The Business Ethics Blog

Why is business ethics so dull? Why is it such a dismal, dreary endeavour?

I ask this in all sincerity, about a field that I take very seriously and that I think is enormously important and interesting.

Admittedly, the subject matter is often pretty serious: wrongdoing at Enron resulting in thousands of people losing their lives’ savings. Mismanagement at AIG putting the entire financial system at risk. Through to more mundane issues such as Soliciting Money from the Bereaved. Funny? More like depressing.

Now, admittedly, I’ve tried my best to bring some humour to the topic: monkey waiters, breast milk ice-cream, sex offender t-shirts, and so on. But one man can only do so much.

But really, does the issue of corporate behaviour have to be so dull and serious? Quick, name one fun-and-interesting book in the field. Or one lively, witty commentator. Just what I thought. Zip. Zilch. Nada. Thanks for proving my point.

OK, here’s my plea: lighten up a bit. Life is fun. Figuring out how companies should act should be interesting. And try to act as if the answers are not obvious. How much fun would it be if the answers were obvious? Foot-stomping just isn’t all that fun. Well, unless you do it to music. Don’t get me wrong. I like my righteous indignation as much as the next guy. But if this field gets too damn serious, it’ll drive away any but the most committed and strident and dull activists. And if the field of business ethics becomes dominated by people who think that fixing things is more important than figuring out the best answers to hard problems, we’re all in a lot of trouble.

And here endeth the rant.

I’ve seen the case made, at least once, that a particular company (drugco Eli Lilly) deserved the corporate equivalent of a death sentence. But what about corporate seppuku (a.k.a. harakiri), or ritual suicide? If a company shuts its doors — effectively closes down, pending a reorganization and change in staff — following a scandal, is that a good thing? Should we be happy that the company has, in a sense, committed ritual suicide? How about suicide to be followed by reincarnation?

Over at the Research Ethics Blog, my friend & co-blogger Nancy Walton wrote this interesting entry about a company that seems essentially to have done just that: An update on the Coast IRB sting.

Coast IRB is a private Institutional Review Board, a company that conducts ethics reviews of research protocols prior to the commencement of drug trials. All such research done on humans has to be vetted by an ethics board. Research done at universities and hospitals is typically reviewed by an ethics board at the university or hospital; research not affiliated with a university or hospital (e.g., a study done by a drug company on its own) still has to be reviewed, and companies like Coast are there to do the job. Coast made the news by falling prey to a sting operation, in which operatives for the Government Accountability Office (GAO) hired Coast to scrutinize what turned out to be a phony research project. Coast’s ethics board failed to notice some serious problems with the project — including both some very serious risks, and things like the fact that the (fictional) physician leading the (fictional) research project had an expired medical license.

Nancy’s blog posting is mostly about the need to distinguish, from among the various wrongs Coast was accused of, between the merely apparently-scandalous and the truly dangerous.

My own interest is in the solution struck upon by the management of Coast: they are apparently ceasing operations, at least for now, and making some big changes. According to the Wall Street Journal…

“Coast IRB’s owners decided, through counsel, to cease future company operations,” a company statement said.

The company had said earlier that it intended to temporarily halt accepting new business and to stop enrolling patients in studies that had begun while it made a thorough overhaul of its operations.

This is probably a good thing. An overhaul is surely needed. But I’m also somewhat ambivalent about the idea of a renovation: it’s entirely possible that the “new” Coast IRB (likely with a new name and new corporate logo) will be different in all the right ways, but it’s also possible that the changes will be superficial, and that the name-change will let them shake this scandal easier than they should.

I’m constantly amazed by what the sellers of “natural” health products get away with. The pharmaceutical industry, rightly, is subject to considerable scrutiny. But if you’re selling something labelled as “natural,” no one seems to give a second thought to actually examining your claims to be able to work wonders on the human body.

Well, almost no one. Check out this nice posting by Scott Gavura, at the Science-Based Pharmacy blog: Vivimind: Forget About It

You’ve seen the billboards for Vivimind across Canada. Remember them? Targeting an aging population of boomers, Vivimind is touted as a “scientifically proven” natural health product that “protects memory function”. The website goes to great lengths to promote that Vivimind is both “scientific” and “evidence based”. So let’s take a look at what sort of science supports the claims for Vivimind….

