Archive for the ‘corporations’ Category
Competence, Ethics & HP’s Board
Filed under: accountability, boards, corporations, governance, management, shareholders |
Comments (5) 
A corporation’s Board of Directors has a fiduciary duty to represent the interests of the company’s shareholders. In particular, the Board does that by selecting a CEO (and sometimes by participating in selection of other members of the management team) and by helping set the company’s strategic course. The work they do is of crucial economic importance — both to investors (to whom they are directly accountable) and to the functioning of the economy more generally. But (or maybe precisely for that reason) good governance and board effectiveness are also ethical issues.
By way of illustration, take a look at the recent controversy over the departure of Mark Hurd as CEO of Hewlett-Packard.
The short version: HP’s (now former) CEO, Mark Hurd, got caught fudging his expense reports. Sexual improprieties were also implied. So, the Board fired Hurd, and payed him a huge severance package. Then just a month later he joined HP’s rival, Oracle, which was very bad news for HP. Now HP’s Board is suing Hurd. It’s a huge mess, and much of it reflects badly on HP’s Board. See, for example, Joe Nocera’s recent piece in the NYT: H.P.’s Blundering Board
The Hewlett-Packard board is back to doing what it does best: shooting itself in the foot. By filing an embarrassing lawsuit against the company’s former chief executive, Mark V. Hurd, this week — a suit that unwittingly highlights the mistakes it made in the way it let Mr. Hurd go — the H.P. board can now lay claim, officially, to the title of the Most Inept Board in America….
I’m not qualified to judge HP’s Board from a strict governance point of view. But the governance experts quoted by Nocera seem convinced that the Board is, shall we say, not exactly doing a bang-up job. What should we say about that from the point of view of ethics?
To begin, we should note that ineptness itself is not generally considered unethical. We generally are not to blame for our own weaknesses. If you’re physically clumsy, then it’s not your fault that you’re not good at juggling. If you have no mind for numbers, then it’s not your fault that you don’t excel in math.
But there are exceptions to that general rule.
In fact, there are at least two factors that can allow us to hold an individual or group responsible for ineptness. One of those is the fact of having voluntarily taken on a job that you knew would require certain talents and aptitudes. If you know you’re prone to clumsiness, you shouldn’t take a job requiring dextrous manipulation of, say, dangerous chemicals. Likewise, you shouldn’t take a position on the Board of Directors of a major corporation if you don’t have the wisdom and strategic skills such a position demands. Unfortunately, with things like wisdom there’s a difficult catch-22: some people aren’t clever enough to realize that they’re not clever enough to be on a corporate Board. (Note that I’m not accusing anyone on HP’s Board of lacking the requisite talent; I’m merely outlining the ways in which one can be held responsible for incompetence.)
A second factor that can justify holding someone responsible for their own level of competence is the availability of relevant training. If they have reason to think their skills are not what they could be, and if relevant training is available, and if they have not availed themselves of it, then they are culpable for the resulting deficits. Now, being on a modern corporate Board is no trivial task. Corporate Boards are no longer the window dressing they once were. Business today is increasingly complex, and so being on a Board today requires a lot of knowledge (about business and law and regulations and so on and so on). So, there are organizations out there that are set up to provide training. (In Canada, we have this and this, for example.) Now, it’s not clear that Board training would have helped HP’s Board avoid the errors it apparently made in dealing with Hurd. Again, I’m merely trying to outline the conditions under which a lack of skill (something others have accused them of) becomes something ethically problematic.
In the end, the point is this. Modern Boards face enormous challenges. And while we most often think of corporate governance as a legal matter and as a matter of interest to shareholders, in the end it is really about making sure that the right decisions get made by the right people for the right reasons. Add to that the fact that executive decisions have the potential to have enormous impact — financial and otherwise — on people both inside and outside the corporation, and it becomes easy to see why governance must be considered an ethical issue as well.
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Note: edited on Sept 17, 2010 to correct 2 places where I had accidentally typed “BP” instead of “HP”.
BP and Corporate Social Responsibility
Filed under: consumers, corporations, CSR, energy, environment, honesty, shareholders, stakeholders |
Comments (12) I’ve long been critical of the term “CSR” — Corporate Social Responsibility. (See for example my series of blog postings culminating in my claim that “CSR is Not C-S-R”.) Too many people use the term “CSR” when they actually want to talk about basic business ethics issues like honesty or product safety or workplace health and safety — things that are not, in any clear way at least, matters of a company’s social responsibilities.
But the BP oil spill raises genuine CSR questions — it’s very much a question of corporate, social, responsibility.
