Archive for the ‘capitalism’ Category
The problem of corruption is a tough nut to crack. The bulk of bribery and other forms of corruption (though by no means all of it) goes on in developing countries where rule of law is lax and the opportunities for profit are rich. Companies succumb to the temptations at their peril. The ROI on bribes is pretty hard to specify, and the jail time that can result ought to be a pretty good deterrent. But evidently that doesn’t make the problem much easier.
Last week, in conjunction with Canadian Business, the Jim Pattison Ethical Leadership Program hosted an executive seminar on the topic, called “The Ethics and Compliance Minefield: New Rules for Doing Business Overseas.” The day’s schedule included terrific speakers from Siemens, the World Bank, and the RCMP. (If you want to find out more, see here.)
A number of themes came to the fore during the day.
First was the role of rationalizations. As I’ve written before, rationalizations play a key role in all sorts of wrongdoing. Good people generally need to give themselves excuses if they’re going to do bad things and still look at themselves in the mirror in the morning. This is nowhere more true than in the realm of corruption. Claims like, “That’s just how business is done over there,” and “No one really gets hurt,” or “We’ve always done it that way” or “That’s the only way we’ll make our sales targets” are often false, and seldom provide cogent support for the moral conclusions they are intended to support.
The second theme that came up repeatedly was the question of control systems. Companies whose employees and agents engage in bribery seem (anecdotally, at least) to have weak internal controls. And that’s not surprising. In order for a few million dollars to go “missing” here and there, and end up in the pockets of local politicians or shady middle-men, you’ve pretty much got to be mislabelling the money at the very least. This sort of thing should be worrisome, and not just from the point of view of ethics and compliance. Sloppy business is sloppy business.
A third theme that arose was the notion that companies who want to avoid corruption face what is really just a special case of a more general set of management challenges. Instituting appropriate financial controls is a general standard management challenge. Ensuring overall organizational integrity (in the broadest sense) is a standard management challenge. And engaging in serious organizational change (such as in the wake of a bribery scandal, for instance) is a standard management challenge. In other words, this stuff is the stuff that good managers, and good leaders, ought to be good at, and if they’re not they need to get good at it or face peril.
The final theme that arose was cooperation. Stamping out corruption requires cooperation at several levels. It requires cooperation among countries, and in particular among their police forces and other enforcement agencies. It also requires cooperation between companies, who have a lot to learn from each other. (What, for example, might smaller companies learn from a been-there-done-that company like Siemens?) It also requires cooperation between different kinds of organizations — for example, between companies and law enforcement agencies.
None of this is easy. But given the potent ethical arguments against corruption, not to mention the potent legal penalties for being caught engaging in it, it’s a problem that needs to be tackled head-on.
Earlier this week I blogged about the intersection between customer service, ethics, and public relations. I pointed out that when the occasional grouchy remark turns into a pattern of disrespect, customer service becomes a question of ethics, and — in an age of social media — a potential PR nightmare.
But this raises a bigger question about the nature of the relationship between a business and its customers. Is the relationship between buyer and seller appropriately thought of as an adversarial one or a cooperative one? Ethically, is it right for a company to think of customers as friends or foes?
There are intuitive reasons on both sides. On one hand, buyer and seller have a shared interest in ‘doing the deal.’ They typically want to do business with each other, and both benefit from the transaction. On the other hand, every dollar a buyer saves is a dollar lost from the seller’s point of view. Every buyer wants a low price and every seller wants a high price, so the conflict is built right in.
We can name at least four different approaches to arriving at an answer to this question.
We might try looking at the question from the point of view of everyday ethics: people are people, and we should treat them honestly and with respect regardless of who they are. If fairness is good, then we should promote fairness in commercial transactions, just as we do in other areas of life. And that requires that buyer and seller at least see each other as equals. They don’t have to adopt a cooperative stance, but neither should they be adversarial.
We could instead take an economic approach. From an economic point of view, the interaction between buyer and seller is best understood as a ‘mixed motive’ game. In other words, it’s a game in which the players’ respective rankings of possible outcomes partly coincide and partly diverge. Both players would rather do a deal than not do a deal, but they disagree over what the best deal would be. If you’re in such a game, you should adopt an attitude that is neither fully cooperative nor fully adversarial. Unless, of course, displaying one of those attitudes moves the deal in your direction.
