Archive for the ‘honesty’ Category

Honesty, Reputation, and Ethics

The connection between reputation and ethics is complex. A pattern of ethical behaviour is clearly essential to establishing a good reputation, which for a company means a reputation as the kind of company people want to do business with. But hold on. All that’s really essential, from a business point of view, is to be perceived as ethical. But there are two ways of reading that ancient point. The cynical way is to say that all that matters in business is to give people the impression that you’re ethical, and that can be done through good PR or even outright misrepresentation. The less cynical way of reading that is that you’ve got not just to be ethical, in the sense of doing what you think is the right thing to do; you’ve also got to convince key stakeholders that you’ve done the right thing.

Take honesty, for example. Honesty matters, but so do public perceptions of honesty. In that regard, see this useful piece on corporate disclosure, by Steven M Davidoff for the NY Times: In Corporate Disclosure, a Murky Definition of Material.

Most of the piece is an exploration of the legal standard of “materiality.” Materiality is essentially about relevance. Publicly-traded companies are obligated to reveal certain information to the investing public (typically through filings with the relevant regulatory agency). But not everything they do needs to be reported — not everything is sufficiently important — and there are lots of legitimate reasons why companies don’t want to reveal any- and everything. Figuring out just what needs to be disclosed is a difficult legal problem. But towards the end of the piece, Davidoff argues that companies should avoid focusing on mere legalities. As Davidoff points out:

Companies need to understand that information disclosure is not just a legal game. Failure to disclose important information on a timely basis can harm a company’s reputation.

So, it’s all about reputation, about ‘optics’? “What about ethics?” you ask. But consider: why would a failure of disclosure harm a company’s reputation? In part, it would do so because (or if) the failure harms people’s interests. But even then, harming someone’s interests won’t immediately harm reputation. If, for example, Ford designs a new SUV that’s so good that sales of GM’s SUV’s fall, putting thousands of GM employees out of work, well, that’s bad for GM’s employees, but the harm done to them by Ford is not going to damage Ford’s reputation. Because, after all, the harm done to the employees was the result of fair competitive practices on the part of Ford. A company’s behaviour is only going to hurt its reputation if some critical mass of people see that behaviour as unethical. So in the end, even a concern about “mere reputation” has to be grounded in ethical principles.

Credit Card Laws & Ethics

Credit cards: we love them, and we hate them. We love the convenience, but we hate the high interest rates. But really, based on our patterns of usage, it seems like the love/hate relationship is tilted in favour of love; it looks like our fondness for those super-convenient pieces of plastic is getting the better of us. The result: many North Americans are utterly buried under credit card debt. The natural temptation is to blame the banks, and certainly many financial institutions have preyed upon both our fondness of convenient purchasing, and our lack of attention to fine print, to turn credit cards into a cash cow.

But see this story, by Jennifer Liberto, for CNN Money: Credit card laws working, says bank critic

A year after new credit card laws curbed interest rate hikes and forced new disclosures, consumers are paying fewer late fees and have a better understanding of what their cards cost, according to a federal study released Tuesday.

White House official Elizabeth Warren, best known for her outspoken criticism of the banking industry, is expected to praise that same group during a Tuesday conference on the one-year anniversary of the credit card laws….

Now unless I’m mistaken, what banks are being force to disclose is stuff that would previously likely have been buried in the notorious ‘fine print’ of credit card agreements. And fine print is a hard problem, ethically. We all know that consumers should read the fine print; there can be important information there. But we also all know that almost nobody does read the fine print. Fairness requires at least some attention to what we can reasonably expect consumers to do. But on the other hand, is it really a bank’s fault if they disclose something important and you simply don’t bother to read it? While you could argue the fairness point back and forth, it’s also worth pointing out that there’s an economic efficiency argument here, too. Information asymmetries are the enemy of economic efficiency. (An “information situation” is any situations in which one party to a transaction understands that transaction much better than the other.) So we have here the foundation for an argument that says that, even if it is fair to expect consumers to read all the fine print, the fact that they do not do so is resulting in socially sub-optimal patterns of purchasing. This means a social reason, not just a paternalistic reason, to want to help consumers by forcing banks to change how it is that they disclose information.