BP is in the business of finding oil, refining it, and selling the gas (and propane, etc.) that results. In the course of doing business, BP interacts with a huge range of individuals and organizations, and those interactions bring with them ethical obligations. Basic ethical obligations in such a business would include things like:
a) providing customers with the product they’re expecting (rather than one adulterated with water, for example),
b) dealing honestly with suppliers,
c) ensuring reasonable levels of workplace health and safety,
d) making an honest effort to build long-term share value,
e) complying with environmental laws and industry best practices, and so on.
Most of those obligations are obligations to identifiable individuals (customers, employees, shareholders, etc.). There’s nothing really “social” about those obligations (with the possible exception of compliance with law, which might better be categorized as an obligation of corporate citizenship, or more directly an environmental obligation). And it’s entirely possible that BP, in the weeks leading up to the spill, met most of those ethical obligations. The exception, of course, is workplace health and safety — 11 workers were killed in the Deepwater Horizon blowout. But even had no one been killed or even hurt during the blowout, a question of social responsibility would remain.
So, what makes the oil spill a matter of social responsibility? Precisely the fact that the risks (and eventual negative impacts) of BP’s deep-water drilling operations are borne by society at large. The spill has resulted in enormous negative externalities — negative effects on people who weren’t involved economically with BP, and who didn’t consent (at least not directly) to bear the risks of the company’s operations.
Now, all (yes all) production processes involve externalities. All businesses emit some pollution (directly or indirectly via the things they consume) and impose some risks on non-consenting third parties. So the question of CSR has to do with the extent to which a company is responsible for those effects, and (maybe) the extent to which companies have an obligation not just to avoid social harms (or risks) but to contribute socially (beyond making a product people value). From a CSR point of view, then, the question with regard to BP is whether the risks taken were reasonable. Most of us would say “no.” But then most of us still want plentiful cheap gas.
Thus the BP oil spill provides an excellent way to illustrate the way we should understand the scope of the term “corporate social responsibility,” and how to keep that term narrow enough for it to retain some real meaning.
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p.s., here are a few relevant bits of reading:
1) Did you know that, in 2005, BP made it onto the Global 100 list of the “Most Sustainable Companies in the World”, a feat the company repeated in 2006. (And yes, that’s a reason to be skeptical about such rankings!)
2) See also this bit on Which is the Most Ethical Oil Company?
3) And finally here is BP’s own take on CSR, from 2002, see this speech: The boundaries of corporate social responsibility
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Addendum:
Here are a few books on ethics & CSR in the oil industry. No endorsement is implied.
- Drowning in Oil: BP & the Reckless Pursuit of Profit
- Corporate Social Responsibility Failures in the Oil Industry
- Price of Oil: Corporate Responsibility and Human Rights Violations in Nigeria’s Oil Producing Communities
- The Tyranny of Oil: The World’s Most Powerful Industry–and What We Must Do to Stop It
Corporations & the Right to Sue for Libel
Back in February, just after the US Supreme Court issued its Citizens United decision that essentially asserted that corporations have a right to mostly-free speech in the political realm, there was a lot of speculation about what other rights would be asserted next on behalf of corporations.
In that regard, here’s an interesting story from the UK about the legal right of corporations to sue for libel. Writing in The Guardian, lawyer David Allen Green asks, Why should companies be allowed to sue for libel? The whole piece is very much worth reading, but here’s Green’s conclusion:
Given the range of other legal means open to companies to protect their commercial reputations, I think the right of companies to sue for libel should be severely limited, if not abolished altogether. The public interest requires nothing less.
Green suggests that those who assert the cogency of such a right likely do so on the basis of the idea that corporations are, after all, persons:
But to the conventionally minded English lawyer there is no question that companies should be able to sue for libel. After all, companies are “legal persons” – and in English law, personality goes a very long way. The view is that if “natural persons” can sue for libel then so can companies.
But it doesn’t seem to me at all obvious that personhood is the foundational notion, at least not ethically. What about something simpler, like the idea that the corporation is a valued instrument (of its owners, members, shareholders, whatever). If you libel a company (by publishing something false that damages its reputation) you do economic damage to its shareholders. But rather than having each shareholder launch a lawsuit against whomever wrote or broadcast the libelous words, it makes more sense to let the company itself sue.
Now, Green argues that companies have other effective mechanisms at their disposal, beyond libel law. And that may well be. My only point here is to argue that we don’t absolutely need to begin with the notion that a corporation is a person, in order to attribute to it certain legal rights. All we need to do is recognize that protection of the corporation is important to protecting the interests of those flesh-and-blood persons whose economic interests depend upon it.
(p.s., in the wake of Citizens United, I did a trio of blog entries on the topic. See my 1st, 2nd, and 3rd entries. A few months earlier, I had written about Why Corporations Must Be Legal Persons.)
