Archive for the ‘ethics’ Category
Yes, there is such a thing as business ethics
Filed under: accountability, blogs, character, codes of ethics, corporations, critical thinking, definitions, ethics, values |
Comments (10) Marketing guru (blogger, author, etc.) Seth Godin posted a provocative blog entry called, “No such thing as business ethics”, in which he worries that the focus on “business ethics and corporate social responsibility” is distracting us from questions of personal responsibility:
It comes down to this: only people can have ethics. Ethics, as in, doing the right thing for the community even though it might not benefit you or your company financially….
Now I could quibble with Godin’s definition of ethics, which is actually a particular controversial view about what ethics requires, rather than a definition. But instead I’m going to take issue with Godin’s claim that all that matters in business is personal ethics, rather than organizational ethics. Godin writes:
I worry that we absolve ourselves of responsibility when we talk about business ethics and corporate social responsibility. Corporations are collections of people, and we ought to insist that those people (that would be us) do the right thing. Business is too powerful for us to leave our humanity at the door of the office. It’s not business, it’s personal.
Godin’s claim that “it’s not business, it’s personal” is problematic in two ways. First, it wrongly implies that business ethics somehow misses out on the whole personal integrity thing. That’s entirely false. Both the academic literature on business ethics and the “ethics and values” programs set up by individual companies put a lot of emphasis on individuals adopting the right values and making good decisions. Secondly, contrary to what Godin implies, individual ethics clearly is not enough. For one thing, people embedded in organizations have obligations that are role-specific. Just as lawyers and doctors have special duties that go along with their roles — they have to follow not just their own consciences, but also highly specific professional codes — so do people in the world of business. And for another thing, organizations can be set up badly such that all kinds of “good” individual decisions can still lead to problematic outcomes. The ethics of the organization, per se, matters a lot.
Interestingly, Godin tells us that he learned about all this from his dad. Unfortunately, while the homely lessons we learned at our parents’ knees tend to give us a good start in life, complex institutional settings tend to bring more complex duties, and hence require more complex principles.
Bribery, Legal Clarity, and Lame Excuses
Bribery is quite probably among the very oldest of unethical business practices, right up there with short-changing your customers and adulterating your products. Many modern economies have recognized that bribery has no place in a fair and efficient market, and have rightly taken action to prohibit what is widely acknowledged to be a pernicious practice. But not everyone is consistently appreciative of legislative efforts at curbing bribery. Take the U.S. Chamber of Commerce, for example. To see why the Chamber isn’t altogether happy about the U.S. government’s anti-bribery efforts, see this story from the Washington Post’s David S. Hilzenrath: “Quandary for U.S. companies: Whom to bribe?”
American companies doing business abroad have a problem: They don’t know whom to bribe.
Federal law prohibits the bribery of some people but not others. And the business world argues that the rules of the road are not clear. One guy’s bribe, as it turns out, is another guy’s cost of doing business….
A few points:
1) In principle, at least, bribery is an ethical no-brainer. There really is no pro-bribery point of view. Some may argue that it’s a necessary evil, something that companies are forced into by practical considerations in some countries. But that’s at least nominally different from thinking that bribery is ethically OK. Bribery involves inducing someone to violate a duty of loyal service, and it diverts resources that ought to go to more legitimate ends. And besides, bribery is a zero-sum game, which means that by definition the business community as a whole cannot win.
2) The Chamber’s basic plea, here, is an entirely reasonable one: the law does need to be clear. One fundamental element of the rule of law is the notion that citizens (and, derivatively, corporations) must be able to know what the law requires of them. Ignorance is no excuse, but uncertainty may be, at least when lack of certainty is the legislator’s fault. In other words, if the citizen is ignorant of the law, shame on the citizen. But if the law is opaque, shame on the state.
3) If the law really is unclear in dangerous ways, the evidence for that is remarkably thin. The Chamber cites just one anecdote, quite possibly apocryphal, about a company that nearly got prosecuted for a trivial non-offence (paying for a bureaucrat’s taxi ride). We only have Hilzenrath’s account to work with, here, but clearly if there’s a real issue here the Chamber needs to do a better job of making the case.
