The Business Ethics Blog

The Guardian had an interesting editorial on corporate social responsibility and tax avoidance, Saturday:

Tax Gap: Corporate social responsibility.

Here are a few key paragraphs:

Public companies do frequently claim to practise “corporate social responsibility” (CSR), and most leading businesses boast of charitable and green activities in their annual reports.

Barclays Bank calls itself a “responsible global citizen”, with concerns ranging from carbon emissions to credit card fees. It even has a reputation committee, chaired by deputy chairman Nigel Rudd. But nowhere does its policy mention Barclays’ tax avoidance schemes.

The advertising group WPP, before moving to the Irish Republic last November to cut its taxes, boasted six different kinds of “corporate responsibility”, including minimising its environmental impact and only engaging in “ethical marketing”. Tax did not figure in the list.

It’s a hard question, or at least harder than it looks.

Clearly, if the question were “does business have a social responsibility to pay the taxes it is legally obligated to pay?” then the obvious answer is “yes.”
And if the question were “does business have a social responsibility not to use valid deductions put in place by government for various public-policy reasons?” the answer is probably “no.”

The harder question is in between those two: “does business have an obligation not to find innovative ways to reduce or avoid paying taxes, ways that follow the letter but not the spirit of the law?”

To understand the complexity of tax avoidance, and just how far some companies have gone beyond merely using valid exemptions, it’s worth taking a look at the Guardian’s series: Tax Gap.

(This is also a good example of the damage done to the vocabulary of business ethics by the capturing of the phrase “corporate social responsibility” by those who choose to capitalize the 3 words that make it up. Those 3 words ought to signify a topic for discussion: what are a corporation’s social responsibilities? Instead, they almost always imply a statement: these are a corporation’s social responsibilities. Why does this story use that phrase? Why not just ask if tax avoidance is unethical?)

Some people use the term “corporate social responsibility” when they want to talk about “business ethics.”

That’s a mistake.

CSR is a particular thesis, or perhaps more properly a movement, within the larger topic of business ethics. Business ethics asks, quite generally, how businesses ought to behave. CSR is — roughly — the thesis that business ought to take into consideration the interests of society at large in their decision making.

Another way of putting the CSR idea is that, from a CSR point of view, it makes perfect sense to admit that a business:

• makes a useful product or provides a useful service;
• provides employment;
• provides an investment opportunity for investors;
• follows scrupulously all laws and regulations to which it is subject; and
• pays its taxes….

…and then to ask of that business, “Yes, but what do you contribute to society? How does society as a whole figure in your daily decision-making?”

Three quick criticisms of CSR:

1) Misunderstands capitalism: The central tenet of CSR — namely that the best way for business to contribute socially is through good works — is faulty, and implies a misunderstanding of the basic wealth-and-welfare generating function of markets. Businesses contribute by producing things we want; they facilitate voluntary exchanges of goods and services that, when conducted honestly, leave all concerned better off. (Ask yourself: when did Bill Gates start contributing to society? Was it in 1994, when he founded the Bill & Melinda Gates Foundation? Or was it in, say, 1975, when Gates founded the firm — Microsoft — that would help put the power of computers in of millions of offices and homes? I’m no fan of Microsoft or its products, but to think that Gates’ contribution began with the founding of his admittedly wonderful foundation is just silly.)

2) Smokescreen: when companies are cooking the books, or flouting environmental laws, who cares what CSR activities they’re engaging in? OK, I’m exaggerating. Of course good works are good works. But it’s not at all clear that they make up for other transgressions. We should stay focused. When business leaders start bragging about their CSR activities, we should smile politely, and then enquire how their companies are doing in terms of honest advertising, corporate governance and regulatory compliance.

3) 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. In any given week, millions of dollars are being spent on academic and industry conferences, round-tables, and dinners to talk about the importance of CSR. In any given week, newspaper stories are being drafted about which companies are doing well, or badly, in their CSR efforts. And in any given week, activists are staging protests, writing letters, and educating the public about the failures of companies to be “socially responsible.” What would happen, I wonder, if all of that money and effort were redirected to the simple idea of getting more people, in more businesses, to behave more consistently according to basic rules of honesty and integrity?

Providing services to the bereaved is a tricky business. You’re trying to make money, trying to make a living. Fair enough. So, you offer services. And you charge for them. Fair enough. And then you push your business one step too far.

Witness this sleazy marketing strategy, from Legacy.com. Legacy provides web-based obituaries for newspapers, including the Ottawa Citizen (and, apparently, many other papers). Place an obituary in the Citizen, and part of the package is an online obituary and online guestbook, where friends & family can leave their condolences. Nice feature.

What happens a year later isn’t so nice.

