The Business Ethics Blog

A couple of weeks ago, I posted this picture, taken by a friend of mine at a Starbucks in Busan, South Korea.

The picture struck me as odd: why does a banana need a plastic wrapper? Seems unnecessary. But, as I pointed out at the time, Starbucks is a pretty smart company — they don’t do much that isn’t well thought out.

So I contacted Jim Hanna, Director of Environmental Affairs at Starbucks. He offered to find out the answer for me. And the answer: cultural norms. Apparently, according to Starbucks Korea (via Hanna) cultural norms in Korea dictate that “premium” produce be individually packaged.

Now, it’s easy enough to understand a company wanting — both for ethical and for sheer marketing reasons — wanting to be sensitive to local norms. We don’t want multinationals barging into countries and simply assuming that everything will be the same as “back home.”

But surely “cultural norms” aren’t always going to trump. After all, for years it was a cultural norm in North America to drive a big, big car and not to care about gas mileage. For years, it was a cultural norm to toss tin cans into the garbage, rather than recycling them. Those aren’t the kind of norms that deserve respect; there are good arguments against those norms, arguments that have by and large been persuasive.

Norms can and do change. Sometimes what it takes is a company that’s big enough to nudge cultural practices in a better direction, and to lead by example.

Business ethics is mostly about the extra-legal rules that apply in the world of business. Though the study of business ethics often involves thinking also about what sorts of laws and regulations ought to apply to commerce, for the most part business ethics takes for granted a more-or-less-stable set of laws, a background against we ask questions like, “Yes, that’s legal…but is it ethical?”

Business owners in Haiti, right now, don’t get to think about things that way. From what I understand, for all intents and purposes, there is no stable, generally-enforced body of law in Haiti right now. There may be a nominal government, but the importance of that is more symbolic than practical. And Haitian law-enforcement agencies leave much to be desired on a good day; post-disaster, they’ve got their hands much more than full maintaining even small pockets of law and order. The enforcement of laws governing commerce is presumably not a terribly high priority.

This opens up a whole range of interesting questions about what ethical rules apply to business in the absence of law and order.

For an interesting glimpse at the world of retail as found in Haiti this week, see this story from The Ottawa Citizen: Decadence amid devastation. One interesting bit of the story raises a clear business ethics issue, namely price gouging:

About 30 per cent of gas stations in Port-au-Prince have opened, and officials say there is no longer a fuel shortage. But prices have tripled from pre-earthquake levels.

Now, huge increases in the prices you charge to desperate people during an emergency may seem like an ethical no-brainer (and in most places in North America, for example, it’s against the law). But ethically it’s actually not so straightforward. My friend Matt Zwolinski has argued, for example, (in “The Ethics of Price Gouging” Business Ethics Quarterly, Volume 18, Issue 3) that many instances of price gouging should not, in fact, be thought of as unethical. I won’t rehearse Matt’s entire, carefully-laid-out argument here. But basically he argues that price gouging isn’t always coercive or exploitative (though it sometimes is) and that to forbid price gouging may a) be unfair and b) have very bad consequences. It may be unfair in that it puts a heavy burden on merchants, who in time of crisis may face exceptional challenges and additional expense in obtaining anything to sell in the first place. (And note that many merchants, especially in a place like Haiti, may be far from wealthy themselves). And forbidding price gouging may have bad consequences for all concerned if it leaves merchants with little choice but to close their doors and stop providing goods to consumers in a time of need. Now, that’s an abstract argument about price gouging in general, not a defence of any particular instance of price gouging. But it’s thought-provoking, and serves to remind us that many ethical issues — particularly ones related to people’s behaviour in an emergency — are more complex than they appear at first glance.

One last thought about perceptions and appearances and moral judgment.

Take a look at the opening paragraphs of the story quoted above:

While tens of thousands of Haitians struggle in horrific conditions, it’s business-almost-as-usual at one store in the Port-au-Prince suburb of Petionville, where fresh vegetables, meat, cheese and wine are available to those with money to spend….

At the Big Star Market in Petionville, a relatively affluent Port-au-Prince suburb, Jean Robert Lebrun emerges from his first grocery trip in 11 days with half a dozen baguettes under one arm and bags of rice and cooking oil under the other….

That bit alone makes Mr. Lebrun sound downright spoiled. Baguettes? Bags of rice? Wine and cheese? This is Haiti we’re talking about, right? The place where people are bleeding and starving? How (one might jump to ask) can anyone eat so lavishly while their neighbours are starving?

The answer: that’s not what’s going on here. But you have to read to the end of the story to find that out:

Lebrun’s home was “completely destroyed” by the earthquake, and his street was so choked with rubble that he could not drive out until Friday. There are 25 neighbours living in his tree-covered garden. They have no shelter. But they have a charcoal stove and, now, a few items of relative luxury.

