The Business Ethics Blog

As some of you will have noticed, I spent the summer as a Visiting Researcher at the “Centre de Recherche en Ethique de l’Université de Montréal.” CREUM is a wonderful place; smart people, great hosts.
Two weeks ago I was interviewed, along with fellow visitor Lisa Eckenwiler, by CREUM’s director Daniel Winstock, for a podcast called “Radio CREUM.”

The general theme of the interview was the relationship between Philosophy (Daniel, Lisa, and I all hold PhD’s in Philosophy) and “applied ethics” (a term generally meant to encompass fields such as business ethics, bioethics, environmental ethics, professional ethics, and so on.)

Here’s the link to the page with the link to the interview: Daniel Weinstock, Lisa Eckenwiler & Chris Macdonald on Radio CREUM
(The page is in French. For those of you who don’t read French, just click on the link that says “Cliquez ici,” or on the musical note icon.)
The interview is about an hour long, including a long-ish musical prelude, interlude, and ending by Montreal’s very own “General International.” The introductions are in French, but the interview itself is in English.

Just so you have a sense of what the interview is about, here are a few points/topics that get raised:

• The interdisciplinarity of Applied Ethics, and the unique (?) role of philosophers.
• The idea that in Applied Ethics, you can think about how scholarly theories help us solve practical problems, but also about how practical problems help produce better scholarly theories.
• The question of how much practical knowledge philosophers (and other specialized scholars) need in order to do good work in applied ethics (e.g., how much do I need to know about business to do business ethics, or about genetics to study ethical issues in biotechnology?).
• When scholars in applied ethics want to have influence, is that possible? How? Is there a role for them beyond the university?

It was sort of bound to happen eventually. An ethics-based investment fund has been nailed by the U.S. Securities and Exchange Commission for, you guessed it, an ethics violation.
Here’s the (very good) story from Ron Lieber at the NY Times: Socially Responsible, With Egg on Its Face

When the news broke late last month, it read almost like satire. The Securities and Exchange Commission had charged a mutual fund company that specialized in socially responsible investments with taking stakes in companies involved with alcohol, gambling and military contracting.
But it is a true story, and it’s the first time the S.E.C. has encountered this problem. Pax World, one of the oldest practitioners in the field of socially responsible investing, paid a $500,000 penalty.

Lieber’s analysis is great; I strongly recommend reading it. But I’ll add my own 2 cents’ worth….

At least 3 issues are worth talking about, here. First, there’s the one that on the surface makes this a “juicy” story,” namely the fact that it was (gasp!) a so-called “ethical fund” (or socially responsible investment fund) that the S.E.C. nailed, here.

Everyone loves to hate a hypocrite, and even the whiff of a shadow of the appearance of hypocrisy is enough to bring a smirk to the cynic’s lips. Hypocrisy is the right charge when someone promotes X but does not-X, or is at least (overly?) unreliable at doing X. So a politician who preaches “family values” but who has a string of torrid affairs is a hypocrite. But note that a charge of hypocrisy with regard to X requires agreement on what constitutes X. It’s much trickier to make a charge of hypocrisy stick if the nature of characteristic X is up for grabs or if its attribution to the person or group in question is open to debate.

In this regard, it’s worth noting briefly that “ethical” funds are self-designated as such. Calling yourself an “ethical fund” is no more automatically authentic than a charitable organization’s claim to speak on behalf of women, the poor, the whales, what have you. “Ethical funds” are not necessarily ethical funds. Certainly there’s the possibility of charlatanism, of funds claiming to filter investments on ethical grounds while actually doing nothing of the sort; presumably that sort of thing is just what S.E.C. oversight is intended to minimize (and we’ll return to the issue of misrepresentation below). But even if we assume that a fund’s managers are well-intentioned, that doesn’t mean that their fund’s status as “ethical” is a given. As lots of people have noted (and as is hinted at in the NY Times story) there’s legitimate debate over whether there’s anything wrong with the kinds of firms ethical funds typically filter out. Filtering out defence contractors, for example, is pretty open to debate. After all, making land-mines that blow kids’ legs off is bad; making the guns and flack-jackets necessary for peace-keeping is good. So, suffice it to say that investment funds of the kind we’re discussing here are filtering for a certain kind of ethics, a certain set of ethical concerns, rather than necessarily promoting ethical behaviour in all its forms. Of course, if I’m right in suggesting that the present case might not, strictly speaking, be a case of hypocrisy, that doesn’t at all reduce the wrong-doing here. But it does mean the smirk is a little off-target.

