Archive for the ‘excuses’ Category

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.

Lying for Profit

Lying, generally, is wrong. Is it also wrong to facilitate a lie, or to profit from doing so? What if your entire business model involves helping people tell lies? No, I’m not talking about the big accounting firms, who only sometimes help clients lie, and typically do so through creative interpretations of accounting standards. I’m talking about something much less creative, namely bald-faced lies. And yes, there are businesses that are set up to help you do just that — everything from helping you fake your resumé to helping you establish an alibi (if, e.g., you played hooky from work, or need to spend some quality time with your mistress).

Here’s the story, by Marissa Conrad for Time Out Chicago: Businesses that lie — and are proud of it.

Now, this is not the sort of story that I would normally bother with. After all, you don’t need a Ph.D. in philosophy or an advanced knowledge of the history of moral theory to sort through the ‘subtleties’ here. Yes, there are grey zones in ethics. And sure, lying is sometimes justifiable. But the exceptions prove the rule: deception is generally wrong. And deception of the kind that these companies facilitate is no exception.

But what’s interesting about these services, and what makes this story worth even mentioning, is the self-serving rationalizations that the proprietors of these services indulge in, in order to justify their existence. “Is lying on your CV justified?” they ask rhetorically. What if you really need the job? What if you’re a really decent guy who has caught some tough breaks in the past, and your CV needs a little boosting as a result? Who is to say? Well, the owner of one of these businesses is clear about his approach to the question:

“We believe that everyone deserves a second chance,” says [Reference Store] operations manager David Everett. “Is Robin Hood a criminal? It depends on who you ask.”

Now, presumably such companies render assistance to trivially few customers with Robin Hood’s claim to serve the greater good. And besides, Robin Hood-type characters achieve true hero status only in retrospect. We can’t conclude that Robin Hood’s actions were justified just because he himself thought they were. Likewise, the fact that lying is sometimes justified doesn’t mean we can afford generally to be agnostic about the ethics of particular acts of deception, let alone decide to facilitate such acts. The problem here really lies in the fact that these companies are unilaterally appropriating for themselves the right to make that determination, taking shelter in extraordinarily shallow self-serving rationalization, and abdicating their clear responsibilities to engage in at least a modicum of ethical reasoning.

Should Celebrities Regret Singing for Gadhafi’s Family?

I blogged nearly two weeks ago about the Ethics of Doing Business in Libya. The concern there was about the ethics of involvement in Libya by, well, “businesses” in the traditional, i.e., corporate, sense of that word. But the controversy that emerged short after that, and that continues still, concerns high-profile members of the entertainment business — celebrities like Usher, 50 Cent, and Mariah Carey. Basically, it has come to light that a whole fistful of such stars have, at various times, done private concerts for members of the Gadhafi family. And now, in light of the continuing violence in Libya, most of those stars are expressing regret and doing things like donating the money to charity. (For details, see Public consequences of pop stars’ private gigs, by By Reed Johnson and Rick Rojas for the Los Angeles Times.)

A few people have pointed out that the timing of the celebs’ crisis of conscience is just a little bit off. Libya has been a dictatorship for decades, and its leader has been a vicious madman just as long. As Tim Cavanaugh wrote on his blog at Reason, “Even assuming Qaddafi is so toxic you can’t with sound conscience take his dinars, that didn’t just become the case a few weeks ago.” If it’s right to give the money back now, it was likely wrong to take it in the first place.

But we can also question whether anyone does, or should, give much of a hoot over where these celebs sing, or for whom. The LA Times quotes Sting — a star with a reputation for charity work and activism — as defending having sung for the daughter of Uzbekistan dictator Islam Karimov:

Sting addressed criticism saying he was “well aware of the Uzbek president’s appalling reputation in the field of human rights as well as the environment. I made the decision to play there in spite of that.” He added, “I have come to believe that cultural boycotts are not only pointless gestures, they are counterproductive, where proscribed states are further robbed of the open commerce of ideas and art and as a result become even more closed, paranoid and insular.”

The man has a point. Though it may sound like a self-interested argument, that doesn’t mean it’s a bad one.

