Business, Football, and Incentives
I’m fond of sports analogies in helping to explain key issues in business ethics. In both business and sport, a useful competitive endeavour is constrained by a set of rules for the benefit of both players and spectators.
According to Roger Martin, Dean of the Rotman School of Management (where I’m currently a Visiting Scholar) the comparison is not just explanatory, it is prescriptive. According to Martin, for example, CEOs Should Be More Like Quarterbacks. In particular, he says, CEOs should be more like quarterbacks in the way quarterbacks stay focused on the real goal of the game — winning — rather than on meeting the expectations of those who speculate on the outcome of the game from the outside. QBs focus on real performance, measured in yards and touchdowns, rather than on performing well relative to the expectations of bookmakers. Likewise, Martin says, CEOs should focus on their companies’ real performance, rather than on how they perform relative to the expectations of stock analysts.
It’s tempting to run wild with sports metaphors, as the comments under Martin’s blog demonstrate. But we should not be tempted, just because we see one useful comparison, into thinking that CEOs should be like quarterbacks in all ways. You need to make the argument, on a point-by-point basis. Indeed the power of the comparison lies in abstracting away the ways in which CEOs and quarterbacks are not, and should not, be alike.
It’s also worth noting that Martin doesn’t think that the change in CEO behaviour that he advocates is going to happen magically, or even as a result of his own advice and efforts at persuasion. No, Martin is clear that CEO behaviour is only going to change in response to changes in incentives — in other words, changes in how they are paid:
…compensation is largely based in the expectations market in business and is strictly based in the real market in football. CEOs have a large portion of their compensation based on the performance of their company in the stock market, so CEOs spend their time shaping and responding to expectations. Quarterbacks have no part of their compensation based on the performance of their team against the point spread, so they focus completely on winning games.
Of course, that simple analogy needs to be fleshed out. Just what counts as “winning” in business, for example? And why are the opinions of external analysts such a bad way of measuring corporate performance? And finally, what would it look like to reward CEO’s for something other than improved stock performance, and would that lead reliably to better CEO performance on all dimensions, or just some?
(The ideas in Martin’s blog entry are drawn from his new book, Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the NFL. Watch here for more comments on the ideas in that book in the coming weeks.)
L.I.F.E. Lessons (A Short Guide to Ethics)
In this blog, I spend a lot of time talking about particular ethical issues in the world of commerce. “What are the limits on honesty in business?” “How should we handle conflicts of interest?” And so on. But one of the questions I get asked most frequently, as a professor and as a consultant, is about how to go about making ethical decisions, quite generally. It’s not an easy question. There have been many, many attempts to sum up our ethical obligations, none of them fully satisfactory. Naturally, you’re never going to find a brief summary — let alone a slogan or single word — that captures everything about how we ought to think about complex issues involving a range of values, virtues, and principles. But it can be useful to think in terms of a brief acronym that serves to jog the memory, to remind us of the major elements that make up our ethical responsibilities.
One way to think of ethics is in terms of what I call “L.I.F.E. Lessons.” Each of the letters in “L.I.F.E.” stands for a word that should play a crucial role in our moral reasoning:
L is for Loyalty. The “L” in “L.I.F.E.” reminds us that loyalty is in many ways the first virtue of organizational life. Loyalty, of course, should never be absolute: being loyal to your company or to your friends doesn’t imply that your company or your friends can do no wrong. Loyalty doesn’t mean being morally agnostic or refusing to take action when you see wrong being done. The focus on loyalty here is just to remind us that in various roles — as employee, as trustee, as leader — you have been entrusted by others to do your job and to do it right. When we voluntarily associate ourselves with particular people and organizations, the default setting is that they deserve our loyalty.
I is for Integrity. The “I” in “L.I.F.E.” reminds us that each of us should aim at integrity. Each of us is responsible for our own actions, and those actions should add up to a clear and consistent pattern of honest and trustworthy behaviour.
F is for Fairness. The “F” in “L.I.F.E.” reminds us of the importance of treating each other fairly. We should treat like cases alike, and give people what they are owed. Fairness is a value that has to do with the fact that we want not just to do good in the world, but to make sure that that good is distributed justly — whatever justice demands in particular cases.
