The Business Ethics Blog

This week is “Sin Week” on the Business Ethics Blog. (Why this week? Because my birthday is this week, that’s why.) So, each day this week I’ll post something about a different “sin” industry (pornography, gambling, tobacco, alcohol, prostitution, etc.). In fact, such is the popularity, and range, of sinful-but-profitable activities that I suspect Sin “Week” may turn out to be rather more than a week long. We’ll see.

Now before anyone accuses me of being puritanical based on vocabulary alone, let me assure you that I do not hold all of the industries or products that will be discussed this week actually to be sinful. I myself probably drink more martinis than is healthy for me, and there’s nothing I like better that a fine cigar. And I’m pretty sure that something that could reasonably be called porn (though not all forms of porn) is going to be permissible in a free and just society. I guess if pushed, I’d say there’s not a single industry or product among those I’ll discuss this week that I can write off entirely, from an ethics point of view. None the less, each of them has been subject to serious criticism, and much of that criticism is fully justifiable. Nonetheless, please be sure to take my use of the word “sin” with a big grain of salt.

Today I’ll begin the week with a discussion of so-called “sin stocks.” If you haven’t heard of them, sin stocks are essentially just shares in companies associated with the above-named industries. Investing in sin stocks (on purpose, as a focused activity, rather than just incidentally) is sort of the flip side of the “Socially Responsible Investing” (SRI) coin. SRI funds are investment funds that eschew investment in socially questionable (a.k.a. “sinful”) industries — either on ethical grounds or for fear that such industries are in some way unsustainable.

The core idea behind investing in sin stocks is that, well, sin sells. Sin is popular, and often so attractive that people will spend a lot of money on it, even when there’s little money to go around. Thus, sin is profitable: predictably, and sometimes obscenely, profitable. So if you’re interested in Return on Investment, one reasonably effective strategy may be to put your money in sin. For an informed take on just how profitably, see this article from Canadian Business: Why sin is good: tobacco, alcohol and gaming stocks can add sizzle to your portfolio

So, sin stocks can be profitable. Or not, according to Michael Brush, author of this article at MSN Money: Should you abstain from sin stocks? According to Brush…

…the reality is that investing in sin is no sure bet. In fact, the Vice Fund (VICEX), the Dallas fund that invests unabashedly in gambling, alcohol, tobacco and defense stocks, has dropped more than 10% since its launch last summer. And some areas, such as gaming and tobacco, face higher risk as states view them as easy targets for tax revenue to plug budget shortfalls.

Then there’s the question of definition. Defining “sin” (or, if you want to avoid the theological implications of that word, defining what’s unethical) is a tricky matter, and subject to more than a little disagreement. What’s sinful to one person might be virtuous to another, depending on some crucial value-assumptions. According to MSN’s Michael Brush…

Like the Noah fund, the Ave Maria Catholic Values funds … screens out any companies linked to pornography, birth control and the “anti-family” practice of offering benefits to unmarried domestic partners, says Robert Schwartz of Schwartz Investment Trust, the Detroit firm that manages the $61-million-asset Catholic Values fund. But the fund, whose largest holding is H&R Block … can hold shares in alcohol, gaming and defense stocks, just like the Vice fund.

Is it unethical (or even just ethically dodgy) to invest in sin? If so, a lot of us should be worried. As noted in this WSJ story (In Mutual Funds We Trust ) it’s pretty hard to avoid sin stocks, given the difficulties in figuring out which companies are in what businesses, either directly or indirectly:

But who has a moral compass calibrated finely enough to navigate the complexities of modern corporate conglomerates? Invest in General Motors and you find yourself with a stake in GM’s Hughes subsidiary, which runs the DirecTV satellite service. Which means you are, however tangentially, a shareholder in the vast American porn industry, beaming the Playboy Channel coast to coast.

So, welcome to Sin Week. Pour yourself a drink, sit back, relax, and enjoy….

