The Business Ethics Blog

Exploitation is a potent moral category: to engage in exploitation is, by definition, wrong. Not only that, but the very word is often taken as an argument-stopper: once a behaviour or activity has been labelled as exploitative, its wrongness is supposed to be self-evident, and no further ethical analysis is required. Classic examples of activities taken to be exploitative include things like sweatshop labour, buying a kidney from someone in desperate financial need, or tow-truck drivers demanding unusually high payment to rescue motorists stranded by a showstorm.

Exploitation can be defined roughly as taking unfair advantage of someone else’s vulnerability. It’s crucial to see that exploitation is different from extortion (which involves a threat to cause harm), and different from stealing from someone or enslaving them: in standard examples of exploitation, the person exploited voluntarily accepts the deal, because the deal being offered really does make them better off. The Mafia don makes you an offer you can’t refuse; the exploiter makes you an offer you don’t want to refuse.

If the person “exploited” doesn’t want to refuse, you might ask, then what’s the problem? The problem, in cases labelled as exploitation, is that the deal they accept doesn’t seem fair. The feeling is that no one should want to work in a sweatshop; no one should need to sell a kidney in order to put their kid through school.

Given that understanding of exploitation, consider this: doesn’t it seem reasonable to argue that at least some highly-paid CEOs and Wall Street traders are currently being exploited, in being publicly pressured to accept reduced bonuses?

(See, for example, the story of commodities trader Andrew J. Hall‘s $100 million bonus, and also this story. Back in the spring, there was the controversy over bonuses at AIG.)

Are these people being exploited? Well, they’re being asked to accept less money than they are owed. And, though not exactly helpless, they’re clearly vulnerable — vulnerable to the coercive power of the state, to start with, not to mention the death threats some of them have received. But exploitation usually involves not just disadvantage, but unfair disadvantage. True, and there are at least 2 possible sources of unfairness, here. One is breach of contract; the other is the fact that at least some (and, pending evidence to the contrary, maybe most) of the high-rollers under discussion are entirely blameless, and have done their jobs exceedingly well. Their paycheques may have more zeroes on them than is typical in cases labelled “exploitation”, but you could nonetheless argue that, structurally, there’s something very like exploitation going on here. If you think it’s not exploitation, then explain — by reference to the definition given above — why it’s not.

Now, just to be clear, I am not in any way suggesting that the lot of someone receiving a multi-million dollar bonus is in any way as bad as that of someone eking out a living by labouring in a sweatshop. Nor am I suggesting that highly paid CEOs and Wall Street traders are unique in being exploited in the midst of the current financial crisis. What I’m pointing out is that the structure of the situation some of them face lines up nicely with the definition of “exploitation.” So is the public pressure on these people exploitative, and hence immoral, or is the standard definition of exploitation problematic?

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(I benefited from discussions with fellow philosopher Matt Zwolinski as I wrote this, though Matt is not to blame for the results.)

If you boycott a company’s products, who are you hurting?

Case in point, the recent boycott of Whole Foods in response to CEO John Mackey’s editorial arguing against Obama-style healthcare reform. (I blogged about it a couple of days ago.)

See this blog entry by Waylon Lewis at the Huffington Post: Why I Ain’t About to Boycott Whole Foods
Lewis writes: “…I, for one, am not going to boycott Whole Foods. I’m not throwing the baby out with the bathwater. Why?” His reasons (abbreviated) are as follows:

1. Whole Foods is a vast organization, with thousands of staff, many if not most of whom disagree with John’s idealistic, superior Libertarian views….
2. John doesn’t own Whole Foods. It’s public.
3. Whole Foods, thanks to his leadership, has shown the way for thousands of green-minded companies….

Lewis’s point is a good one: a company is a complex thing, made up of many individuals with a greater or lesser stake. Can all be held responsible for the actions of the company, or of its head? (It’s sort of the inverse of the issue I raised in this blog entry: You Are Starbucks.)