(Cavanaugh’s blog entry has a wonderful quote from, of all people, Adolf Hitler, who shrugged off artists behaving in ways that might have taken by him to be treasonous: “I don’t take any of that seriously. We should never judge artists by their political views. The imagination they need for their work deprives them of the ability to think in realistic terms.”)

But this leads me wonder: just what is the objection to singers singing for dictators? Is the money the problem, or is it having sung for (or more generally having done business with, or having provided a service for) an evil man’s family? Consider: if the money really is the problem — i.e., if this really is a case of filthy lucre — then donating the money to charity really does utterly absolve the stars in question of any blame. Or at least it would if the timing weren’t so questionable. Singing for free would also be OK. Indeed, if the money is all that matters, then stars might have a positive obligation to sing for wealthy tyrants and give the money to charity. After all, what could be better than squeezing a few million out of a mad dictator’s family in order to do something good with it? And if singing for free (or singing for money and donating it to charity) isn’t OK, then that seems to imply that the money isn’t the problem either.

Critical Thinking in Business Ethics, Part 3: Fallacies

This is the 3rd in a series of occasional postings on the role of critical thinking in business ethics.Critical thinking is about a) how to construct good arguments, and b) how to spot and avoid bad ones. The focus of this posting will be on the latter. Bad arguments come in many forms, in many shapes and sizes. But some faulty arguments follow patterns of reasoning that are so common that they’ve acquired names. The general term for such named patterns of faulty argumentation is “fallacy”. There are many known fallacies, and textbooks on critical thinking typically devote a chapter to discussing a dozen or more of the most common ones.

Here are just a few examples of fallacies that could hinder good reasoning about Business Ethics.

One common fallacy is known as “the fallacy of composition.” We commit the fallacy of composition any time we assume, without justification, that the characteristics of the parts of a thing are automatically shared by the thing as a whole. A silly example: the fact that each piece of a motorcycle is light enough to lift doesn’t mean that the motorcycle as a whole is light enough to lift. Likewise, the fact that each member of a committee is talented and effective does not mean that the committee as a whole will be talented and effective — group dynamics matter. A business-ethics example follows pretty quickly from that one: from the fact that each member of your organization is ethical and well-intentioned, it does not follow that your organization, as a whole, will always act ethically. Team dynamics and institutional structure matter. That’s not to say that having ethical employees isn’t important. It obviously is. The point is just that you can’t automatically assume that, because you’ve got good employees, the net result of their behaviour will always be ethical. Another important example: from the fact that individual ethical acts don’t always pay, it doesn’t follow that an ethical pattern of behaviour won’t pay off in the long run.

Here are some other standard fallacies with clear relevance to business ethics. I’ll leave it to the reader to think up examples.

  • “Appeal to the Person” (a.k.a. ad hominem attack), which generally involves attacking the person putting forward a point of view, rather than examining the strengths and weaknesses of that person’s argument. It’s important to keep in mind that a well-reasoned argument from someone you don’t like is still a well-reasoned argument.
  • Appeal to Tradition“, which typically means using the fact that “we’ve always done things this way” as a reason for continuing to do things that way. Clearly a recipe for disaster.
  • Appeal to Popularity“, which involves appealing to the fact that a particular point of view or practice is popular as a reason in favour of that view or practice. But being widely-believed is of course a very poor indicator of whether or not a claim is actually true.
  • Straw man” argument, which involves setting up, and then knocking down, a weak or foolish-looking “dummy” version of your opponent’s argument. This is a common rhetorical device. Whenever someone criticizes a particular bit of regulation, for example, it’s easy (but wrong) to paint them as a “rabid free-market neoliberal,” and then to attack that ideology, rather than looking at the substance of their argument.

One of the reasons such fallacies are so dangerous is that they tend to be psychologically appealing. Sometimes they’re appealing because they play to our biases. And sometimes they’re appealing just because they act as short-cuts, letting us take the easy (i.e., lazy) route straight to a simple conclusion, without doing the hard work of actually looking critically at the case at hand. But in business ethics, what we really need are the best answers, not the easiest ones.
See also Part 1 and Part 2 in this series.

Utility Monopolies: Who Pays for Mistakes?

Naturally, when any organization suffers unanticipated expenses, it’s going to have to find ways to make up the shortfall in its budget. That’s exactly what happened to Ontario Power Generation (OPG), the provincially-owned power company responsible for generating about 70% of all the power consumed in the Canadian province of Ontario. A legal battle with customers ended up costing the company nearly $20 million. So, where did the company turn to recoup that amount? Well, to its customers, of course.

