The Business Ethics Blog

This Blog is dangerously close to becoming the “Wal-Mart Ethics Blog.” This is not my plan, but interesting stories about the world’s largest retailer just keep popping up!

Yesterday, Reuters had this:
Wal-Mart to open stores in blighted areas

Wal-Mart Stores Inc., under fire from a host of critics for its business practices, on Tuesday said it would open more than 50 stores in distressed areas and help small business around those locations thrive once the discount chain moves in.

The world’s biggest retailer, often blamed for driving mom-and-pop stores out of business, said it would offer business development grants to nearby companies and give them free in-store advertising as part of a new economic development program.

Wal-Mart will also hold seminars for minority and women-owned business owners on how to become Wal-Mart suppliers, as well as seminars for all surrounding small businesses on how to compete in a community with a Wal-Mart.

Here are 3 perspectives on this story. Make up your own mind:

• “This is window-dressing. It’s damage-control. After a few years of harsh criticism, Wal-Mart is going to spend a few bucks on helping the ‘little people,’ and then brag about it, like, forever.”
• “This is atonement. However late, however reluctantly, Wal-Mart is going to try to buy its way out of purgatory.”
• “This is classic (now mainstream) Corporate Social Responsibility. It’s an example of a company helping a range of stakeholders in a way that, yes, looks good, and may have other kinds of synergistic positive implications for the bottom line.”
• Oh, and option 4 is “All of the above.”

Personally, I have no idea what’s motivating this move by Wal-Mart. You may have an opinion, but backing that up will be difficult. After all, most of us have trouble divining the motives of people we know well. Accurately determining the motives of an organization as large & complicated as Wal-Mart seems much harder. So, what are we to do, when corporate motives are so unclear?

Update: Here’s the NYT’s take on this story

Last week I posted a limited defense of Wal-Mart.

Peter over at CredoAdvisors has written up a thoughtful response.

From the rumour mill: A spokesperson for Ken Lay has apparently announced that the former Chairman of Enron will donate the last of his much-diminished fortune to sponsor a business ethics essay contest for college students.

The contest will apparently invite entries in several categories, with winners in each category receiving appropriate prizes, including:

“Best Paper on Business & the Environment.” Prize: a fully tricked-out SUV.
“Best Paper on Ethical Issues in Customer Service.” Prize: a Dell laptop.
“Best Paper on Corporate Philanthrophy” Prize: a lifetime supply of Reebok running shoes.
“Best Paper on Energy Conservation.” Prize: a gift basket featuring a range of petroleum products, courtesy of Exxon
“Best Paper on Ethics & Governance.” Prize: framed, autographed copy of the Enron Code of Ethics.

So far, this rumour has not been substantiated, but some details can be found here and here.

Here’s a fun story, with an irritating title, from Salon.com: Who needs ethics laws? We have real-estate records, by Tim Grieve. [You should be able to view the story for free; but you might have to agree to watch a commercial to get to it.]

Citing an Associated Press story, Grieve writes:

According to the story, Ryun bought his Capitol Hill house from the Family Network for $410,000 in December 2000. He paid $19,000 less than the Family Network had paid for it two years earlier — an unlikely deal, as anyone who has followed the Washington, D.C., housing market can tell you. The house is now valued at $764,310.

The Ryun revelations come just months after the political life of Rep. Duke Cunningham gave way to bribery charges because a scrappy reporter stumbled upon real-estate records that showed a defense contractor had sold Cunningham his house at a $700,000 loss.

First, the thing that’s irritating about the title (though it’s not Tim Grieve’s fault) is the term “ethics laws.” It’s a silly and misleading term. Most good laws prohibit activities that are also unethical. So, in a sense most laws are “ethics laws.” So, it’s a poor term for the particular sub-set of laws discussed in the Salon.com story, namely laws established to regulate things like conflict of interest and bribery.

(I’ve blogged about the distinction between ethics & law before, in discussing the way the term “corporate ethics” has come to mean something like “not breaking the law,”, and again in discussing theEnron trials.)

What’s fun about the story is that it’s about investigative reporters cleverly hunting down evidence of wrongdoing by lobbyists and the politicians they lobby. Of course, the rhetorical question in Grieve’s title is also off-base: we need laws prohibiting this sort of behaviour precisely so that, when an investigative reporter digs it up, someone can be called to account not just by the media and the public, but by the courts.

From BusinessWeek Online today: Wal-Mart’s Organic Offensive.

