The Business Ethics Blog

I like small businesses. They make me comfortable. My favourite coffee shop is small & independent — I only resort to Starbucks when I have to. My favourite pub is small. My favourite place to buy groceries is a small, independent greengrocer. I’ve never worked for a big company; I find them hard to relate to, hard to interpret. Small businesses are run by real, live people who you can talk to and relate to and understand.

The popular understanding of ethical and unethical behaviour in business happens to line up nicely with my own prejudices. Big businesses are supposed to be evil; small ones, benign. But is there good reason to believe that?

Certainly, I know of no evidence that small business generally behaves more ethically than big business. The fact that big business is responsible for all the business ethics headlines is of course not a reliable measure: Walmart, for example, is monitored much more closely than the thousands of small retailers who try to compete with the retailing behemoth, so you would expect Walmart’s transgressions to be made public more often. Headlines are a lousy measure of ethical conduct in business, just as they’re a lousy measure of airline safety or child abductions or shark attacks.

I was walking through a vibrant Toronto neighbourhood today, with literally hundreds of small retailers about whom I know next to nothing. Are they all ethical? All unethical? A mix? The latter is probably the case, but who knows? If you did investigate thoroughly, and found out that those small retailers were playing fast and loose with employment standards, with paying their fair share of taxes, or with health and safety regs, what would you want to do about it? One solution, of course, would (in theory) be to unite all those hundreds of small businesses into a single, larger business that you could monitor more closely. They’d lose much of their character, that way, much of their charm. They’d be less fun. But would they be less ethical, or more?

Sometimes it’s not all about character. Sometimes the solution isn’t to tell people, “hey, look inside yourself and you’ll see what’s right and wrong.” Sometimes, you just need to give people new pants.

From the BBC: Nepal bans airline staff pockets

Staff at Nepal’s main international airport are to be issued with trousers without pockets, in an attempt to wipe out rampant bribe-taking.

The country’s anti-corruption body said there had been growing complaints about staff at Kathmandu’s Tribhuvan airport.

A spokesman said trousers without pockets would help the authorities “curb the irregularities”.

I know what some of you are thinking: “Pockets don’t take bribes; people with pockets take bribes.” And since people are the problem, some of them may well find ways around Nepal’s proposed sartorial solution.

But the serious point here is about 2 different kinds of solutions to problems like corruption. On one hand, you use what might be called “people” solutions: you can hire carefully, give your employees ethics training, and try through leadership to instill and promote the right values. The other kind of solution we could call broadly “technological.” Like eliminating pockets, or making sure a safe can only be opened by a combination of 2 keys held by 2 different employees. Also in this category are rules about who may or may not be at the table while a particular decision is made, as a way of avoiding conflict of interest.

I think there’s a lot to be learned by thinking about the difference between those two types of solutions, and thinking about which one is appropriate for what kinds of ethical problems.

Two days ago, I blogged about Business Ethics and Science. I asked how businesses should deal with scientific controversy, and I offered a few possibilities for discussion. (Roughly: default to safety, default to freedom, and set some threshold for what counts as “serious” disagreement.) I didn’t get many comments.

Maybe a concrete example will help.

From the Wall Street Journal: The Climate Change Climate Change

…A growing number of Australian politicians, scientists and citizens once again doubt the science of human-caused global warming.

Among the many reasons President Barack Obama and the Democratic majority are so intent on quickly jamming a cap-and-trade system through Congress is because the global warming tide is again shifting. It turns out Al Gore and the United Nations (with an assist from the media), did a little too vociferous a job smearing anyone who disagreed with them as “deniers.” The backlash has brought the scientific debate roaring back to life in Australia, Europe, Japan and even, if less reported, the U.S.
…
The number of skeptics, far from shrinking, is swelling. Oklahoma Sen. Jim Inhofe now counts more than 700 scientists who disagree with the U.N. — 13 times the number who authored the U.N.’s 2007 climate summary for policymakers….

