Archive for the ‘corporations’ Category
UNICEF’s Deal With Cadbury: A Trick, or a Treat?
Filed under: advertising, charity, corporations, food, health, protest |
Comments (10) 
This is now an entire genre of ethics stories, involving a charity facing criticism for aligning itself with a corporate sponsor whose values seem inconsistent with its own.
Here’s the story, by Carly Weeks, for the Globe and Mail: UNICEF sold out by making deal with Cadbury, medical journal says
One of the world’s most influential medical journals is accusing UNICEF Canada of selling out its values by allowing candy giant Cadbury to use its logo to sell Halloween candy.
In an editorial published online Saturday, the Lancet slammed UNICEF Canada for accepting $500,000 from Cadbury Adams Canada Inc. over a three-year period for construction of schools in Africa in exchange for allowing the company to plaster the iconic – and valuable – UNICEF logo on millions of product packages a year….
Just a few thoughts:
1) It seems to me that the worry expressed in the editorial is really that UNICEF is promoting candy, and candy is unhealthy. I’m no marketing expert, but I strongly suspect that if UNICEF’s tacit endorsement does anything at all, it won’t be to boost anyone’s consumption of candy. Rather, it will be to increase sales of Cabury’s candy relative to other brands.
2) Candy isn’t evil. Eating too much candy, too often, is bad for you. But candy is fun. While obesity trends are not irrelevant, here, I’m not sure we need to demonize candy to such an extent that all association with it is considered toxic.
3) It’s worth thinking carefully about the mutual benefits that come from the UNICEF/Cadbury deal. As the G&M story points out,
“the relationship is…lucrative for corporate sponsors because many consumers look favourably on companies that are aligned with good causes, which can help drive sales.”
But why do consumers look favourably on companies that align themselves with good causes? To spell it out plainly, consumers do so because they think that it is a good thing for companies to contribute socially. So it’s not like there’s any trickery here. If consumers think Cadbury is doing something good, Cadbury will be rewarded.
4) Finally, is it worth it for UNICEF? I’m generally hesitant to hand out advice beyond my expertise. I’m not an experienced fund-raiser. So, far be it from me to tell the experts at UNICEF that the decision to align with a candy company is short-sighted. But it does seem plain to me that a charity only has one real asset: it’s brand, and the trust people place in it. In comparison, a carmaker can lose public trust and then regain it by proving that they really do make a great product. Charities make no product; all the public can judge is behaviour.
Happy hallowe’en, everyone!
Governance, Both Political and Corporate
Filed under: boards, conflict of interest, corporations, governance, government, politics |
Comments (4) The word “governance” (as in, “corporate governance”) is obviously quite similar to the word “government.” And just as obviously, that’s no coincidence. The two words share the same roots. In the abstract, the word “governance” just refers to the act of governing something. But it’s not just the meaning of the words that overlaps — it’s the people doing the work. At the highest levels, people often move from the world of business into the world of politics, and vice versa.
A few quick points about this.
1) The fact that there’s some flow back-and-forth between government and the corporate world is not at all surprising. After all, there’s considerable overlap in the skill-sets required in leadership positions in both domains. For example, I recently heard a top expert on corporate governance say that ex-politicians actually make very good corporate directors (and that was said based entirely on their skill-set — not, as you might guess, based on their political connections).
2) Some people do question the extent to which one world is good training for the other. See, for example, this recent story about former EBay CEO, Meg Whitman, who is currently in the running to become governor of California: Is EBay a proper primer for a governor? (by Stuart Pfeifer for the LA Times). Here’s one relevant bit:
Some former employees and Silicon Valley observers question whether a forceful corporate executive used to getting her way would be capable of the compromise needed in government.
“You certainly have many more freedoms as a CEO than you do as an elected official,” said Larry Gerston, a political science professor at San Jose State. “We don’t elect kings.”
