The Business Ethics Blog

After yesterday’s depressing entry about business students, this one’s a breath of fresh air.

From BusinessWeek: The Push to Do Good and Turn a Profit

Politically active and culturally aware, young entrepreneurs…are pursuing socially responsible business ventures in record numbers, say administrators at several top B-schools, including Babson College and the University of Arizona’s Eller School of Management. Defying tradition, students and recent grads are pitching business plans with dueling bottom lines—social and financial—and hoping investors will buy in.

It’s good news — if it is indeed true — that the current crop of would-be entrepreneurs are embracing social values. That is not to say that they should be thinking in terms of the so-called “Corporate Social Responsibility” movement. But it’s good that they are thinking about products and services that stand to make the world a better place. In general, I tend to share the view that entrepreneurs (or people in business generally) don’t have any special insight into what will make the world better, but if a young person’s option are a) marketing videos of drunken co-eds b) marketing an energy drink named after a dangerous street drug, or c) inventing a solar-powered trash compactor to help keep city streets clean, I for one am glad to hear that that’s a multiple-choice question at least some find pretty easy.

What’s a school to do when it finds that students have cheated to gain admission to their program? Does it make a difference when it’s a business school?

I missed blogging phase 1 of this story when it broke back in June. But there are new developments in the GMAT cheating case: the Graduate Management Admission Council (GMAC, the organization that administers the GMAT) has cancelled (i.e., nullified) the test scores of 84 individuals who, according to GMAC’s investigation, are guilty of cheating. The issue is complicated by the fact that at least some of the cheaters have already been admitted to various business schools on the basis of their illegitimate scores, and at least one has already graduated, which leaves those schools with some uncomfortable decisions to make. It’s easy-ish to decline to admit candidates known to have cheated; harder (practically and maybe emotionally) to expel a student who’s already in, or to rescind the diploma of one who’s already graduated.

Here’s the story from the Wall Street Journal: Schools Cancel GMAT Scores

Top U.S. business schools canceled the admissions-test scores of 84 applicants and students — including two enrolled at the University of Chicago and one who has graduated from Stanford University — who allegedly supplied or accessed live exam questions posted on a Web site.

In June, the Graduate Management Admission Council, which represents the business schools and oversees the GMAT admissions test, obtained a federal court order that shut down the Web site Scoretop.com and won a $2.3 million judgment against its operator. The site had been selling questions from recent exams to subscribers who paid a $30-a-month subscription. The operator of the Web site, believed to be in China, didn’t defend itself in court, and it wasn’t known where any representatives could be reached.

The latest episode has rattled the schools, and it comes as they have been trying to increase security.

Here’s the same story from BusinessWeek: Nearly 100 Would-Be MBAs Nailed in GMAT Scandal

One of the interesting points brought up by the BusinessWeek story is the fact that there’s research suggesting that business-school students are more likely to cheat than other students. The story cites Rutgers prof Donald McCabe who has done research on the topic.

So, what’s the prescription? McCabe seems to think the schools should take a tough stand, though the BusinessWeek story doesn’t say just what that means. I’ll give two arguments on each side:

In favour of tough action (e.g., expelling students admitted based on illegitimate GMAT scores)…

• Cheating is bad; it’s fraudulent. Being admitted to business school based on a fraudulent GMAT score is like being hired on the basis of a fraudulent cv. It’s grounds for dismissal. Period.
• The fact that this is business school militates in favour of harshness. Regardless of your degree of cynicism about current levels of trusthworthiness in business, you have to agree that having trustworthy people going into business (particularly in leadership roles) is important. So b-schools should be at least as tough as anyone else, maybe tougher.

