Archive for the ‘corporations’ Category
Ethics of Inefficiency
Filed under: consumers, corporations, energy, productivity, quality, sustainability, technology |
Comments (13) 
The current way of thinking seems to imply that small-scale production is the way to go. Of course, for much of the 20th century, small-scale production was a sign of affluence: only the wealthy could afford to have a craftsman dedicate hours, perhaps days, to the task of custom-making an item just for them. Today, everyone from yuppies to hippies is clamoring for just that, in their rush to grab for things perceived as local and green and anti-commercial. We don’t want multinationals to get between us and the skilled hands that make our loafers, and we want no agrifood giants mediating our relationship with the farmer who lovingly raised the goats that gave the milk that made the cheese. We want our business small, and indie. We want our consumer goods “bespoke,” and “artisanal.”
And the reason for this seems to be some vague impression that those kinds of businesses, and those kinds of products, are somehow more ethical. And in some cases, along some ethical dimensions, that may be true. But if anyone thinks that products produced by a small, local artisan are likely to be environmentally superior, well excuse me for being just a tiny bit skeptical.
This vague association of the small with the ethical misses the fundamental truth that, when it comes to production methods, size brings efficiency. Mass production tends to be efficient in its use of energy, materials, and labour. There are of course tradeoffs and exceptions: it’s entirely possible for a factory mass-producing something to be highly efficient in the use of labour, but to be highly inefficient in the use of, say, water — especially if water is had at no cost. But generally, mass production is efficient; that’s its raison d’etre. Consider: a local tailor spending an entire day hand-stitching a jacket has to use, to begin with, an entire day’s worth of energy to light and heat his workshop. Alternatively, the same jacket could be made in a garment factory in a matter of minutes, using a few minutes’ worth, rather than an entire day’s worth, of energy.
Now that’s not a blanket endorsement of all mass production. It’s entirely possible for production processes to be set up so that they are highly efficient in their use of whatever resource is particularly costly, and highly inefficient in its use of whatever happens to be cheap, regardless of the ethics of doing so. Note also that mass-produced goods tend to cater to the lowest common denominator. It should also be noted that assembly lines may tend to result in repetitive strain injuries among workers — and, if you believe some critics, in feelings of alienation as the worker whose job is reduced to some trivial aspect of production is effectively cut off from any connection with the product as a whole.
But (generally) efficiency is good. Certainly no one is in favour of inefficiency, with the possible exception of those of us who revel in a well-earned “inefficient” weekend. At any rate, the very reason we engage in mass production is that it is efficient: it produces the most output per unit of input. And that’s a good thing. So while there may be reason to value the small, the local, the artisanal, we ought at least to be aware that such goods are liable, at least in general, to be the product of highly inefficient — and hence environmentally unfriendly — production methods.
Ethics & Corporate Taxes
Filed under: corporate citizenship, corporations, ethics, finance, government, profits |
Comments (7) 
How much tax do corporations pay? Ask most people and I’m guessing they’ll say “not enough.” But seriously, how many people know what the actual corporate tax rate is? And then complicating things, there are the loopholes, those little tricks o’ the accounting trade that — as “everyone knows” — allows most big companies to pay next to nothing. Right?
For insight into these questions, see this useful piece by David Leonhardt, for the NY Times: The Paradox of Corporate Taxes.
OK, so a few answers. In the US, the federal corporate tax rate is 35%. (For comparison: in Japan it’s just over 40%, in Germany it’s 29.8%, and in Canada it’s 16.5%. In Ireland it’s just 12.5%.) So, on an international scale, the US corporate tax rate is actually fairly high. (For more, see Taxes Around the World.)
What about those loopholes? Sure enough, there are American companies that manage to dodge almost all taxes. The most egregious examples are from the cruise-line industry. As the NYT story points out, Carnival Cruise Lines is a prime example:
Over the last five years, the company has paid total corporate taxes — federal, state, local and foreign — equal to only 1.1 percent of its cumulative $11.3 billion in profits. Thanks to an obscure loophole in the tax code, Carnival can legally avoid most taxes.
That’s an extreme case, but lots of other companies manage to avoid paying anything close to the full 35% too. According to the NYT:
Over the last five years, on the other hand, Boeing paid a total tax rate of just 4.5 percent, …. Southwest Airlines paid 6.3 percent. … Yahoo paid 7 percent; Prudential Financial, 7.6 percent; General Electric, 14.3 percent.