E is for Empathy. Finally, the “E” in “L.I.F.E.” reminds us of the importance of figuring out how other people feel, in ethically-contentious situations, and what their point of view is. We need empathy in order a) to understand the impact that our actions really have on others, as well as b) to understand other people’s reasons, when our ethical judgment differs from theirs.
Again, there’s nothing magical about this way of thinking about ethics. It’s just a mnemonic, a kind of memory-jogger. Acting appropriately requires much more than this, especially on complex organizational contexts involving special role-specific obligations.
But still, I think the idea of “L.I.F.E. Lessons” amounts to a pretty good heuristic. We all know that loyalty, integrity, fairness, and empathy are crucial ingredients to leading an ethically-sound life, but it’s good to be reminded. And if life hasn’t taught you these lessons yet, those around you can only hope that it eventually will.
Buffett, Sokol, and Virtue Ethics
Filed under: character, conflict of interest, employees, ethics, finance, honesty, trust, values, virtue, white collar crime |
Comments (8) 
Warren Buffett (photo by Mark Hirschey)
The world’s most successful investor, Warren Buffett, was recently caught up in a scandal. He himself is not accused of any wrongdoing, though some have accused him of responding to the scandal — one involving a senior employee of his, one David Sokol — in a lackadaisical manner.
For the basics of the story, see here:
Berkshire doesn’t plan big changes after scandal (by Josh Funk, for the AP)
Berkshire Hathaway CEO Warren Buffett says he doesn’t think his reputation has been hurt much by a former top executive’s questionable investment in Lubrizol shortly before Berkshire announced plans to buy the chemical company….
Sokol is accused of a form of insider trading, essentially a kind of betrayal that is unethical at best, and illegal at worst. Now, Sokol himself is, not surprisingly, keeping pretty quiet, and speaking only through his lawyer. I’m more interested, at this point, in Buffett’s response, and what it says about his character. I’m not the first person to suggest that you can learn a lot about a person by the way he or she responds to a crisis. But when the man in the spotlight happens to be one of the world’s most successful businessmen, there’s some reason to think that the lessons learned might just be more interesting than most.
For more about Buffett’s response, see here: Buffett Takes Sharper Tone in Sokol Affair (by Michael J. De La Merced, for the NYT.)
Despite the critics, I think Buffett comes out of this looking pretty good. To begin, Buffett gets points for demonstrating his loyalty to a long-serving employee:
[Buffett] was harsh in his assessment of Mr. Sokol’s trading actions, he pointedly declined to personally attack Mr. Sokol, instead highlighting the executive’s years of service and good performance.
Buffett also has a sense of context and proportion. Not that the wrong of which Sokol is accused is small. But it is wise, and ethically correct I think, for Buffett to resist the urge to pounce on an employee who has, in Buffett’s own experience (up until the present crisis), been a diligent and morally-upstanding employee:
“What I think bothers some people is that there wasn’t some big sense of outrage” in the news release, Mr. Buffett said. “I plead guilty to that. But this fellow had done a lot of good.”
Buffett’s business partner, Charles Munger, likewise gets points for showing restraint:
“I feel like you don’t want to make important decisions in anger,” Mr. Munger said, defending Berkshire’s press release. “You can always tell a man to go to hell tomorrow.”
All of this is set against a background of Buffett insisting on the importance of having a reputation for integrity in business. Buffett is no slacker when it comes to ethical standards. The NYT piece quotes Buffett from 20 years ago, on the topic of the significance of reputation in business:
“Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”
Finally, it’s worth pointing out that this focus on Buffett’s character, and on the example he sets, represents an importantly different approach to business ethics. The approach here is akin to what philosophers call “virtue ethics,” a stream of thought that goes back to Aristotle. The idea here is that, rather than focusing on principles (or, more cautiously, in addition to focusing on principles), what we really ought to do when thinking about ethics is to focus on character. Rather than asking, “what rules apply to this situation?” this way of thinking asks, “what would a good person do in a situation like this?” And in between crisis points, we should be asking, “when a crisis comes, what kind of person do I want to pattern my behaviour after?” I don’t know nearly enough about Mr Buffett to hold him up as a moral exemplar, but I think that the kind of character he has displayed in the Sokol affair is worthy of emulation.