3) It’s also noteworthy when a major politician acts in a way more common in the corporate world. In this regard, see the review (by Jordan Timm) in this week’s Canadian Business magazine (unfortunately not online yet) of Lawrence Martin’s Harperland, a book about Canadian Prime Minister, Stephen Harper. According to the review,
…this Prime Minister’s office has enjoyed privilege and authority more in the style of the corporate C-suite than the executive branch of a traditional Westminster government. That approach has been responsible for many of the Harper government’s successes, but it has also been at fault for many of its blunders and setbacks. And though the business and political worlds feature very different rules and accountabilities, executives can learn many lessons, both constructive and cautionary from Stephen Harper’s Ottawa.
4) In both kinds of governance (political and corporate) the main challenge lies in turning the will (and values) of the many (votes in one case, shareholders in the other) into decisions by a few (politicians in one case, executives and directors in the other) to be implemented by an in-between number (of civil servants in one case, and of corporate employees in the other). And in both cases, effective leadership seems to require that the leader engage in a combination of a) listening to their constituents, and b) exercising independent judgment.
I don’t have a grand point to make on this topic. But can anyone recommend essential reading on the intersection between corporate and political governance and/or leadership?
Is a Board Position a Conflict of Interest?
Filed under: accountability, boards, conflict of interest, corporations, employees, governance, professionalism |
Comments (2) Here’s an story (in which I was quoted) by Paul Turenne, in the Winnipeg Sun: Gerrard slams WRHA manager’s ‘moonlighting’.
The story is basically about a senior executive (Brock Wright) at the Winnipeg Regional Health Authority (the public body responsible for administering hospitals in and around that city) who took a position on the Board of Directors of a small American medical technology company. Critics (like Opposition leader Gerard, named in the headline) called that a Conflict of Interest.
Now, a conflict of interest is basically any situation in which a person has a private or personal interest sufficient to appear to influence the objective exercise of judgment in his or her official duties.
So, to figure out whether there’s a problem here, a few elements need to be considered.
1) Does taking a Board position constitute an “personal interest” in the relevant sense? The one that’s usually (but not always) at stake is an interest in money. Well, And corporate board membership isn’t typically volunteer work. It involves a significant stipend, along with a good deal of personal prestige.
2) What bits of judgment might Wright need to exercise on behalf of WRHA that might be jeopardized by his board membership? The most obvious one is his involvement in purchasing decisions for the WRHA. In that regard, a spokesperson for the WRHA says:
This is a company the WRHA has no business relationship with. We have not purchased anything from them. If at any time they were to try to sell us something, Dr. Wright would of course remind us of his relationship with them and recuse himself from any discussions. Having said that, he’s not in a position to make decisions like that. We have a very strict policy about the tendering process
The bigger issue (though perhaps not insurmountable) is the judgment that Wright (or any employee) needs to exercise with regard to his own time management. Being a member of a corporate board isn’t an honourary thing: it comes with real responsibilities, and can take considerable time. So the question I would want to ask, if I where the WRHA, is how Wright plans to satisfy his duties as a member of the TearLab board (including possibly several trips a year to attend meetings in California) without diminishing the quality of his work in Winnipeg. If there’s reasonable plan to make that happen,
3) Finally, it’s worth noting (again and again) that being in a Conflict of Interest isn’t automatically unethical. (So it’s not, contrary to the headline used in another newspaper’s story about this issue, an accusation.) It is possible to end up in a Conflict of Interest through no fault of your own. And, finding yourself in a COI, what matters is what you do about it. Disclosing the COI to the person or organization relying on your judgment is usually considered step 1, and removing yourself from key decisions, if possible, is another standard move. But COI is at least sometimes worth tolerating, if managed appropriately. That does mean, though, that we should all be expected to think carefully, before putting ourselves into a Conflict of Interest, whether the risks are manageable, and whether in the end those risks are sufficient to constitute a disservice to those who rely upon our judgment.
Corporate Governance and Ethics
Filed under: accountability, boards, corporations, CSR, governance, shareholders |
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“Corporate governance” is the term used to refer to the policies and processes by which a corporation (or other large, complex institution) is controlled and directed. It refers especially to the way power and accountability flow between shareholders, boards of directors, CEOs, and senior managers.