The second issue has to do with misrepresentation. This is clearly what the S.E.C. was (appropriately) concerned about. The S.E.C. doesn’t care about ethical filtering per se, but it does care that funds promising a certain kind of filtering actually follow through on that promise. Pax World was claiming to engage in a kind of filtering, and was apparently pretty regularly dropping the ball. Misrepresentation is a bad that pretty much everyone can agree on. People who buy (or just advocate) ethical funds want to be assured that they really are getting what they’re paying for. And hard-core free-market economists have to be equally concerned about misrepresentation (no matter how skeptical some of them might be about ethical funds and the intrusion they represent of non-obviously-economic factors into the marketplace). Investors in “ethical” or “socially responsible” funds are buying not just an investment vehicle, but an investment vehicle that lets them (attempt to) put their own values into action. And if the funds they buy don’t actually promote those values, investors aren’t getting what they’ve paid for and fund managers are guilty of promoting the kind of market failure that comes from information asymmetry. Basically, any time consumers don’t get what they’ve paid for, there’s a prima facie argument to be made that the market is operating inefficiently (i.e., there would be more net benefit — more satisfaction of individual preferences — if things were done differently).

The final issue has to do causation and intentions. There’s no doubt about the fact that Pax World dropped the ball in terms of the filtering it promised its customers. But there’s some question as to why and how. The impression one gets after reading Lieber’s NY Times piece is that, in all likelihood, the problem at Pax World involved sloppiness, perhaps combined with a shift in focus at the firm which resulted in a less-than-scrupulous attention to the values-based origins of their socially-responsible funds. It seems to me to be highly likely that lots of regulatory violations come about that way. As the saying goes, you’ll do better at understanding the world if you assume people are foolish than if you assume people are malicious. The S.E.C.’s job, of course, is to discourage violation of its regulations, regardless of the reasons behind such violations. The S.E.C. only needs to care about causation to the extent that it needs to decide whether to charge a firm with negligence or with intentional wrongdoing. Those of us who aren’t in enforcement roles, but who are more casual observers & analysts of ethical business conduct, can afford to wax philosophical. So I’ll end with questions for consideration: should we care why Pax World failed in the way it did, or simply that the failure happened? Was Pax World’s attempt at socially responsible investing enough to warrant praise, and was its partial failure enough to warrant (moral) criticism?

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Related links:
Pax World Mutual Funds
U.S. Securities and Exchange Commission

Pharmaceutical giant Eli Lilly has just bought Monsanto’s controversial synthetic bovine hormone, Posilac.

From Bloomberg: Lilly to Buy Monsanto’s Cow-Milk Stimulating Hormone

Eli Lilly & Co. agreed to pay at least $300 million for Monsanto Co.’s Posilac, a synthetic hormone used to boost milk production in cows.

The agreement, announced today by both companies, will expand Lilly’s veterinary operations and enable Monsanto, a maker of pesticides and seeds, to focus on genetically modified crops.

Posilac has been on the market since 1994. Lilly, the maker of the antipsychotic drug Zyprexa, gains the U.S. sales force for Posilac and the manufacturing plant in Augusta, Georgia. It also inherits opposition to the hormone from consumer advocates who question its safety and from dairy processors, such as Dean Foods Co., which has labeled its milk as hormone-free.

“You’d assume the controversy is part of the price, so there must be some other reason Lilly wants this asset,” said Charles Anthony Butler, an analyst for Lehman Brothers in New York, in a telephone interview today. “Maybe it’ll help them sell other products to those farmers. Animal health as a component for all pharma companies is a business they want to grow.”

