Archive for the ‘crime’ Category

The Ethics of Buying a Mayor’s Crack Cocaine Video

roll_of_cashYou might as well stop feeling queazy about efforts at crowdfunding the purchase of the video that allegedly shows Toronto mayor Rob Ford smoking crack cocaine. After all, you’re going to watch the video, aren’t you?

The crowdfunding efforts (and there are at least 2 of them) have been the cause of no end of amusement, and almost as much controversy as the reported existence of the crack-smoking video itself. After all, while the video purports to show an important public official engaging in criminal activity, buying the video from the drug dealers who currently possess it would mean, well, doing business with drug dealers.

We can start to get a grip on this as an ethical issue by looking at it from the perspectives of both ends and means. The end or goal being sought by those trying to buy the tape is, arguably, an important one. If Ford has a crack habit, this is important, since it speaks to whether he is fit to be mayor. Suspicions have already arisen, shall we say, about Ford’s suitability for office: among other worries, the mayor’s ethical failings, not to mention his erratic behaviour, are well documented.

So the ends here might be worthy. What about the means? Well, the proposed means by which to reveal the truth about Rob Ford involves associating with (or at least doing business with) drug dealers. This, in itself, is probably regrettable. Of course, buying a video from drug dealers is not quite like buying crack from them, but still. When you do business with certain types, the taint can’t help but rub off. But then, it’s a one-off deal, not the forming of a long-term business relationship.

So perhaps we can say that the deal, if it happens, would be merely unseemly, rather than fully unethical. And that’s an important distinction. Too often the question gets posed as “Is this ethical?” when what would be more useful is to ask “Just how bad is this?” We shouldn’t think of these things in binary terms. It’s OK to be vaguely uncomfortable with a course of action, as long as we ask ourselves why. That’s not being wishy-washy. That’s being reasonable.

In the end, avoiding the all-or-nothing judgment is pretty important in a case like this, because it’s very unlikely that many of us (in Toronto, at least) will keep our hands clean. The option most of us will choose is to let Gawker or someone else get their hands dirty — let them do the crowd-sourcing, buy the tape, and so on — and then cackle with glee at the results in the privacy of our own homes.

Can SNC’s Reputation Recover?

Canadian engineering giant SNC-Lavalin continues to provide plenty of fodder for ethics classroom discussion, and making news in all the wrong ways. Over just the last three days, the company has made headlines for making over $1 million in illegal political donations in Quebec, for disguising dodgy payments to an agent in Angola, and for police searching the home of a former executive as part of a prosecution involving more than a dozen criminal charges.

Against this backdrop, slightly less attention has been paid to an announcement last week that the company had hired a former Siemens executive to take over the role of Chief Compliance Officer, a portfolio that ostensibly puts him in charge of ethics, too.

I was interviewed about this recently on BNN, (see video here) and the key question not surprisingly was whether having hired a new Compliance Officer is going to be enough to turn the company around, either in terms of ethics or in terms of reputation. In this regard, I think three key points need to be made.

First, a word about the relationship between ethics and compliance. The new guy SNC has hired (Andreas Pohlmann) is first and foremost in charge of compliance. Compliance with the law will of course be a very good start for SNC, but it’s just a start. Ethics has to be part of the picture. For that matter, even if Pohlmann’s only goal is to get the company consistently onto the right side of the law, there’s good reason he should pay attention to ethics, so that employees at SCN understand the ethical underpinnings of the laws the company has been breaking.

Second, the company needs to see that its reputation has to be built on more than its ability to pull off big engineering projects. SNC needs to be a company all stakeholders – including investors – can trust, because trust is the foundation of business. Given its track record so far, if I were looking for a big engineering contractor I wouldn’t put much trust in SNC at all. If they play fast-and-loose with the rules as much as they seem to, what’s to say they aren’t going to play fast-and-loose with their obligations to me, too?

Finally, the company needs to get past its apparent belief that bribery is just part of doing business. Bribery isn’t just illegal — illegal pretty much everywhere, even in places where it’s tragically common — it’s also bad business. And by “bad business,” I mean it is bad capitalism. It’s the opposite of free and open competition.