.
What’s more surprising, though, is how much tax corporations pay, in total, on average:
The average total tax rate for the 500 companies [in Standard & Poor’s stock index] over the last five years — again, including federal, state, local and foreign corporate taxes — was 32.8 percent.
So while some corporations pay very little tax, there’s also considerable variation.
From an ethical point of view, is this situation fair? Do corporations, in general, pay enough? Too much?On the face of it, that’s a basic issue of distributive justice: is 35% (or some fraction of that, after deductions) the right share of the overall tax burden for corporations (as opposed to individuals) to bear? That’s obviously a big question.
Fundamentally, corporations are a conduit, facilitating the flow of cash from consumers to employees and investors. To some, this implies a fundamental criticism of current patterns of taxation in the corporate world. Such critics point out that there’s a sense in which the money that flows through corporations is taxed twice: corporate profits are taxed, and then any dividend (i.e., a portion of after-tax profit) that is payed out to shareholders is taxed, too. In principle (as far as I can see) the same could be said about the money paid out to employees in the form of salaries (though the tax on profits is paid on the amount left over after expenses, including salaries, are paid). To the extent that I understand it, this criticism seems odd to me: after all, money flows around (and around and around) the economy, and is taxed at various points along the way (and is then injected back into the economy, of course, in the form of government spending). The point is that we (via government) levy taxes at specific points in this flow, and at specific rates, based on whether we want to encourage or discourage particular behaviours. If you tax a behaviour, then, other things being equal, people will do less of it. And if you offer a tax deduction for y, you are encouraging people to do more of it. We tax at various points in the corporate “process”, if you will, in order to encourage or discourage particular activities like investment. So in a sense, there is no “corporate share” of the tax burden — there’s just the question of whether various taxes and deductions operating in the corporate world broadly understood are effective in achieving our goals. (Although there is a question of justice regarding any difference in the way dividends are taxed as opposed to employment income.)
But again, back to the issue of loopholes as a way of reducing a corporation’s tax burden. Now, it’s worth considering the point of loopholes, from a public policy point of view. In some cases, at least, “loophole” is just the pejorative term for a tax exemption or deduction that a government has put in place to encourage or deter certain kinds of behaviour: deductions for investments in equipment or buildings are an example of this. But you don’t have to be either a tax lawyer or even a keen observer of politics to guess that some such mechanisms are astute ways for government to mould the economy, whereas others are almost certainly boondoggles resulting from savvy corporate lobbying. Then, of course, there’s also the question of gaming the system. A particular incentive (or loophole) might have been put in place for sound public-policy reasons, yet be abused by corporations as a way of dodging taxes (say, by investing in new equipment in order to reap a tax benefit and then selling the equipment off as soon as it can within the letter of the law). The most obvious ethical litmus test here is the “intent-of-the-law” test. It is prima facie unethical to misuse a tax deduction that is intended to be socially beneficial in a manner that is cynically aimed at simply minimizing corporate tax burden.
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p.s., I’m not an accountant or tax lawyer. If anyone with relevant expertise can correct any of the factual assumptions above, please do help out. Thanks.
“Attacking a brand is like attacking a person”
Filed under: brands, consumers, corporations, definitions, food, honesty, labelling, personhood |
Comments (1) Last week on my Food Ethics Blog, I posed the following question: Fast Food Beef: What Matters? At the heart of that blog posting is a lawsuit that has been filed against Taco Bell, alleging that…
…Taco Bell’s “meat mixture”, which it dubs “seasoned beef” contained less than 35 % beef. If these figures are correct, the product would fail to meet minimum requirements, set by the U.S. Department of Agriculture, to be labeled as “beef”. The other 65% of the “meat” is made up of water, soy lecithin, maltodextrin, silicon dioxide, anti-dusting agent and modified corn starch
Today comes news that Taco Bell is fighting back. See this story from ABC News: Taco Bell Fights ‘Where’s the Beef’ Lawsuit
According to the ABC story, Taco Bell President Greg Creed says the allegations are simply false.
Well, sorting that out shouldn’t be too hard, for some unbiased food scientists.
