Toronto Mayor in Non-Financial Conflict of Interest
Back in October, I wrote about the small conflict of interest case revolving around Toronto mayor Rob Ford’s purchase of new business cards. The reason why non-Torontonians ought to be interested in that story — a local story about a very small COI — is that it illustrated important points about the principles that ought to guide decision-makers through the treacherous waters of conflict of interest. The point wasn’t about Ford himself, certainly.
But the conflict of interest problems at Ford’s office continue.
Today’s controversy involves the fact that Ford has decided that one , the Toronto Star, is effectively black-listed as far as communications from his office goes.
The back story is that The Star ran an unflattering series of articles on Ford, back before he was Mayor. According to CTV News,
Ford has refused to talk to Star reporters since a 2010 article in the paper concerning his conduct as a football coach.
The Star says that’s the mayor’s prerogative, but adds the paper is also being denied notification of public events, briefings or announcements from Ford’s office.
Ford says he’ll continue to snub The Star until the paper apologizes. The paper says that’s an abuse of power. That sounds right, but even prior to the actual abuse, there’s a conflict of interest implicit in the idea that the Mayor would exercise discretion in this way over which papers to communicate with.
It’s important to see that a conflict of interest doesn’t have to involve money, though it often will. All that is required is for someone in a position of trust be required to make some decision in a situation in which he or she has some personal interest that could reasonably be seen as influencing his or her judgment.
Ford clearly has demonstrated that he has a personal interest here, specifically an animosity towards a particular newspaper that he feels has besmirched his reputation. And it’s pretty hard for a reasonable observer to think that that interest isn’t affecting his judgment.
Of course, this is surely not the first time that a politician’s (or business leader’s!) communication strategy has been swayed by his personal agenda. But that doesn’t make it ok, and it doesn’t mean we can’t learn from the example. People in positions of power are trusted to make decisions on behalf of others, and that affect other people’s interests. That implies an obligation to make those decisions for the right reasons, not personal reasons.
Eat More Kale, Launch Fewer Lawsuits
A recent AP story reported on the David-and-Goliath battle between a Vermont folk artist and the Chick-fil-A restaurant chain. The dispute is over Bo Muller-Moore’s use of the slogan “Eat More Kale,” which the Chick-fil-A says is just too darned close to their trademark “eat mor chikin” [sic]. The company’s lawyer has told Muller-Moore that his kale slogan “is likely to cause confusion of the public and dilutes the distinctiveness of Chick-fil-A’s intellectual property and diminishes its value.” The company apparently failed to comment as to what sorts of idiots they think are likely to confuse kale with chicken.
OK, so let’s get the obvious out of the way: yes, intellectual property is important and firms have every right zealously to protect their brand and its accompanying slogans.
But that’s quite different from bullying an entrepreneur who poses no imaginable threat.
This kind of behaviour is more than a simple wrong being committed against a single entrepreneur, a mere victimization of David by Goliath’s over-zealous lawyers. This is a matter of socially irresponsible behaviour.
As I’ve argued frequently on this blog, we ought to reserve the term “corporate social responsibility” to refer to obligations that a company owes to society at large, in some sense, rather than responsibilities it owes to particular individuals. And social responsibilities are precisely what Chick-fil-A is violating here.
In particular, Chick-fil-A is violating two different social responsibilities, here.
The first is the responsibility not to waste the legal system’s time. If Muller-Moore fights this in court, as he says he will, Chick-fil-A will be needlessly clogging up an already-overburdened legal system.
The second is the responsibility, albeit a weaker one, not to contribute to a pattern of overzealous — some would say frivolous — use of lawyers to scare smaller businesses. In acting this way, Chick-fil-A is setting an example for other companies, and contributing to an overall pattern that is liable to have a chilling effect on free speech and entrepreneurship.
Such legal actions, in other words, constitute a kind of pollution, a negative externality imposed on people not directly involved. Now of course in legal actions as in pollution, some effect on third parties is unavoidable and ethically permissible. But a socially responsible company at very least takes note of such externalities, makes sure that they are kept to a minimum, and makes sure that they are proportionate to the permissible goals they are trying to achieve.