In favour of lenient action (e.g., not expelling students, but maybe putting them on probation, etc.)…

• At many schools, at least, one academic violation is not enough to warrant expulsion. Cheat once and you get a reprimand and a note in your file. Cheat twice and they may show you the door. Why be any more harsh regarding one form of cheating than another?
• Contrary to what McCabe suggests, a harsh reaction from business schools may not have any deterrent effect, for the same reason harsh criminal sanctions don’t reliably deter crime: no one thinks they’re going to get caught. Admission to a good b-school is a big deal, with the potential for a big dollar pay-off. Under such circumstances, deterrent is unlikely to work.

What do you think?

———-
On a related note, I just found out about this interesting project based at the School of Business at the American University of Beirut. Bicharaf (the Arabic for “with honor”), which “aims at promoting academic integrity
and ethical awareness among students, faculty, administrators, and business professionals.”

(Thanks to Faraz for letting me know about Bicharaf!)

I’ve decided to try allowing (and moderating) comments on my blog. Moderating is essential, I think, basically because my name is at the top of the page, and the topics I blog about are contentious ones.

It’s a limited-time offer. Basically, if I find that moderating the comments becomes onerous, or that the comments just aren’t adding value, I’ll simply turn the comments feature off. We’ll see how it goes.

But for now, comment away!

Chris.

Regular readers of this blog will know I’ve got a special interest in the biotechnology industry (and am in fact writing a book on the topic). Lots of attention has been lavished on ethical issues in biotech over the last decade, but I’m specifically interested in commercial issues. Hence, I’m less interested (professionally) in social or interpersonal aspects of technologies such as genetic testing, and more interested in corporate moves to develop and market genetic tests (either through health professionals or direct-to-consumer).

So I was interested in the recent move by a Swiss company to offer genetic testing as part of a dating service.

Here’s the story from Wired: Looking for Love In All the Right Alleles

Swiss startup company GenePartner is offering to evaluate singles and couples according to the potential union of their HLA genes, which help regulate immune response.
People may naturally be attracted to mates with HLA profiles different from their own, ostensibly guaranteeing the hybrid vigor of their offspring’s immune systems — and also providing a spark that will last through good times and bad.

And here’s GenePartner’s website. Essentially what they do is, for $199…

GenePartner will analyze your DNA from a sample of your saliva. Based on the test results, you will receive a GenePartnerID number.
When you meet another GenePartner user (in person or online) that you’re interested in, you can enter his/her GenePartnerID in the matching system on GenePartner.com. GenePartner will then determine how genetically compatible you are.

My friend Bryn Williams-Jones has been speaking and writing about direct-to-consumer genetic testing since before it was cool to do so. I asked him for a comment on this new service from GenePartner. Here’s what he said:

One of many genetic information services beginning to enter the consumer marketplace (alongside genealogy or paternity tests), the GenePartner test seems, at first glance, to be innocuous. The test does not attempt to measure or predict disease risk or heritability, commercial tests for which have been subject to enormous criticism in recent years (including a government crackdown on service providers in California). What can be problematic about “love testing”? And really, how different is it to use HLA typing to predict positive matches between potential partners, from say comparisons of blood type (which is apparently popular in Japan), or even astrological signs? And where is the harm? The issue, however, arises with a growing popularisation of genetic information technologies, that build (often without substantiation) on putative scientific studies. While HLA typing may seem to be based on scientific facts (there appear to be some studies supporting the claims made by GenePartner), the actual confidence that consumers should have in such tests needs to be carefully considered. Consumers may well believe there is more accuracy than is scientifically justified…and so they may not be getting what they’re paying for. The harms of such a test may be limited, and caveat emptor may be sufficient consumer protection. But for $199, its probably still cheaper and more effective to just take the potential partner out for dinner…

As some of you will have noticed, I spent the summer as a Visiting Researcher at the “Centre de Recherche en Ethique de l’Université de Montréal.” CREUM is a wonderful place; smart people, great hosts.
Two weeks ago I was interviewed, along with fellow visitor Lisa Eckenwiler, by CREUM’s director Daniel Winstock, for a podcast called “Radio CREUM.”