For most corporations, the basic governance structure is this: shareholders vote for, and hence empower, a board of directors, who then have a fiduciary responsibility to look out for shareholders’ interests. The board hires a CEO, who is accountable to the board. The CEO (sometimes with input from the board) hires a management team, and so on. At each step, there is a flow of power down the chain (from shareholders through to front-line employees), and a flow of accountability back up that chain. And there are all sorts of rules — including various policies and principles of good governance — that establish how that power and accountability is to be implemented. There will be internal rules, for example (partly determined by relevant corporate law), about how board elections are to be carried out. There are also governance principles that apply to things like the inclusion of external, “independent” directors on the board.
In case it’s not obvious, I’ll say it explicitly: corporate governance is out-and-out a matter of ethics. It is about who is responsible to whom, and for what, and under what conditions.
Now, to an investor, governance might look first and foremost like a matter of economics: no one particularly wants to invest in a poorly-governed company. And governance is also legal matter (for example, the Sarbanes-Oxley Act of 2002 includes a number of requirements about corporate governance). Governance is properly a legal matter because (at least arguably) shareholders need protection from unscrupulous or merely lazy boards of directors and executives, and because the public interest is at stake when large companies are mis-governed. Enron used to be the prime example of poor governance practices having a devastating effect on shareholders and the broader public. These days we could probably look to a few major financial institutions for object lessons in the ill effects of bad governance.
But even where the law is silent, governance remains important: regardless of whether you think in terms of a narrow, shareholder-driven, profits-first perspective, or instead in terms of a broader ‘stakeholder’ approach, you simply have to agree that the way decisions get made, and the interests that corporate policies tell decision-makers to serve, are ethically important matters.
My mind is on governance a lot lately, not least because I’m currently a Visiting Scholar at the Clarkson Centre for Business Ethics and Board Effectiveness (at the University of Toronto’s Rotman School of Management).
While I’m at Clarkson, I’m helping out with the CCBE blog. The blog is focused primarily on governance and board effectiveness, but in most cases the ethical implications of those issues are pretty clear. Today, for instance, the blog features a posting about changes in the way boards of directors are elected — and how at last some companies (including one Canadian company, Linamar Corp.) have been slow to catch on. Here’s the blog entry: Trend Watch: How are Directors Elected?
See also: the entry on Corporate Governance in the Concise Encyclopedia of Business Ethics.
- What Directors Need to Know: Corporate Governance, by Carol Hansell (the focus of this book is on Canada, but much of it is generally applicable)
- Harvard Business Review on Corporate Governance
Spoof Chevron Ad Campaign: Too Dumb to be True
Filed under: activism, advertising, corporations, CSR, energy, protest |
Comments (2) 
I should have known.
Earlier this evening, I briefly posted a blog entry about a too-dumb-to-be-true ad campaign, supposedly by Chevron. The spoof ad campaign made Chevron look very dumb. And say what you will about the oil giant: it ain’t dumb.
I won’t say who is (apparently) behind the spoof, because a) that’s exactly the kind of publicity this stunt was intended to generate, and b) from what I can tell (from this and previous stunds) this gang is only good at media manipulation, and does nothing to promote smart solutions.
Tomorrow, I’ll post about the real Chevron ad campaign. (And yes, the image above is real, from the Chevron “We Agree” website.)
Wall Street (1987) — “Greed is Good”
Filed under: boards, competition, corporations, finance, governance, management, pay, profits, shareholders, stakeholders |
Comments (13) 
I just re-watched the original 1987 film, Wall Street. (The sequel, Wall Street: Money Never Sleeps, is in theatres now, and apparently doing very well.)
In the original Wall Street, Michael Douglas’s character, Gordon Gekko, is a corporate raider — essentially, he buys up underperforming companies, breaks them up and sells their parts at a healthy profit. What drives him? Greed, pure and simple. In one scene, Gekko appears at the annual shareholders’ meeting being held by Teldar Paper. Gekko owns shares, but wants more. He wants control of the company, though his motives for doing so are hidden. It is there that he delivers the speech that includes the movie’s most famous line. “Greed,” he tells the shareholders of Teldar, “is good.”
