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Business Ethics in the News

A discussion on the week's top business ethics stories by Professor Kirk O. Hanson, Executive Director of the Markkula Center for Applied Ethics, and Patrick Coutermarsh, Fellow in Applied Ethics and recent graduate of Santa Clara University.

  •  STARTUP ETHICS: Is the New Sharing Economy Unfair for Workers?

    Wednesday, Aug. 27, 2014

    Source: Alfredo Mendez

    The “sharing economy,” where individuals offer their time, skills, or assets to their peers, is in full swing. Investors have bought into the sharing economy, driven in large part by the companies’ ability to avoid the typical payroll costs by using independent contractors to serve as their chauffeurs, personal assistants, and handymen. The result? Lower prices for customers and better margins for investors.

    Proponents of the sharing economy see an upside for the workers too. In exchange for the stability of a regular job, workers get the freedom to control their hours and the tasks they take on. Also, some companies have begun offering their workers access to discounted healthcare and other services.

    But many think that those gains are at the expense of the workers, even fearing the rise of a new indentured servitude. While some are drawn to the flexibility of the job, many are forced into this “gig economy” due to lack of other job opportunities. While possible, earning a livable wage often equates to being “always on call” to take on new gigs, without the security and benefits of a traditional job.

    Are the workers of the sharing economy being treated unfairly? If so, what needs to change?

      Joe: In question are the implications of participating in an unregulated industry. The rapid evolution of technology and the “new normal” supply of unemployed and underemployed are the “sharing economy” enablers, outstripping the pace of regulations so far. Set aside the “collaborative sharing” of “stuff” (tools, cars, apartments, etc.); and only focusing on the providing of services; ignoring issues of skirting employment law (1099 v. W-2) by “connectors” and the consumers of services.

    Set aside the issues of Business and Self Employment Tax laws for the providers of services. Then the question becomes what are the benefits, abuses, and the ethical obligations for both the provider and consumer?

    The “sharing economy” provides the unemployed easy access to the dignity of work. To the consumer of services it delivers speed and competition.

    What remains for both the consumer and the provider of services are the reciprocal ethical issues of character, respect, and fairness. The possibilities of abuse are many and go both ways. The possibilities for good are there as well.

    The “sharing economy” depends on the level of “trust” in our society. On the strength of that foundation it will either prosper or collapse. Will a few well publicized incidents of abuse scuttle trust; will an uptick in employment remove the fuel that powers it; or will regulations come into play crushing the spirit of the enterprise? As with most innovations it will stabilize on some plateau of normality. What exactly that will look like will be interesting to see.

      Marty: As a proponent of the new era of the entrepreneur, I’m a big fan of the so-called sharing economy. It makes all of these people entrepreneurs – meaning they are all competing for business, and succeeding according to their own creativity, skills, and effort. What could be more fair?

    Of course, they face all the potential ethical issues of any business, but I don’t see any ethical issue with the basic premise. I have always found it interesting that so many people who have traditional jobs yearn for the freedom of choosing their own hours, working from home, making their own decisions, and the other positives of the entrepreneur lifestyle. Yet so few want the challenges – no guaranteed workload, salary, benefits, vacations, and the costs of marketing, skill building, and competition. You can’t have it both ways.

      Elizabeth: I see the new sharing economy as an exciting time of unlimited opportunities. In addition to the potential benefits and concerns about the “sharing economy”, I am seeing an increased demand that contractors and other part-time individuals assign or otherwise release their intellectual property rights in inventions, creations, and even ideas to the contractor, in exchange for the contract and employment.

    While the standard invention assignment clause, which ideally is included in any tech company employment agreement, has been in use for decades, we are seeing a more aggressive approach being used with independent contractors.

    So, with an independent contractor or part-time employee, is it exploitive to require that individual to assign all inventions, works of authorship, and ideas to the hiring party in all instances? What about the hiring party – what happens to the software code written by the student intern, that is incorporated into the launched website? What would happen if that student owned the code? Is it ok for the student to then ask for an ongoing royalty payment for that work?

