Archive for the ‘Uncategorized’ Category

Avoiding Mistakes About Adam Smith’s Wealth of Nations

I teach my business ethics students that in order to understand ethical issues in the world of commerce, you need to understand a little bit about markets, about modern corporations, and about the role of management. And for practical purposes, understanding the role of markets begins with the work of Adam Smith.

Adam Smith’s 1776 masterpiece, An Inquiry into the Nature and Causes of The Wealth of Nations, is undeniably one of the most important works of the last several centuries. But it is easily misunderstood.

Smith himself, of course, was a star. He was to economics what Darwin was to evolutionary biology: he didn’t invent the field, but the insights he had, and the way he synthesized what was known about the topic during his time, had a revolutionary impact. And while economists regard Smith as the grandfather of economics, philosophers regard him as an important moral philosopher of the Scottish Enlightenment period.

Regardless, Smith is often misunderstood. Smith is sometimes seen (both by fans and by detractors) as being a hardcore defender of unfettered markets. The truth is of course much more complex than that. In Wealth of Nations, Smith does rail against certain kinds of government interference in trade — he believes that, for the most part, people’s economic decisions should be made under conditions of what he calls “natural liberty.” In particular, he has harsh criticism for any government policy that limits or distorts trade in an attempt to protect the interests of a particular class of merchants (at the expense of the general population). In other words, Smith is against crony capitalism — a practice that very few today would openly support, in spite of how common it might, regrettably, be.

But Smith also evidences a strong mistrust of business. The Wealth of Nations includes many critical passages, but perhaps the most famous such passage is this: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public.” If you think Smith was an unabashed admirer of business and businesspeople, you’re wrong.

But there’s another, much more basic way to end up misunderstanding Smith, and that’s to literally misunderstand the words he uses.

I recently made an effort to help with that problem, by writing what I believe to be the most extensive Glossary for The Wealth of Nations ever published for free online. Why a glossary? Smith after all was a relatively clear writer. But he was writing in the mid- to late 18th Century, and the English language was a bit different then. So some of the words Smith uses in Wealth of Nations are not in current usage. Almost no one would use the words artificer, or higgling, or manufactory today — and certainly not in everyday conversation. Other words Smith uses may seem familiar, but were used very differently in Smith’s time than in ours. For example, Smith uses the verb to afford to mean to yield or to produce, rather than meaning to be able to pay for something. He uses the word anciently where we would simply say previously or formerly. And when Smith refers to carriage, he’s not talking about a horse-and-carriage, but what we would call simply shipping (whether by land or by sea). Those are just a few examples. But the net result is that the average reader (or even a very educated one) can easily misunderstand many of Smith’s sentences, or even entire passages. And that’s a shame.

My hope is that — for students, at least, but perhaps also for others — my Glossary will help. If you find it useful, please feel free to share. If you find errors or important omissions, please let me know (at chris.macdonald@ryerson.ca) .

Here’s the link: Glossary — Adam Smith’s Wealth of Nations.

The President, the Artist Son, and the Pursuit of Improper Influence

An interesting story came up last week, concerning Hunter Biden — president Joe Biden’s son. Hunter Biden is an artist, and it is anticipated that his work could sell for for hundreds of thousands of dollars, a price range no doubt not unrelated to his status as the president’s son. The ethical concern, of course, is related to that fact: the worry is that some may want to buy his art, potentially at shall we say ‘generous’ prices, in order to curry favour with Biden Junior in hopes of gaining favour with Biden Senior.

The interesting twist: White House officials have helped create a system that they hope will insulate both Bidens from influence, and thus allay any ethical concerns. The system basically includes a firewall such that Hunter Biden’s dealer will handle all bids and sales, and keep the relevant information to himself. If neither Biden knows who bought a given painting, then it’s hard for the buyer to have any influence…in principle. (The Washington Post covered the story here.)

Several points are worth making, here:

