The Business Ethics Blog

Healthcare is a big business. There’s lots of money being spent, and hence (analytically) lots of money being made. That makes financial conflicts of interest pretty likely to occur.
The latest group to come under fire in this regard is hospital executives. See, for example, this NY Times story: Hospital Chiefs Get Paid for Advice on Selling (by Walt Bogdanich)

Here are the opening paragraphs of the story:

One recent sun-splashed afternoon, executives who run some of America’s leading nonprofit hospitals met at a stately Colorado resort for an unusual mission: to advise companies confidentially on how best to sell their drugs, medical devices and financial services to hospitals.
The hospital executives were rewarded with more than a chance to indulge in a “harmonic” hot stone massage or mountainside golf.
They were also paid thousands of dollars for the advice they offered to dozens of companies, like Eli Lilly, Johnson & Johnson, Morgan Stanley and Citigroup.

Just to put the issue into stark, black-and-white terms, here are two spins on this activity:
Positive: Companies need information on hospitals’ needs. No one understands a hospital’s needs better than hospital executives. So, companies turn to hospital execs for advice. Providing such advice is not a usual part of a hospital exec’s job, so it has to be done after hours, on weekends, etc. If the execs’ advice is worth something, so is their time: if they’re spending time advising companies, they ought to be compensated for it.
Negative: Hospital execs work for hospitals, and have fiduciary (i.e., trust-based) duties to the hospital’s patients and to the foundations that fund the hospitals (remember we’re talking about nonprofit hospitals, here). Hospital execs (depending on their precise job title) are typically going to have some influence on purchasing decisions; patients and foundations need to be able to trust that those decisions will be made so as to best use foundation money to serve patients. If executives are personally receiving non-trivial compensation from suppliers, then there’s grounds to think that they’re facing a conflict of interest.

Instead of comments, how about some questions:

• Just how much is each executive being paid by the various corporations (the second half of the story gives some indication of that), and is that amount sufficient to make us worry about its influence on decision-making? (Most large companies have rules about accepting gifts or other benefits from suppliers; typically such rules stipulate that “token” gifts — such as pens, calendars, etc. — are fine, but larger gifts are not.)
• Has each executive disclosed that he or she is in a fiancial relationship with the various corporations (i.e., disclosed it to his or her boss, the hospital’s Board of Directors, etc.)?
• When Executive A is faced with making an on-the-job decision about the products of Corporation X (a corporation to which Executive A has provided consulting services as described in the NY Times Story), is Executive A consistently disclosing the conflict of interest, and recusing him- or herself from the decision-making?
• Is the information supposedly being gleaned by companies at these events information that could not be provided by various hospitals’ Purchasing Departments, in their official capacity and in a professional manner? (That is, is there some other way that companies could acquire information that they legitimately need, without risking putting hospital executives into a conflict of interests?)

Relevant Books:
Conflict of Interest in the Professions
Ethics in Health Administration: A Practical Approach for Decision Makers
An Ethics Casebook for Hospitals: Practical Approaches to Everyday Cases

Here’s an interesting example of how differently ethical issues can be spun in the press…

First, some background on the central concept at issue in the news story at hand: Nepotism involves giving preferential treatment to relatives, typically in things like hiring or giving out contracts. It’s typically not a big problem for small, privately-held companies, where if the owner/manager hires a close relative (rather than hiring the most talented candidate) no one else is going to be affected much. It’s a much bigger worry in publicly-traded companies, where managers have a fiduciary obligation to shareholders to see that the most talented — rather than the most closely related — candidates get hired.

Writer Hanah Cho has a nice little article on the ethics & optics of the practice, published in at least a couple of different newspapers this weekend. What’s interesting is how different editors (or headline-writers) chose to spin the story. Check out these two very different headlines, for the same story:
“Nepotism occurs despite negative perceptions” (The Miami Herald)
“Nepotism can be a benefit to corporations” (The Albany Times Union)

As far as I can tell, the rosy headline used by the Times Union is entirely unjustified by anything in the text of the story itself.