    As with any legal issue, as well as ethical issue, there are multiple sides to the same story, competing legitimate interests, and a requirement of thoughtful decision-making when considering jumping into the “sharing economy.”


    In the Sharing Economy, Workers Find Both Freedom and Uncertainty (NY Times)

    A Framework for Thinking Ethically (Markkula Center)

     

    NEXT STORY: Who should pay for maternity leave?

  •  Who Should Pay for Maternity Leave?

    Thursday, Aug. 21, 2014

    Source: Pixabay

    Paid maternity leave, rather family leave, is just about universally considered a good practice, and one that should be supported. From promoting family life to allowing women to stay in the workforce, there are many benefits, but there has been an unintended consequence. Family leave policies can lead to discrimination against women, as firms hire male counterparts to avoid the higher leave costs associated with female employees. Many have framed the problem as “how do we remove the incentive to discriminate against women?”

    But I think something is missing from this debate: should companies bear the cost of family leave in the first place? Or should the taxpayers pick up the tab in the form of a tax break or government assistance?

    To start, it must be said that providing paid family leave may very well be in the company’s long-term economic interest. For one, paid leave encourages women to return to their previous roles, sparing the company the cost of hiring and training a replacement. Further, these types of benefits establish something more than a purely transactional relationship with employees, where the worker feels no affiliation or commitment to the company.

    But the question gets more interesting if we presume that paid family leave is bad for the company’s bottom line, which many think is the case. To answer this, one must consider the role that corporations play in society, rather corporate social responsibility. Two perspectives dominate the debate.

    The first, stakeholder theory argues that the corporation has responsibilities to all stakeholders — all which are affected and contribute to the corporation’s success. Proponents of the theory claim that doing so often leads to maximizing shareholder value, despite no longer considering it the only criteria of success. Under this view, a company can attempt to balance the interests of their employees with those of the shareholder, perhaps justifying the provision of paid family leave.

    Another view of the corporation is that exists purely to maximize shareholder value. In many ways, the legal basis for most corporations supports this conclusion, under the notion of fiduciary responsibility; that is, the corporation must act in the best interest of the shareholders, the owners of the company. From this, the answer to our question appears to be no, companies should not be expected to provide family leave if it is against their economic interests. Given this interpretation, the government should step in to cover the cost, or perhaps create a mandatory paid leave requirement, effectively taking the decision out of business’ hands.

    Mandating that companies provide paid leave seems to be a convenient way out of having to address this dilemma: society no longer expects them to provide paid family leave, the law demands it. But this solution begs the question, and inadvertently takes a stand on the issue above: corporations should bend (and can be forced to bend) to serve public interests. This is not new. The minimum wage, health care coverage requirements, and other legislation are other examples. But the question remains, is this fair to business owners?

    The point here is that regardless of the outcome chosen, we are at the same time defining what the corporation is and its role in society. A fact that should be front and center in this debate.

    By Patrick Coutermarsh

    A Framework for Ethical Thinking (Markkula Center)

     

    NEXT POST: 5 Ethical Responsibilities of Corporation Boards

  •  MarketWatch: 5 Ethical Responsibilities of Corporate Boards

    Thursday, Aug. 14, 2014

    Source: Pandu Adnyana

    By Kirk O. Hanson

    Most corporate boards have learned to act quickly when a scandal breaks. General Motors’ board is moving much more quickly to clean up the fallout from its vehicles’ ignition failures than Toyota’s board did to address its rapid acceleration problems of several years ago. It is now the rare board that doesn’t launch an independent investigation quickly when misbehavior is reported.

    But the responsibility of the board to prevent scandals is more important than the responsibility to clean up the mess once it has emerged. Here most boards are still at the starting gate. Recent legislation and guidance embodied in the Federal Sentencing Guidelines clearly require the board to take a key role in preventing ethics failures before they happened. This is more complicated than calling in the outside lawyers once disaster happens.