Laptop Thefts: Starbucks Scandal?
Filed under: accountability, consumers, corporate citizenship, crime | Tags: crime
Comments (9) 
Just whose fault is it if your laptop gets stolen at Starbucks? Do coffee shops (and other similar businesses) have a responsibility to help curb such crimes? If so, how far does that responsibility go?
To kick the topic off, here’s a story by Michael Wilson, for the NY Times: As the Careless Order a Latte, Thieves Grab Something to Go
Starbucks shops are ubiquitous in New York, a respite for tourists and professionals young and old, and while the city’s criminal trends come and go and ebb and flow, there remains a steady march of handbags from those shops in someone else’s hands….
Apparently, Starbucks’ customers are pretty common targets. Starbucks, Wilson notes, pop up “again and again on police blotters.” That makes the iconic coffee chain sound like a pretty dangerous hangout. But Wilson rightly acknowledges that the rate of thefts at Starbucks (of which there are 298 in New York alone) needs to be put into context, and compared to the rate of thefts at other establishments:
Not to pick on the chain, based in Seattle. No one has tallied the number of Starbucks thefts, and purses and bags walk out of any number of restaurants and bars day and night. Grand larcenies — the theft of anything over $1,000, which is almost every purse with a credit card inside — remain the Police Department’s most vexing crime, as preventable as it is commonplace.
The focus on how common such crimes are in all kinds of public and semi-public spaces is right on target. To me, this is all reminiscent of the part in the movie, “Wal-mart: The High Cost of Low Price,” in which the film-makers — incredibly — blame Walmart for thefts, rapes, and murders that happen in the retailer’s parking lots. It’s a crazy accusation, of course: Walmart has nearly 9000 locations. If you looked at the stats for any 9000 parking lots, I’m willing to bet you’d find a fair bit of crime.
But back to coffee shops, and the rate of laptop and purse theft on their premises. What are companies like Starbucks to do in light of this? Clearly it’s not their fault that people are leaving their laptops unattended — I guess except to the extent that they’ve carefully engineered a warm and welcoming environment, one pretty much designed to encourage people to let their guard down. What might the company do, in principle, to reduce the amount of theft on their premises? Vigilant security guards would be one possibility, though that would surely do something to detract from the Starbucks ambiance. Security cameras are another, less intrusive, option. (But then there might be privacy concerns related to constant surveillance: do you really want the Starbucks-Cam watching over your shoulder while you read The Onion?) They could also install laptop locks on the tables in their shops (since most laptops have a universal lock slot). A different tack would be to eliminate free Wi-Fi, which would give people less reason to bring their laptops to Starbucks in the first place. Of course, lots of us like the free Wi-Fi, but if it’s encouraging us to engage in risky behaviours, I can at least see an argument for hitting the ‘off’ switch.
Warning signs are another option: signs could remind unwary customers of the dangers, and recommend that they carry their laptops with them at all times when on the premises. Apparently, one police commander thought that was a good idea:
[The officer] asked one branch to put up a sign warning customers; the manager demurred, saying such a sign required corporate approval.
But what is Starbucks (or any other coffee shop) obligated to do to reduce crime? Or at least, what would it be ethically-very-good of them to do? I don’t see a clear answer, though it’s easy enough to argue that they ought, at least, to grab some of the ‘low-hanging fruit.’ If there are simple and cheap things they can do to make customers safer, those things could arguably be considered obligatory, and besides, such moves might even attract customers, giving them a genuine sense of security, rather than a false one. But laptop theft at Starbucks will never, never be zero, and it’s unreasonable to think that the company has an obligation to drive the on-site crime rate anywhere near that.
Should We Teach Students About the “Social Impact” of Business?
Filed under: corporate citizenship, CSR, definitions, education, ethics, management, MBA, stakeholders |
Comments (3) As regular readers know, I’ve blogged a lot about the vocabulary we use to talk about ‘doing the right thing’ in business. Here’s another example of a term that some people seem to want to use to capture that entire topic: “Social Impact.”
See for example this piece, by NYU’s Paul Light, in the Washington Post: It’s time to require students to do good.