The only other differences in the two versions of the story (as far as I can tell) are these:

1) The Times Union version has slightly different paragraph breaks, so that the following sentence, rather than being stuck at the end of a larger paragraph, sits by itself (and is therefore — intentionally or not — highlighted):

“The troubles faced by WorldCom Inc., Tyco International Ltd. and Enron Corp. arose from other problems.” [i.e., problems other than nepotism]

2) The Times Union version omits the following paragraph, included near the end of the The Miami Herald version:

“I would advise a client that if you have two equally qualified candidates, it’s safer not to hire the family member,” said Ross A. Albert, a partner at Morris, Manning & Martin in Atlanta, and a former senior special counsel for the Securities and Exchange Commission. “There will be some who will perceive that a [family member] hiring resulted from nepotism, not merit.”

Hmm…almost makes you wonder whether nepotism is a touchy issue, over at the Times Union. (For the record, no, I know nothing at all about the Times Union, its management or its staffing.)

Relevant Books:
The Ethics of Human Resources and Industrial Relations
In Praise of Nepotism: A History of Family Enterprise from King David to George W. Bush
High Impact Hiring: How to Interview and Select Outstanding Employees

I never thought I’d see an ethically-interesting story about shoplifting. For those of us who study ethics, stealing stuff is not exactly a subtle moral issue.

A story in today’s NY Times, “Some Leeway for the Small Shoplifter”, changes that.

Wal-Mart refuses to carry smutty magazines. It will not sell compact discs with obscene lyrics. And when it catches customers shoplifting — even a pair of socks or a pack of cigarettes — it prosecutes them.
But now, in a rare display of limited permissiveness, Wal-Mart is letting thieves off the hook — at least in cases involving $25 or less.
According to internal documents, the company, the nation’s largest retailer and leading destination for shoplifting, will no longer prosecute first-time thieves unless they are between 18 and 65 and steal merchandise worth at least $25, putting the chain in line with the policies of many other retailers.

The reason for Wal-Mart’s change of policy? The article cites two:
1) It’s not economically feasible to enforce zero-tolerance. According to one Wal-Mart exec quoted in the story: “If I have somebody being paid $12 an hour processing a $5 theft, I have just lost money….I have also lost the time to catch somebody stealing $100 or an organized group stealing $3,000.”
2) The zero-tolerance policy was putting a strain on some police departments, whose officers would need to be called in everytime some kid got caught swiping a pack of gum. “At some of the chain’s giant 24-hour stores, the police make up to six arrests a day…”

A few thoughts about the ethical dimensions of this story, in no particular order:

• Both of the reasons offered above serve to remind us that, from an economic point of view, there is pretty much always going to be some non-zero efficient level of crime, whether in a given store or in society more generally. That is, from a financial point of view, it’s almost never worth it to put in place sufficient enforcement mechanisms to drive the crime rate to zero.
• The change in policy is apparently based purely on localized economic factors. So it leaves aside questions like whether theft is a moral wrong that ought, morally, to be punished. Some would argue that retailers have an obligation to do their part in punishing wrong-doing, independent of whether doing so is strictly efficient.
• Some will see the amount of law-enforcement effort expended on arresting shoplifters at Wal-Mart as a “further” way in which Wal-Mart is subsidized by public coffers. In a sense, that’s true. But it’s only true in the same sense that your own security costs (and mine) are subsidized by public coffers. The fact that the city I live in has an effective police force is part of the reason I don’t need a full-time security guard at my home. The more interesting question, regarding Wal-Mart, is whether there’s something about Wal-Mart that makes it a disproportionate drain on law-enforcement budgets. That is, does your average Wal-Mart use up more law-enforcement resources than other stores its size, or than however many smaller stores you’d have to add up to equal its size? Is anything about Wal-Mart especially criminogenic?

(Note: See also the interesting blog entry on this over at the Freakonomics blog.)