    Work we’ve done at the Markkula Center for Applied Ethics at Santa Clara University points to several key steps every board should take to get out front of ethics problems. These include:

    1. Know the health of the company’s ethical culture.
    Most boards or their audit committees hear pro forma reports on ethics violations and lists of calls to their hotlines. Few know anything about the culture in which these violations arise. Do these behaviors reflect widespread acceptance of improper behavior — or a few bad apples?

    Does the culture embrace not just begrudging compliance but a real commitment to the interests of the company, its customers and suppliers? Do employees believe their bosses want to hear about ethical problems and will support the employee who raises one?

    2. Evaluating the ethics of the business strategy.
    Business models and strategies are being junked and reformulated everywhere in our modern economy. New sources of revenue are being sought; radical transformations of manufacturing and delivery systems are being implemented. Sadly, some boards are swept along by management proposals to change the nature of the business without asking critical ethics questions about the strategies.

    Most boards have learned to ask whether the company is ready to monitor a China-based supply chain to insure worker safety. But few boards have discussed the ethics of tax inversions, big data mining strategies, or staffing strategies which make family life difficult.

    3. Monitoring the real ethics risks in the organization.
    Every organization manages financial risks, and boards pay close attention to the level of that risk. Few senior managements and even fewer boards evaluate the ethical risk of entering new markets, extending the supply chain to new regions, or putting extreme performance pressure on a sales force that is prone to shortcuts.

    But this is exactly what the 2010 revision of the Federal Sentencing Guidelines requires of management; boards are charged with oversight over the adequacy of this ethics risk assessment.

    4. Monitoring the ethical behavior of the leadership team.
    No decisions are more complex than hiring and firing top executives. It is tough enough to find a prospect who has the skills needed to execute the company’s strategy for the next five years.

    It is harder still to know what constitutes a disqualifying factor. He may be hard-charging, but what if he is a bully? How do you evaluate stories that she shaded the truth in talking to the board in her old job? And what is a firing offense? Falsifying a degree on a resume? Having an affair with a subordinate? Failure to tell the board about reports of a product failure?

    5. Verifying that the elements of the ethics and compliance system are strong.
    The Federal Sentencing Guidelines list seven to 10 elements of an “adequate” ethics and compliance management system. Every general counsel and ethics officer can show the board that they have “checked the boxes” and have these systems in place.

    But does the board really know whether each part of the system works? Everyone took the annual compliance training, but did it have any effect? The company has a code of conduct, but is it viewed cynically by the staff? Do people really believe the company wants more than minimal compliance? The board needs a way of evaluating the strength of these systems, not just their existence.

    By meeting each of these responsibilities, the board sets the tone for true ethical behavior in the company — and does its best to prevent future wrongdoing. Today it is not enough to be conscientious about cleaning up scandals after they occur.

    Kirk O. Hanson, executive director of the Markkula Center for Applied Ethics at Santa Clara University, is offering a free massive open online course (MOOC) on business ethics for executives, Creating an Ethical Corporate Culture

    The article was also published on MarketWatch.com

  •  2014 Business Ethics MOOCs from Santa Clara University

    Wednesday, Aug. 6, 2014

    Santa Clara University's Markkula Center for Applied Ethics is offering two free Massive Open Online Courses (MOOCs) to the public. Already more than 3,000 executives, professors and students have enrolled, and we invite you to join them.

    The MOOCs are hosted on the Canvas.net platform and are taught by Kirk O. Hanson, longtime professor of business ethics at Stanford Graduate School of Business and Santa Clara University. 

    COURSE 1: BUSINESS ETHICS FOR THE REAL WORLD

     

    This course explores the nature of ethics, its role in a business career, and how to make practical ethical decisions. Available starting August 18. Register

    COURSE 2: CREATING AN ETHICAL CORPORATE CULTURE

    This course examines how managers and executives can create and sustain an ethical culture. Available starting August 18. Register

    Two to Three Hours of Business Ethics Training Each Week for Four Weeks: Each course is organized to take no more than 2-3 hours per week, and the course is designed to be completed in four weeks. You can take the courses anytime during the period they are open.