That line is the only thing a lot of people alive in the 80’s remember about Wall Street. And that’s a shame.
Here’s Gordon Gekko’s famous “Greed is good” speech, in its entirety:
Teldar Paper, Mr. Cromwell, Teldar Paper has 33 different vice presidents each earning over 200 thousand dollars a year. Now, I have spent the last two months analyzing what all these guys do, and I still can’t figure it out. One thing I do know is that our paper company lost 110 million dollars last year, and I’ll bet that half of that was spent in all the paperwork going back and forth between all these vice presidents. The new law of evolution in corporate America seems to be survival of the unfittest. Well, in my book you either do it right or you get eliminated. In the last seven deals that I’ve been involved with, there were 2.5 million stockholders who have made a pretax profit of 12 billion dollars. Thank you. I am not a destroyer of companies. I am a liberator of them! The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA. Thank you very much.
The first thing to note about this speech is how little of it is actually about greed — roughly the last third of the speech. The first two thirds is a critique (disingenuous, as it happens, but not therefore off-target) of the complacency of overpaid corporate executives. Gekko is advising Teldar’s shareholders that the people responsible for protecting their interests — Teldar’s executives and Board — have been doing a bad job.
How does that first part relate to the final third of the speech, the part about greed being good? Well, it’s worth noting that when Gekko first uses the word “greed,” he does so “for lack of a better word.” And Gekko, one-dimensional character that he is, probably does lack a better word for it. For him, it really is greed — the unseemly and excessive love of money. But Teldar’s shareholders don’t need personally to embrace greed in the Gordon Gekko sense. All they need to do is to see that their interests are not being served well, and to understand that Gekko’s own greed is likely to serve them better: he wants to make a killing on the Teldar deal, and if they let him do so, they’ll all make a little money themselves, along the way. His greed is good for them.
Is Gekko’s greed a good thing over all? Well, Gekko says nothing, in his speech, about the interests of other stakeholders in Teldar Paper, stakeholders such as the company’s employees for example. If Gekko breaks up the company, shareholders may benefit but employees will lose jobs. That’s a bad thing, but it’s also sometimes inevitable. Not all companies should stay in business.
No, greed is not good. But the point — the grain of truth in Gordon Gekko’s Machiavellian speech — is that if shareholders allow executives and Boards to operate inefficiently, rather than using what little power they have to improve their lot, then they are suckers, being taken for a ride. And there’s no particular virtue in that.
Corporations, Persons, and Human Dignity
The U.S. Supreme Court is once again diving into the waters of corporate personhood.
See this story, by Adam Liptak, for the NYT: Supreme Court Takes Cases on Rights of Corporations.
The Supreme Court added 14 cases to its docket on Tuesday, including three concerning the rights of corporations in unusual settings….
The story notes that two of the cases have to do with the use of the ‘state secrete privilege’ — the legal mechanism that allows the government not to submit evidence that would jeopardize national security. Both are cases to which both a corporation and the federal government are parties, and there is question about whether the state secret privilege can be used in ways that either hurt, or benefit, the corporation.
The other case is about privacy:
The privacy case, Federal Communications Commission v. AT&T Inc., No. 09-1279, will consider whether a provision of the Freedom of Information Act concerning “personal privacy” applies to corporations.
…
AT&T seeks to block the release of documents it provided to the F.C.C., which conducted an investigation into claims of overcharges by the company in a program to provide equipment and services to schools. The documents were sought under the freedom of information law by a trade association representing some of AT&T’s competitors.AT&T relied on an exemption to the law for law enforcement records that could “constitute an unwarranted invasion of personal privacy.”
Personal privacy?
Yes, you read that right. In a previous ruling:
The United States Court of Appeals for the Third Circuit, in Philadelphia, ruled for the company, relying in part on a definition of “person” in the law that included corporations.
“Corporations, like human beings, face public embarrassment, harassment and stigma” because of their involvement in law enforcement investigations, Judge Michael A. Chagares wrote for a unanimous three-judge panel.
I’ve blogged before about why it is (sometimes) essential to think of corporations as persons, at least for legal purposes. But (as I’ve also argued) personhood is a complex notion, and deciding to think about corporations as persons doesn’t immediately imply attributing to them every characteristic of human persons.