Here’s the story, via the CBC: Ont. electricity rates expected to rise next week

Electricity ratepayers in Ontario, already reeling from soaring prices, should brace for more increases.

The Ontario Energy Board agreed Tuesday to let utilities raise rates to recover $18 million they paid in fines and legal costs after charging consumers excessive interest on late payments….

Now most companies could only dream of passing along such costs to their customers. Some might even succeed. But most wouldn’t. Most would be hindered by the fact that, if they raise the prices they charge to customers, customers would simply buy from someone else. But electricity in Ontario (as in most places) is a monopoly: an organization called Hydro One has a monopoly on distribution of electricity throughout Ontario, and the power it distributes is produced by a small handful of organizations, the most significant of which by far is OPG. So, with the consent of the Ontario Energy Board (the relevant regulatory agency) all OPG has to do is raise its prices, and the company’s customers end up paying for the consequences of its legal tussle with…the company’s customers.

I don’t know much about the original lawsuit, but I do know that this was a predictable result of it. And that puts customers of utilities in a strange position. Sure, customers can sue the a utility when they screw up, but all the utility is going to do is turn around and raise your rates to get the money back out of you.

Now, just to be clear, I generally have nothing against this sort of monopoly. Electricity distribution is what economists call a “natural monopoly.” It’s crazy to have multiple competing sets of power lines running down to street. And, for that matter, it might well be crazy to let many multiple competing companies all run nuclear power plants (OPG runs several of those). But at any rate, it’s worth recognizing the effect that this monopoly (or quasi-monopoly) situation has in the event that the company screws up (say, by overcharging customers). The expenses incurred are entirely likely simply to be passed along to their captive customers.

By the way, Ontario Power Generation (whose only shareholder is the government of Ontario) had a profit of $333 million for the 4th quarter of 2010.

Thanks to NW for the story.

Madoff, Accomplices, and Complicity

It takes two to tango. How many does it take to sustain a ponzi scheme?

See this tantalizing piece by Diana B. Henriques, for the NY Times: From Prison, Madoff Says Banks ‘Had to Know’ of Fraud

In many ways…Mr. Madoff seemed unchanged. He spoke with great intensity and fluency about his dealings with various banks and hedge funds, pointing to their “willful blindness” and their failure to examine discrepancies between his regulatory filings and other information available to them.

“They had to know,” Mr. Madoff said. “But the attitude was sort of, ‘If you’re doing something wrong, we don’t want to know….’”

Of course, as Henriques notes, “Mr. Madoff’s claims must be weighed against his tenuous credibility.”

But Madoff’s claims that others, including financial institutions and sophisticated investors, “had to know” something was wrong will ring true to anyone who knows the Enron story in detail. For a wonderful, if exhausting, tour through the Enron scandal, see Bethany McLean and Peter Elkind’s Enron: The Smartest Guys in the Room. As McLean and Elkind make clear, Enron’s shenanigans only went on as long as they did because a lot of people, at a lot of financial institutions (and accounting firms and law firms) spent years and years with their eyebrows raised but kept their mouths shut.

Authentically Unethical

Authenticity is the among the favourite buzzwords of the day. (My pal Andrew Potter’s recent book, The Authenticity Hoax, is a wonderful take-down of the concept.)

There are lots of ways the feel-good word, “authenticity”, can fail us. See, for a start, this blog entry by Deborah Gruenfeld and Lauren Zander, for the Harvard Business Review: Authentic Leadership Can Be Bad Leadership.

…being who you are and saying what you think can be highly problematic if the real you is a jerk. In practice, we’ve observed that placing value on being authentic has become an excuse for bad behavior among executives….

Gruenfeld and Zander’s basic point is that while authenticity (being who you really are) is great in principle, is authenticity the right goal if “who you really are” is a jerk? And in fact, there’s a fine line between being a jerk and being unethical. For starters, although most of us have our moments of rudeness, it is unethical — a serious character flaw — to consistently act like a jerk. Consistently acting rudely demonstrates a lack of respect for other people, and that’s unethical. So aiming for authenticity might not be all it’s cracked up to be, especially when compared to the more obvious aim of being a decent human being.

