Visa, Rwanda, and Trust
I bought lunch for a colleague yesterday, and left the restaurant without paying. Or at least, to an untrained eye, it would seem that I had done so. Rather, I had of course paid by means of a credit card. The restaurant, in other words, trusted the credit card company, which in turn trusted me, to pay up. None of this required that I have any cash at all in my pocket, nor even that I have money in my bank account. All that it required was trust rooted in knowledge of financial capacity. The financial capacity part, of course, was up to me. But all the capacity in the world would not have been enough without the relevant institutional mechanisms to verify it.
Such trust-based transactions happen billions of times each day. They are so much a part of everyday life that we take entirely for granted just how remarkable, and just how essential, they really are. This is probably the most important function of financial institutions. They make possible the wide range of commercial transactions that permit our modern standard of living. And that is what makes this next story worth reading.
Bloomberg reports that Visa, Inc. has “agreed to help develop Rwanda’s payments system and connect the African nation’s 11 million citizens to the global economy….”
And Rwanda is a country deeply in need of increased commerce, both domestic and international. In, 2010 the country ranked 165th in the world in terms of per capita GDP. (Not coincidentally, Rwanda also ranks among the worst countries in the world for infant mortality.) Giving its consumers and businesses a greater range of ways in which to receive and make payments is a step in the right direction.
The financial industry has received more bad press than good lately. But on the face of it, at least, this particular story seems like good news.
It’s no exaggeration to say that trust is the foundation of all commerce. Any company that gives people a mechanism that promotes trust, and hence facilitates commerce, is doing a genuine public service. But what are the chances that devotees of Corporate Social Responsibility will see this move by Visa as an example of that?
Crisis Management as Ethical Improv
Ethics is often thought of in terms of rules: things we must do, and things we must not do. But ethics is also inevitably contextual. As moral agents we have to apply rules in a way that is sensitive to the situation. That doesn’t mean the rules go out the window. It just means that rules need to be interpreted, and applied to the particularities of the case at hand. This requires some judgment, and imagination.
Ethics is, in other words, a matter of improvisation.
The improvisational nature of ethics is particularly plain when a company is faced with an organizational crisis. A crisis is, by definition, an unexpected set of circumstances. And it requires, I think, a set of skills quite closely aligned to the skills required for musical improvisation of the kind manifested by, say, a good jazz musician.
Now let me be clear: when I refer to “crisis management,” I’m not talking about PR, about saying the right things to placate an angry public. I’m talking about genuinely figuring out the right thing to do, in a novel situation that requires urgent action. When your product is suspected of causing deaths, what should you do? When an executive is charged with a financial crime, how should your company respond? When disaster strikes in your community, what should your company do to help out? That a company has responsibilities in such contexts is clear; just what those responsibilities are is less clear.
Here are 5 specific ways in which ethical crisis management is like musical improvisation:
1. Perhaps most obviously, ethical response to a crisis must be creative. The right thing to do won’t be found in any pre-established script; it’s going to require an ability to adapt to the situation, and to exercise some moral imagination.
2. Ethical crisis management must be grounded in structure. Improv doesn’t mean hitting random notes. For a musician, improvisation (typically) means deviating from the melody while continuing to follow an underlying structure of some sort. Similarly, an organization is going to want to draw upon the relevant ethical principles, as well as its own basic ethical structure, consisting of things like its Code of Ethics and its Mission, Vision, and Values statements.
3. Responding ethically to a crisis requires collaboration. Improvising jazz musicians take their cues from, and draw inspiration from, each other. The best improv happens among musicians who have played together before and who trust each other. Likewise, response to ethical crisis is going to require close collaboration between senior leadership, the company’s technical experts, and perhaps its ethics-and-values staff.
4. Ethical response to crisis must be grounded in knowledge. In music, amateurs don’t really do well at improvising; their ‘improvisation’ is pretty hard to tell from, well, a series of beginners’ mistakes. The expert musician knows how to play the expected notes, knows how to stick to the melody, but chooses to deviate. The CEO responding to a crisis must likewise work from knowledge: knowledge of the nature of ethical obligation, knowledge of her company’s own values, and knowledge of the interests of various stakeholders.
5. To respond well to ethical crisis requires comfort with the relevant concepts and vocabulary. A master jazz musician reaches for unexpected notes and makes it look easy, natural. Likewise the CEO responding to crisis needs a degree of comfort with the material at hand. To respond well to ethical challenges requires that the CEO be comfortable talking about ethics and about moral responsibilities. She needs the comfort that comes from having thought about this stuff before. As I often tell my students, when the media cameras show up at your doorstep to ask about your company’s choices, the worst answer you can give is an awkward, “I’ve never really thought about it!”
The analogy between musical improv and ethical crisis management is not perfect, of course. For the CEO responding to crisis, the stakes are considerably higher than for the musician on stage. But I think it’s a useful way of framing the task of applying ethical standards to novel situations. Ethics should be neither rigid nor random. Responding to ethical crisis requires a sound understanding of the underlying principles, and a comfort and willingness to adapt them responsibly to the needs of the present situation.
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(This blog entry is based on a presentation I gave at a workshop called “Making the Changes: Ethics and the Improvising Business,” held at the University of Guelph on December 2, 2011. Special thanks to Mark Laver for the invitation to participate.)
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 Business Ethics Blog 