If SNC is going to regain its place as a rockstar Canadian company, it needs to show that it can go out there and compete and win on quality, rather than on its ability to bend and break rules.

Twitter, Occupy, and the Rule of Law

As the 1-year anniversary of Occupy Wall Street approaches, it looks as if Twitter is finally on the verge of handing some key protestor tweets over to a New York judge. The tweets have to do with the timing and planning of a march across a New York bridge, a march that ended in mass arrests.

And, even setting aside the legal consequences of failing to do so, it’s the right thing to do. Companies have a general obligation — a part of good corporate citizenship in the most literal sense — to obey the law. There are of course exceptions, for instance in situations approximating some form of civil disobedience. Civil disobedience is best thought of as a situation in which an individual, or perhaps a company, openly defies what it takes to be a bad law or an unjust legal ruling. In classic cases, the party engaging in the disobedience does so in an attempt to effect legal change, and shows its commitment by being willing to suffer the consequences of standing on principle.

Now, tech companies like Twitter do have a principled stance to take, here. They are rightly concerned about protecting users’ data. But tweets are decidedly and emphatically public, so the present case is quite unlike the case of a company being asked to turn over customers’ emails or other private communications.

Twitter is in a sense duty-bound, of course, to put up some resistance. Being overly cooperative with law enforcement tends to look bad on a tech company, even if it’s only because people fail to distinguish between private and non-private information, or fail to distinguish between New York and Beijing. But a year’s worth of resisting is likely sufficient for Twitter to show that it takes privacy seriously. It’s time for Twitter to do its duty as a good corporate citizen in a society governed by the rule of law.

Profiting from Prison Labour

Is it right for a company to use convicts for cheap labour? Is it unfair to pay prisoners less than the minimum wage? Is it wrong to use such labour in a way that displaces “ordinary” employees?

The Guardian recently ran a story about prisoners doing work for a private telemarketing company in a way that may (or may not, depending who you ask) be taking jobs away from law-abiding folks. The prisoners in question are being paid the equivalent of about four and a half dollars an hour — just a fraction of the legal minimum wage.

Prison labour is a great topic, ethically, in part because it tends to make people of just about all political stripes uncomfortable, albeit for different reasons. Some worry about the prisoners, who may have little option but to accept whatever crummy labour comes their way. Others may have the opposite worry: why coddle criminals by giving them the benefit of a job or job training? They’re in prison to be punished, not to learn skills. Still others worry not about the prisoners at all, but about the non-prison workers who are displaced by prisoners who inevitably “underbid” them for jobs. You could add to that list the businesses who don’t use prison labour, and who are therefor at a competitive disadvantage. How can you compete when your competitor’s labour costs are half what yours are?

We’ll leave for others the basic question of whether, or under what conditions, penal labour is itself justified, and instead focus on the business ethics issues. And as far as I can see, from that point of view there just isn’t a problem.

The “law-abiding” workers put out of a job have every right to complain, but that’s not to say that they have a justified complaint; they haven’t been wronged in any way. Other things being equal, no one has a right to any particular job. The worker who finds herself out of a job because she’s been underbid by cheap prison labour is no more treated unjustly than the worker underbid by cheap labour overseas. (For that matter, the prisoner arguably needs the job more than the average UK worker does, as does the worker overseas.) If I needed a plumber and found one who charged $100/hr and another who charged $50 an hour, the more expensive one would have no cause for complaint if I opted for the cheaper. It is reasonable, and not unfair, for me to try to keep my costs down.

Nor can a competing company rightly complain. A company reaps no unfair advantage by using prison labour. Sure, it reaps an advantage, but not through anything underhanded. As long as prison labour isn’t acquired by fraud or by, say, bribing or pressuring officials in the justice system into making decisions that violate their sworn duties, then prison labour is just another form of cheap labour. From an economic point of view, they’re to be congratulated for innovation. As long as other companies have the option of obtaining (or competing for) access to the same cheap labour pool, there’s no injustice here.