Wow. The world’s largest retailer is planning to make a big dent in the organic foods market. Yes, Wal-Mart, everyone’s favourite symbol of corporate avarice, is aiming to become a leading purveyor of the archetypical goody-goody lefty-progressive counterculture boutique consumer good.

But not everyone is happy about this (which is what makes the title of the article a play on words. Get it?)

Richard DeWilde has a long history with organic farming. His grandfather, Nick Hoogshagen, adopted the organic approach five decades ago on his farm in South Dakota, well before it became popular with consumers…
But DeWilde isn’t thrilled. Instead, he’s dismayed at the prospect of Wal-Mart becoming a player in the organic market. He fears that the company will use its market strength to drive down prices and hurt U.S. farmers. “Wal-Mart has the reputation of beating up on its suppliers,” says DeWilde. “I certainly don’t see ‘selling at a lower price’ as an opportunity.”
He’s hardly the only one. Many farmers who have benefited from the strong demand and healthy margins for organic goods are fretting that the market’s newfound success also brings with it newfound risks.

Now, I’m not about to say anything anti-farmer. Most farmers work much harder than I do, and deserve every penny they make. But still, it’s a little hard to have much sympathy for the idea that organic foods should be priced so that only people driving Volvos while sipping Starbucks cappucinos can afford them.

More interesting, perhaps, is the worry that Wal-Mart (and other major corporate players) might use their influence in Washington “to lower the standards for what is classified as organic food,” and that they might import ostensibly “organic” food from China, which would hurt American farmers and (in some people’s eyes) render the authenticity of the supposedly organic foods suspect.

But the article ends on an up note. It reminds us that a retailer the size of Wal-Mart is capable of changing the way suppliers do business. The result of Wal-Mart entering the market for organics might well mean an overall increase in the supply of organic foods.

While some farmers are concerned that Wal-Mart may try to squeeze them financially, there could be a more benign impact. Farmers who now use pesticides and other chemicals could turn to organic farming, as they see increased demand.

(Of course, just how much credit Wal-Mart deserves, here, depends in part on what we think of organic foods. Certainly, using less pesticide & so on seems like a good thing, from an environmental point of view. But there’s at least some reason to doubt whether organic foods are any healthier than other foods).

I recently had the pleasure of helping out at a student-run event where the focus of discussion was ethical assessment of Wal-Mart.
I had the unenviable (but not impossible) task of saying some nice things about Wal-Mart.

Here are the highlights of what I said:

• It’s important to keep separate our moral evaluation of some of the bad business practices that have been observed at Wal-Mart (forced overtime, discriminatory hiring & promotion, etc.), on one hand, and our moral evaluation of Wal-Mart’s business model and its large-scale impact. The former are indefensible, and must be changed. The latter are at least worthy of debate.
• Wal-Mart’s business model is to focus on price. Low, low, prices, mostly for consumers who are very sensitive to price. (Contrast this with Starbucks; their business model is to sell boutique coffee to those of us willing to spend $5 for a shot of caffeine.) The primary beneficiaries of this business model are Wal-Mart’s low-income customers. (Not all of their customers are low-income, of course. But for those who are, Wal-Mart’s prices can mean saving as much as a couple thousand dollars a year, per household. That has a very, very significant effect on quality of life.)
• Wal-Mart has been criticized for its anti-union stance. But we have to remember that while unions may typically benefit employees, they typically hurt consumers. Unionization would mean Wal-Mart’s costs would go up; and in a retail environment in which even a successful company like Wal-Mart has only a 3.5% profit margin, that can only mean that prices would have to rise (which, of course, would hurt the working poor).
• Wal-Mart didn’t get where it is by being a monopoly (it’s got lots of competitors), or by advertising (it does very little advertising, for a company its size). It got where it is by being really good at delivering decent products at very, very low prices. It’s done that by adopting excellent supply-chain management techniques (including cutting-edge information systems), and by forcing suppliers to become more efficient.
• A lot of the frustration with low wages and poor health benefits at Wal-Mart are off-target. We have to remember that retail jobs, in general, are not well-paying. Nor is Wal-Mart a laggard in terms of health insurance, compared to others in that industry. A lot of the troubles experienced by Wal-Mart employees are the sad result of having few opportunities, and living in one of the few industrialized nations without universal health insurance.
• Finally, my prediction for Wal-Mart? You can quote me: within 5 years, Wal-Mart will be at the TOP of at least some business ethics / corporate social responsibility / corporate citizenship rankings. (They currently lag just barely behind their major competitors.) It has the resources, both financial and organizational. And it’s facing intense public scrutiny. It’s got a lot at stake. Those are the ingredients that turned Nike from a sweat-shop horror-story into an model of socially responsible apparel manufacturing. My guess is that, 5 years from now, Wal-Mart will be a leader (at least in terms of the standard, measurable indicators), and will be pushing its competitors and suppliers alike to meet their standard.

