The Business Ethics Blog

Once again (for the 2nd year in a row) I’ve been recognized for my work on this blog by Ethisphere Magazine as one of the “100 Most Influential People in Business Ethics.”

I am humbled, but gratified to know that my blog is seen as having an impact.

Here’s the listing: 2009’S 100 MOST INFLUENTIAL PEOPLE IN BUSINESS ETHICS.

Coca-Cola is the latest company to be charged with “greenwashing,” for having an advertising campaign that focuses on the environment.

See this story by Rod Mickleburgh, for the Globe & Mail: Council of Canadians accuses Coca-Cola of ‘greenwashing’

…Coke has been winning plaudits from some environmentalists for moves to reduce its carbon footprint, particularly at the Olympics, and the company recently introduced a plastic bottle with 30 per cent plant-based material.

But Mr. Ages charged that Coca-Cola remains a major player in the global bottled-water industry, harming Third World watersheds and resulting in huge numbers of bottles going to landfills….

The term “greenwashing” is tossed around a fair bit these days. Too much, to be honest. It seems like sometimes it’s used just to refer to any environmental claims with which a critic disagrees. But for the term to be really useful, I think it needs to be kept more narrow, more carefully targeted.

For my own explanation of what greenwashing is, see my page, What is Greenwashing, and Why is it a Problem?

“Greenwashing,” a pejorative term derived from the term “whitewashing,” was coined by environmental activists to describe efforts by corporations to portray themselves as environmentally responsible in order to mask environmental wrongdoings.

So, is Coke actually guilty of greenwashing? In order for the charge of greenwashing to be apt, the charge needs to be that the company is holding up some relatively minor environmental accomplishment to cover over a poor environmental track record. Unfortunately, the G&M story is short on details. Here’s a little more info: Coke in green clothing. The accusation, in essence, revolves around Coke’s new plant-based (and implicitly environmentally-friendly) plastic bottles. I don’t know whether Coke’s track-record is sufficiently bad, over all, to make its current focus on environmental issues look like greenwashing. But here’s a question to contemplate: does it matter whether the environmental “bads” of which Coke is accused are optional, or central to its business? Bottling and selling water (in places where tapwater is safe and plentiful) is not great, environmentally. Bottled water is just intrinsically not great, environmentally. It’s not a matter of choices a company makes; it’s basic to their business. That strikes me as different (not better or worse, just different) than a company that conducts its business, whatever that is, in a particularly environmentally-unsound way. So, does being in an environmentally-unfriendly business count as having a “bad environmental track record,” in the way required to support a charge of “greenwashing?” Or should a company have to have done particularly badly from an environmental point of view?

I am frequently amazed by how poorly-tuned my own economic intuitions are, or rather my own economic ‘antennae’. I shouldn’t be amazed. I know full well that most of us know too little about economics, and are poor at guessing at the economic impact of our own choices.

Today’s case in point: Fairtrade coffee and chocolate.

I used to worry merely that the brand name “Fairtrade” had implicitly claimed some sort of monopoly on the adjective “fair,” risking convincing consumers that only that kind of trade is fair (or fairer? or most fair? or what?) and that other kinds are not (not usually? not ever? or what?).

But now I’m smacking my own forehead for not having seen the obvious (?) economic point that by favouring one set of coffee farmers (those who meet its special requirements), the Fairtrade system was thereby disadvantaging some other set of farmers. That is, unless it increases the total demand for coffee, growing demand for Fairtrade coffee necessarily shifts wealth from one set of farmers to another. And since I missed (mostly through not having thought about it enough) this basic economic point, I also never got to a crucial ethical point, namely that we ought to think carefully about whether that particular transfer of wealth is, on balance, a good thing or not.

For more on this, check out this piece by Andrew Chambers, writing for The Guardian: Not so fair trade. Chambers points to a number of reasons for thinking that Fairtrade certification is at best a mixed blessing for the coffee farmers of the world, taken as a group.