  1. Yes, there’s cause for concern, here. Many, many people want to influence President Biden (and anyone else with substantial power), and history teaches us that those people can get very creative and persistent in their attempts to do that sort of thing. (This is part of what makes it so hard to stamp out corruption in politics and international business — as soon as you put a law in place or build an internal compliance system to prevent improper influence, those seeking influence will invent innovative new ways to get around it. You can outlaw giving gifts to senators, but it’s harder to outlaw making donations to a senator’s best friend’s favourite charity. And so on.) As news articles have pointed out, the price of a painting is, well, subjective. So if a particular lobbyist outbids everyone else for a Hunter Biden painting, who’s to say that she doesn’t just really, really like that painting? It’s a hard thing to police. (Compare this to selling a house, where there will likely be a pretty clear market price for the property.)
  2. It’s a mistake to focus on Hunter Biden making money off his relationship with the President. Of course he’s going to. Offspring of presidents (and other powerful folks) have done that forever. It’s inevitable, and not unethical. Of course people want to do business with the son of a famous and powerful person. That’s human nature. As long as that’s all there is to it — no intention or attempt to buy or sell influence — it’s not unethical.
  3. Having a relative hold public office shouldn’t kill a person’s business opportunities. That is, Hunter Biden shouldn’t be punished for the fact that his dad is president. He shouldn’t be forbidden, for example, from selling his art — even though selling art in principle raises challenges. (Compare: the fact that I work at a university shouldn’t make my sister ineligible to applying for a job there — it just means that I can’t be on the hiring committee, and need to be kept strictly away from it.)
  4. We need more details about the system being put in place. What mechanisms are in place for ensuring secrecy? Hunter Biden won’t be told who bought a given painting, or for how much — but that’s a hard secret to keep, especially once the painting sitting in a lobbyist’s office or on the wall of a corporate board room. In principle, a buyer could buy the painting and have it sit in the dealer’s vault until later? And how long will the details be secret? For a year? For the duration of the Biden presidency? Longer? The details here matter.
  5. Sometimes these sorts of things, because they can’t be forbidden, need to be managed. That’s normal in many cases that involve influence, gift giving, or conflict of interest. And that’s what the White House is attempting to do — manage the situation to mitigate concers. Whether or not they can manage it effectively, adequately, remains to be seen.

Is a Boycott an Act of Violence?

People tend to think of boycotts as classic non-violent direct action. Power to the people! and so on. Often, in recent years, boycotts have been used by consumers to pressure companies on a range of progressive issues, such as gun control and marriage equality.

But of course, boycotts have not always been a progressive thing — they’re used by activists on all parts of the political spectrum. And historically, they’ve sometimes been used for some rather nasty purposes. In the 1920s, for example, the Ku Klux Klan quite openly used boycotts to drive Black-owned stores (along with stores owned by Jews and Catholics) out of business. This was a strategy aimed ultimately at driving out entire minority populations out of particular towns and states.

Kathleen Blee, in her book Women of the Klan: Racism and Gender in the 1920s, notes with apparent surprise that among the informants (former Klan members) she interviewed, “None saw [such use of economic power] as an act of violence.” Linda Gordon, in her own book, The Second Coming of the KKK: The Ku Klux Klan of the 1920s and the American Political Tradition, cites Blee on this point. Both authors, seem to find this remarkable, implying that they (these authors) do see Klan boycotts as a form of violence. I’m tempted to agree with them.

But wait, shouldn’t we distinguish boycotts from the genuinely violent behaviours engaged in by the KKK? Isn’t “violence” here just a metaphor?

Maybe. But it’s worth noting that economic harms are genuine harms. Economic losses can mean the inability to eat, or to feed your family. The owner and employees of a Catholic-owned business in a small town in Indiana in the 1920s might have suffered very real hardship if the Klan convinced a sufficient proportion of the town’s population not to shop there, as they sometimes did. I suspect many people would, if pressed, prefer to suffer some measure of literal, physical violence (a black eye? a moderate beating? a few broken windows?) to the kind of economic loss such boycotts implied. Economic harms are meaningful.

Granted, not all cases are so dramatic: when Democrats in the US boycotted In-N-Out Burger in 2018 for donating to the Republican party, it was highly unlikely that In-N-Out was going to be driven out of business. Real economic damage (of a kind we might think of as akin to violence) was highly unlikely.

The goals of the In-N-Out boycott (and others like it) were different, too. No one really wanted to harm In-N-Out — applying economic pressure was a mere tool. The goal was more likely symbolic, or at most aimed at producing enough economic pain to get In-N-Out to reconsider its approach to political donations. But then, boycotts were arguably a ‘mere tool’ for the KKK, too. They arguably had nothing against boycotted businesses, themselves, but used boycotts to exert economic pressure intended to get the proprietor-owners to leave town. Killing the business wasn’t the point. Getting rid of ‘the wrong sorts of people was the point.

Another possible difference: the KKK had shown itself fully willing to engage in physical violence. So there was always the knowledge that if the boycott didn’t work, things could end going in a different direction. Once violence is on the table, so to speak, then every other tactic being used is suffused with violent potential. There was no indication in 2018 that Democrats were going to turn violent to augment the force of their boycott, or that things would get physically violent if In-N-Out didn’t give in. So in that sense, the 2018 boycott was more clearly non-violent than the KKK boycotts of the 1920s.

Still, the question does give pause. Boycotts do occupy part of a spectrum of direct-action activities, understood as extra-legal activities designed to change someone’s behaviour. They are attempts to go beyond rational persuasion to take matters into one’s own hands, to force an outcome that one is unable or unwilling to argue for. Of course, that’s probably sometimes morally required. But it’s not to be taken lightly.

Restaurant Delivery: Is it Ethical to Use Uber Eats and DoorDash?