Here are some relevant links:

• From The Economist Opening up the big box:
• From The Washington Post Progressive Wal-Mart. Really.
• The Wal-Mart Effect : How the World’s Most Powerful Company Really Works (a book by Charles Fishman)
• Measuring the Economic Impact of Wal-Mart on the U.S. Economy (a study by Global Insight)
• From Maclean’s magazine: Why Wal-Mart is Good.

(Thanks to Joe Heath & Wayne Norman for useful feedback & discussion on this.)
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(Edited April 2010 to remove one dead link and fix a broken one.)

Reuters had this story today, “Scientists seek biotech answer to hunger”, about researchers in the U.S. working to genetically tweak sorghum (a cereal crop) to make it richer in essential nutrients.

An estimated 300 million people in arid regions of Africa rely on sorghum as a food source along with other crops. But while conventional sorghum is already known to do well in drought conditions, it lacks certain key nutrients.

By taking genes from other crops as well as manipulating genes within the sorghum plant itself, scientists believe they can remake sorghum into a more easily digestible crop richer in vitamins A and E, iron, zinc and amino acids and protein.

Pioneer Hi-Bred International, a subsidiary of Dupont, is a key U.S. partner and the sole commercial player in the endeavor. Pioneer has donated $4.8 million in gene technology, and is lending manpower and facilities for visiting African scientists at its Johnston headquarters.

The claim is often made that biotechnology will bring huge benefits to the world’s developing nations. In particular, it’s often — too often — claimed that genetically modified (GM) foods will do wonderful things for the starving millions in Africa. It seems to me that the question is not whether biotechnology could help the developing world, but rather whether it will. For biotech actually to help developing nations, it seems that one of two things has to happen. Either governments and NGO’s need to spend a lot of money to donate biotech products or know-how, or companies need to find business models that let them a) do good, while b) making a profit. The company involved in this story (Pioneer Hi-Bred) is frank about its business model:

Pioneer will have no rights to revenues from the biotech sorghum once it is developed and commercialized, said Anderson. But the company, already locked into tight competition in the commercial seeds market, hopes that success with biotech sorghum might help open doors for other biotech crops in countries currently skeptical of genetically altered crops.

The point here is that African countries have been very, very wary of GM foods — in some cases, African governments have rejected donations of GM food that would have saved lives. So, Pioneer is hoping GM sorghum will be the thin edge of the wedge. Some people will find this alarming. I don’t (since I don’t think there’s any good reason to worry about GM foods in general.) But you’ve got to admit, the company’s candour about its business model is pretty disarming.

A couple of days ago, MSNBC featured a commentary by Art Caplan (director of the Center for Bioethics at the University of Pennsylvania), on a couple of recent clinical drug trials that went very wrong. One of them happened in London, and the other in Montreal.

Caplan writes:

Last week, six very healthy men suddenly wound up in a London hospital in critical condition. Earlier this month, 11 otherwise well people tested positive for tuberculosis, according to Montreal’s health department. What do these people have in common? All were human subjects in research paid for and conducted by private companies. These mishaps mean that the time has come to take a closer look at how commercialized research involving human subjects is being conducted all over the world.

Caplan’s very reasonable conclusion is to call for tighter regulation of the companies that now conduct so many drug trials for pharmaceutical corporations:

The recent events in London and Montreal make it clear that it is time for Congress and other regulatory bodies here and overseas to take a hard look at how clinical research is being done these days. Many of those in the for-profit business of conducting clinical research may be doing their best, but they and their sponsors had best be putting the safety and welfare of their subjects first. Otherwise they should have no business doing clinical research.