Third, we might think about this from the point of view of social conventions. It may well be that in certain cultures it is traditional (and perhaps widely accepted) that buyers and sellers treat each other as adversaries. And perhaps in certain other cultures it is traditional (and expected) that buyers and sellers will treat each other in a more convivial way. There are likely even individual industries typified by one or the other of those conventions. Doctors, for instance, are trained (and incentivized) to adopt a collaborative approach to their patients. Some stock brokers have notoriously adopted an adversarial approach to their clients.
Finally, we might think of this question from the point of view of corporate strategy. In other words, whether you think of your customers as friends or enemies — whether you adopt a collaborative or instead competitive attitude to them — might be a question of what kind of company you want to be. Some companies thrive on aggressive sales tactics; others thrive on a softer, more relationship-driven approach. Seen from this point of view, there’s no single, general answer to the question. Each firm needs to answer it for itself.
Regardless of how you frame the question, and regardless of the answer you arrive at, the attitude your company adopts towards customers is bound to become well known, especially in an era in which reputation spreads via Facebook and Twitter. Seller beware!
Tuesday (2 days ago) was the nominal anniversary of the Occupy Movement. Or maybe that should be the Occupy ‘Movement,’ with scare-quotes softening any suggestion that an actual social movement of any scope has arisen and persisted.
September 17 of 2011, protestors flowed into New York’s Zuccotti Park, a small private park just two blocks from Wall Street in the city’s financial district. Months of periodic mayhem in isolated pockets ensued, with Occupy sit-ins and marches happening in cities all over the US and to a lesser extent around the world. In theory, Occupy was a protest against economic inequality, a reaction not just to the gap between “the 1%” and “the 99%,” but to the widening of that gap in the years following the financial crisis of 2008 and 2009.
In practice, Occupy became a rallying cry for complaints of all kinds. One Occupy rally I stumbled across here in Toronto featured speakers from a big trade union, members of which enjoy jobs that pay relatively well, and a representative of one of Canada’s aboriginal groups, whose complaints are legitimate but have little to do with having been left behind by capitalism. This dilution of the main Occupy message was unfortunate, since it virtually guaranteed that the movement would suffer additional criticism while at the same time raising the probability that such criticism would be avoid the real issue.
Two years later, it’s hard to see Occupy as having achieved much of anything, other than a lot of overtime for police and a few weeks’ fodder for the nightly news. Certainly its economic impact has been negligible. A year ago, on the 1-year anniversary, I suggested that the main lasting effect of Occupy was more cultural than economic, and that’s still true. Politicians now must now acknowledge income inequality in speeches, for example, but action has been scarce.
So inequality is now ‘on the table,’ but it’s not clear yet that putting it on the table means much in practice. I wrote two years ago that “Wall Street needs to be fixed, not occupied. Even a die-hard capitalist has to admit that there are problems with the way Wall Street runs, but those problems won’t be fixed by sit-ins. They need to come from an understanding, on the part of Wall Street and its supporters, that there are changes that should be made because those changes stand to make capitalism work better. Any changes that can’t be made on that basis — changes for example that simply redistribute money — will have to be made through legislation, if and when there is political will to do so.
Of course, Occupy doesn’t necessarily need to have brought lasting change in order to have been significant. It may be enough for that word to mark a moment in time. It reminds us that there was a day when people rose up in peaceful opposition to fight for an ideal. Even those who think the movement misguided should in principle be happy about its idealism. But then, it’s much harder to inspire idealism about the painfully slow, methodical route to institutional change, even when the slow and methodical route is the more plausible one.
The Globe and Mail, Canada’s highest-distribution national newspaper and often regarded as the country’s “newspaper of record,” has announced that it will cease daily delivery to the entire province of Newfoundland and Labrador, as well as to a handful of isolated towns in British Columbia. Shipping costs have apparently meant that the paper has been losing money for years on its distribution to those places, and so the publisher has finally decided that enough is enough.
This is, of course, a bad thing for the small number of dedicated readers that the G&M has in Newfoundland and Labrador. And questions will surely arise about whether the paper is being fair to them. Shouldn’t the “paper of record” be available to all Canadians, “from sea to shining sea?”