Foodora Bike CourierA couple of days ago, the NYT featured a story about the ethics of using delivery services like Uber Eats and DoorDash (See: As Diners Flock to Delivery Apps, Restaurants Fear for Their Future). The basic gist of the story is that these services are predatory, in that they insist on such a large cut of the overall order price that, in some instances, the restaurant in question doesn’t make a dime on the order.

Just how big a cut do the delivery services take? Generally around 30%. (That’s true except where limited by law. In Jersey City, for example, delivery fees are limited to 10%.) So, in most places, if you order $100 worth of food, the restaurant only gets $70. In an industry where profit margins are often in the single-digit range, it’s easy to wonder how that’s remotely attractive, let alone sustainable.

And where does that leave you as a consumer? Suppose you’re someone living in a city where all the restaurants are closed except for pickup and delivery. And further suppose that you are someone who loves restaurant food, and who also wants to help their favourite restaurants survive. What are you to do?

The answer clearly depends on some details, here, and I’m no expert on this particular industry. Indeed, beyond having read Kitchen Confidential and spending too much on restaurant food myself, the industry is a bit of a mystery to me. So I spoke to a friend who is general manager for a small chain of 3 restaurants here in Toronto. I asked him why he dealt with food delivery services at all, given the bad rap those services get, and whether I should feel bad about ordering food that way. The conversation was pretty enlightening.

My friend confirmed that most food delivery services take a 30% share of the bill. How can that make sense? Why would a restaurant accept these deliveries demanding such a greedy share of the pie?

Here’s the explanation. He told me that way back in pre-Covid times, restaurants had a couple of different reasons for accepting the harsh terms offered by the delivery services. First, there’s marketing. Every Uber Eats and DoorDash order represents not just an order, but a potential new customer — one who might not previously have known about the restaurant, and who might just come to the restaurant in person next time, and then the restaurant gets full benefit.

Second, when you’ve already paid your rent and paid your staff to be on duty, an Uber Eats sale is an ‘incremental’ sale: if overhead is already paid, then fulfilling an Uber Eats order on top of that is kind of painless. “At the margin” (as economists say) an extra meal costs very little to produce, so even Uber Eats’s 30% leaves a healthy profit.

Now, fast forward to the Covid-19 pandemic: with restaurant doors shut, neither of the factors listed above would generally matter much. You can’t use DoorDash as a marketing ploy, because (here in Toronto at least) your doors are closed to that more lucrative in-restaurant dining. And if you’re not operating at full capacity, you may not necessarily have the capacity to treat a DoorDash order as a relatively easy addition to the kitchen’s duties. But today, in Canada at least, there are substantial government subsidies that keep cost of staffing manageable, so at least some restaurants are able to keep more staff available to fulfill delivery (and curb-side pickup) orders. And as of now, those orders (in places like Toronto, where restaurants are definitely closed to walk-in business), Uber Eats at the like are a lifeline.

Bottom line: if you have qualms about Uber Eats (etc.) it shouldn’t be because you think the restaurant is suffering. Uber Eats, DoorDash, and the like are helping, not hurting, your favourite restaurant.

Now, a major ethical question remains. In spite of what I’ve said above, the question remains whether services like Uber Eats and DoorDash are a good thing? After all, they charge restaurants very high fees, and restaurants are likely signing up for fear of being left out and jostled aside by the competition. And (though views vary) they arguably underpay their delivery drivers. And yet — interestingly — the services themselves still aren’t profitable. And while consumers benefit from the relative convenience of being able to enjoy restaurant-quality food at home, they’re also ultimately going to eat at least part of the increase in prices that will naturally go along with these companies having inserted themselves into the restaurant ‘value chain.’ (You surely didn’t think consumers wouldn’t end up footing the bill, directly or indirectly, did you?) So it’s tough, overall, to judge the coming of DoorDash and Uber Eats as a good thing. Yes, some form of delivery would be really great, if a model could be figured out that benefits everyone, but these organizations haven’t figured out how to do that yet.

The problem here is really a classic collective action problem. Because even if none of us is happy about the advent of these delivery services, in their present form, each of us benefits from the convenience they provide. And the same dilemma applies to the restaurants using these services. A given restaurant manager can regret what these companies are doing to the industry, but at the same time see dealing with them as good for her restaurant, in the here and now. And because of that pattern of incentives, everybody is motivated to keep participating in a system that they think is, on balance, a bad one. It’s a pernicious kind of problem.

What alternatives are there? Can a consumer do better by their favourite restaurant than to order via Uber Eats? There are a couple of alternatives. In some places, smaller, more equitably-minded delivery services have popped up, in some cases supported by municipal governments. And some restaurants are doing their own deliveries, though there are barriers to that becoming very common, not least among them the cost of hiring and insuring drivers.

So, what’s the result, from the perspective of ethical consumerism? If you think the model is regrettable, and don’t want to participate in it, then go ahead and avoid it. It’s perfectly reasonable to stand on principle, and some will say it’s even ethically required. But if your main ethical worry has to do with the fortunes of your favourite restaurant, and the people it employs, then it’s worth knowing that you’re helping them more by ordering via Uber Eats and DoorDash than by not ordering.