The Social Responsibilities of Truckers
If you want to learn about the social responsibilities of business, don’t start by looking at Walmart and Apple and GM. Companies with hundreds of thousands of employees and millions of customers make an enormous number of decisions every day. Their impacts are many and varied. Their relationships are complex. They’re worth considering, but they are a lousy place to start.
Much better to start small, with a more tractable set of problems. We should look, for example, at the world of small, independent businesses. For example, a recent story from the Detroit Free Press raises interesting questions about safety and ethics in trucking. But the fundamental questions of social responsibility that story raised go far beyond the trucking industry itself.
Last week I wrote about the social responsibilities of lawyers. Today I’ll move the discussion of social responsibility in a decidedly blue-collar direction. Let’s look at the social responsibilities of truckers, the men and women who drive the Big Rigs on which a majority of North American goods get transported.
Like lawyers, truckers, too, are all either independent business-people or employed by businesses. So the relevance of trucker ethics to business ethics is clear. But unlike lawyers, truckers are not commonly spoken of as having specifically social obligations. But of course, that doesn’t mean they don’t have any.
Before asking about specifically social obligations, let’s look at a trucker’s obligations more generally.
A trucker’s most obvious obligations as a trucker are to her employer (if she has one) or to her customers. She’s got a job to do, and she ought to do it diligently, doing her best to deliver the shipment on time and in intact. She also has obligations to suppliers, including an obligation to pay invoices on time, and so on. If she happens to have employees (e.g., an assistant who helps load & unload) then there are clear obligations there, too.
The other obvious obligation is to drive carefully — an obligation owed to others with whom the trucker shares the road. 18-wheelers are pretty much the biggest thing on the road. That implies a significant responsibility not to drive recklessly and impose risks on others, including an obligation to be sober and alert while at the wheel. Are those social obligations? I don’t know. I tend to take words seriously. “Social,” to me, implies an obligation to society as a whole, to society at large, rather than just to people who happen to be directly in harm’s way.
So let’s put it this way: does a trucker — by dint of being a trucker — have obligations to make society, as a whole, better-off? But wait, we can’t really mean society “as a whole.” No one can do that. It’s too big a project. Social responsibilities must be responsibilities to do what one can to help some relevant bit of society, to contribute in some meaningful way to the overall project of making society better-off.
But if we’re thinking specifically about truckers, we should of course also exclude obligations that you might think all of us have: obligations to donate to good causes if we are financially able, and to help lost children find their way home. And so on.
So, then: does the trucker have trucker-specific social obligations, obligations that she should carry out in the course of driving her truck?
I have to admit, I’m having trouble thinking of very many. But the story cited above suggests one good example, since it is in part about efforts by the trucking industry to lobby government regarding the legal weight limits imposed on trucks. So one key social responsibility of truckers, we might say, is to lobby government in ways that is in the public interest, rather than just in their own interest. Of course, just what is in the public interest, here, is open to debate. But the notion of social responsibility at least sets the terms for that debate. So there’s one clearly social responsibility.
Now, with regard to lawyers, I argued that social responsibility has to do with the force of, and limits on, the individual’s role in a larger, socially-important system. If that is true beyond the special case of the legal profession, then role-related social obligations have something to do with the obligations involved in being part of a team effort. All that remains, then, is to figure out what socially-valuable team effort the trucker is part of, and what obligations are necessary to the achievement of that team’s goals.
At this point, I’ll open up for discussion.
Did GE Really Pay No Taxes in 2010?
A few months back, the NY Times shocked a lot of people by reporting that General Electric — an enormous, multi-billion-dollar company — had paid zero taxes to the US government in 2010, despite the fact that more than a third of the $14.1 billion that company earned that year had come from its US operations. The reason? GE has a truly enormous tax department that works non-stop to look for deductions and loopholes.
Scandalous, right?
Not so quick. As I’ve argued before, what we commonly call “loopholes” are in most cases the result of some decision by government to encourage or discourage a particular behaviour. That is, most of the things GE (or any other company) does in order to avoid taxes are thing the government is trying, however ham-fistedly, to encourage companies to do. Still, we might reasonably look askance at a company that works so assiduously to squeeze every last dollar out of the tax system. The millions spent to save millions in taxes could in principle be spent to develop products that would boost the overal value proposition of the company.