On the other hand, it’s not like those parts of the country are being abandoned entirely. The Globe and Mail website is of course still available to anyone, anywhere, with an internet connection. And, the paper suggests, more and more people are enjoying their content on iPads and other tablets anyway. Of course, that’s great for people who can afford tablets and reliable internet connections. Pointing to electronic options still has a classist ring to it. A huge majority of Canadians do have home internet, but not everyone. We are still subject to that notorious ‘digital divide.’ But then again, it’s not like Newfoundland and Labrador is being cut off from communications — or even just print media — entirely; there will still be other sources of news.
Still, it’s hard not to feel a loss, here. Citizens of Newfoundland and Labrador may have access to other sources of news, but in a world of concentrated media, having access to a range of options is no small matter. And the Globe and Mail is a high-quality publication that offers a particular editorial voice, a voice that — whatever your political views — we ought not to dismiss lightly.
So this shrinkage in the G&M’s distribution is a sad thing; but is there anything blameworthy in it?
In the end, access to news, and to a diversity of editorial views, is a social matter, a question of the public good. Indeed, it is a question of access more important than, say, the question of access to a diversity of coffee shop options or footwear options. But do companies like The Globe and Mail Inc. (the private, for-profit company that owns the paper) have any obligation to contribute to solving such problems?
While we want private, for-profit firms to be “good corporate citizens,” it’s not clear that they have an obligation to lose money in pursuit of social aims. Newspapers are often thought of as being in a special category, here, as many of them have aims — missions, if you will — other than profit seeking. But even newspapers with a commitment to the public interest have to keep an eye on the bottom line.
The Big 3’s opposition to Verizon’s entry into the Canadian market is unseemly, like a baseball manager kicking dirt at an umpire. It may not literally be against the rules of the game, but it undermines that game’s implicit values.
Canada’s telecom giants are actively opposing the entry of American communications giant Verizon into the Canadian market. In a series of interviews and full-page ads, Bell, Rogers, and Telus have been arguing that regulators should move to prevent Verizon’s entry into the Canadian market, a move the company aims to make via its acquisition of Canadian upstart Wind Mobile. The move will give Verizon access to Canadian spectrum at preferential rates that were established to encourage small companies to enter the field. And the Big 3 don’t like it one bit.
(Interesting timing: coincidental with the announcement that Verizon, an American firm, was seeking to entry to Canada, HBC, a Canadian firm, announced that it had bought American retail icon Saks and thereby gain a foothold in the US retail market. I’m not sure Americans even noticed, let alone did they complain.)
Such opposition is, of course, understandable. Managers at Bell, Rogers, and Telus have turf to protect, and they understand their role as being to maximize return for their respective shareholders. And to be sure, advocacy — including lobbying — is a proper part of that role. But there are limits. Even those of us who understand the essential role of the profit motive in making our markets work will recognize the need to put limits on profit-seeking behaviours. Less obvious is just where to draw the line, ethically.
One important strain of thought on the topic, grounded in the work of University of Toronto philosopher Joseph Heath and others, says that managers should use as their ethical touchstone their implicit commitment to the values that underpin market efficiency. Key among those values is a commitment to encouraging competition. A true capitalist, this line of reasoning goes, wants to make a profit by beating the competition — by providing better service at a better price — rather than by reducing competition.
It’s worth pointing out that the debate here is already being framed in terms of ethics: the Big 3 claim it is unfair to allow Verizon in on what it considers favoured terms. Their critics, of course, will say that the preferential treatment that Verizon will gain at an upcoming auction of spectrum, through its acquisition of Wind, is being offered precisely on fairness grounds: barriers to entry are huge in mobile telecom, and making spectrum more affordable helps level the playing field. There are decent arguments on both sides, both rooted in an appeal to the ethical value of fairness.
The ‘market values’ argument cuts through the apparent ethical impasse, here. Managers at Bell, Rogers, and Telus are not just anyone: they are participants in a socially-important game called “the market.” In the market, we allow a certain amount of rough play, including behaviours what would generally be thought improper in polite society. Corporate managers can (indeed, should) fire under-performing employees, even if that dashes employees’ dreams. And they should innovate and strive for efficiency, even if that puts competitors out of business. But one of the things they can’t do, ethically, is seek to limit market competition.