A few thoughts & questions:
1) It might be that boycotters see Whole Foods’ employees and shareholders as “collateral damage” — acceptable “civilian” casualties, injury to whom is foreseeable, but unintended, and hence acceptable consequence of the attempt to reach a noble goal. Does that moral justification work, here?

2) It might be argued that there’s a sense in which no “member” of the organization is an innocent bystander: they’ve all chosen to be involved, and they all have some influence, no matter how small, on who ends up leading the company and on what policies it implements. Is that plausible, either as a causal story or as a moral justification?

3) It might be that no one really expects this call for a boycott to have any real effect. Maybe it’s all symbolic, a matter of concerned customers signaling to Mackey that they could, in principle, abandon his store if he keeps it up. But that only delays the question, rather than avoiding it.

4) The question of who is hurt by boycotts, and whether it’s worth it, is of course not limited to the present case. And it’s not limited to boycotts of particular companies: it also applies to boycotts of products and of countries. See, for example: Palm oil boycott will hurt impoverished farmers.

Was it a mistake for Whole Foods CEO John Mackey to dive into the turbulent waters of the US healthcare reform debate?

I’ve blogged before about companies taking a position on political hot-button issues. (See, e.g., Apple & Equal Marriage Rights and Google & the Business Case Against Prop 8). On one hand, it’s often seen as admirable when companies are engaged in socially-important conversations. On the other hand, there’s clearly jeopardy involved in taking a position on questions that polarize the public — especially when you’re in the kind of business where you rely on regular folks buying your product on a daily basis.

Case in point: Whole Foods CEO John Mackey wrote this editorial, published recently in the Wall Street Journal: The Whole Foods Alternative to ObamaCare

With a projected $1.8 trillion deficit for 2009, several trillions more in deficits projected over the next decade, and with both Medicare and Social Security entitlement spending about to ratchet up several notches over the next 15 years as Baby Boomers become eligible for both, we are rapidly running out of other people’s money. These deficits are simply not sustainable. They are either going to result in unprecedented new taxes and inflation, or they will bankrupt us.

While we clearly need health-care reform, the last thing our country needs is a massive new health-care entitlement that will create hundreds of billions of dollars of new unfunded deficits and move us much closer to a government takeover of our health-care system….

Whether an editorial of this kind, written by a captain of industry, is likely to have any effect on the course of public debate is unclear. But in this case, it seems likely to have an effect on the fortunes of the company involved. See this blog entry by Richard Blair: Whole Foods Boycott Picks Up Steam

Whole Foods CEO John Mackey shot his company in the face the other day with an anti-health care op-ed screed in the Wall Street Journal. He’s managed to piss off his company’s core demographic: liberals and progressives, and in the process, enabled a boycott that could actually work….

Now, for my purposes here the soundness of the view Mackey presents is beside the point (though as a Canadian I had to roll my eyes at his rather slanted comments about Canada’s healthcare system — our system is imperfect, but generally excellent and much-loved).

I’ll just make these 2 points on the larger issue of corporate (or CEO) comments on hot-button political issues:

1) It seems to me that many of the progressives who frequent Whole Foods are generally in favour of social activism on the part of companies: they like it, for example, when companies embrace Corporate Social Responsibility, when they undertake progressive labour practices, when they donate to charities, and so on. But the present story points out an unstated caveat: corporate social activism is great, as long as you’re on the ‘right’ side of the issue.

2) I was fascinated by Richard Blair’s point about how Whole Food in effect represents a particular bundle of ethical beliefs: social responsibility, healthy food, organic agriculture, altruism, etc. The complaint now is that John Mackey and (most of?) his customers are at odds regarding whether a belief in healthcare reform, and in particular regarding universal coverage, is an intrinsic part of that bundle of beliefs. The general question, here, is whether companies (and more precisely, national brands) can hope to represent big bundles of values/beliefs — or whether consumer diversity is going to necessarily imply greater market fragmentation, as consumers seek out brands that represent just precisely the set of values they believe in.