A year later, the clock runs out on the guestbook. OK, that’s reasonable. You’ve paid for a service, but not necessarily a perpetual one. But what does Legacy.com do next? They contact everyone who signed the guestbook, and ask if they would like to pay — $89 — to keep the guestbook going. You can imagine friends of the family everywhere doing a double-take, staring at the email. “Me? Do I want to keep the guestbook going?” Huh?

Now imagine the next-of-kin, humiliated at learning that Legacy.com is soliciting money from their friends, from the kind souls who offered their condolences in a time of grief.

Here’s a sample of the email Legacy.com sends out:

Hmm.
Well, maybe when this supportive friend-of-the-family signed the guestbook to start with, they somehow agreed to be contacted later?

Nope. Here’s what their guestbook looks like, just prior to signing:

Several checkboxes, but none that says “Yes, please feel free to contact me in a year to ask me for money.” The result is just an out-of-the-blue grab for cash, from confused-and-embarrassed friends of the dearly departed.

This is a great business ethics case. Legacy.com’s behaviour here is perfectly legal, as it should be. But it’s sleazy. And they should be told so. And the Citizen (and the other newspapers that deal with Legacy.com) should tell them so. Unsolicited commercial emails are bad. Unsolicited commercial emails to the friends and family of the bereaved? Shameful!
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Addendum
I’m having second thoughts about having asserted that what Legacy.com does is “perfectly legal” (but sleazy). It may not be legal after all. A couple of colleagues have pointed out that Legacy.com might be violating privacy legislation, including the Personal Information Protection and Electronic Documents Act . I’m no expert on privacy legislation, so I can’t say whether Legacy.com has violated PIPEDA. But they’ve certainly violated its spirit.

Two Harvard MBA students — Umaimah Mendhro and Abhinav Sinha — wrote the following, for Forbes: Three Keys To Staying Ethical In The Age Of Madoff.

The whole thing is worth a read. Here are the opening paragraphs:

What separates a Rod Blagojevich from a Patrick Fitzgerald? A Bernard Madoff from a Warren Buffett? What makes such people, at either extreme, so different from any of us? Everything–and not too much.

As citizens of Pakistan and India who are students at Harvard Business School, we spent a considerable amount of time over the past several months interviewing and drawing lessons from 12 leaders in Pakistan and seven in India who are carrying the torch of ethical business behavior. Come factory shutdowns, forced resignations or life threats, they’ve been standing up against corruption in environments where corruption is the rule.

Conventional wisdom and our own preconceptions hold that a mix of many complex, research-worthy characteristics and influences separates the highly moral from the corrupt. What we found suggested, to the contrary, that it all comes down to three simple things…

What 3 things? The authors distill the lessons learned from the execs they studied into the following 3 injunctions:

• “Call corruption corruption.” (Basically, avoid euphemisms for practices you know are corrupt.)
• “Enforce behavior that creates new values.” (This is essentially the Aristotelian point that what we do changes who we are.)
• “Give up on the security of wavering.” (Roughly: don’t let yourself get away with thinking there are lots of moral “grey zones.”)

Sounds like pretty good advice, over all. I’ll only comment briefly on the last point.

The authors applaud the executives they studied for their attachment to “moral absolutism.” If that means doing the right thing when the right thing is clear, then that’s a fine thing to praise. Showing some spine in the face of pervasive corruption is hard, and to be commended. That’s pretty much the definition of “integrity.” On the other hand, a lack of sensitivity to context isn’t a virtue. Pretty much all good rules are subject to valid exceptions. The tricky part is enunciating a clear conception of what those exceptions are, and making sure the exceptions apply to everyone, not just you.

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Thanks to Suzie and Gini for the article.

I’ve blogged before about the complex relationship between business and regulation. Most people assume business hates government interference, but it’s not uniformly true. Sometimes regulations make for a more level competitive playing-field, and in some cases clear regs make a business’s legal footing clear enough to permit investment.

Sometimes, an industry’s plea for regulation is less clearly benign. Check this piece by Emily Burke, writing for Maclean’s: “This isn’t illegal.”

The battle to keep kids from smoking just keeps getting stranger. A new study shows that making it illegal for kids to smoke can help to reduce youth smoking rates. But oddly, Canada’s convenience stores, which make a considerable chunk of their profits from selling cigarettes, support the study’s recommendation to ban youth smoking—while anti-smoking groups, such as Physicians for a Smoke-Free Canada, oppose it.

It’s worth making a distinction, here: what the industry is proposing is a limitation on someone else’s behaviour, namely that of consumers. But still, it’s a change that stands to lower demand for a profitable product.

Why does the physicians’ group oppose the move?