Tighter regulation is of course a great idea here. This is a situation where vulnerable lives are being put in the hands of the lowest bidder, and research subjects are being recruited by physicians who often receive finder’s fees that place them in a very, very serious conflict of interest. But I can’t help wondering if a public-policy response is the only response available.
From the point of view of business ethics, we might ask the following questions:

• What can the industry do to towards better self-regulation? (And what moves on the part of government — legislative, exhortative, or financial — could inspire better self-regulation?)
• What factors have resulted in the failure of leadership in these corporations? We all know that the tone is set at the top. What are pharma CEO’s doing wrong?
• Has anyone, either in academia or industry, written up anything like a set of ‘best practices’ for the business side of commercial clinical trials?
• Is there anything peculiar (or just inadequate) about the ownership structure or governance structures of the pharmaceutical industry that makes failures of this kind more likely? (There is a literature on these issues for corporations in general. See, for example: “Why do corporations become criminals? Ownership, hidden actions, and crime as an agency cost”)

(See also my previous posting on “What Causes Unethical Behaviour.”)

My friend Andrew continues to have trouble with customer service at Dell computers.

Reports that he’s not alone in his dissatisfaction with Dell got me thinking about Dell overall, Dell customer service (such as it is) and the company’s commitment to ethics. What relationship is there between Dell’s overall commitment (or lack thereof — I have no idea) to ethics, on one hand, and the quality of their customer service, on the other? Sounds like a great student project, to me.

So, just in case anyone wants to take on an overall assessment of ethics at Dell, here are some resources:

• Here’s a story about Dell’s Chief Operating Officer, Can Kevin Rollins Find the Soul of Dell?, with a focus on values.
• Here’s a notice of an environmental award that Dell won at the 16th Annual Business Ethics Awards.
• Here’s the page for Thurmond Woodard, Dell’s Chief Ethics, Privacy & Compliance Officer and Vice President, Global Diversity.
• Here’s Dell’s corporate governance page.
• A complaint website, http://www.ihatedell.net/
• Electronics Industry Code of Conduct, to which Dell subscribes.
• Dell’s Higher Standard (Code of Conduct)
• And finally: The Soul of Dell, which includes the following commitment:
  

  Customers: We believe in creating loyal customers by providing a superior experience at a great value. We are committed to direct relationships, providing the best products and services based on standards-based technology, and outperforming the competition with value and a superior customer experience.

The Globe & Mail’s Report on Business magazine just published its latest Corporate Social Responsibility Ranking, in collaboration with Jantzi Research, Inc. The focus is on Canadian companies (or Canadian branches of international companies), and companies in just 5 sectors (Big Retail, Shoes & Clothes, Fast Food, Food Production, and Food & Drug.)

Companies are evaluated and scored in six key areas: community and society, corporate governance, impact on customers, treatment of employees, the environment and human rights. Jantzi translates the combined scores into a letter grade that is meant to convey the overall impact of a company’s social and environmental practices on employees, consumers, investors and communities, as well as the company’s success in tackling ongoing CSR issues. The scoring criteria are weighted differently for each sector, but the letter grades give some indication of a company’s performance relative to those in other sectors. Companies in the same sector with the same letter grade are ranked by their underlying numeric score.

A number of organizations and publications produce such rankings. Methods of evaluation vary, as does depth of research and degree of diligence.
A few things worth noting about this particular ranking:

• Apparently, just a single company (adidas-Salomon) earned a score in the A range. The calibration of such scares is of course somewhat arbitrary: to set the scale so that even industry leaders don’t get an A+ may well be a reasonable choice, but we should at least note that it is a choice.
• Having a policy on a particular issue is not enough. A number of companies got slammed for having good policies, but bad practices. For example: “Wal-Mart has a strong charitable donations program and is top-ranked for its workforce diversity policies. But it rates poorly on diversity performance and currently faces a U.S. class-action lawsuit filed by 1.6 million women alleging wage discrimination.”
• Lack of transparency is nearly fatal as far as these rankings go. A company might have great policies & practices, but if they’re unwilling to talk about them, their score sinks into the basement. The Forzani Group, for example, earn a grade of “E” (the second lowest possible), because the company does “not report any policies or programs that address the treatment of customers, suppliers or the environment.” [emphasis added]
• This isn’t very scientific, but there seems to be a correlation between high scores and a history of bad publicity. It seems likely that Starbucks, Nike, and the Gap score very well these days because they’ve cleaned up their act in response to pressure from the public, the press, and NGO’s.
• A number of firms get credit for impressive rates of charitable donation. But no information is given, here, about the beneficiaries of this corporate largesse. Not all charities are equally socially worthy. There would be differences of opinion, to say the least, about the value of donations given to: the National Rifle Association, PETA, or various pro-life or pro-choice groups.