The general theme of the interview was the relationship between Philosophy (Daniel, Lisa, and I all hold PhD’s in Philosophy) and “applied ethics” (a term generally meant to encompass fields such as business ethics, bioethics, environmental ethics, professional ethics, and so on.)

Here’s the link to the page with the link to the interview: Daniel Weinstock, Lisa Eckenwiler & Chris Macdonald on Radio CREUM
(The page is in French. For those of you who don’t read French, just click on the link that says “Cliquez ici,” or on the musical note icon.)
The interview is about an hour long, including a long-ish musical prelude, interlude, and ending by Montreal’s very own “General International.” The introductions are in French, but the interview itself is in English.

Just so you have a sense of what the interview is about, here are a few points/topics that get raised:

• The interdisciplinarity of Applied Ethics, and the unique (?) role of philosophers.
• The idea that in Applied Ethics, you can think about how scholarly theories help us solve practical problems, but also about how practical problems help produce better scholarly theories.
• The question of how much practical knowledge philosophers (and other specialized scholars) need in order to do good work in applied ethics (e.g., how much do I need to know about business to do business ethics, or about genetics to study ethical issues in biotechnology?).
• When scholars in applied ethics want to have influence, is that possible? How? Is there a role for them beyond the university?

It was sort of bound to happen eventually. An ethics-based investment fund has been nailed by the U.S. Securities and Exchange Commission for, you guessed it, an ethics violation.
Here’s the (very good) story from Ron Lieber at the NY Times: Socially Responsible, With Egg on Its Face

When the news broke late last month, it read almost like satire. The Securities and Exchange Commission had charged a mutual fund company that specialized in socially responsible investments with taking stakes in companies involved with alcohol, gambling and military contracting.
But it is a true story, and it’s the first time the S.E.C. has encountered this problem. Pax World, one of the oldest practitioners in the field of socially responsible investing, paid a $500,000 penalty.

Lieber’s analysis is great; I strongly recommend reading it. But I’ll add my own 2 cents’ worth….

At least 3 issues are worth talking about, here. First, there’s the one that on the surface makes this a “juicy” story,” namely the fact that it was (gasp!) a so-called “ethical fund” (or socially responsible investment fund) that the S.E.C. nailed, here.

Everyone loves to hate a hypocrite, and even the whiff of a shadow of the appearance of hypocrisy is enough to bring a smirk to the cynic’s lips. Hypocrisy is the right charge when someone promotes X but does not-X, or is at least (overly?) unreliable at doing X. So a politician who preaches “family values” but who has a string of torrid affairs is a hypocrite. But note that a charge of hypocrisy with regard to X requires agreement on what constitutes X. It’s much trickier to make a charge of hypocrisy stick if the nature of characteristic X is up for grabs or if its attribution to the person or group in question is open to debate.

In this regard, it’s worth noting briefly that “ethical” funds are self-designated as such. Calling yourself an “ethical fund” is no more automatically authentic than a charitable organization’s claim to speak on behalf of women, the poor, the whales, what have you. “Ethical funds” are not necessarily ethical funds. Certainly there’s the possibility of charlatanism, of funds claiming to filter investments on ethical grounds while actually doing nothing of the sort; presumably that sort of thing is just what S.E.C. oversight is intended to minimize (and we’ll return to the issue of misrepresentation below). But even if we assume that a fund’s managers are well-intentioned, that doesn’t mean that their fund’s status as “ethical” is a given. As lots of people have noted (and as is hinted at in the NY Times story) there’s legitimate debate over whether there’s anything wrong with the kinds of firms ethical funds typically filter out. Filtering out defence contractors, for example, is pretty open to debate. After all, making land-mines that blow kids’ legs off is bad; making the guns and flack-jackets necessary for peace-keeping is good. So, suffice it to say that investment funds of the kind we’re discussing here are filtering for a certain kind of ethics, a certain set of ethical concerns, rather than necessarily promoting ethical behaviour in all its forms. Of course, if I’m right in suggesting that the present case might not, strictly speaking, be a case of hypocrisy, that doesn’t at all reduce the wrong-doing here. But it does mean the smirk is a little off-target.