More interesting is Creed’s moralized counter-attack:
“Attacking a brand is like attacking a person. It’s just unacceptable when there aren’t any facts to support it….”
Attacking a brand is like attacking a person? How so? Creed doesn’t expand on the question, but he make just mean that attacking a brand is “like” attacking a person in that both are wrong when they involve falsehoods — perhaps simply because lying is generally wrong.
But setting aside that line of argument, is it possible that a stronger thesis is justified, namely that a brand is something that deserves protection the way that a person deserves protection? Now, I’ve argued before that corporations need to be considered persons. And I’ve also blogged about whether corporations should have the right to sue for libel to protect their interests. But a brand isn’t the same as a corporation, so the arguments I’ve given about those don’t quite hold, here.
The most obvious way to think of the ethical justification (or requirement?) for defending a brand against attack is to think of the brand as a piece of property. If you damage the brand, you damage the interests of those who own it. Sometimes that will be justified (perhaps because the good done by damaging the brand outweighs the interests and/or rights of the brand’s owners), and sometimes it won’t. But I wonder if a still-stronger thesis is possible: is there any reasonable sense in which the brand could be thought of as an entity in its own right, with interests separable from those of its owners? Consider the world’s most valuable brand, Coca Cola. If all of the owners of stock in Coca Cola repudiated their ownership rights, and if all the employees of the company all quit en masse (eliminating another key stakeholder), what would we say about the Coca Cola brand? It would no longer, per hypothesis, have any “owners.” Would it cease to have any ethical significance at all? Would there be nothing either right or wrong that you could do “to” it? What about other brands, like the Red Cross or Greenpeace?
I don’t have good answers, but I think it’s an intriguing question, given the significance of brands in the early 21st century.
Trustworthy Business Behavior
Filed under: consumers, corporations, ethics, honesty, rankings, trust |
Comments (8) I was recently honoured to be named among the “Top 100 Thought Leaders in Trustworthy Business Behavior” for 2010, by the folks at Trust Across America.
The list is an interesting mix. It includes fellow business ethics profs like Laura Hartman and Mary Gentile, along with business leaders like Jeffrey Hollender (formerly of Seventh Generation), Whole Foods CEO John Mackey and consultants like Charles H Green and Christine Arena, as well as journalist-bloggers like Aman Singh.
The focus on “trust” in this listing is interesting. There’s probably not much to differentiate this list from a listing of thought-leaders in, say, business ethics or CSR. That’s not to say that a different title wouldn’t have changed the list at all; but basically all such lists, whether they’re of companies or of individuals, are about the doing the right thing in business or about promoting and fostering such behaviour.
But I do like the focus on trust. I think the role of trust in commerce simply cannot be overstated. Business — and that includes consumers interacting with any business — simply cannot happen without trust. Consider, for example, how crucial trust is…
- …whenever you buy any consumer product, and thereby trust not just the person who sold it to you, but dozens or perhaps even hundreds of people who helped make that product.
- …whenever one business buys something from another business, just by picking up the phone and saying, “Hey, please send us a box of X, and we’ll pay you at the end of the month.”
- …whenever anyone is employed by anyone else. (In that case, the employer trusts the employee not to shirk as soon as the employer’s back is turned, and the employee trusts the employer to pay the agreed-upon amount at the end of the day or week or whatever.)
- …whenever you give some of your money to a bank, ask them to hold onto it for you, and then (as most of us do) take their word for it when they tell you how much interest you’ve earned (or, more likely, how much interest you owe them on the money you’ve borrowed).
- …whenever you climb into a taxi, or sit down at a restaurant to eat. (The driver or waiter is trusting that you will actually pay your bill at the end, rather than make a dash for it.)
- …whenever you pick up the phone to order pizza. (The fact that it actually shows up means that they trust you to pay for it when it gets there.)
Basically, all of us, in our organizational lives and in our lives as consumers, end up trusting dozens and perhaps hundreds of people (and many many business organizations, too) during the course of our daily lives.
Of course, sometimes we use specific mechanisms to enforce trustworthiness — policies, laws, regulations, warrantees, contracts, etc. But all the formal enforcement mechanisms in the world couldn’t possibly keep a complex modern economy running, in the absence of a fundamental ethical commitment to trustworthy behaviour.