Corporate Responses to the Covid-19 Pandemic

NOTE: this is, for now, a living document, being modified/updated regularly as of March 14, 2020.

Here is a non-exhaustive list — just a sample, really — of corporate Covid-19 pages and statements responding to the Covid-19 (coronavirus) pandemic. Because websites change, where possible I’ve also taken screen caps of these pages & statements as of March 14, 2020, in case the content changes or disappears. (In some cases, the item linked is something specific — like a notice for visitors to corporate locations, etc., because that’s what I found. The company may or may not have put out additional notices that I simply didn’t find.)

I’ll add to the list in the coming days.

Note: I will not be updating each company’s link if/when they make changes. The dates show are the dates provided on each page when I looked at them.

 

Travel

Delta (undated) [screen cap] plus a special statement on cleaning (March 13) [screen cap]

Via Rail (March 12) [screen cap]

Air Canada (undated) [screen cap]

Marriott International (February 28) [screen-cap] (Plus a separate statement on cleaning protocols) (March 10) [screen cap]

Uber (undated) [screen cap]

Porter Airlines (undated) [screen cap]

Expedia Group (March 13) [screen cap]

Lime (March 12) [screen cap]

Metrolinx (March 13) [screen cap]

Princess Cruise Lines (March 11) [screen cap]

Disney Cruise Line (March 13) [screen cap]

Hilton (undated) [screen cap]

AirB&B (undated) [screen cap]

VRBO (March 12) [screen cap]

 

Food & Beverage

Jimmy John’s (undated) [screen cap]

Cracker Barrel (March 11) [screen cap]

McDonald’s (March 6) [screen cap]

Yum! Brands (undated) [screen cap]

Starbucks (March 4) [screen cap]

Aramark (undated) [screen cap]

Sircorp (undated) [screen cap]

 

Retail

Walmart (employee health) (March 10) [screen cap]

Home Depot (March 12) [screen cap]

Target (March 10) [screen cap]

 

Health

Kroger Health (undated) [screen cap]

CVS Health (undated) [screen cap]

Walgreens — customers (undated) [screen cap]

 

Tech

Apple (March 13) [screen cap]

Google (March 6) [screen cap]

 

Sports

NHL (March 12)

MLB (undated) [screen cap]

NBA (March 13) [creen cap]

 

Entertainment

Enterprise Center (March 13) [screen cap]

Cineplex Movie Theatre (March 12) [screen cap]

 

Financial Services

RBC (clients) (undated) [screen cap]

Fannie Mae (undated) [screen cap]

CommunityWide Federal Credit Union (undated) [screen cap, because statement was on main page & likely to disappear]

Citi (undated) [screen cap]

Scotiabank (undated) [screen cap]

Wells Fargo (undated) [screen cap]

Canada’s 6 biggest banks have jointly announced Action to Help Customers Impacted by Covid-19 (March 18) [screen cap] (via TD Bank’s website)

Other

General Motors for employees (undated) [screen cap]

Ford (for visitors) (March 6) [screen cap]

Lockheed Martin (employees)(March 10) [screen cap]

Boeing (undated) [screen cap]

KPMG Australia (March 12) [screen cap]

UPS (March 13) [screen cap]

FedEx (undated) [screen cap]

AT&T (undated) [screen cap]

Goodlife Fitness (undated) [screen cap]

 

Why It’s Essential to Treat Corporations as Persons, Except When It’s Not

I’ve long held that you can’t understand much about business ethics if you don’t understand a bit about markets (their role and limits), corporations (their nature and purpose), and managers (their role and the limits on it). Of those three, it is perhaps the corporation that raises the most controversy, although the other two certainly generate their share.

A corporation is, very roughly, an entity recognized by the law and that exists independently of the people who form it. The general term “corporation” includes business corporations (Walmart, Amazon, etc.), as well as cooperatives (such as ACE Hardware and Dairy Farmers of America) and nonprofit corporations (including charities, universities, hospitals, etc.). Some churches are corporations too.

Corporations are treated as persons under the law just about everywhere. The notion has raised controversy in the US, especially in the wake of the 2010 Citizens United* decision of the US Supreme Court. But that controversy sometimes leads people to miss the fact that corporate personhood isn’t some idiosyncratic American thing. Corporations are treated as persons pretty much everywhere. (If you know an exception, let me know in the Comments section below). Take Canada’s criminal code, for example. The Criminal Code is full of sentences that say “every one who” or “every person who” does such-and-such is guilty of a crime. In the Definitions section of the Code, it clarifies that those terms (“every one” and “person”) are to be read as including organizations, and that “organization” means “a public body, body corporate, society, company, firm, partnership, trade union or municipality” (and certain kinds of associations).

What does this mean in practice? Well, first, it means that corporations can be charged with crimes under the Criminal Code. But corporate personhood under the law also means that corporations can do things like own property, make contracts, borrow money, and own other corporations. It also means that they have certain rights, like the right against unreasonable search and seizure.