“So far, no one has come to help. We need tents, and so far we can’t find them,” says Lebrun, who had planned to return to Big Star later Friday with more cash. “Before the tremors, my wife had made provisions for a month. So that is why we have been able to help the people.”

This is not a story of greed or insensitivity. It’s a story of generosity and compassion. The lesson: it’s dangerous to reach conclusions based on incomplete understanding of the facts. Sometimes, we need to reach conclusions quickly because the need to act is pressing. But when it comes to judging the actions of people in the middle of a crisis, from the comfort of our armchairs, we are obligated, I think, to exercise caution.

Cruiselines have been taking heat for continuing to bring tourists to Haiti. Critics have thought it unseemly for wealthy vacationers to be enjoying sun and sand on an island currently in a state of deep crisis.

See this article by Robert Booth, writing for The Guardian: Cruise ships still find a Haitian berth

Sixty miles from Haiti’s devastated earthquake zone, luxury liners dock at private beaches where passengers enjoy jetski rides, parasailing and rum cocktails delivered to their hammocks.

The 4,370-berth Independence of the Seas, owned by Royal Caribbean International, disembarked at the heavily guarded resort of Labadee on the north coast on Friday; a second cruise ship, the 3,100-passenger Navigator of the Seas is due to dock.

The Florida cruise company leases a picturesque wooded peninsula and its five pristine beaches from the government for passengers to “cut loose” with watersports, barbecues, and shopping for trinkets at a craft market before returning on board before dusk. Safety is guaranteed by armed guards at the gate.

The decision to go ahead with the visit has divided passengers. The ships carry some food aid, and the cruise line has pledged to donate all proceeds from the visit to help stricken Haitians. But many passengers will stay aboard when they dock; one said he was “sickened”….

Is there anything wrong with cruise lines continuing to do business with Haiti? I have to admit that, at a visceral level, I have some of the same reaction critics have had. There’s something a bit ‘off’ about having fun in the sun while others are suffering so near-by. It’s a bit like having a picnic adjacent to a funeral. It seems tacky. But is there anything wrong with it?

First, it’s important to note that Royal Caribbean is donating $1 million to the relief effort. When its ship docked in Haiti for passengers to enjoy the beach, it also dropped off “Forty pallets of rice, beans, powdered milk, water, and canned foods … and a further 80 are due and 16 on two subsequent ships.” So, the cruise company is doing a lot of good, both by contributing to the Haitian economy (by bringing tourists who spend money, for example) and by making philanthropic contributions. Now, that in itself doesn’t automatically make it OK to continue bringing tourists to Haiti during the crisis. Maybe the contrast between wealthy vacationers and desperate Haitians is just too repugnant to be overcome by mere money. Maybe it’s too much like waving a hundred-dollar bill in a poor man’s face and then giving him a dollar. Maybe.

But is it really plausible to say it’s wrong to have fun (or make money by taking people to have fun) “too close” to poverty and desperation? It’s hard to imagine making that a general rule. Should poor countries be scratched off our list of places to spend our vacation dollars? That’s hard to imagine, and it’s hard to imagine a principle that would let you distinguish between Haiti this week and, say, Brazil or Mexico or Trinidad & Tobago. And it’s worth keeping in mind that Haiti itself is a terribly poor and deeply troubled place at the best of times. It’s the poorest country in the Western hemisphere. It’s per-person GDP is about 1/36th that of the U.S. It’s #14 on the Fund for Peace’s 2009 Failed States Index. So, if it’s unethical for cruise ships to patronize Haiti’s ports this week, what about next week? Next month? Next year? When will Haiti be sufficiently stable that wealthy vacationers can feel OK about visiting (and about thereby contributing to the Haitian economy)?

I think it’s important for the world to know that Haiti is, in at least some small way, still open for business. And I think it’s worth a bit of awkwardness to send that signal.

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Once again: here are a couple of great links for helping the situation in Haiti right now (without having to book a cruise)…
World Food Programme and
Médecins Sans Frontières (Doctors Without Borders)
(If you choose to give to another organization, make sure you find a reputable one. But please do give.)

Are credit card companies morally obligated to waive their fees when people use their credit cards to donate to disaster relief, or is doing so itself a charitable act, something above and beyond the call of duty?

I think it’s great that the major credit card companies have all decided to waive their fees — but I think it’s important to acknowledge that as an act of charity. It’s an act of corporate philanthropy, not something they’re obligated to do. (The move to waive their fees came, unfortunately, after the firms were criticized for making money off the current crisis.)

Here are a couple of quick points to consider, if you’re tempted to think that these companies are ethically obligated to waive their fees, rather than profiting from this terrible situation.

