The Business Ethics Blog

A little over a month ago, I took an easy jab at purveyors of the paranormal, and wrote about Psychics as (Unethical) Financial Advisors. I was reacting to reports that, in tough economic times, folks were turning more frequently to so-called psychics for advice on money.

These psychics and fortune-tellers — businesses — are taking money in return for…well, what? Certainly not reliable information or guidance. Entertainment? Maybe. … [S]ometimes fools need to be protected from themselves, and the fact that their customers are fools (or simply uneducated) doesn’t make these scam-artists any more ethical.

Basically, these people are charging for something — namely insight — that they don’t actually have. It’s a form of fraud.

Well, psychics might be the easy target, but financial advisors who rely on less-spooky sources of insight can also provided flawed advice. Check out this bit from Business Week: The Worst Predictions About 2008…

Here are some of the worst predictions that were made about 2008.
…
1. “A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith!” —Richard Band, editor, Profitable Investing Letter, Mar. 27, 2008
…
2. AIG (AIG) “could have huge gains in the second quarter.” —Bijan Moazami, analyst, Friedman, Billings, Ramsey, May 9, 2008
…
5. “No! No! No! Bear Stearns is not in trouble.” —Jim Cramer, CNBC commentator, Mar. 11, 2008

All three (and seven more noted in the Business Week) piece turned out to be not just wrong, but spectacularly wrong. Of course, hindsight is 20/20, and a commentary like this one — focusing only on one bad prediction from each person quoted — doesn’t help us evaluate the predictor’s overall reliability. (Probably some of the people quoted in BusinessWeek should have known better; for others, the bad prediction was likely a low point in a string of good predictions).

So, question for discussion: if you’re in the business of making such predictions and guiding people’s investments, how reliable does your advice have to be before you can, with a clear conscience, offer it for sale to sometimes-unwary clients?

This one’s for those of you who may have overindulged at dinner-time over the holidays. But be warned, it might make you lose whatever appetite you have left.

Sometimes apparently socially- or environmentally-progressive moves in the world of commerce end up violating other important values. This story is about an apparent attempt at “going green” that ended up hitting a few speed-bumps.

Check this story from Forbes.com:
Fill ‘Er Up With Human Fat

Liposuctioning unwanted blubber out of pampered Los Angelenos may not seem like a dream job, but it has its perks. Free fuel is one of them.
For a time, Beverly Hills doctor Craig Alan Bittner turned the fat he removed from patients into biodiesel that fueled his Ford SUV and his girlfriend’s Lincoln Navigator.

On the surface: neat idea, turning the result of excessive human consumption into a source of energy. But not so fast: the good doctor faced just a couple hurdles. One, as Forbes notes, took the form of a handful of patients unhappy with his medical (in)competency. The second hurdle had to do with health & safety regs: according to Wired.com, Bittner is under investigation by the California Department of Public Health. Surgical waste, after all, has to be disposed of according to pretty strict regulations in most places.

(Don’t be too quick to take this story at face value: Keith Barry at Wired.com: is suspicious of the whole story. In Fat-Fueled Ford Is Biodiesel Biohazard he suggests there’s plenty of reason to doubt the details. But it could happen….)

You have perhaps heard that, in some quarters, there is controversy over whether we should all be wishing each other “Merry Christmas” at this time of year, or opting for the more culturally-neutral “Happy Holidays.”

Businesses have faced this dilemma, too. Here’s a story from The Daily Camera that sketches the issue: “Happy Holidays or Merry Christmas? Area businesses defend their seasonal greetings”

Tinsel-covered signs wishing passersby a “Merry Christmas” once were common storefront decorations in December. Now — in many communities, including Boulder — shoppers are hard-pressed to find those words near any shop’s front door.
Controversy in recent years around the issue of politically correct greetings prompted some business owners to shy away from the word “Christmas” so not to offend people who celebrate Hanukkah, Kwanzaa or nothing at all.

It’s an understandable dilemma. It’s easy to see why businesses want, on one hand, to honour tradition, but also want, on the other hand, not to offend those who for whom Christmas might be a somewhat foreign Christian tradition.