    Online Activities on Business Ethics: Each week you will have 2 or 3 short lectures to watch, each no more than 10-15 minutes in length. After watching the lectures, you will have three things to do: a case discussion, a short exercise, and a quiz. The cases are real business situations. The final project for each course is an ethical analysis, which you write, and peer reviews of other students' analyses.

    Letter of Completion: Students who complete all of the course requirements will receive a letter of completion from the Markkula Center for Applied Ethics. No academic credit is granted.

    Contact Patrick Coutermarsh at pcoutermarsh@scu.edu for questions or further information 

  •  PART-TIME: Should Employees Have a Say on Their Work Schedules?

    Thursday, Jul. 31, 2014

    Source: Wikipedia

    A recent article by the New York Times, A Push to Give Steadier Shifts to Part-Timers, profiles an increasing problem: the harsh scheduling practices that part-time workers face. These practices range from being scheduled only one day a week, requirements to be on call for days at a time, and not knowing work schedules until a day or two before. In response, women’s and labor groups have launched a national campaign to curb these practices, which they see as barriers to a healthy family life and ability to find a better job. Corporate groups have responded aggressively, claiming any more government regulation will further impede solid business decisions, particularly as many are still struggling after the recession. Should employers pay employees extra for on-call work and give two weeks’ notice of a work schedule? Are employers obligated to factor in their employees’ family and personal lives into their bottom line business decisions?

      Kirk: This is what happens when purely instrumental or economic thinking takes hold in corporate offices. A singular focus on efficiency ignores the impact on personal development and family life. These practices treat workers as expendable. I suspect must companies that follow these practices experience excessive turnover and declining efficiency. Caring for your workers’ welfare is actually good business.

      Patrick: There are a lot of moving parts of this issue. For one, many industries necessitate a flexible workforce, e.g. restaurants and retail, and business owners are under great pressure to keep costs down. Still, we must attempt to balance the efficiency gains with the personal and social costs that these practices incur. Some companies are already taking a shot at this, such as Macy’s and Walmart, which allow part-time workers to go to a website to claim available shifts. Another, Zara, has agreed to give employees 2 weeks notice of their work schedules. While not groundbreaking, they are steps in the right direction, and will hopefully prevent the need for drastic increases in regulation.

    A Push to Give Steadier Shifts to Part-Timers (NY Times)

    A Framework for Thinking Ethically (Markkula Center)

     

    NEXT POST: NHL First Major Sports League to Release Sustainability Report

  •  THE GOOD NEWS: NHL First Sports League to Release Sustainability Report

    Friday, Jul. 25, 2014

    Source: Wikipedia

    Monday, the National Hockey League released its 2014 NHL Sustainability Report, becoming the first major sports league to do so. The report sheds light on the NHL's current initiatives, benchmarks, and goals in the sustainability arena.

    NHL Green, the NHL's sustainability released in 2010, is highlighted in the Report. Goals of NHL Green:

    • Reduce use of natural resources in business operations
    • Track and measure the environmental impact of the sport
    • Inspire fans and partners to commit to environmental stewardship

    "Today we join many of our business who have for years been documenting their emissions and making progress toward their own sustainability goals." Commissioner Bettman

    2014 NHL Sustainability Report (NHL)

    A Framework for Ethical Thinking (Markkula Center)

     

  •  FACEBOOK: The Psychology Experiment You Consented to in FB's Terms of Service

    Thursday, Jul. 17, 2014

    Source: This is Public Health (Flickr)

    For one week in 2012, half a million Facebook users took part in a massive psychological experiment aimed at discovering if emotions could be spread through social media. The problem? Users had no idea it was happening. It turns out Facebook routinely runs experiments on users; in fact every Facebook user has been a subject at some point, whether it be slight modifications in formatting or major feature changes.