To be sure, it’s a rule that is more honoured in the breach than in the observance. Much of modern management practice is aimed at finding niches where companies can operate with minimal competition. So it’s not surprising that managers at the Big 3 are desperate to keep Verizon out of the pool. But they need to recognize that, in doing so, they don’t have an ethical leg to stand on.
- “Moving Beyond Market Failure: When the Failure is Government’s” by Peter Jaworski
- “Market Failure or Government Failure? A Response to Jaworski” by Joseph Heath
Canada’s Competition Bureau has charged several candy companies with price-fixing. Nestle Canada, Mars Canada, and wholesale distributors network ITWAL stand accused of conspiring to manipulate the price of chocolate here in Canada. According to a press release from the Bureau, charges have also been laid against several individuals, including Robert Leonidas, former President of Nestlé Canada; Sandra Martinez, former President of Confectionery for Nestlé Canada; and David Glenn Stevens, President and CEO of ITWAL.
It’s interesting to note that price-fixing is one of the few pricing-related topics that comes up with any frequency in business ethics — one of the few that makes even a token appearance in any business ethics textbook. For the most part, pricing simply isn’t discussed as an ethical issue, probably because most companies are seen as having so little choice to exercise in the matter.
But price-fixing — attempts by erstwhile competitors to arrange not to compete on price — is a serious ethical as well as legal issue. It is also the subject of considerable cynicism. Many people seem to take for granted the idea that certain kinds of companies — gas companies come to mind, for instance — collude in an attempt to squeeze more money from consumers.
Another kind of cynic will see price fixing as not just common, but justified. After all, it’s just business, right? A manager’s job is to make a profit. And so if price-fixing is a route to profit, wouldn’t that just be part of a manager’s job?
But there is of course a good reason why price-fixing cannot be thought of as just part of doing business. And you don’t need to have a particularly warm-and-fuzzy view of business in order to see it.
But first it’s important to see that the reason why price-fixing is wrong is not just the bare fact that it hurts consumers. In market economies, there is no general prohibition against doing things that hurt other market participants. Markets are supposed to be win-win, but only in the big picture. There’s nothing unethical, for example, about developing a new and better product, one so good that it drives competitors out of business and hence leaves some people unemployed. Likewise, there’s nothing wrong with raising your prices in response to rising costs of production, even if that leaves some people unable to afford your product.
So the reason why price-fixing is illegal, and also unethical, is not that it hurts consumers. The key reason is that it violates one of the basic requirements for markets to work efficiently. In order for markets to function with anything approaching efficiency — never mind fairness — several conditions must obtain: for starters, there must be sufficient information in the hands of both buyer and seller, and the costs of transactions must be borne by the participants, rather than spilling over onto bystanders. But most important for the present case, markets can only be efficient if buyers have real options — that is, if no seller has the power to bully the market. Behaviour aimed at letting one seller, or a group of sellers, bully the market is contrary to the requirements of efficient markets.
And when markets don’t operate efficiently, they lose much of their fundamental ethical justification. So when companies engage in price-fixing, then, they’re not just acting unethically. They’re acting as bad capitalists.
This past Tuesday I had the honour of being invited to testify before the Standing Committee on Foreign Affairs of Canada’s House of Commons. The hearing was part of a “study on corporate practices by companies supplying and manufacturing products in developing countries for Canadian consumers.” The discussion wasn’t specifically about the factory that collapsed in Bangladesh last month, but that sad event was certainly on everyone’s mind.
Other witnesses included representatives from the Retail Council of Canada (RCC), from Loblaw, from the Shareholder Association for Research and Education (SHARE), and from Gildan Activewear Inc.
Not surprisingly, a range of views were presented to the Committee. Strong government intervention? Solo efforts by individual companies? Collective action through groups like the RCC? Opinions differed on just how to proceed.
Equally unsurprising was that the witnesses were unified in their expression of deep sympathy for the people of Bangladesh. Everyone, as far as I could tell, was also in favour of improving working conditions in places like Bangladesh. Shareholders, for example, according to SHARE’s Peter Chapman, are and ought to be concerned about the “ESG” (ethics, social, & governance) obligations of the companies they invest in. Robert Chant — a senior VP at Loblaw, a company that commissioned clothing from one of the companies that worked out of the factory that collapsed in Bangladesh — said that while his company has always been concerned to monitor working conditions, they simply hadn’t thought to have their subcontractors’ buildings inspected. It wasn’t on their radar. And so the collapse in Bangladesh, said Chant, who showed genuine emotion during his testimony, “Shook us to the core,” and spurred his company to commit to doing better.