The Purpose of a Manager
What is the “purpose” of a manager? In particular, what is the purpose (or goal or objective) of a corporate manager (i.e., any manager, at any level, within a corporation)?
The preamble of the MBA Oath echoes one common sentiment when it says, “my purpose as a manager is to serve the greater good by bringing people and resources together to create value that no single individual can create alone.” [emphasis added]
Is that really the case? Is there a good argument for that point of view?
Let’s consider 3 possible answers to the question of what a manager’s purpose is (in the ethically-relevant sense of that word).
- The purpose of a manager is to do whatever s/he was hired to do, which is probably (for standard business corporations) to do his/her best to help the corporation make a profit (and to implement whatever charitable / CSR-type plans the company’s bosses see as appropriate);
- The purpose of a manager is to serve the greater good; and
- The purpose of a manager is to pursue his/her own interests.
Which of these is right? Do we need to choose? Can they all be right at once? If and when they conflict, which should take priority?
Let’s try a thought experiment, a bit of fiction to stimulate our intuitions.
Imagine I own and operate a small but productive apple orchard, employing say a dozen people to help me harvest and ship the apples. But imagine that, at some point, I get offered an attractive job in the city, one that is inconsistent with continuing also to run an orchard. Imagine that, rather than sell the orchard, I decide to hire a manager to take care of it in my absence. So I leave the company in her hands, and move to the city. Once month or so, we talk by phone, so that she can tell me how things are going and so that she can ask what my wishes are about high-level strategy, etc. And at the end of the year, she sends me whatever money is made from the sale of apples, minus operating costs (including the cost of materials and equipment, her own salary and the wages of the other employees, etc.).
Now, ask yourself: what is this manager’s purpose? What objectives should she work towards?
Well, surely she has as one of her goals making a living. That, after all, would likely be why she took the job in the first place. So she has her own “purposes.” But those surely can’t be ethically overriding. For example, what should she do with the money derived from the crop of apples after she has taken her own salary and paid other expenses? Can she use that money for her own purposes? Surely not. (Preventing that sort of self-serving move is a big part of the point of the system of corporate governance that bigger, more complicated organizations need to put in place.) The most obvious answer (though not the only alternative) is that she should send that money to me. They are, after all, my apples, grown on my trees on my land, and I’m the one who hired her to manage the operation for me.
What about the notion of serving the greater good? In our story, I’ve now got a good job in the city. Surely there are others in the community in which the orchard is situated that could use the leftover money more than I could. In that sense, it would serve “the greater good” for the manager to give that money to them. Or she might instead be tempted to give a really big raise to my apple-pickers. (Let’s assume they already make a decent “living wage,” but a big raise would allow them something closer to the affluent middle-class lifestyle that I myself already enjoy.) But surely — given that they’re my apples to start with — my manager ought at least to ask me, first, before giving my money away? Doing anything other than sending the money to me would amount to embezzlement, or at very least misuse of funds. But how do we square that with the appealing notion that being a manager involves contributing to the greater good?
We can get closer to the answer by noting that there’s a complication in the statement about a “manager’s purpose” in the bit of the MBA Oath quoted above, a complication that I’ve ignored so far. The Oath says that “my purpose as a manager is to serve the greater good by bringing people and resources together to create value that no single individual can create alone.” In other words, the Oath also suggests the mechanism by which managers are to serve the greater good.
Working that provision into our story: the manager I employ can be seen as serving “the greater good” by doing a good job of managing my orchard. If she does that well, she’ll produce a valued food product, contributing to the well-being of everyone who likes apples. If she manages to keep the business going in a sustained manner, she’ll also help keep a dozen people gainfully employed. And also by doing so, she will hopefully generate a profit for me (out of which I may well contribute to various charities, or simply buy things, thereby contributing to keeping other people employed). If she can’t do that, I’m likely to replace her with someone who can, or shut down the orchard entirely. And who benefits from that?
Most Hated American Companies Of 2010
Filed under: consumers, corporations, employees, rankings, virtue |
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The corporate world is certainly subject to plenty of criticism, and even hatred. But which companies are hated most?
Here’s one look at that question, from 24/7 Wall St.: The Fifteen Most Hated American Companies Of 2010
Customers, employees, shareholders and taxpayers hate large corporations for many reasons. 24/7 Wall St. reviewed many of these to choose the 15 most hated companies in America.