Why Corporations Must be Legal Persons
OK, this topic is too important to let drop just yet.
A few days ago I asked what rights corporations should have. That posting generated some useful comments, but some of those comments, and other things I’ve been reading online, suggested an animosity to the very notion of rights for corporations and the legal personhood that goes along with it.
So, I’ll put this forward succinctly: legal personhood for corporations is not optional. It’s absolutely fundamental to modern commerce. To believe otherwise, you basically have to be an anarchic anti-capitalist; indeed, you have to be against the very notion of large-scale cooperation and division of labour. But you’re not, are you?
At heart, legal personhood just means that a corporation can be taken seriously by courts: it can be treated as a thing, separate from the human persons that make up the corporation at any particular time.
This point does not imply any particular list of rights: the items on that list, and the limits thereon, are still very much up for debate. But what cannot be denied is that corporations must be treated as legal persons. The recent deliberations of the U.S. Supreme Court is something of a red herring in this regard. As is the American legal trend, in the decades after the Civil War, to apply the Fourteenth Amendment to corporations. Those are particular good-or-bad decisions; they tell us little if anything about the wisdom of granting some form of personhood to corporations. That idea, by the way, is a very old one, stretching back far before the 19th century. Corporate personhood is not an American invention or a conspiracy. It’s a feature of every modern economy.
(For a lively and informative history of the corporation, and other sorts of companies, see The Company: A Short History of a Revolutionary Idea.)
Look, for starters, at a few other kinds of legal persons:
– universities
– churches
– nonprofits
– political parties
– governments
– estates
– etc.
None of those is a human person. But courts treat them as persons. And you can imagine the important activities that would simply be impossible if they weren’t regarded as persons (i.e., taken as objects of legal rights and obligations) by courts. The university I work for couldn’t own the land it sits on, and couldn’t issue me a salary. Greenpeace couldn’t have a bank account. Political parties would not be able to fundraise, and to hire accountants to keep the books. Governments couldn’t be taken to court. Churches couldn’t be sued for, e.g., sexual abuse by priests . And estates — well, what would an estate even be? Just the no-longer-owned stuff of a former person, now up for grabs.
So, back to corporations. If a corporation were not regarded in at least some ways as a legal person, at least 2 very bad consequences would follow.
1) If corporations were not (in some sense) persons, they could not own property or hold bank accounts. And without those 2 things, operations would literally be impossible. (And that goes not just for corporations, but for all other large organizations, including cooperatives and nonprofits.)
2) If corporations were not (in some sense) persons, they could not be sued or fined or charged with crimes. You could sue or charge particular people within the corporation, of course, but that’s at least sometimes not really effective. For all I know, no one who worked at Exxon back when the Exxon Valdez spilled millions of gallons of oil onto the Alaskan coastline 20 years ago still works there. Should that mean no further legal action can be taken with regard to those events? Or that you’ve got to chase down people who have retired or now work at other companies? In some cases, you might want to do just that. But most of us share the intuition, I think, that Exxon itself, as a company, is responsible (too). If Exxon were not a legal person, there would be no way for anyone to take legal action against it.
So, yes, the debate over which rights (and responsibilities) corporate “persons” should have is a good and important one. But please, let’s be rid of the silly notion that corporate personhood is itself, in some sense, just a mistake.
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p.s. I’m not a legal scholar. If I’m wrong on any legal points, and if any readers are qualified to help me out in that regard, I’d be much obliged.
Finally: Why the “R” in “C.S.R.”?
You probably saw this coming.
In mid-July, I asked Why the “C” in “CSR”?. Two weeks later I followed up with, Why the “S” in “CSR”? In both cases, my complaint was basically that the words the letters stand for (i.e., “Corporate” and “Social”) are too narrow to capture the topic at hand. So, am I now going to question the R-as-in-“Responsibility?” Yes, here endeth the trilogy.
The “R” in “CSR” is there because CSR grew out of an interest in the idea that companies, especially the biggest and most powerful ones, have some obligation, some responsibility, to do right by the communities they are part of. But the notion of “responsibility” is inadequate to capture the range of questions about which CSR advocates are typically (and ought to be) concerned. Such as:
- Questions about rights, such as “Is there a right to freedom of commercial speech? Does that right extend to corporations? Or does free speech only apply to individuals acting in their private capacity?”
- Questions about value, such as “Are there some things that ought not be market goods? Which ones? Why?”
- Questions about the virtues appropriate to the world of business.
- Questions about what kinds of actions are permissible, even if not morally praiseworthy.
- Questions about what kinds of actions are ethically desirable, even if they would not count as being a responsibility.
