Archive for the ‘ethics’ Category

Business Ethics & Pride in a Job Well Done

One of my shoe laces gave out today, on the way out the door heading to the airport. Luckily the shoe-shine guy, in addition to giving an excellent shine at a good price, also had reasonably-priced laces which he happily threaded and tied for me.

For some strange reason, it always comes as a shock to me when a shoe lace gives out. The odd thing is that I usually cannot remember how old the disappointing lace actually is. I honestly cannot tell you whether the lace that gave out today is 3 months old or a year old or three years old. Nor do I know what brand it was, or where I bought it. So — setting aside, for a moment, its trivial price — I have no idea who I would complain to if I thought the lace had given out sooner than it ought to have.

Given this lack of accountability, one has to wonder just what it is that motivates makers of shoe laces (or other small, cheap, anonymous products) to rise above the bare minimum in terms of quality. Shoe laces are not, presumably, a highly-regulated industry. So they could presumably get away with using cheap raw materials, keeping costs down and profits high.

One obvious answer is “ethics.” The people who make shoe laces presumably have some pride in their work, and want people to be satisfied with their laces, and feel that it’s their responsibility to produce a decent product.

Another answer might have something to do with supply chains. Maybe I can’t easily hold the maker of my laces accountable, but the store I bought them at can. Maybe the purchasing agents for the store I bought them at asks lots of tough questions and demands access to technical specifications for laces before buying. I hope that’s the case. But that just pushes the question one link higher up the supply chain. Why does the purchasing agent care, given how likely consumers are to express their disappointment, in the event that they are dissatisfied? Again, the likely answer here is “ethics,” a big part of which is the simple motivation to do a good job and treat people fairly.

OK, so this is a trivial little example. But it seems to me that it points to an important lesson. People too often think of the word “business ethics” as implying an attempt to define and achieve saintly behaviour in business. And that’s a mistake. What we’re really talking about are reasonable constraints, and reasonable standards of achievement, in the world of commerce. We’re all out there, trying to make a living, and there are better and worse ways to do that. And whether you’re manufacturing shoe laces or complex financial instruments, the starting point has to be basic pride in a job well, and fairly, done.

Ethical Consumerism is Hard

It’s not easy being an ethical consumer, these days — especially if you’re hoping to buy products that embody all or most of the ethical values you care about.

Here’s an example. If you like salmon, and if you’re the sort of consumer who wants to eat ethically, should you buy organic salmon or buy wild salmon? After all, there’s a huge effort these days to promote organic foods as ethical — gentler on the earth, and so on. Of course, others aren’t so sure that there’s much benefit to organic foods, and some even argue that the organic label is more a status symbol than anything else.

Now what about wild vs farmed? Some people think that farmed salmon is always bad. Others, like food-policy expert James McWilliams, argue that for whatever its current flaws, farmed fish provides our best hope for a future that includes significant amounts of protein at acceptable environmental costs. Eating wild fish, on the other hand, puts pressure on fragile wild populations.

But still, there are plenty of people who are dedicated to eating organic, and plenty of people who are quite insistant upon eating only wild fish.

The problem is, you can’t have it both ways. Wild salmon cannot, by definition, be organic, because it’s impossible to control what wild salmon eats. It can only be truly organic if it’s raised in captivity. Damned if you do, damned if you don’t.

This is just one tiny example of the challenges of ethical consumerism. Any given product can embody any number of incommensurable values — values that can’t just be added up to arrive at a total “ethics quotient.” The same problem applies to wind power (which produces no air pollution but kills birds) and oil from Canada’s oil sands. (which is produced in a democracy but is environmentally-dodgy).

Of course, none of that means that it’s not worth some effort to try to buy conscientiously. It just means that, as often as not, values-based consumerism is going to mean purchasing according to values that matter to you, rather than hoping to buy in a way that is ‘truly ethical,’ in some grander sense.

What is ‘Business’ and Why Does That Matter?

There’s been discussion lately (constantly, in fact) about whether President Obama is “pro-business” or “anti-business.” What commentators generally mean by that is whether Obama is sufficiently sympathetic to the needs of the business “community,” or rather excessively sympathetic to the wants of Big Business. A lot turns here on what we mean by business. Confusion about that muddles discussion of business ethics, too.

Confusions about business ethics abound. Some people, for instance, think business ethics is about the pursuit of sainthood in commercial domains, a definition which makes the field an eminently unpromising endeavour. Others mistakenly associate the term “ethics” with a narrow range of limits on personal behaviour, things like accepting bribes. Still others seem to think that the word only applies to big corporations. All of that is wrong, and starts discussions of business ethics off on the wrong foot.