The fact corporations are persons under the law — persons, not people by the way — is sometimes described as a “legal fiction.” A legal fiction is a kind of expedient that courts engage in on a practical basis. A good example is the “doctrine of survival”. That doctrine says that when two people die for example in the same car crash, and when it is not known who died first, the older person is taken to have died first, even in the absence of any evidence to that effect. (The order in which people have died is sometimes important, as when they are named as beneficiaries in each other’s wills.) This stipulation that the older person died first is a “legal fiction.” No one believes (or needs to believe) that it is true that the older person actually died first in a particular case. The court just needs a way to move forward, and having a standard assumption is better than, say, flipping a coin.

So, many have regarded corporate personhood as a legal fiction of that sort. We don’t need to hold, in other words, that corporations really have the properties that human persons have (rationality, or intentionality, or a soul, or whatever) in order to justify treating them as persons on public policy grounds. After all, it would be incredibly dangerous to the public good for courts not to include corporations as persons under the law, since that would mean that corporations couldn’t be sued for the harm they sometimes do, they couldn’t be forced to honour warranties, and the money you invest in them wouldn’t be safe from arbitrary seizure by the government. But still, the question lingers: is corporate personhood merely a legal fiction, or does regarding them as persons make good, literal, sense?

One mistake that it is important to avoid is this: some people argue that corporations just can’t be persons, because doing so would have morally intolerable consequences. If we let corporations be persons, this argument goes, then they get all the rights ‘real’ people have. And that’s intolerable. We can’t, for example, reasonably contemplate a world in which corporations — like human persons — have the right to adopt children. But it just doesn’t follow from according corporations personhood that they must have exactly the same rights as human persons. After all, personhood already comes in many varieties, with varying clusters of rights. Adult persons, for instance, have rights that child persons do not. And tourists generally have a different set of rights than citizens have. Personhood isn’t one thing, but many.

A person, at heart, is just a kind of agent — an entity capable of taking action and intentionally shaping the world. Since they area capable of intentionally shaping the world, they are also subject to being held responsible fo the choices they make in doing so.

So, are corporations persons, in that sense?

One option is of course skepticism. Skeptics argue that corporations can’t be persons, because they don’t have minds. Since they don’t have minds, they’re not capable of intending anything. And if they can’t intend, they can’t be persons. Versions of this view are popular among people of widely divergent political stripes. One prominent person who famously held a version of this view was the Nobel-prizewinning economist, Milton Friedman. Friedman made his view of personhood clear in his argument against Corporate Social Responsibility (CSR). He argued that corporations can’t have responsibilities, because they aren’t capable of taking action. A corporation’s managers take action, and so they can have responsibilities. But to Friedman, all this stuff about CSR was just silliness.

At another corner of the political landscape are folks who share Friedman’s skepticism, but for different reasons. A range of critics of corporate behaviour worry that if we attribute personhood to corporations, we’ll be so busy holding the corporations themselves responsible for wrongdoing that we’ll neglect to hold the flesh-and-blood humans within the corporations — the ones who actually ‘pulled the trigger,’ so to speak — responsible. But of course, that outcome isn’t necessary, though it’s surely plausible in particular cases. The fact is that the law generally makes it possible both to prosecute the corporation itself and to prosecute the relevant executives for their role in corporate wrongdoing. And besides, this practical worry doesn’t exactly settle the metaphysical question.

There have been various attempts, though, by philosophers to argue that literal corporate personhood is indeed possible. Peter French, for example, argued forty years ago that corporations are indeed capable of intentionality. French argued that if you want to locate corporate intentions, you just need to look to what he called the corporation’s “Internal Decision Structure.” That is, look to the corporation’s rules about things like whose signature is required to authorize what decisions, and look as well to the corporation’s stated objectives. A decision that is in line with corporate objectives and that is made through the proper administrative processes is, in every relevant sense, made in line with corporate intentions.

Other attempts have been made to outline ways in which we can justifiably understand corporations as persons, including for example Denis Arnold‘s attempt to formulate a theory of corporate personhood based on the capacity for planning — a capacity that corporations generally do have, above and beyond the planning capacity of any individual employed by the corporation.

But the issue is, shall we say, far from settled.

My own view is that much of the hubbub about corporate personhood results from a wrongheaded kind of essentialism — a search for the true essence of the corporation, for the truth about what a corporation really, really is, at heart. Is the corporation essentially (and not just incidentally or for convenience) a person? A group of persons? A nexus of contracts? An engine of wealth creation? A mechanism for rapacious aggregation of wealth?

I think such essentialism is a mistake. The corporation — indeed, any particular corporation — is many things to many people. And there are many lenses through which we can view the corporation, lenses that make more or less sense depending on the topic at hand.