There’s an important lesson here about what counts as an “ethical issue.” The use of prison labour is, to be sure, an ethical issue. There are important rights at stake, and the decision to use such labour has important consequences. Such being the case, the decision and the details are not to be taken lightly. But that’s not to say that the practice itself is unethical. It is not, in and of itself, unjustified. But it is still good and socially healthy that the practice gives so many of us cause to pause and reflect.

Sandusky’s Lawyer & Business Ethics

Just like a defence lawyer in a criminal trial, a CEO has a specific goal to achieve. The CEO’s goal is to turn a profit, and it’s a goal rooted as much a duty to society as it is a duty to shareholders. And, importantly, when it comes to both defence lawyers and CEOs, you don’t have to agree with their goals in order to value the role they play in the larger system.

The trial of former football coach Jerry Sandusky illustrates what I’m talking about.

Jerry Sandusky’s lawyer has an unenviable job. His job is to defend—vigorously and wholeheartedly—a man that pretty much everyone else has already assumed is guilty.

Joseph Amendola, lead defence lawyer for Sandusky, has taken on the task of defending the former Pennsylvania State University assistant football coach against 52 charges of child sexual abuse. In the minds of many, this makes Amendola only slightly less worthy of scorn than his client. After all, how can anyone seriously defend a man against whom there is so much compelling evidence?

The catch here is that we cannot evaluate the ethics of a defence lawyer without looking at the bigger picture, and the bigger picture is the adversarial system within which the defence lawyer operates. Amendola isn’t just some guy defending a child molester; he’s a defence attorney playing his part in a system that places very specific ethical obligations on defence attorneys.

The point here isn’t really about the legal system. The point is that the people who play a role in a system don’t necessarily have to pursue the goals of the system directly. In fact, in some cases that would be downright counter-productive. Let’s assume, for example, that the goal of the criminal justice system is precisely what the name implies: justice. The fact that justice is the goal of the system absolutely doesn’t imply that every participant in the system has to pursue justice. Compare: a football team’s objective is to get the football into the opponent’s end-zone. But that doesn’t mean that every member of the team is trying to get the ball across that line. An Offensive Guard who focused on moving the ball would be failing at his job: his job is, pure and simple, to protect the quarterback.

What’s important in any complex institution—football team, system of justice, or a market — is that every ‘player’ do his part. Then if the institution is designed reasonably well, the sum total of the actions of various ‘players’ will result in the system that performs well as a whole. If all the players on a football team do their jobs well, the ball moves forward toward the end zone. If all the lawyers in a system of criminal justice do their jobs well, then more often than not the guilty will be punished and the innocent will go free.

So, Amendola is duty-bound to make Sandusky’s interests his first priority. But the reason is not that Sandusky deserves it. The reason is that the system as a whole requires it. The adversarial legal system can only have any hope of rendering justice if the parts of the system diligently play their roles.

The exact same principle applies to the profit-seeking behaviour of CEOs. As Joseph Heath points out in his scholarly work on this topic, the profit-seeking behaviour of companies is an essential element of the pricing function of the Market. When companies pursue profits in a competitive environment, it helps drive prices toward market-clearing levels. This helps ensure that supply of and demand for a given product settle at the socially-optimal level. So it is important, not just to shareholders but to society as a whole, that companies pursue profits. That is how companies and their CEOs play their role in producing the social benefits that flow from the market.

Of course, in the case of both defence lawyers and corporate executives, the obligation to pursue partisan goals is not unlimited. There are certain things you cannot do as a defence lawyer—suborning perjury, for example, or tampering with evidence. Such behaviour would reliably subvert the goals of the system. Similarly, there are things that an executive must not do in pursuit of profits. Figuring out which things those are—what the limits are on competitive behaviour in an adversarial market—is the very heart of business ethics.

Bribery at Wal-Mart de Mexico

Just when things seemed to be going so well at Wal-Mart!