Of course, neither company is a stranger to controversy. Lilly is the maker of the antidipressant Prozac, a regular punching bag for anyone who thinks modern society is over-medicated, and has been the subject of a number of pharma marketing scandals. For its part, Monsanto is one of the companies behind “agent orange,” and has more recently faced all kinds of controversy over its genetically modified seeds and the way it has vigorously protected its intellectual property rights. So the two make quite a pair. Just imagine the business-ethics war-stories those two CEO’s could trade over beers. At least neither company has much to lose in terms of reputation by dealing with the other. I wonder if the controversy attached to Posilac means that a controversy-hardened company like Lilly is more likely to buy it than an equally well-heeled company not so accustomed to controversy?

Clear communication about business ethics is pretty fundamental to everything else we want to do in the field, regardless of what our specific interest is. Words matter. Fraud is not the same as cheating. Condoning is not the same as commending. Blackmail is not the same thing as extortion.
In the interest of clarity, check out this story. It’s about corporate wrongdoing, wrongly named. It’s about an accusation that Shell Oil engaged in the form of misleading advertising known as “greenwashing.” And yes, they did mislead in the way they were accused of, but no, it wasn’t “greenwashing.”
Here’s the story, from the Vancouver Sun: Shell forced to pull ‘misleading’ ads promoting Canadian oilsands projects

A ruling by Britain’s advertising regulator against oil giant Shell has prompted a new World Wildlife Fund campaign denouncing the petroleum company’s “greenwash” tactics in promoting its Canadian oilsands projects.
The U.K. Advertising Standards Authority ruled Wednesday in favour of a complaint by the WWF’s British arm that a newspaper ad in which Dutch-based Shell described its Alberta oilsands operations as “sustainable” was “misleading” and violated ad industry codes for “truthfulness,” “substantiation” and “environmental claims.”

Shell has accepted the Advertising Standards Authority’s ruling. So there’s not much disputing that did what they’re being accused of (i.e., making misleading claims in an ad.) But I’d dispute the claim that this is an instance of “greenwashing.” Greenwashing actually occurs when a company makes claims about its environmental performance that are technically true, but that are misleading in a particular way. Greenwash ads tend to mislead by highlighting one (true) environmental accomplishment in a way that distracts from (or covers up, hence the play on “whitewashing”) a checkered or even deplorable environmental record. (A good example is Ford highlighting its hybrid SUV’s, distracting consumers both from the environmental evils of SUVs in general, and from the company’s not-so-groovy environmental track record.) Now, Shell’s environmental record isn’t the best, so highlighting a “sustainable” project (if it were sustainable) might count as greenwashing. But the more obviously accurate accusation here is that Shell’s ad is straigthforwardly misleading about the environmental-friendliness of its oilsands operations. There’s no use of truth to cover up dirt, here. Just plain, old-fashioned misleading advertising.

While in sunny Anaheim this past weekend, I dined at Ruth’s Chris Steak House (the seared tuna was out of this world). On the wall right by the Maitre d’s desk was this utterly useless warning sign:

Ridiculous, no? Which chemicals? In which foods? Huh? The sign reads more like a parody than it does like an actual attempt to inform consumers.

I realize this warning is posted because of some regulatory requirement, but it seems ethically dodgy to me to simply post such a warning without telling your customers what the hell it really means.

Here’s what I saw during this afternoon’s sessions at the Annual Meeting of the Society for Business Ethics:

The first paper I heard was “Hustling Heritage: Corporate Social Responsibility and the Business of Culture,” by Kevin Gibson. The talk was basically about the conflict that sometimes happens between preservation of important cultural/heritage resources (e.g., Ayers Rock in Australia) on one hand and development (in particular, tourism) on the other.

The second paper was “Corporate Social Responsibility: Understanding the Historical and Modern Construct for Future
Results,” by Larry Ruddell. His focus was on the aspect of CSR that implies a duty to help the poor; he contrasted what we might call the old-school view of philanthropy with more modern understandings.

Blogging live, again, as Day 2 begins, at the Annual Meeting of the Society for Business Ethics.

The first talk I heard was “Walking the Talk Matters to Boundary Spanners,” by Richard Mays Owen. Owen reported on a study he did about the relation between perceived ethical leadership and the attainment of short-term goals by employees. Very roughly, what Owen found is that, in a sales environment, attainment of short-term (30-day) sales quotas was positively correlated with salespersons’ perception that they worked within an workplace with values-based ethical culture (but not positively correlated with compliance-based ethical cultures).