    Just about every Internet service does experiments, but this one altered users’ news feeds to highlight items with either positive or negative emotional content, and then measured if it affected the emotional content in each user’s future posts.

    While it is agreed the experiment was legal, critics argue this type of testing crosses the line, particularly when consent is buried in a terms of service. Facebook researchers have taken to social media to apologize for the study, but the company’s official statement is that Facebook users agree to these types of experiments as part of the terms of service. Does Facebook need more explicit consent for this type of experiment? For all experiments?

      Kirk: The beauty in this unfortunate case is that it rests at the intersection of research ethics and business ethics. While every study involves influencing the subject's emotional state -- e.g. which color do people respond better to? -- this experiment went one step further by making emotional manipulation its sole purpose. The problem here is with the blanket consent that Facebook is hiding behind. While legally permissable, companies should act in the spirit of the law and ensure users know what they are getting into: especially with experiments that are this controversial. What right does Facebook have to know what I am feeling as I'm using their service? 

      Patrick: Let's not forget that Facebook is a for-profit company, offering a free service. We should all anticipate that Facebook will go to great lengths to monetize their product. A user's emotional state while using Facebook has direct implications for the amount of time they spend on the site and how interactive they are: both of which are critical to get companies to pay for advertising on Facebook. Yet there is still a concern that this experiment was beyond the pale: if emotions can spread through Facebook, can idealogies and political views as well? It's clear that the law is not just behind on regulating these emerging industries; it's also behind on regulating the experiments that shape their future.

    Facebook Tinkers With Users' Emotions in News Feed Experiment, Stirring Outcry (NY Times)

    Facebook Researcher's Apology

    A Framework for Thinking Ethically (Markkula Center)

     

    NEXT POST: When do startups have to grow up and embrace diversity?

  •  STARTUP ETHICS: When Do Startups Have to Grow Up and Embrace Diversity?

    Tuesday, Jul. 8, 2014

    Source: Wikimedia

    For a long time, Silicon Valley’s Internet titans have refused to publicly report on the diversity of their workforce. Earlier this year, Google reversed the trend by releasing their employment diversity statistics. Yahoo, Facebook, and others soon followed. While there has long been a perception of a Silicon Valley diversity problem, the stats are now here to show it. Women only comprise 30% of Google’s total staff, and only 17% in the company’s tech staff. Over 60% of its employees are Caucasian, 30% are Asian, and only 5% are Black or Hispanic. Silicon Valley firms often point to the lack of diversity in the job applicant pool to defend their statistics, but critics also point to the prevalent “sexist culture” in startups that drives women away. This news raises two critical questions. Do startups get a “pass” on creating diversity in their rapidly growing staffs? If so, for how long? Second, at what point do startups owe the public transparency about their worker diversity?

      Joe: Staffing statistics are an outcome of supply. Silicon Valley’s move into primary and secondary education, to excite and motivate students about computer science careers and entering into supporting curriculums, is the same path other technology industries have taken decades ago. In spite of the effort, the U.S. supply demographics for technology industries still does not match the general population and probably never will. Regardless, the whole diversity debate is upside down. Diversity is not an end but a means. It’s that simple. Companies who have broken that code leverage it and thrive. Startups succeed by putting together people who have the core intelligence, the passion, and the ability to communicate. A startup is in a street fight. Sexism, diversity, etc. are non issues – survival is. Each member depends on each other and are blind to race, sex, national origin, etc. . “Corporate think” is the most strategic task of leadership. Founders may not always get that. “Thinking” can easily get corrupted in the process of staffing during rapid expansion. Ne'er′-do-well management types can creep in and have a corrosive effect on all aspects of the culture before a founder who isn’t paying attention recognizes the impact. As far as public transparency – really? Companies hire “locally”. Would a software company founded and operating in India get a diversity 5-star rating versus a company founded and operating in South Bay?