First, Scott gives us a bit of history:

Vivimind was once a promising prescription drug. It was called Alzhemed, and was hoped to be a breakthrough treatment for Alzheimer’s disease. Alzheimer’s disease is a neurodegenerative process, where amyloid plaques form in the brain, leading to dementia. It was proposed that Alzhemed might reduce the deposits of plaque, slowing progression of the disease.

So, what does science have to say about Vivimind?

Two major phase 3 trials were subsequently launched to test if Alzhemed could be an effective treatment for Alzheimer’s disease. Unfortunately, the results showed that patients taking Alzhemed did no better than patients taking a placebo. The FDA concluded that the results could not support a claim of clinical efficacy – that is, the manufacturer could not claim the drug worked. A European trial of Alzhemed was subsequently discontinued before the results were reported.

Case closed for Alzhemed? Not quite. After the failure of the phase 3 trial, where Alzhemed was shown to be ineffective, the manufacturer announced its intention to bring the product to market – but not as a treatment for Alzheimer’s. Nope – they were going after a bigger market – people with age associated memory impairment. And forget about all that pesky evidence and data the FDA wanted. Since approval of Alzhemed as a prescription drug to treat Alzheimer’s disease seemed out of the question, the manufacturer, Neurochem, decided to market it as a natural health product. The company changed its name to Bellus Health, and renamed the product Vivimind.

It didn’t work on Alzheimer’s, and there are no published studies on whether it works on more minor forms of memory impairment.

So, basically, Vivimind is a product that failed as a prescription drug, and is now marketed — without any evidence that it works — to people who don’t know any better. Sound ethical to you?

Now, it may not be that Bellus Health is flogging a product they know doesn’t work. Maybe that’s an uncharitable assumption on my part. But what are the other options? That they don’t care about evidence? Or that they’re deluded about the evidence? Ask yourself: is any of those possible scenarios comforting, when a company is selling you pills?

Here’s a must-read opinion piece, by Peter Foster for the National Post:

Trading honesty for ‘social responsibility’.

Here are a couple of early paragraphs that give the gist of what he’s saying:

It is surely also intriguing that the current financial crisis should have come after an explosion in the business ethics industry and the steady rise of the corporate social responsibility movement up the corporate hierarchy. You would be pushed to find any financial institution involved in the current debacle who was not dedicated to the very latest in independently monitored and internationally benchmarked governance practices, complete with high-sounding “codes” and commitments to carbon neutrality and fighting child poverty. And wasn’t the regulatory side of corporate governance meant to have been rendered cast iron by Sarbanes-Oxley?

Could that be the problem? Business ethics has become not so much about honesty and fair dealing as about the additional burdens companies should be taking on in the name of infinitely expansive corporate social responsibility and getting out in front of environmental issues.

Another choice paragraph:

There are, of course, cheats and crooks in the business world because there are cheats and crooks in the world more generally. The enormous wealth created by capitalism, and the importance of trust for the system to function, means ripe pickings — indeed astonishing pickings — for the likes of Bernie Madoff. Meanwhile you have flawed geniuses such as Garth Drabinsky for whom accounting fraud amounts almost to sport. But then Bernie Madoff is no more “typical” of capitalism than Enron, and any set of rules that closed all loopholes against Garth Drabinsky would bring the entire system to a grinding halt.

Now please be careful: Foster may be a little too ardent an admirer of capitalism for some of you. That’s fine. His rhetorical flourishes are a bit much at times, and his admiring reference to Milton Friedman will provoke those who see Friedman in a negative light. But get past that. Look at the point he’s making, about the things that really matter in terms of corporate behaviour. Is it possible — just possible — that all this focus on encouraging business to take on lofty social goals has distracted them, and us, from more basic issues of honesty and integrity?

In part, Foster is echoing something I said a couple of months ago, when I wrote this blog entry: Down With CSR! Up With Business Ethics! I offered 3 arguments against “Corporate Social Responsibility” and in favour of Business Ethics. Reason #3 read, in part:

Waste of Public / Activist / Media Attention. In the face of corporate scandals and economic instability, what we ought to be asking of business executives is that they focus on doing their job honestly and diligently….