I’ll start by pointing out that the headline is inaccurate, though that’s likely not Light’s fault. (It’s more likely the fault of the newspaper’s headline writer. Hard to say.) At any rate, Light’s article isn’t about making students “do good;” it’s about teaching them courses about doing good. And that’s a very different thing.
Light points out that many business schools now offer courses on what he refers to broadly as the “social impact” of business. “Social impact,” he says, can variously be defined in terms of “social responsibility, innovation, engaged citizenship or plain old public service.” (Note that Light is in trouble here, already, implicitly assuming all of those terms are good things. For counter-examples, see my recent blog entry on unethical innovation.)
Anyway, Light says business schools are increasingly realizing that they need to teach students something about the social impact of business (and presumably, more specifically, about how to maximize positive social impact and minimize negative social impact.)
For what it’s worth, I should point out that many business ethics classes — presumably among the courses that Light sees as part of the trend — absolutely would not focus primarily on social impact. And that’s a good thing, because social impact is just one of the many ethical issues that arise in business. Courses on business ethics can cover a large range of issues, many of them not directly related to social impact:
- product safety (which is mostly a concern to customers, who very often make up only a tiny segment of “society”)
- employee health and safety
- truth in advertising
- the environment (which, depending on your philosophical views, may have ethical importance independent of society’s reliance on it).
Each of those topics has relatively little to do with social impact, and indeed there can be important tensions between, for example, what is good for employees and what is good for society.
But maybe Light doesn’t want courses in business ethics more generally; maybe he really does think it most important to focus on social impact, thereby ignoring the issues (like those noted above) that got the field of business ethics off the ground in the first place. Such a focus by business schools would be incredibly unfortunate, because it would leave business students radically unprepared to face the ethical challenges that they really will have to face on a daily basis in their professional lives. And even if courses on “social impact” do tackle a broader range of issues (including the ones listed above) the title of the course is going to mislead students into thinking that social impact really is the key issue after all.
Finally, I’m confused by the fact that Light views “social impact” as a skill:
Making social impact part of every student’s curriculum would send the signal that social impact is an essential skill….
What are we to make of this? Is social impact really a “skill”? Personally, I’m not sure how to make sense of that turn of phrase. I suppose we can read Light somewhat more charitably as meaning that an appreciation of the social impact of business, and an understanding of the key issues and how to respond to them, are essential parts of a sound business education. And surely he’s right. But we ought at least be clear on the fact that what we’re struggling with — and what we need students to struggle with — is the complexity of the role and impact of business in society. Calling it a skill misleadingly implies that we know what to do about it all, and now we just need to do it. If only life were so simple.
Lying for Profit
Lying, generally, is wrong. Is it also wrong to facilitate a lie, or to profit from doing so? What if your entire business model involves helping people tell lies? No, I’m not talking about the big accounting firms, who only sometimes help clients lie, and typically do so through creative interpretations of accounting standards. I’m talking about something much less creative, namely bald-faced lies. And yes, there are businesses that are set up to help you do just that — everything from helping you fake your resumé to helping you establish an alibi (if, e.g., you played hooky from work, or need to spend some quality time with your mistress).
Here’s the story, by Marissa Conrad for Time Out Chicago: Businesses that lie — and are proud of it.
Now, this is not the sort of story that I would normally bother with. After all, you don’t need a Ph.D. in philosophy or an advanced knowledge of the history of moral theory to sort through the ‘subtleties’ here. Yes, there are grey zones in ethics. And sure, lying is sometimes justifiable. But the exceptions prove the rule: deception is generally wrong. And deception of the kind that these companies facilitate is no exception.
But what’s interesting about these services, and what makes this story worth even mentioning, is the self-serving rationalizations that the proprietors of these services indulge in, in order to justify their existence. “Is lying on your CV justified?” they ask rhetorically. What if you really need the job? What if you’re a really decent guy who has caught some tough breaks in the past, and your CV needs a little boosting as a result? Who is to say? Well, the owner of one of these businesses is clear about his approach to the question:
“We believe that everyone deserves a second chance,” says [Reference Store] operations manager David Everett. “Is Robin Hood a criminal? It depends on who you ask.”
