Business Ethics Memo

Why that 99% Meme is Catching On

2011-12-27T07:01:00.000-08:00

"This chart shows real GDP in the U.S. and the level of total civilian employment from 2002-2011. The total output of the U.S. economy in Q3 of this year finally increased to a level above the output in the fourth quarter of 2007, when the recession started (blue line). In other words, the U.S. economy has now made a complete recovery from the 2007-2009 recession. But the labor market is still struggling to recover. We have 6.6 million fewer jobs today in the U.S. than in December 2007 when the recession started (red line in chart), along with a 8.6% unemployment rate, and thus another "jobless recovery." On the other hand, it's remarkable that the U.S. economy is now able to produce more output than in 2007, but is doing so with 6.6 million fewer workers, as a result of significant gains in productivity brought about by the severe recession. Therefore, the chart helps to tell the story of two different sides of an economy in recovery:

We've seen huge gains in productivity and a recovery in output, but at the same time we see a labor market struggling to recover, with the possibility that it will take many more years or even a decade to regain all of the millions of jobs lost during the recession." - Mark J. Perry, Ph.D., visiting fellow, American Enterprise Institute. From the Atlantic Monthly's Most Important Graphs of 2011.

This is arguably the most important national public policy issue of our time. A related question to ponder here is: To what extent is it also a business ethical problem?

Perry says it may take a decade to regain all the jobs lost. But after 15 years--nearly a generation--many more will be looking for work than in 2007. So we will need a lot more than 6.6 million more jobs by then. And what will the majority of those jobs pay? With manufacturing happening mostly in the developing world (and success stories such as Germany) it's difficult to imagine how the American middle class can rebound.

Fareed Zakaria says we need more innovation and infrastructure. But I don't see how that can be sufficient, especially as we need good jobs even for those without college degrees. Newt Gingrich says we need to roll back child labor laws to teach underprivileged children good work habits. But what we surely need instead is a better trade school system. Joseph Stiglitz says we need a massive Keynesian government spending program akin to WW II. But this time, to transition to a robust service economy with much more investment in education. I would add that we also need a new Green Corps to transform our infrastructure and transition out of what has become a perpetual wartime economy.

Ultimately, we need to work together as voters, consumers, and businesspeople to create and maintain good domestic jobs for everyone. Not just the privileged technocratic elite. How has Germany managed to retain quality heavy manufacturing for example? Perhaps we should try and learn from Europe for a change. Iceland provides lessons too since it managed to bounce back from economic disaster without bailouts or austerity measures. But these countries notably have something the U.S. seems to have precious little of these days:

Genuine solidarity.

That is to say, a real social contract in which most everyone understands that long-term stability means looking out for one another. It means maintaining infrastructure and innovation certainly. But also social safety nets, trade schools, and paid internships. Businesses should reconsider for example the ethics of unpaid internships, which are now standard entries into successful careers but tend to shut out most everyone not already born into wealth. This is hardy meritocratic. Or patriotic.

This country is so vast that it has always been difficult for people in one end to see how their interests are tied with those at the other end. But if we are to remain a nation, we need to start seeing ourselves as a great society again.

Occupying Wall Street: The Social Contract Party?

2011-10-07T14:03:00.000-07:00

I just visited the designated occupation site in Zuccoti Park several blocks from Wall St. itself. This picture is one of a few I took with my cell phone this afternoon. Thousands of protesters are using political signs, art, and music to get their message across. My sense is that by and large, they are thoughtfully and peacefully protesting against what they perceive to be a lack of business ethics stemming essentially from a corporate breach of an implied social contract to provide the American middle classes with a basic level of economic security. A manifesto of their demands can be found here.

I struck up a refreshingly rational political, cultural, and economic discussion with a British man filming some of the activities with a digital camcorder. He lives in the U.S. and was obviously rather well informed. He was not a radical by any means. He even lauded the mainstream press, namely, CNBC's recent national economic news coverage. So the movement is attracting a great number of reasonable and well-informed people who are not in the least bit shrill or closed minded. This is a refreshing contrast with many self-described Tea Party members and is why I hesitate to call this movement a budding leftist Tea Party.

It remains to be seen if it will have any impact on either raising corporate consciousness or increasing government regulation to meet any of its manifesto's goals. Much will likely depend on how many other groups come out to join them. Thus far, they have been enjoying increasing union support. Perhaps if a popular political rock group such as Radiohead or U2 decides to perform a concert there, this could provide a legitimizing imprint strong enough to launch a renewed leftist movement across the United States.

It has been somewhat surprising that while there is a rightist Tea Party, there is no current left-wing analog. So if these protests ultimately lead to one--complete with its own televised electoral debates--that would certainly be a worthwhile achievement. In this case, it would have to come up with a name. Perhaps the Social Contract Party?

In any case, for now Mayor Bloomberg has said that they can stay. And that's a start.

New Book on Humanistic Ethics in Business

2011-08-18T13:33:00.000-07:00

Here is an exciting new volume in Palgrave-MacMillan's Humanism in Business series to which I have contributed a chapter. Below are a few key excerpts from my chapter, Wittgenstein and the Challenge of Global Ethics:

"Ideally, by applying rational thought to action, we form good habits. Thus, new positive behaviors gradually become second nature, while bad habits are gradually stamped out. Eventually, we no longer have to think very much at all in order to embody a deeper ethical consciousness. Instead, we naturally desire and do the right thing, experiencing little or no temptation to regress into old habits. This is the ultimate goal of virtue ethics, namely, to reach complete happiness through self-actualizing activities.

Perhaps the greatest force compelling persons to change their behavior on ethical grounds is the realization that their behavior is somehow causing, facilitating, or ignoring some significant harm. We look into another’s suffering eyes and we, in a sense, see ourselves. This is compelling for it is immediately experienced via our basic nature as social beings. And this is what is truly at the heart of ethics for Wittgenstein. For as he says, at various occasions:

“What is essential for us is, after all, spontaneous agreement, spontaneous sympathy” (1967, §667).

“Instinct comes first, reasoning second” (1967, §689).

So perhaps the greatest part of being ethical is simply to become conscious of the interest of those around us. And this has always been, and will ever be so. But the particular challenge of globality is specific to our age. For how can one see into another’s suffering eyes when those who are made to suffer are potentially out of sight on the other side of the planet? Or perhaps they might be future generations (if not one’s own) in any of myriad possible worlds transformed by global ecological calamity resulting from unbridled resource depletion. When each person’s actions taken in isolation have no clear and measurable negative effect on anyone in particular, everyone is much less likely to take responsibility for the collective result that billions of other people’s actions taken together may cause.

Essentially, this is what I take to be the Wittgensteinian challenge of global ethics. While applied ethicists may at times succeed in making compelling philosophical arguments for increased personal and corporate responsibility and government regulation, these can often be rather abstract. Their theoretically-based arguments do not compel us the way, say, the sad eyes of a child do who is denied an education based on her race. Similarly, if one litters by carelessly discarding a plastic bag on the sidewalk, there is a clear and immediate negative consequence to that action, namely, to the beauty of the neighborhood. In such cases, negative impacts are clearly felt in concrete human terms. A mere modicum of self-reflection aided by a degree of social pressure can suffice to eventually bring even the most callous to effect a corrective behavioral change.

Unfortunately, it is not at all clear that the disparately destructive and diffuse web of actions and reactions of globality can ever be felt by anyone in quite the same way. We do have high-speed global communications bringing news reports to mass audiences worldwide. And this certainly helps galvanize public concern on important issues—often at a bewildering pace. Still, as new information streams in day and night on myriad issues, concerns ebb and flow in and out of public consciousness. For example, global warming is now taken much less seriously, at least in the United States, presumably in part because most Americans have not witnessed much climate change for themselves and so have tended to direct their attention to more evident and immediate concerns. 48 percent from a recent poll say the science is exaggerated, up from only 41 percent in 2009 and 31percent in 1997. 35 percent say the effects will either never happen (19 percent) or that they will not happen in their lifetime (16 percent) (Gallup, 2010).

Of course government regulation can step in to pressure consumers to behave more responsibly. In 2009, Sweden for example, introduced new dietary guidelines and labeling of grocery items according to their carbon footprints. Swedish scientists estimate 25 percent of the emissions produced by consumers in industrialized nations is generated by the food industry. And if Sweden’s new food guidelines were strictly followed, the country could cut its emissions from food production by 20 to 50 percent (Rosenthal, 2009). As a result of Swedish labeling requirements and extensive government-funded research and dissemination of the causes and impacts of global warming, consumers and business leaders are beginning to take action. ….

Geographer Jared Diamond, following Garrett Hardin’s seminal article The Tragedy of the Commons (1968), argues via historical evidence that most individuals will only tend to act as responsible stewards of an environmental resource if they are either forced by their governments or can each clearly see the negative effects of each of their actions on that resource (Diamond, 2005). In the latter case, as with littering, the public tends to shame the irresponsible behavior. As it stands, few governments are enacting carbon emissions limits or even sweatshop labor rights standards on imports. And again, this is likely because there is precious little public support for such measures, which may increase costs, since the negative impacts of carbon emissions and labor rights abuses in the developing world remain mostly out of sight and mind to the bulk of consumers in most parts of the world. This is the practical ethical problem of global capitalism. We don’t see, when shopping at, say, Wal-Mart, the poor child forced to toil in a cacao field or a factory because his parents don’t earn enough to afford to send him to school. ….

Though ironically, multinational corporations (MNCs) are usually considered faceless and impersonal, we are nevertheless witnessing a dramatic rise in corporate consciousness worldwide. This ethical awakening provides a unique opportunity for widespread evolution in global consumer consciousness. If, as Wittgenstein claims, ethical norms must compel us pre-theoretically to behave in specific ways, this development certainly is a case in point. We need not abide by any philosophically abstract ethical proposition to conclude that ESG reporting is in fact a good thing. Tellingly, Intel for example, is not employing any particular definition or philosophical argument on the nature of the good, say, deontology or utility or virtue theory, to justify its new resolution. Rather, it’s expressing a new global worldview, or as Wittgenstein would say in his native German, a new Weltbild:

“When we first begin to believe anything, what we believe is not a single proposition, it is a whole system of propositions. (Light dawns gradually over the whole.)

It is not single axioms that strike me as obvious, it is a system in which consequences and premises give one another mutual support” (Wittgenstein, 1972, §141-2).

In this way, Intel shareholders have come to a new global worldview on the proper place of business in society. As a result, companies embracing initiatives such as the ESG or “triple bottom line” reporting of social, environmental, and financial performance (Global Reporting Initiative) are convincingly branding themselves as socially responsible, thereby attracting like-minded investors, consumers, and suppliers. This creates a socioeconomic solidarity of vision—a global compact—between all stakeholders involved with such companies. This should come as no surprise given the fact that humans are essentially social beings who take pleasure in shared experiences and collective enterprises. Furthermore, we in the developed world are increasingly isolated from our communities given our extensive reliance on private automobiles, personal computers, and cell phones to interact with each other. This surely creates a greater longing for connection and belonging and gives corporations a crucial role to play in filling this new psychological void. For the power of MNCs now rivals and even exceeds the power of governments to reinforce and reshape ethical norms.”

Google's in-house Philosopher calls for a Moral Operating System

2011-06-27T08:13:00.000-07:00

This is a very refreshing TED talk. 15 must-see minutes on bridging technology and the humanities through ethics.

It's also great to know that google has hired a philosopher to head and hone its ethics and social responsibility practices. May other corporations follow its lead!

Internet Kids' Games as Junk Food Advertising

2011-04-22T09:05:00.000-07:00

Myriad processed-food conglomerates including General Mills, Unilever (which also owns Ben & Jerry's Ice Cream), Post Foods, Kraft and Kellogg's, have pledged to stop or significantly limit their marketing of less healthy options to kids. But is seems that few if any of these companies are actually sticking to their word. As this excellent investigative report in the NYT reveals, it seems all (except for perhaps Kraft, which is not mentioned) are finding new ways to market junk food to kids: Free online video games.

I blogged on this issue once before. So instead of repeating myself, you can read that piece here.

This is a perfect example of a nefarious side effect of the nominally "free" internet. And it's hard to come up with a solution to the problem, as my previous blog argues. The causes of child obesity are systemic socioeconomic forces. Essentially, the poorer a child is nowadays in the U.S., the higher his or her chances are of being--and remaining--obese into adulthood. As the NYT article reports via an interview at a charter school on the highway between Los Angeles and Las Vegas that strives to give disadvantaged kids a good education:

"Administrators at the school say students face many challenges to maintaining good diets: busy, low-income families, and lots of marketing. “They’re home alone, with no one to give them direction. They’re very susceptible to this marketing,” said the principal, Chala Salisbury. “What we’re seeing is children who are lethargic, some really heavy, but most on the heavy side. Most of the reason is diet.”

Even some critics of the food industry say parents have some responsibility to limit access to marketing and to simply say no to pleas for junk food. But they also say that the aggressive pitches wind up pitting parents against children and, at the least, putting them in a position of constantly saying no."

Ultimately, we need to foster a society in which large corporations do not prey on disadvantaged children, whose numbers are unfortunately continuing to grow as fewer and fewer good middle class jobs remain in this country. But achieving this vision means to have the courage to do what is necessary to make this country great once again. And that will require a serious commitment from not just business, but citizens and their elected representatives.

Indeed, citizens must absolutely shop more responsibly, and parents must absolutely parent more responsibly, while legislators and regulators valiantly uphold the peoples' interest over corporate interests. Without that kind of concerted collective effort, there is little hope corporations will generally uphold their end of the great moral responsibility our free-market social contract now cedes to them.

B-School Mission Drift

2011-04-17T08:34:00.001-07:00

Here's a fascinating investigative piece in the NYT (with several related pieces in the Chronicle) on the lack of rigor in most undergraduate business programs, i.e., outside the top 50:

"Paul M. Mason does not give his business students the same exams he gave 10 or 15 years ago. “Not many of them would pass,” he says.

Dr. Mason, who teaches economics at the University of North Florida, believes his students are just as intelligent as they’ve always been. But many of them don’t read their textbooks, or do much of anything else that their parents would have called studying. “We used to complain that K-12 schools didn’t hold students to high standards,” he says with a sigh. “And here we are doing the same thing ourselves.”

That might sound like a kids-these-days lament, but all evidence suggests that student disengagement is at its worst in Dr. Mason’s domain: undergraduate business education.

Business majors spend less time preparing for class than do students in any other broad field, according to the most recent National Survey of Student Engagement: nearly half of seniors majoring in business say they spend fewer than 11 hours a week studying outside class. In their new book “Academically Adrift: Limited Learning on College Campuses,” the sociologists Richard Arum and Josipa Roksa report that business majors had the weakest gains during the first two years of college on a national test of writing and reasoning skills. And when business students take the GMAT, the entry examination for M.B.A. programs, they score lower than students in every other major.

This is not a small corner of academe. The family of majors under the business umbrella — including finance, accounting, marketing, management and “general business” — accounts for just over 20 percent, or more than 325,000, of all bachelor’s degrees awarded annually in the United States, making it the most popular field of study."

The piece goes on to suggest ways to counteract this downward trend in business school rigor, based on some of the most admired programs. The upshot is there should be more of an emphasis on writing and rigor, particularly in core liberal liberal arts areas such as history, political science and philosophy.

As I have myself argued in the Chronicle, Henry Mintzberg, a professor at McGill University, claims the mission of business school should be "to educate people, not to give them a lot of functional business stuff.” He says it's a “travesty” to offer vocational fields like finance or marketing to 18-year-olds. Instead, he supports a humanistic, multidisciplinary model of management education.

I would add, that the rather hollow vocational mission of traditional business degree programs contributes to student disengagement with their education. Bringing philosophy into such programs, starting with required stand-alone courses in business and society and professional ethics, can be an excellent start. But these courses should be taught by professors with the appropriate philosophical degrees. This means more business schools need to follow the example of their more highly-regarded counterparts such as Babson, which counts numerous liberal arts professors among its faculty.http://www.businessadministrationdegree.net/

The News We Deserve

2011-04-03T06:01:00.000-07:00

Here is my op-ed on the New York Times' new online subscription terms. Essentially, it's a piece on journalistic consumer ethics. Here are the first paragraphs:

"Last week, the New York Times decided to start charging $15 a month for online subscriptions, discontinuing unlimited free access to its pages. The Onion sardonically called this bold plan to actually charge people money for consuming goods and services a groundbreaking new business model. It concluded that if the plan fails, it would frankly be better that The New York Times not exist in a world where people are unwilling to pay the price of a movie ticket for a monthly online subscription.

I tend to share this view. Because essentially, we get the news we deserve.

I hear many people today, often rather educated as they tend to read the Times regularly, complaining about this new charge, saying that they will not pay it. This confounds and infuriates me. Since when does one expect to get something for nothing? The truth is that free online access to journalism is far from free. As a result, newspapers are crumbling because they cannot generate enough ad revenue to continue providing quality investigative journalism.

Geography is not yet history. That is to say, we cannot report everything from desktops. We still -- and will surely always -- need to rely on reporters out in the field doing in-depth investigations. And as the world gets increasingly complex and interconnected, we need more of this, not less."

Read more.

We all share an obligation here to preserve quality journalism. For the freedom and protections our liberal democracy affords require an informed citizenry. And they aren't free. But at $15 a month, that's about as close to free as it's going to get. So if you use the NYT enough to soon run up against a web page requiring you to subscribe, do the right thing for yourself, and for democracy.

McKinsey Calls for Kinder Capitalism!

2011-03-11T10:56:00.000-08:00

Domini Barton, Global Managing Director of McKinsey & Co., is calling American business leaders to embrace a longer-term vision of corporate performance via a more socially-conscious stakeholder capitalism. He argues, much as I have here, that business must strive to provide greater economy-wide stability, lest the people lose faith in capitalism itself. He reports a growing anxiety in corporate American boardrooms should the economy suffer yet another downturn--and I would include a continuing decline of good middle class jobs--U.S. history may yet record a great 21 Century turn to socialism. It's not exactly clear why we should fear such a transformation, other than perhaps the fact that the article appears in the Harvard Business Review.

Barton seems to think this would be bad for business, and so business leaders should change before government forces them to do it in some presumably more debilitating fashion. We are not given examples, but perhaps he would point, much as I have, to the potential onset of protectionist economic policies and eventual U.S. withdrawal from the World Trade Organization. Putting aside the question of whether such moves would indeed be unfortunate, it does seem to make sense to argue that if less regulation is what they want, corporations must take on a vision of long-term stewardship that will restore the people's trust not only in them, but in capitalism itself.

I'm not sure this argument will persuade enough business leaders to stave off anti-capitalist revolt, but I applaud McKinsey for finally confronting this ethical issue head on. The article provides good examples of how longer-term vision has helped many companies compete surprisingly well, from Intel transitioning into microprocessors to Hyundai rolling out 10-year warranties. And it points us to how Asian and European businesses tend to imbue the longer-term virtues he espouses. Although Barton doesn't mention any connection here, it's interesting to note that these countries are generally already much more socialistic than the U.S., which should come as no surprise, since socialism by definition places more emphasis on stability. On the other hand, a somewhat more even-handed business philosophy just might be established here, despite what has become a rather frenzied consumerist culture.

If so, Barton provides three refreshing and concrete strategies for achieving it:

• Increasing board of director competence and engagement.

• Tying executive compensation much more closely to performance.

• Reforming shareholder power.

These are insightful aims and they point the way to a promising area of research that will be wonderful to see McKinsey engage in. Barton provides good ideas for achieving each one of these laudable goals. Perhaps the most revealing notion is the third one. Essentially, he is calling for giving greater voting power to shareholders holding shares longer than the current average of 7 months (down from 7 years in the 1970s). He takes for example certain French companies that double shareholder voting power after the first year.

Ultimately, if the long-view is going to take hold, shareholders need to support it. Obviously, leadership is needed at the top as well. But unless shareholders reward longer-term management by espousing those values themselves, a longer view is unlikely to happen in most cases. Thus, socially-responsible shareholder activists, which have been successful of late, should follow this recommendation by lobbying to reward their own longer-term holdings with greater voting power.

But ultimately, we all basically need to step back, take a deep breath, and take a longer, wider look around. McKinsey & Co. certainly is. And it's very nice to see, at long last.

The Corporate Duty to Rescue

2011-01-25T17:38:00.001-08:00

Here's a nice example confirming a thesis I'm arguing in a research article in progress. The view is that with great power comes great responsibility. And just as natural human persons have a moral duty to rescue, that is, to come to the assistance of others in distress, so do artificial corporate persons. Several companies, including Wal-Mart, FedEx, and Office Depot did so in the aftermath of hurricane Katrina, for example.

Now Wal-Mart has pledged to make its food much healthier and reduce the price of fresh fruits and vegetables over the next five years. Furthermore, the company says it is covering those costs itself. It says it is doing so essentially because it is moved by the appeal of Michelle Obama's public-interest campaign against obesity. It hopes to recoup the costs over the longer term in increased sales. Presumably, this means attracting more educated health-conscious consumers to its shelves.

This is a perfect example of enlightened self-interest. But I would go further to argue that it is also a moral obligation. For as the article above aptly states:

"Some say the company has almost as much power as federal regulators to shape the marketplace.

“A number of companies have said they are going to make voluntary reductions in sodium over the next several years, and numerous companies have said they are going to try to get trans fat out of their food,” said Michael Jacobson, executive director of the Center for Science and the Public Interest. “But Wal-Mart is in a position almost like the Food and Drug Administration. I think it really pushes the food industry in the right direction.”

With great power comes great responsibility. And just as we frown on bad samaritans who do nothing but the barest moral minimum in their everyday lives, we should frown on bad corporate citizens that do the same, especially on those who possess great power yet flout much of their corresponding greater social responsibilities.

