Archive for the ‘government’ Category
Do Corporations Shield Against Personal Responsibility?
Filed under: accountability, corporations, crime, employees, government, shareholders |
Leave a comment 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.
Bullying in Pursuit of the Public Good
Filed under: accountability, activism, corporations, government, international, NGO |
Comments (5) Should we celebrate when a powerful NGO convinces a powerful corporation to change its mind on something?
Here’s an example. Greenpeace recently… um, persuaded Mattel to stop using packaging sourced from companies that contribute to deforestation in Indonesia. (See the story by Angelina Chapin: Greenpeace wins battle with Mattel.) Mattel is a major toymaker, selling millions of products wrapped in cardboard, so the company’s decisions on where to get that cardboard stand to have a significant environmental impact. And Greenpeace managed to get the company to change its ways.
I suspect — but only suspect — that this is a good thing. I don’t know much about the facts of this particular case, but I think generally it’s good that there are well-intentioned nongovernmental organizations (NGOs) like Greenpeace working hard to get companies to think twice about the environmental impact of their business practices.
But it’s not always a good thing when NGOs badger and cajole a big company. Consider, for example, another case involving Greenpeace, namely the battle over the dismantling and disposal of the massive Brent Spar oil-storage buoy in the mid-90s. In that case, Greepeace launched a global campaign to pressure Shell, owner of the Brent Spar, to dispose of the floating oil-storage facility in a way that contradicted the company’s own environmental impact assessment. Greenpeace later changed its mind and apologized, but it was too late: Shell’s original disposal plan had already been scrapped, and the company’s share price damaged. In other words, Greenpeace had bullied Shell into doing the wrong thing.
Now most people are generally not very worried about major corporations, or large institutions of any kind, being bullied. And it’s easy enough to understand why. We’re usually more worried about corporations having too much power, rather than too little. But to uniformly celebrate victories of NGOs over corporations is to assume that NGOs are always right. And that’s a mistake. It’s also a mistake to assume that NGOs are in any important sense democratic, or automatically representative of the public interest.
Now this point must not be mistaken for a general critique of NGOs. There are many good NGOs out there, doing invaluable work. It’s just a reminder that the leaders of NGOs are not elected representatives, but rather self-appointed defenders of what they see as the public good. (I’ve written about how to assess NGO legitimacy before.)
Think of it this way. Companies sometimes do dumb things, and sometimes they do unethical things. There are lots of ways that can happen. Sometimes it’s due to flawed internal decision-making processes. Sometimes it’s a blind focus on profits or on expanding market share. Sometimes they do bad things in response to poorly-constructed regulations, or pressure from governments. And sometimes they’re bullied by other organizations, including NGOs.
And when a major corporation is bullied into making a bad decision, that bad decision can have enormous implications. So we should all watch with a careful eye when lobby groups, whether corporate or populist, attempt to use powerful non-democratic means to get their way.
Wall Street Needs to be Fixed, Not Occupied
Filed under: accountability, activism, corporations, corruption, finance, government, protest |
Comments (16) Issues of corporate ethics are too important to leave to the Occupy Wall Street gang. The principles the group is fighting for are noble ones, but the tools they employ leave much to be desired. It’s up to the rest of us to use better tools.
Those currently camped out in New York, and other cities across the US, are right to want better corporate ethics, including a big dose of accountability and transparency. And they’re right to want to live in a just and equitable society. And they’re right to want certain kinds of electoral reform: finding ways to limit the influence of corporations (without stomping on free speech) would be a very good thing. But occupying Wall St. isn’t going to do it.
Don’t get me wrong: I’m there, in spirit. Well, not there there. I’m not likely to join the sit-in anytime soon; those methods aren’t my methods. But I sympathize with the frustration manifested by the passionate, non-partisan cabal of well-intentioned folks who make up the Occupy Wall Street movement. Indeed, though our methods are radically different, I’ve dedicated my career to some of the same ideals. I’m committed to the project of figuring out the best possible standards for corporate structures and behaviours, and I hope that better understanding will lead, indirectly, to better outcomes. The folks of the “Occupy Wall Street” movement likely think my way won’t won’t have much impact. Don’t worry, I’m not taking it personally.