4) There are just two kinds of situations in which bribery seems truly necessary, and neither of them reflects well on the businesses involved. One is when you’re operating in a context where bribery truly is endemic, and you need to engage in bribery just to keep up. The number of places where that’s true is likely exaggerated. And besides, that need is a lousy excuse, frankly, and any self-respecting businessperson should think seriously about why they want to do business at all in such places. The other situation, of course, in which bribery seems like a true business necessity is one in which you simply aren’t good enough at what you do to compete effectively without doing things you know to be wrong.
Ethics & Economics 3: Efficiency
This is the third in an occasional series on the relationship between ethics and economics.
The topic of this posting is efficiency. As it happens, efficiency has been in the news this week. Michigan lawmakers are currently debating changes in fuel-efficiency standards for cars. (The White House wants to raise efficiency standards, something that is of clear concern to auto-makers in Detroit.) Secondly, the Washington Post reports today that the World Trade Organization is expressing concern that a recent wave of trade accords may hamper the efficiency of international trade.
In its generic sense, efficiency is just a measure of how good some system is at turning out maximum outputs given minimum inputs. Efficiency is arguably the only virtue contemplated by economics. Economics texts have relatively little to say, for example, about justice or about rights. Economists are proficient at explaining the conditions under which markets function efficiently, but they tend to back away (or to plump for their own intuitions or ideologies) when asked whether particular market outcomes are fair.
But what about efficiency as a moral value? In general, efficiency is morally good, and so it is a mistake to think of efficiency as merely an economic value. Certainly few people would argue in favour of inefficiency. Inefficiency means waste. Inefficient use of resources typically implies unnecessary environmental damage. And inefficient production typically means fewer people benefiting than might have been under more efficient production methods.
But efficiency is not always good; it depends on the outputs being sought. Recall that Hitler’s death camps were designed to be a highly efficient means of genocide. More generally, efficiency in the production of something bad is a bad thing. For example, GreenPeace is sure to see the efficiency of modern logging machines or deep-sea trawlers as a bad thing.
Much more remains to be said about efficiency. The key point to make, however, is that efficiency is not “merely” an economic value. We all need to care about efficiency. And even when other important values are at stake — as is almost always the case — we do well to begin by understanding which of the available solutions is most efficient, and what loss or gain in efficiency is going to accompany any proposal to change things in pursuit of other values.
The Ethics of Closing Up Shop
Filed under: accountability, corporate citizenship, decision-making, employees, ethics, management, values |
Comments (1) 
At what point are a company’s misdeeds sufficiently grave that the right thing to do is simply to shut the doors, permanently?
As was widely reported yesterday, the printing presses at News of the World (part of Rupert Murdoch’s News Corp.) will be grinding to a stop after this Sunday’s edition. The paper’s shameful history of phone-hacking and other scuzzy “journalistic” practices has finally caught up with it.
Under what conditions is such a move the right one? When is a company obligated to commit the corporate equivalent of the ancient Japanese tradition of seppuku (a.k.a. harakiri), or even just to sacrifice a corporate “limb”?
Some people might say, “when doing so best serves the interests of your shareholders.” Others might say, “when doing so best serves the interests of the full range of stakeholders.” Still others might say that it has nothing to do with anybody’s interests, but rather with what’s in the the interest of justice. “Let justice be done,” as the ancient legal saying goes, “though the heavens fall.” So it may be thought that the organization, as a whole, needs to pay a penalty for its wrongdoing.
But there are of course counter-arguments that could apply, even where the corporate wrong is significant. For one, in shutting down an entire corporation for the wrongdoing of a few, you are effectively punishing a large number of innocent employees. And in some cases, that might be justified. Sometimes there is collateral damage along the road to justice. But surely that damage is not irrelevant.
In other cases, shutting a company down may amount to a cynical attempt to insulate sister companies or a parent company from fallout. Or to protect a favoured employee. In such cases, shutting the company is likely blameworthy, rather than worthy of praise. In such cases, surely the honourable thing to do is not to perform seppuku, but rather to stand to face the music. Accept the scrutiny, pay the price, and then rebuild under new management.