Now, I don’t know precisely what Judge Chagares (quoted above) meant when he refers to the possibility of corporations facing “embarrassment, harassment and stigma.” But what he ought to have meant, I think, is that corporations (created by humans for human purposes) can suffer attacks on their reputation that can have a serious negative impact on the legitimate interests of their human creators. Roughly: if you (let’s say) unfairly impugn the behaviour or intentions of a corporation (or a non-profit for that matter) you wrongly harm the interests of the people who rely on it. What Judge Chagares needn’t have meant is that corporations possess the kind of dignity, or intrinsic worth, that we attribute to human persons, and that is the basis not just of the instrumental rights of legal personhood, but of human rights.
Symantec Directors: $250,000/Year Not Enough to Log in to Annual Meeting
Filed under: accountability, boards, corporations, governance, profits, shareholders |
Comments (2) 
The shareholders of a public company are sometimes said to own the company. That’s not literally true, for lots of reasons. (See: Do Toyota’s Shareholders Own the Company?) What shareholders really own is the right to part of a company’s profits (if any) after all of its other expenses are paid. At any rate, the fact remains that shareholders are crucially important, and they are in many ways vulnerable. The legal rights of shareholders are relatively few, and relatively weak. That’s what makes corporate governance so important. Shareholders elect the Board of Directors, and the Board of Directors is responsible for hiring the CEO and helping set the overall strategic directo of the firm. For most shareholders, there are precious few ways to interact with, let alone influence, the Board of Directors. The Annual Shareholder Meeting is critical, in that regard.
That’s what makes it so striking when any company degrades its Annual Shareholder Meeting in the way Symantic did this year by switching to an all-virtual, audio-only meeting. See this opinion piece, by Gretchen Morgenson, for the NYT: Questions, and Directors, Lost in the Ether. Check out this juicy bit:
…because the Webcast provided no video, shareholders may not have realized that several directors had not bothered to attend the meeting, even virtually. When asked about directors’ attendance, [Symantec spokeswoman] Ms. Haldeman said 8 of the 11 showed up.
Attending annual meetings seems a pretty basic requirement of a director, don’t you think? Sure, such gatherings may seem a corporate equivalent of root-canal therapy, but a duty is a duty. Directors are paid for their service, after all, sometimes very handsomely. According to Symantec’s most recent proxy materials, directors get around $250,000 a year in cash and stock.
So which directors had neither the time nor the inclination to log on to their computers last Monday to hear from the shareholders they have an obligation to represent? Ms. Haldeman refused to identify those who were AWOL.
Now, it’s worth pointing out that the 3 directors who didn’t “show up” could well have had very good reasons. But if that’s true, Symantic’s shareholders deserve to know it. The little power shareholders have can only be exercised effectively if boards of directors take their duty of accountability seriously.
Tools for Corporate Funding of Elections
Filed under: accountability, corporations, personhood, politics, stakeholders |
Comments (5) 
What sorts of things are corporations — and charities and associations and churches and unions and so on? Should we think of such organizations as things that are themselves capable of taking action, or should we think of them as tools that people use when they want to take action?
Case in point: the controversial organizations discussed in this recent NYT editorial, The Secret Election:
…the most disturbing story of this year’s election is embodied in an odd combination of numbers and letters: 501(c)(4). That is the legal designation for the advocacy committees that are sucking in many millions of anonymous corporate dollars, making this the most secretive election cycle since the Watergate years….
Now, recall that, in the wake of the U.S. Supreme Court’s Citizens United decision, all the talk was about the notion of corporate personhood — despite the fact that the majority decision made only passing reference to the concept. (See my blog entry here.) But notice that there’s no reference to corporate or organizational personhood in the NYT editorial. It’s simply not at issue. What’s at issue is the use of organizations as a certain kind mechanism, or tool. Note that, according to the NYT, interested corporations are using 501(c)(4) organizations as a conduit, with a court-sanctioned secrecy shield. The question here isn’t so much what the 501(c)(4)’s are doing, but what they are being used for.