(See also this Wikipedia page summarizing Fair Trade Impact Studies. The conclusions seem mostly cautiously positive. But note that these studies seem mostly to look at the impact of Fair Trade on farmers who participate, and (seemingly) ignore the impact on those farmers’ competition, including the sometimes-even-poorer farmers who don’t get to participate.)

OK, so maybe buying Fairtrade isn’t all that a conscientious consumer might hope it to be. Maybe the farmers involved don’t get as much of the Fairtrade markup as we’d like. And maybe the program has redistributive effects that are hard to gauge. But is buying Fairtrade coffee or chocolate at least better than nothing? I’m not so sure it is. In the absence of clear evidence of a net positive impact, I think there’s reason to resist this particular bandwagon, particularly if (as I alluded to above) it is setting itself up as “the” ethical way of buying coffee, chocolate, etc.

So what’s a concerned coffee-buyer to do?

One alternative, if you really are concerned about the plight of poor coffee farmers, is to ignore the Fairtrade label, buy whatever coffee you love most, and send a cheque directly to a well-run charity that promotes, say, literacy or healthcare in a coffee-growing nation. Now, admittedly, most of us won’t do that. That’s why I’ve said nice things before about ideas like (Product) Red, which aims to harness the power of consumerism to good ends. I actually think using your own consumption patters to get yourself to give money to causes you care about makes good motivational sense. But in this case, for now at least, I’m going to be glad that every time I buy a cup of coffee — just like every time I buy cheap consumer goods at Walmart — I’m helping someone in a much poorer nation earn a living.

Here’s a very good story on conflict of interest at credit rating agencies, by David Segal, for the NY Times: Debt Raters Avoid Overhaul After Crisis

When the financial crisis began, few players on Wall Street looked more ripe for reform than the Big Three credit rating agencies.

It wasn’t just that Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, played a crucial role in the epochal housing market collapse, affixing their most laudatory grades to billions of dollars worth of bonds that went bad in the subprime crisis.

It was the near universal agreement that potential conflicts were embedded in the ratings model. For years, banks and other issuers have paid rating agencies to appraise securities — a bit like a restaurant paying a critic to review its food, and only if the verdict is highly favorable.

In a conflict of interest (COI), an individual (or organization) trusted to make some judgment on behalf of someone else has an “outside” interest (often but not always a financial interest) that gives reason to doubt their ability to exercise that judgment objectively. Importantly, COI is a feature of a situation, not a feature of a person, and we don’t need any evidence of actual bad decision-making in order to spot a COI. All we need is to see that the person (or organization) expected to make the decision is liable to be pulled in different directions. So, imagine looking at the role of credit rating agencies prior to the recent economic troubles. You might well have found yourself saying, “Wow, I don’t know if they actually give good advice or not, but it sure looks like a conflict of interest because, while they’re supposed to be giving good advice to the investing public, they also have a financial motive to rate bonds highly.”

Notice also that the COI here is not just incidental. It’s built right into the way these firms operate. It’s a structural COI, not amenable to being remedied by, say, simple changes in which individuals make which decisions. The COI here is rooted in the way the relevant institutions are structured.

Third, it’s worth recalling (as I’ve mentioned before on this blog) that COI in itself is not always blameworthy. For one thing, people can find themselves thrust into a COI through no fault of their own. (Imagine you’re asked to hire someone new for your office, and a relative of yours applies for the job. You’re now in a COI. Being in this COI is not your fault, though how you handle it is very much an ethical issue.) But in cases of structural COI, someone has actually built a system to which COI is endemic. But even then, the COI may not be blameworthy: it may well be that a particular system, even if it involves a structural COI, is the best (or least-bad) system available.

Finally, note that the term “conflict of interest” almost seems insufficient, here. As I said above, to spot a COI you don’t have to have evidence that decisions are actually being made badly, or that bad advice is being given. There just has to be reason to doubt the decision-maker, based on the situation they are in. But in the present case, there seems to be ample evidence not just that the bond-raters at these companies were in a conflict of interest, and not just that it was a structural conflict of interest, but indeed that they were in fact giving out very bad advice to people who were relying heavily upon it.