The Occupy Wall Street movement has substantial symbolic significance, but we all know, I think, that nothing concrete is going to come of it. To start with, the mechanism is all wrong — it’s not like corporate and political elites are going to see a sit-in, and suddenly going to smack their foreheads and say, “Oh, ok! Let’s make changes!” And then there’s the movement itself. It’s pretty clear by now that the loosely-organized movement doesn’t have much in the way of concrete goals. And its spokespeople can barely open their mouths on topics related to business and economics without saying things that are grossly mistaken. Their values are right, but the mechanisms they envision to implement those values — things like repealing corporate personhood — are deeply misguided. But then, to look for direct impact is, as others have observed, likely a mistake, and misses the real significance of the movement.
So it would be easy — too easy ‐ to dismiss Occupy Wall Street as a bunch of well-intentioned young people tilting at windmills. But that would be a mistake. The windmills they’re tilting at are important ones.
The real value of the Occupy Wall Street movement is that it ought to serve as a kick in the pants to the rest of us, an inspiration to make use of tools that will do some real good. Let’s leverage their energy into effective methods. So think. Learn about the issues. Learn about corporate governance. Advocate reform. Organize. Get out the vote. If Occupying Wall Street is to have any real impact, it won’t be by motivating a few hundred more people to camp out in the street.
Conflict of Interest: the SEC Doesn’t Get It
Filed under: accountability, character, codes of ethics, conflict of interest, government, regulations |
Comments (1) There are a few ways to interpret how the Securities and Exchange Commission handled a blatant conflict of interest on the part of one of its own lawyers, and none of them is particularly flattering.
If you don’t already know the story, see this Wall St. Journal editorial: The SEC’s Ethics: Washington’s double standard on conflicts of interest
…this week’s remarkable report from SEC Inspector General David Kotz disclosing how the SEC’s former top lawyer, David Becker, directly handled matters relating to the Madoff fraud case despite his mother’s $2 million investment with the firm, to which he and his brothers were heirs….
Despite a clear conflict, Mr. Becker didn’t recuse himself. He did (properly) report the conflict to his superior, Mary Schapiro, but she didn’t take the appropriate action in response.
How do we explain this failure? One possibility is that leadership of the Commission is clueless about what conflict of interest is. That seems unlikely; watching for conflict of interest at regulated companies is an important part of the Commission’s mandate.
Alternatively, it could be that this is a case of actual corruption (something not intrinsic to the notion of conflict of interest). That is, it’s possible that Becker was intentionally acting in a genuinely self-serving way, and that Schapiro was facilitating his attempt to do so. But there’s no evidence of that as far as I can see, and making that assumption is neither charitable nor consistent with our best understanding of what motivates wrongdoing. Self-serving rationalizations are much more commonly the mechanism behind wrongdoing than is actual pursuit of personal gain. So I’m willing to assume that Becker and Schapiro genuinely thought there was no real problem, that Becker was technically in a conflict, but that that conflict wouldn’t actually affect his ability to make the right decisions.
More likely, it seems to me, is that Becker and Schapiro, while understanding what conflict of interest is, how it is defined, etc., don’t really get the moral significance of the concept. They don’t see that conflict of interest isn’t about some personal interest actually having an influence on the integrity of the decision-maker. They don’t see that avoiding conflict of interest is about avoiding the shadow of doubt, a shadow that reduces people’s trust in the organization as a whole.
This sort of misunderstanding is alarmingly common in institutions that treat ethics as an administrative function. They focus on the rules, and on the processes and procedures that need to be built in order to enforce the rules. But too often, then forget why the rules are there in the first place.
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Notice / Correction: The first version of this blog entry had a serious, repeat typo, wrongly implying that Mr Kotz, rather than Mr. Becker, was the one in the conflict. I’ve fixed that sloppy error above. My apologies for any confusion.
Pet Sales, Municipal Rules, and Social Responsibility
Filed under: consumers, CSR, government, regulations, retail |
Comments (5) Toronto’s city council has just told an entire category of retail stores that they must only sell second-hand goods. No, the move isn’t some ‘green’ initiative aimed at encouraging recycling. It’s an animal-welfare edict, a move to force pet stores to sell dogs and cats sourced exclusively from “shelters, rescue groups or people giving up animals for free.” In other words, no more puppy-mill puppies or kitten-mill kittens are to be sold in Toronto.
See the story here, by Carys Mills for the Globe & Mail: Toronto Council bans pet shop sale of dogs, cats, unless they come from shelters.
The motion was passed unanimously, with all councillors bravely taking a pro-puppy stand. And it’s not surprising to see unanimity, even regarding a restriction on commerce, when that restriction can plausibly claim to protect not just helpless animals, but customers (including children) too.