I argued above that for a range of mundane purposes, thinking of the corporation as a person (an entity capable of having rights and duties) is essential. For corporations not to have at least some rights and responsibilities would be disastrous, both in human and in economic terms.

But for other topics, it may be that thinking in terms of personhood obscures more than it illuminates.

Take, for example, the question of corporate political activity. Should corporations be allowed to use their power to lobby government? Should corporate spending on political communications be regarded as protected ‘free speech’ (and hence virtually unlimited)? The latter question was dealt with in the Citizens United case, and many people take that case to have hinged on the question of personhood. That is, they take the court’s decision as having expanded the political rights that corporate persons have.

Independent of that court decision (which as a matter of fact barely mentioned corporate personhood), I think it’s basically unhelpful to think of corporate political action in terms of personhood. In the political realm, personhood is a fraught concept, and one that has historically been the subject of important battles. It was only in 1928, for example, that the Supreme Court of Canada ruled that women were indeed persons under the law (and hence eligible to be appointed to the Senate). Discussion of corporate personhood, in this context, inevitably leads to awkward and contentious comparisons with such hard-won legal changes.

I think that a good argument can be made that politics is fundamentally about relations between citizens (and between citizens and their government). And it’s unhelpful to think of corporations as a “new” kind of persons inhabiting this domain, and to try to figure out what political rights these new, artificial beings “really” (essentially) have.

What I recommend instead, for discussion of ethics in corporate political activity, is to view corporations as a particular kind of instrument. So rather that asking whether corporations may legitimately lobby government, I suggest asking whether it is legitimate for citizens to use corporations as a mechanism for lobbying government (given that lobbying government is undeniably a right every citizen has), and to ask what the proper limits are on citizens’ use of that mechanism. And given that citizens have a right to free speech with regards to politics, what limits (if any) are there on the use of the corporation as a tool for conveying (and amplifying) their views? Compare: the right to free speech doesn’t permit you to use a bullhorn to express your views six inches from your neighbour’s ears. There are limits on the technology you may use to express your views.

Thinking of the corporation as a technology means asking an entirely different set of questions than thinking in terms of personhood.

When thinking about the ethics of corporate political action, thinking in terms of personhood is a red herring. We don’t need to ask whether the corporation is a person in order to talk about corporate free speech, any more than we need to think about my house as a person in order to ask whether my house should be free from arbitrary search by police. Both the corporation and the house serve human ends, and it is in those terms that we ought to be thinking.

Corporations must be treated as corporations, for many purposes, in order to preserve the rights and protect the interests of the persons involved with them. Owners, customers, employees, and creditors would all be worse off if corporations were not treated by courts as persons. But personhood is best thought of as a lens — useful for some purposes — rather than as a deep truth about the nature of corporations.

That is why it is essential to treat corporations as persons, except when it’s not.

 


*Citizens United v. Federal Election Commission, 558 U.S. 310 (2010)


(This is based in part on a presentation I gave on November 22, 2019, in the Business Ethics Speakers Series, and a paper I published in the Georgetown Journal of Law & Public Policy, called “The Right to Bear Corporations”).

Is the Polaris RZR the New ‘Ford Pinto’?

Polaris RZR raising dustFor years, the ‘Ford Pinto Case’ was a staple of business ethics classrooms. As readers of a certain age will know, the Ford Pinto was discontinued in the early 1980s, in part due to controversy over safety. The potted version of the case, as studied in hundreds of business ethics classrooms, goes roughly like this: in the late 60’s, Ford decided it needed a small, light, cheap car to compete with Japanese imports. So in the early 70’s, Ford started producing the Pinto. Shortly after, the company started receiving reports of Pintos catching fire after relatively minor rear-end collisions. People died, or were badly burned, and some lawsuits ensued. The problem was traced to a design flaw having to do with the design of the rear bumper and the placement of the gas tank. Engineers concluded that an easy and effective fix would be the addition of a small plastic shield between the gas tank and some protruding bolts that otherwise tended to puncture the tank in the case of collision. The fix would cost $11 per car. But some quick math showed that an $11 fix to about 12 million cars would cost a lot more than what the company was likely to have to pay out in lawsuits to victims and their families. So, they kept making and selling the cars, minus the $11 fix. And the fiery crashes kept happening, until Ford finally canned the Pinto in 1980. (You can find more details here, via Wikipedia: Ford Pinto fires.)

So, that’s the standard version. And I’ve heard it referred to in the hallways of business ethics conferences within the last year. As far as it goes, the case is a great way to generate discussion about the profit motive, about cost-benefit-analysis, and about the ethics of putting a dollar-value on a human life.

Problem is: the ‘standard’ version isn’t entirely true.* First, the Pinto was not unusually fire-prone, when compared to other cars its size at that time (like the VW Beetle). The Pinto got some bad press, but it wasn’t exactly unusual, in terms of safety. And in cases like this, what’s ‘normal’ in the industry matters (though it’s not all that matters). Second, the internal Ford memo that showed the cost-benefit math was directed at regulators, and there’s little evidence that it was even seen by the Ford execs who made the decision to go ahead with production. So while that math was done, it’s not clear that it was acted upon. None of this is to say that Ford was blameless, but those are pretty important details, from the point of view of assigning blame.