Now, this concrete example should serve to illustrate the kind of scientific disagreement I’m talking about (or one of the kinds, anyway). But my question isn’t about climate change per se. Presumably whatever your answer is regarding how business should behave in the face of controversy over climate change, your answer will be the same regarding how business should behave in the face of other scientific controversies, right? Or rather, the particular behaviour might differ, because the degree of controversy might differ; but the principle or standard applied should be the same.

Check out this press release from Starbucks: Starbucks Coffee Company and Rwandan Government Discuss ongoing Partnership

Today during his third visit to Rwanda, Starbucks Coffee Company (NASDAQ:SBUX) chairman, president and ceo, Howard Schultz, met with Rwanda’s President Paul Kagame to discuss and build on the investments Starbucks has made in East Africa over the past five as well as future opportunities. Additionally, Schultz will participate in the upcoming grand opening of the Starbucks Farmer Support Center in Kigali.

“Through our commitment to, and partnership with, the Rwandan government, local NGOs and coffee farmers throughout East Africa, Starbucks hopes to participate in a market ecosystem that benefits all partners involved,” Schultz said.

Some questions worth pondering:

• Starbucks has, over the last 5 years, given “More than US$6.4 million to help East African coffee farmers and communities through grants focused on education, health services and capacity building.” If such spending helps stabilize Starbucks’ access to a good source of coffee beans, does that justify the spending as a good investment, rob the spending of its value as a social contribution, or both, or neither?
• In general, is a big, efficient organization like Starbucks likely to treat farmers, and the environment, better or worse than a few dozen smaller/independent buyers of coffee?
• Is it reason for concern that Rwanda’s nominal Gross Domestic Product (US$4.459 billion) is considerably less than Starbucks’ operating Revenue (US$9.411 billion)?

(Thanks to Kim for the story.)

Facts alone are never enough to tell us how we should behave. But facts do matter.

This means that, sometimes, the right thing for a business to do will depend on what the relevant science says. But scientists often disagree with each other. (That in itself is not something to lament, but something to celebrate. Orthodoxy is anathema to scientists, and it is only grudgingly that scientists, collectively, declare one particular point of view “proven.” That’s part of the power of science.)

So, what should businesses do in the face of scientific disagreement? Here are a couple of possible approaches to consider:

1) Default to safety. If there’s any scientific disagreement over whether a particular food additive is dangerous, for example, then don’t use it in your product.

2) Default to freedom of commerce. If there’s any scientific disagreement over whether a particular herbal remedy is useful, for example, then let consumers (and whichever advisors they trust) decide for themselves.

Both of those are ethically questionable, for reasons that are probably obvious. Insisting on total agreement, one way or the other, is impractical, not least because there’s always the chance that the one or two holdouts just haven’t thought things through, or are even insane. It happens.

But those aren’t the only options. One other solution (or cluster of possible solutions) would involve determining a threshold for what should count as “substantial” scientific disagreement. One loony scientist saying X is safe isn’t very reliable, just as one loony scientist saying X is dangerous isn’t very worrisome. But things are different if a substantial, credible minority — perhaps even a very small minority — disagrees with the majority of scientists. Now, just what should count as a “substantial, credible minority” is not an easy question. But I can at least imagine a well-reasoned, reputable account of corporate decision-making that appealed to such a standard in the face of scientific (and social) disagreement.

Of course, all of this can be rendered moot if government decides to “settle” controversy by imposing regulations. But note the important asymmetry here: government forbidding something as too dangerous, in spite of (or because of) scientific controversy effectively settles the matter, as far as business is concerned. If it’s legally forbidden, businesses shouldn’t do it. But an explicitly permissive regulation — such as the FDA’s or Health Canada’s approval of the use of a particular plastic in baby bottles — doesn’t necessarily settle the matter. It’s always possible that the relevant regulatory agency isn’t on the ball, or is subject to pernicious influences. And so businesses are still ethically obligated, in the face of scientific disagreement, to think through just what their obligations are.