Relevant Books:
Shoplifting: A Social History, by Kerry Segrave
The Sociology of Shoplifting: Boosters and Snitches Today, by Lloyd Klemke
Retail Security: 150 Things You Should Know, by Louis A. Tyska, Lawrence J. Fennelly

Law prof and blogger Stephen Bainbridge has some interesting, brief comments on Google’s plans to build an office and research centre in Ann Arbor, Michigan. Google co-founder Larry Page apparently has close ties to the town, having gone to university there, etc. The new project is also anticipated to give a political boost to Michigan’s Democratic governor.

Writes Bainbridge:

So Google’s bosses are spending the shareholders’ money to boost (a) one of the bosses’ hometown and (b) one of the many liberal politicalians the bosses espouse.

Of course, it’s not like Google is building a new opera house, or even endowing a hospital foundation or something…they’re building an office, and a research centre…both projects that you’d think would have a legitimate business purpose.

Here’s the NY Times story on Google’s new centre.

I just watched the 2004 documentary “A Decent Factory”.

This bare-bones documentary examines efforts by Finnish cell-phone maker Nokia to monitor its own supply chain. The film follows Nokia’s internal ethics advisor and a British ethics consultant on a trip to Shenzhen, China, to audit the operations of a factory making parts for Nokia phones.

The film is worth watching if you’ve got an interest in the subject matter, and would be a great teaching tool for a business ethics class or a class on supply-chain management. But don’t expect the slick production values of The Smartest Guys in the Room (the Enron movie) or even Wal-Mart: The High Cost of Low Price. Don’t expect much flash: just a camera following the auditors around the factory, interviewing managers and workers, examining safety and environmental practices.

One of the most striking things about the movie is that working conditions in the factory are, well, so-so. This isn’t a sweatshop: workers are under-paid a little (compared to what’s required by Chinese law) and they complain that the food in the factory cafeteria is bad. But there are no 16-hour days, no oppressive heat, and no beatings. In part, that’s what makes the auditors’ (and, in the end, Nokia’s) position so difficult, and is likely to leave many viewers feeling somewhat ambivalent. If the factory were a real sweatshop, it would be easy to abhor it, and perhaps easy for Nokia to cut it out of their supply chain. If, on the other hand, the factory were a model of progressive working conditions…well, then it wouldn’t have been in the movie. As it is, Nokia is faced with a dilemma: as a socially conscious company with socially conscious customers, they can’t just turn a blind eye to violations of minimum-wage laws or ignore lax enforcement of safety standards, but neither can they simply insist that the factory’s owners simply eat the full cost of bringing their practices up to par.

This, in part, is what makes this movie interesting. It illustrates why business ethics (or at least the ethics of supply chain management) is so challenging. Foot-stomping criticism of brutal sweatshop labour is easy. Cases like the one shown in A Decent Factory are much harder. Grey areas where things aren’t perfect and improvement is possible-but-not-easy demand thoughtful problem-solving and a serious commitment to improving (rather than perfecting) performance and having better, rather than worse, answers at hand when called to account.

Links:
IMDB’s page about “A Decent Factory”
Nokia’s Supplier Requirements
List of other movie reviews on this blog.

Relevant Books:
Nokia: The Inside Story
The Nokia Revolution : The Story of an Extraordinary Company That Transformed an Industry
Essentials of Supply Chain Management, 2nd Edition
Implementing Codes Of Conduct: How Businesses Manage Social Performance In Global Supply Chains

Corporate Knights (“the Canadian magazine for responsible business”) has just released its Best 50 Corporate Citizens for 2006. [Link repaired Nov. ’08]

Amazingly, tobacco giant Rothmans Inc. ranked #2 on the list (just behind Shoppers Drug Mart, Canada’s largest chain of drug stores, and just ahead of Reitman’s, a major chain of retail clothing stores). Apparently, killing a lot of people (sorry, I mean supplying an addictive product that just happens to kill a lot of people) doesn’t prevent you from being considered a good corporate citizen.