One interesting point about this is the focus — both legal and ethical — on retail. Regulation (in this and many other cases) has, in principle, 3 possible targets: producers, consumers, and retailers. Council has chosen to focus on retailers — rather than, say, pass rules about how dog breeders should operate. Partly that’s a matter of jurisdiction: the municipal government has some authority over how business is conducted within its territory, but no jurisdiction over production processes at puppy mills in far-flung rural locales. But it’s not just a matter of jurisdiction: enforcement can be a lot more efficient when it can focus on just a handful of retail outlets. Retailers are the intermediaries between producers and consumers, and so they’re effectively gatekeepers. That makes them a good target for regulation, but it also means that as crucial links in the flow of ‘product’ (i.e., pets, in this case), they have power — and with power comes responsibility.
The other interesting point here has to do with the public good. The sale of a pet is notoriously likely to result in ‘externalities’ — that is, to have an effect on people not party to the transaction. Poorly-socialized puppies may grow into dangerous dogs. Unwanted dogs and cats may be abandoned, turning into social nuisances, and straining municipal resources such as dog-catchers, bylaw enforcement officers, etc. Unhealthy pets may transmit communicable diseases to other people’s pets. So the policies and practices that a pet store follows affect the interests not just of customers and suppliers, but of society at large. In other words, we see here good examples of that subset of ethical issues that truly are about the social responsibilities that businesses have.
Food Industry Ethics, Regulatory Reform, and Corporate Citizenship
Filed under: complexity, consumers, corporate citizenship, food, government, markets, regulations |
Comments (1) I blogged yesterday about the importance of sound government and rule of law as a background condition for ethical corporate behaviour. Here in Canada (as in most other developed economies) we grumble about our government and our system of regulation, but we’re actually relatively lucky that way, by world standards. Our economy is thriving (quarter-to-quarter hiccups aside) in large part because businesses here have the luxury of doing what they do against a background of generally-stable government and generally-sane regulations.
But that’s not to say that there isn’t room for improvement. One key area in need of (constant?) improvement is food policy. It’s an incredibly complex area, with an enormous range of interests at stake and a huge range of values at play. Public policy is, as a result, pretty messy. For more details, see this new report by the Conference Board of Canada’s Centre for Food in Canada (CFIC). Here’s a summary, from Better Farming: Canada’s food policy system overloaded: report
Out of date policies, laws and regulations as well as conflicting government involvement stymie innovation and economic growth in the country’s food sector says Conference Board of Canada report…
(You can download the report here.)
Economic growth in the food sector isn’t of direct relevance to consumers (though it is of direct relevance to those employed in the sector). But consumers still have plenty of reason to care about food policy. All questions of food policy have a more or less direct impact on the health and/or pocketbooks of consumers; and hence all questions of food policy raise ethical issues (many of which I’ve blogged about). For example, according to the BF story:
The report reviews the Canadian approach to food regulation based on a study of six issues: food additives, genetically modified foods, health benefit claims, country-of-origin labeling, inspection, and international trade. [hyperlinks added]
Industry, of course, has a role to play in helping to reform regulation in this area. But in doing so, industry must think especially carefully about its ethical obligations. Normally, the slogan “Play by the Rules!” sums up the lion’s share of a company’s obligations. But when the issue at hand involves figuring out what the rules — i.e., regulations — should be, industry needs to consider very carefully the full ethical weight of the notion of “corporate citizenship,” and remember that a citizen is someone who participates in policy debates with an eye not just to their own interests, but to the public good as well.
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Thanks to Prof. Richard Leblanc for bringing the CFIC report to my attention.
If You Can’t Take the Heat, Get Out of the Banana Republic
Filed under: corporations, corruption, decision-making, energy, government, international, risk |
Comments (2) Some neighbourhoods simply are not worth the trouble, and the entire nation of Ecuador may be one of them. Ecuador is a significant producer and exporter of oil (ranked 30th in the world), but it is also a place where effective rule of law is being called into question.
See this story, from Americas Forum: Chevron says rule of law no longer exists in Ecuador
James Craig, Chevron’s spokesman for Latin America, said in a recent statement that Ecuador, in the past seven years, has seen a deterioration in the administration of justice, which in his opinion began with the removal of judges of the Supreme Court in 2004….
Of course, this statement is from a corporate spokesman, so we’ll surely take it with a grain of salt. But those claims are not unsupported. See for instance this report (only slightly dated) on Ecuador from Global Integrity Report: Ecuador, 2008. Ecuador ranked 127th on Transparency International’s Corruption Perceptions Index for 2010.
