right. Note also that it is only because Gap is a big company with well-organized supply chains that any coherent response is even possible. If those products of sweatshop labour were merely being retailed through a few hundred small independent retailers across North America and Europe, there would be little anyone could do. The Gap serves as a clearing-house not just for products, but for blame, and the company (unlike a disorganized cluster of mini-retailers) has the resources to remedy the problem.

2) The Gap says they’re not even going to sell the products that have already come out of the factory involved. I guess the theory is that those clothes are now somehow ‘tainted,’ like blood diamonds or something. This seems a bit crazy. It’s a symbolic gesture at best, and it seems wasteful. Worse, it smacks of a kind of puritanical, holier-than-thou attitude. As in, “sure, other companies would apologize, yank the relevant contracts, and tighten up monitoring of sub-contractors, but we’ll go a step further and treat the products as if they’re bearers of contagion.” Why not give the clothes to charity or something? (For all I know that might be their plan.) Or would that be bad, too: making poor people wear morally-tainted clothes? (Think about that for a minute!)

3) Interestingly, the Indian government worries that attempts to (over?)-regulate the apparel industry (making it harder for Western companies to outsource work to places like India) is a veiled form of trade protectionism. See the comments from the Indian commerce minister in the Times of India. Though it doesn’t come anywhere close to justifying child labour (let alone child slave labour) it’s worth remembering that the Gap is an effective means for funnelling money from affluent North Americans and Europeans to the working poor of India, among other places. That might not change the diagnosis, but it might well change the prescription.

Here’s the story that inspired today’s blog entry: Starbucks recalls China-made mugs

Starbucks, the coffee shop chain, has become the latest US company to issue a voluntary recall of China-made products because of child safety concerns.
Following in the heels of Mattel and Hasbro, the largest US toymakers, the Seattle-based coffee company is recalling a quarter of a million plastic children’s mugs sold at its stores between May 2006 and August this year. The mugs have moulded plastic animal faces representing a ladybird, a turtle, a bunny and a chick and have a plastic top.

So, another one. I haven’t blogged about the recent spate of product recalls, mostly because I just haven’t had anything terribly enlightening to say. But here are just 2 considerations that might add perspective, or at least fodder for discussion:

1) I’m struck not by how many recalls there’ve been in the last couple of months, but by how few product recalls there are overall. It just doesn’t happen very much, given the enormous number of products on the market and the enormous complexity involved in building most of them. (Personally, I’ve only ever bought one product that’s been recalled — the battery for my PowerBook.) Think how many errors, or mistakes in judgment, each of us makes every day. What I find truly amazing is that the system (or meta-system) that manufactures, ships and markets gazillions of consumer products every day has as low an error rate as it does. Now, to be clear, I’m not at all trivializing the recent recalls. Lead paint in products aimed at kids is a very bad kind of mistake to make. But to begin to understand how that sort of thing happens, we have to think about it in the context of a massively ramified productive system, a productive system of unparalleled efficiency which surely could stand to be tweaked, but to which there is also no plausible alternative.

2) There’s been some talk about the ways in which competitive pressures (including both the drive for lower prices and the drive for higher profits) might pressure manufacturers far down the supply chain to cut corners in dangerous ways that result in product recalls. So, for example, the question is whether the kind of downward pressure that Wal-Mart exerts on prices “force” Chinese factories to seek out the cheapest paint possible for their toys — including cut-rate paint with lead in it. Tough question. On one hand, it’s easy to argue that it’s not (for example) Wal-Mart’s fault if someone down the line makes an unethical, possibly illegal, decision. On the other hand, it’s pretty predictable that sufficient pressure to cut costs is going to effectively force some desperate factory foreman to do something dodgy. But I wonder if there’s a useful contrast to be drawn between the pressure to cut costs in a product manufacturing supply-chain, on one hand, and the pressure exerted by totalitarian regimes for individuals to inform on dissident activities of friends and family members. It’s an odd comparison, I know. But in both cases, we see pressure exerted from above, to such an extent that we end up feeling sympathy for the individual who “has to” do something we would otherwise find unethical. I think I can begin to wrap my head around the supply-chain-pressure issue by thinking of it as part of a continuum of comparable situations.
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Thanks to Heberto for the story that inspired this blog entry!