But the situation with regard to GE is even more complex than that. To get a taste, check out the comments section under the discussion of this story on the always-useful economics blog, Marginal Revolution. There, it is pointed out that the $14.1 billion in profits attributed to GE by the NYT was calculated according to GAAP, which is entirely different from how the IRS calculates taxable income. In other words, we’re looking at apples and oranges here. The entire discussion thread at MR is worth reading. But if you’re not well-versed in the niceties of tax rules, or corporate finance more generally, you’ll quickly find yourself in over your head.
But that in itself raises an important issue. As the sophistication of the debate in the MR comments section demonstrates, the fairness of GE’s tax burden (or lack thereof!) is something that most of us simply are not qualified to comment upon. And that’s a worry. It’s hard for companies to be held accountable if the general public doesn’t understand the factual basis for evaluating them. It seems to me that this is an additional reason for tax reform: the subtlety of the various policy objectives being sought through taxation of corporations needs to be balanced against the need for the concerned public to be able understand it.
Eggs, Ethics, and Supply-Chain Accountability
Filed under: accountability, corporations, ethics, food, supply chain |
Comments (2) Canadian Business recently reported that two major companies — McDonald’s and Target — have dropped egg supplier, Sparboe Farms, after concerns arose regarding animal welfare at the company’s egg-production facilities. It’s a small PR hassle for titans like McDonald’s and Target. But it’s clearly a huge hit for a company like Sparboe.
This case raises two important points, ones that go far beyond the relationships between mega-chains and their suppliers:
The first has to do with supply-chain responsibility. Notice that McDonald’s, for its part, doesn’t deal directly with Sparboe: it gets Sparboe eggs via Cargill Inc., the agricultural giant that supplies all of McDonalds’ eggs. This raises an interesting question about supply-chain ethics. Any company is clearly responsible for, and should be accountable for, its own behaviour. And a company is pretty clearly also partly responsible for, and should be accountable for, the behaviour of its suppliers, at least to the extent that it knows, or should have known, about those suppliers’ behaviour. But what about the behaviour of their suppliers’ suppliers? The modern trend is toward nearly infinite responsibility, up and down the supply chain. That much is clear. But the moral principle behind such responsibility is less clear.
Sensible thinking about supply-chain accountability has to differentiate, I think, between retrospective culpability, on one hand, and responsibility to make changes going forward, on the other. Is McDonald’s responsible for brutal behaviour by employees of a supplier’s supplier? No. But do they have a responsibility to take action, now that they know about it? Yes.
The other point has to do with the blurry boundary between practices that are unethical, on one hand, and practices that are in some more vague way unacceptable to the public, on the other. Animal welfare issues are a great example of this. Philosophers continue to debate the moral significance of animals and their suffering. Some will tell you that all suffering, human or not, is of moral significance. Others will tell you that ethics is a human device for making social living more congenial and sustainable. On the latter point of view, animal suffering might be ugly, but it’s not unethical, except to the extent that we have an obligation not to tread upon other people’s sensibilities. But this distinction matters little, in many cases: a company’s suffering can result from either — either from behaviour that is actually unethical, or from behaviour that is simply seen as being so.
Business Ethics Blog’s 6th Blogaversary
Today is the 6-year anniversary of the day back in 2005 when I posted my first entry on the Business Ethics Blog. This is my 885th posting since then.
A lot has changed since 2005. For one, the ethics blogosphere is more crowded — or should I say, more fruitful — than it was 6 years ago. The business-ethics blogosphere now includes blogs by ethics/CSR professors like my pals Dirk Matten and Andy Crane, as well as blogs by profs from neighbouring fields, like the corporate governance blog written by my friend Richard Leblanc. It also includes journalists like Marc Gunther as well as consultants like David Connor and Elaine Cohen. And, significantly, the ethics/CSR blogosphere is now knitted together, you might say, by a vigorous multidimensional Twitter conversation.
It’s also worth noting that a number of major business publications have also joined the fray, including Forbes and Fast Company.