Next, I heard “Ethics and Compliance Initiatives: A Holistic View for Deployment,” by Bob Krug, who talked (based on experience) about the complexities of and desiderata for implementing a corporate ethics/compliance program.

In the first talk of the second session, my friend Denis Arnold presented on “Occupational Safety and Coercion.” The key element of Denis’s talk was a claim about the morally required level of occupational risk-disclosure. Denis argued against a “reasonable person” standard, and in favour of what he called a Kantian conception, according to which an employer should reveal whatever information she herself would want if she were the employee.

Next was “Four Possible Factors in Unethical Marketing to Minors,” by Whiton Paine. Pain (himself a former marketing consultant) argued that much of what is wrong with marketing to kids is rooted in what he called “ethical insensitivity” (which he says comes from a combination of stupidity, ignorance, greed, and hubris).

Finally, I heard “Stakeholder Theory and Direct Child Marketing,” by Russell Fail. Fail talked about various gaps in the empirical research about (and in particular research about ethical perceptions about) marketing to children. One particularly interesting point: he noted that while there is controversy over using expert input from child psychologists to help market to children, there seems to be a lack of information about what child psychologists themselves think of their peers providing such expert input.

The last session of the morning featured 2 presentations about Facebook.

First was “Facebook, Lady Godiva, and Privacy Zones,” by Kirsten Martin. Martin spoke about Facebook’s controversial “Beacon” system (a system that takes information about certain on-line activities and posts it to your Facebook newsfeed, for all your friends to see). She used the Beacon case as a way to illustrate different aspects of privacy (e.g., the difference between collecting & controlling information, and the difference between access to, and use of, information). (p.s. here’s a link to a BusinessWeek story about this story: “Facebook CEO Admits Missteps.”

Finally, I heard “Generation Facebook and the Facebook Phenomenon: An Argument For a Heightened Duty of
Care,” by Tara Radin. She argued that Facebook results in exchange of excessive information and deterioration of face-to-face communication, along with facilitating stalking. Her boldest claim is that Facebook might be tortiously liable for the individual & social harms that she says result from Facebook.

Here’s what I saw at this afternoon’s sessions at the Annual Meeting of the Society for Business Ethics:

“Vocation and Integrity: Prospects for a Virtue Ethics Approach to Business,” by David McPherson. McPherson argued that prospects of virtue ethics as a framework for thinking about business ethics depends upon a prior shift from thinking about jobs as mere sources of employment to thinking about jobs as ‘callings.’ (I asked a naive/skeptical question about just how many of us could be fortunate enough to have jobs that we were able to think of as a ‘calling.’ David’s reasonable answer was that a fairly wide range of jobs can be thought of as callings in the broad sense of having moral importance, at least in that they contribute to the economy and to the survival & flourishing of the families those jobs support.)

“Characterological Ethics: On the Genus of Virtue and Why It Matters in Organizational Behavior,” by Miguel Alzola. Miguel argued that the sort of empirical/experimental evidence that there are no such things as virtues (understood as durable dispositions to act in certain ways) has no force against a more appropriately ‘non-reductive’ analysis of virtue. Virtues (if I’ve understood Miguel correctly) simply can’t be reduced to the sorts of short-term behaviours that are amenable to experimental investigation.

“Moral Charisma, Corporate Leadership,” by Denise Kleinrichert. Kleinrichert sketched an analysis of the notion of ‘charisma’ as a personality trait that is & can be developed, and discussed it in relation to moral leadership within corporations.

Next, I heard “A Puzzle About Executive Compensation,” by my pal Jeffrey Moriarty from BGSU. Jeff argued to the surprising conclusion that CEOs have — basically as part of their general duty to reduce costs — an ethical obligation not to accept a level of pay higher than the minimum required to motivate them to work hard on behalf of the company & its shareholders.