So, what should Chevron do? The short, harsh answer: get out of Ecuador. Multinational companies all need to acknowledge that there are some places where they simply cannot — should not — do business. For most kinds of companies, that includes war zones. But it also includes places where the kind of background conditions that make a market economy possible, including stable rule of law, do not exist. Naturally, corporate risk managers keep a close eye on such things. The risk that some cowboy government official is going to appropriate your earnings or toss managers into jail on trumped-up charges is not one to take lightly. But there’s also an ethical risk, here. The standard, conservative ethical rule for companies is that they should go about their business without force, fraud, or deception, and within the boundaries of the law. But that rule of thumb only makes sense — even a little bit of sense — where a reliable legal system exists. When the rule of law is in serious doubt, the preconditions for the ethical conduct of business simply do not obtain. Not only do such situations jeopardize the interests of a whole range of stakeholders; they eliminate the crucial fulcrum of ethical corporate decisions.
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Hat tip to legal scholar Errol Mendes (a.k.a. @3mendous on Twitter) for pointing me to this story.
Jack Layton and Adversarial Ethics
Filed under: adversarial ethics, government, leadership, politics |
Leave a comment Today Canada mourns the loss of Jack Layton, a politician beloved by his allies on the left and grudgingly respected, I sense, by a great many opponents on the right. Layton was, for most of the last decade, the tireless leader of the New Democratic Party (traditionally Canada’s “third” party), and eventually led the party during its historical first turn as the Official Opposition in the House of Commons.
Layton has left behind a considerable legacy of public service, but his career also holds lessons for how we think about business ethics.
One of the things that the market and the realm of electoral politics have in common is that they are both deliberately adversarial. In both politics and business, we want participants (political parties, in one case, and business firms in the other) to compete vigorously with each other, rather than cooperating. The idea is that when participants compete, third parties (voters in one case, and consumers in the other) reap the benefits. Such systems are interesting, and ethically complex. Competitive behaviour is often considered anti-social, and so it requires careful thought to figure out just what the boundaries of competitive behaviour are, when we actually encourage people to act that way.
Here are two facts about Layton that serve as perfect illustrations.
First is that he spearheaded an effort to bring greater civility to debates in the House of Commons. This is not surprising, coming from the Federal politician voted to be the one that Canadians were most likely to want to have a beer with. But that sort of effort is also absolutely essential to any adversarial system. Just as norms of good sportsmanship keep violent games like football and hockey within reasonable boundaries, norms of civility in politics keep that game from devolving into something intolerable.
But some may also recall that Layton was declared (by impartial academic researchers) the “least civil” participant in recent Canadian parliamentary debates. Critics were quick to use that story as ammunition against the affable politician. But the authors of that study rightly pointed out a structural reason for Layton’s place in the ranking: Layton was leader of one of the opposition parties, and zealous debate in Parliament is one of the opposition’s few tools in Canada’s parliamentary system. Canadians would have been worse-off if Layton, in his role as leader of an opposition party (and later as Leader of the Official Opposition), had been more polite.
Clearly the challenge Layton faced — by all accounts met admirably — is the same one faced by business leaders everywhere. And that is how to compete zealously in order indirectly to promote the common good, while at the same time resisting the entirely-natural temptation to behave in such a way as to bring the entire endeavour into disrepute. Competing in a zealous but civil way is a crucial part of Jack Layton’s legacy, and a crucial challenge for all leaders in the worlds of both politics and commerce.
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Correction: the original version of this blog entry claimed that Layton was Leader of the Official Opposition during the time-frame of the academic study mentioned. That was incorrect, and has been fixed above.
Highest Standards Aren’t Always Best in Ethics
Filed under: accountability, character, conflict of interest, decision-making, ethics, government, regulations, standards, trust, values |
Leave a comment No one wants low ethical standards, but it’s also a mistake to aim at the highest possible standards — at least it can be, depending on what you mean by “highest.”
See, for example, this useful piece on defence contractors, by Noah Shachtman for Wired: Pentagon Probe Will Review Every Darpa Contract
Since Regina Dugan became the director of Darpa [Defense Advanced Research Projects Agency], the Pentagon’s top research division has signed millions of dollars’ worth of contracts with her family firm, which in turn owes her at least a quarter-million dollars. It’s an arrangement that has raised eyebrows in the research community, and has now drawn the attention of the Defense Department’s internal auditors and investigators…
The story usefully points out that aiming for the highest possible standards of integrity can also cause trouble:
[A former director’s] bright ethical guidelines had unintended consequences. If a company allowed an employee to take a sabbatical to join Darpa, the firm was essentially blocking itself from millions of dollars in agency research projects.