The other big change is that my blog is now syndicated exclusively on Canadian Business magazine (most of my blog entries can be read both here and there). Besides inspiring me to blog more consistently, being featured on CB has enlarged my audience. That’s a very good thing, I think — not just for my own sake, but for the sake of having the broadest, most inclusive conversation possible.
So, dear readers, thanks for your support over the last 6 years, and here’s to continuing the conversation for another 6!
Environmental Profit-and-Loss
Filed under: accountability, CSR, environment, pollution, pricing, sustainability, values |
Comments (1) It’s attractive, but very dangerous, to try to calculate a ‘bottom line’ for a firm’s social or environmental performance. Attractive, because key stakeholders are increasingly interested in knowing those kinds of details. But the main danger should be obvious: there’s just no way to add up the disparate factors that make up a firm’s social or environmental performance. How do you add together litres-of-water-used plus hectares-of-habitat-destroyed? On the social performance side, how do you sum up number-of-women-in-senior-management plus fair-trade-contracts signed?
The answer of course is that you cannot. You can’t add up things that are represented in different units of measure. That’s not to say that you can’t or shouldn’t track and report these various numbers; but it casts a dim light on the prospects of arriving at a global assessment of a firm’s social or economic performance.
Unless, of course, you simply put a dollar figure on everything, in which case the math becomes quite easy.
That’s what shoemaker Puma has done, with its new Environmental Profit & Loss Account (E P&L). They’ve attached a dollar value to their greenhouse gas Emissions and their water consumption, and compared that to the dollar value of the shoes they produce. And, interestingly, they’re publicizing the fact that, environmentally, they’re in the red. They extract more from the environment than they provide to consumers. Environmentally, they’re operating at a loss.
Now, in standard terms, any firm that uses more (in dollars) than it puts out (in dollars) is going to go out of business pretty quickly. But as Puma’s Jochen Zeitz points out, that’s not the case for many environmental inputs because so many environmental inputs are unpriced — that is, they cost a company nothing. Pollution, for example, when unregulated, costs a company nothing, and when under-regulated costs the company less than the cost such pollution imposes on others. So what Puma has done is put a dollar value on these things so that they can figure out what their environmental bottom line would be, if they actually had to pay for all they consume and all they emit.
There are two key problems with such attempts to calculate an environmental bottom line this way. One is practical: there just aren’t uncontroversial ways to put a dollar figure on every unpriced environmental input. Certainly there are people who can provide methods for doing so; but that doesn’t mean there’s a clear right way to do it.
The other problem is, well, philosophical. It’s not at all clear that everything we want to say about environmental ethics can be summed up in terms of economic impact. What’s the dollar value of the loss of a species? Is the value of beautiful scenery really captured by summing up how much each of us would be willing to pay to preserve it?
Still, Puma deserves credit for this rather striking bit of transparency. Even though the “E P&L” is a pretty incomplete picture, it nonetheless does tell us something about the company’s overall environmental impact, and its commitment to doing better.
(Thanks to Andrew Crane for pointing me to the Puma story.)
The Social Responsibilities of Lawyers
Filed under: adversarial ethics, conflict of interest, law, professionalism, rights, trust |
Leave a Comment If there’s serious academic topic and social issue that might generate more stupid jokes than Business Ethics, it’s Legal Ethics. Which is too bad, since it’s an important topic. And that’s the topic raised by a recent story in the Boston Globe about lawyers who specialize in defending drivers accused of drunk driving.
Anyone with a broad interest in business ethics is almost inevitably going to run into questions of legal ethics, for a couple of reasons. One reason is that many corporations employ lawyers, and so businesses have to know about the ethical constraints on these very special employees. The other reason is that lawyers who don’t work for big companies are, themselves, either partners in law firms or owners of their own small businesses. And whether you work for a business or run one, questions arise regarding the intersection of, and perhaps conflict between, legal ethics on one hand and business ethics on the other.
One of the crucial ethical question that must inevitably arise for lawyers is this: what are a lawyer’s social responsibilities? In other words, what are a lawyer’s obligations to the society she lives in, while she goes about trying to ply her trade and make a living?