Relevant Links:
Investing in Sin Stocks (from the Motley Fool)

Andrew Leonard at Salon had an interesting (and, to me, odd) piece a few days ago: The Wal-Mart effect on workers [subscription required]. In it, Leonard quotes Charles Fishman, author of The Wal-Mart Effect. (I haven’t read Fishman’s book yet, but I know he’s written some interesting stuff in the past, including this article from 3 years ago: The Wal-Mart You Don’t Know)

Anyway, here’s what Fishman says (quoted by Leonard) about Wal-Mart’s new plan to use real-time computerized scheduling of workers’ shifts to optimize the number of workers in a store at any time:

I think the plan described…is wrong-headed, disrespectful, and won’t solve the problems Wal-Mart is trying to solve — while creating new ones.
Scheduling people is not, in fact, like scheduling electricity purchases or scheduling the arrival of trucks at a loading dock. You can’t “optimize” them if their work lives spin their personal lives into chaos and uncertainty.

What strikes me as odd about Fishman’s comments is that he’s essentially giving management advice — advice on efficiency — to one of the most efficient corporations in the world. I mean, hey, go for it: we’re all free to offer as much advice as we want (not that Wal-Mart’s necessarily going to listen). But Fishman’s comments here are an example of an argumentation pattern I’ve seen before: start off making an ethical argument, and then ground that argument in some arm-chair prudential advice.

Other examples I’ve heard in the last few months:

• “There’s nothing wrong with pirating music, because after all, big music companies should realize that this is a form of advertising! They should realize that on-line filesharing is just going to help them sell more records!”
• “Food companies shouldn’t be allowed to clone or genetically modify foods. After all, what’s the point? Traditional agriculture works just fine! They’re wasting their money!”

Now in each case, the conclusion reached just might be right. My point is that the arguments are faulty. In each case, critics seem to arrive at a moral conclusion on narrowly prudential grounds. As I tell my own students: we should always be very cautious in assuming that a management strategy that we don’t understand is actually stupid, especially when it’s being carried out by an organization that is famous for making smart decisions.

[Thanks to Caitlin Roran for the pointer.]

Joel Makower at GreenBiz.com has written up what he believes to be the Top Green Business Stories of 2006 . The list — full of hyperlinks to news items — makes great reading.

Here’s Joel’s list (minus his commentary):

• 1. Wal-Mart Goes from Zero to Hero
• 2. Alt-Fuel Vehicles Get in Gear
• 3. Carbon Neutral Brings Hope and Hype
• 4. Financial Sector Takes on Climate
• 5. Investors Flex Their Muscle on Climate
• 6. Renewables Become the New Recycled
• 7. Water Rises as a Business Issue — and Opportunity
• 8. Computer Industry Plugs in to Green
• 9. Green Chemicals Become Supercritical
• 10. Green Becomes an Engine of Growth

I have just two quick points to add.
First, several of the stories are about major institutional players (insurance companies, investment banks, etc.) who’ve decided to go green. This is significant in its own right, but is probably also noteworthy as an indicator of how serious certain environmental problems have become: insurance companies and investment banks don’t operate on the basis of guess-work. If they’re on the move, there’ve gotta be good reasons.

Second, what’s motivating all this? A newfound-but-heartfelt love of green, open spaces on the part of corporate execs? Well, probably not. But does it matter? Guessing (or worrying about) the motives of corporations is a lot like guessing/worrying about the motives of politicians. On just that topic: I heard an environmentalist being inverviewed on CBC radio this morning, about his attempts to lobby the Canadian Prime Minister’s office on environmental issues. The reporter asked what he thought motivated the Prime Minister’s new interest in the environment, to which the environmentalist responded (and I’m quoting from memory here), “A political party’s job is to get elected. If I worried about what motivated politicians, I basically would never speak to them. My job is to make sure that the state of the environment improves.”

Here’s a story for those of you who dislike Wal-Mart, and who have thought to yourselves, “if only they could use their power for good, instead of for evil!” From yesterday’s NY Times: Wal-Mart Puts Some Muscle Behind Power-Sipping Bulbs

…the long-lasting, swirl-shaped light bulbs known as compact fluorescent lamps are to the nation’s energy problem what vegetables are to its obesity epidemic: a near perfect answer, if only Americans could be persuaded to swallow them.
But now Wal-Mart Stores, the giant discount retailer, is determined to push them into at least 100 million homes. And its ambitions extend even further, spurred by a sweeping commitment from its chief executive, H. Lee Scott Jr., to reduce energy use across the country, a move that could also improve Wal-Mart’s appeal to the more affluent consumers the chain must win over to keep growing in the United States.

For those of you to whom Wal-Mart is a symbol of unmitigated corporate evil, this story must be mightily confusing. Wal-Mart doing something good?