My colleague and friend, Mark Mercer, has got it right. Here’s a nice piece he wrote last year, reprinted recently in The Ottawa Citizen: “Christmas is a secular holiday”

People who would ban Christmas decorations and celebrations from public places are moved by the thought that to celebrate Christmas publicly is to privilege one tradition, and the constellation of values around it, over all the other traditions and constellations of values current in Canadian society. Celebrating Christmas, they think, disparages other holidays or traditions of celebration, and that, in turn, marginalizes or excludes everyone outside the Christian tradition.
One point we must keep in mind here, though, is that Christmas is not an exclusively Christian holiday. For at least a couple of generations, Christmas has been evolving into a secular holiday, a holiday that for many of us has no religious significance at all. Christmas is a celebration of good will, generosity, and peace among nations.

I personally like Mark’s advice. Let’s think of Xmas as a secular holiday, one we can all celebrate, regardless of religion (or lack thereof). And I think it would be a good thing if we each simply were to choose a favourite holiday greeting — mine might be “Merry Xmas,” and yours might be “Happy Hanukkah”, etc. — and accept other people’s favourite greetings for the well-intentioned expressions of goodwill that they generally are.

On the other hand, I’d find it hard to blame businesses that don’t want to be on the cutting edge in this particular way. Oh well. Merry Xmas, everyone!

Business ethics prof Archie Carroll wrote this provocative column, in the Athens Banner-Herald: “Business leaders need to act like statesmen.” Carroll’s is a different take on a traditional theme that seems especially relevant lately, namely the apparent leadership gap at the top of corporate America. Carroll’s particular spin is an analogy with the world of politics: most of us can name political figures we admire for their character and accomplishments; fewer of us can name similarly respect-worthy corporate leaders. Carroll writes:

We are in the midst of the worst business scandal in most of our lifetimes. It is not just an economic crisis as it is being portrayed. We have seen financial services firms lobbying behind the scenes to make sure they get their fair share of the bailout money. We have seen the Big Three auto chief executive officers commuting back and forth between Detroit and Washington arguing why they deserve a bailout rather than being required to submit to bankruptcy for their strategic ineptitude.
….
What has been missing from this unfolding scenario? Business leaders who act like statesmen, standing up and taking leadership for this powerful institution we call “business.” As we wrap up arguably the most damaging year for the reputation, confidence and trust of the business system, there has been very little to report in terms of business leadership or statesmanship.

I’m not sure what to make of this analogy between political and corporate leadership. Surely the call for something like statesmanship in business makes sense to the extent that it’s a call for someone who provides vision, takes responsibility, and brings a sense of gravitas to important discussions. Those qualities are surely as important in commerce as in politics. But the disanalogies are important, too. Carroll suggests that the kind of corporate ‘statesmen’ he has in mind would be leaders who would promote “the public good.” But in business, the way in which business typically promotes the public good is by innovating and by making things. Direct pursuit of the public good — say, by liquidating corporate assets and giving the proceeds to charity — would quickly result in lawsuits being filed by justifiably-angry shareholders.

So, again, an interesting & provocative article. But I think the pertinent question is not quite the question Carroll asks. He seems to be asking, ‘Where are the statesmen of the corporate world?’ I’d rather ask, ‘If in fact corporate statesmanship is a positive ideal, what should corporate statesmanship look like, anyway?’

(For a very good scholarly examination of a different political-corporate analogy, see Wayne Norman & Pierre-Yve Neron’s Citizenship, Inc., Business Ethics Quarterly, Jan 2008, Vol. 18 Issue 1, p1-26.)

Here’s an interesting bit of muckraking, illustrating conflict, within the UN secretariat, regarding corporate social responsibilty. From Inner City Press: “UN Global Compact Chief Says Corporations Are Victims Too, Lashes Out at Critic”

While global publics question the ethics of business executives who ran their companies into the ground, sought taxpayer bailouts and then still seek year-end bonuses, the UN’s corporate social responsibility unit, the Global Compact, has little to nothing to say on the topic. In the past week, Inner City Press has asked both the director and honorary chairman of the Compact to speak to this question.

(The Global Compact is “is a [UN-based] strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption.”)