Particularly, persons have a moral obligation to come to the rescue of persons in distress, if they can do so relatively easily, by say, wading into a pool where a child is drowning. For example, a young man in France (which has the strictest duty to rescue laws of up to 5 years in prison) is now serving time for fleeing the scene of a car accident in which the driver ended up dying for lack of timely medical assistance. Similarly, corporations--especially those with great power and influence--have a moral obligation to counteract major social ills such as those befalling public health (obesity) and the environment (global warming).

For to stand idly by is to exhibit a shocking disregard for others' interests, and ultimately even to one's own longer-term interest. For a society in which no one looks out for anyone but him or herself is not a society much worth living in, or defending. Ultimately, we are social beings and our happiness is bound together with that of others. And the degree to which we are all concretely dependent on what major multinational corporations do (or fail to do) now to avert great harms currently befalling the global climate and public health, is embarrassingly evident.

Michelle Obama justly praises Wal-Mart for this initiative. The company has also done a great deal lately to lower its carbon footprint. But the point I want to underscore here is that such actions are not merely altruistic and optional good deeds. They are basic moral obligations. And governments are within their rights to force them to do such deeds if they do not do them voluntarily. And there has been some of this here as well. For it is surely the threat of impending regulations limiting trans fats and sodium that has helped bring Wal-Mart to this point. ConAgra has also pledged to reduce the sodium content of its foods by 25% by 2015.

Research shows that we often rise to the ethical occasion through a combination of intrinsic and extrinsic reasons. Social and governmental forces can offer helpful extrinsic pressures. But ultimately, these should mostly serve to strengthen our moral hearts within.

More on Microfinance Morals

2011-01-17T07:21:00.000-08:00

Muhammad Yunus, seen here admiring the positive effects of his microloans, is now chiming in, much as I did recently on the dark side of for-profit microlending, or rather, "commercialized" microlending as he puts it. For he claims his non-commercial Grameen Bank still turns a decent profit. Only that it's more interested in helping the poor than in maximizing profits. He thus says, there is a troubling mission drift in the microlending investment sector.

Here is the essence of his argument from his NYT op-ed:

"Commercialization has been a terrible wrong turn for microfinance, and it indicates a worrying “mission drift” in the motivation of those lending to the poor. Poverty should be eradicated, not seen as a money-making opportunity.

There are serious practical problems with treating microcredit as an ordinary profit-maximizing business. Instead of creating wholesale funds dedicated to lending money to microfinance institutions, as Bangladesh has done, these commercial organizations raise larger sums in volatile international financial markets, and then transmit financial risks to the poor.

Furthermore, it means commercial microcredit institutions are subject to demands for ever-increasing profits, which can only come in the form of higher interest rates charged to the poor, defeating the very purpose of the loans.

Some advocates of commercialization say it’s the only way to attract the money that’s needed to expand the availability of microcredit and to “liberate” the system from dependence on foundations and other charitable donors. But it is possible to harness investment in microcredit — and even make a profit — without working through either charities or global financial markets.

Grameen Bank, where I am managing director, has 2,500 branches in Bangladesh. It lends out more than $100 million a month, from loans of less than $10 for beggars in our “Struggling Members” program, to micro-enterprise loans of about $1,000. Most branches are financially self-reliant, dependent only on deposits from ordinary Bangladeshis. When borrowers join the bank, they open a savings account. All borrowers have savings accounts at the bank, many with balances larger than their loans. And every year, the bank’s profits are returned to the borrowers — 97 percent of them poor women — in the form of dividends.

More microcredit institutions should adopt this model. The community needs to reaffirm the original definition of microcredit, abandon commercialization and turn back to serving the poor."

This is certainly a compelling model and moral argument for mission-driven business. What a different world this would be if more businesses shared it. Nevertheless, there is still the argument that commercialized microlending provides more funds to those who need it than the more mission-driven model. But is it worth it, given how many borrowers are left not only bankrupt, but arguably worse off than they were initially after going to extreme lengths to pay exorbitant interest rates?

Should American Business Protect American Jobs?

2010-12-21T01:40:00.000-08:00

This is certainly one of Robert Reich's most revealing posts of late. And it should be cause for national self-reflection. For whom does this nation exist? Right now, things are looking good for American corporations. Not so much for American workers. Here's mostly why:

"As the President recently told a group of CEOs, the choice “is not between Democrats and Republicans. It’s between America and our competitors around the world. We can win the competition.”

There’s only one problem. America’s big businesses are less and less American. They’re going abroad for sales and employees. That’s one reason they’ve showed record-breaking profits in 2010 while creating almost no American jobs.

Consider one of most popular Christmas products of all time – Apple’s iPhone. Researchers from the Asian Development Bank Institute have dissected an iPhone whose wholesale price is around $179.00 to determine where the money actually goes.

Some shows up in Apple’s profits, which are soaring.

About $61 of the $179 price goes to Japanese workers who make key iPhone components, $30 to German workers who supply other pieces, and $23 to South Korean workers who provide still others. Around $6 goes to the Chinese workers who assemble it. Most of the rest goes to workers elsewhere around the globe who make other bits.

Only about $11 of that iPhone goes to American workers, mostly researchers and designers."

....

"Meanwhile, back home in the U.S., GM has slashed its labor costs. New hires are brought in at roughly half the wages and benefits of former GM employees, under a two-tier wage structure accepted by the United Auto Workers. Almost all GM’s U.S. suppliers have also cut their payrolls."
....

"Just after the midterm elections, the President’s chief economic advisor, Larry Summers, told a group of top U.S. CEOs that the election was partly a “rejection of elites…that were seen as more citizens of Davos than of their countries.” American CEOs, Summers warned, should “think very hard about their obligations as citizens of this country.”

Yes, they’re citizens. But first and foremost they’re CEOs. And CEOs have to show profits – wherever those profits come from. Under American-style capitalism, profits matter. Jobs don’t.

2010 was the year Washington became even more “business friendly.” The result has been more and better jobs – but not in America."

Which is what I've been saying for sometime myself, arguing that it's irrational on Rawlsian social-contract grounds for this nation to be shipping so many of its jobs overseas. But it's not clear what can be done if corporations are unwilling to support regulations that would encourage American companies to keep jobs here. Here's how I conclude the article linked above:

"Capitalism is a particularly demanding social contract that implies a high degree of trust. And so when that trust is broken on a grand scale, in the corporate accounting scandals or late or in the current offshoring race, it compromises the people’s faith in capitalism itself. Therefore, the continuing legitimacy of the U.S. economic system rests to a great extent on its business leaders taking business ethics seriously, indeed perhaps more seriously than their European counterparts. This means getting in the habit of reconsidering policies such as offshoring that tend to contrast, more than reconcile, private interest and public good. At this particular point in time, it means being prepared to challenge prevailing assumptions at the heart of a corporate culture."

Can Business Help Reverse Rising U.S. Inequality?

2010-12-16T08:08:00.000-08:00

Robert Reich shows us more and more on how rapidly inequality continues to rise in the wake of this great recession:

"Why are America’s two economies going in opposite directions?

Two reasons:

First, big profits are coming from overseas sales of goods and services made abroad, not here. The world’s fastest-growing markets are China and India, whose inhabitants are eager to buy “American” products, and just as eager to work for the American companies that sell them. The U.S. market is barely moving.

Increasingly, American corporations are able to extract healthy gains from their global operations without adding much in the United States except executive talent.

Second, American businesses are boosting productivity by having U.S. employees do more work for less pay. According to the Bureau of Labor Statistics, between the third quarter of 2009 and the third quarter of 2010, productivity rose 2.5 percent, output increased 4.1 percent, the number of hours worked was up 1.6 percent, and unit labor costs dropped by 1.9 percent.

In other words, American workers are losing even more bargaining power as a sizeable chunk of corporate profit goes into software and digital equipment that can do what people used to do – but more cheaply."

His view of course, if you know much about him, is that the solution to this, if there is one, is entirely regulatory. We could for example have a more progressive tax system, spend more on education, discourage offshoring, and create a non-offshorable green energy industry.

But is there anything the private sector can (and should) do about this on its own? I should think so.

Trouble is, big U.S. corporations tend to think less and less of themselves as American, with any implied moral obligations to this, or any particular nation. For they are "multinationals." No matter that most all relied on this country in order to get where they are today. And that their executive classes, as Reich points out, are still very much based in the U.S.

It would seem, as I have argued here, that it would be irrational (or merely unethical) for the U.S. government not to enact policies to stem this tide in the interest if its citizens--and for those citizens to continue supporting policies that work in this way against them. Unfortunately, if the current congressional stalemate is any indication, irrationality in the citizenry abounds.

But then it would also be irrational for citizens to knowingly support companies that do not make concerted effort to address social (and environmental issues) such as growing inequality. Indeed, rational citizens should be willing to go out of their way to patronize the companies who do make that effort. And those rational, good samaritan citizen-consumers do certainly exist, and in rather large and growing numbers. So there is a market demand for business virtue.

Still, while virtue is its own reward and tends to pay off in the end, shortsightedness pays off right now. So without a government willing to help level the playing field at least a bit by encouraging good corporate samaritans and discouraging bad corporate samaritans, little can be done to stem this (or any) societal hemorrhage.

Setting an Ethical Gift Policy

2010-12-10T23:08:00.000-08:00

Just in time for the holidays, comes a new piece from Inc. Magazine on the essentials of setting an ethical employee gift policy to minimize potential conflicts of interest. Lots of good advice for entrepreneurs, some of which even comes from me:

"....companies can find themselves struggling to identify what is appropriate for employees to be unwrapping in the offices around the holidays. Creating and maintaining a clear gift policy is an easy way to be confront the situation.

"If you don’t have one, then you open yourself up to a credibility, liability problem," says Julian Friedland, a business ethics professor and writer who edited the 2009 book Doing Well And Good: The Human Face of the New Capitalism.

"Whatever product you happen to be selling, whether it’s a service or actual object of any kind, can be compromised by the appearance of some conflict of interest."....
"One of the main problems with corporate gift policies isn't caused by stale fruitcakes; it occurs when gifting policies are poorly understood or incorrectly interpreted.

UHY's study showed that while most companies had some form of a policy, only 53 percent of employees said it was well-defined. Beyond that, 60 percent of employees said they were not sure whether their company's leaders follow their own policies.

That's why experts say it's important to clearly communicate your gifting rules to employees to make sure they're not caught off guard. The policy needs to be monitored and enforced company wide — without giving top executives a free pass. Making arbitrary rulings on gifts opens you up to more criticism, Friedland says.

"If you don't, you're likely to undermine the loyalty of your employees," he says. "They might get angry or frustrated at what they see is an overly paternalistic policy"."

Lawrence Lessig on Citizens United v. FEC

2010-12-09T09:34:00.000-08:00

An excellent video presentation by Harvard law professor Lawrence lessig, on the negative implications of this year's Citizens United US Supreme Court Ruling. Lessig is also Director of the Edmond J. Safra Foundation Center for Ethics.

WikiLeaks Prepares U.S. Banking Megaleak

2010-11-30T06:57:00.000-08:00

Could it be on Goldman Sachs? Promises to be fascinating. Here's a key excerpt from this Forbes interview with Julian Assange:

"These megaleaks, as you call them, we haven’t seen any of those from the private sector.

No, not at the same scale as for the military.

Will we?

Yes. We have one related to a bank coming up, that’s a megaleak. It’s not as big a scale as the Iraq material, but it’s either tens or hundreds of thousands of documents depending on how you define it.

Is it a U.S. bank?

Yes, it’s a U.S. bank.

One that still exists?

Yes, a big U.S. bank.

The biggest U.S. bank?

No comment.

When will it happen?

Early next year. I won’t say more.

What do you want to be the result of this release?

[Pauses] I’m not sure.

It will give a true and representative insight into how banks behave at the executive level in a way that will stimulate investigations and reforms, I presume.

Usually when you get leaks at this level, it’s about one particular case or one particular violation. For this, there’s only one similar example. It’s like the Enron emails. Why were these so valuable? When Enron collapsed, through court processes, thousands and thousands of emails came out that were internal, and it provided a window into how the whole company was managed. It was all the little decisions that supported the flagrant violations.

This will be like that. Yes, there will be some flagrant violations, unethical practices that will be revealed, but it will also be all the supporting decision-making structures and the internal executive ethos that comes out, and that’s tremendously valuable. Like the Iraq War Logs, yes there were mass casualty incidents that were very newsworthy, but the great value is seeing the full spectrum of the war.

You could call it the ecosystem of corruption. But it’s also all the regular decision making that turns a blind eye to and supports unethical practices: the oversight that’s not done, the priorities of executives, how they think they’re fulfilling their own self-interest. The way they talk about it."

Indeed, this last point is a great one. Perhaps such exposure together with sustained reflection from ethicists--and reporting on that reflection--will usher-in an era of renewed corporate consciousness. But for this to happen, major media outlets must start taking their own mission to educate and inform more seriously. And that means acting with restraint in the ratings and revenue race. For real news tends to be less sensational and thus less viewed.

Capital Punishment for Corporate Crooks?

2010-11-21T07:16:00.000-08:00

Looks like Matt Taibbi's visit with David Sirota in Denver last week was a raucous time. Here's an idea that came from it, excerpted from Sirota's syndicated column:

"Deterrence — it’s the vaunted idea behind “tough on crime” sentences for violent offenses. Lock the door, throw away the key, and the theory says that heinous acts will be prevented. However, things haven’t worked out that way because the toughest “tough on crime” policies are most focused on crimes of passion, derangement and destitution — crimes that are often not calculated and therefore not deterrable. This is probably one of the reasons why the murder rate has been higher in death penalty states than in non-death penalty states, leading most criminologists to conclude that capital punishment does not hinder conventional homicide.

But what about crimes of economic homicide? These are the opposite of crimes of passion. When, say, a speculator securitizes bad mortgages and peddles them to pension funds as safe investments, that fraud involves exactly the kind of calculation that might be deterred via the prospect of harsh punishment.

“What if a bank CEO was given life without parole?” I asked Taibbi. “What if instead of country club jail, one of these guys was shown experiencing prison like a regular convict? That would have to stop some of the worst stuff, right?”

“Right, and go a step further,” Taibbi countered. “How about putting a few of them in the electric chair? Are you telling me Goldman Sachs execs aren’t then going to change?”

Provocative.

It' not clear exactly where we would draw the line in such cases. Maddoff? Ebbers? They were stealing entire fortunes. So perhaps there could be a case for that, putting aside the question of whether they and those like them are psychopathically unmoved by the threat of death. But they're both is prison for life already. So perhaps that already deters others from committing these kinds of crimes. But Sirota and Taibbi are advocating the execution of the Blankfein's of the world as well.

I'm not sure we want to go as far as sentencing snake-oil investment bankers to the electric chair. That's even harsher than the Sharia law of chopping off a thief's hand. Should it then be a utilitarian calculus of how many people they gravely harm? So that perhaps we might fry Enron CFO Andy Fastow who effectively looted the retirement funds of thousands of workers, but not, say, the analyst who gave a bad mortgage-backed security an AAA rating at Standard & Poor's? Drawing the line might be tough sometimes.

Still, it's nice to finally see some well-placed outrage. I think we can all agree that stricter investment regulations and stiffer penalties for breaking them are in order. And long overdue.

Credit Default-Swap Casino

2010-11-19T15:44:00.001-08:00

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The Dark Side of Microcredit

2010-11-17T21:53:00.000-08:00

Personally, I've always been suspicious of the ethics of for-profit microlending. Its defenders claim that if it were limited to non-profit philanthropy, there would be much less money available to aid the myriad poor villagers in the developing world where it is desperately needed. Capitalism begets capital.

That sounds like a decent utilitarian argument. Trouble is, from a more principle-based position, there is something unseemly about saddling the working poor with interest rates so high they would be considered usurious in the U.S. Indeed, several U.S. states have regulated payday lending rates to below half (24%-36%) of what is common in international microcredit (80%-100% or more). The Federal government makes it illegal to sell payday loans to military personnel at higher than 36% interest.

As with payday debtors, microloan-debtors pressured to repay profit-driven creditors can find themselves drowning in debt very fast. And that's exactly what is happening now in India. Here's an excerpt from this NYT report:

Responding to public anger over abuses in the microcredit industry — and growing reports of suicides among people unable to pay mounting debts — legislators in the state of Andhra Pradesh last month passed a stringent new law restricting how the companies can lend and collect money.

Even as the new legislation was being passed, local leaders urged people to renege on their loans, and repayments on nearly $2 billion in loans in the state have virtually ceased. Lenders say that less than 10 percent of borrowers have made payments in the past couple of weeks.

If the trend continues, the industry faces collapse in a state where more than a third of its borrowers live. Lenders are also having trouble making new loans in other states, because banks have slowed lending to them as fears about defaults have grown.

Government officials in the state say they had little choice but to act, and point to women like Durgamma Dappu, a widowed laborer from this impoverished village who took a loan from a private microfinance company because she wanted to build a house.

She had never had a bank account or earned a regular salary but was given a $200 loan anyway, which she struggled to repay. So she took another from a different company, then another, until she was nearly $2,000 in debt. In September she fled her village, leaving her family little choice but to forfeit her tiny plot of land, and her dreams.

“These institutions are using quite coercive methods to collect,” said V. Vasant Kumar, the state’s minister for rural development. “They aren’t looking at sustainability or ensuring the money is going to income-generating activities. They are just making money.”

One might go so far as to argue that for-profit microlending is immoral in any case, and should be banned the way commercializing organs already is in most countries. England goes so far as to ban the commercialization of blood. A good capitalist might again counter that as with microlending, such restrictions would diminish supply. Interestingly however, this doesn't seem to happen as there is rarely if ever any lasting shortage in British blood banks.

Ethicists including Peter Singer argue that's because when people are made to realize that the only way those who need the blood will get it is for others to give it freely, more people feel compelled to give and give more. We thereby preserve the possibility of altruism, the argument goes, strengthening human bonds by appealing to our better natures. If so, then perhaps this would also happen if governments banned for-profit microlending. But the genie is out of the bottle now so it may be too late to realistically consider it an option. Even so, the practice could be regulated with caps on interest as with recent increases in U.S. payday lending restrictions.

Inside Job?

2010-11-14T09:15:00.001-08:00

This looks like a worthwhile documentary on the causes of our great financial collapse. Reliable sources tell me it's a must-see. [Update: It's the this year's Academy Award Winner for Best Documentary]:

As I blogged and commented last year on this, there are two schools of thought on what the causes were. Some say it was shortsightedness and lack of adequate regulation, especially regarding the ratings agencies.

Others, such as this film blame widespread corruption at the highest levels of finance. For example, Matt Taibbi provides a compelling argument for this view, which he elaborates in a courageous new book that is as refreshing as it is sobering. His skewerings of Alan Greenspan in chapter two and of Goldman Sachs in chapter seven are masterful. And there's more. He was recently interviewed by Eliott Spitzer on his new program--on whom I also wrote (to much dismay) in the Wall Street Journal.

My view is that the collapse was surely a bit of all three, namely, shortsightedness, lax regulation, and corruption. But the corruption was (and perhaps still is) not so deep and widespread that the collapse would have happened without the more systemic problems that helped engender the shortsightedness and under-regulation. If there is a policy lesson to be learned here, I think it's that business needs to be incentivized to do the responsible thing. But this is very difficult for the government to accomplish in an atmosphere hostile to regulation.

The alternative solution is for shareholders and consumers to demand more responsible behavior from the banks themselves. For example, they can begin by demanding more transparency so that banks such as Goldman Sachs stop secretly betting against many of their own clients. This is how the bank made billions on the mortgage crisis.

To me, the business-ethical failure at root here is essentially a character flaw, namely, a cynical disregard for the moral responsibility to stand behind the integrity of the product one is selling, whether it be a mortgage-backed security or a Hummer. No one should seek to profit by enabling or encouraging another's irresponsible behavior in the interest of short-term profit. Aristotle pointed out over 2 thousand years ago that this is vile behavior. Kant later showed that it is destructive to the entire system. And Mill gave us utilitarian reasons to erect constraints to prevent such crashes.

But at the end of the day, if businesspersons continue to blithely persist in willful ignorance of what exactly they are selling, history will keep, inexorably, repeating itself. Each of us has a moral obligation to stop and take a fresh look, every now and then, at the soundness of our commercial, social, and ecological behaviors.

Between Fox and NPR: Juan Williams and the ethics of journalism

2010-10-27T11:49:00.000-07:00

This is an interesting case, that by now most of you know the basics of. Alicia Shepard, the NPR ombudsman provides a good objective recap. She concludes:

"In an appearance on Fox News today, Williams defended his controversial remarks, saying he simply had intended to convey his "honest experience" of anxiety. He also said he was told his contract was terminated without an opportunity to come into NPR and discuss the firing.

If he is correct, that’s too bad. I think NPR owed him a chance to explain himself.

I’m not privy to why this announcement was so hastily made. NPR could have waited until his contract ran out, or possibly suspended him pending a review. Either way, a more deliberative approach might have enabled NPR to avoid what has turned into a public relations nightmare.

Even though NPR handled this situation badly, the fact remains that NPR must uphold its journalistic standards, which, after all, provide the basis that earned public radio's reputation for quality."

I agree, but would add that I don't think NPR acted unethically in the sense of not upholding one's basic moral duty. Perhaps it could have acted more carefully and conscientiously, but this is not an obligation. As Shepard states, NPR management had warned Williams numerous times as early as 2008 that he was crossing the ethical line, for example after saying (on Fox as usual) in early 2009, that Michelle Obama had a "Stokely Carmicheal in a dress" thing, namely, an "I'm the victim, blame-America-first attitude."

So this was a repeated pattern made all the more egregious for being on a network that, frankly, makes a mockery of the journalistic mission. Thus this issue is as much about context as it is about what Williams actually said.