Six years ago, just after I started blogging, I made a happy prediction about Wal-Mart. The company was subject to a truly enormous amount of bad press at the time, accused of everything from environmental infractions to falsifying employee time-cards. Nonetheless, I predicted that “within 5 years, Wal-Mart will be at the top of at least some business ethics / corporate social responsibility / corporate citizenship rankings.” I don’t think it was a particularly brave prediction: Wal-Mart has the money, and the organizational efficiency, to do just about anything it turns its mind to. And most of the bad things the company was being accused of weren’t central to its business model, so there didn’t seem to be any major barriers to the company turning over a new leaf in response to massive public pressure.

And my prediction turned out to be roughly right. While certainly not free of criticism, Wal-Mart has turned into an icon of environmental sustainability, and has indeed won a number of ethics-related awards. The bad press had dropped to virtually zero.

And then this.

If you haven’t yet read the stunning exposé on bribery at Wal-Mart de Mexico, you should. The short version: Wal-Mart de Mexico was apparently involved in an organized campaign to use bribery as an aid to its ambitious plans for expansion. When insiders notified Wal-Mart head office in Bentonville, Ark., of what was going on — the corruption, the devil-may-care attitude to law-breaking, the risk to corporate reputation — the big fish there basically swept the problem under the rug.

It’s a damning story, one that has vast implications all the way to the very top of the company’s world-wide operations. All kinds of questions arise. Where was the Board? What does this say about ‘tone at the top’? What role was played by international differences in law and custom? What damage will this do to Wal-Mart’s attempt to rehabilitate its reputation? What does this scandal say about the management skills of top executives at Wal-Mart de Mexico? Should heads roll? Or, more likely, whose heads should roll? To what extent does this pull the rug out from under the company’s sustainability and CSR efforts? I’ll explore a few of those questions here in the coming days.

The Right Amount of Waste

A recent story in the NY Times provides some encouraging anecdotes about companies that are moving to take greater responsibility for recycling. Companies like Starbucks and Coca-Cola, for instance, are finding new — and in some cases profitable — ways to take responsibility for the waste that their product packaging generally becomes. More recycling generally means less waste, less energy used, and less pollution.

Waste and pollution are business-ethics topics about which there is some room for agreement between the moralist and the economist. The moralist points out that it’s unfair to make innocent bystanders suffer the ill effects of your factory’s pollution. The economist points out that market inefficiency can result when costs, financial or otherwise, are not internalized (i.e., when costs are instead imposed on innocent third parties).

But an economically-savvy point of view must also recognize that there is in fact a socially-efficient level of waste and pollution, and that that level is not zero. Waste and pollution could only be driven to zero by shutting down industry (of all kinds) altogether, and that would have disastrous effects. In other words, we would have to sacrifice things we care about, like the ability to raise world-wide standards of living, in order to reduce pollution and waste to zero.

Consider this analogy: economists likewise sometimes argue, rightly I think, that there is an efficient level of crime. The methods by which crime could be driven to zero are both enormously invasive and enormously costly. It is not efficient — not a good use of resources — to drive crime to zero, even if we think it technically possible.

So waste and pollution, we might say, are always bad, but not always wrong. They are features of a system the overall productivity of which is an enormous boon to humankind. It would be crazy to say that gains in productivity must be sought at any cost, but it is likewise crazy to value anything else (e.g., the environment) so highly that it drowns out all considerations of efficiency.

Now none of this tells us about whether particular efforts at waste reduction or pollution abatement are good or bad. But it helps frame the issue. What we’re looking for is the right level of pollution and waste, and that level is not zero. It is also likely to shift over time, as affluence grows and technology evolves, and as companies like Coke and Starbucks and a thousand anonymous start-ups find new ways to make environmental protection efficient, in the broadest, most ethically-significant sense of the word.

An Inside Trader’s $92.8m Fine: What’s the Point?

What is it that justifies the record-breaking $92.8m fine slapped on Raj Rajaratnam by the US Securities and Exchange Commission?

I’m not posing this question skeptically. That is, I don’t particularly doubt the fairness of the fine. But it’s still useful to ask what reasons lie behind particular instances of punishment, particularly when those punishments are record-breakers like this one.

It’s worth noting that Rajaratnam is also going to jail, as a result of a separate criminal proceeding related to the same wrongdoing. But let’s focus just on the monetary judgement issued as a result of the SEC’s civil case. There are at least 4 possible justifications for punishment by means of a fine.