It’s been said that “an economist is a man who states the obvious in terms of the incomprehensible.” Cute joke, but of course pretty far off-base. Well, at least the part about “the obvious” is off-base. Economists are often able — typically through careful attention to relevant, quantifiable factors — to figure out what’s going on in complex situations, including some situations in which common sense either has little to say, or is notoriously unreliable.

Case in point: the two economic studies described in this story, from The Economist: Firmly hooked (Is it good if bosses feel strongly for the firm?)

Getting bosses to act in the best interests of a company’s shareholders has long been one of capitalism’s trickiest problems, identified early on by Adam Smith. In “The Wealth of Nations” he worried that “Being the managers of other people’s money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private co-partnery frequently watch over their own.” In the 1920s, Adolph Berle and Gardiner Means followed up on the problems of separating ownership from control in their classic study, “The Modern Corporation and Private Property”. From the 1970s, this dilemma acquired its own branch of economics—agency theory, which studied the problems that can arise when “principals” (ie, shareholders) hire “agents” (executives) to run their firm….

The article goes on to explain the findings of two studies, both by economists, that examine a couple of apparently common-sense assumptions. First is the assumption that short-term incentives drive CEOs to make stupid decisions, and that longer-term incentives would work better. The second is the idea that strong self-identification of CEOs with the firms they run makes CEOs more likely to make decisions that are in the best interest of the firm. Lots of people probably find both of those theses plausible. But are they true? It takes an economist to figure that out. So, read the article.

The more general point is that you really can’t say much sensible about a topic like executive compensation without understanding at least the basics of economic concepts such as agency theory. I mean, feel free to have an opinion; but be prepared for that opinion to fall flat when faced with a structured analysis of facts.

(While we’re on the topic of economic literacy, I’d like to suggest that pretty much everyone should read this book, by Joseph Heath: Filthy Lucre: Economics for People Who Hate Capitalism. The sub-title of the book is actually somewhat misleading: it has nothing to do with hating capitalism. The first half of the book is about economic myths of the right; the second half is about economic myths of the left. It’s smart, well-informed, and clear. A good read.)

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Thanks to PY Néron for alerting me to the Economist story.

From Reuters: Madoff firm’s CFO pleads guilty, denied bail

Bernard Madoff’s long-time deputy, Frank DiPascali, on Tuesday pleaded guilty to financial crimes including helping others carry out Wall Street’s biggest investment fraud, but shed little more light in court on the decades-long swindle.

“I’m standing here today to tell you that from the early 1990s to 2008 I helped Bernie Madoff and other people carry out a fraud that hurt thousands of people. I am guilty,” DiPascali, 52, said in Manhattan federal court in a dark suit and reading from a prepared statement.

U.S. District Judge Richard Sullivan denied DiPascali bail. He was handcuffed and escorted out of court after pleading guilty under a cooperation deal with the government….

The story notes that DiPascali faces 10 charges, and “faces a maximum possible sentence of 20 years each on some of the charges”. Madoff himself has been sentenced to an “effective life term of 150 years.”

A few years ago, when I wanted to understand more about punishment for white-collar crime, I went to someone who understands the issue, quite literally, “from the inside.”

Some of you may have heard of Walt Pavlo, who spent two years in jail for fraud and money laundering at MCI. He now works as a lecturer and consultant on white-collar crime. Nearly 3 years ago, I interviewed Pavlo about the 24-year jail term handed out to former Enron CEO, Jeff Skilling. Here’s the interview: Business Ethics Blog Interview with Walt Pavlo.

(As it happens, Pavlo served his time at the same facility where Bernie Madoff is currently located: the medium-security federal penitentiary at Butner, North Carolina.)

What was my favourite donut chain doing sponsoring an anti-gay-marriage event?
Or wait, is the question, what was a donut chain doing sponsoring a pro-straight-wedding event?
Or, then again, was the question really, why was a donut chain doing something other than making donuts?