Williams was giving Fox the air of respectability of a renowned news organization whenever he appeared as an NPR analyst. This is unethical in itself, though not explicitly forbidden in the NPR contract. But perhaps it should have been. If so, and this is the deeper ethical question I want to address in this post, this is really the only place where NPR may have acted rashly. If my argument is persuasive, NPR should consider making that change now for its remaining analysts.

Fox is not a news organization so much as an opportunistic debaser of the culture, fomenting distrust and disrespect of intellectuals, academics, scientists and any person or group that threatens to expose the lies and ignorance the network propagates like a cancer 24/7. It broadcasts cheap and titillating content, but not journalism by any stretch of the imagination, for it exists first and foremost to promote and reinforce an ideology--not to uncover the truth no matter how unwelcome the truth may at times be to its viewers. The harm this business model is causing can hardly be overestimated as Fox manages to capture the attention of more cable news viewers than each of the other networks actually striving--at greater cost--to maintain their journalistic integrity. What's more, the confounding success of Fox makes it much harder for the other networks to stay true to their journalistic mission, for they are tempted, economically, to follow in its footsteps.

In my view, NPR might be reproached for not explicitly forbidding its analysts from appearing on Fox, as the Obama administration has of its appointees. For I suspect that had Williams' latest comments been given on a different network, they might not have offended NPR and most of its viewers, who resent his even appearing on Fox, let alone fomenting the xenophobic paranoia so much a part of what Fox sells. Of course it's unlikely he would have made those comments elsewhere as he was aided and abetted by O'Reilly, who as NPR management warned Williams repeatedly, is notorious for leading commentators onto treacherous rhetorical terrain.

So ultimately, I think most of the blame lies on Williams himself, who was probably not entirely surprised to receive a renewed $2 million 3-year Fox contract upon being fired from NPR. Now he provides that network full-time with a veneer of objectivity as a black commentator with a prestigious reporting background. It's noteworthy that while NPR has won numerous prestigious awards for journalism and even published self-criticism via its own full-time ombudsman, Fox has never won a single prestigious journalism award nor does it have an ombudsman.

Williams should have known his reputation would be tarnished by engaging in a conflict of interest between his journalistic mission at NPR and the hate-filled bombast of Fox generally, and O'Reilly in particular. Lie down with dogs, get up with fleas.

Economics and Inequality

2010-10-19T14:03:00.000-07:00

Cornell Economics and Management Professor Robert R. Frank draws attention here to the disconnect between economic research and ethical thinking, specifically on the notion of growing US inequality:

"Economists who say we should relegate questions about inequality to philosophers often advocate policies, like tax cuts for the wealthy, that increase inequality substantially. That greater inequality causes real harm is beyond doubt."

It's refreshing to hear this criticism from an economics and management professor. For he is basically exposing the hypocrisy of neoclassical economics which claims not to be advancing an ethical theory, when in fact it almost always defends growth for growth's sake (an excellent in-depth book on the ethics behind neoclassical economics is The Skeptical Economist, by Johnathan Aldred). Frank points out that the harmful effects of increasing inequality in developed countries has gotten simply too great to ignore:

"In a recent working paper based on census data for the 100 most populous counties in the United States, Adam Seth Levine (a postdoctoral researcher in political science at Vanderbilt University), Oege Dijk (an economics Ph.D. student at the European University Institute) and I found that the counties where income inequality grew fastest also showed the biggest increases in symptoms of financial distress.

For example, even after controlling for other factors, these counties had the largest increases in bankruptcy filings.

Divorce rates are another reliable indicator of financial distress, as marriage counselors report that a high proportion of couples they see are experiencing significant financial problems. The counties with the biggest increases in inequality also reported the largest increases in divorce rates."

More disturbing information along these lines has just come out, showing that the poorest half of adults worldwide only hold 1% of all available wealth globally. While the top 2% hold 50%. And 1 in 7 Americans are now living below the poverty line.

It's difficult to know how much and how often economic growth lifts all boats as the data are extremely complicated. Globalization for example surely makes many of the world's poor somewhat better off at least in the short term, though many sweatshop workers are now revolting against exploitative practices in China for example. However, it's not at all clear that job-exporting countries such as the U.S. are treating their own citizens fairly by encouraging US-based corporations to send their jobs offshore to cheaper locales. For then mostly face-to-face service jobs become available to the populace, and many of these are in low-pay areas (retail, cosmetology) that pay precious little and offer no health care benefits.

See my article The Utility of Offshoring: A Rawlsian Critique, which argues that the offshoring trend unfairly expects the people of job-exporting countries to accept job-gain benefits to peoples of other societies as outweighing job-loss hardships they impose on themselves. When an economist as respected as Robert Frank courageously admits that these job-loss hardships cause serious harm, one can only hope more academics in business and economics begin to challenge the free-market dogma of growth for growth's sake.

Julian Friedland (2005). The Utility of Offshoring: A Rawlsian Critique Electronic Journal of Business Ethics and Organization Studies, 10 (1), 9-13

CSR as PR?

2010-09-28T10:26:00.000-07:00

More and more companies are hiring in Corporate Social Responsibility (CSR), as any quick job search will show. And that would seem like good news. However, as one looks through the ads, it becomes clear that they are nearly all in Public Relations (PR). The rest are merely legal compliance jobs, so are not really about social responsibility. You know how low the culture has sunk when simply following the law counts as being socially responsible.

Unfortunately, very few companies are looking to hire anyone at the strategic level with expertise in ethics and social responsibility. And that's because most corporations still consider it an aspect of marketing and communications, namely, PR. But that's a serious deficiency at best (and deceptive at worst) if no one in upper management is an actual business ethicist.

PR-CSR officers may still be able to communicate new best practices upward, but that's putting the cart before the horse. And it does nothing to reduce suspicions the public widely harbors that CSR is little more than window dressing. BP is a glaring recent example of greenwashing corporate policy, changing its name from British Petroleum to "Beyond Petroleum" while callously maintaining perhaps the worst environmental record in the oil industry.

If corporations want to continue using CSR as a selling point to affluent, educated and conscientious customers, they will have to stop eating away at their own credibility. Ultimately, the only way to do this is to integrate their CSR divisions within upper-level strategic management. Until then, corporations are merely putting a social face on strategies conceived for much narrower purposes.

A good way to start would be to hire business ethics professors, who sadly remain conspicuously absent from corporate America. That would also send the message to business students that ethics and philosophy are valuable in the marketplace.

Wall St. Rejects Mountaintop Removal Mining

2010-09-01T08:27:00.000-07:00

It's nice to see major banks acting in the best interests of us all here. This example of CSR harm avoidance is a fascinating case, generalizable to many other issues, namely, agricultural (pesticide use), livestock (factory farm waste), dietary (junk food and obesity), and transportation (C02 emissions):

"Several large commercial lenders are taking a stand on industry practices that they regard as risky to their reputations and bottom lines.

In the most recent example, the banking giant Wells Fargo noted last month what it called “considerable attention and controversy” surrounding mountaintop removal mining, and said that its involvement with companies engaged in it was “limited and declining.”

The bank was a small player in the sector, representing about $78 million in bonds and loan financing for such companies from 2008 to April of this year, according to data compiled by the Rainforest Action Network, an environmental group tracking the issue.

But the policy shift by Wells Fargo follows others over the last two years, including moves by Credit Suisse, Morgan Stanley, JPMorgan Chase, Bank of America and Citibank, to increase scrutiny of lending to companies involved in mountaintop removal — or to end the lending altogether....

Global warming, along with increasing scrutiny by environmental groups of banks’ investments in many other industries — like oil and gas development, nuclear power, coal-fired electricity generation, oil sands, fuel pipeline construction, dam building, forestry and even certain types of agriculture — are nudging lenders into new territory.

“We’re taking a much closer look at a much broader variety of issues, not all of which are captured under state and local laws,” said Stephanie Rico, a spokeswoman for the environmental affairs group at Wells Fargo" (NYT 9/1/10).

This is definitely a step in the right direction and I look forward to seeing more examples of banks divesting from socially and environmentally harmful activities. But ultimately, banks truly concerned with being good corporate citizens shouldn't limit themselves to harm avoidance. They should also begin taking proactive positions on these issues by supporting green venturing and social entrepreneurs. Lending to benefit corporations at a discount would be a good start.

Activists using corporate campaigns can do much to pressure third parties such as banks by threatening or organizing boycotts, as the Service Employees' Union (SEIU) succeeded in order to raise the minimum wage of its Houston members.

New Benefit Corporation Legislation in Maryland & Vermont

2010-08-12T11:04:00.000-07:00

This is a very interesting and encouraging trend:

"Maryland Governor Martin O'Malley signed into law the nation's first legislation creating Benefit Corporations, a new class of corporations required to create benefit for society as well as shareholders.

Unlike traditional corporations, Benefit Corporations must by law create a material positive impact on society; consider how decisions affect employees, community and the environment; and publicly report their social and environmental performance using established third-party standards....

The new law addresses a long time concern among entrepreneurs who need to raise growth capital but fear losing control of the social or environmental mission of their business. These entrepreneurs and other shareholders of Benefit Corporations now have additional rights to hold directors accountable for failure to create a material positive impact on society or to consider the impact of decisions on employees, community, and the environment."

The idea here is to write in ethics and CSR into the core mission of a startup, so that as capital is raised, say, via public share offerings, the mission of the company won't get diluted by a promissory shareholder obligation to seek profit first and foremost. This is the reason many companies stay private, or even return to private control as did Seventh Generation.

It will be interesting to see the extent to which Benefit Corp status will tend to attract or detract investors. My guess is that with social responsibility growing as rapidly as it is, it will be more a positive than a negative.

Other states considering the legislation include Colorado, New York, North Carolina, Oregon, Pennsylvania, and Washington.

Intel Shareholders Persuade Company to Include ESG Reporting as Fiduciary Duty

2010-05-17T16:11:00.000-07:00

This is something many of us have been waiting for. The resolution was introduced by Harrington Investments, a socially responsible investment firm that specializes in shareholder activism on CSR issues.

As a result, Intel is now creating a Board Committee on Sustainability. While this resolution had been voted down by management the previous year, the company is now convinced that environmental, social, and governance (ESG) reporting helps preserve the longer-term interests of the company. Thus, Intel directed its outside legal counsel to write a legal opinion specifically stating that pursuant to Delaware law, corporate responsibility and sustainability reporting based upon the committee's charter, was part of the fiduciary duty of company directors.

This legal opinion may help form a basis for the position that such reporting is a critical factor in corporate financial performance. Ultimately, the Securities and Exchange Commission (SEC) may decide to make ESG reporting mandatory, especially in the current government trend toward increasing corporate regulation and accountability. ESG reporting represents a growing realization that corporate social responsibility (CSR) is not only the right thing to do ethically, but also provides a firm foundation for long-term stability as this chart from Pax World Investments indicates.

Ethical Corporations Outpace S&P During Downturn

2010-03-25T12:19:00.000-07:00

Here's some good news: The S&P 500 over the last five years has showed a 4% loss, while Ethisphere's list of the World's Most Ethical companies (WME) of 2010 has shown 53% growth. This list of 100 of the world's most ethical companies also substantially outpaced the FTSE 100 by over half as much as it did the S&P.

Interestingly, 18 of the 52 companies listed 0n the 2007 WME list underperformed the S&P. These are of course averages, so we should expect that a minority of the 2010 WME also underperformed the S&P and FTSE averages. It's worth noting that all listed returns in this study only occurred over the last year, as the previous year showed losses across the board.

Overall though, the lesson seems to be that the WME tends to outperform the rest of the market even during times of negative growth, namely, 2008-09, in which WME losses were lower than the other two averages. Indeed, they were only at about 1/3 of the other overage losses.

Deep Beats Idle Conversation in Reaching Happiness

2010-03-18T09:04:00.001-07:00

This just in from the University of Arizona!

"It may sound counterintuitive, but people who spend more of their day having deep discussions and less time engaging in small talk seem to be happier, said Matthias Mehl, a psychologist at the University of Arizona who published a study on the subject."

Of course, being deep might also lead to disillusionment and dismay at the direction the world is heading in. But perhaps those two facets aren't necessarily mutually exclusive. Still, makes me wonder if the college students interviewed are rather solipsistic.

Nevertheless, this finding is very much in line with virtue ethics, since this activity is inherently self-realizing (self-actualizing) which is the very definition of Aristotelian happiness.

What's more, a new Cornell study finds that lust for material things fade but unique experiences remain with us for a long time.

Google Withdraws from China

2010-03-14T20:50:00.000-07:00

A fascinating case of global business ethics leadership has finally come to a head in China vs. Google:

"Google said Tuesday it would shut down its operations in China unless the government there agreed to stop using its search engine for spying or to censor political information posted on it. About 80 million Chinese use Google" (AHN).

The company has long been accused of facilitating suppression of information current and historical (e.g. the Tiananmen Square massacre) the government deems potentially threatening to its firm single-party grip on power.

It will be interesting to see what Yahoo and AltaVista do now. Yahoo even went so far, back in 2007, as to turn over internet search records of at least two Chinese political dissidents, who were jailed as a result.

Interestingly, this marks a 180 degree shift in policy for Google, which also in 2007, voted down an anti-censorship shareholder initiative very much like what the company has finally just chosen to do.

Ultimately, this may not compel China to change its repressive policies. However, it will likely inspire its competitors Yahoo and AltaVista to follow suit. This could in turn work to stigmatize the country from the rest of the developed world. It could also embolden its people to revolt once more in the name of freedom and democracy if, as a result of these corporate actions, it becomes impossible or very difficult for ordinary Chinese citizens to continue doing global business on the internet.

But Baidu, the Chinese seach engine, controls already 63% of the market. So perhaps little will change.

Still, this a refreshing and reassuring act of courageous leadership from a company that is clearly still trying to stay true to its founding motto: Don't be evil.

France Bans Ads From Major Television Networks

2010-01-07T10:31:00.001-08:00

This is a surprising story, which has had precious little coverage in the Anglo-American press. The nominally right-wing government headed by President Sarkozy decided already over a year ago to ban all ads from the major networks, which until January 2009 could receive a maximum of 45% of their funding from advertising. The rest came from taxes, mostly funded by a public yearly fee payed by every television owner. This is a bit like the way our own--yet much smaller and less prominent--Corporation for Public Broadcasting (CPB) works, which runs PBS and NPR. It's funded in part by taxes supplemented by voluntary viewer members and limited advertising. The main difference is that in France, there are no free riders as all television owners are required to pay.

Interestingly, in an age of decreasing media market regulation at least in the U.S., France is increasing it. Starting a year ago, almost immediately after Sarkozy's election, the French have banned ads on the major networks (channels 2, 3, 4, and 5) after 8:00 PM. Since January 2009, these four public stations receive an additional 450 million Euros (divided between them, presumably unequally since some provide news and others do not) to make up the loss of revenue.

The plan was for a full ban on these stations at all hours by 2011 but that has now been scrapped. Evidently, one unforeseen benefit is it's getting people to sleep earlier as their usual programming gets done earlier. Of course, it's only a marginal difference of roughly 30 min per night on average I assume since ads are only between programs in France to begin with. Still, 30 extra minutes of sleep (or reading) is nothing to sneeze at.

The reason for eliminating ads of course is to increase the independence of programming from commercial interests and what the President calls the "tyranny of the audience" that tends to debase the culture via the constant influx of American sitcoms, dramas, and so-called reality shows. Specifically, the measure is intended to provide greater amounts of quality cultural programming as well as journalistic freedom. The major national television networks are hence widely considered to be a means to educate the public and elevate the culture.

Pretty amazing. If you can read French, here's a piece announcing the change from this time last year. And here's another from earlier this week.

Evidently, the new system is receiving wide support and already seems to be working.

What this suggests in contrast about the American television broadcasting environment and American attitudes on media regulation, ethics, and the role of government in elevating the culture are interesting questions to ponder.

Can Big Business Save the Earth?

2009-12-09T11:18:00.000-08:00

Jared Diamond (author of Collapse) seems to think so! Consider the compelling argument he makes here in the NYT Week in Review.

It's a refreshing read which, like this image, speaks for itself. As Wittgenstein once said: Whereof one cannot speak, one must pass over in silence.

Where Business Meets Philosophy

2009-11-09T11:46:00.000-08:00

Here is an article of mine from this week's Chronicle of Higher Education special review on business education. It discusses the challenge business ethics faces as an academic discipline (subscription required).

Here's an excerpt:

Students who succeed in my classes learn to apply canonical ethical theory to contemporary business dilemmas, wrestling with their values and reconsidering the proper role of business in society. That is not easily done. It can be daunting for business students to re-evaluate their own views about, and relationship to, the corporate world they are about to enter as potential leaders. But once they get a taste for it, their intellectual curiosity blossoms. A few years ago, I added to my syllabus a section on consumer ethics, forcing students to confront issues of personal choice and responsibility. If consumers spent more responsibly, there would be fewer market failures; the same goes for investors. So how self-interested should we be? To grapple with such questions is to do applied ethics.

It remains to be seen if many business professors will achieve tenure by doing ethics properly speaking. Most of what now gets published in top business journals under the rubric of "ethics" is limited to empirical studies of the success of various policies presumed as ethical ("the effects of management consistency on employee loyalty and efficiency," perhaps). Although valuable, such research does precious little to hone the mission of business itself.

While the public clamors for the return of managerial leadership in ethics and social responsibility, surprisingly little research on the subject exists, and what does get published doesn't appear in the top journals. The reasons are varied, but perhaps more than anything it's that those journals are exclusively empirical: Take The Academy of Management Review, the only top journal devoted to management theory. Its mission statement says it publishes only "testable knowledge-based claims." Unfortunately, that excludes most of what counts as ethics, which is primarily a conceptual, a priori discipline akin to law and philosophy. We wouldn't require, for example, that theses on the nature of justice or logic be empirically testable, although we still consider them "knowledge based."

The major business journals have a responsibility to open the ivory-tower gates to a priori arguments on the ethical nature and mission of business. After all, the top business schools, which are a model for the rest, are naturally interested in hiring academics who publish in the top journals. One solution is for at least one or two of the top journals to rewrite their mission statements to expressly include articles applying ethical theory to business. They could start by creating special ethics sections in the same way that some have already created critical-essay sections. Another solution is for academics to do more reading and referencing of existing business-ethics journals. Through more references in the wider literature, those journals can rise to the top. Until such changes occur, business ethics will largely remain a second-class area of research, primarily concerned with teaching.

Deep Thought

2009-10-24T13:50:00.000-07:00

If, as Aristotle says, it's impossible to do injustice to oneself (since no one suffers injustice willingly) then is it also impossible for a corporation to do injustice to itself?

If so, then the only ethical obligation any person (or corporation) has is toward others.

Volcker seeks return of Glass-Steagall

2009-10-20T20:37:00.000-07:00

And it's about time! Here's an excerpt from the full NYT article:

"Glass-Steagall was watered down over the years and finally revoked in 1999. In the Volcker resurrection, commercial banks would take deposits, manage the nation’s payments system, make standard loans and even trade securities for their customers — just not for themselves. The government, in return, would rescue banks that fail.
On the other side of the wall, investment houses would be free to buy and sell securities for their own accounts, borrowing to leverage these trades and thus multiplying the profits, and the risks.
Being separated from banks, the investment houses would no longer have access to federally insured deposits to finance this trading. If one failed, the government would supervise an orderly liquidation. None would be too big to fail — a designation that could arise for a handful of institutions under the administration’s proposal.
“People say I’m old-fashioned and banks can no longer be separated from nonbank activity,” Mr. Volcker said, acknowledging criticism that he is nostalgic for an earlier era. “That argument,” he added ruefully, “brought us to where we are today.”"

Amazing Moyers!

2009-09-06T08:23:00.001-07:00

This latest interview (and essay) on regulating corporate freedom of speech is outstanding. Moyers gets cornered on why the business of journalism should get special freedom. I've never seen him get so flustered.

To me, this debate underscores something never mentioned here, i.e., that if business were more ethical we wouldn't have this regulatory dilemma. It's not really corporations who act. It's the individuals leading them. And there is no reason those individuals should act less ethically professionally than they do (or should) personally.

The assumption made is that corporate free speech is biased by definition since it is completely interested with increasing short-term profit. But I don't see why this must be the case. In fact, there are a growing number of counterexamples to that thesis. Indeed, they would seem to represent the very essence of corporate social responsibility.

The promissory agreement to further the interest of shareholders first is the corporate motivator. But there is also no reason why shareholders should consider merely short-term financial gain to the exclusion of all else. Socially-responsible corporations for example would not automatically lobby to sacrifice consumer safety requirements in the interest of higher profits.

Thus, if corporations behaved more civically, there would be little reason to gag their speech. It's the arguable abuse of their great influence today that threatens to drown out citizens' voices which is the problem. As with monopolies, it's the abuse of power that is dangerous. Not necessarily the power itself.

Medical Research Masking

2009-08-22T08:53:00.000-07:00

The NYT has just exposed a disturbing trend: Medical research funded and ghostwritten for pharmaceutical companies to promote their drugs. For example, a for-profit company such a Wyeth offers to write an article, often requiring extensive review of existing literature in a particular area, say, hormone therapy, by sending a query to a professor at a prestigious medical school, such as, say, Columbia. The company also offers to pay the professor for the privilege of having her name on it, say, $25,000. The author merely has to review the article then submit it to a top medical journal without any indication of its true provenance.

Just such a case was recently exposed from materials in litigation over Wyeth's development and marketing of menopause drugs. Wyeth had also used such practices to promote its diet drug Fen-Phen, subsequently removed from the market after it had been correlated with serious heart-valve damage. As a result, Columbia has drafted new research ethics rules:

"A new policy at Columbia took effect in January. It prohibits medical school faculty, trainees and students from being authors or co-authors of articles written by employees of commercial entities if the author’s name or Columbia title is used without substantive contribution. The policy requires any article written with a for-profit company to include full disclosure of the role of each author, as well as any other industry contribution.