Here’s an item for the “I have more questions than answers” file:

ATV (all terrain vehicle) accidents account for a surprising number of deaths and injuries in Canada, and apparently the number is growing (despite the fact that sales are down). And a lot of the victims are children and teenagers.

Here’s the story, from CTV News: ATV hospitalizations…

Hospitalizations related to all-terrain vehicle (ATV) accidents have increased by 25 per cent over the last decade in Canada, a new report finds.

There were 4,104 hospitalizations due to these accidents in 2004-2005, compared to 3,296 in 1996-97, says a report released Thursday by the Canadian Institute for Health Information.

Interestingly, the story doesn’t include any comment from the makers of ATV’s. I’m sure their line has to be something along the lines of most people enjoy our product responsibly…little danger when used appropriately…read the user’s manual…etc. And all of that is fair enough. I don’t know what, if anything, makers of ATV’s can do either to make their products safer or to encourage safer use. But do they have a responsiblity to try?

As usual, the easy-ish case is the kids. Adults are pretty much free to be as dumb as they want. But we all have special responsibilities to safeguard children. For kids, of course, there’s always the question of parental supervision and guidance. But the evidence seems to be that that’s lacking. So there’s the dilemma faced by the makers of ATV’s: despite your warnings and disclaimers, kids are getting mangled in recreational use of your product.

This is one of those issues where the too-often-asked question, “Is it ethical?” is the wrong starting point. Better would be to start with “How ethical is it?” or “What can and should be done to improve things?” Now there is a good argument, of course, that there’s a limit to how much safety we can and should want. Life is to be lived, and you can’t reduce its risk to zero. But when kids are being put into trauma units by an activity to which there are lots of equally-fun alternatives, it seems reasonable to ask some hard questions.

Once again, an organization is seeking to harness the power of North American consumerism, instead of altruism, to do some good in the world.

Here’s the story, from Technology Review: Looking for a spark, developing-world laptop project to let donors buy 2, keep 1

I’ve blogged a couple of times about the $100 Laptop project, which aims to put cheap, durable laptops in the hands of millions of kids in the developing world. (So far the goal of sellling for $100 hasn’t been reached. But the current price-tag though is a very respectable $188.)

The original business model was this: Sell the laptops for $100. Sell them ONLY to governments in the developing world (not to gadget freaks in the developed world), and in particular to governments willing to order at least a million of the things. Nice idea: focusing on bulk sales allows you to source parts cheaply. Trouble is, not enough governments went for it.

The solution? Tap into the curiosity — and wealth — of North American consumers. The project is now going to allow North American consumers to buy the devices for $400 a pair, with one computer going to the purchaser and the other going to a kid in a developing country.

This reminds me a lot of the much-debated Product Red project, which asked consumers to pay a premium for a wide range of consumer products, with the additional profits going to help women and children in Africa suffering from HIV/AIDS. I blogged about that project here.

I wonder if the people who criticized Product Red are going to criticize this new move by the Laptop project folks. The basic idea is the same: take the fact that North Americans love to buy stuff, and use that to do some good in the world. Their (misguided) complaint ought to be the same, I would think: “consumerism is the problem, not the solution.” And my response will be the same: where altruism proves insufficient, why not tap into more reliable motives?

Lots of people see the profit motive as the source of lots of unethical behaviour in business. (This is a variant on the claim that money — or the love of it — is the source of all evil.) So, if a company were to give away all of their profits, would that help?

See this item, from the new “Sustainable Business Design” blog:

HtoO (Hope to Others) is a bottled water company in California founded by Tom Shadyac, a successful Hollywood director. The water source is a spring in the Sierra-Nevada mountains. So what’s the big deal? HtoO gives 100% of its profits to charity. Yes, one hundred percent!

So, no profits = no evil motives, right? Hard to imagine that that’s right. HtoO is presumably still interested in generating profits…it just isn’t interested in keeping them, or in giving them to shareholders. Indeed, it’s entirely possible that the kind of charitable zeal that leads to this kind of philanthropy might just justify (or seem to justify) lots of business practices that most people would find objectionable. Oh, but if you’re trying to do good, that means you are good, all the time, right? Right?

Just to be clear, I’m not trying to cast doubt either on Mr. Shadyac’s motives or his (or his company’s) ethics. Just pointing out (again) that motives are typically complex and often obscure, and that the profit motive is neither necessary, nor sufficient, to produce corporate wrong-doing.