From the CBC: Tim Hortons backs out of anti-gay marriage event

Tim Hortons has reversed its decision to sponsor a Rhode Island rally held by a U.S. group that opposes same-sex marriage, after encountering fierce criticism for the move.

The August 16 event, organized by the National Organization for Marriage, is billed as a “Celebrate Marriage & Family Day.” Held in suburban Providence, the rally is to include speeches, a cookout and a ceremony in which married couples are invited to renew their vows.

The National Organization for Marriage is a non-profit organization “with a mission to protect marriage and the faith communities that sustain it,” according to its website.

According to the company’s press release explaining its decision to bow out of the event,

…Tim Hortons has not sponsored those representing religious groups, political affiliates or lobby groups. It has come to our attention that the Rhode Island event organizer and purpose of the event fall outside of our sponsorship guidelines.

Now, we should distinguish clearly the content of this particular mini-scandal (sponsorship of an anti-gay-rights event) from the shape of it (a company sponsoring an event put on by a charitable organization). On the former, I’ll only say what Tim Horton’s HQ has now realized: it was a dumb move — both because the anti-gay-rights movement doesn’t have an intellectual leg to stand on, and because gay marriage is a clear hot-button issue that any sane company, regardless of its beliefs, should want to stay away from.

Now, on to the larger question of sponsorship. Sponsoring community events is pretty common thing for companies to do — I’m sure a company like Tim’s must get thousands of such requests every year. The standard economic argument is that companies should sponsor events if-and-only-if doing so serves as good advertising, boosts their reputation (rather than, say, drawing criticism), etc. The modern “progressive” view is that companies should donate to charities as a way of “giving back” to the community. But clearly the idea of “giving back” to the community comes with caveats: companies should “give back” by donating to, well, suitable community groups and events. What counts as “suitable?” There might be some obvious cases: a white supremacist group at the clearly-unethical end of the spectrum, and an adult literacy program at the clearly-unobjectionable end. But lots of groups, evens, & causes in between will be controversial (the NRA? PETA? Planned Parenthood?). And at least some of the controversial ones may not be obviously controversial. So, research may be required, and judgment will need to be exercised. What makes anyone think that Tim Horton’s, or any company, is going to be particularly good at that? And keep in mind that the money for sponsorship doesn’t get pulled out of thin air: it comes from the price they charge you for their products. So if Tim Horton’s didn’t sponsor events at all, that money could be left in your pocket, and you could donate it as you see fit.

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p.s. Sorry, but comments are closed on this one. Postings in this area typically attract only loony and/or venomous comments.

Conflict of interest occurs in (roughly) any situation in which someone is expected to exercise judgment on behalf of others, but in which that judgment is liable to be biased by some “other” interest (often, but not always, a private financial interest). Is COI a worry because those “other” (often financial) interests always corrupt judgment? No. Absolutely not. Most people tasked with exercising judgment on behalf of others are persons of integrity. People often — perhaps usually — are able to put their personal interests aside and exercise judgment properly, when their role requires them to do so. No, the problem with COI is not that it always brings corruption. The problem is not that the person on whose behalf judgment is being exercised might not be served well (though that can certainly be an issue). The problem is that in situations involving COI, our faith is shaken — sometimes just our faith in the objectivity of a particular decision-maker, but more often, and more seriously, our trust in an entire institution.

For a great example of a company totally missing that point, see this story by Natasha Singer, writing for the NY Times: Medical Papers by Ghostwriters Pushed Therapy

Newly unveiled court documents show that ghostwriters paid by a pharmaceutical company played a major role in producing 26 scientific papers backing the use of hormone replacement therapy in women, suggesting that the level of hidden industry influence on medical literature is broader than previously known.