I think that difference in perspective — between thinking of organizations as agents and thinking of organizations as tools — is worth taking seriously. Now, to be clear, I don’t think it makes sense to say that one or the other of those perspectives is the right one, for all cases. I strongly suspect there are cases where each makes sense. Clearly there are differences, and each will highlight certain aspects of a situation at the expense of others.
For example: focusing on the organization’s capacities as an agent (or quasi-agent, if you like) allows us to consider the possibility that the organization, as a whole, is deserving of punishment for wrongs that result from its actions; but it can obscure the interests and motives of the people behind the organization. (In the present case, if we focus on the personhood and/or rights of the 501(c)(4)’s, we might be distracted from crucial questions about the political motives of the people making use of them. On the other hand, focusing on the organization’s instrumental nature can obscure the complicated ways in which organizations transform and sometimes mistranslate the intentions of the individuals behind them. But it can also facilitate an engineering perspective on organizations, one that allows us to think about how the organization — as a complex mechanism — can be taken apart, re-engineered, and put back together again. So, in the present case, thinking about the 501(c)(4)’s as mechanisms allows us more readily to consider which of the legally-constituted features of 501(c)(4)’s are serving useful functions, and which (if any) ought to be re-engineered.
Now, I’ve argued before that there are certain purposes for which we simply must regard corporations as persons — as particular kinds of agents (“must” because important goals that we all endorse would be impossible to achieve otherwise). But when it comes to particular instances of ethical assessment of a corporation or other kind of organization, we should ask ourselves: is this one of the cases where it’s useful to think of the corporation as an agent, or is this one of the cases where it’s useful to think of the corporation as an instrument? Or are there other ways of framing the issues that serve us better still?
Directors of Failed Companies
Filed under: accountability, boards, corporations, governance |
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Question: What does one do after losing a position on the Board of Directors of a failed company?
Answer: Why, join another Board of Directors, of course!
At least, that’s the case for a number of former Directors of companies like A.I.G., Bear Stearns and Lehman Brothers — companies at the heart of the financial crisis. See this story from the NYT: Companies May Fail, but Directors Are in Demand.
Does this make any sense?
The first issue to consider is whether it’s prudent for other companies to recruit directors from failed companies. After all, they were members of the teams that were supposed to be steering those ships juuuust before they hit those icebergs. But failure doesn’t imply that every member of the team was a dud, and any director who has been through a company’s collapse has arguably learned from the experience. At least one expert quoted in the NYT thinks that’s plausible:
“Directors of these financial institutions may or may not have been asleep at the switch, and if they were, they had a lot of company,” said Michael Klausner, a corporate law professor at Stanford. “Leaving that question aside, they may well have gained valuable experience that will make them good directors today.”
It’s also worth pointing out that there’s no clearly-established, strong connection between board effectiveness and corporate success. (Consider: even a well-governed company will die if its products suck or if the market for its product turns sour.) So it’s plausible that a failed company can have a good board. But in the cases we’re concerned with here, there seems to be consensus that boards didn’t do terribly well. But still, a board might be made up of a dozen directors, and there’s only so much one great director can do if surrounded by turkeys. So it’s certainly plausible, at least, that there may have been individual gems on even the worst boards among those governing failed companies. In terms of talent, each deserves to be considered on his or her own merits.
What about ethically? Is there any ethical reason not to draft the former directors of the likes of A.I.G., Bear Stearns and Lehman? Well, to start, see above. Quality governance is itself an ethical issue. (See also my recent blog entry on board competence.) So a board’s Nominating Committee has an ethical duty to recruit talented people. Is there any ethical reason not to recruit those talented people? Although I suspect many people’s intuitions will say there is a problem, there, I’m not so sure. Blacklisting even the talented directors of failed companies could only be punitive in intent — and punishment needs to be case-by-case. The onus then is on Nominating Committees to do their due diligence, and to satisfy themselves — and their shareholders — that this particular former director of a failed company behaved neither incompetently nor immorally. How many of the directors named in the NYT story could pass that test? I could not begin to guess.
The Business Ethics Blog 