I’ve blogged about the ethics of executive compensation before, and I likely will again. It’s a great topic. But I’m the first to admit that it’s not something I know a lot about. It’s a fairly technical matter — which is one of the main points I like to make about it. Any analysis that boils the issue down &as many of them seem to — to “they’re paid a lot and do lousy work” is bound to be inadequate.

But there are people out there who at least understand what the relevant pieces of the puzzle are, even if they don’t claim to be able to give precise prescriptions. Witness this very nice, short piece by Harvard Business prof V.G. Narayanan, writing on the Harvard Business Review Blog: Executive Pay: It’s About “How,” Not “How Much”

It seems we are moving from an era when “greed was good” to one in which “jealousy is justified”–the executive-compensation regulations being considered now by the government and advocated by shareholder activists aren’t very thoughtful, and I believe they’re born out of jealousy and misinformation.

But “How much should CEOs be paid?” is the wrong question to be asking right now. The right questions are: “How should they be paid?” and, just as important: “Should changes in the way CEOs are paid be mandatory or voluntary?”…

Its worth reading the whole thing (it’s quite brief). And do note that Narayanan is strongly in favour of reform in how CEOs are paid. It’s just that he eschews simplistic solutions.

Narayanan’s main point is roughly that appropriate executive pay depends on corporate strategy, something which is (and should be) highly variable. Government-imposed one-size-fits-all pay structures are more likely to do harm than good. I’d only add that, to the best of my knowledge, there simply is no well-worked-out theory of the “true” value of labour. It’s kind of hard to argue coherently that a particular CEO’s salary is unethically high when you can’t give a reasoned account of what the “right” salary is. And doing that requires looking at the details.

Was it malicious encroachment on intellectual property, or lack of imagination?

From MastheadOnline: Corporate Knights challenges Maclean’s on coporate citizen list

For eight years, Corporate Knights magazine has published a list of the “Best 50 Corporate Citizens in Canada” and this year’s edition is scheduled for distribution to 95,000 subscribers through the Globe and Mail on June 22. The current issue of Maclean’s, dated June 22, also features a story on “Canada’s 50 best corporate citizens.” Yesterday morning, Toby Heaps, editor-in-chief of Corporate Knights, issued a press release arguing that the Maclean’s feature encroaches on his magazine’s trademark….

A lawsuit is even underway, or at least being threatened.

I’ll let the lawyers squabble over intellectual property law, and whether a phrase like “50 best corporate citizens” can be a legally-protected trademark or not. But an argument could be made that muscling in on KN’s well-established terminology is at least ethically dodgy. Couldn’t Macleans have used a different, equivalent title? I mean, surely there are other ways of expressing the same idea. More on this below.

Now, as it happens, the online version of Macleans’s list doesn’t seem mention citizenship at all, but is instead called Jantzi-Macleans 50 Most Socially Responsible Corporations. It seems, for whatever reason, that Maclean’s editors have had a change of heart.

(The latest Corporate Knights list is due out in a few days. Here’s the link to their methodology, etc.)

Of course, just what either list has to do specifically with citizenship — as opposed to merely being good — is still quite unclear, a fact that’s only emphasized by the fact that Macleans has so easily changed the title of the online version of its report. Oh, heck…”social responsibility,” “citizenship”… what’s the difference? Good question.

A debate over healthcare is currently raging in Washington. Health professionals are rightly being consulted. President Obama recently spoke to the American Medical Association about it. The AMA has plenty to say about how healthcare should be structured. What do non-physician health practitioners have to say? In particular, how would practitioners of Alternative Medicine advise the President?

(One month ago today I asked Homeopaths and Naturopaths to help protect consumers from less-scrupulous folks hawking “remedies” that don’t work. How, I asked, can consumers avoid being taken in by snake-oil salesmen? I got very little uptake. I’m hoping my next plea will be more successful.)