The other interesting aspect of this story has to do with the persuasive force of law. According to Warren, “much of the industry has gone further than the law requires in curbing repricing and overlimit fees.” In other words, this may be a case in which the law not only prescribed a certain set of behaviours, but also set the tone for the industry. I think this aspect of law is too often overlooked. This suggests that even when we are skeptical about a new law because, for instance, we are skeptical about the potential for strict enforcement, we ought to consider the possibility that an industry will take the passage of a law as sending a signal about the overall tenor of society’s perspective on their business. We also ought to consider also the possibility that the law will give those subject to it an excuse to do what they thought they ought to be doing in the first place.

“Attacking a brand is like attacking a person”

Last week on my Food Ethics Blog, I posed the following question: Fast Food Beef: What Matters? At the heart of that blog posting is a lawsuit that has been filed against Taco Bell, alleging that…

…Taco Bell’s “meat mixture”, which it dubs “seasoned beef” contained less than 35 % beef. If these figures are correct, the product would fail to meet minimum requirements, set by the U.S. Department of Agriculture, to be labeled as “beef”. The other 65% of the “meat” is made up of water, soy lecithin, maltodextrin, silicon dioxide, anti-dusting agent and modified corn starch

Today comes news that Taco Bell is fighting back. See this story from ABC News: Taco Bell Fights ‘Where’s the Beef’ Lawsuit

According to the ABC story, Taco Bell President Greg Creed says the allegations are simply false.

Well, sorting that out shouldn’t be too hard, for some unbiased food scientists.

More interesting is Creed’s moralized counter-attack:

“Attacking a brand is like attacking a person. It’s just unacceptable when there aren’t any facts to support it….”

Attacking a brand is like attacking a person? How so? Creed doesn’t expand on the question, but he make just mean that attacking a brand is “like” attacking a person in that both are wrong when they involve falsehoods — perhaps simply because lying is generally wrong.

But setting aside that line of argument, is it possible that a stronger thesis is justified, namely that a brand is something that deserves protection the way that a person deserves protection? Now, I’ve argued before that corporations need to be considered persons. And I’ve also blogged about whether corporations should have the right to sue for libel to protect their interests. But a brand isn’t the same as a corporation, so the arguments I’ve given about those don’t quite hold, here.

The most obvious way to think of the ethical justification (or requirement?) for defending a brand against attack is to think of the brand as a piece of property. If you damage the brand, you damage the interests of those who own it. Sometimes that will be justified (perhaps because the good done by damaging the brand outweighs the interests and/or rights of the brand’s owners), and sometimes it won’t. But I wonder if a still-stronger thesis is possible: is there any reasonable sense in which the brand could be thought of as an entity in its own right, with interests separable from those of its owners? Consider the world’s most valuable brand, Coca Cola. If all of the owners of stock in Coca Cola repudiated their ownership rights, and if all the employees of the company all quit en masse (eliminating another key stakeholder), what would we say about the Coca Cola brand? It would no longer, per hypothesis, have any “owners.” Would it cease to have any ethical significance at all? Would there be nothing either right or wrong that you could do “to” it? What about other brands, like the Red Cross or Greenpeace?

I don’t have good answers, but I think it’s an intriguing question, given the significance of brands in the early 21st century.

Trustworthy Business Behavior

I was recently honoured to be named among the “Top 100 Thought Leaders in Trustworthy Business Behavior” for 2010, by the folks at Trust Across America.

The list is an interesting mix. It includes fellow business ethics profs like Laura Hartman and Mary Gentile, along with business leaders like Jeffrey Hollender (formerly of Seventh Generation), Whole Foods CEO John Mackey and consultants like Charles H Green and Christine Arena, as well as journalist-bloggers like Aman Singh.