But Dr. Elliott, University of Minnesota bioethicist, said universities should go further than mere disclosure, prohibiting faculty members from working with industry-sponsored writers. Policies asking only for disclosure “allow pharmaceutical companies to launder their marketing messages,” he said."

Unfortunately, Columbia has not been joined by the majority of other medical schools in drafting such a policy, though Duke is a notable exception. I think Professor Elliott has it right here. If the research is good, it should be able to stand on its own merits without having to bear the imprimatur of a professor at a prestigious university--especially of one who did little more than review the article for a hefty sum.

The fact that companies such as Wyeth feel they must cloak their research this way reveals they have something to hide. Of course if the research is sound then perhaps (as they would surely argue) they are merely the victims of prejudice as any article explicitly authored by Wyeth would likely be subject to greater scrutiny by medical journals and practitioners themselves. But their status as for-profit companies marketing a product should indeed make us more skeptical of any research they promote. As I see it, there are two main reasons why this practice is unethical:

1. It creates a conflict of interest between the professor's civic duty and the economic interest in selling a product. As such, it blurs marketing and medicine.

2. Ghostwriting is essentially a form of plagiarism in which one passes off the work of another as one's own. While it doesn't exactly rob any single author (since they are payed for their services) it keeps us from ever tracing them--and institutions such as Wyeth--as the actual origins of the research in question. As a result, it's like robbing intellectual history itself.

It's easy to understand why so few medical schools have adopted reformist policies on this problem. They, like their professors, are in a race to maintain prestige. And having their name on more articles in more places maintains that prestige. The same goes for the journals themselves, which seek to publish work by prestigious academics. It's a bit like the classic case of hockey helmets in the NHL. Before they were required, most players didn't want to wear them since they presented a competitive disadvantage by reducing visibility and maneuverability against players not wearing them. But players were usually in favor of making helmets mandatory, which eventually occurred.

Because of this game-theoretical problem, government regulation may very well need to be applied to effect real and lasting change in the medical industry, as U.S. Senator Charles Grassley has argued.

Journalism's Long Slouch Down

2009-07-26T16:38:00.000-07:00

Much has been said over Walter Cronkite's passing. But few have hit the nail on the head as well as Amy Goodman, Glenn Greenwald, and now Frank Rich.

It's depressing and embarrasses us all that mainstream media in mourning Cronkite could not even emulate his integrity in the slightest by mentioning that the reason he was most respected was for having the guts, every now and then, to tell the people the truth they needed to hear even against the government's wishes. In so doing, he managed to rescue the nation from collective and willful blindness. Even the Lehrer News Hour failed to say this, taking the safer path of framing its coverage around Cronkite's near-monopoly, which is only part of the story. He also had a courage no one seems to have at his level anymore. Indeed, he came to deplore what he saw as a failure of his generation, which included Edward R. Murrow, to transmit its journalistic values to the next.

Honest reporting is not primarily what the big news networks seem to do anymore--despite the fact that they hold most of the immense resources required to carry-out penetrating investigative journalism on national and international scales. Essentially, this is because they trade friendly coverage or "spin" for access.

For example, TPM's Zachary Roth shows just how low the media stooped in begging Gov. Sanford to grant them interviews. David Gregory of NBC's Meet the Press even promised that his show would allow Sanford "to frame the conversation as you really want to...and then move on." Even if this was mere posturing to get him on the show, it's unseemly behavior that creates inappropriate expectations. Roth sadly concludes:

"When you read the emails by Gregory, King, Stephanopoulos and others, you start to understand why most major network interviews with politicians tend to be a lot less hard hitting than they need to be to really hold their subjects accountable. The politicians themselves have the power to make or break the networks, by granting or withholding access. That ends up meaning that, consciously or not, the networks soften their approaches--both in their pitches, and in their actual interviews--in exchange for that access.
That's how the world works, and it's hard to know what to do about it."

The problem here may be that network news is simply run as business. And this strategy seems frankly best for business--at least for now. The question to me is whether it is possible in this highly competitive information age, for a mainstream news network to build a reputation on good old fashioned integrity and muckraking.

Judging by the slogans espousing objectivity we hear more and more (take Campbell Brown's "no bias, no bull") and consumer polls, this kind of thing would seem to be in demand--but perhaps most viewers only think they want objectivity while actually prefering subjectivity and bias that suits their preconceptions. Even so, I would hope enough reasonable and responsible viewers are out there for at least one network to truly distinguish itself in this way instead of peddling empty promises as Fox, the cable news leader does perhaps most preposterously of all, with its claim of being "fair and balanced" and so-called "no spin zone."

If enough people are not truly willing (or able) to seek hard-hitting news that reports and analyses (and at times opines) inconvenient and unwelcome truths, then the news market fails. At that point, which may already be upon us, we may need to protect and/or regulate it.

Thankfully, the national news industry still retains some of its traditional mission via the family-controlled public trusts of the New York Times and the Washington Post (though the Post's reputation was recently somewhat blemished on this score) and the non-profit and government-funded Corporation for Public Broadcasting. But these last remaining strongholds of investigative journalism may prove to be precious few in an increasingly bewidlering world of infotainment and advertorial distraction. If so, the danger is that the American people may fail to act, from sheer ignorance of--and disinterest in--all the news they'll never get.

The Downside of Social Responsibility

2009-07-25T08:41:00.000-07:00

The NYT just ran an interesting report on an interview with Jeffrey M. Peek, CFO of CIT, a bank on the brink of bankrupcy in part because it acted more responsibly during the mortgage bubble:

"Perhaps Mr. Peek’s real failing was that he didn’t take enough foolish risks. Although Mr. Peek was a former top Merrill Lynch executive, he didn’t lead CIT into bundling mortgages into toxic derivatives, he didn’t get into credit-default swaps, he didn’t create a trading desk that swung for the fences and he didn’t build a company that was so big that it posed systemic risk. In other words, he acted a little too responsibly. So when CIT’s moment of crisis arrived, the F.D.I.C. looked it over and decided it wasn’t too big to fail. To Mr. Peek’s surprise, it turned out to be too small to save."

That is deeply ironic. And explains much on the roots of the economic crisis. Banks it would seem--that are still standing--gambled shrewdly that even under a collapse, they would remain (if not become) too big too fail. It's not clear that even with this attitude CIT would have become too big to fail, but this is a sobering reminder of how smaller and more responsible companies get left out of the bailouts. The Fed should step in at times like this.

More on CSR When Doing Business in China

2009-06-23T09:08:00.000-07:00

The NYT just printed another interesting article on this issue, which seems to be getting more attention, namely, what responsibility (if any) does a multinational corporation (MNC) have to work for democratic social change when operating in China? Michael Santoro, Professor of business ethics at Rutgers, has just written a book about it and is quoted in the NYT piece, saying:

“Multinational corporations do possess great power, wealth, and influence, and therefore they do have a responsibility to help to shoulder the burdens of enforcing human rights,” he writes.
Speaking to executives at a forum in Beijing to introduce his book, Dr. Santoro said they needed to show “backbone and courage.”
“It is unacceptable that no major business has initiated a court action against any level of Chinese government for anything,” he said.
“It’s also dangerous to your future economic well-being. That is not the kind of country that you want to be investing large sums of money in, because the future, without a settled rule of law, is very uncertain,” he said.
In making a legal call to arms, Dr. Santoro wants Western businesses to reconsider some of their “shortsighted and self-defeating presuppositions” about the best way of promoting their interests in China. But some people on the ground feel that it is a confrontation in court that would be self-defeating. Clare Pearson, who runs ethicaledge, a consultancy in Beijing, said Dr. Santoro was wearing cultural blinders.
“Companies aren’t the new missionaries,” Ms. Pearson said. “The last thing you want to do is to get somebody to lose face in public,” she said, advising, “Get close before you get critical.”

It's an interesting argument. And I don't see that there is much disagreement necessarily between Santoro and Pearson here. It sounds like Santoro might concede that as far as doing business in China goes, yes, do get close before you get critical. But once you are close--don't forget the second part, which should at least sometimes include court actions on such issues as internet freedom and judicial independence. Perhaps we'll start to see some of that now. Of course just getting close might already require making significant ethical concessions as the Dell and HP case presents in my post below. It would be interesting to know what Santoro would say about that.

My own recent book includes a chapter by Duane Windsor, professor of business ethics at Rice, on the duty of MNCs to provide basic health services, i.e., to help erradicate epidemics, in developing countries in which they operate. He argues that when it can be done relatively easily and at low cost it must be, for it is both a "moral obligation and a strategic necessity."

Should Dell & HP Agree to Install Censorship Software in Chinese Computers?

2009-06-09T10:05:00.000-07:00

An interesting problem of global business ethics. The New York Times seems to have broken the story yesterday, reporting the Chinese government has just announced that after July 1, all PCs sold in China will have to include "Green Dam" software that will allow the government to prevent users from accessing any sites the government deems "unclean," including everything from political dissidence to pornography.

I'm inclined to think that these companies should lobby the U.S. government to apply political pressure on China. Unfortunately, since China is our largest creditor right now, we don't have much political power there these days. Ultimately however, we need to find a way to credibly threaten stronger enforcement of Chinese patent and copyright violations, which are notoriously widespread.

So long as the Chinese government continues forcing American companies to facilitate censorship, this gives us that much more moral ground to stand on the intellectual property issue, which robs the U.S. economy of billions in annual GDP. This approach to corporate social responsibility whereby companies strive to progressively shape public policy on the global stage is persuasively defended by David Vogel in his excellent book, The Market for Virtue.

The Harvard MBA Oath

2009-05-30T11:48:00.001-07:00

This looks like the best pledge I've seen thus far. As I suspected, Rakesh Khurana (and Nitin Nohria) had a hand in getting it going. Unlike other common business school oaths or pledges, this one goes beyond mentioning negative duties against causing harm, embracing positive duties to create social value--as you can see in these highlights from the longer version:

I will understand and uphold, both in letter and in spirit, the laws and contracts governing my own conduct and that of my enterprise. If I find laws that are unjust, antiquated, or unhelpful I will not brazenly break, ignore or avoid them; I will seek civil and acceptable means of reforming them.
I will take responsibility for my actions, and I will represent the performance and risks of my enterprise accurately and honestly. My aim will not be to distort the truth, but to transparently explain it and help people understand how decisions that affect them are made.
I will develop both myself and other managers under my supervision so that the profession continues to grow and contribute to the well-being of society. I will consult colleagues and others who can help inform my judgment and will continually invest in staying abreast of the evolving knowledge in the field, always remaining open to innovation. I will mentor and look after the education of the next generation of leaders.
I will strive to create sustainable economic, social, and environmental prosperity worldwide. Sustainable prosperity is created when the enterprise produces an output in the long run that is greater than the opportunity cost of all the inputs it consumes.
I will be accountable to my peers and they will be accountable to me for living by this oath. I recognize that my stature and privileges as a professional stem from the respect and trust that the profession as a whole enjoys, and I accept my responsibility for embodying, protecting, and developing the standards of the management profession, so as to enhance that trust and respect.

It's particularly gratifying to see this change occur at Harvard Business School, which, as far as I know, still lacks a stand-alone ethics course requirement for undergraduates. It would be wonderful if the growing number of online MBA programs encouraged a similar oath (the link above uses a dubious ranking methodology).

I will surely support something similar in the article I am preparing: "Beyond Empiricism: Fulfilling the Ethical Promise of Management"

New Job!

2009-05-30T10:34:00.000-07:00

Just a personal announcement that I've accepted a new position as assistant professor in business ethics at Eastern Connecticut State University. It's an excellent position for me since ECSU is a public liberal arts university that strives to provide even its business students with a solid education rooted in the timeless knowledge of the liberal arts tradition.

This will provide a fitting byline for my forthcoming Chronicle Review piece on the challenges of teaching ethics in a business school context.

My Book Now in Press!

2009-05-05T11:14:00.000-07:00

At long last, my edited book Doing Well and Good: The Human Face of the New Capitalism can be ordered here, where you will find summary and table of contents.

Medical Moral Hazards

2009-04-29T22:51:00.000-07:00

A new report by the Institute of Medicine (IOM) calls for doctors to stop taking gifts from pharmaceutical companies. This could create all sorts of conflicts of interest. Here's an excerpt from the NYT:

"Drug companies spend billions of dollars wooing doctors — more than they spend on research or consumer advertising. Much of this money is spent on giving doctors free drug samples, free food, free medical refresher courses and payments for marketing lectures. The institute’s report recommends that nearly all of these efforts end.

The largest drug makers agreed last year to stop giving doctors pens, pads and other gifts of small value, but company executives have defended other marketing tactics as valuable to both doctors and patients. Medical device and biotechnology companies have yet to swear off free trips or even pens.

A 2007 survey found that more than three-quarters of doctors accepted free drug samples and free food, more than a third got financial help for medical refresher courses and more than a quarter were paid for giving marketing lectures and enrolling patients in clinical trials."

I don't see how samples and pens and paper would create a conflict of interest, i.e., for doctors to go against their professional judgment. But perhaps much larger payments (and trips) would. There's also the issue of physicians consulting for--and investing in--drug and biotechnology companies that benefit from their own prescriptions. Strangely, this is not addressed in the report. But it is in this recent assessment from the American Medical Student Association, claiming it's become a real problem, particularly at Harvard. Excerpts from the article:

"In a first-year pharmacology class at Harvard Medical School, Matt Zerden grew wary as the professor promoted the benefits of cholesterol drugs and seemed to belittle a student who asked about side effects.

Mr. Zerden later discovered something by searching online that he began sharing with his classmates. The professor was not only a full-time member of the Harvard Medical faculty, but a paid consultant to 10 drug companies, including five makers of cholesterol treatment.

Mr. Zerden’s minor stir four years ago has lately grown into a full-blown movement by more than 200 Harvard Medical School students and sympathetic faculty, intent on exposing and curtailing the industry influence in their classrooms and laboratories, as well as in Harvard’s 17 affiliated teaching hospitals and institutes.

The students argue, for example, that Harvard should be embarrassed by the F grade it recently received from the American Medical Student Association, a national group that rates how well medical schools monitor and control drug industry money.

Harvard Medical School’s peers received much higher grades, ranging from the A for the University of Pennsylvania, to B’s received by Stanford, Columbia and New York University, to the C for Yale."

The question of course is where to draw the line. One might argue, as the IOM seems to, that any payment or gifting is inappropriate, as it creates a habit--a slippery slope--that may gradually grow into a serious moral hazard as physicians begin taking more liberties down the line. In any case, if state legislatures and medical associations establish clear guidelines on what is and is not appropriate, then doctors and medical schools might draw the lines somewhere that make sense to most everyone. It's a hard job, but it's one ethicists can surely step up to.

Update (Dec. 7, 2010): Harvard Medical School strengthened its conflict of interest (COI) policy a few months ago:

"Among many provisions, the new policy includes a streamlined central system for reporting faculty financial interests with industry; requires the public disclosure of certain faculty financial interests; bans faculty from accepting corporate gifts, including travel and meals; and ends faculty participation in industry speakers bureaus, making it one of the most stringent of any medical college in the country. In addition, faculty disclosures will be made available to the public on the Harvard Catalyst website. "

As of this posting, I could not find faculty disclosures at the link above.

Employee Free Choice Act

2009-04-26T09:32:00.000-07:00

The WSJ's Thomas Frank makes a strong case for the EFCA, that would strengthen the NLRA or Wagner Act, which has been continually gutted since its passing in 1935, first by the Supreme Court Mackay decision in 1938 (see here for a defense) that companies could permanently replace striking workers, and next by the Taft-Hartley Act of 1947. The EFCA would make it easier for workers to start collective bargaining and to create unions. But it looks like the GOP is set on blocking it by a Senate filibuster. Here's some info on the bill. And an excerpt from Frank's article:

"After massive lobbying both by labor and by business, it appears that the Employee Free Choice Act (EFCA), which, as it now stands, would allow workers to organize in many cases merely by signing cards instead of holding elections, will not have the 60 votes required to get past a Republican filibuster in the Senate.

Now, to be pro-labor is to resign yourself to years of failures and defeats, with few tea parties along the way for consolation. Even so, the setback on EFCA has to be a bitter one. Union members worked hard to elect Barack Obama and the Democratic Congress, as they did to put Jimmy Carter and Bill Clinton in the White House. And now, just as in those previous two periods of Democratic governance, labor's friends are having trouble enacting basic labor-law reforms.

To understand why we need new rules governing unionization, look no further than yesterday's New York Times, where Steven Greenhouse told the story of a Louisville, Ky., hospital whose nurses tried to form a union but failed after they were reportedly threatened with losing their benefits among other things.

Such practices are commonplace and well-documented by Human Rights Watch and others. But labor's case never seemed to hit home. Instead, conservatives have carried the day, playing on lurid stereotypes to hint that intimidation by unions is the real worry and that EFCA spells the end of secret ballots in the workplace and hence of democracy itself."

Of course there are cases of large companies treating workers well without much need for collective bargaining, such as REI, Starbucks, Whole Foods, and Costco. Still, it would seem constitutionally unjust to actively oppose legislation that would protect this basic right. Even Adam Smith recognized the importance of unions in order to keep workers from becoming exploited:

"The masters [i.e., employers], being fewer in number, can combine much more easily; and the law, besides, authorises, or at least does not prohibit their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work; but many against combining to raise it. In all such disputes the masters can hold out much longer. A landlord, a farmer, a master manufacturer, or merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long-run the workman may be as necessary to his master as his master is to him, but the necessity is not so immediate." (The Wealth of Nations, volume I, ch. 8, paragraph 12).

We also find the seed of the concept of alienation in Smith (later more fully developed by Marx) when he argues that unions are necessary to keep labor from becoming so divided into ever simpler (and cheaper) tasks that workers would become "as stupid and ignorant as it is possible for a human creature to become."

This site provides more information on the EFCA including a tool for sending an email to one's congressperson and senators urging them to support the bill.

My Forthcoming Chronicle Review Piece [and Sternberg's Current One]

2009-04-23T22:48:00.000-07:00

The Chronicle of Higher Education is publishing an article of mine on the challenges of teaching and disseminating ethics in business school. Watch for it. It should be out sometime next month in the Chronicle Review section. I'd post an excerpt but I'm bound by the copyright until 30 days after publication.

However, the current issue contains an interesting and related article by Robert Sternberg, Tufts Dean of Arts & Sciences, offering a "new model for teaching ethical behavior." While it might not strike everyone as completely new, it's a decent attempt to define what counts as ethical thinking and behaving.

Sternberg uses his background in psychology to show what he takes as eight steps commonly undertaken during "ethical behavior." As the title suggests, this isn't merely a decision-making tool but a model for teaching students to grasp the process of ethical thinking itself. It's essentially a map of the kind of thinking one must go through to act ethically. Unfortunately, if one fails to recognize an event as ethical to begin with, the steps are useless. But as Sternberg rightly suggests, his model--if accurate--should at least help us better understand why so many smart and well-educated people continually fail to think through them.

You can read it via subscription. Here's an excerpt:

"In 1970, Bibb Latané and John Darley opened up a new field of research on bystander intervention. They showed that, contrary to expectations, bystanders intervene when someone is in trouble only in very limited circumstances. For example, if they think that someone else might intervene, bystanders tend to stay out of the situation. Latané and Darley even showed that divinity students who were about to lecture on the parable of the good Samaritan were no more likely than other bystanders to help a person in distress.

Drawing in part on Latané and Darley's model of bystander intervention, I've constructed a model of ethical behavior that applies to a variety of ethical problems. The model's basic premise is that ethical behavior is far harder to display than one would expect simply on the basis of what we learn from parents, school, and religious training. To intervene, to do good, individuals must go through a series of steps, and unless all of the steps are completed, people are not likely to behave ethically, regardless of the ethics training or moral education they have received and the level of other types of relevant skills they might possess, such as critical or creative thinking."

A New Corporate Social Contract

2009-04-21T10:41:00.001-07:00

That's what the Center for American Progress' Senior Fellow Matt Miller argues for. Here's the lead:

"Given the mess into which Wall Street’s poor stewardship has sunk the US, the phrase “financial industry statesman” will be seen by the American public as a laughable oxymoron for some time. But there is a real risk that the justified hit to Wall Street’s reputation will taint the standing of business more generally unless non-financial leaders wake up and take unconventional action. The perils of timidity at this moment are high. If business as a whole (and not just finance) is discredited by today’s meltdown, the drive to renew American capitalism could give rise to steps that burden the US economy for years.

To avoid this fate, far-sighted business leaders need to weigh in now on three subjects on which they have been notably absent: executive pay; the need for an updated “social contract” that fits 21st-century realities; and a strategy to make service jobs that cannot be offshored a path to the middle class. These are no longer political questions that can be left to Washington trade associations or viewed as a distraction from the “real work” of running one’s business, because failure to address them will fuel a backlash that affects every company’s licence to operate. Let us take them in turn."

It's nice to hear this argument return. It's one I made myself somewhat more in depth comparing utilitarian and contractarian arguments on outsourcing. It appeared a few years ago in EJBO. Hopefully more voices will keep joining this chorus.

Proof of Pudding

2009-04-20T16:29:00.000-07:00

The WashPost reports that Chrysler turned down new government bailout money, opting for more expensive private loans in order to avoid the government's caps on executive compensation.

Unfortunately, this report is rather flimsy, full of vague hearsay and unnamed sources whose claims are denied by the company. But if it turns out to be substantiated (and it looks like it could be if Chrysler goes forward with more expensive loan offers), it will be quite damning. For it isn't merely proof of greed, but would actually violate the promissory agreement to uphold the interests of the shareholders--unless of course the company can argue plausibly that it would otherwise lose irreplaceable key executives. But that doesn't seem to be a very convincing argument since the global economic crisis has significantly limited the number of positions where one could stand to "earn" more.