1) Deterrence. Sometimes we punish in order to make the offender less likely to re-offend, or to set an example for others who might otherwise have been tempted to commit similar crimes.

2) Restoration. Sometimes a financial penalty can be used to “make whole” the parties harmed by the wrongdoer. This, of course, would require that (some of) the fine actually be given to those who lost out due to Rajaratnam’s hijinks. As far as I know, that’s not going to happen. But then, there’s a sense in which society as a whole loses out when someone violates market norms as aggressively as Rajaratnam did. So maybe American society is the ‘victim,’ here, and is being compensated through its representative, the SEC.

3) Retribution. The fine might just amount to imposing pain on a roughly eye-for-an-eye basis. From this kind of point of view, the goal isn’t to achieve any particular outcomes (like, say, deterring wrongdoing) but rather just to ‘get even’ with the wrongdoer. Retribution is rooted in some pretty primitive (and, frankly, ugly) emotions, but it certainly has its appeal and plenty of defenders.

4) Denunciation. Closely related to retribution, denunciation is essentially the act of saying “No!” in response to crime. From this point of view, a big fine is a way of saying, loud and clear, that the kind of behaviour in which Rajaratnam engaged is simply not OK in our society.

What does the SEC say?

“The penalty imposed today reflects the historic proportions of Raj Rajaratnam’s illegal conduct and its impact on the integrity of our markets,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

OK, that helps. But let’s get it from the horse’s mouth. Let’s look at the words of the judge. According to Judge Jed S Rakoff,

“S.E.C. civil penalties, most especially in a case involving such lucrative misconduct as insider trading, are designed, most importantly, to make such unlawful trading a money-losing proposition not just for this defendant, but for all who would consider it.” He added that it was a warning that, if caught, “you are going to pay severely in monetary terms.”

So there you have it. The rationale behind the historic fine is deterrence. The fine was a warning to others. Of course, the fact that deterrence was the goal doesn’t mean that the fine is actually going to deter anything, or that the outsized fine is going to be more effective in that regard than a more modest fine would have been. Does anyone seriously think that a $92.8m fine is going to work where a $50m fine would not have?

But anyway, the problem here is liable to be the same as that faced in trying to deter street crime, which is that no one expects to get caught. That’s likely to be doubly true of a man like Rajaratnam. After all, he was a Wall Street titan, a self-made billionaire. He was — to steal a phrase from Enron’s Jeff Skilling — the ‘smartest guy in the room.’ How could a man like that even imagine being caught by the mere mortals at the SEC and FBI? The result is that deterrence may well be futile. So what we really need is for our markets and regulatory agencies to be designed with the full expectation that, every once in a while there’s going to be a Raj Rajaratnam. We need institutions to put safeguards in place, precisely to deal with the inevitable lapses in conscience and lapses in our belief in our own fallibility.

Ice Cream, OxyContin, and the 3 Big Questions of Business Ethics

Sometimes it takes a really minor story to illuminate the basic issues at stake in business ethics. Like, for instance, a recent story about a guy selling both ice cream and serious street drugs out of his New York city ice cream truck. Here’s the story, by Jonathan Allen for Reuters: Ice cream vendor gets prison for selling drugs with treats.

That story highlights nicely one of three really fundamental questions that must be asked by anyone seriously interested in business ethics.

The three big questions of business ethics are as follows:

  • 1) What may I do, and what may I not do, in attempting to make a living?
  • 2) In what ways do my obligations change when I act on behalf of others, including employers, shareholders, etc.?
  • 3) What should I do when I see inappropriate business practices that don’t directly affect me?

Each of these “big” questions can of course be subdivided into an entire category of questions. Question 1, for instance, implies a whole range of more specific questions — not just questions about the basic ethics of commerce (Can I lie, cheat or steal? No. Can I exaggerate, or put important details in fine print? Not so clear!) but also questions about Corporate Social Responsibility and corporate philanthropy. The second question covers all the issues that crop up once businesses are staffed by more than a single individual. And the third concerns third-party critique, the work of consumer advocates, and government regulation.