Links:
HtoO’s website

Please…spare me! Here’s the story:

IPhone Owners Crying Foul Over Price Cut (NY Times)

In June, they were calling it the God Phone. On Thursday, it was the Chump Phone.

People who had rushed to buy the Apple iPhone over the last two months suddenly and embarrassingly found that they had overpaid by $200 for the year’s most coveted gadget.

Apple, based in Cupertino, Calif., has made few missteps over the last decade, but it angered many of its most loyal customers by dropping the price of its iPhone to $400 from $600 only two months after it first went on sale. They let the company know on blogs, through e-mail messages and with phone calls.

Apple has now apologized, and offered disgruntled customers a $100 in-store credit.

OK, so…oops! A big price change so early in the game was probably a bad move, PR-wise, on Apple’s part. The early adopters of the iPhone include a lot of Apple fanatics whose continued loyalty is pretty crucial to the company’s success. But were early-adopters really “abused,” as some people are claiming? They’re mostly not using the vocabulary of “ethics,” but clearly the suggestion is that there’s something unethical about charging $600 for an item that you could have sold for $400. The assumption seems to be that the original price-tag was some kind of lie, like it didn’t really represent the iPhone’s “true” worth.

Now, I’m not an economist, but the labour theory of value is pretty much dead, from what I understand. So is the theory that price is determined by the cost of manufacture more generally. What determines price for most consumer goods is demand. That is, it’s determined by what people will voluntarily pay for a product. And as it turns out, a whole lot of people were willing to pay $600 for an iPhone. Think of this analogy. If I pay $160 for a pair of designer jeans, and then find out that those jeans went on sale for $80 the next week, have I been ripped off? Well certainly I might be regretful. But have I been wronged? No. Everyone knows that retail mark-ups on most consumer goods are significant, and prices ebb and flow. If you happen to buy when prices are high, c’est la vie.

Besides, the people complaining about being wronged by Apple are all early-adopters, right? And isn’t the term “early-adopter” supposed to be pretty much synonymous with “risk-taker?” Early adopters are precisely the people for whom caveat emptor makes a whole lot of sense.

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Relevant Links:
Open letter from Steve Jobs, appologizing to iPhone customers
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Anecdotal Update:
Here are relevant quotes from 2 iPhone-owning friends of mine, in response to my question about whether they felt abused.
One said: “We paid $200 more, and we’re getting a $100 credit. Fortunately, I’ve got more than 100 bucks worth of value out of the thing already!”
and the other said: “Abused? Nope, not at all…life as an early adopter geek has its costs.”
Nicely put!

In Japan, McDonald’s is offering half-priced Big Macs to anyone willing to commit (vaguely) to fighting global warming. Here’s the story:

Half-price Big Mac to fight global warming proves big hit in Japan

A Japanese government website crashed Wednesday as people raced to take up an offer of a half-price McDonald’s hamburger in exchange for pledging to fight global warming.
The Japanese unit of the US burger giant Tuesday offered a Big Mac for 150 yen (1.3 dollars), about half the normal price, to anyone demonstrating a commitment to preventing climate change.

People were asked to check up to 39 boxes on a form they could download from the environment ministry’s website, each listing a way of reducing carbon dioxide emissions blamed for global warming.

A couple of quick points, in no particular order, mostly things I’ve said before on related topics:
1) Is this the height of corporate good-doing? Obviously not. It may be well intentioned (who knows?) but it’s also a loss-leader to get more people through the doors of their local McD’s. Does that utterly deflate the program? Not in my books, given the number of alternative methods McDonald’s could use to attract customers. Seems to me that socially-constructive marketing is better than, say, hiring Britney Spears to sing a jingle.
2) Is McDonald’s jumping on a band-wagon? Sure. Global warming is kinda a big deal these days. But again, not clear there’s anything wrong with this particular band-wagon. And even if the global warming skeptics are right, the sorts of behaviours being promoted by this program are quite likely to have good effects in general. Energy conservation is pretty clearly a good idea, regardless.
3) Yes, I see the irony of using Big Macs (widely credited, rightly or wrongly, with deforesting big chunks of South American and hence contributing to global warming) to fight global warming. Hell, it might be beyond ironic. It might actually be counter-productive. But that depends on the effectiveness of the awareness-raising effort. Some data on that sort of thing would be good.