The second issue has to do with misrepresentation. This is clearly what the S.E.C. was (appropriately) concerned about. The S.E.C. doesn’t care about ethical filtering per se, but it does care that funds promising a certain kind of filtering actually follow through on that promise. Pax World was claiming to engage in a kind of filtering, and was apparently pretty regularly dropping the ball. Misrepresentation is a bad that pretty much everyone can agree on. People who buy (or just advocate) ethical funds want to be assured that they really are getting what they’re paying for. And hard-core free-market economists have to be equally concerned about misrepresentation (no matter how skeptical some of them might be about ethical funds and the intrusion they represent of non-obviously-economic factors into the marketplace). Investors in “ethical” or “socially responsible” funds are buying not just an investment vehicle, but an investment vehicle that lets them (attempt to) put their own values into action. And if the funds they buy don’t actually promote those values, investors aren’t getting what they’ve paid for and fund managers are guilty of promoting the kind of market failure that comes from information asymmetry. Basically, any time consumers don’t get what they’ve paid for, there’s a prima facie argument to be made that the market is operating inefficiently (i.e., there would be more net benefit — more satisfaction of individual preferences — if things were done differently).

The final issue has to do causation and intentions. There’s no doubt about the fact that Pax World dropped the ball in terms of the filtering it promised its customers. But there’s some question as to why and how. The impression one gets after reading Lieber’s NY Times piece is that, in all likelihood, the problem at Pax World involved sloppiness, perhaps combined with a shift in focus at the firm which resulted in a less-than-scrupulous attention to the values-based origins of their socially-responsible funds. It seems to me to be highly likely that lots of regulatory violations come about that way. As the saying goes, you’ll do better at understanding the world if you assume people are foolish than if you assume people are malicious. The S.E.C.’s job, of course, is to discourage violation of its regulations, regardless of the reasons behind such violations. The S.E.C. only needs to care about causation to the extent that it needs to decide whether to charge a firm with negligence or with intentional wrongdoing. Those of us who aren’t in enforcement roles, but who are more casual observers & analysts of ethical business conduct, can afford to wax philosophical. So I’ll end with questions for consideration: should we care why Pax World failed in the way it did, or simply that the failure happened? Was Pax World’s attempt at socially responsible investing enough to warrant praise, and was its partial failure enough to warrant (moral) criticism?

—-
Related links:
Pax World Mutual Funds
U.S. Securities and Exchange Commission

Pharmaceutical giant Eli Lilly has just bought Monsanto’s controversial synthetic bovine hormone, Posilac.

From Bloomberg: Lilly to Buy Monsanto’s Cow-Milk Stimulating Hormone

Eli Lilly & Co. agreed to pay at least $300 million for Monsanto Co.’s Posilac, a synthetic hormone used to boost milk production in cows.

The agreement, announced today by both companies, will expand Lilly’s veterinary operations and enable Monsanto, a maker of pesticides and seeds, to focus on genetically modified crops.

Posilac has been on the market since 1994. Lilly, the maker of the antipsychotic drug Zyprexa, gains the U.S. sales force for Posilac and the manufacturing plant in Augusta, Georgia. It also inherits opposition to the hormone from consumer advocates who question its safety and from dairy processors, such as Dean Foods Co., which has labeled its milk as hormone-free.

“You’d assume the controversy is part of the price, so there must be some other reason Lilly wants this asset,” said Charles Anthony Butler, an analyst for Lehman Brothers in New York, in a telephone interview today. “Maybe it’ll help them sell other products to those farmers. Animal health as a component for all pharma companies is a business they want to grow.”