The articles, published in medical journals between 1998 and 2005, emphasized the benefits and de-emphasized the risks of taking hormones to protect against maladies like aging skin, heart disease and dementia. That supposed medical consensus benefited Wyeth, the pharmaceutical company that paid a medical communications firm to draft the papers, as sales of its hormone drugs, called Premarin and Prempro, soared to nearly $2 billion in 2001….

Here’s the part, from a Wyeth spokesperson, that demonstrates a complete misunderstanding of Conflict of Interest:

Doug Petkus, a spokesman for Wyeth, said the articles on hormone therapy were scientifically sound and subjected to rigorous review by outside experts on behalf of the medical journals that published them.

…which, of course, entirely misses the point. The point, the reason why critics decry the practice of ghost-writing, is not that we think the articles that result are necessarily inaccurate. They may (may) be fully scientifically sound. But who knows if they are? That’s the point. Ghostwriting corrupts the institution of scholarly publication upon which physicians rely to make the best decisions on behalf of their patients. It literally does not matter, even a little, if Wyeth is correct in claiming that the papers it paid to have ghost-written are 100% sound. They’ve cast doubt upon an entire body of medical literature, and on the scientific foundation of medicine itself. That is the point.

Here’s an update on a not-so-new topic. It’s got lots of good stuff in it. Distributive justice. The public good. The weight of contractual obligations. The consequences of government intervening in (indeed, micro-managing) private enterprise. And so on…

From David Segal, for the NY Times: $100 Million Payday Poses Problem for Pay Czar

In a few weeks, the Treasury Department’s czar of executive pay will have to answer this $100 million question: Should Andrew J. Hall get his bonus?

Mr. Hall, the 58-year-old head of Phibro, a small commodities trading firm in Westport, Conn., is due for a nine-figure payday, his cut of profits from a characteristically aggressive year of bets in the oil market.

There is little doubt that Mr. Hall is owed the money under his contract. The problem is that his contract is with Citigroup, which was saved with roughly $45 billion in taxpayer aid….

I’m not sure I’ve got much that’s new to say on this topic. (Recall that I argued back in the spring that AIG should pay its controversial bonuses.) Segal does a good job of laying out the terrain, in the story above. I think really it comes down to the fact that Hall earned the money: he did what he promised to do, and so the money is owed to him. He didn’t ask for the bailout. (If you think he didn’t earn the money — perhaps because no one deserves that much money — feel free to suggest a generalizable principle for what that kind of work is really worth.) But hey, whether basic norms about meeting contractual obligations ought to hold in a situation like this really is a question of public policy, and this is just a business ethics blog. The question more relevant for this blog is the business question, namely whether the bonus should have been promised in the first place. Is $100 million too much? Well, that depends on whether the company involved, Phibro, is well-managed. It could be that it’s run by dummies making silly promises to pay silly bonuses for work that someone else, equally talented, would do for less. But minus evidence to that effect, surely the default has to be to let the company live up to its promises.

A couple of weeks ago, I asked Why the “C” in “CSR”? After all, not all companies are corporations, and most people interested in CSR seem really to be interested in the ethical responsibilities of companies quite generally.

Today’s question: Why the “S” in CSR? What’s so social about Corporate Social Responsibility? The short answer, presumably, is that CSR is intended to get managers to think not just about their responsibilities to shareholders, but to society more generally. Indeed, much of the debate over CSR has focused on whether managers are a) can (i.e., are they qualified to), and b) should (are they justified to), use shareholders’ resources to achieve social objectives.

But (echoing part of my point from 2 weeks ago) most CSR advocates don’t seem to want to define the scope of CSR narrowly: they generally want CSR to cover the full range of ethical issues in business, and perhaps even for CSR to supplant (or engulf) business ethics.

But it’s worth noting that many ethical issues in business simply can’t straightforwardly be cast in terms of social obligations. Here are three examples that come quickly to mind:

1) Responsibilities to employees. What are an employer’s responsibilities in terms of workplace health and safety? Whatever they are, surely they constitute a central ethical issue for businesses, and a crucial set of responsibilities. But in what sense are they “social?” The need to act responsibly toward employees is a good example of why “social” isn’t a good stand in for “beyond-shareholders.”