So, my question: Which “alternative” health services ought to be covered by insurance plans (private ones, or public ones like Medicare), and which ones should not? Presumably all practitioners of alternative medicine would agree with this: some alternative or “natural” therapies probably work, and some probably don’t. How can insurers (public and private) tell the difference? Presumably Homeopaths believe Homeopathy should be covered, and Chiropractors think Chiropractic should be covered, and so on. That’s understandable. But what other services do Homeopaths and Chiropractors think should or shouldn’t be covered?

In fact, to foster discussion, let’s stipulate (even if only for sake of argument) that Chiropractic, Homeopathy, and Naturopathy should be covered. I don’t want to get dragged into current debates over those. I want practitioners of those disciplines to be able to help with my question, without having to debate the merits of their own fields.

This is a serious matter. If insurance companies cover things they shouldn’t, they’ll end up having to reduce coverage on things that truly help people. And if public insurers like Medicare cover things they shouldn’t — well, we all know the kinds of financial difficulties governments are facing these days. Every dollar spent on ineffectual healthcare is a dollar not spent on education, etc etc.

So, to the practitioners of alternative medicine out there: Help! It’s your patriotic duty!

Hope is a wonderful thing. Sharing stories of hope might be inspiring, even therapeutic. At worst, it certainly seems harmless enough. But does it matter who’s paying for the story telling?

Check out the Sharing Miracles website, “a blog of personal stories of miracles and hope.”

People confronting serious illness or disease need to know — perhaps more than anything else — that they are not alone. Help comes in many ways: through the counsel and care of a doctor, access to innovative new medicines and procedures, the support of loved ones, and the inspiration provided by others who have faced or are facing similar challenges.

Sharing Miracles is a forum for people to relate their own personal stories of hope and survival….

Most of the stories “shared” on the website are stories from celebrities and athletes: football legend Mike Ditka talks about surviving a heart attack and changing how he lived as a result; actress Meredith Baxter talks about her battle with breast cancer; and so on. Are these celebs making paid appearances on the site, or telling their stories out of the goodness of their hearts? The website gives no indication.

Further, as far as I can see, nothing on the website indicates who’s running it or funding it. But GlaxoSmithKline’s More Than Medicine blog suggests that PhRMA (the pharmaceutical industry association) is behind the site. The PhRMA website makes the sponsorship clear.

So, PhRMA isn’t exactly hiding the fact that they’re sponsoring the site. But the site itself certainly doesn’t advertise the fact.

And (as far as I can see) the site isn’t promoting any particular pharmaceutical (or even pharmaceuticals in general, really). But then again, who knows what messages are buried in there? And why would anyone spend money to produce a site like this if they didn’t think it promoted their interests? You would think that, in 2009, the pharmaceutical industry would be smart enough to know that it needs to be a little more transparent in its activities.

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Thanks to John at the very useful Pharma Marketing Blog for pointing me to this story.

Let’s be clear: I am in favour of free or cheap access to life-saving pharmaceuticals for all. Ensuring universal access is both compassionate and pragmatically wise. Finding the right mechanism — one that’s both effective and fair — is the hard part.

From Reuters: Novartis says won’t give poor free H1N1 vaccines

Swiss drugs company Novartis (NOVN.VX) will not give free vaccines against H1N1 flu to poor countries, though it will consider discounts….

The director-general of the World Health Organisation, Margaret Chan, has called for drugs companies to show solidarity with poor countries….

Why appeal to Novartis (and other drug companies) to subsidize vaccines? Recall that, in reality, appealing to publicly-traded drug companies means appealing to their shareholders. Why not appeal to the shareholders of Exxon, or Microsoft, or Walmart? Those companies don’t make drugs, but they do make profits, profits that could be handed over to Novartis to pay for vaccines. Or why not appeal to the citizens of developed nations, more generally? Why ask some citizens — namely shareholders, not necessarily wealthy, of one or a few companies — to give more than the rest of us seem willing to?

Solidarity and charity are lovely, and easy to support when they’re going to cost someone else money.