It might just be a good thing if we could all agree to hold business to one or two clear standards, instead of a few dozen fuzzy ones.

Lobbying (and in particular the Obama administration’s limits on employing former lobbyists) is making headlines, again.

I blogged about the basic issue earlier this month: Obama’s Lobbyist Rules & the Baby/Bathwater Problem.

…in effect, Obama’s well-intentioned restrictions on lobbying mean not just restrictions on lobbyists for Walmart, Exxon, McDonalds, etc., but also restrictions on lobbyists for Ducks Unlimited, the Boyscouts, and Anytown USA.

Here’s the update, from the NY Times: Nonprofit Groups to Push for Exceptions to Lobby Rule. Here’s a key paragraph:

A coalition of nonprofit groups has started a campaign to exempt lobbyists for charitable and social welfare organizations that have tax-free status, meeting with presidential aides and sending them a package of ideas for rewriting the policy.

One of the non-profit groups involved is Citizens for Responsibility and Ethics in Washington (CREW). Here’s their take, including their own clarificatory letter to the White House: CREW’S POSITION ON SUGGESTED REVISIONS TO ADMIN’S LOBBYING RULES

CREW’s letter to the White House states that the coalition they belong to wants Obama to make a blanket exemption for all…

…individuals who lobbied solely on behalf of an organization determined by the IRS to be a qualified organization under Section 501(c)(3) (public charities) or Section 501(c)(4) (social welfare organizations) of the Internal Revenue Code.”

That seems reasonable in principle. After all, there’s a world of difference between lobbying for Monsanto and lobbying for Mothers Against Drunk Driving, right?

Whitehouse officials balk at the idea of an exemption. The NY Times story says:

…White House officials said there had been no internal debate on the matter and flatly dismissed the proposals, adding that they would not consider any changes because it would start the administration down a slippery slope of declaring some lobbyists acceptable and others unacceptable.

“You can’t have a value judgment,” said Rahm Emanuel, the White House chief of staff.

Of course, there would be nothing wrong, in principle, with making ‘value judgments.’ Presumably what Emanuel means is that it would be hard to do so in a consistent and publicly-defensible way.

One key problem with the view expressed by the non-profit groups is the assumption that for-profit corporations are malignant and that not-for-profit groups are always benign. Regardless of your political leanings, it’s pretty easy to find counter-examples. After all, 501(c)(3) organizations include The National Rifle Association, Planned Parenthood, the marijuana activist group “Hemp Evolution,” the Institute for Energy Research (whose biggest supporter is Exxon Mobil) and any number of other organizations surely dedicated to some vision of the public good, but not necessarily a vision shared by all. So: is your favourite corporation really more dangerous than your least-favourite non-profit group?

What makes a company great? “Great” clearly doesn’t mean “perfect.” (See also what’s known as “Great Man Theory,” which has to do with the historical significance of influential — not always morally upstanding — individuals). A company, just like a political leader, might be considered great, even if flawed, perhaps even tragically flawed. Surely we can at least imagine calling a company “great,” even if we weren’t entirely approving of its behaviour. Then again, at some point, grand accomplishments won’t always outweigh questionable methods. So, what makes a company great?

Earlier this month, investment advice site, the Motley Fool, had this to say:
The Greatest Company in the History of the World

“It’s the world’s greatest company, period.” — Arjun Murti, Goldman Sachs

I’m what a lot of folks would call “obsessed” with finding great stocks. So when I heard Goldman Sachs oil oracle Arjun Murti boldly label a company as the world’s greatest company, you’d best believe I paid attention.

That’s pretty high praise, but the facts speak for themselves. In fact, my research led me to take Murti’s claim one step further: This is the greatest company in the history of the world.

The corporate titan in question produced modern-day history’s greatest fortune and earned double the combined 2008 profits of Google (Nasdaq: GOOG) and Microsoft (Nasdaq: MSFT). If you’d invested $1,000 in this company in 1950, your shares would now be worth about $2,400,000. And, incredibly, this giant still has decades of slick profits ahead of it.

Meet the world’s greatest company: ExxonMobil….

I can hear the question echoing across the world: “Exxon? ‘Scuse me? The greatest…??”