The focus on “trust” in this listing is interesting. There’s probably not much to differentiate this list from a listing of thought-leaders in, say, business ethics or CSR. That’s not to say that a different title wouldn’t have changed the list at all; but basically all such lists, whether they’re of companies or of individuals, are about the doing the right thing in business or about promoting and fostering such behaviour.

But I do like the focus on trust. I think the role of trust in commerce simply cannot be overstated. Business — and that includes consumers interacting with any business — simply cannot happen without trust. Consider, for example, how crucial trust is…

  • …whenever you buy any consumer product, and thereby trust not just the person who sold it to you, but dozens or perhaps even hundreds of people who helped make that product.
  • …whenever one business buys something from another business, just by picking up the phone and saying, “Hey, please send us a box of X, and we’ll pay you at the end of the month.”
  • …whenever anyone is employed by anyone else. (In that case, the employer trusts the employee not to shirk as soon as the employer’s back is turned, and the employee trusts the employer to pay the agreed-upon amount at the end of the day or week or whatever.)
  • …whenever you give some of your money to a bank, ask them to hold onto it for you, and then (as most of us do) take their word for it when they tell you how much interest you’ve earned (or, more likely, how much interest you owe them on the money you’ve borrowed).
  • …whenever you climb into a taxi, or sit down at a restaurant to eat. (The driver or waiter is trusting that you will actually pay your bill at the end, rather than make a dash for it.)
  • …whenever you pick up the phone to order pizza. (The fact that it actually shows up means that they trust you to pay for it when it gets there.)

Basically, all of us, in our organizational lives and in our lives as consumers, end up trusting dozens and perhaps hundreds of people (and many many business organizations, too) during the course of our daily lives.

Of course, sometimes we use specific mechanisms to enforce trustworthiness — policies, laws, regulations, warrantees, contracts, etc. But all the formal enforcement mechanisms in the world couldn’t possibly keep a complex modern economy running, in the absence of a fundamental ethical commitment to trustworthy behaviour.

Should Workplaces Ban Lotteries?

Should workplaces ban lottery pools? Lots of offices feature “pools” of various kinds, with groups of employees joining together collaboratively or competitively to speculate on, e.g., the outcome of the NFL playoffs. Very likely lots of managers regard it all as harmless fun, boosting morale by giving employees a break from the tedium of their cubicle farms. But a lottery pool is unlike, say, a hockey or football pool. In a hockey or football pool, there are winners and losers, but typically the dollar amounts are pretty small. But when employees band together to buy lottery tickets, the possibility is there for all hell to break loose.

To see what I mean, take a look at this story, from the CBC: More claiming share of $50M lottery prize

Some of the claimants to the disputed $50-million Lotto Max jackpot were at the Ontario Lottery and Gaming prize centre on Wednesday being questioned about the win.

The original claimants — 19 Bell Canada call centre workers from east Toronto — validated the winning ticket on Monday, said OLG spokeswoman Sarah Kiriliuk.

But since then, several more people have come forward to say they should have a share of the prize, said Kiriliuk, although she refused to say exactly how many….

Clearly, this is an anxious moment for the winners. But it’s also surely a rather anxious moment for their employer, telecommunications giant Bell Canada.

My friend Andrew Potter (author of The Authenticity Hoax) suggested to me that there are at least a couple of reasons reasons why employers might legitimately choose to ban lottery pools.

The first reason Andrew suggests is the potential for a highly disruptive exodus of an entire group of employees in the event of a lottery win. Most people, when asked, say that the first thing they would do if they won the lottery is quit their jobs. Losing a good employee can be a bad thing. So what happens when a dozen or 20 employees win together, and very likely depart en mass? Clearly, employers have a significant interest in avoiding such an outcome. Of course, the odds against such a thing happening are, well, tiny…one in many millions. How tiny do they have to be for us to say that the employer would be out of line to try to prevent it?