Fast-forward roughly four decades, and another manufacturer is in the spotlight. A recent NYT story outlines the case of the Polaris RZR (pronounced “Razor”), a 4-wheeled off-road recreational vehicle that has been at the centre of a number of recent lawsuits. And that story that is at least  superficially similar to the case of the Ford Pinto: there are fiery deaths and injuries, apparently traceable to a clear design flaw, and ignored by the company for years.

A few more points of similarity, and a few differences, between the two cases, based on what the NYT has reported:

Baseline statistics: The NYT reports that “2013 to 2018, Polaris Industries issued RZR recalls 10 times for fire hazards, far more than for any competing product.” In other words, the RZR hazard is not just bad, it’s remarkably bad. This seems to be a difference between the RZR case from the Pinto case.

Design flaw: The NYT reports that the RZR’s new, souped-up engine “has an exhaust pipe that is housed inches behind passengers and too close to key components without adequate ventilation, lawsuits have alleged, citing reviews by mechanical engineers.” And: “On the ProStar [engine], the exhaust header pipe is connected to the front of the engine, behind the seats, before turning 180 degrees and ending at the rear of the vehicle.”

Tradeoffs: In both cases, the question of tradeoffs — potentially deadly ones — are front and centre. In the Pinto case, the tradeoff was supposedly, at least, made by Ford: they decided that keeping the car cheap was better for them, and maybe better for cash-strapped customers, too. In the Polaris RZR case, the tradeoff is perhaps also being made by customers. According to the NYT, the RZR remains popular because, “For many customers, any danger is overshadowed by excitement.”

In both cases, it is tempting to chalk up the death counts to a simple matter of corporate greed: “Hey, the profits are awesome, so let’s keep selling these things, regardless of the risks to consumers!” But in both cases it’s incredibly unlikely that things are as simple as that. Large corporations are complex entities, composed of people clustered into units. Some of those people, and some of those units, will yes likely be driven by greed. Others will be driven by faith in their product, by personal ambition, by professional pride, or by a drive to “hit the numbers” — whether or not hitting those numbers is actually conducive to any particular corporate goal.

 


* Some of the details are taken from: Matthew T Lee’s and M. David Ermann’s paper,  “Pinto ‘madness’ as a flawed landmark narrative: An organizational and network analysis.” Social Problems 46.1 (1999): 30-47.

Ethics in Sales — Across the Organization

Walmart recently announced that it would raise the minimum age to purchase tobacco products at its stores across the United States, effective July 1. (See also their press release here.)

The ethics of sales involves many different issues, including what you sell, who you sell it to, the price you sell it at, and the information you provide in the process.

But this Walmart story highlights another key aspect of the topic known casually as ‘the ethics of sales.’ And that’s the fact that the ethics of sales isn’t just about the behaviour of sales professionals. Of course, the behaviour of sales professionals — from the helpful 19-year-old on the floor at Best Buy, to the person who sold you that shiny new SUV, to the big pharma sales rep visiting physicians’ offices to promote the latest antidepressent — is crucially important. But not every company has ‘salespeople’ in that sense of the term, and not all sales work is done by people with the word “sales” in their job title or description.

The Walmart story is a case in point. The key ethical sales decision in this case was one made by not by salespeople, as such, but by head office — it was a policy decision. The relationship between corporate policy and front-line decision-making is, of course, complex. Sometimes head office has the right idea, ethically, but has trouble incentivizing salespeople properly. In other cases, head office may have an ‘anything goes’ attitude, and customers have to rely on the basic decency and humanity of the sales staff to protect them.

And in some cases, even professional sales staff won’t have the knowledge and skills required to do what is best for customers. Recall the 2012 case of the California insurance agent who got in serious trouble (lost his license, got it back) for selling a complex policy to an elderly woman with borderline dementia. Insurance agents know lots of things, but how to assess cognitive capacity may not be one of them.

The Walmart case also raises the role of customer-facing employees a few steps farther down the professionalism scale than licensed, highly-educated insurance agents, namely the checkout cashiers taking home pay at-or-near the minimum wage level. One account of Walmart’s decision notes that the company will be sending ‘secret shoppers’ to Walmart stores — presumably, underage individuals who will attempt to buy cigarettes. Cashiers who fail the test may be disciplined or fired. Two things need to be said about that: first is that those cashiers are among Walmart’s more vulnerable employees. I hope they receive training that makes it at least somewhat fair to put the pressure on them. The other point is that this story illustrates how ethics in sales needs a top-to-bottom approach. Selling ethically requires the right top-end policies, the right mid-level sales professionals, and the right training for the front-line folks interacting directly with customers.