The result, of course, is that under the old rules the agency risked cutting off useful sources of expertise. That’s not to say that the old rules were worse. It’s just to point out that there’s a legitimate trade-off here.
There’s a very general lesson to be drawn from this. When thinking about ethics, the goal isn’t always to be squeaky-clean. The goal is to find standards that are high enough to merit the trust of relevant stakeholders, and to do so without sacrificing other, possibly-equally important, values.
Consider this graphic, which illustrates the challenge of choosing experts to make decisions. On one hand, we want people with real expertise. On the other hand, we want to avoid conflict of interest. That is, we want maximum expertise and minimal risk of bias. So the upper-left quadrant of this graphic is the sweet spot:
Note that what we’re looking for here is not the “highest possible” standard of integrity (i.e., the standard that implies the lowest possible risk of bias among decision-makers), but a system that makes the optimal tradeoff between risk of bias, on one hand, and relevant expertise, on the other. The point here is not that we’re trading off ethics and expediency. The point is that we’re trading off competing, ethically-significant values.
The point in thinking about ethics is not to aim at the highest standards, but at the best standards. We do enormous damage both to the functioning of organizations and to people’s willingness to talk openly about ethics when we talk about “high standards” in a way that comes off as unthinkingly pious.
Academic Business Ethics and the Corporation as Political Actor
Filed under: corporate citizenship, corporations, CSR, ethics, governance, government, law, personhood, politics, regulations, rights |
Comments (1) I’m returning home today after spending the weekend at the Annual Meeting of the Society for Business Ethics, the world’s foremost association for academics engaged in the study and teaching of issues related to business ethics, corporate social responsibility, and so on. (It was a fantastic meeting and anyone with a professional interest in these issues should consider joining SBE.)
One of the dominant themes of this year’s meeting was the role of the corporation in the political realm. It’s an old topic, one revitalized by the US Supreme Court’s decision last year in the Citizens United case. Corporate involvement in the political sphere takes many forms (from lobbying to campaign donations to participation in collaborative approaches to regulation). Such involvement is probably inevitable, but definitely controversial, and so there’s lots to sort out regarding how we should understand corporations in the political realm, and what rights and responsibilities they should have in that world. Among several dozen scholars presenting their research at the SBE meeting, a striking proportion of them presented work related to this set of topics.
David Ronnegard and Craig Smith, for example, presented work that elucidated the connection between competing theories of business ethics, on one hand, and competing theories from political philosophy, on the other.
Anselm Schneider and Andreas Scherer presented their work on the changes in corporate governance necessitated by (what I would call) the quasi-governmental responsibilities that corporations sometimes take on in the international sphere.
Pierre-Yves Néron presented work arguing that the way we think of corporations in the public sphere ought to be strongly influenced by thinking about the kinds of corporate behaviours (including regulatory lobbying, for example) that can either improve or frustrate market efficiency.
Waheed Hussain presented his work on what it might look like to “civilize” the corporation to make its participation in the political realm less worrisome — essentially, by fostering among corporations a “public interest” ethos, and insisting that lobbying etc be framed in terms of the public good.
Wayne Norman encouraged his fellow business ethicists to pay more attention to regulation, rather than focusing (as the typically do) on the corporate ethical obligations that go “beyond mere compliance”.
I myself presented some of my current thinking on the various ways we might think of corporations in their interactions with government. In particular, I argued that while, in some cases, it makes sense to conceptualize the corporation as an agent in its own right, there are other cases (perhaps many more cases) in which it makes sense to think of the corporation as a tool or technology used by citizens to advance their goals. (This is something I’ve touched on before, informally, in a blog entry.)
Although I don’t want to speak for my colleagues, it seems safe to say that the scholars whose work is noted above share an interest in better understanding what it means, and what it should mean, for corporations to be political agents. They are part of a trend — I don’t yet want to say movement — that sees scholars attempting to take seriously the complexity of the practical and philosophical problems raised by having limited-liability, joint-stock corporations participate in a realm that is generally thought of as being rightfully the place of flesh-and-blood citizens.
The Business Ethics Blog 