(See also Andrew’s Authenticity Hoax Blog.)

Ethics and Stupidity

Dumb and DumberWhy do people do bad things? It’s an ancient question. Certainly, some people do bad things simply because they are bad people. Psychopaths and sociopaths exist, though thankfully they are very few. Whether those few should be classified as “evil,” or as “mentally ill,” or both, is not clear to me. Either way, they certainly have the capacity to do evil. But sometimes, surely — maybe quite often — people do bad things stupidly, rather than out of evil intent. Sometimes, as I’ve blogged before, people do bad things because they allow themselves to use invalid excuses. It’s likely that some people know (in their heart of hearts) that they’re using lame excuses. But probably some people sincerely believe those excuses, and simply don’t understand that their reasoning is flawed.

“Hanlon’s Razor” is the name for an adage attributed to one Robert J. Hanlon. It says the following:

Never attribute to malice that which is adequately explained by stupidity.

It’s a good rule of thumb, not least because it is so often true that bad outcomes owe more to poor decision-making than they do to evil intent.

Of course, if what we’re really interested in is why bad things happen, attributing it to stupidity rather than malice just pushes the question down one level. If so many people act stupidly, why?

There are at least 3 kinds of situations in which dumb things happen:

  • Some dumb moves are made by people who, well, are not that bright. The truth is that people have different levels of ability. We don’t all have equally-good judgment, and we’re not all equally good at foreseeing the consequences of our actions. In a corporate context, good hiring practices are supposed to weed out the untalented. But talent pools are always limited. And remember: screwups can in principle occur anywhere within a corporate hierarchy, so there’s no position so unimportant that a company can simply afford to fill it poorly.
  • Some dumb moves are made by people — maybe even smart people — who lack the relevant skills. In some cases, that may mean they lack the relevant technical skills. If you’re not an accountant, for example, you simply may not understand the consequences of certain kinds of bookkeeping decisions. But people can also lack the skills to assess, for example, the quality of their own arguments and thought processes. I teach a course on Critical Thinking, and believe me, people are not all equally good at spotting fallacious arguments or flawed patterns of thought. But it’s a skill-set that can be taught, and learned.
  • Some “dumb” decisions get made as a result of one or another of a bunch of well-studied cognitive biases. Those biases — the subject of an enormous body of psychological literature — go by names like “anchoring,” and “confirmation bias” and “the framing effect,”. (Confirmation bias, for example, essentially means that we have a tendency to accept new evidence when it confirms what we already believe, and to reject new data that challenges our beliefs. It’s dangerous, and we all do it.) Basically, cognitive biases are a bunch of persistent, and generally faulty, trends in the way humans think. They are ways in which we are pretty consistently subject to patterns of error in our thinking. Alarmingly, these cognitive biases tend to apply to smart people, too, as well as to people with the kind of technical training that you might hope would help them avoid such biases.

(For a bit more on why individuals do dumb things, see this Wired piece on Why Do Smart People Do Stupid Things?)

So, there are lots of reasons why people — even smart people — end up doing dumb things. And sometimes those dumb things will have evil (or just bad) consequences. It’s worth understanding the difference between bad things that happen because someone did something bad, and bad things that happen because someone did something dumb, though in some cases the line will be pretty fuzzy.

And I suspect Hanlon’s Razor holds true of organizations just as it does for individuals, and maybe more so. So really, we need to distinguish between why individuals act stupidly, and why organizations do. That’s a topic for another day.

Deadly Crashes, “Agency Theory” & the Challenges of Management

Sometimes for a corporation to “do the right thing” requires excellent execution of millions of tasks by thousands of employees. It thus requires not just good intentions, but good management skills, too.

For an example, consider the story of the crash of a Concorde supersonic jet a decade ago. The conditions leading up to the crash were complex, but one factor (according to the court) was negligence on the part of an aircraft mechanic. Whether (or to what extent) that mechanic’s employer is responsible for that negligence, and hence at least partly responsible for the crash, is a difficult matter.

Here’s the story Saskya Vandoorne, for CNN: Continental Airlines and mechanic guilty in deadly Concorde crash

The fiery crash that brought down a Concorde supersonic jet in 2000, killing 113 people, was caused partially by the criminal negligence of Continental Airlines and a mechanic who works for the company, a French court ruled Monday.