The interesting bit of the story is about an apparent conflict within the UN: apparently Maude Barlow (Senior Advisor on Water Issues to the President of the General Assembly) has been critical of the Global Compact. According to an earlier story from the Inner City Press (see here), Barlow called the Global Compact “blue-washing” or “greenwashing.” (“Greenwashing” is a pejorative term derived from the term “whitewashing,” coined by environmental activists to describe efforts by corporations to portray themselves as environmentally responsible in order to mask environmental wrongdoings. “Blue-washing” is apparently a parallel term referring to a company’s attempt to use affiliation with one or another projects of the blue-flagged U.N. as a way to buff its own image. [note: I’ve corrected my previous, erroneous explanation here].) Barlow said that the Global Compact wrapped “the United Nations…seal of approval around corporate behaviours that we don’t think always change.”

In response to a question (at a later press conference) about Barlow’s criticisms, Global Compact Executive Director, Georg Kell, defended his organization and questioned whether Barlow actually knew enough about the Compact to make a reasoned criticism. He also suggested that while advocacy — Barlow’s specialty — is welcome, it’s not enough:

In order to bring change about, you need different entry points, and advocacy is obviously one and we welcome advocacy. But I would argue that advocacy alone is not enough…unless you have a platform to translate, then, energies into solutions, you’re just in the advocacy domain and the compact is not in the advocacy domain. We are in the practical, pragmatic, solution-finding domain. [Transcribed from video by CM.]

(It’s important to note a couple of glitches in the Inner City Press’s reporting here: the analysis notes that “there are people who have looked into the Compact, and are nevertheless skeptical about its seriousness in holding corporations to account.” That’s true, but misleading: the Compact doesn’t pretend to be an enforcement agency. Holding corporations to account simply isn’t what they promise to do. Also, in his question (on video) to the President of the UN General Assembly, (Miguel d’Escoto Brockmann), mis-quotes Georg Kell. Kell (as you can see for yourself) never said he hadn’t heard of Barlow, and he didn’t question her expertise. He said he’d never met her, and said that as far as he knew she didn’t know much about the Global Compact’s operations.)

I don’t have an opinion on ‘Barlow v. Global Compact,’ but at the very least it’s interesting to see. Perhaps it’s even encouraging. Perhaps it’s a good thing that the UN’s tent is big enough to encompass the range of views expressed in this story.

Here’s a nice article that requires little commentary. From the NY Times: At Siemens, Bribery Was Just a Line Item. The story starts of with this dramatic account of one Siemens’s executive’s downfall:

REINHARD SIEKACZEK was half asleep in bed when his doorbell rang here early one morning two years ago.

Still in his pajamas, he peeked out his bedroom window, hurried downstairs and flung open the front door. Standing before him in the cool, crisp dark were six German police officers and a prosecutor. They held a warrant for his arrest.

That arrest was an important step towards last week’s announcement that Siemens would pay $1.6 billion in fines for bribery.
The story has some interesting bits about how bribery had become a central part of Siemens’s busienss model:

What is striking about Mr. Siekaczek’s and prosecutors’ accounts of those dealings, which flowed through a web of secret bank accounts and shadowy consultants, is how entrenched corruption had become at a sprawling, sophisticated corporation that externally embraced the nostrums of a transparent global marketplace built on legitimate transactions.

There’s also some good stuff about rationalization:

The payments, he says, were vital to maintaining the competitiveness of Siemens overseas, particularly in his subsidiary, which sold telecommunications equipment. “It was about keeping the business unit alive and not jeopardizing thousands of jobs overnight,” he said in an interview.

The whole article is worth reading. I’ll just close by noting two key arguments against bribery, one ethical and one prudential. The first is what we might call the “violation of duty” argument. When you pay a bribe, you’re attempting to induce someone to make a decision that is favourable to you, rather than a decision that is favourable to their employer. Perhaps that moral argument is obvious to everyone. The less-obvious point, perhaps, is that bribery also represents an unwanted expense for companies…an expense that all companies would like to be able to avoid, if they could. Paying bribes only works if you out-bribe the competition. If you & your competitors are all bribing with equal zeal, no one wins (and you’ve all suffered unnecessary, indeed, useless, costs). But of course, if everyone else is paying bribes, then the company that declines to is going to suffer losses. It’s a classic ‘collective action’ problem. One standard solution to such problems is the levying of penalties by a central authority, which is just what we see in the $1.6 billion fine mentioned above. But it’s important, in trying to understand the dynamics of such situations, to see that such enforcement is, in a sense, encouraging companies to behave in a way that they would prefer to anyway.