And it would substantiate the WSJ's Thomas Frank on the terms of the original bailout plans under Bush and Secretary Paulson (I commented on in February):

"If the federal bank bailout were to involve a real crackdown on executive compensation, the Bush administration reportedly feared, it might have driven banks away from taking the deal altogether. Bankers would prefer global disaster to a pay cut, in other words, and this obscene calculation needed to be taken into account. Public outrage was apparently nothing by comparison."

Old habits die hard.

Does Government as Majority Shareholder Create a Conflict of Interest?

2009-04-20T10:20:00.000-07:00

Yesterday's NYT had a story about how the administration is considering converting its preferred stock (loans) to banks into common stock. This would reduce the banks' debt load and make them more solvent (at least on paper) by "recapitalizing" them.

But there seems to be some fear that this could create a conflict of interest for the government, as the article concludes with this cryptic statement:

"The Treasury would also become a major shareholder, and perhaps even the controlling shareholder, in some financial institutions. That could lead to increasingly difficult conflicts of interest for the government, as policy makers juggle broad economic objectives with the narrower responsibility to maximize the value of their bank shares on behalf of taxpayers. Those are exactly the kinds of conflicts that Treasury and Fed officials were trying to avoid when they first began injecting capital into banks last fall."

The only potential conflict of interest I can imagine here is that the government-as-shareholder might not vote in any way that could give a single bank an advantage over others, thereby stifling competition.

Still, I don't see how a common shareholder, even a majority-holding one, could effect much change without being an activist shareholder. Such bully-shareholders are often liabilities. And the government, because of its interest in stability, would be that much less likely to be one.

This smells suspiciously like unfounded paranoia of a socialist boogieman.

Is the Brain Really Un-Green?

2009-04-19T09:20:00.000-07:00

Here's a provocative NYT Mag piece that argues that we have a biological bias against so-called "green thinking." It would seem to me though that myriad cultures in the past have succeeded in maintaining a sustainable outlook of environmental harmony, e.g. many Native American tribes such as the Hopi, Kwakiutl, and Iroquois. These seem like counterexamples to the bio-reductive thesis. I would argue that much more than any genetically-determined un-green predisposition, it's the current culture of materialism and consumption that is much more to blame.

In any case, here is an interesting, if characteristically bleak passage:

"Cognitive psychologists now broadly accept that we have different systems for processing risks. One system works analytically, often involving a careful consideration of costs and benefits. The other experiences risk as a feeling: a primitive and urgent reaction to danger, usually based on a personal experience, that can prove invaluable when (for example) we wake at night to the smell of smoke.
There are some unfortunate implications here. In analytical mode, we are not always adept at long-term thinking; experiments have shown a frequent dislike for delayed benefits, so we undervalue promised future outcomes. (Given a choice, we usually take $10 now as opposed to, say, $20 two years from now.) Environmentally speaking, this means we are far less likely to make lifestyle changes in order to ensure a safer future climate. Letting emotions determine how we assess risk presents its own problems. Almost certainly, we underestimate the danger of rising sea levels or epic droughts or other events that we’ve never experienced and seem far away in time and place.
Worse, Weber’s research seems to help establish that we have a “finite pool of worry,” which means we’re unable to maintain our fear of climate change when a different problem — a plunging stock market, a personal emergency — comes along. We simply move one fear into the worry bin and one fear out. Weber described what she calls a “single-action bias.” Prompted by a distressing emotional signal, we buy a more efficient furnace or insulate our attic or vote for a green candidate — a single action that effectively diminishes global warming as a motivating factor. And that leaves us where we started."

Let's start thinking about solutions. I'd say we should start by spending a whole lot more on education and economically incentivizing green behavior.

Back From the Mouldering Archival Depths

2009-04-08T12:36:00.000-07:00

Is a biting APA book review I wrote a few years ago (in New York Review style) on the ethics of publishing books by public intellectuals. It's on Peter Singer's One World: The Ethics of Globalization and Richard Posner's Public Intellectuals: A Study of Decline. Starts on p. 195: The Intellectual's New Clothes.

All APA newsletters are now archived in PDFs here.

New Projects

2009-04-08T10:35:00.000-07:00

This Summer, the Chronicle Review will be publishing a new article of mine on the ironic challenge of teaching ethics in business school. It's a little like Edmundson's classic Harper's piece on the liberal arts, but from my experiences in business school.

Which leads me to my other current project. Many are wondering why there is a dearth of ethics in business. The short answer is that business is about maximizing profit, which can lead to greed and corruption. But the longer answers to why it is lacking in business school curricula and academic research might lead to real solutions. The New York Times had an interesting piece on this recently. It quoted Rakesh Khurana, a professor at Harvard Business School, who recently published an excellent book describing the problem from a socio-historical perspective.

He doesn't provide much of a solution, but does argue that management needs to have an ethos (beyond maximizing profit) akin to medicine and law to justify its presence in higher education. My own view on this is that ethical business creates social value. I have an edited book appearing on this in the next month or so. I'll post the blurb here as soon as it's online.

So I am preparing an article now for the Academy of Management Learning & Education (AMLE), which has accepted the proposal, arguing that one of the reasons ethical curricula are lacking in business schools is that ethical research is almost entirely absent from the top management journals. And that's essentially because those journals are exclusively empirical. The AMLE is an exception, as it does include a priori arguments, but is more of a second-tier journal (although this is changing as its latest impact factor ranking puts it at 7th place). As such, it is a rare exception.

Yet the AMLE's mission statement only explicitly acknowledges what is commonly referred to in business literature as qualitative or quantitative research, which are both purely empirical approaches. According to this 7-year study of the 1990s, the journals widely-considered to be at the top of the field are almost all entirely empirical:

Academy of Management Journal

Academy of Management Review

Administrative Science Quarterly

Journal of Applied Psychology

Organizational Behavior and Human Decision Processes

Strategic Management Journal

Personnel Psychology

And the main theory journal (AMR) among them states that it will publish only "testable knowledge-based claims." Unfortunately, that excludes almost everything that counts as ethics, which is essentially a conceptual, a priori discipline, akin to mathematics, law, and philosophy. We wouldn't require for example that theses on the nature of justice or logic be empirically testable. But that doesn't mean that they don't count as knowledge-based.

Until top management journals open their pages to a priori arguments on the ethical nature and mission of business, there will be a dearth of ethics in business schools. For the top business schools, which are a model to the rest, are interested in hiring academics who publish in the top journals. Thus those journals have a responsibility as gatekeepers to get the ball rolling.

In the article, I'll offer suggestions on what we might consider the moral mission of business to be. The working title is: "Beyond Empiricism: Restoring the Ethical Promise of Management Education."

I'll be giving a paper at the Eastern Academy of Management (a teaching case on capping executive compensation) in Hartford May 13-16. So if any readers will be attending, it might be fun to meet while we're there. I'll hopefully have some copies of my book by then too. Post a comment below or email me at friedlandj@gmail.com

An Alternative View of the Puppetmasters

2009-04-03T07:38:00.000-07:00

David Brooks says it wasn't so much greed as stupidity:

Jerry Z. Muller wrote an indispensable version of the stupidity narrative in an essay called “Our Epistemological Depression” in The American magazine. What’s new about this crisis, he writes, is the central role of “opacity and pseudo-objectivity.” Banks got too big to manage. Instruments got too complex to understand. Too many people were good at math but ignorant of history.
The greed narrative leads to the conclusion that government should aggressively restructure the financial sector. The stupidity narrative is suspicious of that sort of radicalism. We’d just be trading the hubris of Wall Street for the hubris of Washington. The stupidity narrative suggests we should preserve the essential market structures, but make them more transparent, straightforward and comprehensible. Instead of rushing off to nationalize the banks, we should nurture and recapitalize what’s left of functioning markets.
Both schools agree on one thing, however. Both believe that banks are too big. Both narratives suggest we should return to the day when banks were focused institutions — when savings banks, insurance companies, brokerages and investment banks lived separate lives.
We can agree on that reform. Still, one has to choose a guiding theory. To my mind, we didn’t get into this crisis because inbred oligarchs grabbed power. We got into it because arrogant traders around the world were playing a high-stakes game they didn’t understand.

I don't think anyone is arguing for permanent nationalization of the banks. Sweden, for example, did it only as a temporary transition out of crisis. Regardless, it does seem that a substantial amount of willful blindness was involved here. And what made that possible was the promise of great wealth. Kenneth Goodpaster describes this classic phenomenon he calls "teleopathy" as the unbalanced pursuit of purpose in his book Conscience and Corporate Culture. It comprises three elements:

1. Fixation or singleness of purpose under stress
2. Rationalization
3. Detachment

So Brooks is right that part of the problem was a kind of stupidity or lack of awareness. But a root cause of that blindness was also an attitude of moral detachment continually reinforced by the professional culture--and indeed myriad daily deliberate choices of its members in high finance to look the other way when their consciences should have been ringing the ethical alarm bells. Unfortunately, years of reinforced teleopathy must have reduced those bells to little more than a faint whisper in many an ear.

Interestingly, one can detect a slight feeling of discomfort in the young interviewer asking Jim Cramer for advice in the damning segments recently aired by Jon Stewart. Cramer seems to sense it a little as he says deferentially that he would never say such things on television. So he seems to be more desensitized than the rather "green" interviewer seeking council, which would make sense since Cramer is much older and thus more fully molded by the teleopathic environment he was evidently weened on during his years running a hedge fund.

Robin Hood in Reverse

2009-04-02T23:02:00.000-07:00

Joseph Stiglitz just published a devastating critique of Geithner's bailout proposal in the NYT. A highlight:

What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses. It is a “partnership” in which one partner robs the other. And such partnerships — with the private sector in control — have perverse incentives, worse even than the ones that got us into the mess.

And another:

In theory, the administration’s plan is based on letting the market determine the prices of the banks’ “toxic assets” — including outstanding house loans and securities based on those loans. The reality, though, is that the market will not be pricing the toxic assets themselves, but options on those assets.
The two have little to do with each other. The government plan in effect involves insuring almost all losses. Since the private investors are spared most losses, then they primarily “value” their potential gains. This is exactly the same as being given an option.
Consider an asset that has a 50-50 chance of being worth either zero or $200 in a year’s time. The average “value” of the asset is $100. Ignoring interest, this is what the asset would sell for in a competitive market. It is what the asset is “worth.” Under the plan by Treasury Secretary Timothy Geithner, the government would provide about 92 percent of the money to buy the asset but would stand to receive only 50 percent of any gains, and would absorb almost all of the losses. Some partnership!

Interestingly, Stiglitz seems to agree with Matt Taibbi's more colorful and candid assessment in Rolling Stone. A highlight:

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

And in case you missed it, Jon Stewart comes to similar conclusions. No laughing matter. And a deliciously poignant skewering of Jim Cramer, financial adviser of CNBC's Mad Money. A fitting title indeed.

World of Hurt: Boom or Bust

2009-02-08T22:24:00.000-08:00

Here's an article on a new experimental video game on business ethics. Looks like it might be pretty good:

The game invites you to assume the roles of tycoons in a real time, multiplayer, morally challenging Monopoly game in which you try to build the biggest possible empire while avoiding exposure as a fraud and financial collapse.

You could choose a “greed route,” which relies on crimes and cheating but produces speedy financial growth. Or you could choose a “conscience route,” which relies on trust and transparency but produces much slower growth. Eventually, you would face a day of reckoning prompted by randomly timed “reality checks” like whistleblowers, government investigations and public outrage.

You could defend your empire with lawyers and public relations consultants in a lavishly decorated headquarters, but you’d pay a high price for these “smokescreens.” You could also leave your fate to chance at a minigame of musical chairs in which you passed healthy assets and toxic assets to other players until the music stopped.

This could be a great tool for teaching business ethics, that is to say, a great way to get business students excited about the subject either at the start of a business ethics class or at the midpoint to keep the steam going. I certainly would put it to good use!

Bethany McLean on the Bailout Bonuses

2009-02-05T12:47:00.000-08:00

Very telling interview on the continuing disconnect discussed below.

More Evidence of Widespread Executive Villainy

2009-02-04T11:02:00.000-08:00

Here we go again.

Last year when I deplored, in the editorial pages of the WSJ, the gall Wall Street had to blithely cheer the downfall of Eliot Spitzer, I received a flood of hate mail. Letters poured in claiming the overwhelming majority of Wall Street folks were ethical and that Spitzer acted entirely unfairly. Who was I to sweepingly condemn the mores of an entire class of white-collar professionals from my lofty academic perch?

All I can say now is, I told you so. For what kind of person takes tax money from government bailouts to lavish millions in year-end bonuses on failed leadership? The mortgage bubble was deliberately fed by blinding short-term greed from these very executives. It's nice to finally see some appropriate outrage from Obama, who just announced a mandatory salary cap of $500,000 for any executive in a company receiving government bailout funds.

And if that is going to scare executives away, then frankly I say good riddance! There are thousands of qualified people willing to put in a hard day's work heading multimillion dollar corporations for reasons that go beyond amassing personal empires of material wealth. They want to make a difference in this world. They understand that past a certain point, money provides little satisfaction. What is immensely more fulfilling is receiving the intrinsic satisfaction of using one's great power to the greatest benefit of all concerned. And those are precisely the kinds of people who should be running things. Not those primarily motivated by the instrumental satisfaction of achieving the greatest possible financial compensation.

Perhaps this will have a cleansing effect in the highest reaches of corporate power, as the greedy retire to make room for the virtuous. Personally, I would have gone much further. The government should have purchased controlling stake in the failed banks (and perhaps even GM) and replaced the entire top brass. There is no reason these shortsighted architects of the greatest economic collapse since the Great Depression should get to keep their positions on the backs of honest taxpayers. Furthermore, everyone knows GM has been mismanaged for at least a generation. Not only has it been making extremely poor quality vehicles, but its executives could not even present a coherent plan when groveling at the government trough before congress at Christmastime. I say out with the old and in with the new. There must be accountability for such blatant and sustained incompetence.

Still, old habits die very hard. David Brooks for example just wrote a piece mocking "Third Ward" D.C. critics of the last round of executive bonuses culled from the bailout. He jokes throughout an entire column of unrelenting sarcasm that these are privileged upper-middle classes envious that anyone should be making out better than they, especially in such hard times. This is not only in incredibly poor taste, but is betrays a complete lack of any comprehension of where the outrage stems from.

It is utterly shameful to take hard-earned taxpayer dollars to shower more millions onto those primarily responsible for the crisis to begin with. As I said, not only should their pay packages be capped, in most cases, they have no business even retaining their jobs! Last I checked, they believe in the free market, which rewards success and punishes failure. But where in this bailout is their punishment? All I see are millions of middle and lower class Americans losing their shirts--and seeing their taxes used to protect the extravagant lifestyles of those who deserve punishment the most.

When executives still "earning" massive compensation from government bailouts are interviewed they seem to all say they deserve their admittedly obscene bonuses. Whatever that means. And that government caps on executive compensation amount to socialism.

I've got news for you folks: A bailout is socialism!

Socialism is not a form of totalitarianism. It is simply control by the people. And if failing and foundering corporations are saved by the people's money--even when these companies don't deserve it--basic contractual justice (not to mention retributive and compensatory) requires accountability, and yes, some degree of control by those bailing out, i. e., the people. Those who would have it any other way are acting like spoiled brats who always want to privatize benefits (to them) yet socialize costs (to others).

It's high time they grew up.

Thomas Frank makes a good case for capping executive compensation across the board today in the WSJ. Interestingly, he skewers David Brooks' latest column too--but against the illuminating background of his earlier writings. Definitely worth a read. Here's a particularly salient point on why the bailout didn't include caps to begin with:

If the federal bank bailout were to involve a real crackdown on executive compensation, the Bush administration reportedly feared, it might have driven banks away from taking the deal altogether. Bankers would prefer global disaster to a pay cut, in other words, and this obscene calculation needed to be taken into account. Public outrage was apparently nothing by comparison.

Paints a chilling picture of a truly depraved corporate culture. I'm not sure I would go so far as to assume bankers wouldn't have taken a bailout with executive salary caps. But if what Frank says is true, namely, that the administration said it feared they would, that's disturbing in itself. Ultimately, those executives can only answer for themselves. Let's hope they're beginning to take a long hard look in the mirror. At long last.

Journalism's "New" Economics

2008-12-08T22:28:00.000-08:00

Given that the newspaper industry seems well under its last throws, I thought I'd post an op-ed of mine published last year in the still surviving Denver Post. I almost wrote a new one but it would simply be repeating myself. Philanthropists and/or the government need to save the crucial fourth estate.

Should Banks Be Publicly Traded?

2008-10-28T16:57:00.000-07:00

On the 79th anniversary of Black Tuesday and as history repeats itself before our eyes, it's fitting to think a bit harder about how best to regulate banks.

While I haven't heard anyone else make this point, it seems to me that much of the investment banking crisis has stemmed from the increased level of risk created by the sell of bank shares on Wall Street. It's instructive to note that the two investment banks left standing, Goldman Sachs (GS) and Morgan Stanley (MS), were the most fiscally conservative of all.

GS, which is in the strongest position, never wanted to become publicly-traded, fearing the greater risk and thus was the last to cave, resisting an IPO until the late eighties. And even afterwards, both firms made sure to hold conservative debt/equity ratios. Today, GS has $1 of capital for every $22 of assets; MS has $1 for every $30. Amazingly, 22 to 1 and 30 to 1 are considered conservative ratios by recent highly-leveraged investment banking standards. But interestingly, GS continued to hold majority share of its own stock at all times.

Still, both firms chose to convert themselves into holding companies in order to minimize the impact of the global meltdown on their own books, which has already cost both firms' stock to lose roughly half its value over the last year. As such, at least 50% of their stock must now be owned by five or fewer individuals and at least 60% of their adjusted ordinary gross income must come from dividends, interest, rent, and royalties.

I submit that the demise of investment banking--and more generally of all banks foundering under the current mortgage crisis--is in large part the result of their being publicly traded, which promotes gamesmanship by making banks liable to the interests of third-party investors instead of their own clients.

I personally want my bank to make sure it's investing my money prudently. I don't want it beholden to third parties who simply want the bank's stock to rise as fast as possible. And that goes double for my mortgage lender, who should not be re-selling my loan to countless others down the line. That's the kind of money-go-round that betrays the trust I place in the bank as a stakeholder.

As it stands, commercial banks must have greater disclosure, higher capital reserves and less risk-taking. For example, Bank of America has an 11 to 1 debt/equity ratio. But that wasn't enough to keep myriad major commercial banks from collapsing under the weight of bad mortgages.

Numerous democrats such as Barney Frank, Chairman of the House Financial Services Committee, and Henry Waxman, Chairman of the House Oversight and Government Reform Committee, are saying banks should not be allowed to bundle and resell mortgage-backed securities, perform credit-default swaps, or issue subprime mortgages. These might be good measures that would tend to make banks more prudent when issuing loans.

But my point is that the entire problem could be better solved for the long term with a policy hatchet simply requiring that all banks not be publicly-traded. Or at the very least, they should all be regulated as holding companies. Interestingly, as consolidation continues, it would seem the latter may already be occurring.

Such measures would certainly curtail investment and thus inhibit economic growth substantially. But this investment-banking meltdown has shown that the economy simply cannot sustain ever-increasing levels of activity--not to mention that it's also environmentally unsustainable. As a result, we're already seeing widespread contraction of the high finance industry.

Business majors and MBA seekers take note!

Of Bumper Stickers and Bald-Faced Lies

2008-10-04T10:40:00.000-07:00

We live in a world increasingly saturated by advertising. In the political season, that can become a toxic mix of misinformation, exaggeration, and preconception. Like it or not, we all are influenced by appearances and suggestions, however inaccurate. We project as much as we acknowledge of reality.

Which leads me to the question of the influence of false claims in political advertising. Below is my comment on this from today's Boulder Daily Camera Editorial Advisory Board topic:

Scientific American reports a 2006 study by John Bullock of Yale University showing just how effective naked lies are in political advertising.

Bullock showed subjects the transcript of an ad falsely stating that John Roberts, then a Supreme Court nominee, had supported violence against abortion clinics. Then subjects were shown an undeniable refutation of the ad.

Fifty-six percent of Democrats disapproved of Roberts before seeing the ad, but the percentage jumped to 80 after seeing the false information.

After the ad was discredited, the percentage of Democrats against Roberts dropped--but only to 72 percent, so the unsupportive number was still much higher than before exposure to the ad.

Republican disapproval also rose after reading the ad transcript, but returned to the baseline after the ad was debunked. Thus, the lasting impact of such attacks depends on how subjects already see (or want to see) the person attacked.

Political ads are so instrumental in shaping voters' opinions nowadays that they must be more regulated. The FTC already ensures that ordinary ads don't make false claims.

So the federal government should require the FTC to pre-screen all political ads--positive and negative. In most cases, this fact-checking can be done online in a matter of minutes. If we try relying on the judicial system to sort it out after the fact (as the FTC does for non-political ads), elections could be over by the time cases are reviewed.

Ultimately, there's no reason consumers should be protected from disinformation any more than citizens should. Our democracy hangs in the balance.

Investment Gambling's Cliffhanging Hangover

2008-09-28T11:17:00.000-07:00

This NYT article on credit-default swaps explains a lot. It shows that much of the collapse was due to this market, which is actually simply an insurance against a given financial firms' default on a loan from another firm. Speculators can actually purchase swaps without even issuing a loan to the firm they are insured against. This of course (like short-selling) creates an interest in market failure. And as the market becomes more volatile and investors predict that a firm will not make good on its loans, purchasing swaps against it becomes more and more expensive.

Just to give you an idea, even with the decline, the volume of swaps on the market is three times the debt total. That explains a lot about Paulson and Bernanke's sense of urgency.

Dizzying.