Of course, neither company is a stranger to controversy. Lilly is the maker of the antidipressant Prozac, a regular punching bag for anyone who thinks modern society is over-medicated, and has been the subject of a number of pharma marketing scandals. For its part, Monsanto is one of the companies behind “agent orange,” and has more recently faced all kinds of controversy over its genetically modified seeds and the way it has vigorously protected its intellectual property rights. So the two make quite a pair. Just imagine the business-ethics war-stories those two CEO’s could trade over beers. At least neither company has much to lose in terms of reputation by dealing with the other. I wonder if the controversy attached to Posilac means that a controversy-hardened company like Lilly is more likely to buy it than an equally well-heeled company not so accustomed to controversy?

Clear communication about business ethics is pretty fundamental to everything else we want to do in the field, regardless of what our specific interest is. Words matter. Fraud is not the same as cheating. Condoning is not the same as commending. Blackmail is not the same thing as extortion.
In the interest of clarity, check out this story. It’s about corporate wrongdoing, wrongly named. It’s about an accusation that Shell Oil engaged in the form of misleading advertising known as “greenwashing.” And yes, they did mislead in the way they were accused of, but no, it wasn’t “greenwashing.”
Here’s the story, from the Vancouver Sun: Shell forced to pull ‘misleading’ ads promoting Canadian oilsands projects

A ruling by Britain’s advertising regulator against oil giant Shell has prompted a new World Wildlife Fund campaign denouncing the petroleum company’s “greenwash” tactics in promoting its Canadian oilsands projects.
The U.K. Advertising Standards Authority ruled Wednesday in favour of a complaint by the WWF’s British arm that a newspaper ad in which Dutch-based Shell described its Alberta oilsands operations as “sustainable” was “misleading” and violated ad industry codes for “truthfulness,” “substantiation” and “environmental claims.”

Shell has accepted the Advertising Standards Authority’s ruling. So there’s not much disputing that did what they’re being accused of (i.e., making misleading claims in an ad.) But I’d dispute the claim that this is an instance of “greenwashing.” Greenwashing actually occurs when a company makes claims about its environmental performance that are technically true, but that are misleading in a particular way. Greenwash ads tend to mislead by highlighting one (true) environmental accomplishment in a way that distracts from (or covers up, hence the play on “whitewashing”) a checkered or even deplorable environmental record. (A good example is Ford highlighting its hybrid SUV’s, distracting consumers both from the environmental evils of SUVs in general, and from the company’s not-so-groovy environmental track record.) Now, Shell’s environmental record isn’t the best, so highlighting a “sustainable” project (if it were sustainable) might count as greenwashing. But the more obviously accurate accusation here is that Shell’s ad is straigthforwardly misleading about the environmental-friendliness of its oilsands operations. There’s no use of truth to cover up dirt, here. Just plain, old-fashioned misleading advertising.

While in sunny Anaheim this past weekend, I dined at Ruth’s Chris Steak House (the seared tuna was out of this world). On the wall right by the Maitre d’s desk was this utterly useless warning sign:

Ridiculous, no? Which chemicals? In which foods? Huh? The sign reads more like a parody than it does like an actual attempt to inform consumers.

I realize this warning is posted because of some regulatory requirement, but it seems ethically dodgy to me to simply post such a warning without telling your customers what the hell it really means.

Here’s what I saw during this afternoon’s sessions at the Annual Meeting of the Society for Business Ethics:

The first paper I heard was “Hustling Heritage: Corporate Social Responsibility and the Business of Culture,” by Kevin Gibson. The talk was basically about the conflict that sometimes happens between preservation of important cultural/heritage resources (e.g., Ayers Rock in Australia) on one hand and development (in particular, tourism) on the other.

The second paper was “Corporate Social Responsibility: Understanding the Historical and Modern Construct for Future
Results,” by Larry Ruddell. His focus was on the aspect of CSR that implies a duty to help the poor; he contrasted what we might call the old-school view of philanthropy with more modern understandings.