1. Shouldn’t companies that find excellent ways to help in disasters be rewarded, at least by being allowed to charge their normal fees for their services? The credit card companies are of enormous importance to the people of Haiti at this point: the very existence of these companies means that millions of people like you and me can help financially with a few clicks of a mouse. Indeed, the services these companies provide (even were they to charge their standard fees) are probably more important to Haitians at this point than any single charitable organizations is. And as far as profiting from a bad situation goes, well, that’s not exactly uncommon. Lots of companies profit from human misery, and I’m glad they do. They profit because (with some notable exceptions) they’re providing a genuine service. Drug companies make lots of money because people get sick. Insurance companies make money because people fear fire and theft and disability. And so on. Credit card companies are far from unique in this regard. They provide a huge service in times of hardship, and deserve to profit from doing so. So, forgoing such profits is an act of charity, not an obligation.

2. What makes this event unique? Don’t get me wrong: it’s a horrific crisis, and anyone who can help should do so. But if credit card companies are obligated to waive fees for charitable donations to Haiti right now…what about donations to Haiti last year, or next year? It is, after all, the poorest country in the Western hemisphere, in constant need of help. Should facilitating donations (without charging fees) always be considered the minimally decent thing for credit card companies to do, instead of generous and morally praiseworthy? Should all charitable donations (to all charities? in support of all causes?) be underwritten that way? Some people do apparently think that companies should never profit from charitable donations. But again, that seems to undercut the huge amount of good that credit card companies do by facilitating charitable donations. (I for one know that I donate more often, to more charities, than I otherwise would, just because Visa lets me do it so easily online.)

So: a big “yay!” for Visa, Mastercard, American Express, and Discover for waiving their fees and thereby helping the people of Haiti. But that’s “Yay, good corporate philanthropy,” not “Yay, they’re foregoing evil profits.”

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While I’ve got your attention: here are a couple of great links for helping the situation in Haiti right now…
World Food Programme and
Médecins Sans Frontières (Doctors Without Borders)
(But of course the most important thing really is not that you choose one of those, but that you find a reputable organization and give.)

A friend of mine took this picture recently at a Starbucks in Busan, South Korea.

My first reaction when I saw it was, “What the….?!” Why does a banana need a plastic package? Isn’t the banana already our most perfectly-packaged fruit? After all, a banana peel is relatively tough (certainly tougher than thin plastic wrap) and easy to open. It’s water-proof, and easily keeps dirt of the delicate fruit inside. What’s with the wrapper? Wouldn’t a Starbucks-logo sticker and a best-before date sticker be enough?

On the other hand, Starbucks isn’t stupid. Packaging costs money, and if there weren’t a good reason (at least from their point of view) to stuff a banana into a plastic wrapper, they wouldn’t do it. And they’re a relatively environmentally-conscious company: they are at least alive to environmental issues, and they know that big companies like themselves are liable to be prime targets when they make poorly-thought-through decisions.

Does anyone know the actual reason for this packaging? Is the reason, whatever it is, a good justification, in an environmentally-conscious age?

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(Thanks, Zack!)

Should companies ever tolerate unethical behaviour in the workplace? Never? What about really small stuff? What about really important employees? How strictly should they monitor employees? Won’t intense scrutiny hurt morale?

Here’s an excellent piece on just those questions, by Vadim Liberman, in the Conference Board Review: Workers Behaving Badly

This article is written for workplace miscreants who steal from, lie to, bribe on behalf of, and deceive their bosses and businesses. Not you, of course. Not only is the angel on your left shoulder restraining Satan on the other side—page thirty-four in the company manual forbids such hijinks.

But ask yourself: Have you ever slipped a pencil from your desk into your purse? Ever surfed the Internet in the office to check the score of this afternoon’s game? Dropped a holiday package in the mailroom outbox? If you answered no to all the above, congratulations! You’d be the ideal ethically pure executive—that is, if your no weren’t an outright lie.

Oh, come on, you might be thinking—it’s just a pencil….

The article cites a number of relevant considerations (including a few in quotations from me). The one I think particularly worth highlighting is the distinction between ethical infractions that only affect the company (e.g., petty pilfering from the supply cabinet) and those that affect outsiders (e.g., exaggerating expenses that are then billed to clients). It seems to me that companies (and hence managers) are within their rights to be more or less as strict or as lax as they want, when only the interests of the company are affected. That’s not to say they couldn’t make more- or less-wise ethical decisions in that regard; it’s just to say that, well, it’s their business, and that gives them the right to some latitude. But when employees do unethical (or illegal) things that affect those outside the company, if the company allows the behaviour (explicitly or implicitly condoning it) then it essentially becomes an action of or by the company. And in that case, the company itself is acting unethically.

(By the way, this is one of the finest piece of ethics journalism I’ve seen in a long time, and not just because it quotes me. It’s thoughtful and well-researched. The whole thing is well worth reading.)