Now, presumably such companies render assistance to trivially few customers with Robin Hood’s claim to serve the greater good. And besides, Robin Hood-type characters achieve true hero status only in retrospect. We can’t conclude that Robin Hood’s actions were justified just because he himself thought they were. Likewise, the fact that lying is sometimes justified doesn’t mean we can afford generally to be agnostic about the ethics of particular acts of deception, let alone decide to facilitate such acts. The problem here really lies in the fact that these companies are unilaterally appropriating for themselves the right to make that determination, taking shelter in extraordinarily shallow self-serving rationalization, and abdicating their clear responsibilities to engage in at least a modicum of ethical reasoning.
Pink Toenails, Gender Identity and Social Responsibility
Filed under: activism, advertising, children, corporate citizenship, CSR, culture, ethics, marketing, protest, values |
Comments (21) 
This one’s a real tempest in a teapot. Or rather, in a bottle of nail polish.
OK, so here’s the short version. Clothing chain J. Crew’s latest catalog includes a picture of president and creative director Jenna Lyons painting her young son’s toenails pink. Yes, pink — the colour most closely associated, in North American culture, at least, with traditional femininity. Criticism ensued, alleging that J. Crew was acting (intentionally!) to promote a gender-bending agenda. The calibre and cogency of the arguments in favour of that conclusion is about what you’d expect.
The main critic, Fox commentator and psychiatrist Dr Keith Ablow, provides an object lesson in how to cram as many argumentative fallacies as possible into a single piece of writing, in his oddly-titled editorial, “J. Crew Plants the Seeds for Gender Identity”. (I’ve blogged about the significance of logical fallacies before, here.) Among the good doctor’s fallacious arguments:
He alleges, without substantiation, that pink-toenail-painting is highly likely to result in gender confusion. In the absence of supporting evidence, we are expected to believe him because he’s got “Dr” in front of his name — essentially a form of illicit appeal to authority. He also engages in straw man argumentation (in which a critic attacks something his opponent never said nor implied), by suggesting that, via this ad, “our culture is being encouraged to abandon all trappings of gender identity” [my emphasis]. He also begs the question by assuming that pink is just for girls (and I’m wearing pink as I write this, by the way). He also has an unfortunate tendency to resort to rhetorical questions: “If you have no problem with the J. Crew ad, how about one in which a little boy models a sundress? What could possibly be the problem with that?” (What if my answer is “nothing”? Ablow provides nothing to help me, then.) Ablow also commits the fallacy known as appeal to ignorance when he points out that the effect of “homogenizing males and females … is not known” (i.e., we don’t know that it’s safe, so it is probably unsafe.) He also makes use of an illicit slippery slope argument, suggesting comically that ads such as this are somehow going to result in the end of all procreation, and, hence, of the human race. And Ablow’s argument as a whole amounts to one giant, fallacious, appeal to tradition. I could quite literally teach the entire Fallacies section of my Critical Thinking class just by having students pick apart Ablow’s critique of the J. Crew ad.
(Note that another critic, Erin Brown, over at the conservative Culture and Media Institute, commits fewer fallacies, but only because her article is shorter. But then she apparently doen’t even know what J. Crew is, referring to the men’s and women’s clothier as a “popular preppy woman’s clothing brand.” I happen to own two J. Crew ties. Men’s ties.)
Now, my response to the critics of J. Crew’s ad may seem flippant. So be it. Sometimes ridicule is the best response to something ridiculous. But there is a serious point to be made, here, about the social responsibility of business.
Ablow and Brown share one important view in common with many critics of modern capitalism, namely this: they all believe that businesses have an obligation to pursue certain social agendas. They merely disagree over what that agenda should be. For Ablow and Brown, the social obligation of business is to defend & promote good ol’-fashioned American values, including apparently carefully scripted gender roles. For critics of capitalism, the social obligation of business is to promote social justice, environmental values, gender equality, and so on. In either case, those who urge businesses to adopt social missions — as opposed to merely making and selling stuff that people want to buy, within the bounds of law and ethics — ought to be careful what they wish for. Because if and when businesses do take up social agendas, they may not be the agendas that those advocates prefer.
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Thanks to Laura for showing me this story.