And fascinating on several levels. First, the article and chart above show that the swap market dropped significantly at the start of '08. Why? Could it be that many investors decided to be more conservative, seeing the economy in trouble? Or is it--what I suspect is more likely--that swaps were getting prohibitively high (due to market fragility) to be a good investment? Basically, market saturation of default swaps. Perhaps a bit of both?

It's also culturally interesting to reflect on the general attitude toward gambling in this country. We seem to have an entirely dysfunctional or schizoid attitude about it; damning it as immoral in most places, yet encouraging it at the highest levels of banking.

Short selling and third-party default swaps are perfect examples of this. I also, personally think that bank stock should not be publicly traded. The way it used to be until the mid-twentieth century. Interestingly, Goldman Sachs was the last to cave on this and is still the strongest left standing. Evidently, this is largely the result of its continued conservative behavior. Unlike the other firms it continues to hold majority stake in its own stock.

Morgan Stanley is the only other large firm left standing now, and both have chosen to become more-regulated as bank holding companies, which will have to invest more conservatively as traditional commercial banks must. As the last link above states, Goldman Sachs now has only $1 of capital for every $22 of assets, while Morgan Stanley has $1 for every $30. By contrast, Bank of America’s has less than $11 for every $1 of capital.

That seems like a great start.

As a side note, I'm not sure why Morgan Stanley has remained so strong. It could be that it was not so highly leveraged. It also got itself bailed out late last year with 5 billion from a Chinese firm. And managed high-profile IPOs such as Apple's and Google's--the largest in history.

I wish I knew more about how the government plans to regulate Goldman and Morgan now as holding companies. But from what I can tell, this is all in flux right now, as is the general bailout proposal. Another question is will the other smaller bailed-out banks be able to return to lesser-regulated status when the market rebounds?

At least they won't be able to gamble as much, and the government will retain some amount of equity in return for its investment--at least that's what the democratic congressional majority is requiring. Congress could also ban the bundling and reselling of debt, which in a bull market can create an interest in issuing risky loans. That's what Barney Frank, Chairman of the House Financial Services Committee, has been suggesting.

Here's an excellent recent interview with him on Charlie Rose. He's so witty and down to earth. Clearly a formidable intellect and openly gay to boot. It's nice to have someone of that caliber and flare in the mix. Too bad we don't have a whole lot more like him. He's been called the smartest and funniest member of congress.

Obama Clearly Dominated First Debate

2008-09-27T11:51:00.000-07:00

I'm amazed that so few pundits are realizing that Obama obviously dominated the first debate. Even liberal blogger Josh Marshall initially called it a draw (now, having slept on it, he's starting to come around). The post-debate polls are entirely in line with what I think, i.e. Obama appealed not only to his base, but to independents quite effectively. And McCain only appealed to his base, by simply harping on taxes, spending, and the surge success in Iraq.

As these kinds of debates usually go, there were very few details given or debated. So it's difficult to determine who won on logical grounds. Still, on content Obama was much more truthful, cogent, and candid. He rightfully took McCain to task for his support of Bush's economic policies and mistakes on the Iraq invasion. McCain however, filled his time with mendacious attacks on Obama's record, and misleading claims on his own.

I was amazed that McCain actually derided the "pork-barrel" spending of millions on studying polar bear DNA, when his running mate Sarah Palin did the exact same thing for seals. And McCain painted himself as a defender of veterans benefits, when the Disabled Veterans of America give Obama a much higher rating. And McCain even boasted about being against torture, when the record shows that he caved on this and actually voted to allow it. Interestingly, Obama chose not to mention this, praising him instead for his condemnation of torture.

And let's not forget that McCain trotted out once more the naked lie that Obama voted to increase income taxes on those earning $42,000. That's simply unforgivable as the record shows it's patently false.

Still, the first rule of television is demeanor, i.e. body language, tone, and charisma. And Obama basically destroyed McCain on that all-important aspect, which is key to winning over the weak supporters and undecideds. Much has been said about McCain's unwillingness to even look at Obama, even when Obama was speaking directly at him, and even after Jim Lehrer implored them to speak directly to each other.

This either shows disdain or fear on the part of McCain. And the picture was reinforced over and over again every time Obama magnanimously spoke directly to McCain, calling him "john" in a genuinely human way. This was a real turn off I'm sure to most everyone watching. It shows either that McCain disrespects Obama or fears him, or both.

My take is it's likely to be the latter. McCain knows Obama is the more gifted, charismatic, intelligent, and youthful speaker and this mortifies him. There's also an animal behaviorist weighing-in on this, calling McCain the low-ranking monkey. This is the level at which much communication happens in televised confrontations, and by this crucial measure, I think it's clear McCain showed he was no match for Obama.

And the striped tie McCain was wearing created a distracting feedback effect radiating rainbows down his chest. That couldn't have helped either. I'm guessing by McCain's impulsive style that his suit and tie were vetted about as thoroughly as his running mate. If you haven't seen Palin's performance in her interview with Katie Couric, this is precious.

In sum, McCain came off as tense, repetitive, inferior, and most of all, unsettling.

Obama came off as warm, steady, eloquent, thoughtful, and most of all, reassuring. And that's about as good an outcome as he could have wished for in this context.

Choosing Between Rule of Law and Rule of Men

2008-09-25T09:38:00.000-07:00

[A slightly shorter version appeared in the Denver Rocky Mountain News, Oct. 16.]

The current mortgage crisis gives us much to ponder. Many see it as part of the continuing historical debate between free-market vs. regulatory systems. And it certainly is. But there's also one undeniable lesson to be learned here regardless of which side of that debate one happens to be on:

This is not a case of just a few bad apples. The entire U.S. investment banking system is corrupted.

To review, we now know all the major investment banks over-leveraged themselves. They bundled and resold mortgages countless times, gambling that even if borrowers defaulted, repossessed properties would, on average, have accrued in value and could thus be resold at a profit. They issued risky loans, often using sub-prime, i.e., adjustable-rate mortgages for first-time homeowners with little chance of being able to pay off the debt when the interest rates increased.

Banks and brokers aggressively issued and traded these loans, knowing full well the real estate bubble would eventually burst. That's plainly irresponsible and shows a deep lack of ethics across the entire industry. It's a sobering realization that should give us pause about the culture of gamesmanship that has become normal on Wall Street.

We can and should discuss solutions, and I certainly hope the Democratic majority in Congress insists on the U.S. Treasury owning that devalued real estate behind much of the bailout. It represents about 20 million mortgages. If we're going to socialize the cost here, we should at the very least ensure that American taxpayers aren't simply reimbursing the bankers while letting them keep the property.

The AIG plan seems like the right one here, since the U.S. Treasury now owns controlling stake in the bank, and might actually turn a profit on its investment. A similar solution should be put in place for the broader bailout scheme. And if the foreign banks want a piece of the action, they can sell their equity to the U.S. Treasury. Those foundering mortgages were sold and resold at the banks' own risk. So if taxpayers are going to take on this debt themselves, they need to have stake in the real estate itself, lest they be holding nothing but paper if the mortgages deflate any further.

Following Warren Buffett's lead of purchasing bargain-basement preferred stock in faltering banks is a step in the right direction. But that's still no guarantee that the stock won't drop down even more. If Buffett wants to gamble with his own cash holdings, that's his right. But the U.S. government should have something more tangible to show for its investment.

Furthermore, there's no reason why it can't just start with, say, 1/3 of the 700 billion, and see what the market does from there. Others might just follow Buffett's lead and shore up the rest. But McCain's idea of incentivizing banks to buy it all by merely ensuring the loans, is irresponsible since it would set an artificial price for the government to have to repay if values continue to plummet.

To me, what's perhaps most interesting about all this is that the flimsy blank-check solution the White House proposes—and rushed at the last minute before the congressional recess—betrays a deep bias toward oligarchy, i.e., rule of the wealthy few. Conservative New York Times columnist David Brooks uses this very term in his first column this week (George Will makes a similar point). Brooks says the proposal is basically what economist Arnold Kling called "progressive corporatism." A system "in which government acts to create a stable—and often oligarchic—framework for capitalist endeavor."

Chilling.

In this brave new world, citizens no longer control any equity whatsoever. They, and their government, are taxed entirely at the pleasure of corporate dictates.

What kind of thinking makes this scenario plausible and even laudable? It seems to be a belief, prominent among Republicans, in near-absolute executive authority. We see it in President Bush and Vice President Cheney's view of their own executive privilege to flout legislation or even the constitution itself whenever it suits them. We see it in Sarah Palin's notion that she is prepared for the presidency because of her "executive experience." As if being a Mayor or Governor is akin to being a Monarch. To them, the Geneva Convention against torture is nothing but a quaint and naïve rule of etiquette.

They really believe in the naked power of individuals to do whatever they deem necessary to get the job done. And that's because they see the swashbuckling drive of the American Dream as the fuel of capitalism and all that ever gets accomplished. This allows them to trust in that drive, forgetting that its power must often be checked for the greater good.

And that's what the laws of our liberal democracy are for. But as Aristotle warned us over 2000 years ago, oligarchs will always seek to replace the rule of law with the rule of men. It's crucial once again that we not let them.

If CU Needs a Chair of Conservative Thought, Show Me The Data!

2008-07-12T08:54:00.000-07:00

When I read that George "Bud" Peterson, new (and republican) Chancellor of the University of Colorado, announced the creation of an endowed chair of conservative thought, I was floored. See my Daily Camera letter on that here.

He says he doesn't necessarily want a political conservative—only an academic specializing in "classical conservative" thinkers. If that's the case, where's the evidence that such thought is not already taught regularly and widely on campus? I myself have a B.A. in philosophy from CU-Boulder, and I can assure him that I did indeed learn about the great so-called rightists such as Plato, Locke, Hobbes, Smith, and Nozick during my undergraduate years.

I now teach required business ethics courses at CU's Leeds College of Business. where I cover several of these thinkers including Nobel Economics Prize-Winner Milton Friedman, for good measure. I also covered many of these when I taught in CU's philosophy department, as did many other faculty. So I have no idea what data Peterson is referring to when he claims there is a dearth of these ideas in CU classrooms. Perhaps it's simply the ravings of O'Reilly, Hannity, and Limbaugh.

According to the news coverage on this story, only 23 professors at CU-Boulder are registered Republicans. Assuming this is correct, and that most of the rest are registered Democratic, the conclusion seems to be that there must be bias in the classrooms.

This is a hasty generalization. Many may in fact be independent and not registered at all. Furthermore, the majority of instructors at CU don't hold the title of "professor" and thus are left out of those statistics. But regardless, if it's not necessarily a political conservative who is sought, why not appoint someone like Stanley Fish, who has just expressed an interest in the position via his recent New York Times blog, (twice) and is an illustrious Ivy-League expert on classical social-political thought, previously Dean of Liberal Arts at the prestigious University of Illinois-Chicago?

Of course that's a rhetorical question. As the Chancellor has admitted, the position will be funded by private donors who tend to be right of center politically. So I assume they would never tolerate the appointment of a known leftist with their own funds. So Peterson is obviously being disingenuous when he claims not to be seeking a political conservative.

All I ask is to see the evidence for why this chair is needed. It's important to remember that no such position in conservative (or progressive) thought has ever been created anywhere in the country. And that's mostly because it's not even clear how we might label such classical authors. Only 20th Century authors fit neaty into those boxes. On the right, there's basically Nozick, Friedman, and perhaps Ayn Rand. So that's not much to work with. And on the left there are certainly more in recent history, but beyond that, the only truly great one is Marx. Is Plato, for example, really conservative because he advocated a republic? He also argued that democracy was the lowest form of government, preferring a strong central statism led by a philosopher king appointed for life. I'm assuming that's not exactly what most conservatives would want. Similar nuances abound in most all great thinkers. That's part of what makes them great. They defy facile (and contemporary) political categorization.

Of course there are no empirical data to support the need for this high-profile chair. Peterson and CU's even newer (also republican)President, Bruce Benson, seem to think that since there's a market demand, namely, people willing to fund the job—then it must be met. No further evidence needed.

Thus and not surprisingly, given their own conspicuous lack of higher education, Benson and Peterson frankly don't seem to understand the essential mission of a university, which is not to respond to any and every well-funded notion of what curriculum colleges should include (would they support an endowed chair of progressive thought?) but rather to lead society through the protection and promulgation of truth and wisdom via genuine expertise. And until there is convincing data showing real evidence of some lack of canonical thought taught at CU, there can be no rational justification for this proposed chair. The mere suggestion utterly embarrasses us all.

More on Do-Gooder Consumers

2008-04-26T23:23:00.000-07:00

A shorter version of my harangue below on the do-gooder moniker was published in the Boulder Daily Camera Opinion section.

Thomas Frank Now WSJ Opinion Columnist!

2008-04-22T08:41:00.000-07:00

In an incredibly refreshing and unprecedented move, the WSJ has seen fit to hire leftist pundit Thomas Frank, regular contributor to Harper's Magazine and celebrated author of the New York Times bestseller What's The Matter With Kansas: How Conservatives Won the Heart of America as a regular columnist every Wednesday starting May 12. For the first time in history as far as I know, the WSJ's staunch rightist editorial section has chosen to bring genuine balance to its pages. His first column appeared yesterday and is available here.

Judging by how much hate mail I got from my last WSJ letter calling out Wall Street for blithely cheering Spitzer's fall (see below), the journal is surely setting itself up for a continuous onslaught of reader wrath with this new column.

Frank's book is in the news again because many take Obama's much-debated analysis (of hopelessly underemployed rural voters acting against their true interests by clinging to guns and religion) to be inspired by it. Turns out that the overwhelming majority of rural Republicans do not evidently vote based on such ideological reasons. In fact, it would seem to be the more city-dwelling and higher-educated rightists who do. See Bartels' much discussed NYT op-ed on this. And Krugman's the very next day.

Frank's new position promises to revive the WSJ's staid and musty editorial page, which until now had become almost medieval in its advocacy of what might best be called free-market feudalism, i.e. plutocracy (rule by the wealthy). For example, the journal's editorial the day of Al Gore's Nobel Peace Prize was a lament listing all the other nominees assumed to be more meritorious. Amazingly, the editors still cling to the notion that global warming is an overblown farce.

Finally a bit of balance. It's been a long time coming!

The Responsible Shopper as Do-Gooder

2008-04-03T13:50:00.000-07:00

One of my pet peeves is the notion that consumers who attempt to shop responsibly are merely vain and somewhat hypocritical shoppers who seek elevated do-gooder social status. The Wall Street Journal plainly asserts this in an otherwise valuable report on "eco-fur," i.e., fur taken from invasive species. Here's the passage in its full editorializing splendor. But it's in the style section, so perhaps that explains the opinionizing:

Luxury commerce is urgently pursuing do-gooder status. We have already seen organic clothing and vegan shoes. Vacations to faraway South Pacific islands are sold as eco-luxury; Lexus's hybrid SUV is billed as environmentally friendly. Of course, plastic sandals billed as "vegan" or "vegetarian" could just as easily be called "petroleum-based." Furthermore, some of the claims of environmental benefits are a stretch. Bamboo is sold as eco-friendly because it's quickly renewable, but bamboo fiber requires heavy processing, and the clothing often undergoes baths in toxic dyes.

Okay, okay, there's probably a lot of hypocrisy in this industry. Still, the author here, Kristina Binkley, makes a sweeping assumption when stating that these consumers aren't really interested in making a difference since they're buying SUVs etc. Instead, they're disingenuously pursuing some kind of luxurious eco-chic image. Maybe in some cases that's true. But it could also be that they're beginning to confront the reality of the social impact of their purchases. If so, there's nothing shameful about that.

And a couple of weeks ago, David Brooks wrote a positive but rather patronizing column on social entrepreneurs titled Thoroughly Modern Do-Gooders. Here's a highlight:

These thoroughly modern do-gooders dress like venture capitalists. They talk like them. They even think like them. That means that aside from the occasional passion for heirloom vegetables, they are not particularly crunchy. They don’t wear ponytails, tattoos or Birkenstocks. They don’t devote any energy to countercultural personal style, unless you consider excessive niceness a subversive fashion statement.

The condescension is palpable. Why must people systematically trivialize progressive behaviors with the "do-gooder" label that really is nothing but an implicit put-down? Of course, that question is rhetorical. Both of these authors are writing for a conservative audience (although Brooks is at the center-left New York Times, he along with Kristol, is one of their conservative columnists). Using this term implies that this kind of thing is done purely as an image booster and/or is naively altruistic. The thinking seems to be that while such activities are well-meaning, it's neither necessary nor realistic to expect them to ever dominate the marketplace as a whole.

To me, this view represents and reinforces the cynical notion that people generally are (and should be) acquisitive self-interested utility-maximizers. This narrow view of human nature, famously espoused by Milton Friedman, has been widely discredited by most philosophers, ethicists, psychologists, and even now, by economics if not economists themselves. For example, The Corporation for Public Broadcasting's PBS and NPR would not even exist if this theory were true. And no one would ever donate anything anonymously, since all such donations would be merely to obtain elite do-gooder status. Why wouldn't anyone who values public television for example simply leach on as a free rider instead by letting others pay for the service? That would be the most rational self-interested thing to do. It's a good thing everyone doesn't think that way.

Indeed, the tragedy of the commons, initially pointed out by geographer Garrett Harden, shows that purely self-interested users of any natural resource will tend to over-exploit that resource to the point of collapse. And history is rife with examples as another geographer (this one with the Pulitzer) Jared Diamond reminds us in his excellent latest book Collapse. But he also shows how just as many societies have been able to overcome such cataclysmic scenarios. The truth is, what so-called do-gooder consumers and social entrepreneurs are attempting to do is precisely that. By shopping and conducting business in ways that are both sustainable and adding durable value to society, they're showing that the tragedy of the commons is not inevitable.

What are these do-gooders concerned about? Poverty, global warming, public health, etc. Are these merely altruistic concerns? Not in the least. They may have been once upon a time, but today, these are real cancers that are threatening our very survival. Close to 2% of the U.S. population is incarcerated and high school graduation rates in the largest U.S. cities have plummeted to below 50% in many cases. Our diets have become so toxic that we are in a public health crisis. Michael Pollan reports in his New York Times bestseller The Omnivore's Dilemma and now his latest In Defense of Food, that more people on the planet are now suffering from over-nourishment than under-nourishment. And on global warming, if the Chinese begin driving the same cars we've become accustomed too, there will be severe climatological devastation. A great read on reversing these trends, in part via responsible shopping and business behaviors is Bill McKibben's latest book Deep Economy.

Responsible business behavior either at the consumer, employee, or management level may merely feed some kind of ethical vanity is some. But it's certainly part of a much greater movement that should not be trivialized by the condescending "do-gooder" moniker. In fact, it's likely to be the only thing that will save us from ourselves. Indeed without that kind of cultural will, politicians aren't very likely to write encouraging legislation in that direction. So let's stop poking fun at it and get to reinforcing it.

A Reader Comments

2008-03-21T12:16:00.000-07:00

Jeremy Koulish writes:

From the second letter below:

"What we don't applaud is children of privilege who use public office as a vehicle to engage in purposeful destruction of other people's lives all in the interest of personal political gain."

But what they DO applaud is financial institutions engaging in purposeful destruction of other people's lives all in the interest of personal financial gain.

I would say that about sums up the issue.

Wall Street Shouts Back!

2008-03-19T16:30:00.000-07:00

I've been inundated with letters today in response to my WSJ letter in which I complained about the widespread cheering of Eliot Spitzer's demise as the "Sheriff of Wall Street." In my view, this man was flawed and a bully. Still, he brought a lot of very bad people to justice. It seems to me many are in denial about this plain fact. Perhaps it's just politics. I don't know. But here are a couple examples of the negative letters I've received (I've also had positive ones, none of them from Wall Street though). I'm just including the first letters and sparing you the further correspondences. I'm reprinting these two anonymously so readers can get a taste of just how deeply the disease of denial really is on this issue:

Your letter to the Wall Street Journal starts with the premise that Spitzer used his position to force criminals to justice. The premise is false. Spitzer abused his position as attorney general and New York's incredibly vague Martin Act to bully corporations into submitting to blackmail. Spitzer's prosecutions of the underlings did not generally succeed and he didn't even try to indict Hank Greenberg.

I cheered too at the downfall of this disgraceful politician.
-----------------------------------
Greetings Dr. Friedland,

I read with interest your letter to the WSJ this morning and, if the facts were as simple as you described them, then indeed I would agree with you. The reality of the situation was actually the exact opposite of what you described. We on the street were “cheering” the downfall of a consummate hypocrite whose self righteousness and zealotry were only exceeded by his sense HE was above the law. We applaud people who do “have the guts and acumen to force criminals to justice”. What we don’t applaud is children of privilege who use public office as a vehicle to engage in purposeful destruction of other people’s lives all in the interest of personal political gain. As you do not live in the NYC area, I can understand how you may not hear as much about what this man has done to others over the course of his career. The following link will offer some details on the dark side of Mr. Spitzer well beyond his sexual escapades (which I could personally not care less about). Spitzer did some good things over the course of his career, but he's not even close to the crusader for all that is good and just which you describe. Skirting campaign contribution laws and lying about it, using State Police to spy on political opponents, and engaging in witch hunts are also reflective of his true character.

http://en.wikipedia.org/wiki/Eliot_Spitzer

An exceedingly high percentage of us “Wall St. folks” are highly ethical, highly motivated, and hard working people. We detest anyone who brings shame upon our industry and we strongly support anyone who truly strives to improve transparency and enforce ethical behavior. Without trust, we are done. My opinion is that all of Mr. Spitzer’s crusading against the evil doers of Wall St had nothing to do with his belief in the virtues of right vs. wrong, but rather had everything to do with his own personal agenda and sense of privilege.