We examined each company based on six criteria….
(Note that the title “Most Hated” actually understates the sophistication of the ranking method used here, which includes measures of employee satisfaction, media coverage, total return to shareholders, and more.)
Interestingly, several of the companies on this “most hated” list have appeared on the Business Ethics Blog before.
- Dell (#9 on the un-ordered list) appeared here several times in 2006 and 2007, in blog entries about the ethics of poor customer service.
- Nokia (#2 on the list) appeared here as the subject of a movie I reviewed, called A Decent Factory. The movie was about Nokia’s attempt to manage things like labour standards in its supply chain.
- Toyota (#3) appeared in a blog entry on whether a company’s shareholders really “own” the company, as well as in an older blog entry about “Patriotism vs. Globalization in the Auto Industry”.
- Citigroup (#6) appeared in a blog entry called “Ethics in Banking: Best Practices”, as well as in a more recent one called “The Pay Czar’s Ethical Dilemma”.
- McDonald’s (#12), not surprisingly, has made a couple of appearances. It appeared in a blog entry on “Trans-fats vs. Genetically Modified Foods”, as well as “Saving the Earth, One Big Mac at a Time”.
- Last, but not least, British Petroleum (BP) is #14 on the list (and labelled “the most obvious choice to be on a list of hated companies”) has of course appeared here several times this year, including in “BP and Corporate Social Responsibility”, and “Boycotting BP is Futile and Unethical”, and “Ethics, BP, & Decision-Making Under Pressure”.
As you read through the whole list, it’s worth noting more generally the role that unethical (or at least ethically controversial) behaviour plays in generating hatred.
Ethics and Stupidity
Filed under: complexity, corporations, decision-making, employees, ethics, excuses, values, virtue |
Comments (9) 
Why do people do bad things? It’s an ancient question. Certainly, some people do bad things simply because they are bad people. Psychopaths and sociopaths exist, though thankfully they are very few. Whether those few should be classified as “evil,” or as “mentally ill,” or both, is not clear to me. Either way, they certainly have the capacity to do evil. But sometimes, surely — maybe quite often — people do bad things stupidly, rather than out of evil intent. Sometimes, as I’ve blogged before, people do bad things because they allow themselves to use invalid excuses. It’s likely that some people know (in their heart of hearts) that they’re using lame excuses. But probably some people sincerely believe those excuses, and simply don’t understand that their reasoning is flawed.
“Hanlon’s Razor” is the name for an adage attributed to one Robert J. Hanlon. It says the following:
Never attribute to malice that which is adequately explained by stupidity.
It’s a good rule of thumb, not least because it is so often true that bad outcomes owe more to poor decision-making than they do to evil intent.
Of course, if what we’re really interested in is why bad things happen, attributing it to stupidity rather than malice just pushes the question down one level. If so many people act stupidly, why?
There are at least 3 kinds of situations in which dumb things happen:
- Some dumb moves are made by people who, well, are not that bright. The truth is that people have different levels of ability. We don’t all have equally-good judgment, and we’re not all equally good at foreseeing the consequences of our actions. In a corporate context, good hiring practices are supposed to weed out the untalented. But talent pools are always limited. And remember: screwups can in principle occur anywhere within a corporate hierarchy, so there’s no position so unimportant that a company can simply afford to fill it poorly.
- Some dumb moves are made by people — maybe even smart people — who lack the relevant skills. In some cases, that may mean they lack the relevant technical skills. If you’re not an accountant, for example, you simply may not understand the consequences of certain kinds of bookkeeping decisions. But people can also lack the skills to assess, for example, the quality of their own arguments and thought processes. I teach a course on Critical Thinking, and believe me, people are not all equally good at spotting fallacious arguments or flawed patterns of thought. But it’s a skill-set that can be taught, and learned.
- Some “dumb” decisions get made as a result of one or another of a bunch of well-studied cognitive biases. Those biases — the subject of an enormous body of psychological literature — go by names like “anchoring,” and “confirmation bias” and “the framing effect,”. (Confirmation bias, for example, essentially means that we have a tendency to accept new evidence when it confirms what we already believe, and to reject new data that challenges our beliefs. It’s dangerous, and we all do it.) Basically, cognitive biases are a bunch of persistent, and generally faulty, trends in the way humans think. They are ways in which we are pretty consistently subject to patterns of error in our thinking. Alarmingly, these cognitive biases tend to apply to smart people, too, as well as to people with the kind of technical training that you might hope would help them avoid such biases.