If you want to understand the scope of business ethics, it helps, as a starting point, to begin by looking at what business itself is. Here’s my informal, non-textbooky definition of “business”:

Business is the activity of making stuff or doing stuff for other people, in return for money (or in exchange for other stuff).

That’s it. That’s all business is, fundamentally. What motivates those involved is another question. So is how they behave. Which brings us to ethics.

Business ethics is about what you can and cannot do in the process of doing business. What kinds of behaviours are good or bad, right or wrong, virtuous or vicious, in a context in which we are all trying to make a living?

I think this way of explaining business ethics is useful for a many reasons, but mostly because it’s non-confrontational. It ought to reassure — and hence draw into the discussion — the business community. As a business ethicist, I’m not poking my nose into the world of commerce to tell people there that they have to stop pursuing profits. Far from it. Profits are great — go for it! I’m just here to talk about what reasonable limits there might be on profit-seeking activity.

It also reminds those who are critical of “business” that what they are actually critical of is certain business practices, certain ways of doing business. “Business” isn’t synonymous with “Wall Street.” The idea of being “anti business” verges on incoherence, given this understanding of what business is.

Of course, the right understanding of business is only a start. But it’s an awfully good start.

(You can check out my more formal definition of business ethics here.)

Should Penn State’s Board Resign?

In the wake of the Sandusky sex-abuse scandal the question has arisen whether Penn State University’s Board of Trustees should tender its collective resignation. And now, following the death of Coach Joe Paterno on Sunday, the question has taken on additional emotional resonance. The university’s Faculty Senate is scheduled to discuss a motion to strike an independent committee to investigate the Board’s role in the whole affair, and indeed has seen at least one motion calling for the entire Board’s resignation.

So, should the members of the Board be asked to resign? And if not, should they do so of their own volition?

To answer these questions, here are some questions that need to be considered:

Fist, did indeed the Board fail in its fiduciary (‘trust-based’) duties? It’s worth noting that the Board has been under fire from two different directions, here. Some think the Board failed in not staying sufficiently ‘on top of’ the Sandusky situation, and in resting satisfied with whatever dribbles of information the university administration saw fit to feed them. (The only detailed account I’ve read so far paints the Board in a rather sympathetic light, in this regard.)

Others think the Board failed in firing — in their eyes, scapegoating — the beloved Paterno. Both sides think the Board screwed up, but for very different reasons. Of course, both can be right at the same time. Perhaps the Board has just generally done a bad job, first by letting the situation get out of hand and then second by botching the task of responding to it. Rather than cancelling each other out, maybe these two sets of complaints just compound each other.

Next, we need to ask, if the Board failed, was it a failure of people or a failure of structure? A board, after all, is both an institutional structure and a set of people occupying that structure.

If it was a failure of structure (and, as governance expert Richard Leblanc wrote back in November, there are serious problems with how Penn State’s board is configured) then there’s little reason to think that a change of personnel on the Board is either necessary or sufficient to fix the problem. And if instead it was a failure of people, then getting rid of them all is a blunt, but perhaps effective, way to solve the problem — providing, of course, that the new people brought in to replace them are better.

Of course, the problem is that it’s difficult to distinguish between a failure of people and a failure of structure, in a case like this. Perhaps people better-suited to the job would have risen above the confines of a poorly-structured board, or lobbied to have its structure revised. Human behaviour and institutional structure shape each other.

And finally, regardless of the above questions about the sources of failure, it might be the case that the removal or resignation of the Board is necessary in order to restore public confidence. That is, even if the individuals currently on the Board are not in any way to blame, the fact that key stakeholders have lost faith in the Board might be sufficient grounds for calling for the entire Board to go. Without the confidence of key stakeholders, any Board is going to find it hard to do its job.

But then, while the current Board certainly faces challenges, so would an entirely new Board. The loss of continuity that would result from a 100% change in membership could seriously impair the Board’s functioning, and make it even more reliant on — and susceptible to control by — university administrators. There’s a good reason why well-governed boards have careful plans in place to make sure that new blood is brought in regularly, rather than en masse. In the end, it seems to me that the best prescription is this. The Board of Trustess at Penn State needs to see substantial structural change. It also needs enough new blood to restore confidence, while retaining enough of the old guard to ensure continuity. Beyond that, the Board is just going to have to do its best to muddle through whatever challenges lie ahead, with whatever strengths and limits it possesses, just like any other board.