That is why critics, rightly, are calling for change.

Of course, the question of what would count as a better system, and just how far that system would be from the current one, is a hard technical question, one I’ll leave to others with the relevant expertise.

—–
(For more on COI, see the chapter I co-authored on the topic in this volume, which I recommend highly: The Oxford Handbook of Business Ethics.)

It looks like Walmart has won a small but significant legal victory in its campaign to keep its employees un-unionized.

From the Edmonton Journal: Supreme Court buys Wal-Mart stance on store closure

The Supreme Court of Canada has upheld the right of Wal-Mart, the world’s largest retailer, to close shop after employees unionized at an outlet in Jonquiere, Que.

In a 6-3 decision, Justice Ian Binnie, citing previous case law, noted there is no legislation in Quebec that obliges any employer to remain in business, even if it closes for “socially reprehensible” reasons.

The store closure, which followed one of the first unionizations of Wal-Mart employees in North America, drew continent-wide attention and the high-stakes appeal has been closely watched by labour and business….

I’ve blogged about Walmart’s anti-union stance before (here and here).

A couple of things are worth noting, in light of this ruling. First, note that the SCC said that Walmart is allowed (legally) to close stores, even when it does so for “socially reprehensible” reasons. That’s a good reminder that there is a difference between what’s ethical and what’s legal. There’s plenty of overlap between the two, but there is also (and has to be) some divergence. The Supreme Court’s job is strictly to rule on the legality of Walmart’s behaviour. But at the same time, it’s interesting to see the highest court in the land referring to Walmart’s actions in a way that at least implies disdain.

Another point, one I’ve made before, is that it’s important, ethically, to distinguish between having an anti-union stance, on one hand, and engaging in particular anti-union activities, on the other. There’s nothing outrageous about a company being anti-union, especially a company whose entire business model is rooted in providing low-cost goods to (mostly) low-income consumers. After all, unions (understandably) want to drive up wages, and higher wages means higher prices. So while there certainly are particular union-busting practices that are unethical (and closing a store may or may not be one of them), there’s nothing unethical about trying to keep unions out.

One final point. Unions generally have 2 main goals…to drive up wages, and to secure for members suitable working conditions. Any company that manages to keep its employees happy with regard to non-wage issues is much less likely, it seems to me, to have to fight battles over unionization.
—–
Here’s the story as reported by the Globe & Mail: Court rules against Wal-Mart workers
—–
Clarification:
The bit about “socially reprehensible reasons” was actually the current court quoting an earlier judgment from the SCC, in a case called Place des Arts. (Thanks Jim).
—–
Correction: Here’s the corrected link to the SCC’s decision: Plourde v. Wal‑Mart Canada Corp. 2009 SCC 54

This past Friday I gave a talk on ethics & food at the University of Western Ontario. (The event was sponsored by the Rotman Institute of Science and Values and the Philosophy Department.)

The talk was essentially an exploration of a cluster of issues related to the large (and growing) number of value dimensions along which consumers currently evaluate food products. People want food that is tasty and nutritious, but at least some of them also want food that is organic, cruelty-free, non-GMO, fairly traded, low-carbon, local, shade-grown, hand-harvested, dolphin-friendly, and so on.

Many of those characteristics are associated with the term “ethical food.” But of course no one characteristic is likely to be sufficient to warrant calling a particular food product “ethical.” And if we want to evaluate which of two food products is more ethical, we quickly find that it’s very hard (indeed, impossible) simply to “sum up” the ethical qualities of any given food product to arrive at some sort of “bottom line” for purposes of comparison. Another problem is that some of the values we might care about can come into direct conflict. If you want your salmon to be wild (as opposed to farmed) that’s fine, unless you also want it organic. If it’s wild, its diet can’t be controlled, and hence it can’t be organic. You have to choose one of those things or the other. Consider also the conflict between wanting your food locally grown, on one hand, and wanting it grown in an ecologically sensitive manner: you can’t have it both ways if, for example, you live in a place not naturally suited to growing produce (e.g., Arizona).