Of course, the key to the claim is that it’s rooted in profits. Exxon is undeniably a great profit-earner. Then again, Al Capone made lots of profits, too. But he murdered a lot of people along the way. So profits aren’t all that matters. But nor is profit utterly irrelevant, morally speaking. If profits are earned without force or fraud, then profits signal that a company has provided people with something they wanted. Profits are never one-sided: they’re always one half of a win-win scenario, given the basic economic idea that all voluntary economic transactions are mutually beneficial. None of this is to say that big, profitable companies are morally in the clear. Far from it. Exxon has done plenty wrong. But it’s worth at least contemplating the notion that the most profitable companies are, other things being equal, the ones that have provided the most people with stuff they wanted.

On the other hand, it would be good if we all wanted less of what Exxon sells. The environment we hand down to our children and grandchildren depends on that. But it’s not clear that those sorts of aggregate effects can easily be laid at the feet of a particular company, supplying a useful (indeed, necessary) product to each of us on a sale-by-sale basis.

Last month I blogged about the story of a shopkeeper in a small town in England who had found an innovative way to get customers (mostly kids) to take responsibility for litter. (Here’s that blog entry: Taking — And Enforcing — Responsibility for Litter.) Soon after, I was interviewed about the topic by CBC Radio. Here are some further thoughts that came out of that interview.

My opening paragraph from last month bears repeating, because it lays out some basic economic ideas:

Litter is a classic example of what economists refer to as a “negative externality.” A negative externality is basically a cost, resulting from a transaction, but imposed on people not party to the transaction. Voluntary transactions are efficient when all the costs and benefits are borne by those who are part of the transaction. When others are forced to pay costs, that means the buyer isn’t paying the full cost of the good, and so too much of that good is likely to be purchased, from a social point of view. Economists call that “inefficient.” The rest of us call it annoying, and unfair.

The idea that litter results ultimately from a transaction between a buyer and seller is important. When we ask “what can we do about litter?” it’s important to identify it as an unwanted outcome of a transaction between two parties. To some extent, that means that the rest of us can essentially put the responsibility for litter on the buyer/seller duo. So rather than ask what the right solution is, one option is to say that litter, like many other forms of pollution, is a problem foisted on the rest of us by a buyer/seller duo, and that that duo has the responsibility to fix the problem. In other words, what’s the solution to candy bar wrappers in the street? I have no idea. But I’m justified in being angry about it, and candy sellers and their customers need to figure it out. It’s their shared responsibility.

Now, to say it’s a shared responsibility doesn’t mean that it’s shared equally. My local convenience store can’t be totally responsible for what I do with a candy-bar wrapper once I’m out the door and far away. And as a consumer, there are limits to what I can reasonably be expected to know about the waste-reduction efforts of the people who package the foods I buy.

Also, it’s worth considering that, even though we might consider litter the shared responsibility of buyer and seller, we (society) still have the option of imposing penalties if the buyer/seller can’t figure out, between themselves, how to (literally) clean up their act. Where that penalty is best applied — to the buyer or to the seller — is likely to vary depending on the case.

Finally, it’s also always worth looking for (though not always possible to find) win-win solutions (or win-win-win solutions, ones that are good for buyer, seller, and society). I suspect that the practice by some coffee stores of offering a discount to people who bring a reusable mug (and who therefore don’t use a paper cup) is an example. Stores reduce the amount of cups they go through in a day; consumers save 5 or 10 cents per cup of coffee, and society benefits from a reduction in the number of cups going into landfills, a reduction in (potential) litter, etc. People who can find & point out those kinds of solutions are making a real contribution.

Here’s an interesting blog entry, by by Claudio Fernández-Aráoz for Harvard Business School:
Make Ethics a B-School Admissions Requirement.
Here’s the key paragraph:

In order to assure that the people they line up for positions of power do good for all stakeholders, business schools should drastically revamp their admissions processes. Schools should make sure that they admit a larger proportion of individuals with the right values in the first place. In my book, a demonstration of ethical values is more important than brilliant academic and even professional credentials. (Applicants come in with their values pretty fixed. You can’t hope to change people’s values by the time they reach graduate school, even if you can inspire them to reach for excellence.) Admissions committees should check to see whether applicants have in the past demonstrated altruistic values in practice – on the job, in their personal activities, in contributions to valuable social causes, and in community service. In order to correctly assess this evidence, proper interviews and reference checks should be a must before any final admission decision