Notice the common theme? It comes up in the others as well. It's the notion of the value of Spitzer's accomplishments somehow completely undermined by a personal agenda, abusing the power of his office, and a sense of privilege rooted in a wealthy childhood. I'm afraid all this is rather moot when the point I'm making is that this man did more than anyone to bring very powerful and respected white-collar criminals to justice. Was Wyatt Earp flawed in these ways? Certainly! Is Bat Man? Of course!

He wasn't the morally pure Lone Ranger on a white horse. But for all his failings, he sure tried (and often succeeded) in cleaning up much of the financial establishment. To condemn him absolutely is to cynically exploit an easy opportunity to deflect attention from the real criminals on Wall Street. It's the kind of denial we still see today across the industry with respect to the sub-prime mortgage crisis. Many if not most of those who defaulted should never have been given an adjustable rate home loan and the lending banks knew they were likely to default. But instead of exercising restraint, they leveraged themselves with too much risk and when the housing bubble burst, the entire scheme unravelled.

Many executives lost their jobs over such bad judgments. On the other hand, many more lost their shirts when they declared bankruptcy and their homes were repossessed. These defaulting borrowers were surely to blame for overextending their means. But the gatekeepers here, that is to say the banks, are the ones who made it all possible. So the culture of blatant disregard for the common good seems alive and well on Wall Street. One of the letters I received said I was calling the culture of Wall Street sociopathic. Well, that's actually not what I had intended to say at first. But now that I think about it, perhaps that's not too far off from the truth. It's in fact the case made by the excellent film The Corporation.

Wall Street "Cheers" Spitzer's Fall

2008-03-13T08:15:00.000-07:00

I'm finally back after almost four months without posting. Sorry to all you legions of avid readers! I've simply been too busy lately with teaching and writing.

I had to dash off a letter to the WSJ about Wall Street cheering the demise of Eliot Spitzer. Turns out it got published (my third in the WSJ on business ethics within a year). Here it is:

To the Editor:

I was aghast to read the headline: Wall Street Cheers As Its Nemesis Plunges Into Crisis (A1 3/11) on Eliot Spitzer's fall from grace. You report that Spitzer as New York Attorney General "was the single most visible force trying to weed out abuses and bring down wayward chief executives" and that he "pummeled Wall Street kingpins" (Spitzer Engulfed in Sex Scandal, A1 3/11).

It's astonishing to me that the evident majority on Wall Street sees itself as so far above the law that it can publicly cheer at the demise of this man for having the guts and acumen to force high-powered criminals to justice. This attitude is obviously so ingrained that those now cheering seem oblivious to the fact that they really have no right to do so, lest they mean to condone the scandalous actions of so many of their peers, or "kingpins" as this newspaper chose to call them. What this says to readers is that the culture of callous disregard for the law in pursuit of greed is alive and well on Wall Street.

Despite Spitzer's numerous successes in reeling-in corporate crime, the need for business ethics is evidently greater now than ever.

The truth is, were it not for Eliot Spitzer, many more white-collar criminals would still be in business. For example, Spitzer helped build the case against Bernard Ebbers who, thanks to him is now right where he belongs: rotting in jail for the rest of his life for raiding his telecommunications empire Woldcom to smithereens—a swindling in which thousands of employees lost their shirts with nothing left to retire on. And like Enron, it was a scam entirely brokered by the Wall Street minions of back-slapping bankers at J.P. Morgan Chase, Merrill Lynch, Morgan Stanley etc. up to their necks in conflicts of interests. Unfortunately, Spitzer had to make tough decisions in order to build his cases against CEOs, having to let most who should have been caught in the web off the hook with mere wrist slaps. Still, he fined these brokerage firms and investment banks 1.4 billion in 2002 for their part in cooking the books of publicly-traded corporations.

It's clear that all those who merely had to pay fines are still fuming, with no remorse for their crimes. This suggests that for all Spitzer's valiant efforts, many are likely still blithely flouting the law. As it happens, the Ethics Resource Center in Washington D.C. has just released its yearly survey of corporate ethics across the country, showing a disturbingly marked return to pre-Enron levels of corruption.

I would not be at all surprised if it turns out to be key Wall Street players who got the feds to expose Spitzer's structured prostitution payments. Alan Dershowitz makes a decent case for that theory in today's WSJ. To his argument, I would add that no other high-profile client of the Emperor's Club was exposed besides Spitzer. That's surprising and suggests that the investigation was a hit job by the DOJ against this once powerful rising star of the democratic party. It certainly would not be the first time the Bush administration politicized the administrative branch of government.

Ultimately, Spitzer may have been overly hostile to his targets, and obviously somewhat of a hypocrite (though at least not a thief), but to the common man he was a hero who dared bring the powerful to answer for their crimes. That's precisely why he was elected governor by a landslide. Now that he's gone, it may be a good day for Wall Street kingpins, but it's a dark day for justice, that is to say, for the rest of us.

Green Tech Has Arrived!

2007-11-16T08:11:00.000-08:00

It's a new day in America. At long last Amory Lovins is vindicated. He and his associates at the Rocky Mountain Institute (RMI) are reaping the rewards of his engineering and economic genius after 30 years of waiting for the the private sector to figure out that conservation is profitable. Basically, global warming had to get unavoidable while the federal government sat on its hands for corporate America to grow its own conscience. It's a beautiful thing to behold, even if it's not clear it will be sufficient nor happen fast enough to avert major ecological disaster.

If you don't believe me, check out what Frito Lay is doing. Here's an excerpt from the New York Times 11/15:

Over the next several years, Frito-Lay plans to install high-tech filters that would recycle most of the water used to rinse and wash potatoes, as well as the corn used to make Doritos and other snacks, and then burn the leftover sludge to create methane gas to run the plant’s boiler. The company will also build at least 50 acres of solar concentrators behind the plant to generate solar power. A biomass generator, which will probably burn agricultural waste, is also planned to provide additional renewable fuel. The retrofit of the Casa Grande factory, scheduled to be completed by 2010, would reduce electricity and water consumption by 90 percent and its natural gas use by 80 percent. Greenhouse gas emissions would be cut by 50 percent to 75 percent, the company said. Frito-Lay hopes the project will help the company save money on energy costs, particularly as oil prices approach $100 a barrel. What works in Casa Grande, one of 37 plants it operates in the United States and Canada, would then be replicated at other sites where possible.

That's plainly miraculous to me. And GM is moving to recycle all its factory materials! Let's just sit back and savor the moment. It's a great thing to be thankful for this Thanksgiving. But it's also a call to action. Finally it's becoming hip in the business culture to be green. Entrepreneurs, investors, activists, and visionaries take heed—and heart. There's lots of money to be made. If only Al Gore had been confirmed, this trend would likely already be firmly established. It's the great challenge of our era. And it's reinvigorating to see that we are actually facing it. Even if it does turn out to be too late. Here's an inspiring video on RMI's new hypercar. And below are the consulting firm's main principles of Natural Capitalism, all at work in the above examples. Numbers 2 and 3 are providing the biggest lessons for business interests today: The journey to natural capitalism involves four major shifts in business practices, all vitally interlinked: 1. Radically increase the productivity of natural resources. Through fundamental changes in both production design and technology, farsighted companies are developing ways to make natural resources—energy, minerals, water, forests—stretch 5, 10, even 100 times further than they do today. The resulting savings in operational costs, capital investment, and time can help natural capitalists implement the other three principles. 2. Shift to biologically inspired production models and materials (biomimicry). Natural capitalism seeks not merely to reduce waste but to eliminate the very concept of waste. In closed-loop production systems, modeled on nature’s designs, every output either is returned harmlessly to the ecosystem as a nutrient, like compost, or becomes an input for another manufacturing process. Industrial processes that emulate the benign chemistry of nature reduce dependence on nonrenewable inputs, make possible often phenomenally more efficient production, and can result in elegantly simple products that rival anything man-made. 3. Move to a “service-and-flow” business model. The business model of traditional manufacturing rests on the sale of goods. In the new model, value is instead delivered as a continuous flow of services—such as providing illumination rather than selling light bulbs. This aligns the interests of providers and customers in ways that reward them for resource productivity. 4. Reinvest in natural capital. Capital begets more capital; a company that depletes its own capital is eroding the basis of its future prosperity. Pressures on business to restore, sustain, and expand natural capital are mounting as human needs expand, the costs of deteriorating ecosystems rise, and the environmental awareness of consumers increases. Fortunately,these pressures all create business opportunity. The next Industrial Revolution is already being led by companies that are learning to profit and gain competitive advantage from these four principles. Not only that, their leaders and employees are feeling better about what they do. Shortages of work and hope, of satisfaction and security, are not mere isolated pathologies, but result from clear linkages between the waste of resources, money, and people. The solutions are intertwined and synergistic: firms that downsize their unproductive tons, gallons, and kilowatt-hours can keep more people, who will foster the innovation that drives future improvement.Hallelujah!

My Brush with Rush

2007-08-19T22:47:00.000-07:00

Last Thursday, Rush Limbaugh read close to half of my Denver Post op-ed on Journalism's New Economics over the radio. I neither sent it to him nor alerted him in any way about it. Strangely, he presents a good deal of my argument about the demise of the fourth estate but provides no counterargument whatsoever. He simply calls it another liberal "drive-by" attempting to "stoke market plunge" by scaring Americans about the economy.

It's an extremely odd interpretation of my article as he evidently takes my point about media market failure to be about the failure of the economy. Of course nothing could be further from the truth. My point is not that the demise of investigative reporting threatens the economy. In fact it's quite the opposite, at least in the short-term. As I clearly state in the piece:

What Murdoch has learned and embraced perhaps more than anyone is that in-depth investigative pieces are boring. What's much more alluring is mixing news with opinion to provide a sense of debate no matter how far removed either position is from actual facts. There's nothing like a good fight to keep people's attention. And keeping as many people's attention as possible for as long as possible is what matters to the bottom line. By using this approach couched in a context of right-wing apologetics, Murdoch's Fox News Channel has managed to win the highest ratings of any cable news service.
As a result, all the other news networks now emulate this strategy. Although some networks such as MSNBC do it from a comparatively leftist stance, what passes for news in this brave new media world is less cold hard facts and more opinion and soothsaying. Television "news" programs reveal precious few facts on the actual issues. Instead, discussants provide titillating predictions on which politicians and parties are likely to win. It's cheap and thrilling content, which has the advantage of alienating few advertisers while viewers are soothed by a veneer of fairness (however fake) representing two sides of a debate.

Of course he didn't read that part (at least on the air). So my point is that this stuff is very good for the market. I'm in no way scaring people about the strength of the economy here. And neither is the Denver Post by publishing this, which is really his main point, namely, that the media "wants to destroy the economy or damage it enough to help the Democrats, even if it means damaging themselves:"

....The media wants to destroy the economy or damage it enough to help the Democrats, the friend said, "Even if it means damaging themselves?" Hell, they've been doing that for a long time anyway. But they don't care. The actual practicing journalists don't care about the financial health of their companies, and they don't care about the falling circulation of their papers. Obviously they don't because the content is not changing. The one business where the customer is always wrong and is stupid to boot, and when the customer complains about something, the elite snobs in the Drive-By Media say, "You don't like it? Well, here's more of it," and they cram even more bias and inaccuracy in what they do, as a sort of a knee-jerk reaction.

So, yeah, the bottom line is it wouldn't surprise me a bit. They're going to keep on with this, doing everything they can to get the consumer confidence numbers down. They want people being worried about their next paycheck. We're going to get stories about, "We may be facing one of the most serious market falloffs in recent memory, and it may trigger for the first time in American history the fact that this generation will not do as well as its parents. The Bush administration is the leading cause of all this." Just see how this is all going to happen. So you have been warned.

How my article is damaging the Denver Post is beyond me. I am in no way attacking it. I'm actually trying to save it by pointing out how important newspapers are for providing traditional investigative reporting. But if his point is merely that the media is liberal and not to be trusted simply because it reports disconcerting facts about those in power, as my op-ed does, it's not at all clear why this is a bad thing. That's precisely what I argue we need more of in order to stay informed and preserve democracy. The rub is that this sort of thing isn't selling well enough to thrive.

Limbaugh exhibits some seriously circuitous conspiracy thinking here—that this is an elaborate plot to help the Democratic party. At least he said nothing bad about the argument and actually read a great deal of it on the air, giving voice to a point of view rarely if ever heard on his program. Perhaps I should be grateful for this bit of poetic justice.

Is Whole Foods CEO in Hot Seat?

2007-08-04T16:11:00.000-07:00

I was interviewed recently for a news analysis piece in the Boulder Daily Camera on the ethics of Whole Foods CEO John Mackey's use of a pseudonym to comment on Whole Foods and Wild Oats message boards on and off for seven years:

Mackey's actions come off as unethical, but not to an unjust degree, said Julian Friedland, a professor of business ethics at CU's Leeds School of Business.

"(It's) unethical in a sense that it's dangerous," Friedland said. "It's a moral hazard. You're putting yourself at risk to do something that is very damaging."

If one is in a hot-headed frame of mind, he said, that person easily could slip up and divulge something they shouldn't.

One advantage for Mackey is that much like Apple's Steve Jobs, he can do no wrong in the eyes of some shareholders, Friedland said. Whole Foods is a bit of a "cult stock" whose enthusiasts view Mackey and applaud him for being a bit of a "swashbuckler," Friedland said.

"I see this blowing over unless they can dig up more stuff that shows in these postings that he's possibly broken the law," Friedland said.I also said this behavior runs the risk of revealing character flaws and lack of judgment since his identity could come out later (as it now has) after he's made petty and unfounded claims (as he has) attacking Wild Oats and even defending his new haircut as "cute."

At the time of the interview I also pointed out the disturbing fact that Mackey felt no need to apologize. Since then, he has given the following rather perfunctory statement:

I sincerely apologize to all Whole Foods Market stakeholders for my error in judgment in anonymously participating on online financial message boards. I am very sorry, and I ask our stakeholders to please forgive me.

It's nice to see he finally apologized. Doing so holds him to a higher standard, reducing the likelihood of him doing something like this again. As I said, his postings don't at this point seem to be an issue of injustice, barring some future revelation of his disclosing details tantamount to insider trading. Still, as he admits, it indicates poor judgment. And the fact that he only made what seems to be a rather half-hearted apology weeks after denying any wrongdoing does little to reassure investors that he feels genuine remorse.

It's Time Video Games Stop Glorifying Murder and Mayhem

2007-05-03T09:54:00.000-07:00

Video game violence has become an important and much-debated topic in recent years due to devastating occurrences of school shootings, most-recently at Virginia Tech, and other aggressive behavior generally seen in minors. The objectives of many of these overly-aggressive games are to kill, steal, and participate in illegal and dangerous activities. Indeed, there is widely-accepted research indicating that such entertainment may inspire violent behavior. Unfortunately, the market in extremely violent video games has gotten disturbingly large. More.

Rockstar Games is one of the most popular and controversial game producers in this category. The company is famous for the Grand Theft Auto series, a third-person action game which puts the player in control of a thug looking to move up in the criminal ranks by completing a plethora of illegal tasks. Grand Theft Auto has consistently received a great deal of criticism from minorities, religious factions, women’s groups, and the mass media. To determine the ethicality of Grand Theft Auto, and possibly create the strongest argument against Rockstar Games, it is necessary to approach the topic from a philosophical standpoint.

Utilitarianism is a form of consequentialism which claims that one can ascertain the moral worth of an action by determining consequences of that act. It is generally concerned with producing “the greatest good for the greatest number” or maximizing overall utility. It has either been directly stated or soundly implied through research that the game leads to increased violence, diminished respect for women and minorities, and increased tendency to partake in crimes and fraternize with prostitutes. None of these actions can be seen as maximizing overall utility.

Unlike utilitarianism, deontology requires that one determine the appropriateness of an act by following a rule, not by identifying and weighing the consequences of a particular action. In general, the rule or duty that should be followed is the one than can be universalized without treating persons merely as a means by exploitation or abuse. Considering Grand Theft Auto from a duties and rights perspective, there are certain rights that suggest that the production, sale, and use of the game is unethical and should be restricted. The game promotes activities such as killing a prostitute after having sex with her, attacking a cop to avoid detainment, and killing anyone who stands in the way of gaining points in the game. Although many if not most adults might not reproduce actions learned from video games, some--especially teens--may and may already have.

The last ethical theory that will be summoned to defend the position that Rockstar Games is acting unethically by distributing an immoral game is virtue ethics. Virtue ethics acknowledges that human beings act according to their character. Therefore, to develop a good and full human life, according to the classical ideal of virtue ethics, young persons should involve themselves with activities that promote a healthy and prosperous existence. They would exclude sitting stationary for long periods of time while playing or creating a game that encourages the player to sleep with prostitutes out of wedlock, steal, assault women, and commit murder. Furthermore, any activity that contains the possibility to influence a person (and especially a developing young person) to cause unnecessary physical or mental harm to another human is in no way of virtuous interest.

Fortunately, there are several steps that Rockstar Games can take to turn Grand Theft Auto into a positive product. First, reducing the extreme violence the game produces would begin to make Grand Theft Auto more morally appropriate for people of all ages. Perhaps characters could gain more points from becoming undercover police agents and avoiding gratuitous violence.

Another recommendation for Rockstar to consider is to become a moral leader in the industry. The company can accomplish this by pushing retailers to require that customers show proper age identification when purchasing games that have mature ratings by the Entertainment Software Rating Board (ESRB). If Rockstar Games desires to become a socially responsible and ethical company, these changes must be made immediately. Ultimately, the company has a moral duty to not profit from encouraging violent behavior in kids' developing minds.

The Ugly Secret Behind Your Child’s Halloween Chocolate

2007-04-29T11:29:00.000-07:00

The West African state of Ivory Coast has prime growing conditions for cocoa trees and provides almost half of the world’s cocoa beans. The economy is dependent on the cocoa plantations and 40% of export earnings in Ivory Coast are attributed to the cocoa industry. In the last decade, the cocoa prices have been so low that the farmers were actually losing money on their crops each year. A 2002 study by the International Institute of Tropical Agriculture found that the average yearly wage for cocoa growers in West Africa ranged from US$30 to $110. Because of decreasing prices and exploitive middlemen, farmers look for ways to cut costs forcing them to obtain children for cheap labor. Last Fall, the New York Times published a brilliant (and wrenching) piece of investigation of such slavery in Ghana and Ivory Coast.

According to the 2000 Human Rights Report released by the US State Department, 15,000 children between the ages of 9-12 have been sold into forced labor on cotton, coffee and cocoa plantations in West Africa in recent years. It is estimated that 284,000 children are working on the cocoa farms in Ivory Coast. Some of these children are working on the family farm, but a large percent of the children are slaves that have been sold or lured into the industry, most from Mali. The children are working instead of getting an education and are also deprived of a childhood.

The International Labor Organization reported that many of the children are involved in hazardous work and unprotected. The children are required to use dangerous sharp machetes in order to cut down the branches of tall trees. They are exposed to the harmful pesticides that are applied to the plants and the children do not have proper protection. Often the bags of cocoa beans that the children are required to carry are taller and weigh more than the children themselves. The owners of the farms do not pay the children, do not adequately feed them and frequently beat them. The children are locked up, to prevent escape, in a small room where they all sleep often on wooden planks.

In 2005 the International Labor Rights Fund brought a district court action lawsuit against Nestle, Archer Daniels Midland and Cargill, three of the largest chocolate producers, on behalf of children form Mali. The companies are accused of the involvement in the trafficking, torture, and forced labor of children who cultivate and harvest cocoa beans that the companies import from Africa. The children claim that they were taken form their homes and brought to Ivory Coast to work as slaves. Two federal statutes allow victims of human rights abuses who live outside of the United States to sue US companies for violations of international law. The statutes are the Torture Victim protection Act and the Alien Tort Claims Act. Evidently the case, filed under the latter, is still pending since last year as a shareholder complaint at the shareholder meeting earlier this month indicates.

In 2001, congress passed an act to end the buying of cocoa that was produced by slave labor in the United States. The Harkin-Engle Protocol was the bill was to end the buying of slave-trade beans by July 1, 2005. But the main chocolate companies, Hersey, Mars/M&M’s, and Nestle, were unable to meet the deadline of the protocol. In 2007, there are still child slaves working on the cocoa farms in Ivory Coast.

The idea of child slavery could be supported by the classical model of corporate responsibility, which states that management's only role is to maximize profits within the letter of the law. However, this practice is evidently illegal according to the U.S. statutes above. Furthermore, the influential neoclassical model of social responsibility does not support the use of slavery in any circumstances. This model states that “the pursuit of profit is constrained by an obligation to obey a moral minimum” to avoid inflicting harm (Joseph DesJardins). According to Samlanchith Chanthavong at American University, “The connection serves to illustrate that the existence of misery in one part of the world and joy in another part are no longer divorced as nations are connected together in a globalized web of trade.”

There are actions that these companies can take in order to ensure that children are not being exploited on the plantations. In a country where more than half the population is illiterate, basic education of “cocoa children” takes on an even more critical significance for Ivory Coast’s future. Ultimately the companies in the cocoa industry can use their power and money to combat an issue that would produce a result that would be good for the entire country and society.

If companies would buy and demand Fair Trade Certified cocoa, farmers would have the resources that would allow them to eliminate child labor on their farms. The Fair Trade Labor Organization makes annual inspection visits to producer groups on its Fair Trade Register to ensure that the benefits of Fair Trade relationships are reaching the farmers. The Fair Trade Certified label guarantees that farmers and workers received a fair price for their product. The Fair Trade price means that farmers can feed their families and that their children can go to school instead of working in the fields. This label also insures that forced or bonded labor is not permitted, nor may children work in circumstances that could jeopardize their education or lead to them performing hazardous tasks. Cooperatives also give farmers access to price information giving them the independence to negotiate prices for themselves.