The other thing I talked about was the role that brands play in consumer food choices. Branding is most typically thought of as a means of product differentiation, and as a mechanism for fostering trust. But brands can also be thought of as clusters of values. Different brands mean different things to consumers, and consumers may become devoted to a particular food brand because the values they see that brand as representing fit well with their own values. This means that brands can be an important mechanism for simplifying the choices consumers face, and helping consumers buy just what it is that they really want most — i.e., food products that embody their preferred cluster of values. Finally, it means that brands are likely to be expected to bear a lot of weight — weight they may or may not be capable of bearing. It also means that brands, taken as a means of communication between producer and consumer, represent an important opportunity for either ethical or unethical communication.

—
p.s. thanks again to the faculty and students at UWO for their kind invitation and for being such a great audience!

It’s a common refrain. Don’t blame the business schools for all the bad stuff happening on Wall Street. It’s not the b-schools’ fault, because after all, ethics can’t be taught. The first bit there is reasonable enough: the recent financial crisis is the result of a complicated convergence of factors, apparently including bad decisions by quite a number of individuals, and some poorly-structured institutions. But the latter part, implying the futility of ethics instruction at business schools, is simply wrong-headed.

For the latest iteration of this mistaken view, check out this opinion piece by Clifford Orwin, professor of political science at the University of Toronto, in the Globe and Mail: Can we teach ethics? When pigs fly

Ethics is a serious business. And that’s why, reading in last weekend’s Globe and Mail about the gurgling wave of ethics education sweeping North American business schools, I had to laugh.

“MBA programs around the globe,” wrote Joanna Pachner, “are rushing to prove that they teach students to be good – not just rich – by revamping their curriculums and encouraging debates about ethical corporate behaviour.”

I blogged about the MBA ethics oaths here. But Orwin’s real focus is on business school curriculum:

I’m not suggesting that business students are bad people, or that those who would teach them to be good are any less competent than the rest of us. It’s just that the whole notion of teaching ethical behaviour rests on a fundamental misconception – namely, that ethical behaviour can be taught.

But Orwin’s criticism is off-target, for two reasons.

The first problem is that Orwin neglects that the main goal of business education is to teach people management skills. So we can usefully teach people to devise management structures that minimize wrong-doing on the part of their employees, even if we can’t change the characters of future managers themselves.

The second problem: people like Orwin wrongly assume that the key to better behaviour is modifying character. But that flies in the face of our best understanding (as represented in the criminology literature) of the psychology of wrongdoing. The key to wrongdoing is not primarily that wrongdoers have the wrong values (from which it would follow that ethics classes need to accomplish the difficult, perhaps impossible, task of instilling the right values in just a few short months of instruction). The key to wrongdoing is much more likely to involve faulty ways of thinking about certain behaviours, namely thinking about them in ways that “neutralize” them, morally, effectively exempting the wrongdoer from moral blame. (A simple example is the redescription of theft as “borrowing”, or the redescription of stealing from one’s employer as “merely taking what I deserve”). The arguments behind such neutralizations are generally fallacious, and fallacies of reasoning are something that can be taught, either in an ethics class or indeed in a first-year Critical Thinking class.

Thus it’s not that Orwin is wrong in claiming that virtue cannot be taught. It’s that he’s wrong in thinking that that’s a decisive argument against ethics education.

—–
My take on the moral psychology of wrongdoing, and the conclusion it implies about ethics education, is adopted entirely from Joseph Heath’s wonderful paper, “Business Ethics and Moral Motivation: A Criminological Perspective,” Journal of Business Ethics 83:4, 2008. Here’s the abstract.

Today in class I taught Joe Heath’s wonderful paper, “Business Ethics and Moral Motivation: A Criminological Perspective” (J. Bus Ethics, 2008. 83:4, 595-614). It’s a paper that draws on the criminology literature to debunk several ‘folk theories’ regarding what it is that motivates wrongdoing, theories too often drawn upon by scholars and other commentators in business ethics.