A couple of days ago I blogged about a bakery at a ShopRite in Pennsylvania that refused — rightly, in my opinion — to make a birthday cake for a 3-year-old whose parents had given him the charming name, “Adolph Hitler.” I think it’s good, or at very least morally permissible, for a store to refuse to make a celebratory cake bearing the name of a man who symbolizes hatred and evil. It is a right of conscience, I submit, for a store (or even an individual baker) to refuse that request.

Now, I suspect exercise of rights of conscience are pretty rare at bakeries. But not so rare at pharmacies. In fact, at pharmacies, rights of conscience (or, if you prefer “so-called rights of conscience”) are a huge issue. Many pharmacists have objected, on moral & religious grounds, to filling prescriptions for abortifacients, or even for contraceptives. And there are often laws & regulations sanctifying that refusal.

See this story from The LA Times: Feds issue new ‘right of conscience’ rule

Federal law has protected doctors and nurses who don’t want to provide abortions for more than 30 years, affirming medical providers’ right to act according to the dictates of their conscience.

But still, anti-abortion advocates have been eager to see more far-reaching protections enacted.

They got their wish today when the outgoing Bush administration announced a new regulation that extends the “right of conscience” to a broader range of health care workers and activities.
….
The rule is so broadly written that it could end up affecting any health care worker who declines to provide contraception to patients, give information about birth control or make referrals to organizations willing to perform abortions or supply emergency contraception

The new rule is about workers (including but not limited to professionals) at health care facilities (in particular, ones that receive federal funding) not to businesses. But it’s sure to be cited as precedent in other contexts.

Now, I think there’s a good prima facie case to be made in favour of protecting people from having to participate in activities they find morally abhorrent. But it’s a defeasible case, and I think in the case of pharmacists it is easily defeated.

So, why do I think bakers get to stick to their principles when, e.g., pharmacists, don’t? (I’m picking on pharmacists, here, mostly because, like bakers, they are found in retail settings. ShopRite stores, for example, have pharmacy counters.)

Other than the retail setting, the differences are easier to name than the similarities. So, here are a few morally-significant differences:

• Pharmacists have a legislated monopoly to do something for us that we can’t do for ourselves. Lots of people can bake & decorate cakes, totally legally. There’s practically zero chance that one baker (or one retail outlet) exercising a right of conscience is going to result in a consumer not getting what they want, somewhere.
• No one believes cakes are essential. Contraceptives (including “Plan B,” the emergency contraceptive) are a legitimate health product, acknowledged as being appropriate under certain circumstances by, e.g., the American College of Obstetricians and Gynecologists.
• Pharmacists — professionals in general — are members of large professional institutions (including both licensing bodies and professional societies/associations) that can, and should, play a mediating role. Technically, it is the profession as a whole that is given a monopoly over a field of practice, and the profession must promise, in return, to provide that service. So when members of the profession want to claim a right of conscience that conflicts with the needs of consumers, the profession as a whole — embodied in professional associations and boards of licensure — must assume some responsibility for solving the problem. It should be their problem, not the patient’s.

—-
Previous blog posting on this topic:
Wal-Mart & the Morning After Pill (February 15, 2006)

Here’s a question about ethical asymmetry.

I’m in Ottawa right now. Gas prices here this fall reached over $1.40/litre (about $5.30 a gallon). When prices reach such heights, people scream “Price gouging!” They’re typically wrong, of course: the gas industry in general is highly competitive, and (OPEC aside) price-fixing between the major players is pretty unlikely. The right explanation generally is that — for whatever reasons — various parties (consumers & middle-men) are simply bidding up the price. It sucks for consumers, but it’s not price-fixing.

But here’s a different approach to charges of gas-price gouging: let’s ask, where’s the flip side of that coin? Today, gas here in Ottawa costs about $0.68/litre (about $2.57 a gallon). Retailers are practically giving the stuff away (compared to prices back in September). If high prices are evil, shouldn’t low prices be saintly? Where’s the praise for retailers engaging in, well, whatever the moral opposite of price-gouging is?