Why I’m Not Buying Nikes This Week

I’ll get right to the point. I’m not buying a pair of Nikes this week because I don’t need them.

No, I’m not boycotting Nike. Far from it. I think Nike’s recent move to feature Colin Kaepernick in their ads is strategically very clever, and more generally I’m supportive of Kaepernick’s kneeling as a form of protest, and so by extension I’m supportive of Nike’s support of Kaepernick. And no, I don’t think there’s any need to decide between those two analyses: a given business decision can be both strategic and ethical, opportunistic and morally laudable. I think Nike has scored well on both counts, in the present case.

But buying a pair of Nikes I don’t need would be almost as silly as burning a pair. I’ve already got a good pair of athletic shoes for running, and I’ve got a couple of nice pairs of sneakers for walking around town.

And so I think buying a pair of Nikes this week would be foolish. For starters, it would be a foolish waste of money I could spend on something else—like, say, a $175 donation to the ACLU, or the NAACP. And generally, buying Nikes wouldn’t accomplish much. Yes, in principle I’d like to pat the company on the back, but me shelling out for a pair of shoes is hardly going to be noticed by a company with over $30billion in revenue. Nor is anyone going to notice my flashy new Nikes, and nod in appreciation that I’m on the right side of this debate. When so many people sport a particular logo—sporting it for so many different reasons—that logo’s significance as a signal is necessarily close to zero.

Finally, this issue is a good opportunity to talk about what values we think should determine our behaviour in the marketplace. Do we really want politics creeping in? Is that a good thing? Should lefty consumers really stick to buying shoes (or cars, or broccoli) from lefty producers, and should right-wing consumers stick to buying from right-wing companies? Or should we instead stick, generally, to buying good, well-made products that suit our needs? Markets work better when we ignore each other’s political leanings. Voltaire noted it in the 18th century, pointing out how marvellous it was that the Christian, the Jew, and the Muslim could set their religious differences aside in order to engage in trade. And so, as my friend Alexei Marcoux, argued more recently, we should be wary of letting the marketplace become what he calls a ‘market for values.’ “The market for values,” he argues, “undermines and displaces toleration in the most important venue for social cooperation in a commercial society—the market.” The marketplace is a place where we learn to accept differences of opinion; we shouldn’t jump at opportunities to let our differences of opinion interfere we behave in the marketplace.


See also: Ethical Consumerism (Concise Encyclopedia of Business Ethics)

Let’s Celebrate Business Integrity When We See It

A friend-of-a-friend of mine runs a mid-sized construction company in Latin America. As many readers will know, that industry in that region has a reputation for a relatively high degree of corruption, and in particular bribery.

This friend-of-a-friend says he absolutely refuses to give bribes, in spite of the obvious temptations. When asked whether he loses business because of it, he is candid. “Yes, of course.” And when asked whether he still does lots of business, and still makes a good living, he is again candid: “Yes, for sure!”

When was the last time someone told you a story like that?

We don’t often enough tell stories of integrity when we talk about business ethics. As a professor, I know I’m guilty of this. What cases get discussed in a typical business ethics class? You know the list well. Enron. Volkswagen. Wells Fargo. Equifax. Walmart. Spend 12 weeks discussing companies like those and you could be forgiven for thinking that the world of business is a rotten place. For a student, that may mean graduating and heading off into a career armed with a particular preconception about what kinds of behaviours are normal in business, namely rotten ones.

But I’m convinced that good behaviour, by people of high integrity, goes on all the time in business.

This week’s case in point: a pharmacist in Cape Breton, Nova Scotia, has decided to stop selling homeopathic remedies. Why? Because he looked at the available evidence (he’s got the relevant scientific training) and realized that there’s no good evidence that homeopathic remedies actually work.

And as a business owner, and as a professional, he decided he simply couldn’t continue to sell those products.
(I’ve explained in a peer-reviewed paper why selling unproven health products is unethical. See: Alternative Medicine and the Ethics of Commerce.)

Feel free to disagree with me (and this pharmacist, and the entire scientific community) about the effectiveness of homeopathy. Feel free to swear that it works for you. My grandmother swore by the power of 4-leaf clovers. Others swear they’ve seen a psychic bend a spoon with his mind, or seen a magician saw a woman in half. The point is that this pharmacist has the training to evaluate evidence, and determined that—by the scientific standards his profession cleaves to—the evidence for homeopathy just isn’t there. Such a realization puts any qualified health professional who also happens to run a business in a sticky position. Do you sell something just because people will buy it? This one pharmacist’s answer, apparently, is “no.” It’s worth noting that the answer of most large pharmacy chains is “yes.”

But back to my main point: we need to celebrate integrity when we see it. It’s out there. It may be more common than its absence, it’s just that bad behaviour gets all the press. That’s a shame, and we should all do our part to nudge things in the opposite direction once in a while. The public’s perception of the world of business would benefit from it. And my impressionable students — soon to be your youngest employees — will be shaped by it.

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