Must the CEO Go Down With the Ship?

Two days ago, I asked — in the wake of the Costa Concordia disaster — whether the captain is duty-bound to “go down with his ship.” The question, I said, bears not just on the obligations of sea captains, but on individuals in positions of responsibility at organizations of all kinds. It also has implications for how organizations enculture individuals so that they see following through on promises as more than just a contractual obligation.

But today I’ll make explicit the analogy that is likely on the minds of most readers of this blog: never mind sea captains…what about CEOs? Does the CEO of a “sinking” company have a duty to “go down with the ship?”

First, it’s worth pointing out that sea captains don’t literally have to go down with the ship: closer to the truth is that they’re supposed to be the last ones off, or as close to last as is possible and permits them to do their duty to preserve the lives of crew and passengers. Similarly, bankruptcy for the company doesn’t literally have to imply bankruptcy for the CEO. In some cases, surely, bankruptcy isn’t the CEO’s fault, and there’s no reason to think that justice demands that a blameless CEO walk away penniless. But they should stick around to see the job done, even if that implies some financial risk to themselves.

Second, it seems to me that, as in the case of sea captains, the answer here has to depend a lot on the details of the situation. Sometimes staying aboard will genuinely help, and sometimes it won’t. Also, a CEO’s ill health might be a decent excuse, in some cases. And indeed, some corporate “captains” aren’t even wanted on a sinking ship: in 2008, for example, the US government forced Robert B. Willumstad to resign as CEO of the faltering AIG, and replaced him with Edward M Liddy. The idea that the captain should stick around to help only makes sense where the captain’s services continue to be seen as having value.

Third, there are several different ways in which a CEO can “abandon ship,” and they might not all be equally ethically bad. Abandoning ship could mean selling shares that are about to tank, or it might mean resigning prior to bankruptcy. Or it might mean resigning prior to an inevitable criminal investigation: several rats are known to have abandoned Enron’s sinking ship — Jeff Skilling, for example. Worst of all, perhaps, are “take the money and run” situations. Arranging a bonus for yourself just prior to declaring bankruptcy is the moral equivalent of looting the ship’s safe (or perhaps scuttling all the lifeboats) prior to prematurely abandoning ship.

As always, we need to be careful when engaging in moral reasoning by analogy. A company is not a boat, and bankruptcy is not the same as sinking. But what’s certainly true is that in both cases, the ethical requirements of leadership don’t end at the first sign of trouble.

Must the Captain Go Down With His Ship?

Italian cruise-ship Captain Francesco Schettino is in jail, following an incident that left 6 dead and (at present) 29 missing. Among the accusations levied against is that he fled the foundering vessel before it was empty. (According to maritime law, a captain doesn’t literally have to “go down with the ship,” but he or she is supposed to be the last one off after ensuring the safety of others.)

Legal requirements aside, is there an ethical obligation for a captain to risk life and limb to stay on board until the last passenger and crewmembers are off? The answer is pretty clearly “yes.” Like many jobs, the job of captaining a ship comes with a range of risks and benefits. As long as the risks were understood when the job was taken on, you’re obligated to follow through.

There’s a more general point to be made here about the nature of ethics, and about ethics education and training.

Ethics often requires of us actions that we’d rather not carry out. You should tell the truth, even when it would be more convenient not to. You should keep your promises, even when breaking them would be more profitable. This is necessarily the case: if ethics only ever required you to do things you already wanted to do, there’d be no need for ethical rules (or at least no need to think of them as rules in the prescriptive sense).

But there’s at least a superficial tension, here, with the idea that ethics should be useful. After all, if having and following an ethical code doesn’t benefit us in some way, why bother? Sure, it’s easy enough to say “The right thing to do is the right thing to do,” but a system of ethics needs some justification in terms of human well-being or it’s just not going to be very credible, not to mention stable. Indeed, some ethical systems are subject to serious criticism precisely because their implications for human well-being are negative. Yes yes, I understand that your code of honour requires you to kill the man who killed your brother, but don’t you see how crazy this all is?

So there’s got to be some connection between ethics and benefit. And it’s not enough to point to social benefit. After all, pointing out that the community benefits from me taking ethics seriously merely pushes the question of justification to a second level: why should I care about the good of the community, especially if doing so requires significant self-sacrifice?

None of this should engender skepticism or cynicism. It just means we need to think carefully about who benefits, and how, from a system of ethics.

