The Business Ethics Blog

Ethics, at its most basic level, consists in acting in principled ways to resist the urge to indulge in short-term gratification of our desires. It’s about resisting temptation, and thereby adopting ways of acting that, in the long run, are mutually beneficial. In the world of commerce, temptation isn’t merely passive: in many cases, temptations are thrust upon us. And when we make purchasing decisions with money that is not our own, the problems multiply.

See this short bit from the CBC’s Money blog: Air Canada marketing unethical: U of O prof

A University of Ottawa business professor says an Air Canada marketing tactic is crossing an ethical line.

Mike Miles, director of the MBA program at the University of Ottawa, said Air Canada offers frequent flyers, like him, coupons to upgrade their flights to business class. However, travellers have to purchase their tickets at a higher fare to qualify for the upgrade.

Miles said because much of his travel is for his work as a business professor, those extra costs would be passed on to the university, and it’s unethical for the airline to put him in that dilemma….

Basically, Miles is saying to Air Canada, ‘you shouldn’t tempt me like that to misuse my institution’s money!’ And I think there are certainly cases where we do think it’s unethical for one party to tempt another that way. I’ll quote a blog entry of mine from 2008:

…this falls very generally into the very broad category of doing things that encourages, promotes, makes more likely, that someone else will do something bad. Think of suborning perjury. The lawyer who puts a witness on the stand, knowing that witness is planning to lie, is doing something very bad, even if she herself isn’t the one doing the lying. Now, I’m not saying there’s a direct parallel here….

Now for what it’s worth, notice that in this case, Air Canada isn’t targeting business travellers exclusively: anyone who wants to use an upgrade coupon faces the same dilemma, namely whether to spend more to get (a lot) more. The difference is that for people like Miles (and me), whose travel is mostly paid for either by our institutions or by research grants, Air Canada’s policy amounts to a temptation to spend more of someone else’s money. And that difference constitutes a problem (an agency problem) for any institution that empowers employees to spend money on its behalf.

But then again, Air Canada surely knows that the vast majority of its frequent fliers are travelling on someone else’s dime, so a policy like this is bound, intentionally or not, to create huge numbers of agency problems. The question then becomes, at what point do the rewards for acting against your employer’s interests (e.g., by spending more than necessary) become sufficiently attractive that we start to think of the party offering those rewards as doing something unethical?
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Addendum / Clarification: I don’t think Air Canada’s practices here are unethical. But I do wonder at what point simple temptation becomes unfair inducement in cases like these.
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Thanks to Samantha for the story!

The profit motive is often seen as a source of great evil — maybe as the source of evil. Many people believe that when organizations (and the people working within them) seek profits, all other values fall by the wayside.

But it doesn’t take much thought to realize that the pursuit of profit (or even of money more generally) is not the only thing that makes people act badly. And consequently, questionable behaviour is not going to be found exclusively at organizations whose main objective is to make a profit.

For an example, see this nice piece by Natasha Singer, writing for the NY Times: Cancer Center Ads Use Emotion More Than Fact

A print advertisement for prostate cancer surgery at Mount Sinai Medical Center in Manhattan is typical of the way many elite research and teaching hospitals sell hope to the public.

“Our newest prostate specialist… has pioneered a minimally invasive approach that allows him to retain the highest cancer cure rates with the lowest risk of side effects,” says the ad….

The ad’s claims are based on the successful results of Dr. Samadi’s operations and testimonials from his patients, said Jane Zimmerman, Mount Sinai’s chief marketing officer.

In medical science, such anecdotal data would not be considered statistically valid. But ads for nonprofit medical centers are not held to scientific standards of evidence….

This is basically a question of advertising ethics. Mount Sinai and other nonprofit hospitals are making dubious, perhaps misleading, claims in their ads. They’re making claims that, if made by a for-profit drug company, would be subject to serious legal restrictions.

The main lesson, here, is that profit is not the source of all questionable behaviour. In order to do bad things, you don’t need to be pursuing money. In order to find yourself playing fast-and-loose with the truth, for example, there just has be something (some value, or objective, or mission) that you think is more important than the truth. In some cases that might be profit. In others it might be power, or fame. In other cases it might be healing the sick.

Some people might object that minor ethical infractions like the ones in the NYT story are easy to forgive, given the good work such hospitals do. After all, we’re only talking about ads that might tend to mislead some potential patients. And these are non-profit organizations after all. They’re in the business of doing good. Doesn’t that mission mean we should cut them some slack? Well, no. In many ways, being a nonprofit organization is a pretty small difference. Technically, a nonprofit organization is just one that doesn’t distribute wealth to shareholders. And that certainly doesn’t mean money isn’t a driving concern. And nothing in nonprofit status certifies that an organization actually does good. So the main difference between, say, a nonprofit hospital and a for-profit hospital is that a nonprofit hospital needs “merely” to break even, whereas a for-profit hospital needs (on average) to break even plus a bit. Meeting those objectives is liable, I think, to strike managers in either kind of organization, as really important — probably sufficiently important, from time to time, to warrant behaviour that the rest of us would take as unethical.

Postscript: It’s worth considering that the organizations discussed in the NYT story are among the best hospitals on the planet. Anyone “misled” by their ads is nonetheless, if they end up being a patient, going to end up getting world-class care. So maybe not much harm is going to be done. It’s hard to imagine getting too cranky about being “tricked” into getting treated at Mount Sinai. But consider: these hospitals are likely ‘industry leaders’ in more ways than one. They set the tone for advertising by other hospitals, probably including ones providing a much, much lower standard of care. Now how do you feel about misleading advertising?

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.

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(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.
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Here’s the story as reported by the Globe & Mail: Court rules against Wal-Mart workers
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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).
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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.

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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.

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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.