Second, and I think more significantly, Andrew suggests that employers might have a strong interest in avoiding the possible legal troubles that could result from a group of employees winning a lottery. Even for a win much smaller than the $50 million win in the story above, there’s the chance that employees will come forward who say they were unfairly excluded for one reason or another. And with money on the line, lawsuits are far from unlikely. And when lawsuits happen, chances are that everyone is going to get sued, including the employer. After all, an excluded employee can reasonably claim that the employer was effectively hosting the lottery pool, and hence bears some responsibility for making sure that it is run fairly. Even if the dollar amounts are too small to result in lawsuits, I can imagine considerable disruption of the working environment when there’s disagreement over a lottery win. Just take the usual petty office grievances and multiply them by a few tens of thousands of dollars, and then a win for employees equals trouble for their employer.

Now, I’m not sure there’s a huge risk here, but I think it’s an interesting question. Obviously, it behooves employers to allow employees a little breathing room when it comes to lunch-break entertainment. In general, it’s good for employers to respect employees’ privacy and autonomy, and that might include the freedom to engage in things like office pools. For most of us, our employers already dominate our lives in ways that are at least sometimes regrettable, so employers should be cautious about imposing unnecessary constraints. But given that lotteries are already widely-criticized as a regressive form of taxation (or, more bluntly, as a ‘tax on the inability to do math’), it might well be that eliminating office lottery pools would be a reasonable move.

Addendum: it’s a little-known and sad fact that a relatively high proportion of lottery winners eventually file for bankruptcy. [URL updated Aug. 2011]

Ethics of Insider Trading

“Insider trading” is one of those phrases that most adults have heard (at least on the nightly news), but that relatively few understand. (Perhaps the most famous case: Martha Stewart was originally charged with insider trading in the ImClone case.) I imagine few people even know what it really refers to. Well, it refers to situations in which corporate “insiders” (executives, directors, etc.) buy or sell their company’s stock on the basis of significant corporate information that is not available to the investing public more generally. (For more details, see the Wikipedia page on insider trading.)

But even if we don’t all know just what insider trading is, we all know insider trading is bad, and must be stopped. Right? But it’s hard to stop something that’s hard to define. In that regard, see this nice piece by Steve Maich, Editor of Canadian Business: “Chasing our tails while we chase insider trading.”

In case you hadn’t noticed, we are in the midst of a crackdown. Or rather, another crackdown. The crime du jour is an old favourite: insider trading….

There are obvious benefits to these shows of regulatory force. Seeing hedge fund managers and lawyers in handcuffs not only produces a nice dopamine rush, it’s also meant to demonstrate the integrity of the capital markets. But the costs are frequently overlooked. Like most crackdowns, this one seems likely to deepen cynicism, erode confidence and lob more grenades at shell-shocked markets….

Maich is undertandably cynical about these enforcement efforts:

Despite the periodic efforts of regulators to stamp it out, insider trading runs as rampant as ever, and that isn’t going to change. This is in part because it’s notoriously difficult to prove, but also because we have never definitely solved the fundamental puzzles at the heart of this supposed crime….

It’s worth adding that there is genuine disagreement over just why insider trading is unethical. (Some people even think it’s not unethical at all, because the executive who trades on “inside” information ends up indirectly bringing that information to the market, rendering the latter more efficient.) And if we’re not entirely sure why it’s unethical, it makes it that much harder to figure out in which cases it’s unethical.

The only scholarly article I’ve read on the ethics of insider trading is by Jennifer Moore, and is called “What Is Really Unethical About Insider Trading?”* Moore looks at a number of arguments against insider trading — arguments rooted in fairness, in property rights, and in the risk of harm to investors — and finds most of them lacking. Moore ends up arguing — plausibly, in my view — that the real reason insider trading is unethical is that it jeopardizes the fiduciary relationships that are central to business. If insider trading were permitted, that would put corporate insiders in a conflict of interest. Basically, the interests of corporate insiders would stop being well-aligned with the interests of the shareholders they are supposed to serve. And if the interests of corporate insiders aren’t aligned with the interests of shareholders, then people are much less likely to be willing to buy shares (i.e., to invest) in companies. And that wouldn’t be good for the firm, for its shareholders, or for society in general.