2) Environmental ethics. If you believe that the environment is important only because it’s useful to humans (the “anthropocentric” point of view), then it could make sense to think subsuming environmental issues under the heading “social responsibilities.” But if (as many people believe) the environment is important in its own right, independent of human needs (the “ecocentric” point of view) then environmental issues have to stand on their own, and the needs of ecosystems could in theory conflict with social needs.

3) Obligations to avoid Conflict of Interest. In business settings, conflict of interest arises when someone has a private or personal interest sufficient to appear to influence the objective exercise of his or her official duties. So, imagine you work in Human Resources for a major corporation. You’re involved in a hiring decision, and your sister is applying for the job. In order to avoid Conflict of Interest, you should not take part in the hiring process. That’s an obligation you owe to your employer — part of your obligation to make sure the best person is hired — and an obligation you owe to other job applicants, an obligation to make sure the hiring process gives everyone a fair chance. It’s not in any obvious way a “social” obligation.

Feel free to think up other examples.

Now, again, none of this is intended to say that corporations don’t have social obligations; nor is it an answer to (difficult) questions regarding what the extent of such obligations might be. I’m just pointing out that regardless of the answers to those questions, the notion of “social” obligations simply cannot capture most of what we think is ethically important in corporate behaviour.

One of the interesting developments in business ethics over the last few years is the proliferation of senior positions, at major corporations, with the word “ethics” in their titles. (The people filling those positions even have their own association: the Ethics & Compliance Officer Association.) One one hand, it’s good to see senior positions dedicated to ethics. On the other hand, the obvious risk is that ethics becomes ghettoized, relegated to one department that’s now expected to “take care of”, you know, “that ethics thing.”

Case in point: this story, from the Washington Post: Amid Reviews, DynCorp Bolsters Ethics Practices

DynCorp International, a major government security contractor, is strengthening its ethics practices in the wake of government investigations of its programs in Afghanistan and other conflict zones.
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In response to … incidents and because senior executives had been discussing such a move, DynCorp in May established a position of chief compliance officer with a specific focus on ethics, business conduct, related investigations and regulatory compliance, company spokesman Douglas Ebner said.

It’s certainly good to see a company with a billion-dollar-plus contract to train an entire nation’s police-force making a public commitment to acting ethically. That seems pretty important.

But, well, a couple of points. First, notice the reference to strengthening “ethics practices.” I don’t know if that phrase came from DynCorp itself, or is the journalist’s own turn of phrase, but it’s pretty cringe-worthy. Ethics is (very roughly) about figuring out the right thing to do, and ethical questions arise in all aspects of business. There are, I suppose, a few specific activities that can be thought of as especially ethics-related (such as training your staff about the corporate Code of Ethics). But is that really what the story is talking about? If DynCorp is really just talking about amending its policies and practices to make wrongdoing less likely, why not just say so?

See also this bit of ethics-slash-PR-speak from a company spokesman:

“We’re absolutely dedicated to a framework of governance and compliance that ensures a transparent and accountable business environment,” Ebner said. “Whether it’s misconduct, or public perception or allegations of misconduct, these can tarnish a company’s ability to work in challenging environments.”

Is anyone reassured by that? Should we be? As far as I can tell, the real message there is:

“Blah blah blah governance blah blah compliance blah blah blah transparent blah accountable….”

You can fill in just about any other words you want in between…it really doesn’t change the message. What matters from a PR point of view is the use of those key words. From an ethics point of view, all such a statement proves is that someone at DynCorp has done some basic homework on what the appropriate buzzwords are. But that, quite literally, is not saying much.

Interestingly, the article above doesn’t even mention DynCorp’s current Chief Compliance Officer, Curtis L. Schehr — who, for better or for worse, doesn’t have the word “ethics” in his title.