In my own testimony, I made 3 key points and 3 recommendations:
First, I noted that Canadian companies do indeed have ethical obligations that go beyond the legal minimum required by the governments of the countries in which they operate. Adherence to the law is seldom enough to guarantee that a company or individual has satisfied all relevant ethical obligations. This is of special significance in developing countries with underdeveloped legal and regulatory systems.
Second, I noted that we cannot expect companies operating in places like Bangladesh or China to adhere to Canadian labour standards. And perhaps no one expects that. Canadians generally enjoy high pay and high labour standards because we can afford to. Other countries, unfortunately, are not there yet.
Third, I asked what is the best way for Canadians to contribute to the well-being of those who work in factories in places like Bangladesh. I suggested three answers to this question. First, Canadians can continue buying things made in places like Bangladesh, because that is what gives a high proportion of Bangladeshis jobs. The second way to help is through charitable donations, both to humanitarian groups as well as to groups that are focused on issues like good governance and fighting corruption.
The third thing Canadians can do is to continue paying attention to this issue, and to continue encouraging Canadian institutions — businesses, governments, and NGOs — to keep working towards making things better. All have a role to play in encouraging and offering guidance on the pursuit of incremental improvements in working conditions in developing nations.
Loblaw Companies Limited, the company that owns the Joe Fresh retail clothing line, has announced that it will pay compensation to the families of victims of last week’s factory collapse in Bangladesh. Details are sparse at this point, but it’s an interesting development.
The move will of course garner the company plenty of praise. Some of that praise will be offered only grudgingly, by those who will see it as the least that can be done by a money-hungry corporation in the habit of squeezing profits out of the labour of Bangladeshis with few other options. But still, there will be praise. For it is easy to see the good in a transfer of wealth from a multibillion dollar Western corporation to several hundred exceedingly poor families. Any plausible amount of compensation will be trivial to the company, but an enormous boon the those in Bangladesh who were affected.
But I for one still have questions, in particular questions about what is motivating the move. As I’ve said, the move will do a lot of good, but there are many different principles that might underlie any given action that does good. And we typically care not just about outcomes, but about principles too. Upon what principle is Loblaw compensating the victims in Bangladesh?
Cynics are already assuming that the move is pure PR, aimed at deflecting criticism (however unfair) and dissociating the Joe Fresh brand from the grimy reality of developing-country sweatshops. That’s one possibility.
It might also be that the company sees such payment as a form of charity. The building collapse last week resulted in horrible human suffering. Most big companies donate to charitable and humanitarian causes. And even if Loblaw doesn’t see itself as responsible for the collapse, it must see a connection, emotionally at least, and so the families of the dead are an especially apt target for the company’s charity.
But for me, the word “compensate” raises questions. That word can mean many things. But in contexts like this, it is perhaps most naturally read as referring to payments aimed at offsetting a loss, payments from someone who is either responsible for that loss or who at least for some reason owes such a payment. “Compensation” is not quite the same as “restitution,” of course. The latter word clearly implies culpability. But still, the word “compensation” seems to imply a level of regret, if not guilt. Is that what the company is implying? After all, Loblaw could have opted simply to say “We’re going to help those affected,” or even more neutrally, “We’re going to send money.” But “compensation” is the word the company itself is using. Is that really what they mean? And if so, why specifically do they think they owe compensation? What level of responsibility do they take — do they plan on taking — for the actions of subcontractors on the other side of the planet?
This is more than mere semantics; it’s about the principles underlying corporate behaviour. If, as seems inevitable, we are to regard corporations as entities capable of taking action, and of meriting praise or blame, then we need to be able to talk about what motivates them, and to ask them about the principles upon which they act. In a way, to seek a principled explanation in a situation like this is even more demanding than simply to ask that the company pay up. As I’ve already noted, the money in this case is a drop in the bucket. Giving voice to a set of values and principles upon which corporate behaviour is based is a lot harder than writing a cheque.
In my last blog entry, I began a discussion of the question of the extent to which the right “tone at top” contributes to a company’s success. I began by exploring just what we mean by ‘tone” in this context, and what kinds of activities and behaviours by leaders should be seen as constituting setting the right tone.