The news story cited above illustrates beautifully Question 1, the question of what you can and cannot do to make a dollar. Louis Scala was, after all, just trying to make a living. There’s nothing wrong with that, of course. The catch was the method he chose.

Scala chose to sell two products. One was soft-serve ice cream, a dessert treat sold primarily to kids, who just can’t get enough of the stuff. The other was OxyContin, a highly-addictive narcotic, sold primarily to adults who just can’t get enough of the stuff. Selling the former is considered a reputable way to make a living. Selling the latter (out of the back of a truck!) is what earned Mr. Scala three and a half years in jail. But then, neither of those products is uncontroversial. Ice cream isn’t exactly healthfood, and child obesity rates are on the rise. But on the other hand, it’s a harmless treat, when consumed in moderation. But on the other hand, it’s not always consumed in moderation. But on the other hand…you get the point.

Figuring out what constitutes a legitimate way to make a living — taking into consideration all reasonable details — is far from straightforward. But realizing that the questions we want to ask about business ethics all fall under one or another of the fundamental headings listed above is, I think, a useful bit of mental bookkeeping, which is increasingly important in a world where criticisms, and defences, of business practices are becoming more and more diverse.

Do Corporations Shield Against Personal Responsibility?

One of the key criticisms lobbed in the direction of corporations is that they’re essentially a mechanism for avoiding personal responsibility.

But this property is hardly unique to corporations. And it’s certainly not always a bad thing.

The notion that corporations shield individuals from responsibility actual has two components: one about moral and legal culpability for wrongdoing, and another about financial responsibility.

On the financial side, the lack of individual responsibility goes by the legal name of ‘limited liability.’ Limited liability applies most famously to shareholders, who generally cannot lose more than whatever they have invested in corporate shares. When corporations do well, shareholders may be paid dividends; but no matter what happens, shareholders are never expected to pay the corporation’s debts. That’s what makes it relatively safe to invest. But less commented-upon is that the same principle applies to another important group, namely front-line employees. Corporations shield them from financial liability too. If the company you work for goes bankrupt, you’ll lose your job, but the company’s creditors general cannot go after your savings, or your house.

What about responsibility for wrongdoing? In cases of actual wrongdoing, do corporations shield individuals from being held responsible?

Well, yes and no. Enron’s Jeff Skilling is in jail, and so is Conrad Black. They’ve been held accountable for what they did within their respective corporate structures. But yes it’s still true that individuals behind corporations — including shareholders, executives, and front-line employees — are shielded from responsibility for the corporation’s actions. If, due to someone else’s decisions within the corporation, the corporation does something criminal, you as an uninvolved employee or shareholder can’t be blamed for that. This generally seems right; responsibility requires knowledge and control. If you weren’t involved, you shouldn’t be blamed. People would be extremely hesitant to work together in large groups — something corporate structures facilitate — if they were going to be held responsible for other people’s behaviour.

But still, it remains true that one of the central moral problems related to corporations is their tendency to obscure and diffuse responsibility. Even though individuals within corporations can in principle be held (and sometimes are held) responsible for their actions, the complexity of corporate structures and decision-making can make it hard to figure out just who really is responsible, and hence who to blame. This is a genuine cost of the system. But it’s a system with considerable advantages. Our modern lifestyle would quite literally be impossible without corporations. So rather than reason for despair, the fact that corporations obscure and diffuse responsibility is a challenge to be dealt with.

Finally, it should also be remembered that corporations are hardly unique in shielding individuals from responsibility. Because really, in a sense, that’s what all organizations are for. They’re for achieving things that individuals cannot achieve alone, while avoiding personal responsibility. Think of all the things that governments, unions, nongovernmental organizations and charities do. Generally, most members of an organization (taxpayers, for example, or card-carrying members if Greenpeace) contribute to a joint cause, and contribute to its success, but are shielded from personal responsibility when things go wrong. That’s a cost we may want to try to minimize, but it’s also one to balance against the considerable gains we achieve from structures that allow us to work together towards a common cause.

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