But all such considerations presume that the initial crime is sufficiently grave to make such an extreme solution plausible in the first place. In the News of the World case, the offence is serious and multi-faceted. Individual rights were violated; law enforcement officials were bribed; and the journalistic profession was arguably sullied. And all of that was perpetrated in pursuit of an utterly trivial objective, namely the production of yet more trashy tabloid “news.” Compare: there were few serious calls for BP to be dismantled after the Deepwater Horizon spill, despite that spill’s very serious human and environmental impact. But then, unlike News of the World, BP actually produces a socially valuable product.
‘Doing the Right Thing:’ A Brief Guide to the Jargon
Filed under: corporate citizenship, CSR, definitions, ethics, sustainability |
Comments (5) Everyone agrees that business should “do what’s right,” even if they disagree over what the right thing is. One significant barrier to even talking about doing the right thing is vocabulary. The vocabulary applied to “doing the right thing” is messy and varied. Here’s a brief critical guide to the most common terminology:
- Business Ethics. This is the most general term, and the one that can be defined more or less uncontroversially. As a field of study, business ethics can be defined as the critical, structured examination of how people & institutions should behave in the world of commerce. There are two problems with the term. One is that the word is too often associated with scandal. I once had a business group ask me to come speak to its members, but could I please not use the word “ethics.” The second problem is that people sometimes (wrongly) associate the word “ethics” with a narrow range of questions about personal integrity, or about professional standards.
- Corporate Social Responsibility (CSR). This is an incredibly popular term, but generally poorly defined. Most definitions you’ll find don’t actually look like definitions. If you look around online, you’ll find that CSR is generally thought to have something to do with giving back to the community, and making a social contribution. But it’s too narrow a term to cover the full range of issues involved in doing the right thing in business. Not all businesses are corporations. Not all business obligations are social ones. And we’re interested not just in the responsibilities of business, but also permissions, duties, rights, entitlements, and so on.
- Sustainability. The word “sustainability” has roots in environmentalism, where it nicely picks out the issue of how we as a society can continue to make use of resources in a way that makes sure there continues to be enough, especially for enjoyment by future generations. But the term is badly abused in the world of business. Sometimes it just refers to the ability to sustain profits, which is pretty far from its original meaning. Other people try to pack too much into the word. I recently had a sustainability consultant tell me that the word “sustainability” no longer means, you know, sustainability…it just means “all the good stuff.” But lots of “good stuff” in business has nothing to do with sustaining anything. It takes tortured logic and wishful thinking to say that all matters of doing the right thing in business can simply be boiled down to sustainability.
- Corporate Citizenship. Citizenship is essentially a political notion, having to do with the relationship between the individual and the state. The term “corporate citizenship” is evocative. It reminds us that businesses aren’t free-floating; they exist in a social and political context, and that context brings obligations. But just as all of your obligations are not citizenship obligations, not all of a corporation’s obligations are obligations of corporate citizenship.
- Triple Bottom Line. Luckily, this one seems to be dying out. The Triple Bottom Line (3BL) is rooted in the very sane idea that business managers should manage not just the financial performance of their companies, but also their social and environmental performance. Unfortunately, the term implies something much bolder, namely that each of those areas of performance can be boiled down to a “bottom line.” And that’s simply not true. (Just try asking a company what their social “bottom line” was last year.) The result is that the term sounds tough-minded, but usually ends up being just the opposite. For more about the problems with 3BL, see here.
So choose your words wisely. We shouldn’t be scared off by the varied terminology. But we ought to recognize that each of these terms has its problems. Different constituencies will find different vocabularies attractive, and perhaps congenial to their interests. And also keep in mind that each of these terminologies is promoted by a different set of consultants and gurus, all eager to tell you that thinking in terms of their favourite vocabulary is the key.
Conflict of Interest for Mayors (and Other Committee Chairs)
Filed under: accountability, boards, CEOs, conflict of interest, ethics, governance, government, politics |
Leave a comment This is a blog entry ostensibly about municipal politics, but with real lessons for the world of business.
I was on CBC radio yesterday (along with corporate governance expert Prof. Richard Lelblanc) to talk about conflict of interest case involving Halifax’s city council (technical the Council for Halifax Regional Municipality).