Finally, I saw “A Defense of St. Thomas Aquinas’ Concept of the Just Price,” by my friend Daryl Koehn. Daryl’s talk was primarily a piece of Aquinas scholarship (rather than normative ethics), but the issue of ethical pricing is so under-theorized, frankly, that every little contribution helps. (This is not to downplay what was a lively and lucid talk!) She argued that the two standard interpretations of Aquinas (the “cost recovery” view and the “exchange price” view) are both flawed. Daryl argued instead that Aquinas had a much more complex & subtle view of just pricing than is normally acknowledged (one that acknowledges the importance of cost recovery and ‘market’ prices, among other factors) , but that his view is in the end grounded in the idea of promoting the flourishing of the community.

I’m blogging “live” (again) from the Annual Meeting of the Society for Business Ethics (in sunny Anaheim, California).
I’m just planning on posting summaries of whatever presentations I happen to attend.
I’ll be posting twice a day (once for the afternoon session & once summarizing the afternoon session).

I was a presenter in the first session I attended today. The first paper of that session was by Alexei Marcoux, on “Moral Partiality in Business Practice. Alexei pointed out that the focus of most scholars in business ethics is on moral impartiality. Ethics is, after all, from the point of view of most philosophical moral theories, the impartial exercise of judgment concerning right and wrong, and treating all persons as moral equals. Business ethics, Alexei argued, has adopted that same focus on impartial moral judgment. However, Alexei argued convincingly, this is at odds with the structure of the world of business. Many (perhaps most) relationships in the world of business are, and ought to be, rooted in partiality: the partiality (roughly, loyalty) of employee to manager, of manager to shareholder, of lawyer to client, and so on.

The second paper in that session was by Wayne Norman and me, and was called “Conflict of Interest: from Conceptual Analysis to Normative Evaluation and Institutional Design.” In our presentation, we sketched the history of the concept of ‘conflict of interest’ (COI), discussed briefly the scholarly work that has been done to refine the definition of COI, and proposed an agenda for future research that focuses on what we call mid- and macro-level theories of institutional design.

The second session of the morning featured the following presentations:
“The Legal Ontology of the Corporation as a Description of its Role in Society,” by David Ronnegard. Ronnegard talked about the socio-economic role of the corporate legal form (i.e., its role as an instrument for production and economic growth). He argued that prescriptions for change in the role of the corporation in society need to take (more) realistic stock of the way in which the corporate form has actually evolved, and the role in plays in society.

“Finding Moral Imperative in an ‘Amoral’ Theory of Economics,” by Jeff Frooman. Jeff provided a really interesting survey & typology of anti-competitive market practices (e.g., bid-rigging, cartels, non-compete clauses, etc). If we take it as given that a robustly competitive market is a social good, a typology of anti-competitive practices gives us something very like a typology (admittedly incomplete) of moral wrongs in the marketplace.

“The Constitutive View of Corporate Moral Responsibility,” by Martin Sandbu. Sandbu was interested to import into business ethics some of the literature on collective responsibility. He discussed the extent to which the actions of a corporation in some sense by definition represent the will of the shareholders (because shareholders have empowered corporate managers to act on their behalf).
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p.s. here’s the link to the entire conference program.

Not sure what to say (or even think) about this. The Chinese government is apparently threatening airlines for the misbehaviour of passengers.

From Reuters: Punishing airlines whose passengers misbehave

BEIJING (Reuters) – China will punish airlines whose passengers refuse to disembark or misbehave in protest over problems like delayed flights, an official said on Thursday, as the Olympics host tries to lift standards before the Games.

Frustration at mysterious delays and abrupt diversions and cancellations have at times boiled over into violence at Chinese airports, with passengers trying to storm grounded aircraft and police having to be brought in to keep the peace.

There have also been cases in which passengers, after delayed arrivals, have refused to get off aircraft in protest.

Deputy head of the civil aviation regulator, Yang Guoqing, said enough was enough after numerous warnings to airlines to treat their passengers better appeared to have failed.

On the face of it, it’s odd to punish the airlines for the behaviour of passengers (as opposed to punishing them for their own failings). Of course, in some of the cases discussed, passenger misbehaviour was apparently due to crummy service on the part of the airline. But in others, uncontrollable factors, such as weather, played a big role. Perhaps the Chinese government is taking The Godfather’s line on strict liability: “Accidents don’t happen to people who take accidents as a personal insult.”