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Thanks to Andrew for the heads-up.

“My job requires a certain… moral flexibility.”

That’s one of the great little lines delivered by tobacco appologist Nick Naylor (played by Aaron Eckhart) in the movie “Thank You for Smoking,” which I caught on TV the other night. The movie is a comedy about Naylor’s struggles as chief spokesman for a tobacco industry group. I won’t attempt a full review of the movie: suffice it to say that it was funnier than I expected, and does a good job of sending up Big Tobacco without getting distractingly preachy.

But the movie got me thinking about a topic that has long bothered me, namely the degree of culpability to be associated with various roles within the tobacco industry.

The major problems with cigarettes, of course, is that a) they’re deadly even when used correctly, b) they’re highly addictive, and c) they’re attractive to (and have often been marketed to) people too young to know what they’re getting themselves into. And please don’t give me the old “it’s a legitimate business, aimed primarily at consenting adults.” It’s a killer industry. But ok, let’s assume they’ve got the right to do business. The fact that you’ve got a right to do business, doesn’t make your business right. So, what does this imply for all the people involved in the industry? That means not just tobacco execs, but tobacco farmers too, and all the people who work for tobacco companies, whether in sales, R&D, accounting, or of course marketing.

Maybe I’m just in a cranky mood today, but I, for one, see no good reason not to blame each and every person who works for a tobacco company. Not equal culpability for all, of course. The janitorial staff doesn’t deserve the same opprobrium that we reserve for top executives and marketing types. (The janitorial staff likely has fewer skills, and hence fewer job options, and certainly has less control over the company’s behaviour.) But still, I don’t see any reason why every person working in (or providing consulting services to) the industry shouldn’t feel ashamed. I suspect anyone in the industry who feels otherwise is simply showing themselves capable of the sort of “moral flexibility” alluded to above. It’s also known as “self-serving rationalization.”

Does anyone know of anything written on this topic? If so, let me know.
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Update:
Asher Meir, “The Jewish Ethicist,” had some useful comments on this issue on his blog. I think his comments make a good deal of sense, even without their grounding in Jewish law. Thanks Asher!

This interesting item from the Aug 4 edition of The Economist (Blatant benevolence and conspicuous consumption) is about the evolutionary psychology of altruism. It reports the results of an intriguing study by researchers at Arizona State, suggesting that there are gender-based differences in the types of altruistic acts that men & women engage in. The researchers started with the question, what motivates cases of altruism where there doesn’t seem to be any obvious payoff.

To investigate this question, the researchers made an interesting link. At first sight, helping charities looks to be at the opposite end of the selfishness spectrum from conspicuous consumption. Yet they have something in common: both involve the profligate deployment of resources.

That is characteristic of the consequences of sexual selection. An individual shows he (or she) has resources to burn—whether those are biochemical reserves, time or, in the human instance, money—by using them to make costly signals. That demonstrates underlying fitness of the sort favoured by evolution. Viewed this way, both conspicuous consumption and what the researchers call “blatant benevolence” are costly signals. And since they are behaviours rather than structures, and thus controlled by the brain, they may be part of the mating mind.

The study further suggested that men tend to prefer to give money, whereas women tend to prefer to give their time. There’s an explanation for this in evolutionary terms, based on what men and women need to display in order to attract a mate: “what women want in a partner is material support while men require self-sacrifice.” So, to attrace mates, men show they can spend, and women show they can care. (For those of you not versed in evolutionary psychology, please please note that this kind of reasoning does not imply that these are conscious motives or that they are universal and overwhelming. It’s just a way of saying that psychological mechanisms are likely to have evolutionary back-stories, just as physical traits do.)

OK, so the question: what does this imply about corporate philanthropy? After all, most CEO’s are men. Are the motives attributed to males in the study cited above affecting corporate giving? What’s really motivating corporate largesse? And an interesting empirical question: does the philanthropy of companies headed by men differ in kind from the philanthropy of companies headed by women? And should shareholders be worried that CEO’s might be making philanthropic decisions rooted neither in a desire to generate goodwill in the community nor in a genuine interest in doing good, but in ancient procreative drives?