To make a long story short: the Mayor was involved in some financial irregularities that may (I honestly don’t know) just be a matter of either poor judgment or poor understanding of proper procedures. Whatever. The interesting part came when some members of Council wanted to reprimand the Mayor for his role in those decisions. The Mayor insisted on chairing the discussion, and indeed even voted on the matter when it came up for a vote. (Here’s an article about the fiasco, by Michael Lightstone for the Chronicle Herald: Halifax council won’t suspend mayor.)
Needless to say, in participating in the vote over his own fate, the Mayor was in a rather significant conflict of interest. He had an official duty to exercise, one that required the exercise of judgment. And he clearly also had a very significant personal interest in the matter, one that any reasonable outsider would be justified in suspecting of influencing the Mayor’s judgment.
Now it always bears repeating: conflict of interest is not an accusation. It is a situation one finds oneself in. There’s nothing unethical about being in a conflict of interest. (If a lawyer finds out that one of her clients wants to sue another of her clients, she is in a conflict of interest, through absolutely no fault of her own.) What matters is how you deal with the conflict.
The best thing for the Mayor to do would have been to:
- recognize the conflict,
- put it on the table, and
- recuse himself (i.e., hand over the gavel, decline to vote, and preferably leave the room so that the rest of Council could have a full and frank discussion).
What’s really at stake in conflict of interest has very little to do with the integrity of individuals. Rather, it has to do with the integrity of a decision-making process, and of an institution. So the worry is not that the Mayor would necessarily have been biased in how he chaired Council that evening. Maybe he bent over backwards to be fair in his chairing duties. Who knows? And that’s the point. We don’t know, but for important institutions we need a high level of certainty that key decision-makers are exercising their judgment in the interests of those they serve, rather than themselves.
And there, of course, is the lesson for the world of business, and in particular for corporate governance. A Mayor, effectively, is the CEO of a City. In addition, he or she also is “chair of the board of directors,” where the board here is City Council. In the world of municipal politics, it is relatively rare for Council (normally chaired by the Mayor) to sit in judgment of the Mayor as chief executive. But in the corporate world, such judgment is a big part of the job of a board of directors. And that is precisely why it is widely considered “best practice” for the CEO not to also serve as Chair. One of the Board’s key roles is to advise and oversee the CEO. Doing so requires that the Board be able to deliberate in a way that is reasonably independent from the CEO’s own influence. Any organization that has the CEO act as chair of the very body that must regularly deliberate over his or her own performance is not just “finding” itself faced by a conflict of interest, but is actively constructing one.
Ethics on Business Magazine Websites
I’ll start by highlighting the obvious conflict of interest, here: my blog is carried on the website of Canadian Business magazine. In this blog entry, I effectively congratulate CB for highlighting ethics. So this is not an unbiased blog entry, but hopefully the facts I present here speak for themselves and stand on their own.
Ethics in business is clearly a hot topic these days, whether discussed using the word “ethics” itself or one of the mushier terms like “CSR” or “sustainability” or “corporate citizenship.” Even those who are cynical about the topic cannot deny that it is an important topic.
But here’s an interesting fact. At time of writing, only two major business magazines (Canadian Business and Fast Company) feature ethics and/or CSR on the front page of their websites. The Economist, Forbes, Fortune, and Business Week do not.
Here’s slightly more detail:
- Canadian Business has both Ethics and CSR listed on the front page.
- Fast Company has a link called Ethonomics on its front page (right at the top), which leads to a section featuring a pretty steady stream of social responsibility blog postings.
- Forbes has a CSR blog but it is very hard to find if you start from the site’s main page. You need to click on “Leadership” (not at all obvious) and then you’ll see the link in the lower-right of the Leadership page.
- The Economist has nothing ethics- or CSR-related on its main page, though to its credit The Economist does tackle relevant topics pretty frequently. (For an older example, see The Good Company.)
- Fortune likewise has nothing on their main page (though if you click on the “Leadership” link, you get taken — oddly — to their Management page, which currently features a piece on philanthropy.)
- Business Week likewise does nothing to feature CSR or ethics.
So, what do you think? Why are business magazines, and in particular their websites, so slow on the uptake? Is it lack of interest, lack of access to good content, or both, or something else?
Profiting from Customers’ False Beliefs
Filed under: consumers, critical thinking, disaster, ethics, fraud, marketing, profits, science |
Comments (14) Is it ethical for a business to profit from its customers’ false beliefs? Or, more to the point, is it ethical to profit from your customers’ beliefs when you think those beliefs are false? What if you encourage those beliefs?