There’s a very strong argument to be made to the effect that the key way in which lawyers serve society — their key social responsibility — is by serving their clients well. Ours is an adversarial legal system, under which all parties to a dispute are entitled to legal representation. A key presumption of the system is that we are most likely to arrive at a just outcome if all parties to the dispute are represented by lawyers who vigourously pursue their clients’ interest. So the morality of whole system effectively stands or falls with the practice of zealous advocacy. We can never be 100% confident in the outcome of a trial, perhaps, but at least we know each side had its bulldog.
Now, it’s widely recognized among legal scholars that there are limits to zealous advocacy. Lawyers are forbidden from directly breaking the law in attempting to help their clients, and from derailing the court’s processes by, for example, suborning perjury or destroying evidence. But beyond that, lawyers are entitled — indeed, required — to do their damnedest.
Yale legal scholar Robert W Gordon wrote a nice piece a few years back called “Why Lawyers Can’t Just Be Hired Guns.” Gordon’s basic argument is essentially that lawyers play too important a role in modern society for them to think of themselves as solely beholden to their clients. In particular, Gordon argues that a lawyer’s right to engage in zealous advocacy only makes sense to the extent that lawyers also help support the system within which such advocacy ends up being constructive:
…lawyers’ work on behalf of clients positively requires—both for its justification and its successful functioning for the benefit of those same clients in the long run—that lawyers also help maintain and refresh the public sphere, the infrastructure of law and cultural convention that constitutes the cement of society.
(You’ll find Goron’s piece in a very good book called Ethics in Practice: Lawyers’ Roles, Responsibilities, and Regulation, edited by Deborah L. Rhode.)
It’s worth noting that Gordon’s argument about social responsibility is essentially an argument about the limits that apply to the fundamental moral obligation that lawyers have to faithfully play their role in the larger legal system. And it’s equally worth noting that that obligation cannot be described without reference to that system, and to the role we want lawyers to play within it.
There’s a general lesson, here. We shouldn’t think of ethics strictly in terms of the human micro-implications of a particular situation. We need also to look carefully at the roles individuals play in important social structures, and the roles those structures play in society as a whole.
The Virtues of Local Ownership
Filed under: accountability, corporations, CSR, decision-making, entrepreneur, governance, retail, shareholders, SME, stakeholders, values |
Leave a Comment There’s plenty in the news these days about the supposed virtues of “buying local.” Buying local usually means buying from small businesses. As I’ve argued before, in at least some cases buying local also means opting for small-scale, inefficient production processes. And in other cases, it means an unhealthy kind of insulation from the outside world.
But what about the virtues of specifically local ownership, when the ownership in question is ownership of what is otherwise a standard-issue department store, replete with goods ‘Made in China,’ as the stereotype goes?
The New York Times recently reported on an effort by a small town in upstate New York to ensure its residents have access to some sort of local department store. When the local Ames department store went out of business a few years back, residents of Saranac Lake — pop. 5,041 — took matters into their own hands. They raised the capital, at $100/share, to open their own department store.
It’s a charming story, and an interesting experiment, but we ought to exercise some caution before attaching too much significance to it.
First, it will be tempting to see this as radical re-visioning of modern capitalism. To see examples of such a temptation, see the 2004 Avi Lewis and Naomi Klein documentary, The Take, about the takeover of a defunct Argentinian factory by its former employees. Lewis and Klein portray that takeover as an example of the pursuit of a real alternative to capitalism — despite the fact that the cooperatively-run factory is still buying inputs on the open market, selling goods on the open market, and so on.
Were it not for movies like The Take, it might go without saying that innovations in ownership structure don’t eliminate the fundamental challenges of capitalism, and certainly don’t eliminate the standard ethical issues that face all businesses. The department store in Saranac Lake is — setting aside a few nods to local sourcing — just a regular department store. It’s got employees, so it will face questions about how those employees are treated. It’s smaller than your typical Walmart, but it will still face questions (or at least it should) about where its products come from, the conditions under which they’re manufactured, and so on. And its managers will still face questions about how to balance the good of the community as a whole with their obligation to be fiscally responsible. And so on.