Now, each of those types of questions involves, at least tangentially, other questions that are about responsibility. But the questions above certainly cannot be reduced to questions of responsibility.
Of course, maybe people interested in CSR aren’t interested in those questions, or think such questions somehow are not central. But that just means that, whatever CSR is about, it isn’t about a whole range of the most interesting normative questions about business.
Wal-Mart: The Transformative Power of a Transformed Company
Here’s an interesting story about Wal-Mart’s decision, back in 2005, to ‘go green.’
From the NY Times: Green-Light Specials, Now at Wal-Mart.
Two grand themes emerge in the story. Both are about massive transformations.
One is the story of Wal-Mart’s attempt to use its enormous size, and its enormous influence over its supply-chain, to do what very few companies can do: have a significant (positive) impact on the environment.
By virtue of its herculean size, Wal-Mart eventually dragged much of corporate America along with it, leading mighty suppliers like General Electric and Procter & Gamble to transform their own business practices.
Under Mr. [Lee] Scott, who is retiring this month at the age of 59, the company that democratized consumption in the United States — enabling working-class families to buy former luxuries like inexpensive flat-screen televisions, down comforters and porterhouse steaks — has begun to democratize environmental sustainability.
For decades, many consumers felt that going green was a luxury, too, reserved primarily for those with enough money — and time on their hands — to buy groceries at natural food stores and organic clothing from specialty retailers.
(For previous postings on Wal-Mart and the environment, see here and here.)
The second grand theme of the story is the transformation of Wal-Mart into the kind of company that, by all appearances, wants to have the kind of positive impact alluded to above.
“It wasn’t a matter of telling our story better,” said Mr. Scott said in recent interview. “We had to create a better story.”
WAL-MART, of course, didn’t change overnight. It was pushed — or, more accurately, shoved — into wrenching reforms.
When Mr. Scott became chief executive in 2000, the company was a Wall Street darling. With nearly 4,000 stores and more than a million employees, it had edged out Goliaths like Sears and Kmart. But its size and success invited scrutiny. In 2005, two union-backed groups, Wal-Mart Watch and Wake Up Wal-Mart, set up shop in Washington and started a public relations assault against the company.
Some of you may have noticed that I implied above that having a positive impact was something that Wal-Mart (rather than, say, Mr. Scott, or the Board) “wanted.” Some people are skeptical about corporations (or other composite entities) “wanting” or “believing” or having other such mental states. But if you don’t take it too literally, you see it makes sense. As of 2009, Wal-Mart, as a whole, wants to play a certain kind of role. Now the reasons for Wal-Mart wanting that are pretty complex. In fact, I think at the level of reasons, that’s where we should say “No, corporations don’t have those.” If you want the reasons why Wal-Mart wants what it wants, you have to look at the many and diverse reasons why the different people that make up Wal-Mart want the company to play that role.
Google on Google in China
Filed under: accountability, corporations, decision-making, ethics, government, international, privacy, technology |
Comments (3) Here’s an amazing story about a company (well, a founder & senior executive) ruminating — publicly — about the ethics of a recent corporate decision. In particular, it’s Google co-founder Sergey Brin, talking about Google’s activities in China:
From the Detroit Free Press: Brin Says Google Compromised Principles (by By Ted Bridis, writing for the Associated Press)
We felt that perhaps we could compromise our principles but provide ultimately more information for the Chinese and be a more effective service and perhaps make more of a difference,” Brin said.
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“It’s perfectly reasonable to do something different, to say, ‘Look, we’re going to stand by the principle against censorship and we won’t actually operate there.’ That’s an alternate path,” Brin said. “It’s not where we chose to go right now, but I can sort of see how people came to different conclusions about doing the right thing.”
Most of you already know about Google’s controversial move to offer version of its search engine in China that meets the censorship requirements of the Chinese government. (If not, see the blog entries listed below.) What amazes (and impresses) me most about the latest installment in this story is the casual transparency of (some aspects of) Google’s decision-making. Here’s the co-founder and co-president of one of the most powerful companies in the world chatting with reporters about ethics. Like, not reading a prepared statement, but thinking it through, out loud, and admitting that he’s not sure the company is on-track. Some would read this as a sign of weakness. I take it as the opposite. Who wouldn’t be uncertain about a path as clearly fraught with ethical peril as Google’s current path in China? Say what you will about the substance of Google’s strategy, you have to admire a company with the moral courage to be open about its own doubts.
Earlier Business Ethics Blog entries on this topic:
- Does Google’s “Dont Be Evil” Apply in China? (January 27, 2006)
- Update: Google in China (January 29, 2006)
- Becker & Posner Blog on Google in China (February 22, 2006)
The Business Ethics Blog 