Now, as I’ve discussed here before, these sorts of rankings are a difficult thing. What sorts of things make a company ethical or a good corporate citizen? How much weight should be attributed to various factors. No easy answers here.
But you have to remember that, whatever your ranking system, it is essentially a model, a theory of corporate ethics (or citizenship or sustainability or whatever). Developing theories of ethics is a notoriously difficult problem. But one sign of a decent ethical theory is that, in addition to providing guidance on issues where we seek greater clarity, it should fit reasonably well with our most well-established moral intuitions. That’s not to say that we should build theories that simply replicate our current views and biases. But a theory that conflicts badly with our most deeply-held moral views is off to a pretty rocky start. Conflict with deeply-held moral views is a good reason to consider tweaking your theory; similarly, if our intuitions conflict with well-thought-out theories, we may have reason to consider whether our intuitions are really all that dear to us, or whether they perhaps represent biases that ought to be revised. (In John Rawls’ terms, theory and intuition should be brought into “reflective equilibrium”.)

Well, here’s a hint, folks. If your system of ranking “best corporate citizens,” “most sustainable companies” or “most ethical firms” results in a major tobacco company scoring near the top of the list, it’s time to consider revising your system.

Relevant Links:
More information on Corporate Knights’ rankings, including methodology. [Dead link deleted Nov. ’08]
Rothmans’ CODE OF BUSINESS CONDUCT AND ETHICS

Relevant Books:
Corporate Citizenship: Successful Strategies for Responsible Companies
Business And Society: A Strategic Approach To Corporate Citizenship
Business Ethics: A European Perspective : Managing Corporate Citizenship and Sustainability in the Age of Globalization
Smokescreen: The Truth Behind the Tobacco Industry Cover-Up
Assuming the Risk : The Mavericks, the Lawyers, and the Whistle-Blowers Who Beat Big Tobacco
———-
Thanks to Joe Heath for bringing this one to my attention.

A story in the current Guardian Weekly points to more business-ethics troubles in the pharmaceutical industry: Report reveals tricks of pharmaceutical trade, by Sarah Boseley

The Consumers International report says drug companies use unscrupulous and unethical marketing tactics not only to influence doctors to prescribe their products but also subtly to persuade consumers that they need them….

The report examines the marketing practices of 20 of the world’s biggest drug companies. It alleges that:

– Drug companies are promoting their products through patients groups, students and internet chatrooms to bypass the ban on advertising except to doctors.

– They offer information to the public on “modern” lifestyle diseases, such as stress, to encourage people to ask their doctors for medicines.

– They make inaccurate claims about the safety and efficacy of their drugs.

– Doctors are offered incentives to prescribe and promote drugs including kickbacks, gifts, free samples and consulting agreements.

– Many companies have been implicated in anti-competitive strategies, including cartels and price hikes.

Violations of industry-wide drug promotion codes occur with regular frequency, says the report. The 20 companies were involved in 972 breaches of the ABPI’s rules on ethical drug practices between 2002 and 2005. More than 35% of those breaches, the largest category, had to do with misleading drug information.

I’ve asked it before, I’ll ask it again: just how did pharmaceutical companies — companies supposedly dedicated to improving human life — end up in roughly the same moral category as tobacco companies, oil conglomerates and arms dealers? Depressing.

Relevant Links:
Branding the Cure: A consumer perspective on Corporate Social Responsibility, Drug Promotion and the Pharmaceutical Industry

From today’s NY Times, yet another story about physicians, drug & medical device companies, and conflict of interest: Charities Tied to Doctors Get Drug Industry Gifts

Around the country, doctors in private practice have set up tax-exempt charities into which drug companies and medical device makers are, with little fanfare, pouring donations — money that adds up to millions of dollars a year. And some medical experts see that as a big problem.

Now of course, many corporate donations are well-intentioned, and many of the foundations funded through corporate largesse do important research, educational work, and so on. But others are clearly thinly-veiled ways for companies to funnel money to physicians — money they can’t legally simply hand over to them — as part of a marketing strategy.