Coincidentally, this item in today’s news illustrates one of Heath’s key points about the role that rationalization plays in fostering wrongdoing in business.

From the NY Times: Fraud Plagues Sugar Subsidy System in Europe

It began when Belgian customs officials examined shipping records for dozens of giant tanker trucks that outlined an odd, triangular journey across Europe. The trucks, each carrying 22 tons of liquid sugar, swung through eight nations and covered a driving distance of roughly 2,500 miles from a Belgian sugar refinery to Croatia and back — instead of taking the most direct, 900-mile route.

Along the way the trucks made a brief stop in Kaliningrad, a grim and bustling Russian border checkpoint on the Baltic Sea.

Suddenly the sugar triangle made sense to them. Because Russia, and not Croatia, was listed as the intended destination, the shipments qualified for valuable special payments known as export rebates from the European Union’s farm subsidy program.

The “explanations” given by sugar industry executive quoted in this story are terrific:

Sugar companies claim their activities are misinterpreted because they are governed by a byzantine European Union system that invites confusion. “It’s very complicated” and difficult for anyone to understand, said Dominik Risser, a spokesman for the Südzucker Group, a German company…

This looks like a classic example of what Heath (citing criminology literature) calls the “denial of responsibility” method of “neutralizing” one’s wrongdoing. It’s not my fault, they say, because it’s all really complicated.

Heres another:

August Töpfer’s lawyer, Klaus Landry, maintained that the company had not mixed sugars, and said that this summer’s raids were politically motivated. He said that prosecutors did not understand the arcane sugar subsidy system.

This looks like a classic case of “condemning the condemners.” I didn’t do anything wrong; the authorities are just evil and are out to get me.

Next time you’re reading a story that quotes people accused of wrongdoing, watch for what it is they say about the reasons for what they’ve done. Most likely, if Heath (and plenty of criminologists) are right, you’ll see an attempt to “neutralize” the wrongdoing, along the lines of the rationalizations offered by the sugar execs above.

Big business means big decisions. Tough decisions.

In some industries, those decisions affect whether people live or die.

Here’s a story that gives insight into the thought process that goes into such a decision.

From BNET: How I Made the Toughest Call of My Career

Not many CEOs run companies whose products have saved the lives of family members; Bill Hawkins does, and his connection with Medtronic, the $14.6 billion Minneapolis-based medical device maker, runs deep. His father has had eight coronary stents implanted; his father-in-law has both a Medtronic heart valve and a pacemaker; and his uncle received Medtronic deep brain stimulation to control tremors caused by a World War II combat injury. “Medronic’s mission — to alleviate pain and to extend life — is something I take very seriously,” says Hawkins.

That sense of mission would be tested in October 2007, only two months into his tenure as CEO, when he learned that the company’s Sprint Fidelis lead might have been malfunctioning at an unacceptably high rate….

(FYI: The ‘Sprint Fidelis lead’ is a thin wire connecting an implanted defibrillator to the patient’s heart.)

Some of the people who left comments posted under BNET‘s story ridiculed Hawkins. How could it be counted as a difficult decision, they demanded, when lives are on the line? That should count as an easy one. Right?

No.

The criticism is badly off-target. What the people launching that criticism miss entirely is that the evidence in this case was ambiguous.

…data showed Fidelis’ rates of resistance to fractures had been comparable to that of other Medtronic leads (97.7 percent for the Fidelis vs. 99.1 percent for the previous model, the Sprint Quattro). This difference was not statistically significant. However, trends suggested that the Fidelis might not perform as well over time.

So, this wasn’t a clear case of ‘our product is killing people’. When Hawkins made his decision, all he had to go on was that there was a small statistical difference between the failure rate of the Sprint Fidelis and his company’s previous model of lead, the ‘Sprint Quattro.’ In fact, the lack of statistical significance means that it’s entirely possible that the Fidelis leads were every bit as good as the older leads. Pulling them off the market prematurely could have signalled to physicians — wrongly — that the leads were actually unsafe. This could have led to ‘explantations’ (removal of the defibrillator), which is a very risky procedure. In Medtronic’s case, it was very far from clear that taking the Fidelis lead off the market would save lives.