…Cynthia Callard, executive director of the anti-smoking advocacy group Physicians for a Smoke-Free Canada, says the very fact that the CCSA supports such a ban is evidence that it won’t work. “I can’t overstate how relevant it is that the only people who are pushing for youth possession laws are tobacco companies and tobacco retailers,” she says. “That should give anyone pause.”

Actually, it’s not evidence that it won’t work. Callard’s implication: Why would an industry promote a legal change that would reduce demand for its product? Well, as long as the law is enforced uniformly, no store will be at a comparative disadvantage, and perhaps they expect to make up the difference with sales of other products. And it’s at least possible that, under the current rules, there are store operators who would rather not sell so many cigarettes (or sell them at all), but who know that they’d be at a huge competitive disadvantage if they unilaterally stopped selling them.

But in the end, even if vendors want this legal change for the wrong reasons, is that enough reason to oppose a regulation that could save lives?

Corporate ethics rankings are a funny thing. Neat idea, in principle. But so much hangs on methodology. (I’ve blogged about such rankings here, here and here.) In fact — as it turns out — so much hangs on what you measure that one ranking organization’s villain can be another organization’s hero.

See this ranking, released last week by Multinational Monitor: The 10 Worst Corporations of 2008.

Of special note, General Electric is included on the list, due to its “creative accounting.”

In June, former New York Times reporter David Cay Johnston reported on internal General Electric documents that appeared to show the company had engaged in a long-running effort to evade taxes in Brazil. In a lengthy report in Tax Notes International, Johnston reported on a GE subsidiary’s scheme to invoice suspiciously high sales volume for lighting equipment in lightly populated Amazon regions of the country. These sales would avoid higher value added taxes (VAT) in urban states, where sales would be expected to be greater.

Johnston wrote that the state-level VAT at issue, based on the internal documents he reviewed, appeared to be less than $100 million. But, he speculated, the overall scheme could have involved much more.

Johnston did not identify the source that gave him the internal GE documents, but GE has alleged it was a former company attorney, Adriana Koeck. GE fired Koeck in January 2007 for what it says were “performance reasons.”

OK, so why have I singled out G.E., among the companies that Multinational Monitor includes on its list of corporate villains?

Well, as it turns out, G.E. was also included on Corporate Knights’ list of the
Best 50 Corporate Citizens 2008. In fact, G.E. was in the top 10!

Now, the Corporate Knights ranking has in its favour that it actually has (and states) a method: they look at a range of factors, and calculate a numerical score. As far as we can tell, Multinational Monitor is just picking companies with high-profile scandals. Having a clear method is good, both for consistency and for transparency. But of course, 2 years ago Corporate Knights’ ranking method put tobacco giant Rothmans Inc. at #2 on the list, and giving ethics kudos to a company that kills so many will strike many as, um, counterintuitive.

I’m not going to try to settle the fight. But Multinational Monitor and Corporate Nights probably ought to talk.

The controversy over corporate jets hasn’t died. (Back in November I blogged about corporate jets and moral outrage; then in early December I blogged about silly behaviour that outrage prompted on the part of certain auto execs.) Corporate jets are back in the news this week. See this story, from CNN Money, today: Bank CEOs Taking Commercial Flights, Amtrak To DC Testimony.

Here’s a good story summarizing the case to be made in defence of corporations making use of private jets, by Colin Campbell, in MacLean’s: In defence of the corporate jet. Here’s a good paragraph, quoting a certain business ethics blogger:

For a lot of companies, the benefits of the corporate aircraft far outweigh the costs. Wal-Mart, for instance, uses private jets, and is “probably the most penny-pinching, efficient company on the planet,” says Chris MacDonald an ethics expert and visiting professor at the Keck Graduate Institute in Claremont, Cal. Even companies that have taken public money aren’t necessarily engaging in unethical or inappropriate behavior by flying corporate jets, argues MacDonald. “If the decision to have an executive jet was the right decision last year when the company was beholden only to its shareholders, what would make it the case that it’s suddenly an unwise decision?” asks MacDonald. “At a well-governed corporation, those sorts of moves would be carefully thought out and cost-benefit analyses would be done.”

Boards of Directors ought to be ensuring that jets are really necessary; otherwise, shareholders are being poorly served. But it’s just silly to think that corporate jets are always a bad idea, or that they always represent some sort of corporate excess. Even when public money is being handed out, it’s not clear that the rules should change.

I’m not sure what’s more disconcerting, here: the discrimination aspect, or the superstition aspect. Discrimination, in the pejorative sense, always (by definition) involves treating people differently on some irrelevant ground. But when the grounds for discrimination are superstitious ones… oh, boy.