The ethical response to forced child labor would be for the companies to buy and promote fair trade cocoa instead of supporting the terrible working conditions that are present on the plantations that produce the beans that companies purchase. Until then, we are supporting the exploitation of children with our continued financial support of cocoa beans. The practice will not be stopped unless the American people, corporations, and the international community force a change in the chocolate industry.

Bank of America’s Unethical Credit Card Program

2007-04-29T10:58:00.000-07:00

Bank of America has recently launched a new program where individuals who do not have a social security number can sign up for a credit card. As a result, this program gives an economic incentive for illegal immigrants to come to the United States. In order to be able to have access to this credit card, an individual has to have a bank account with Bank of America for three months with no overdrafts. These credit cards have a maximum balance of $ 500 dollars and the individuals have to pay interests rates exceeding 20 %.

Due to the fact that Bank of America’s new credit card program is one of the first from one of the major U.S. retail banks, it has received a lot of criticism. On February 22, 2007, Bank of America’s Chief Executive Officer Kenneth D. Lewis submitted an editorial to the Wall Street Journal in order to address the public criticism and to justify the company’s new credit card program. In his editorial, Lewis justifies the new plan by stating that it follows all of the rules set forth by the USA Patriot Act. Also, Lewis says that Bank of America is not targeting any one type of racial group, but are targeting consumers who do not have a credit history and who want to build one. While Lewis’s editorial seems to perfectly justify Bank of America’s new credit card program, there are troubling factors that seem to suggest that its new plan is acting unethically.

First, the pilot program for Bank of America’s new credit card was started in Los Angeles, California, which has the highest population of illegal immigrants of any other state. Second, the Hispanic population in the United States has a purchasing power worth $ 700 billion dollars and we believe that Bank of America is trying to stake out a part of this market before competitors capture this segment.

Bank of America’s new credit card program would be viewed under the Libertarian view of ethics as being unethical. First, while this new credit card program can be beneficial to both the illegal immigrants and to Bank of America, it could hurt everyone that uses the U.S retail banking system due to the fact that it does not hold the illegal immigrant or ID thieves to what they have charged to their credit cards. As a result, the immigrants could simply find a new identity to assume and would not have to pay their own debt.

Bank of America’s new plan would also be viewed as being unethical under act utilitarianism because instead of having the freedom to choose where their money goes, the illegal immigrants would have to keep a certain percentage of their money in their bank accounts. Rule utilitarianism would view Bank of America’s new credit card as being unethical, because it hurts the illegal immigrants from the get go by charging them excessively high interest rates in comparison to U.S. citizens. This hurts them in terms of equality and liberty.

The Lightest Shade of Truth: Earnings Manipulation at Krispy Kreme and Beyond

2007-04-23T19:16:00.000-07:00

Each financial quarter, public companies are required by the SEC to publish their latest financial statements in accordance with GAAP (generally accepted accounting principals). At the bottom of their income statement, companies must calculate their most recent earnings on a per share basis. Months prior to earnings announcements, financial analysts from across the industry have already calculated an expected earnings per share for most public companies.

Usually, when companies announce higher earnings than expected their market stock prices immediately increase as a result of further anticipation that the company will continue to perform better than expected. On the flip side, when earnings are below what was expected their stock prices immediately reflect investors’ loss of confidence. When Whole Foods announced a once cent shortfall of earnings in the first quarter of 2006 their stock dropped 9.4% in one day; this is despite the fact Whole Foods reported a 26% increase in earnings and a 22% increase in sales from the prior year. As a consequence, some companies feel inclined to do whatever they can to artificially boost their earnings and keep their market value of equity from dropping. The Chamber of Commerce has recognized the incentives that companies have to “cook the books” to meet Wall Street expectations, and has begun to encourage public companies to refrain from issuing quarterly earnings guidance reports.

On May 25, 2004, The Wall Street Journal published the first story criticizing Krispy Kreme’s accounting practices. In 2003, Krispy Kreme purchased a struggling seven-store Michigan franchise. As a stipulation of the deal, the franchise owner would pay Krispy Kreme the accrued interest on past due loans upon completion of the repurchase. The company recorded this as interest income, an immediate source of revenue; however, the company booked the purchase cost of the franchise as an intangible asset, which was not amortized.

Most franchise repurchases in the food and beverage industry take into account that most of the cost associated with repurchasing a franchise is associated with property, plant, and equipment. The standard practice for filing these is to amortize the cost of these assets over several years. These amortization costs are deducted from revenues and result in a lower net income for the period. Although Krispy Kreme reported earnings that failed to meet Wall Street expectations, without the amortization costs their reported net income was misleading and inaccurate.

Krispy Kreme kept investors in the dark about other things as well. The failing franchise owner was allowed to remain employed at the company after the deal, but shortly after, that executive left and was paid an additional $5 million in severance pay. Krispy Kreme also recorded this expense in the unamortized asset category as reacquired franchise rights. The New York Times reported that, “these failures led or contributed to accounting errors – substantially all of which had the effect of increasing EPS (earning per share).”

On January 4, 2005, after starkly denying any wrongdoing, the Krispy Kreme board of directors announced that the company’s previously-issued financial statements for the fiscal year ended February 2004 would be restated to “correct certain errors”. The board determined that the adjustment to be made, which principally related to the company’s accounting for the acquisitions of certain franchisees, would reduce pre-tax income for 2004 by $6.2 million to $8.1 million. The company will also restate its financials for the first and second quarters of 2005.

Krispy Kreme is not the first to mislead investors with accounting practices that inflate earnings, nor will they be the last. All managers of public companies should be aware that their responsibilities to shareholders are more than just an ever increasing share value. Managers are also responsible for giving investors the most accurate picture of their companies’ financial health. Despite the consequences for reporting earnings below analyst expectations, it is not only the right thing to do but it also is the best for the company. It’s probably reasonable to assume that Krispy Kreme would rather have taken a 10% loss like Whole Foods for reporting low earnings, than the 80% market value loss and the negative attention that they received for their accounting practices. In this case, it may be better to be conservative in accounting practices than risk misleading investors and triggering an investigation by the SEC.

Although companies are responsible for their accounting practices and decisions, perhaps there is also a flaw in the system as suggested by the Chamber of Commerce. Analysts estimate earnings expectations in order to aid investors in analyzing the financial health of the company, but these estimates are estimates and offer room for error and interpretation. These expectations also provide companies with an incentive to manage their books since there are obvious repercussions for failing to meet market expectations. Whole Foods was punished by investors despite sales and earnings growth that most companies would be proud of. Krispy Kreme and others have collapsed under pressure in order to meet Wall Streets expectations. Are these expected earnings estimates creating more harm to investors though inaccuracy and incentives to shade the truth than they are creating a tool that investors can use to make wise decisions? Perhaps it’s best that investors do their own digging into financial statements and not Wall Street analysts.

Consequences and Implications of Corporate Gift Policies: Wal-Mart fires Julie Roehm

2007-04-07T23:08:00.000-07:00

Julie Roehm, a high profile advertising executive, was terminated from Wal-Mart after only ten months with the company on accusations of fiduciary misconduct and violation of clearly established corporate ethical standards. She brought suit against Wal-Mart shortly after her dismissal claiming she was wrongfully terminated. Among other tasks, Roehm was in charge of heading up the search for a new marketing agency to take on the $580 million Wal-Mart account. During the process, Wal-Mart claims Roehm violated its strict no gift policy by accepting gifts and acting in a disloyal manner in order to give the advertisement agency, Draft FCB, an advantage in the competition.

Although Roehm admits to accepting gifts, including a case of vodka and a Toy watch, she claims to have reimbursed ad agencies, or requested that her account be billed for the full value of the items she received. Wal-Mart allows for social engagements combined with presentations to be part of the search process, but insists on paying the bill for the Wal-Mart executives in attendance. One extravagant dinner attended by Roehm, however, did not appear to be part of Wal-Mart’s approved review process and therefore it is unclear whether Roehm was billed. While some may argue that Roehm made an ethical attempt at compromise while conducting amiable business, Roehm appears to have violated Wal-Mart’s strict gift and gratuity policy and thus, even if she was clean on all other accounts, Wal-Mart had a valid basis on which to terminate her.

Examining this case in terms of alternate gift policies, we conclude that there would have still been grounds for Roehm’s dismissal. If Wal-Mart had a policy with a maximum value allowed, it appears that the dinner in question was worth much more than the standard $100 limit, and so still may have been unacceptable. Using a post-transaction policy for gifts, we see that Roehm attended the dinner with advertising candidate Draft FCB a month before an ad agency was chosen by Wal-Mart, and therefore would not have been able to consider it a “thank you” gift.

Is Wal-Mart’s staunch no gift policy too strict? In this case, it appears that Wal-Mart cited the gift violation as terms for dismissal in lieu of publicizing more personally harmful accusations about Roehm. But now that the case has escalated, more than sufficient evidence on multiple issues supporting Wal-Mart’s decision has come to light on its counter-claim. It's possible that Wal-Mart’s gift and gratuity policy, although consistently applied in this case, may provide grounds for unnecessary dismissal of otherwise ethical employees if taken to the extreme. Certainly the company would not want to be in the position of firing a conscientious committed executive for accepting a cup of coffee or a free pen from a vendor or client.

To avoid this dilemma, we propose that Wal-Mart consider taking the following actions:

1. Evaluate its hiring practices to ensure it adequately examines candidates’ ethical standards and personal virtue as part of the hiring process.

2. Make a conscious effort to instill loyalty in employees so as to increase their desire to act in the best interest of the company.

3. Adjust its gift policy to allow small gifts under a certain value to be accepted and presented in the course of professional interaction, while still requiring larger gifts to be reimbursed.

These actions may be applied in varying degrees to executives only, or to the entire employee base, as Wal-Mart sees fit. The purpose for additional steps in hiring practices ties to Aristotle’s view of virtue; that people who are ethical and possess personal virtue will act most consistently in that manner, while people lacking virtue are not likely to attain those characteristics simply because of a company policy. We feel the good will and trust that the latter two actions would evoke would create a better atmosphere for business interaction and a better relationship between Wal-Mart and its top employees.

Mandating Employee Health?

2007-03-21T21:16:00.001-07:00

“Helping employees get healthier is an honorable goal—even if you have to use strong arm tactics to do it”, says Jeff Bedard, CEO of Crown Laboratories. Bedard is currently using his own strong-arm tactics, by implementing a wellness program to compel his 61 employees to get healthier.

The wellness program used by Crown requires each employee to get an annual on-site health assessment. During the assessment the employee’s blood pressure, weight, physical activity level, and cholesterol are taken. From these indicators a “wellness number” is assigned, a number of up to twenty-four is assigned to each employee, the higher the number the better. Employees who maintain a score of twenty or higher and/or improve their scores within a designated time period by at least three points will receive $500 bonus and additional days off.

Traditionally wellness programs have been voluntary, but now Crown and other companies are making them mandatory for employees. However, there is still no state or federal regulation dictating whether employees can be required to participate in wellness programs and offer them cash incentives. With Crown’s health care costs rising over 30% for the past few years, Bedard decided it was up to him to help his employees to get healthy.

Although there are many prohibitive tobacco laws in the United States, there are also laws that provide protection for smokers from discrimination in the workplace. Thirty states and Washington D.C. have laws against firing or demoting smokers in the workplace. This helps to safeguard employees and their legal right to smoke and prevents the employer from deciding what his or her employees do on their own time. Such states as California, Colorado, Tennessee, and North Dakota have laws specifically restricting employers from forbidding any legal activity a worker does in their off-hours. These laws are put into place fearing a slippery slope once employers start controlling what their employees are doing in their free time.

Crown Laboratories should eliminate the mandatory aspects of its wellness program. The obligatory portion of the wellness program opens the company to discrimination suits and the program is not job-related. Instead of basing bonuses or vacation time on the wellness scores, one recommendation for Crown would be to base such incentives on job performance. In no way does smoking effect job performance, job quality, or job quantity. Basing bonuses and vacation time on anything other than job performance is not right and could make the company liable for wrongful termination suits.

Crown should eliminate the mandatory aspect of the program, which has the potential to increase motivation, productivity, and the health of employees if the motivation is intrinsic. A voluntary wellness program protects Crown and its image from discrimination suits and will show more respect, trust and loyalty to its employees.

Employing Illegal Immigrants

2007-03-21T13:32:00.000-07:00

Immigration is making headlines once again with the crackdown on immigration policies nationwide. This crackdown has triggered the American public to question exactly what immigration policies are and how they have been being enforced in years past. Companies should be expected to follow legal guidelines when conducting business practices and compete by hiring legal workers. They are expected to follow current employment legislation as well as codes of conduct while still being able to make a profit.

In recent years, company management has not been held accountable for its hiring practices. There were no strict penalties for companies who did not follow the Immigration Reform and Control Act (IRCA) of 1986. IRCA legislation sets out the regulations for hiring practices in the United States regarding employment verifications. Employers are required to verify the identity and work authorization of each employee in their company through the I-9 Employment Verification Form. Failure to comply with IRCA requirements can result in significant fines, loss of access of government contracts, and highly negative publicity for a company.

Fortunately, the Immigrations and Customs Enforcement (ICE) bureau is currently cracking down on the enforcement of hiring illegal immigrants. Raids of companies such as IFCO and Wal-Mart have led immigration officials to go after both employees working for these companies and management at the companies themselves. In particular, immigration law enforcement is now of national concern and the government crackdown is further proving this.

Additionally, neo-classical ethical thought establishes a moral minimum, which must be taken into account when conducting business. It establishes the notion that companies have a duty to "cause no harm, to prevent harm, and to do good". By forcing companies to consider their ramifications on both the public sector and employees at their companies, businesses must make sure their actions do not harm those they are doing business with. This also allows companies to see the affects of their business practices on the economy at large. The concrete notion of “causing no harm” compels companies to override any other ethical considerations. “Causing no harm” may include not maximizing returns for a company in order to ensure their employees are being treated fairly and there is no public harm from company actions. The entire perception of the neo-classical theory and moral minimum establish broader ethical responsibilities for companies.

If companies are finding it difficult to find workers to fulfill the positions required to meet the demand of the economy, they need to come together and lobby for more work visas for illegal immigrants. Lobbying for worker visas for illegal immigrants will not only benefit the companies by allowing them to fill the job positions they need, it will provide illegal immigrants with sustainable wages and benefits required to live in the United States. However, getting governmental approval for additional worker visas may be hard for companies to achieve. Currently, the America’s visa program allows for companies to bring in immigrants for specialized jobs and positions. The visas which foreign workers acquire are known as H-1Bs. These visas allow for workers to temporarily come into the United States to work. President Bush called for an increase of H-1Bs in January 2007, but current research shows that those benefiting from this influx of immigrants are not necessarily the companies. Data shows that hiring immigrants does not necessarily give companies a competitive advantage. Under H-1B requirements, employers are mandated to pay immigrants “prevailing wages and benefits” of the market.

In order to proceed in the future, companies should start to develop higher ethical requirements when it comes to their hiring practices. Human resource departments and upper management should be held accountable for ensuring that all employees hired are in fact legal and eligible to work in the United States. The State of Colorado has already taken this upon itself by passing House Bill 06-1343, which requires "contractors entering into a public contract to provide services for state agencies to verify worker eligibility through the Pilot Program". Additionally, Colorado House Bill 1017 mandates that employers keep a written or electronic confirmation of employer examination of legal work status on file. Failure to comply with House Bill 1017 can result in a fine of $5,000 for the first offense and $25,000 for subsequent offenses.

By ensuring that companies are required to take additional steps to verify worker eligibility, the government is holding companies responsible for their workforce. Self-enforcement should force companies to be held to a higher ethical standard and force them to adhere to laws. This would make it possible for companies to police their workforce instead of having Immigrations and Customs Enforcement bureau police the workforce for them.

Limiting Junk-Food Ads for Kids?

2007-02-23T08:34:00.000-08:00

A massive and welcome debate is now fully upon us since major companies are taking more responsibility for their negative influence on kids, particularly in nutrition. Pressure is mounting from the Association of American Pediatricians for Congress to ban kids' junk-food ads from television. So Kraft has vowed to do just that. And it has company, as this brief from the Wall Street Journal states:

"Kraft Foods, PepsiCo, McDonald's, Unilever, Kellogg, Hershey, General Mills, Campbell Soup, Cadbury Schweppes and Coca-Cola have promised to stop advertising in elementary schools and product placements and feature only healthy food and statements in children's games. The food and beverage giants also swore to allocate a minimum of 50% of advertising to advocate healthy lifestyles and products for children. However, Center for Science in the Public Interest executive director Michael Jacobson asserted that firms could still market junk food by using health messages."

The problem though is that this is essentially a cultural failure, and as such it is not likely to be solved via mere voluntary and/or regulatory advertising restraint. Let's assume that corporations gradually eschew kids' junk food, replacing many if not most sugary cereal and snack options for much more healthful but still tasty ones. And there is indication that this is indeed already happening as Disney has also vowed to stop licensing unhealthy foods with its cartoon characters, including even McDonald's Happy Meals.

At this ideal point in the future, all it will take is one lone-wolf new competitor to take advantage of the situation by pushing the envelope again on sugar and various heavily-processed flavor enhancers. That new rush of quick and easy flavors will once again prey on unsuspecting kids and parents much the way it did the first time. And all the other major players will want a piece of the action. Indeed, as Michael Pollan astutely points out in his NYT bestseller The Omnivore's Dilemma and this excellent NYT Magazine piece, without heavy processing, food companies cannot distinguish their products significantly from each other. Success for them is in the branding of a particular flavor that cannot be found elsewhere. So whole foods are not lucrative. Artificial ones are.

This is a paradox of the way the free market promotes food. It constantly reinforces new eating habits instead of the more basic tried-and-true healthful ones. And regulation can only go so far as the law cannot be precise enough to rule-out new inventions. It cannot, say, ban processing altogether. And if it limits sugar content, new stand-ins will surely appear. The same goes for television ads, since the concept "healthy food" is elastic.

So while corporate social responsibility on this is certainly helpful and commendable—especially if sincere—it is not the final or even essential solution to a much wider socio-economic and cultural problem. Ultimately, the only remedy is for parents to give junk foods so rarely to their children that they come to dislike them except in small amounts and on rare occasions. And this will take a widespread shift in American food culture. Or else, even though the pendulum on kids' junk food is in positive swing, it will inevitably fall right back.

It's essentially a question of virtue ethics. As Aristotle pointed out, we are the sum of our habits. Good habits must be learned and inculcated by the doing. Thus consistent parental guidance is absolutely crucial.

Wal-Mart's Continuing Paltry Gains

2007-01-19T11:47:00.000-08:00

As this quote from the WSJ of January 4th attests, Wal-Mart continues to suffer after a nearly flat holiday season in same-store sales. This is the second year in a row that Wal-Mart did not come close to meeting its holiday targets:

"Wal-Mart notched a gain in same-store sales in December of 1.6%, beating its earlier prediction of a "flat" result to a 1% gain."

...."Wal-Mart in recent months has suffered a spate of same-store sales gains in the low single digits, including a 0.5% gain in October and a 0.1% decline in November. The retailer has blamed the swoon primarily on several short-term factors, including the disruption for shoppers caused by its efforts to remodel hundreds of stores and a fallback from strong sales gains in late 2005 and early 2006 generated by hurricane-recovery efforts in the South."

Interestingly, every other major retailer showed December gains, as is usual. For example, the same WSJ article concludes with the following:

"Wal-Mart's arch rival, Minneapolis-based Target Corp., on Thursday reported a December same-store gain of 4.1%."

Conspicuously absent from this analysis is the effect that Wal-Mart boycotts are having on the retailer. But in fact, Wal-Mart is highly aware of this impact, which was galvanized in 2005 by evangelical Christian groups joining labor groups hostile to Wal-Mart's relentless dedication to low prices at the costs of its employees' salaries and benefits, as well as its suppliers who must comply with Wal-Mart's price demands or suffer being shut out by the world's largest retailer. A Kantian ethicist might aptly claim that Wal-Mart is using its employees and suppliers merely as a means to the ends of its consumers, i.e., subordinating the interests of the former to those of the latter.

Wal-Mart has thus created an extensive corporate relations campaign in the wake of such boycotts. The Wall Street Journal should at least explore this factor in Wal-Mart's struggles in an effort to provide a complete explanation for its slumping growth. It has a duty to uncover why the world's largest retailer systematically fails to see any same-store sales surge over the holidays, when every other retailer across the board sees gains.

Perhaps then Wal-Mart will begin to realize that corporate social responsibility is not defined near-exclusively by its service to consumers, but by its treatment of stakeholding workers and suppliers as well. Ultimately, ignoring the demands of the current widespread and growing boycotts against it—now joined by prominent political figures—imperils its stockholders' long-term interests.

Wal-Mart has hit a growth-wall also because it's approaching market saturation in the U.S. And when a company becomes dominant in any industry, it naturally becomes a target for ethical reformers, especially when those reformers see the company's actions as especially egregious. A telling example is McDonald's, which was targeted in the past, first for its use of polystyrene and more recently for its mistreatment of animals. Each time, the company took a leadership role in making significant positive changes. And its continuing success is partly responsible for such progressive responses.

If Wal-Mart is to retain its leadership position, it's going to have to learn to change with the times. Its recent prodding of GE to produce more energy-efficient light bulbs to sell in its stores is a refreshing sign, though one that requires little or no sacrifice. But on the labor side, all indications remain that whatever it gives with one hand (better employee health benefits) it immediately takes back with the other (salary caps, alleged age discrimination, and layoffs of workers without adequately flexible schedules). Such double-dealing will convince precious few that the company is serious about being a good corporate citizen. It seems that whenever corporate social responsibility requires a real sacrifice, say, having to raise prices slightly, it can never reconsider its guiding dogma of "Always low prices. Always."

It will be interesting to see if social pressure forces (or inspires) it to finally embrace a more balanced approach to that fundamental mission. Can the low-price-leader make exceptions to its principles? Morally, it would seem that it should.