Case in point: a number of businesses have sprung up to take advantage of the fact that a number of fundamentalist Christians believe that May 21, 2011 (i.e., tomorrow) is the day on which “The Rapture” will happen, which will involve the return to earth of Jesus Christ, the rescue of believers, and the start of a process culminating in the destruction of the world in October. Enter the profit-seeking atheists. Eternal Earth-Bound Pets, for example, will guarantee (for just $135) to come to a believer’s house, post-rapture, to rescue their pets. Salvation, after all, is for human believers only, so the faithful “know” that atheists and animals will be left behind. (For more details, and more examples, see this item from ABC News: May 21, 2011: Profiting on Doomsday?)
Profiting from this particular set of false (i.e., unsupported) beliefs seems, frankly, pretty innocuous. Those who hold such beliefs are few, and are liable to be mocked by the vast majority of Christians, who scoff at the idea that the exact date of the Rapture can be determined so precisely. When the Rapture ends up not happening (and I realize I’m going out on a limb, there) those who ponied up for the “service” offered by Eternal Earth-Bound Pets will be out $135, but other than that they’ll be no worse for wear. But what about other examples?
Let’s start with a fictional example to test our intuitions. What if I find out that you believe, for whatever reason, and despite the fact that you live far from any indigenous populations of elephants, that your rose garden is in imminent danger of being trampled by elephants. And let’s say you also believe (for whatever reason) that elephants are deterred by he sound of the revving of a Porsche engine. Am I justified in selling you a Porsche that you do not otherwise need, and that perhaps you cannot truly afford? Would that be predatory? Your belief, here, is clearly a crazy belief, and my profiting from your delusion seems not-quite-right. But then, as far as you’re concerned, I’m genuinely helping you. On the other hand, what if the reason you have that delusional belief in the first place is that I’ve convinced you of it?
Next, let’s get back to real-life examples. But let’s look at one that doesn’t revolve around a single event, like Rapture insurance does. What about, for example, selling homeopathy? Now, it’s one thing for a homeopath to prescribe and sell homeopathic treatments. After all, the homeopath presumably believes that such remedies work, in spite of the lack of evidence for that belief. Now, that belief itself might be culpable — if you’re going to sell a product, then ethically you ought to do what you can to make sure it really works — but at least the homeopath is selling in good (if misguided) faith. What about when licensed Pharmacists, people with the training to know perfectly well that homeopathic treatments cannot possibly work, sell them? That happens all the time. Shoppers Drug Mart, for example — Canada’s largest pharmacy chain — sells homeopathic treatments, and all the franchisees of that chain are required to be licensed Pharmacists. That is, they are people whose scientific training tells them that such remedies have zero scientific credibility. So they, too, are profiting from their customers’ false* beliefs — beliefs that they, the sellers, know to be false. Of course, the difference between selling homeopathy and selling Rapture insurance is that in the case of homeopathy, people’s lives really might be at stake.
Information is crucial to the efficient operation of a free market. Asymmetries of information constitute an entire category of situations in which economists will tell you market failures are liable to occur. Knowledge, alas, can never be perfect. So what we instead insist on is that transactions at least be made in good faith. It’s clear that that means the consumer needs to have enough information to know that the product she is about to buy will satisfy her desires; what’s less clear is whether the consumer must also know enough to know whether the product will satisfy her needs.
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*Note: some of you may want to quibble with my use of the word “false” to refer to beliefs in either a) the Rapture or b) homeopathy. You may point out that saying that there’s a lack of evidence for a particular belief isn’t the same as saying that that belief is false. That’s technically true. But when a belief is implausible on the face of it, is unsupported by evidence, and conflicts with a great number of beliefs that are well-supported by evidence, it is entirely reasonable to call it “false.” At least until the Rapture.
Are the Unethical in Business Also Untalented?
If disgraced hedge-fund manager Raj Rajaratnam were good at his job, couldn’t he have done well without insider trading?
Unethical (and illegal) behaviour in business is often compared to breaking the rules in sports. And it has always seemed to me that the sportsman who cheats is basically admitting he’s not good enough to win any other way. Same goes for the student who cheats on a test — she cheats because she knows she hasn’t got what it takes to get a passing grade any other way.