No health product is 100% safe-and-effective. Judging when evidence is sufficient to warrant taking a product off the market is a difficult thing, in part because risk assessment is not a cut-and-dried science. It seems to me that Medtronics’ Hawkins understands this better than his critics do.

Video game developer, Zynga, has just launched an interesting project that stands to bring significant benefit to the poor of Haiti.

Zynga’s products include the popular “Farmville” application on Facebook (currently listed as having over 53 million active users). The game lets users play at being farmers — plowing fields, planting seeds, and harvesting crops. The game includes a virtual economy, with virtual cash: seeds have a price, and the crops players eventually “harvest” are sold for virtual money. Players also have the option of ponying up real money (via credit card or PayPal) to augment their virtual bank accounts.

Farmville took an interesting turn last week, when it was announced that players would now be able to buy “Sweet Seeds for Haiti.” In virtual terms, these are sweet potato seeds to be planted and harvested on the player’s land. When players spend (real) money on Sweet Seeds, 50% of the proceeds are going to 2 charities in Haiti.

Here’s an explanation of where the money is going, from the Sweet Seeds page on Facebook:

Haiti is the poorest country in the Western Hemisphere and the 7th poorest in the world. Zynga’s mission of connecting the world through games is enhanced by our opportunity to support the health and education of these children and their families. For additional information on the recipient organizations, please see www.FATEM.org and www.FONKOZE.org.

FATEM is a non-profit organization based in Mirebalais, Haiti… [and is currently working] to ensure that… [Haitian] children have the necessary meals that will permit their young bodies and brains to learn and grow.

FONKOZE, based in Port-au-Prince, is an alternative bank for the poor. It is Haiti’s largest micro-finance institution and is committed to the economic and social improvement of the people and communities of Haiti and to the reduction of poverty in the country.

Is this corporate philanthropy? Well, no, not really. It’s a profit-generating venture for Zynga. But it’s also a way for the company to connect tens of thousands of game players to important charities. Call it corporate-facilitated philanthropy. Those of you who are long-time readers of this blog may recall my discussion of (Product) Red. (Product) Red, too, is a mechanism by which consumers buy things they want, and a share of the proceeds go to charity (in (Product) Red’s case, the money mostly goes to buying AIDS drugs for people in Africa). Both (Product) Red and Farmville function on 2 basic principles. First, you can get people to donate money if you make it easy for them to do so, in small amounts attached to things they want. And second, a lot of micro-donations can add up to a lot of money.

Though the donations may be “micro,” the results are not. After one day of sales, Zynga CEO Mark Pincus (full disclosure: he’s a relative of a friend of mine) was able to announce via Twitter:

70,000 peeps purchased sweet seeds for haiti generating $175k to feed school kids. That’s a win for us all!

As it is, Sweet Seeds for Haiti is an interesting and novel approach — a way for Zynga to make a real contribution not by simply giving away money, but by both helping thousands of individual donors contribute to a worthy cause, and, perhaps more importantly, raising the profile of that worthy cause at the same time. But there’s room for improvement, here. Zynga has found a creative way to use a feature already built into its product to facilitate donations. But it hasn’t fully leveraged the fact that its product is an online game, and a social game. Hopefully a next iteration of the Sweet Seeds idea will do more to inform players and give players a way to get involved. Why not have a way for players to click on their Sweet Potato plots to get more information about Haiti and its troubles? Why not have pop-ups when a crop matures, giving bits of trivia or maybe a hyperlink to yet more worthy Haitian charities? That way, the company would be not just facilitating one-time donations, but facilitating the kind of involvement that leads to long-term benefit.

—–
If you’re on Facebook, you can check out Farmville (for free) here: Farmville, and here’s the Farmville page on Wikipedia.