Continental Airlines was fined 202,000 euros ($268,400) and ordered to pay 1 million euros to Air France, which operated the doomed flight.

Mechanic John Taylor received a fine of 2,000 euros ($2,656) and a 15-month suspended prison sentence for involuntary manslaughter….

I don’t know the details of this story well enough to have any sense of whether the mechanic in this case really did act negligently. But what intrigues me, here, is the issue of corporate culpability. Note the difficulty faced by airline executives who (for the sake of argument) want desperately to achieve 100% efficiency and never, ever to risk anyone’s life. In order to achieve those goals, executives have to organize and motivate hundreds or perhaps thousands of employees. They need to design and administer a chain of command and a set of working conditions (including a system of pay) that is as likely as possible to result in all those employees diligently doing their very best, all of the time. That challenge is the subject of an entire body of political & economic theory known as “agency theory.”

Agency theory and the various mechanisms available to motivate employees in the right direction are things that every well-trained business student knows about, because those are central challenges of managing any corporation, or even any small team. What is recognized too seldom, I think, is just how central a role agency problems play in assessing and responding to ethical challenges in particular.

MBA Ethics Education: Avoiding Excuses

This is the second in a series of blog postings on ethics education for MBA students.

We all want MBA students to leave school with a good chance of being able to do the right thing when the going gets tough. Sometimes, doing the right thing simply requires that we avoid the temptation to do the wrong thing. Positive role models are definitely a good thing, but we also need to understand why things sometimes go wrong.

We can gain insight into that by looking at why it is that people do bad things in the first place. The best short treatment of that topic that I know of, as it applies to Business Ethics, is a paper by my pal Joseph Heath.* Business seems to be, in Heath’s words, a “criminogenic” setting (i.e., a setting that seems to generate criminal behaviour, along with other forms of wrongdoing). If we want to improve ethical conduct in business, we need to understand what characteristics of the world of business are responsible for that pattern.

Heath points out that most of the “folk” theories of wrongdoing have long since been dispensed with by the experts who have spent the most time studying the topic, namely criminologists. Those folk theories hold that wrongdoing is caused 1) by defects of character, 2) by greed, or 3) by deviant values. But the available evidence just doesn’t support any of those explanations. That’s not to say that those things never play a role; it’s just to say that none of those 3 provides anything like a general explanation for wrongdoing. Instead, the existing criminological literature points to the fact that wrongdoers exhibit patterns of “neutralization” with regards to their crimes. That is, they describe their behaviour differently than an observer would. They define words differently, in order to attempt to rationalize their behaviour. In essence, what this allows them to do is to admit that they did the thing, without admitting that it was actually wrong.

The following are the “techniques of neutralization” that Heath gleans from the criminological literature:

  • Denial of responsibility — e.g., “I had no choice!”;
  • Denial of injury — e.g., “No one really got hurt anyway”;
  • Denial of the victim — e.g., “They just got what they deserved.”;
  • Condemning the condemners — e.g., “Those who accuse me are just out to get me.”;
  • Appeal to higher loyalties — e.g., “I have a family to support!”;
  • “Everyone else is doing it;”
  • Claim to entitlement — e.g., “I built this company, I can do what I want!”

The final section of Heath’s paper deals briefly with business ethics education. He argues that what we know about the genesis of wrongdoing has clear implications for what we teach in business ethics classes. The techniques of neutralization are psychologically attractive, but in most cases they are logically faulty. So we need to teach business students to recognize them, and to recognize why they are faulty. (I’ve got lots to say on how to do that, but I’ll leave it for another time.)

Even more important, perhaps, Heath nods to the role of managers as designers. (See also yesterday’s blog entry, “MBA Ethics Education: Designing the Designers”.) The fact that managers are involved in the design of the work environments they manage implies that they need to be taught how to incorporate an understanding of the significance of techniques of neutralization into their design choices. They need the tools with which to build work environments in which certain kinds of excuses, in other words, are psychologically unattractive and socially unacceptable.
*See Joseph Heath’s “Business Ethics and Moral Motivation: A Criminological Perspective,” Journal of Business Ethics 83:4, 2008. Here’s the abstract.

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