Not that we need to be entirely cynical about the Saranac Lake experiment, and others like it. There’s at least a prima facie case to make for the significance of local ownership. Managers of a locally-owned store have at least some sense of what kinds of things shareholders would want them to do, and hence seem less likely to violate the trust placed in them. When you know your shareholders by name, you can ask them what they want, and they can tell you what obligations they feel to the community, and they can then ask you, their representative, to make good on those obligations.
In the end, I think experiments in capitalism are good. Indeed, the way it fosters experimentation is one of the great virtues of capitalism. We ought to keep a careful eye on such experiments, both for what we can learn about their particular virtues, and for what we can learn about the nature and structure of capitalism more generally.
An Inside Trader’s $92.8m Fine: What’s the Point?
Filed under: accountability, corruption, crime, fraud, regulations, scandal, white collar crime |
Leave a Comment What is it that justifies the record-breaking $92.8m fine slapped on Raj Rajaratnam by the US Securities and Exchange Commission?
I’m not posing this question skeptically. That is, I don’t particularly doubt the fairness of the fine. But it’s still useful to ask what reasons lie behind particular instances of punishment, particularly when those punishments are record-breakers like this one.
It’s worth noting that Rajaratnam is also going to jail, as a result of a separate criminal proceeding related to the same wrongdoing. But let’s focus just on the monetary judgement issued as a result of the SEC’s civil case. There are at least 4 possible justifications for punishment by means of a fine.
1) Deterrence. Sometimes we punish in order to make the offender less likely to re-offend, or to set an example for others who might otherwise have been tempted to commit similar crimes.
2) Restoration. Sometimes a financial penalty can be used to “make whole” the parties harmed by the wrongdoer. This, of course, would require that (some of) the fine actually be given to those who lost out due to Rajaratnam’s hijinks. As far as I know, that’s not going to happen. But then, there’s a sense in which society as a whole loses out when someone violates market norms as aggressively as Rajaratnam did. So maybe American society is the ‘victim,’ here, and is being compensated through its representative, the SEC.
3) Retribution. The fine might just amount to imposing pain on a roughly eye-for-an-eye basis. From this kind of point of view, the goal isn’t to achieve any particular outcomes (like, say, deterring wrongdoing) but rather just to ‘get even’ with the wrongdoer. Retribution is rooted in some pretty primitive (and, frankly, ugly) emotions, but it certainly has its appeal and plenty of defenders.
4) Denunciation. Closely related to retribution, denunciation is essentially the act of saying “No!” in response to crime. From this point of view, a big fine is a way of saying, loud and clear, that the kind of behaviour in which Rajaratnam engaged is simply not OK in our society.
What does the SEC say?
“The penalty imposed today reflects the historic proportions of Raj Rajaratnam’s illegal conduct and its impact on the integrity of our markets,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.
OK, that helps. But let’s get it from the horse’s mouth. Let’s look at the words of the judge. According to Judge Jed S Rakoff,
“S.E.C. civil penalties, most especially in a case involving such lucrative misconduct as insider trading, are designed, most importantly, to make such unlawful trading a money-losing proposition not just for this defendant, but for all who would consider it.” He added that it was a warning that, if caught, “you are going to pay severely in monetary terms.”
So there you have it. The rationale behind the historic fine is deterrence. The fine was a warning to others. Of course, the fact that deterrence was the goal doesn’t mean that the fine is actually going to deter anything, or that the outsized fine is going to be more effective in that regard than a more modest fine would have been. Does anyone seriously think that a $92.8m fine is going to work where a $50m fine would not have?
But anyway, the problem here is liable to be the same as that faced in trying to deter street crime, which is that no one expects to get caught. That’s likely to be doubly true of a man like Rajaratnam. After all, he was a Wall Street titan, a self-made billionaire. He was — to steal a phrase from Enron’s Jeff Skilling — the ‘smartest guy in the room.’ How could a man like that even imagine being caught by the mere mortals at the SEC and FBI? The result is that deterrence may well be futile. So what we really need is for our markets and regulatory agencies to be designed with the full expectation that, every once in a while there’s going to be a Raj Rajaratnam. We need institutions to put safeguards in place, precisely to deal with the inevitable lapses in conscience and lapses in our belief in our own fallibility.
The Business Ethics Blog 