*Jennifer Moore, “What Is Really Unethical About Insider Trading?” Journal of Business Ethics, Volume 9, Number 3, 171-182.

Intellectual Property and the Chilean Miners

Last month I posted about some Ethical Issues for the Chilean Miners. There, I pondered the moral force of the contract that the 33 trapped miners signed while still underground, promising each other to share equally the eventual profits of any future publicity. This month, I’m quoted in an article on that same topic, in Canadian Business. Here’s the online version: Intellectual property: Underground dealing in Chile, by Angelina Chapin

The story of “los 33,” the Chilean miners stuck underground for 69 days has all the makings of a good narrative: complication, action, mystery and a happy ending. Presciently, the miners made a pact while they were underground to share whatever profits come from telling their story and are rumoured to have decided to collectively author a book. According to The Guardian, they even had a lawyer send down a contract to make the “blood pact” legal, meaning when Hollywood producers come knocking, they’ll have a whole group to bargain with.

Not much is known about its content, but the circumstances under which the contract was signed have experts wondering about its validity and whether the specifics should be abided by now that they’ve survived the rescue….

The article gives the last word to Toronto-based lawyer Calin Lawrynowicz, who makes a simple, practical suggestion: rather than wonder about the force of the subterranean contract, the miners ought to sit down to talk about it:

Lawrynowicz says, since the miners don’t have 33 lawyers explaining their individual rights, the group should reconvene with an arbitrator to make amendments to the contract, allowing for reductions and benefits in terms of the wealth distribution.

“It’s like a shotgun wedding in Vegas,” he says. “You may be able to have a great relationship after the fact, but have to reconfirm why you got together in the first place.”

Management Ethics & Oaths Without Professionalization

Here’s a piece I wrote as part of a debate on the MBA Oath, in a recent Canadian Business magazine: The MBA oath helps remind graduates of their ethical obligations.

In the article, I express the view that the MBA Oath, in its current incarnation, is “not a revolutionary thing, not a perfect thing, [but] definitely a good thing.” The real thrust of my defence of the Oath is that most of the criticisms of it are simply off-base. Critics either expect too much of a simple oath, or conversely underestimate the value of having people stand up and say “I promise.”

My conclusion:

But overall, the main problem with the MBA oath isn’t really a problem with the oath at all — it’s a problem with people’s expectations. Dismissive critics say that no oath will solve the deep and abiding moral problems that beset the world of business. That’s surely true, but no one could seriously have thought otherwise. It’s trite, but also true, to say that the world of business is increasingly complex. The ethical demands on business are higher than ever. In particular, business executives are called upon with increasing regularity to account for their actions and their policies, and to justify them to an increasing range of stakeholders. Add to that the enormous, lingering cultural rift regarding the proper role of corporations and markets. The MBA oath is of course not going to solve all of the ethical challenges that arise in such a context. Nor is it going to ensure that none of its signatories ever crosses the line into regrettable or disreputable or even disgraceful behaviour. But if given half a chance, the MBA oath might just turn out to play a small but not insignificant role in keeping the discussion alive.

Now, I do think there are some valid criticisms of the MBA Oath. One kind of criticism has to do with its content. I think, for example, that the Oath needs to be more clear regarding the balancing of the interests of various stakeholders. Note also that the current version of the Oath has MBA’s swearing not to engage in “business practices harmful to society”, a category so broa and contentious as to provide practically zero moral guidance.

But another set of criticisms has to do not with the Oath’s content, but with the its goals. At least some supporters of the Oath liken it to the Hippocratic Oath, and look to the day when Management can take its place alongside professions like Medicine, law, Accounting, and others. That, I think, is a mistake.