Two themes are worth considering, here.

The first theme is Wal-Mart’s attempt to reposition itself as a leader in ethics, social & environmental responsibility, etc. Apparently they’re tired of being the bad boy of retailing:

More than a year ago, Mr. Scott, the company’s chief executive, began reaching out to some of environmental groups, telling them that Wal-Mart, long regarded as an environmental offender, wanted to become a leader on issues like fuel efficiency and greenhouse gas emissions.

Clearly, Wal-Mart has the organizational wherewithal, and the cash, to implement big changes. And there’s nothing in Wal-Mart’s business model that says it can’t be an environmental leader. Of course, selling a hundred million energy-efficient bulbs doesn’t turn Wal-Mart into an enviro-saint; there are doubtless other issues it needs to work on. But it apparently has the will, and is clearing beginning to find the ways. (See also my prediction about Wal-Mart from back in March.)

The second theme is Wal-Mart’s enormous power. We might usefully distinguish 3 kinds of power Wal-Mart has. The first lies in its own size, organizational capacity, & cash-flow. When Wal-Mart wants something, it’s got the resources to make it happen. Even if Wal-March changes no one’s light-bulb purchases but its own (for over a thousand stores in the U.S. alone), that’s still going to have a huge impact. The second lies in its access to the eyes & minds of gazillions of consumers: advertising energy-efficient bulbs on the end of an aisle at Wal-Mart is probably more effective marketing than a 30-second commercial during the Superbowl. This means that Wal-Mart has the power to influence people’s thinking. (Which do you think is more effective: an aisle-end display at Wal-Mart, or endless Saturday-morning public service announcements about hte importance of turning off light-switches?) The third is its power as a business partner. When Wal-Mart sets its mind to something, other key players are pretty much bound to come along for the ride:

In a December 2005 meeting with executives from General Electric, Wal-Mart’s largest bulb supplier, “the message from G.E. was, ‘Don’t go too fast. We have all these plants that produce traditional bulbs,’ ” said one person involved with the issue, who spoke on condition of anonymity because of an agreement not to speak publicly about the negotiations.
The response from the Wal-Mart buyer was blunt, this person said. “We are going there,” the buyer said. “You decide if you are coming with us.”
In the end, as Wal-Mart suppliers generally do, the bulb makers decided to come with the company.

Yikes. Not a lot of companies can get away with being snippy to G.E. (the world’s second-largest company). When you see that kind of weight being thrown around, it’s pretty hard not to agree that it’s being done in service of something like energy efficiency. Sure, Wal-Mart probably wouldn’t be doing this if they thought they’d lose money at it, but why should they? And besides, there are lots of products to make money on. Energy-efficient lightbulbs? We could do a lot worse.

Today’s blog entry is an unusual one.

I’m blogging today not about a news story, but about a terrific student of mine who has just graduated and is now on the job market.

Regular readers of this blog will recall Melissa Whellams’ name. She’s co-authored articles with me on GM Foods and Greenwashing. Junior grad students don’t normally do much publishing. But Melissa is unusually smart and mature and a very good writer.

Melissa just completed her M.A. in International Development Studies, and I had the honour of supervising her thesis. Her thesis was on Corporate Social Responsibility in the South American Mining Industry. In particular, it was about whether the CSR efforts of mining companies can contribute to sustainable development in local communities. To answer the question, Melissa spent 3 months in Peru and Bolivia this summer, studying the CSR initiatives of Newmont Mining. She conducted semi-structured interviews with a wide range of informants, from corporate executives to local farmers, and with NGO’s that are supportive of and NGO’s that are critical of Newmont’s efforts. She came back with a treasure trove of insights into a very complicated set of problems.

I’ve already told Melissa that portions of her thesis are suitable for publication in scholarly journals, but (any publishers out there?) her thesis would work even better as the core of a short book. It’s a fascinating topic, and one that she handles with a combination of optimism and clear-headedness.

Anyway, the point is that she’s out of school, and looking for work in the realm of CSR consulting.
(Melissa’s undergrad degree is in Business, and she worked for several years in the oil industry before going back to school to get her M.A.) So, if anyone out there knows of relevant job opportunities, email Melissa. The company that snaps her up will be very lucky to have her.