It also means that we need to think about how we can help individuals keep the promises that it was in their interest, initially to make. Captain Schettino found it in his interest to make certain promises (albeit perhaps implicit ones) when he signed on to be captain of the Costa Concordia, but then all of a sudden found himself in a situation where it was not in his interest to keep that promise. Threats of punishment were understandably insufficient, here. Staying out of jail is no great incentive if you’re free-but-dead.

Organizations of all kinds — including especially corporations and professional associations — need to work hard to help members think of the relevant ethical rules as something more than the terms of a contract, to help members become the sorts of people who simply would never abandon ship when they are needed most.

The Social Responsibilities of Truckers

If you want to learn about the social responsibilities of business, don’t start by looking at Walmart and Apple and GM. Companies with hundreds of thousands of employees and millions of customers make an enormous number of decisions every day. Their impacts are many and varied. Their relationships are complex. They’re worth considering, but they are a lousy place to start.

Much better to start small, with a more tractable set of problems. We should look, for example, at the world of small, independent businesses. For example, a recent story from the Detroit Free Press raises interesting questions about safety and ethics in trucking. But the fundamental questions of social responsibility that story raised go far beyond the trucking industry itself.

Last week I wrote about the social responsibilities of lawyers. Today I’ll move the discussion of social responsibility in a decidedly blue-collar direction. Let’s look at the social responsibilities of truckers, the men and women who drive the Big Rigs on which a majority of North American goods get transported.

Like lawyers, truckers, too, are all either independent business-people or employed by businesses. So the relevance of trucker ethics to business ethics is clear. But unlike lawyers, truckers are not commonly spoken of as having specifically social obligations. But of course, that doesn’t mean they don’t have any.

Before asking about specifically social obligations, let’s look at a trucker’s obligations more generally.

A trucker’s most obvious obligations as a trucker are to her employer (if she has one) or to her customers. She’s got a job to do, and she ought to do it diligently, doing her best to deliver the shipment on time and in intact. She also has obligations to suppliers, including an obligation to pay invoices on time, and so on. If she happens to have employees (e.g., an assistant who helps load & unload) then there are clear obligations there, too.

The other obvious obligation is to drive carefully — an obligation owed to others with whom the trucker shares the road. 18-wheelers are pretty much the biggest thing on the road. That implies a significant responsibility not to drive recklessly and impose risks on others, including an obligation to be sober and alert while at the wheel. Are those social obligations? I don’t know. I tend to take words seriously. “Social,” to me, implies an obligation to society as a whole, to society at large, rather than just to people who happen to be directly in harm’s way.

So let’s put it this way: does a trucker — by dint of being a trucker — have obligations to make society, as a whole, better-off? But wait, we can’t really mean society “as a whole.” No one can do that. It’s too big a project. Social responsibilities must be responsibilities to do what one can to help some relevant bit of society, to contribute in some meaningful way to the overall project of making society better-off.

But if we’re thinking specifically about truckers, we should of course also exclude obligations that you might think all of us have: obligations to donate to good causes if we are financially able, and to help lost children find their way home. And so on.

So, then: does the trucker have trucker-specific social obligations, obligations that she should carry out in the course of driving her truck?

I have to admit, I’m having trouble thinking of very many. But the story cited above suggests one good example, since it is in part about efforts by the trucking industry to lobby government regarding the legal weight limits imposed on trucks. So one key social responsibility of truckers, we might say, is to lobby government in ways that is in the public interest, rather than just in their own interest. Of course, just what is in the public interest, here, is open to debate. But the notion of social responsibility at least sets the terms for that debate. So there’s one clearly social responsibility.

Now, with regard to lawyers, I argued that social responsibility has to do with the force of, and limits on, the individual’s role in a larger, socially-important system. If that is true beyond the special case of the legal profession, then role-related social obligations have something to do with the obligations involved in being part of a team effort. All that remains, then, is to figure out what socially-valuable team effort the trucker is part of, and what obligations are necessary to the achievement of that team’s goals.

At this point, I’ll open up for discussion.

Did GE Really Pay No Taxes in 2010?

A few months back, the NY Times shocked a lot of people by reporting that General Electric — an enormous, multi-billion-dollar company — had paid zero taxes to the US government in 2010, despite the fact that more than a third of the $14.1 billion that company earned that year had come from its US operations. The reason? GE has a truly enormous tax department that works non-stop to look for deductions and loopholes.

Scandalous, right?

Not so quick. As I’ve argued before, what we commonly call “loopholes” are in most cases the result of some decision by government to encourage or discourage a particular behaviour. That is, most of the things GE (or any other company) does in order to avoid taxes are thing the government is trying, however ham-fistedly, to encourage companies to do. Still, we might reasonably look askance at a company that works so assiduously to squeeze every last dollar out of the tax system. The millions spent to save millions in taxes could in principle be spent to develop products that would boost the overal value proposition of the company.