To see why, you can begin with this very recent piece by Ben W. Heineman, Jr., on his Harvard Business Review Blog: Management as a Profession: A Business Lawyer’s Critique.

Heineman’s focus isn’t on the question of oaths, but (as the title implies) on the question of professionalism more generally. He suggests that people who promote ethics in management by analogy to the professions misunderstand the nature of professionalism — and in particular, misunderstand his own profession, law. Heineman agrees that business schools face serious ethical questions. But, he says:

…these significant questions for business schools can be addressed without putting them in a context of the imperfect and potentially misleading analogy to legal professionalism

Another view on the question of professionalism is provided by Roger Martin (Dean of the Rotman School of Management), on his Harvard Business Review Blog: Management Is Not a Profession — But It Can Be Taught.

Martin points out two key characteristics of “the professions,” as those are traditionally understood. One is information asymmetry — basically, professionals like physicians and lawyers know stuff that their patients or clients generally do not. For example, I can of course look up basic facts of anatomy on Wikipedia, but it takes a trained dermatologist to tell me if that little bump is a harmless cyst or a potentially-deadly carcinoma.

The other element of professionalism that Martin points to is regulation. Information asymmetry is a problem in lots of industries, but only in some cases does it result in professionalization:

[When such a service]…is delivered by an identifiable individual practitioner, it tends to become a regulated profession. Doctors are regulated professionals because if they screw up, people die….

So, failure by identifiable individuals, says Martin, is the key:

The higher the cost of failure, the more likely the individual practice in question is to become a regulated profession.

That, he says, is why managers are unlikely every to be professionals in the narrow sense. For managers…

…[f]ailure is seen as the product of a team of managers doing a poor job in concert, rather than the product of one manager. Of course, CEOs get singled out for disproportionate blame. But the question is not whether being a CEO should be a profession but rather whether management should be a profession.

Of course, none of this is to say that managers can’t be expected to behave “like professionals” or to “conduct themselves in a professional manner,” in the looser sense of the word “professional.” The information asymmetry that exists between corporate managers and (for example) the company’s shareholders is very considerable, and it ought to be seen as bringing real responsibilities. The same goes for most front-line workers; lacking high-level business education and lacking direct access to the company’s books, they are left to trust senior managers to keep the company solvent in order to maintain job security. Being a manager may not make you a professional, but it is an awful lot like being a professional, in ethically-important ways. It is in that looser sense that the MBA Oath ought to be understood as seeking to instill in MBAs a sense of professionalism.

(p.s. I blogged about this back in May of 2009: Harvard Students Take Ethics Pledge.)

Pennies-Be-Gone: The Ethics of Rounding

The always-useful Consumerist brings us this story, with a self-explanatory title: A Lone Dunkin’ Donuts Sort Of Abolishes Pennies

One donut shop is taking a stand against the bacteria-ridden zinc disks of suck that are pennies. Reader Tom sent us [a photo of a sign] from a store he recently visited. In a policy change that was probably born during an 8 AM rush, this franchise appears to be are rounding customer totals up or down to the nearest five cents, and only providing pennies to those annoying people who actually want them….

Setting aside paranoia about pennies causing germs, what should we say about this policy, from an ethical point of view?

First, the efficiency argument is worth noting. Lines are annoying. Lining up (i.e., standing behind other people) to get something you’re anxious for (like coffee) is doubly annoying. Speeding things up is good. So, improving the efficiency of the payment system is good.

Second, it’s worth pointing out that the system intends to treat everyone equally. Every customer is subject to the same system of rounding. In principle, no customer is disadvantaged relative to any other customer, and indeed (importantly) the customer is not disadvantaged relative to the coffee shop. Round up or round down — it’s all just a matter of math.