The U.S. Food & Drug Administration has moved a step closer to permitting the marketing of meat and milk from cloned animals. Here’s the story from the Washington Post‘s Rick Weiss: FDA Says Clones Are Safe To Eat

Taking a long-awaited stand in an emotionally fraught food fight, the Food and Drug Administration yesterday released a 678-page analysis concluding that milk and meat from cloned animals pose no unique risks to consumers.

The decision, subject to change after a period of public comment, stops short of approving the sale of food from clones and leaves in place for now a long-standing government request that farmers keep their clones off the market.

The story also suggests that a number of companies are waiting in the wings, ready to supply clones of prize-winning animals to serve as breeding stock for genetically-superior herds. Once the FDA gives its go-ahead (perhaps withing the next year), these companies will ramp up production, so that meat and milk from cloned animals may be available for purchase within 3 years. Inevitably, this prospect has resulted in demands for labelling:

Several groups are pushing for a requirement that cloned food be labeled as such, allowing consumers to avoid it. Sundlof said such labels would be inconsistent with a long-standing FDA policy to reserve labels for scientifically substantive issues.

As far as I can see, the argument I presented a few weeks ago regarding demands for labelling Genetically Modified foods applies equally well to demands for labelling cloned food. They key is that there just is no evidence that cloned food is any different, in any important way, from non-cloned food. Of course, lack of evidence of danger doesn’t constitute proof of safety…but it is meaningful in situations (like the present one) in which evidence has been sought out through appropriate methods used by the relevant experts.

My argument has been — and remains — not that judgments issued by the FDA or some blue-ribbon panel is going to settle the matter once & for all, but rather that such judgments can reasonably be relied upon by conscientious companies.

[Thanks to Cindy for forwarding the story.]

This is just a note to announce a new “Wal-Mart Ethics” page I’ve just launched. It’s intended to be sort of a clearing-house for websites & articles related to ethical issues at Wal-Mart. It’s very much a work-in-progress, and suggestions are welcome (email me). (Don’t send me blog entries, though, unless they’re by someone noteworthy.)

Dominic Martin, a doctoral student at the Université de Montréal, has posted some thoughtful comments [link dead; deleted by CM, March 2009] about a presentation I made there a couple of weeks ago. (Merci bien pour tes remarques, Dominic!)

Briefly: my presentation (based on a forthcoming paper), was about the labelling of genetically-modified (GM) foods. I argued that corporations could only be obligated to label GM foods if one of 4 conditions obtained:

1. a legal requirement;
2. a recognition within the industry that labeling is appropriate;
3. a threat to human health;
4. a consumer right to information about the GM content of their food.

I further argued that none of these 4 conditions obtains. Hence, there’s no corporate obligation to label.

Martin objected (both during the discussion following my presentation, and now on CEA’s blog) that I’d neglected environmental concerns. He’s right. Part of my response to his critique (as he notes) was that to an extent, environmental concerns can be subsumed under point #3 above: if the anticipated impact of environmental concerns were such as to jeopardize human well-being, then there would indeed be a plausible argument in favour of an obligation for corporations to label (because even if the threat is not immediate and direct, consumers should have the option of not buying products that are, through their production, contributing to hurting people). But as Martin notes, this argument is firmly anthropocentric (i.e., human-centred) and that’s not the only possible moral perspective on the environment.

Alternatively, what if we regard the environment (as many people do) as having not just “instrumental” value (i.e., value because it’s useful to us humans), but “intrinsic” value (i.e., value for its own sake) as well?

My argument here (one I’m working out more fully in a follow-up paper) is roughly this: even if the environment is of intrinsic value (i.e., even if it should be protected for its own sake), it’s not clear that an obligation to label GM foods follows. In order for a duty to protect the environment to imply a duty to label, we would need to be reasonably sure of the following 3 things:

1. the production of GM foods actually jeopardizes the environment;
2. informed choice by individual consumers would be an effective way to protect the environment from this risk; and
3. labelling (by individual companies) of GM foods as GM is an effective way of informing consumers to enable to them to act upon their environmental beliefs and/or duties.

I take it that none of these 3 is clearly true — I suspect I’ll face most opposition on #1, but note that all 3 need to be true to imply a corporate obligation. So, I think that no matter how deeply we value the environment, there’s no corporate obligation to label GM foods. But of course all of this is consistent with (though it does not imply, and I don’t advocate) believing either a) that governments ought to require labelling, or b) that companies ought not produce GM foods at all.