But the situation with regard to GE is even more complex than that. To get a taste, check out the comments section under the discussion of this story on the always-useful economics blog, Marginal Revolution. There, it is pointed out that the $14.1 billion in profits attributed to GE by the NYT was calculated according to GAAP, which is entirely different from how the IRS calculates taxable income. In other words, we’re looking at apples and oranges here. The entire discussion thread at MR is worth reading. But if you’re not well-versed in the niceties of tax rules, or corporate finance more generally, you’ll quickly find yourself in over your head.

But that in itself raises an important issue. As the sophistication of the debate in the MR comments section demonstrates, the fairness of GE’s tax burden (or lack thereof!) is something that most of us simply are not qualified to comment upon. And that’s a worry. It’s hard for companies to be held accountable if the general public doesn’t understand the factual basis for evaluating them. It seems to me that this is an additional reason for tax reform: the subtlety of the various policy objectives being sought through taxation of corporations needs to be balanced against the need for the concerned public to be able understand it.

Eggs, Ethics, and Supply-Chain Accountability

Canadian Business recently reported that two major companies — McDonald’s and Target — have dropped egg supplier, Sparboe Farms, after concerns arose regarding animal welfare at the company’s egg-production facilities. It’s a small PR hassle for titans like McDonald’s and Target. But it’s clearly a huge hit for a company like Sparboe.

This case raises two important points, ones that go far beyond the relationships between mega-chains and their suppliers:

The first has to do with supply-chain responsibility. Notice that McDonald’s, for its part, doesn’t deal directly with Sparboe: it gets Sparboe eggs via Cargill Inc., the agricultural giant that supplies all of McDonalds’ eggs. This raises an interesting question about supply-chain ethics. Any company is clearly responsible for, and should be accountable for, its own behaviour. And a company is pretty clearly also partly responsible for, and should be accountable for, the behaviour of its suppliers, at least to the extent that it knows, or should have known, about those suppliers’ behaviour. But what about the behaviour of their suppliers’ suppliers? The modern trend is toward nearly infinite responsibility, up and down the supply chain. That much is clear. But the moral principle behind such responsibility is less clear.

Sensible thinking about supply-chain accountability has to differentiate, I think, between retrospective culpability, on one hand, and responsibility to make changes going forward, on the other. Is McDonald’s responsible for brutal behaviour by employees of a supplier’s supplier? No. But do they have a responsibility to take action, now that they know about it? Yes.

The other point has to do with the blurry boundary between practices that are unethical, on one hand, and practices that are in some more vague way unacceptable to the public, on the other. Animal welfare issues are a great example of this. Philosophers continue to debate the moral significance of animals and their suffering. Some will tell you that all suffering, human or not, is of moral significance. Others will tell you that ethics is a human device for making social living more congenial and sustainable. On the latter point of view, animal suffering might be ugly, but it’s not unethical, except to the extent that we have an obligation not to tread upon other people’s sensibilities. But this distinction matters little, in many cases: a company’s suffering can result from either — either from behaviour that is actually unethical, or from behaviour that is simply seen as being so.

Business Ethics Blog’s 6th Blogaversary

Today is the 6-year anniversary of the day back in 2005 when I posted my first entry on the Business Ethics Blog. This is my 885th posting since then.

A lot has changed since 2005. For one, the ethics blogosphere is more crowded — or should I say, more fruitful — than it was 6 years ago. The business-ethics blogosphere now includes blogs by ethics/CSR professors like my pals Dirk Matten and Andy Crane, as well as blogs by profs from neighbouring fields, like the corporate governance blog written by my friend Richard Leblanc. It also includes journalists like Marc Gunther as well as consultants like David Connor and Elaine Cohen. And, significantly, the ethics/CSR blogosphere is now knitted together, you might say, by a vigorous multidimensional Twitter conversation.

It’s also worth noting that a number of major business publications have also joined the fray, including Forbes and Fast Company.

The other big change is that my blog is now syndicated exclusively on Canadian Business magazine (most of my blog entries can be read both here and there). Besides inspiring me to blog more consistently, being featured on CB has enlarged my audience. That’s a very good thing, I think — not just for my own sake, but for the sake of having the broadest, most inclusive conversation possible.

So, dear readers, thanks for your support over the last 6 years, and here’s to continuing the conversation for another 6!

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