Honesty, Reputation, and Ethics
Filed under: character, corporations, ethics, honesty, regulations, transparency, trust, values |
Comments (6) The connection between reputation and ethics is complex. A pattern of ethical behaviour is clearly essential to establishing a good reputation, which for a company means a reputation as the kind of company people want to do business with. But hold on. All that’s really essential, from a business point of view, is to be perceived as ethical. But there are two ways of reading that ancient point. The cynical way is to say that all that matters in business is to give people the impression that you’re ethical, and that can be done through good PR or even outright misrepresentation. The less cynical way of reading that is that you’ve got not just to be ethical, in the sense of doing what you think is the right thing to do; you’ve also got to convince key stakeholders that you’ve done the right thing.
Take honesty, for example. Honesty matters, but so do public perceptions of honesty. In that regard, see this useful piece on corporate disclosure, by Steven M Davidoff for the NY Times: In Corporate Disclosure, a Murky Definition of Material.
Most of the piece is an exploration of the legal standard of “materiality.” Materiality is essentially about relevance. Publicly-traded companies are obligated to reveal certain information to the investing public (typically through filings with the relevant regulatory agency). But not everything they do needs to be reported — not everything is sufficiently important — and there are lots of legitimate reasons why companies don’t want to reveal any- and everything. Figuring out just what needs to be disclosed is a difficult legal problem. But towards the end of the piece, Davidoff argues that companies should avoid focusing on mere legalities. As Davidoff points out:
Companies need to understand that information disclosure is not just a legal game. Failure to disclose important information on a timely basis can harm a company’s reputation.
So, it’s all about reputation, about ‘optics’? “What about ethics?” you ask. But consider: why would a failure of disclosure harm a company’s reputation? In part, it would do so because (or if) the failure harms people’s interests. But even then, harming someone’s interests won’t immediately harm reputation. If, for example, Ford designs a new SUV that’s so good that sales of GM’s SUV’s fall, putting thousands of GM employees out of work, well, that’s bad for GM’s employees, but the harm done to them by Ford is not going to damage Ford’s reputation. Because, after all, the harm done to the employees was the result of fair competitive practices on the part of Ford. A company’s behaviour is only going to hurt its reputation if some critical mass of people see that behaviour as unethical. So in the end, even a concern about “mere reputation” has to be grounded in ethical principles.
Who Else is Too Big to Fail?
Filed under: banking, complexity, corporations, disaster, economics, finance, government, risk, sustainability |
Comments (13) The notion that some companies are “too big to fail” — too large and too interconnected with the rest of the economy for their failure to be permitted by government — is lamentably familiar to most of us in the wake of the 2007-2010 financial crisis. The term has most famously been applied to the biggest American banks (e.g., Bank of America) and insurance companies (e.g., AIG), and it motivated the multi-multi-billion-dollar government bailouts of 2008/2009. In some ways, it’s a radical notion: for most of modern economic history, the assumption has been that the economy could operate according to something like survival of the fittest. If a company is so mismanaged that it fails, so be it. That’s life in a competitive market. Of course, governments have from time to time propped up companies seen as particularly important employers, but such moves are always divisive. There has seldom been such widespread agreement that certain companies really are so big, and so important, that they cannot be allowed to fail.
But outside of the financial industry, what companies might reasonably be thought of as “too big to fail?” Are there companies the failure of which would be truly catastrophic? What companies are there such that, if they suddenly ceased operations, the result would be disastrous not just for individual customers, employees, and shareholders, but for society as a whole?
I’ll mention a few possibilities, and then open the floor for discussion:
BP, Chevron, and the other very large oil companies. As unpopular as they are, it’s hard to deny that their product is utterly essential, at least for the time being. Any one of the biggest companies going out of business would, I suspect, have a terrible impact on the reliability of supplies of gasoline and heating fuel, and would most certainly result in increased prices. On the other hand, most of the world’s oil supply flows through the big state-owned oil companies of the middle east, rather than through private companies like Exxon and Shell the others, the ones that come most readily to mind for North American and European consumers.