(For a bit more on why individuals do dumb things, see this Wired piece on Why Do Smart People Do Stupid Things?)
So, there are lots of reasons why people — even smart people — end up doing dumb things. And sometimes those dumb things will have evil (or just bad) consequences. It’s worth understanding the difference between bad things that happen because someone did something bad, and bad things that happen because someone did something dumb, though in some cases the line will be pretty fuzzy.
And I suspect Hanlon’s Razor holds true of organizations just as it does for individuals, and maybe more so. So really, we need to distinguish between why individuals act stupidly, and why organizations do. That’s a topic for another day.
Wikileaks & Mastercard: Should Companies Do Government’s Bidding?
Filed under: accountability, corporate citizenship, corporations, CSR, environment, government, law, politics, values |
Comments (4) 
The controversy over Wikileaks has raised the question of whether companies should do government’s bidding. One popular suspicion is that Mastercard, Visa, and PayPal stopped acting as conduits for donations to Wikileaks not on principled grounds, but rather due to government pressure. If that’s true, is it ethically acceptable for business to act that way, as a tool of government? I’m not talking about government contractors, including military contractors like Blackwater, though I suppose the comparison is not entirely ridiculous. I’m thinking broadly of companies (ones not in the employ of government) helping to enact public policy or to implement the will of government more generally.
From a moral point of view, the question has to hinge in part on the moral quality of the particular thing business is being asked to do, and that may in turn hinge in part on the moral character of the particular government involved. Think, for example, of the controversy over Google participating in censorship in China. Many people thought it was wrong for Google to implement government policy in that case because they believe the Chinese government’s censoring of its citizens’ internet access to be morally problematic.
It’s worth pointing out that there are times and places where participating in implementing government objectives has been seen as unobjectionable, even patriotic. During both World Wars, companies were expected to participate in the ‘war effort’ by ramping up production, by shifting production to products needed for the war, and by conserving key raw materials. And that sort of active, corporate civic responsibility isn’t limited to times of war. Note that the US Department of Homeland Security expanded its “If You See Something, Say Something” to…
…hundreds of Walmart stores across the country – launching a new partnership between DHS and Walmart to help the American public play an active role in ensuring the safety and security of our nation.
I think it’s also instructive here to consider the relationship between “the state” (roughly, the government) and society. Many people are happy to think of corporations as instruments of society — that’s what motivates much of the CSR movement. We think it right for businesses to be environmentally responsible because we, as a society, value the environment. We want to conserve our resources, and we expect business to do its part. But the democratic state, like it or not, is a legitimate instrument of society. Now, government (including democratic government) is notoriously imperfect. As Churchill said, democracy is the worst system in the world, except for all the rest. But it’s hard to see how you can approve of (or insist upon) corporate implementation of social objectives and at the same time object entirely to corporate implementation of government objectives when those objectives are the reasonable objectives of a relatively-legitimate government.
In the end, it seems to me that if the behaviour in question is not intrinsically unethical (as Microsoft and Yahoo helping China’s government spy on dissidents arguably was) and if the behaviour doesn’t violate the firm’s fiduciary obligations to its shareholders, then it is at least permissible (though not necessarily obligatory) for a business to help implement public policy.
Deadly Crashes, “Agency Theory” & the Challenges of Management
Filed under: accountability, complexity, corporations, decision-making, employees, ethics, excuses, governance, management, product safety, quality, risk, technology |
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Sometimes for a corporation to “do the right thing” requires excellent execution of millions of tasks by thousands of employees. It thus requires not just good intentions, but good management skills, too.
For an example, consider the story of the crash of a Concorde supersonic jet a decade ago. The conditions leading up to the crash were complex, but one factor (according to the court) was negligence on the part of an aircraft mechanic. Whether (or to what extent) that mechanic’s employer is responsible for that negligence, and hence at least partly responsible for the crash, is a difficult matter.