Good idea in principle. And I can see the value of a certain amount of background-checking. A history of malfeasance — illegal activities, or ethical breaches such as plagiarism — could well be good grounds for denying someone admission. But I’m skeptical beyond that. But looking for candidates who have “demonstrated altruistic values in practice” is probably a bad idea. First, the goal of business isn’t (typically) altruism. Being altruistic isn’t a prerequisite for being a good manager. What you really want is things like:

• Respect for the law (both the letter and the spirit).
• Ability to work cooperatively.
• Dedication to the idea of not using anti-social methods (e.g., fraud & deception) in pursuit of profits.

Ask yourself: how much can you really tell from a candidate’s record of “altruism?” What are you going to look for? Volunteer work? Lots of people do volunteer work for lots of reasons, not all of them noble. That’s not to deny the enormous contribution that volunteers make, in all kinds of organizations. It’s just to say that a history of altruism isn’t a reliable indicator of ethics.

Finally, what kinds of altruism are going to count? Large charitable donations? That signals wealth at least as much as it signals ethics. How about volunteer work for your least-favourite charitable organization? Will work for organizations on both sides of the abortion debate count as signals of ethics? Or the same-sex marriage debate? Or gun control? Or healthcare reform?

Before you sign on to the idea of screening for ethics, make sure you’re comfortable with the idea of someone other than you deciding what counts as ethical.

Ethisphere Magazine just released its 2009 list of the World’s Most Ethical Companies. Accompanying their ranking is the graph pictured here, the caption of which reads:

Need proof that it pays to be ethical? The World’s Most Ethical Companies consistently outperform the S&P 500. The graph…depicts the average stock growth percentile of the public World’s Most Ethical Companies vs. the Standard & Poor’s 500 index over the last five years.

It’s an interesting graph, to be sure, but it doesn’t show what they claim it shows. What it shows is correlation, not causation. I hope their conclusion is right, but the graph they present doesn’t establish that. For this to count as evidence of causation, you’d have to be able to rule out alternative explanations for the correlation: such as the possibility that successful companies are wealthy enough to spend money on the sorts of things that Ethisphere and others measure when they want to do this sort of ranking. Of course, I doubt this cynical, alternative, hypothesis is correct either; I suspect the truth is more complicated than that. But I think truth in advertising is a good thing, even in the promotion of ideals I like.

Here are two propositions lots of people will agree with:

1) Ethical businesses do everything they can to protect the health and safety of their customers.

2) Socially responsible businesses modify their behaviour based on what’s good not just for their profits, but for society.

So, what happens when #1 conflicts with #2? What happens when what’s good for customers isn’t good for society?

From The New Republic: Pick Your Porcine Poison (by Rob Inglis)

What if free-range pork, grown without antibiotics, actually posed more of a health risk than pork produced on industrial farms? That’s what James McWilliams suggested last week in an a New York Times op-ed, in which he discusses a study by an Ohio State University researcher who found that pigs raised in free-range, antibiotic-free environments tested positive for three food-borne pathogens—salmonella, toxoplasma, and trichinella—at significantly higher rates than their conventionally raised cousins.

….

Does it follow that reducing antibiotic use on hog farms isn’t such a great idea? Only if you’re looking at the question solely from a product-safety perspective. If you’re a consumer looking to reduce your risk of getting sick from pork, perhaps it makes sense to buy conventional. …. But the real reason that we shouldn’t be using antibiotics on pig farms has nothing to do with protecting those who want to eat their pork a little rare. It has to do with protecting society as a whole from the threat of antibiotic-resistant bacteria.

Farmers big and small are in a bind, here. Their obligation to produce safe food arguably implies more use of antibiotics. Their obligation to society — to help prevent the growth of antibiotic-resistent bacteria — implies the less use of antibiotics.

Now, the title of this blog entry is somewhat misleading: this story isn’t really about Business Ethics versus Corporate Social Responsibility. But it does highlight the fact that being “socially responsible” and being “ethical” don’t automatically amount to the same thing.
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Thx to Wn for the story.