[Note: the forthcoming paper upon which my Montréal presentation was based was co-authored by Melissa Whellams. But Melissa shouldn’t be blamed for the half-baked extension of our argument presented here.]

Apparently there are limits to the public’s appetite for sleaze.

From today’s NY Times: Editor Fired After Uproar Over Simpson

Judith Regan, the firebrand editor who stirred up decade-old passions last month with her plan for a book and television interview with O. J. Simpson, was fired on Friday by HarperCollins, the publishing company that oversaw her book business.
HarperCollins announced the firing, “effective immediately,” in a two-sentence news release…

Of course, this only happened after HarperCollins, & their parent company (Rupert Murdoch’s) News Corporation, got tired of all the public criticism. It’s not exactly like the companies had their finger on the moral pulse of the nation.

So, the positive ethics-spin: “Look! HarperCollins & News Corporation are responsive to public values!”
The negative ethics-spin: “HarperCollins & News Corporation love ya when it looks like you’ll make them money, and hates you when it looks like a project is going to hurt the company’s image.”

Though dominated by discussion of for-profit, publicly-traded corporations, Business Ethics is not limited to that topic. Business Ethics is really the study of ethics in organizations of all kinds, whether they be for-profit or not-for-profit, publicly-traded corporations or customer-owned cooperative. Hence the relevance here of this story about the charitable organization Mothers Against Drunk Driving, featured in Saturday’s Toronto Star: MADD’s ‘exorbitant costs’ anger charity’s volunteers

People who donate to Mothers Against Drunk Driving are told by the charity that most of the $12 million it raises annually is spent on good works — stopping drunk driving and helping families traumatized by fatal crashes.
But a Star investigation reveals most of the high-profile charity’s money is spent on fundraising and administration, leaving only about 19 cents of each donor dollar for charitable works.

How charities spend their money is crucially important, especially to the donating public. Everyone wants to think that every penny of their donation is going to fight the good fight. But every charity has expenses — from office paper, to rented office space, to TV ads, to paid telemarketers — and so charities basically never spend 100% of the money they collect to promote the causes they advocate for. What’s crucial is the percentage of money taken in that gets spent on such expenses. Very efficient charities boast expenses as low as 10% (i.e., they are 90% efficient at turning donations into good works.) For the least efficient charities, the ratio is reversed: up to 90% of what’s taken in gets burned up on expenses, with only 10% left over for doing good stuff. (In cases of truly corrupt — rather than merely inefficient — charities, sometimes less than 1% of what’s taken in actually goes to doing good.)

Part of the reason MADD’s numbers are in dispute is that there’s disagreement over whether the efforts of MADD’s paid telemarketers should count as a pure expense or as part of the charities good works: critics say that’s just a fundraising expense, while management at MADD says that their telemarketers aren’t just fundraisers, they’re also serving as educators — and educating the public about the dangers of drunk driving is big part of the charity’s mandate.

At any rate, the criticism is hitting home. The Star published this update yesterday: MADD suspends fundraising

MADD Canada has stopped fundraising across the country pending an internal review of allegations that most donor money stays with professional telemarketers and door-knockers.
But leading volunteers with the anti-drunk driving charity say that’s not enough. They want chief executive officer Andrew Murie to bring in an outside firm to scour the $12 million-a-year charity’s books.

Here’s MADD Canada’s response, in the form of a letter to the Editor. The letter starts out:

Mothers Against Drunk Driving (MADD Canada) is disappointed and offended by the Toronto Star’s recent series of one-sided, misleading and inaccurate stories….

One thing’s for sure: this story is bound to hurt MADD’s fundraising efforts (and the Christmas season is crucial for MADD, as it is for many other charities.) The truth is, charitable organizations depend almost entirely on their good reputation for their livelihood. (Michael McDonald, Wayne Norman and I wrote about this in our 2002 paper, Charitable Conflicts of Interest.) Charities not only have to run a tight ship, they have to be seen as running a tight ship. A charity that doesn’t earn and maintain the public’s trust will soon see its coffers run dry.

Related Links:
From MacLean’s: It’s a mad, MADD world: A uniquely powerful charity suddenly finds itself on the defensive

[Thanks to Garrett for suggesting this topic.]