From the UK Daily Mail: We only employ workers born under specific star signs, says insurance company

A row has broken out in Austria after a company tried to recruit workers born under certain star signs.

The Salzburg insurance company posted an advert in major newspapers seeking employees for sales and management that were born under certain constellations, claiming statistics indicated that they were the best workers.

‘We are looking for people over 20 for part-time jobs in sales and management with the following star signs: Capricorn, Taurus, Aquarius, Aries and Leo,’ read the ad that appeared over the weekend.

It was followed by a wave of protests from equality groups and led to an investigation by the country’s anti-discrimination authorities.

OK, sure. The company says they’ve got good reason, based on a study of their own workforce:

A statistical study indicated that almost all of our best employees across Austria have one of the five star signs. [i.e., one of the five sought in their ad]

But seriously, how many employees can their company have? That likely makes for a very weak statistical result. Now, in fairness to the managers of this company, it should be noted that management is at least as much art as science. Managers very often have to make judgment calls based on less than robust statistical evidence. There’s an old saying that “you can’t manage what you can’t measure,” but that saying is entirely false. Management consists to a very large degree in managing things that can’t (easily) be measured. But weak statistics probably just give management decisions like this a misleading patina of scientific respectability.

Besides, we should be especially skeptical — they should be especially skeptical of their own data — given that there is good prior reason to think there’s no correlation: namely the fact that there is precisely zero evidence that astrological sign is correlated with any meaningful personality trait out in the rest of the world. They should be looking carefully for a more plausible, non-superstitious explanation of the pattern they think they see in their workforce. And unless they’ve done that, discriminating based on the signs of the zodiac should be relegated not just to the dust-bin of science (where it’s been for decades) but to the dust-bin of business ethics.

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Thanks to KM for the story.

Across the ideological spectrum(s), there is universal agreement that business ought to “play by the rules of the game.” The most ardent fans of free markets say, essentially, that that is the only ethical obligation businesses have, beyond the pursuit of profit. It is up to government (and perhaps society more broadly) to make the rules. It is up to business to play by them. Fair enough. But what ethical standards apply to the practice on the part of business of trying to influence the very rules to which they are expected to adhere?

See this story from a few days ago, in the NY Times: Geithner Sets Limits on Lobbying for Bailout Money

The new Treasury secretary, Timothy F. Geithner, announced on Tuesday that he would crack down on lobbying to influence the $700 billion financial bailout program by companies that are receiving billions in taxpayer money.

Mr. Geithner, who was confirmed on Monday, also said he would set new limits intended to prevent political interference with decisions about which companies received bailout money.

Among other steps, the Treasury department said it would make public a log of all contacts by public officials and bank officials regarding specific financial institutions.

(Here’s another take on it, from the Washington Post: Treasury Moves to Restrict Lobbyists From Influencing Bailout Program.)

For Mr. Geithner and the Obama administration, this is matter of ethics in government, and of public accountability. And it’s not an easy one. Certainly no one thinks that decisions about how to spend the bailout money ought to be influenced significantly by the fact that some senator had his or her ear bent for half an hour by a suave lobbyist acting on behalf of a well-heeled client. On the other hand, the right to petition one’s government and thereby to have a say in public policy is a fundamental democratic freedom.

But what does it look like from the point of business ethics? What ethical limits — if any — ought there to be on lobbying by businesses? If it’s true that corporate managers ought to pursue profits within the limits of the law, ought they also attempt to influence the law in ways that stand to enhance profits? Surely if they do that, it leaves the whole “we played by the rules” defence robbed of much of its normative force: it’s pretty easy to agree to play by the rules when you get to influence what those rules are.

I’ll offer just 2 factors relevant to the current issue:

1) This looks to me like a classic example of the kind of ‘social’ dilemma that economists & philosophers refer to as ‘the Prisoner’s Dilemma.’ It’s a situation where all (businesses) would be better off if they could all just keep their noses out of the process, but each business would do better (better for its shareholders) if it interferes. P.D.’s are notoriously hard for participants to resolve; it might be unreasonable to expect businesses to forego profit-seeking in this instance.

2) Lobbying for bailout money is in some ways different for other kinds of lobbying (say, lobbying for a change in health & safety regulations). In most regulatory matters, government suffers from a pretty serious information deficit: industry often knows much more about what sorts of regulatory standards are feasible, and which will achieve desired public policy goals. So, there’s a public-interest argument for allowing (even encouraging) industry to share information & points of view with government. The spending of bailout money, it seems to me, isn’t like that. I’m not an expert on finance, but I suspect that the U.S. government (via its various regulatory and taxation agencies) has all the information it needs, in this case. So there’s not much weight to the public-interest argument here.