If people are willing to assume that high prices = gouging, why aren’t they willing to assume that low prices = charity? Is the assumption that the lowest price is somehow the right price? After all, why offer praise for selling gas at the right price? If that’s the assumption, on what basis are folks out there deciding what the right, morally neutral, price is?

A lot of things get called “price gouging”. Some early-adopters whined about price gouging when the price of iPhones dropped $200 just two months after the uber-gadget was introduced. And back in August, an article in Maclean’s wondered whether Canadians are getting gouged, given that prices on some consumer items cost more in Canada than in the U.S. But it doesn’t count as “gouging” every time a price is higher than we think it ought to be.

But this…this is price-gouging. From Chicago Business: Feds sue Ovation Pharma over skyrocketing price of heart drug

The federal government on Tuesday sued Ovation Pharmaceuticals Inc., accusing the Deerfield company of illegally raising the price for a drug that treats heart defects in babies.
The Federal Trade Commission claims that in 2006, Ovation raised the price of its drug, Indocin, to nearly $500 a vial from $36, after acquiring the rights to the only competitor drug on the market.

OK, so, find a super-vulnerable population that desperately needs your product. Eliminate all competition. Then jack up the price more than 1000%. Yup, that pretty much takes the cake.

I’ll only add, very briefly, that there are some people at least who argue that limited forms of price-gouging are ethically justified in certain circumstances: roughly, if prices are “unreasonably” high, that fact may have an important signaling effect within a market, attracting investment and effort into solving a dire need. I doubt the Ovation case could be justified that way. Yes, we probably need more investment into these kinds of drugs. But reducing competition is not a way to do that.

—
(For a very good, limited defence of some kinds of price-gouging, see Matt Zwolinski,“The Ethics of Price Gouging” Business Ethics Quarterly, Volume 18, Issue 3.)
—
Hat tip to the irascible Pharmagossip.

Jeff Atwood, who writes a blog called “Coding Horror” posted this very interesting item: Profitable Until Deemed Illegal

I was fascinated to discover the auction hybrid site swoopo.com (previously known as telebid.com). It’s a strange combination of eBay, woot, and slot machine. Here’s how it works:

You purchase bids in pre-packaged blocks of at least 30. Each bid costs you 75 cents, with no volume discount.
Each bid raises the purchase price by 15 cents and increases the auction time by 15 seconds.
Once the auction ends, you pay the final price.
I just watched an 8GB Apple iPod Touch sell on swoopo for $187.65. The final price means a total of 1,251 bids were placed for this item, costing bidders a grand total of $938.25.

So that $229 item ultimately sold for $1,125.90.

Atwood’s conclusion: “In short, swoopo is about as close to pure, distilled evil in a business plan as I’ve ever seen….It is almost brilliantly evil, in a sort of evil genius way.”

Basically, swoopo charges people, on a per-bid basis, to participate in an auction. They earn revenue form everyone who participates (i.e., bids) not just from the winner. Why is this being called “evil?” The problem is that swoopo is exploiting the well-known human tendency, when making decisions, to put too much weight on what you’ve already invested (e.g., the money you’ve already spent on bidding) in situations where the rational thing to do would be to cut your losses and run. Once I’ve already spent, say, $7.50 bidding 10 times on a particular item (at $0.75 per bid), I really want to get that item (rather than forfeit my $7.50 and go away empty handed). So I keep bidding. And lots of other people do, too. The result is illustrated by Atwood’s example quoted above.

As far as I can tell, there’s no good ethical objection to the fact that swoopo is making a lot of money (in the example above, making over $900 on an item worth $229). The issue is whether it’s unethical to profit from — indeed, to base your entire business model — on a well-known cognitive error to which (most of?) your customers are subject. Notice that the problem here is not that people don’t understand the details. They might well understand perfectly well — and yet find themselves unable to resist. Maybe (as some have suggested) it shouldn’t be thought of as shopping, but as entertainment. Each bid is sort of like a lottery ticket. It is fun, presumably, to bid…thrill of the chase, etc. The problem is that that thrill is likely addictive. I don’t know if capitalizing on that counts as evil, but it’s morally dubious for sure.

—–
Hat tip to Tyler Cowen and those who left comments at the always excellent Marginal Revolution