Big pharma. Again, not a popular industry. And much of what they produce — treatments for baldness, erectile dysfunction, etc. — is far from essential. But some of their more important products, including things like antibiotics and vaccines, truly are essential and an interruption in their supply could have catastrophic consequences, from a public health point of view. But then, that industry has enough players in it, with overlapping product lines, that it’s unlikely the collapse of any one company would have a huge impact. But really, I’m guessing here. Perhaps the collapse of the maker of whatever the single most antibiotic is would be catastrophic. (Does anyone know?)
What about UPS? That one may surprise you, but the company handles something over 5 million packages per day, which I’ve heard adds up to a non-trivial percentage of American GDP. If UPS disappeared tomorrow, of course, Fedex and the USPS would take up some of the slack, but the short-term effect on American business (and hence consumers) would be significant.
Locally, surely, there are lots of companies that might be considered essential. Companies involved in ensuring the quality of municipal water supplies might count (including the ones that provide the chemicals needed for water purification). And in places where fire departments are privately-run, those would obviously count. But really, I’m looking for examples of companies the failure or disappearance of which would have widespread effects from a social point of view.
Of course, the phrase “too big to fail” isn’t just descriptive. In the world of finance, it is seem as having immediate policy implications. In 2009, Alan Greenspan, the former chairman of the US Federal Reserve (and no fan of government intervention in the economy), said “If they’re too big to fail, they’re too big.” Are there companies outside of finance where such an argument could be made?
Business Ethics and the Crisis in Japan
Filed under: aid, charity, corporate citizenship, CSR, disaster, fraud, international, pricing, trade |
Comments (3) 
A couple of people have asked me recently about what business ethics issues arise in the wake of the Japanese earthquake, tsunami, and nuclear crisis. As far as I’ve seen, the media hasn’t paid much attention to business ethics issues, or even on businesses at all, in their coverage of the disaster(s). But certainly there are a number of relevant issues within which appropriate business behaviour is going to be a significant question. Here are a few suggestion of areas in which the study of business ethics might be relevant:
1) The nuclear crisis. Although their role has not been front-and-centre (unlike, for example, the BP oil spill), at least a couple of companies have played a significant role in the crisis at the Fukushima I Nuclear Power Plant. The reactors there were designed by General Electric, who surely face questions about the adequacy of that design and the relevant safeguards. And the plant is owned by the Tokyo Electric Power Company (TEPCO). TEPCO has been criticized for its handling of the disaster, including its notable lack of transparency. TEPCO also faces a difficult set of questions with regard to the ongoing risks to employees, including those who have vowed “to die if necessary” in order to protect the public from further risk. (For more information, see the wikipedia page about the Fukushima I nuclear accidents.)
2) Disaster relief. There is clearly an opportunity for many companies, both Japanese and foreign, to participate in the disaster relief effort. Whether they have an obligation to do so (i.e., a true corporate social responsibility) is an interesting question, as is the question of the terms on which they should participate. I’ve blogged before about the essential role that credit card companies play in disaster relief by facilitating donations; do credit card companies (and other companies) have an obligation to help out on a not-for-profit basis, or is it OK to make a profit in such situations?
3) Pricing. The topic of price-gouging often arises during and after a natural disaster, though I haven’t heard any reports of this in the wake of the earthquake in Japan. It’s a difficult ethical question. On one hand, companies that engage in true price gouging — preying on the vulnerable in a truly cynical and opportunistic way — are rightly singled out for moral criticism. On the other hand, prices naturally go up in the wake of disaster: picture the additional costs and risks that any company is going to face in trying to get their product into an area affected by an earthquake, a tsunami, and/or a nuclear meltdown.
4) Investment and trade. A major part of Japan’s recovery will depend on investment, both investment by foreign companies in Japan and investment by Japanese companies in the stricken areas of that country. This is clearly less of a concern than it would be in a less-economically developed country (like Haiti, for instance), but it’s still relevant. So the question arises: do companies have an obligation to help Japan rebuild by investing? If a company is, for example, deciding whether to build a new factory in either Japan or another country, should that decision be influenced by the desire to help Japan rebuild?
5) Consumer behaviour. Just as companies have to decide whether to invest in disaster-stricken nations or regions, so do consumers. Do you, as an individual, have any obligation to “buy Japanese,” in order to help rebuild the Japanese economy? Does it matter that Japan is a modern industrialized nation, as opposed to a developing one?
The Business Ethics Blog 