Patrick L. Meehan, the United States attorney in Philadelphia, whose office has a long history of prosecuting health care fraud, said the doctors’ charities could warrant scrutiny. “What we would be concerned about are end runs around the system,” Mr. Meehan said. “We want to be sure there is independent and fully informed medical judgment at the heart of the physician-patient relationship.”

Why this is a business ethics issue:

a) In most places, doctors are business-people, too. Even if they practice solo, they run offices, hire staff, and so on. And many become involved in larger partnerships, run major clinics, etc. They’re engaged in business, so they need to know (and help improve) the ethical rules that apply to the world of commerce.

b) The other side of the coin: for every physician (or every hundred physicians) involved in a conflict of interest, there’s a pharmaceutical or medical device company generating that conflict. Bioethicists are welcome to focus on the choices physicians make in getting themselves into such conflicts, and what they should do to avoid them. But from a business ethics point of view, there are serious, serious questions about corporate behaviour here. Whenever corporate actions — a donation, a consulting contract, whatever — put a professional or other trusted decision-maker into a conflict of interest, they are arguably doing a disservice both the the public that relies upon that decision-maker, and to the group of decision-makers (professionals, politicians, etc.) whose trustworthiness & integrity needs to be maintained.

c) Finally, this is a business ethics issue because business may well be better able to respond to it than the medical profession is. The medical profession is relatively fragmented, and made up by tens of thousands of individual decision-makers, all bound together only quite loosely by a relatively vague code of ethics. In addition, despite the fact that (as noted above) physicians are typically also business people, they’re not always the most savvy about the ethical perils of the world of commerce. Pharma and medical device companies may also be better able to respond to this problem just as a matter of numbers. Ask yourself this: which is easier to change, the behaviour of a single large company, or the behaviour of the dozens or hundreds of individual physicians and foundations to whom or through which that company funnels money?

Relevant Books:
On The Take: How Medicine’s Complicity with Big Business Can Endanger Your Health, by Jerome Kassirer
The Truth About the Drug Companies: How They Deceive Us and What to Do About It, by Marcia Angell

From today’s Financial Post:Social activists flex their muscle: Firms unprepared for rising boardroom influence (by Jason Kirby)

When Nortel Networks Corp. hosts its annual general meeting in Toronto this week, investors will have plenty to discuss, what with the company’s accounting woes, multi-billion-dollar lawsuits and red ink.
Add to that list a 1,142-km railway linking Tibet to the rest of China. The train route, which uses wireless-communications equipment provided by Nortel, has raised the ire of Tibetan activists who worry Beijing will use it to strengthen its grip on the region.
On Thursday Nortel investors will be asked whether they support a shareholder proposal calling on the telecom giant to adopt a human rights policy. If other recent company AGMs are any indication, a significant number of Nortel’s investors may vote “yes.”

This isn’t just social activism: this is activism with teeth. This sort of shareholder proposal is becoming more common, driven by fund managers for various Socially Responsible Investment (SRI) funds. The FP story notes that although such proposals seldom carry the day (so far), they generally garner enough support for wise managers to take them very seriously: in some cases such motions have been defeated at the AGM, only to be adopted later by managers.

Interestingly, of the handful of cases mentioned in the FP story, none of them involved resolutions calling for specific, concrete action. They’re all calls for enriched procedure: adopting a human rights policy, assessing the local impact of a mine, etc. The fact that companies — and those shareholders who vote against such moves — are so resistent to vague commitments of this kind is pretty interesting. On the face of it, committing to adopt a policy is a pretty small commitment: the policy could range from very strict to very permissive. Are companies so gun-shy of issues like human rights that they just don’t even want to talk about it? One wonders what percentage of these companies are merely (unwisely?) sticking their heads in the sand. You’d think that having a policy — or better, going through the process of developing a policy would be the best way for a company to prepare itself for any future controversy over its activities.

Relevant Books:
Shareholder Activism Handbook
The Emperor’s Nightingale: Restoring the Integrity of the Corporation in the Age of Shareholder Activism