Third, in practice, this system may not actually end up treating everyone equally. As one person (with the pseudonym “Pecan”) who commented on the Consumerist piece pointed out, regulars who buy the exact same thing every day are going to be either systematically advantaged or systematically disadvantaged. If their change is “supposed” to be 27 cents, they’re only going to get 25 cents — every time. If they don’t realize that, then they’re going to lose money, time after time, in a way that will add up. Clearly, it would take a long time to add up to an amount that most of us might care about, but it’s still worth noting.

Finally, it’s worth pointing out that such a system allows the coffee shop a new way of acting unethically. Not that the rounding is itself unethical — it’s not. But if accepted by customers, the rounding offers the shop the opportunity to set its prices so that, on average, it ends up rounding in its own favour more often than it rounds in customers’ favour. Prices that end in “8”, for example (such as $1.38) will always result in exact change ending in “2”. For example, a price of $1.38 results in 62 cents expected back from two dollars. When the exact change is an amount ending in “2”, that will always be rounded down to zero, resulting in 2 cents’ extra profit on every transaction. On low-priced items like coffee and donuts, that could mean a significant increase in the store’s profit margin.

BP and Corporate Social Responsibility

I’ve long been critical of the term “CSR” — Corporate Social Responsibility. (See for example my series of blog postings culminating in my claim that “CSR is Not C-S-R”.) Too many people use the term “CSR” when they actually want to talk about basic business ethics issues like honesty or product safety or workplace health and safety — things that are not, in any clear way at least, matters of a company’s social responsibilities.

But the BP oil spill raises genuine CSR questions — it’s very much a question of corporate, social, responsibility.

BP is in the business of finding oil, refining it, and selling the gas (and propane, etc.) that results. In the course of doing business, BP interacts with a huge range of individuals and organizations, and those interactions bring with them ethical obligations. Basic ethical obligations in such a business would include things like:

a) providing customers with the product they’re expecting (rather than one adulterated with water, for example),
b) dealing honestly with suppliers,
c) ensuring reasonable levels of workplace health and safety,
d) making an honest effort to build long-term share value,
e) complying with environmental laws and industry best practices, and so on.

Most of those obligations are obligations to identifiable individuals (customers, employees, shareholders, etc.). There’s nothing really “social” about those obligations (with the possible exception of compliance with law, which might better be categorized as an obligation of corporate citizenship, or more directly an environmental obligation). And it’s entirely possible that BP, in the weeks leading up to the spill, met most of those ethical obligations. The exception, of course, is workplace health and safety — 11 workers were killed in the Deepwater Horizon blowout. But even had no one been killed or even hurt during the blowout, a question of social responsibility would remain.

So, what makes the oil spill a matter of social responsibility? Precisely the fact that the risks (and eventual negative impacts) of BP’s deep-water drilling operations are borne by society at large. The spill has resulted in enormous negative externalities — negative effects on people who weren’t involved economically with BP, and who didn’t consent (at least not directly) to bear the risks of the company’s operations.

Now, all (yes all) production processes involve externalities. All businesses emit some pollution (directly or indirectly via the things they consume) and impose some risks on non-consenting third parties. So the question of CSR has to do with the extent to which a company is responsible for those effects, and (maybe) the extent to which companies have an obligation not just to avoid social harms (or risks) but to contribute socially (beyond making a product people value). From a CSR point of view, then, the question with regard to BP is whether the risks taken were reasonable. Most of us would say “no.” But then most of us still want plentiful cheap gas.

Thus the BP oil spill provides an excellent way to illustrate the way we should understand the scope of the term “corporate social responsibility,” and how to keep that term narrow enough for it to retain some real meaning.

p.s., here are a few relevant bits of reading:

1) Did you know that, in 2005, BP made it onto the Global 100 list of the “Most Sustainable Companies in the World”, a feat the company repeated in 2006. (And yes, that’s a reason to be skeptical about such rankings!)

2) See also this bit on Which is the Most Ethical Oil Company?

3) And finally here is BP’s own take on CSR, from 2002, see this speech: The boundaries of corporate social responsibility
Here are a few books on ethics & CSR in the oil industry. No endorsement is implied.

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