Next, what does it mean to focus on tone specifically at the top?
The “top” can’t be thought to mean the CEO, or even the entire executive team. “Top” should be interpreted as meaning whomever is at the top, for you, ethically: whomever you regard as a moral leader. Because leadership isn’t a job title. Anyone who embodies the key leadership values of trustworthiness, insight, humility and enthusiasm is likely to be seen as a leader, regardless of job title.
So let’s talk for a moment about not just the tone at the literal “top”, but also the tone at the middle. Average tenure of a CEO these days is, what, 4 or 5 years? This means that the tone at the literal top of the organization is likewise liable to change every 4 to 5 years. But lower down, every organization has a larger class of middle managers who come and go much less frequently.
And from the point of view of ethics, that has to be important. Don’t forget, in most large organizations, most people never get to meet the CEO, or for that matter any C-suite executive. For them, someone in middle management is effectively “the top” – the top of the relevant chain of command. So the right tone has to be set at many managerial levels.
Finally, we need to ask what “success” is. When we assert that positive tone at the top “ensures success,” what do we mean?
“Success” here has to be taken to mean “ethical success,” because “ethical success” means doing justice to the full range of ethical obligations that obtain within an organization. That means doing your best to earn a decent return for investors, while at the same time treating people with respect and playing by the rules. Success in this regard means achieving a reasonable level of compliance with not just the letter but also with the spirit of the law, and with the unwritten rules of the game, and with reasonable social expectations.
Now, no one can ever reasonably expect to turn a tough, competitive business environment into a love-in, or expect that any organization with hundreds or thousands of employees will be able to guarantee that no one ever breaks a rule. But if an organization is going to come even close to meeting reasonable expectations, meeting the capitalist ideal of playing fair while trying to earn a decent living by selling a decent product, it is going to have to do that in large part through the force of effective leadership.
A positive tone at the top is the closest thing there is to a guarantee of success, as long as you think critically about what those words must mean for a complex organization in a competitive environment.
Product labels are important, both practically and ethically. Reading the label is a key way to make sure the thing you’re buying meets your needs. Labels on products can help inform consumers about what they’re buying, reducing what economists call information asymmetries between buyer and seller. Where substantial information asymmetries exist, voluntary exchanges can fail to live up to the promise of mutual benefit, and society as a whole suffers from the resulting reduction in market efficiency.
Of course, not everything that could be said about a product could possibly be crammed onto a product’s label, so generally the information provided consists of what the maker of the product really wants to brag about, what consumers insist on knowing, and anything beyond that that regulators have seen fit to insist upon.
So precisely what gets labeled, and what form the labelling takes, matters a lot. Now while the moral significance of labels in general is not disputed, just what should be included on labels is hotly debated.
Take, for instance, the question of whether a food product has been genetically modified (GM). Or, more precisely, whether the ancestor of the organism from which a food product was derived was genetically modified by means of a particular set of laboratory procedures. It’s important to be precise, here, because there is virtually nothing that we eat today that hasn’t been ‘genetically modified’ by humans in some loose sense.
If you thought the question of GM labelling had gone away with the demise of California’s Proposition 37 this past November, think again. Washington State is apparently about to hold a vote on the issue, and there are reports that the anti-GM faction has been energized by the battle in California, and perhaps even galvanized by the massive sums of money that ‘big food’ and ‘big ag’ apparently spent to help defeat Prop 37. But as I’ve argued before, the demand for mandatory labelling of GM foods is misguided: the broad scientific consensus is that there’s no reason to worry about GM foods. Making such labelling mandatory, just because some people want to know if their food’s genes have been tweaked in certain ways, would be unjust.
Contrast this with the stunning report recently released by the ocean conservation group, Oceana. Nevermind subtle genetic modifications. Oceana found that a very high proportion of the fish sold in American retail outlets isn’t even from the species indicated on the label. So consumers are buying “snapper” that isn’t really snapper, and “tuna” that isn’t really tuna. Here, consumers are being lied to. Information isn’t just being omitted; the information being given is actually a lie, and so consumers are being cheated.
If the food companies of the world are going to expend money and effort to provide consumers with information, it’s pretty clear which kind of issue they should expend it on.