Most of you will have heard of Dr. Jeffrey Wigand, or will at least have heard of the movie, The Insider, that chronicled Wigand’s harrowing experiences as a tobacco-industry whistleblower.

Most of you will not know, that Wigand is still involved in the fight against Big Tobacco. More specifically, he’s the head of a nonprofit foundation called Smoke-Free Kids.

You also may want to know that Wigand will be appearing this Tuesday (January 12th) on the internet radio show Ethics Talk. The title for that show will be: From Knowledge to Action: An Interview With Jeffrey Wigand.

It’s good to know that one of the few true celebrities of business ethics is still involved in trying to make the world a better place.
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(You can follow Wigand on Twitter, here: @jeffrey_Wigand.)
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Here’s a very useful piece by economics prof Thomas F. Cooley, writing in Forbes: The Real Bank Pay Scandal.

Cooley notes (and sympathizes with) the pattern of outrage over executive compensation. But he also reminds us that, when designed properly (which it isn’t always) compensation packages are designed to give executives incentive to build long-term shareholder value. That’s why, for example, the modern trend is towards paying CEO’s predominantly in stock options: it aligns the interests of CEOs with the interests of shareholders.

Of course, CEOs are humans, and humans are complicated. Motivating them is not straightforward. So different companies use different combinations of salary, stocks, stock options, and other perks. Well-organized Boards of Directors have “compensation committees” set up to figure out how best to incentivize senior execs, and there are consulting firms available to offer advice.

Well, how well do firms generally do? Cooley’s research (with his colleague, Gian Luca Clementi) suggests that, over all, CEO compensation is in fact pretty strongly correlated with gains for shareholders.

The first figure shown below is a plot of net shareholder gain in billions of 2005 dollars (the horizontal axis) against total compensation in millions of 2005 dollars (the vertical axis) for CEOs of all publicly traded companies…
What one would hope to see in such a plot is that the observations would lie in the lower left and upper right quadrants, which by and large they do. …There are some [exceptions] and one can identify them by name, date and company. The important point is that there are very few.

So, with a few exceptions, it looks like firms are doing pretty well at aligning executive compensation with the interests of shareholders. But in an age characterized by massive government bailouts, that’s not the whole story. Cooley’s concluding paragraph:

At the heart of the anger about bankers pay is the very legitimate concern that the bankers and their shareholders and debt holders benefit from a subsidy paid for by taxpayers–the subsidy that is implied by the notion that they are too big to fail. That subsidy empowers them to take bigger risks and earn bigger returns for themselves and their shareholders with all of the down side risk born by Main Street. That is the real outrage.

Hey, folks.

I’ve been nominated for an interesting new award, the “Shorty” award, “Honoring the best producers of short real-time content.” I’m nominated in the CSR category (apparently despite my frequent criticism of the term “CSR”. Oh well.

Voting is Twitter-based. So if you have a twitter account, and feel inclined to vote, go here:

http://shortyawards.com/ethicsblogger

And check out the other nominees, all of whom do interesting and useful stuff.

http://shortyawards.com/category/csr

A little over a year ago, I blogged about the current state of evidence regarding the effectiveness of one particular herbal remedy: Ginkgo Biloba a Dud for Alzheimer’s: Ethical to Keep Selling It? I noted that there was little good reason to think it an effective remedy, and suggested that, as a result, it was ethically problematic for companies to keep selling it.

Just yesterday, Scott Gavura at the Science-Based Pharmacy blog, posted an important update on the evidence regarding Ginkgo Biloba: Forget to take your Ginkgo biloba? Turns out, it doesn’t matter. Gavura’s posting is based on a new study reported in a recent issue of the Journal of the American Medical Association. Gavura (a licensed pharmacist) notes that he was once guardedly optimistic about Ginkgo Biloba, But given the most recent science, he says that hope is gone:

The largest and best-designed study to examine Ginkgo biloba has found it ineffective in reducing the incidence of dementia, Alzheimer’s disease, or in reducing the rate of cognitive decline in older adults. This is a persuasive study. In a population that is very close to the “real world” that might consider taking the product, no effect of ginkgo has been shown.

Importantly, Gavura ends with this ethical prescription:

It’s time for pharmacists to start recommending against self-treatment with Ginkgo biloba for the treatment or prevention of dementia or cognitive decline. [His emphasis.]

I agree. And it’s worth noting that the ethical constraints on pharmacists are stricter than the ethical constraints generally imposed on companies. Pharmacists are granted a collective monopoly on a particular field of practice, and we trust them to advise us on complicated matters that are deeply important to us. So, when supplement companies insist on their freedom to sell Ginkgo Biloba, on the very thin grounds that, hey, after all, people want it, it falls to pharmacists to do what they can to keep the public from wasting money on product that, while once promising, we now know to be useless.