Here’s the story Saskya Vandoorne, for CNN: Continental Airlines and mechanic guilty in deadly Concorde crash
The fiery crash that brought down a Concorde supersonic jet in 2000, killing 113 people, was caused partially by the criminal negligence of Continental Airlines and a mechanic who works for the company, a French court ruled Monday.
Continental Airlines was fined 202,000 euros ($268,400) and ordered to pay 1 million euros to Air France, which operated the doomed flight.
Mechanic John Taylor received a fine of 2,000 euros ($2,656) and a 15-month suspended prison sentence for involuntary manslaughter….
I don’t know the details of this story well enough to have any sense of whether the mechanic in this case really did act negligently. But what intrigues me, here, is the issue of corporate culpability. Note the difficulty faced by airline executives who (for the sake of argument) want desperately to achieve 100% efficiency and never, ever to risk anyone’s life. In order to achieve those goals, executives have to organize and motivate hundreds or perhaps thousands of employees. They need to design and administer a chain of command and a set of working conditions (including a system of pay) that is as likely as possible to result in all those employees diligently doing their very best, all of the time. That challenge is the subject of an entire body of political & economic theory known as “agency theory.”
Agency theory and the various mechanisms available to motivate employees in the right direction are things that every well-trained business student knows about, because those are central challenges of managing any corporation, or even any small team. What is recognized too seldom, I think, is just how central a role agency problems play in assessing and responding to ethical challenges in particular.
Social Responsibilities of Business
Filed under: corporations, CSR, Friedman, pollution, shareholders |
Comments (13) The question of what a company’s social obligations are is an interesting one, and a vexed one. Unfortunately, the question is complicated by the fact that the very term “Corporate Social Responsibility” (“CSR”) has come to be associated with a particular view about the right answer to that question. As I’ve argued here before, the term “CSR” is now (regrettably) typically used to refer to the particular point of view that says that companies have an obligation to contribute socially, beyond the contribution they make by providing a valued product or service, by providing jobs, by providing investment opportunities, and by paying taxes.
That point of view was preemptively (but, to many, unconvincingly) criticized by economist Milton Friedman, in his famous 1970 article The Social Responsibility of Business is to Increase its Profits. Friedman asked whether it made sense to say that a corporation (or rather, a corporation’s management) has responsibilities to engage in such pro-social activities as:
- keeping their prices low, in order to fight inflation;
- spending more than required by law to reduce pollution;
- hiring the hard-core unemployed (rather than simply focusing on hiring the most-qualified candidates).
Oversimplifying somewhat, Friedman argued that a corporation’s managers have neither skill-set, nor the obligation, nor indeed the right, to use shareholders‘ money for such objectives. What they ought to do, according to Friedman, is to stick to what they know best — which also happens typically to be the job they were entrusted to do, namely to make profits for shareholders within the boundaries of law & general ethical rules.
Here are 2 modern examples of opportunities for companies to do business in a way that is explicitly aimed at positive social outcomes:
- Pharmaceutical companies have choices about how to focus their research & development efforts. For example, they can focus their efforts at producing lifestyle drugs (for things like erectile dysfunction or hair loss), or they can aim at producing “me-too” drugs in categories that are already well supplied (e.g., ), Or they can focus on cures for so-called “orphan” diseases. Or they can search for new antibiotics in response to the growing problem of drug-resistant infections. The latter would meet a real social need. I don’t know how promising such lines of research would be, nor how lucrative. In the absence of such information, could we still say that pursing the development of new antibiotics is a social responsibility of drug companies?
- With U.S. unemployment rates just below the double-digit mark (and Canada’s just slightly lower), governments are looking to industry (and sometimes to particular industries, such as biotech) to boost employment. And some people are liable to point to a social responsibility on the part of corporations to do some hiring. Certainly, people are prone to call it socially irresponsible when profitable companies lay off employees. But then, employment for its own sake is unlikely to be good for a company. If employees aren’t needed, then hiring them (or keeping them) is liable to reduce profits, and indeed liable to reduce the viability of the company as an entity that produces all kinds of benefits for a range of stakeholders.
Whatever you think of such purported social responsibilities, one thing is clear. If they really are responsibilities, they are at very least genuine examples of social responsibilities — responsibilities to promote the interests of something like society as a whole (as opposed to the interests of one particular stakeholder, like customers or employees).
The Business Ethics Blog 