Too often, in the world of business, those caught doing something unethical end up being regarded as “great but flawed.” The story that gets told is usually a Shakespearean one of a talented business mind driven to the dark side by greed, ambition, etc. So Rajaratnam gets described as “brilliant”. And Enron’s Jeff Skilling was, after all, “the smartest guy in the room.”
Now, this line of thinking has occurred to me before, namely that if you have to do something unethical to make a profit, then you’re just not very good at your job. But I was reminded of it by Andrew Potter’s recent blog entry on countersignalling, and how refusal to use modern, high-powered hunting bows might be a way of signalling the hunter’s true skill, and consequent refusal to ‘cheat’.
I sense there’s an opening for a potent new narrative here. When someone is caught doing something unethical in business, we should, in addition to criticizing their lack of character, and perhaps worrying about the institutional structures that facilitated their wrongdoing, also mock their lack of business acumen. Yes, mock. We should mock them the same way we might mock the hunter who uses a sniper rifle to take out a deer. Or maybe the guy who shoots fish in a barrel. Oh, congratulations, tough guy. And we should reserve our praise not for the shrewdness of the Rajaratnams and Skillings and Madoffs of the world, but for the quiet sagacity of the other guy, the truly talented one who quietly goes about building and maintaining a thriving business without having to resort to cheating.
L.I.F.E. Lessons (A Short Guide to Ethics)
In this blog, I spend a lot of time talking about particular ethical issues in the world of commerce. “What are the limits on honesty in business?” “How should we handle conflicts of interest?” And so on. But one of the questions I get asked most frequently, as a professor and as a consultant, is about how to go about making ethical decisions, quite generally. It’s not an easy question. There have been many, many attempts to sum up our ethical obligations, none of them fully satisfactory. Naturally, you’re never going to find a brief summary — let alone a slogan or single word — that captures everything about how we ought to think about complex issues involving a range of values, virtues, and principles. But it can be useful to think in terms of a brief acronym that serves to jog the memory, to remind us of the major elements that make up our ethical responsibilities.
One way to think of ethics is in terms of what I call “L.I.F.E. Lessons.” Each of the letters in “L.I.F.E.” stands for a word that should play a crucial role in our moral reasoning:
L is for Loyalty. The “L” in “L.I.F.E.” reminds us that loyalty is in many ways the first virtue of organizational life. Loyalty, of course, should never be absolute: being loyal to your company or to your friends doesn’t imply that your company or your friends can do no wrong. Loyalty doesn’t mean being morally agnostic or refusing to take action when you see wrong being done. The focus on loyalty here is just to remind us that in various roles — as employee, as trustee, as leader — you have been entrusted by others to do your job and to do it right. When we voluntarily associate ourselves with particular people and organizations, the default setting is that they deserve our loyalty.
I is for Integrity. The “I” in “L.I.F.E.” reminds us that each of us should aim at integrity. Each of us is responsible for our own actions, and those actions should add up to a clear and consistent pattern of honest and trustworthy behaviour.
F is for Fairness. The “F” in “L.I.F.E.” reminds us of the importance of treating each other fairly. We should treat like cases alike, and give people what they are owed. Fairness is a value that has to do with the fact that we want not just to do good in the world, but to make sure that that good is distributed justly — whatever justice demands in particular cases.
E is for Empathy. Finally, the “E” in “L.I.F.E.” reminds us of the importance of figuring out how other people feel, in ethically-contentious situations, and what their point of view is. We need empathy in order a) to understand the impact that our actions really have on others, as well as b) to understand other people’s reasons, when our ethical judgment differs from theirs.
Again, there’s nothing magical about this way of thinking about ethics. It’s just a mnemonic, a kind of memory-jogger. Acting appropriately requires much more than this, especially on complex organizational contexts involving special role-specific obligations.
But still, I think the idea of “L.I.F.E. Lessons” amounts to a pretty good heuristic. We all know that loyalty, integrity, fairness, and empathy are crucial ingredients to leading an ethically-sound life, but it’s good to be reminded. And if life hasn’t taught you these lessons yet, those around you can only hope that it eventually will.
The Business Ethics Blog 