      Marty: I believe that a diverse workforce is a worthy aspiration, and certainly implementing cultural diversity can give rise to ethical issues. Yet I don’t believe that any business, especially private ones (startups), have any ethical obligation to embrace diversity. Everyone and every company has societal obligations, but there are many ways to help society, like feeding the hungry, or paying a living wage, which don’t involve diversity. So accusing a company of an ethical violation, just because they don’t embrace diversity, doesn’t make any sense. You should be looking at the bigger picture of what they do in total to benefit society. For companies that do embrace diversity, there are many potential ethical issues. For example, in some cultures, government agents expect businesses to provide incentive payments to expedite approval of requests such as permit and variance applications. In others, these are considered bribes, which violate ethical business practices, as well as the laws. Does that mean a company should never hire employees from any of these cultures? There are many other religious and gender practices which can cause ethical conflicts.

      Elizabeth: Discrimination goes hand-in-hand with such a diversity discussion. Title VII of the Civil Rights Act applies to employers with 15 or more employees. This Act prohibits discrimination in hiring and firing decisions, as well as decisions regarding promotion or demotion, compensation, and similar employment matters. Technology companies, per se, are not exempt from a Title VII violation (which is policed by the Equal Employment Opportunity Commission, or EEOC). Google, Yahoo!, and other technology companies are just as responsible for its discriminatory actions and its hostile work environments as any other company with more than 15 employees. How is this an ethical issue for small start-up companies with fewer than 15 employees? As Joe noted, excluding talent does not benefit anyone. Start-up companies should find the best talent suited for its needs as possible. This can best occur when individuals are not intimidated, discouraged, or prevented from applying for a job or from performing in a job. A society functions best when the individual members cooperate and augment resources, not quash them. Thus, if ethics is put into a societal context, then start-up companies, like any other company, have an ethical obligation to create a micro- and macro-environment that realizes and optimizes diversity. It not only is legally mandatory, but it also makes good business sense and is part of the larger corporate social responsibility of every business entity.

    Getting to work on diversity at Google (Google)

    Google statistics show Silicon Valley has a diversity problem (Washington Post)

    Framework for Ethical Thinking (Markkula Center)

     

    NEXT POST: Betting on the Death of Employees

  •  LIFE INSURANCE: Betting on the Death of Employees

    Friday, Jun. 27, 2014

    Souce: maorix

    A controversial business practice is on the rise: employers are taking out insurance policies on the lives of their employees, and when they die, are keeping the payout for themselves. The premiums on the policies, along with the payouts, are tax free — giving corporations an incentive to park their money there. The practice, labeled “dead peasant insurance” by detractors, has been around for some time but is now going mainstream. Of the largest 1,000 companies, over one third have policies worth over $1 billion, and more are being added each year. In 2006, the Pension Protection Act limited the practice to only the highest-paid 35% of employees, and only with their consent, but critics think this isn’t enough. Defenders of the policy argue the practice allows them to cover long-term health care costs, deferred compensation, and pension obligations; although, there is no legal requirement to use the proceeds toward these programs. Are these insurance policies unethical? Is it ghoulish to give the company a stake in the early death of its own employees?

      Kirk: I believe this policy violates the rights of the individual. Not only is it bad to give the company a stake in an employee's early death, this is also a violation of the employee’s dignity as a human being. Traditional life insurance provides a valuable service: peace of mind and security for your loved ones. “Dead peasant insurance” does no such thing, and instead is driven purely by profit gains and tax breaks. Shame on the tax code for making this profitable.

      Patrick: Often when we deal with large numbers, we tend to dehumanize the individuals in the collective group. For good reason: we don’t have the bandwidth to empathize with large numbers of people. Often insurance policies, like a general’s battlefied calculations, fall into this category. Still there are some fundamental problems here. For one, corporations should be legally bound to directing proceeds to the employee programs mentioned (pension, health care, etc.) as a matter of distributive justice. Second, these policies shouldn’t be tax free. This would inevitably end the practice -- which says a lot.

    An Employee Dies, and the Company Collects the Insurance (NY Times)

    A Framework for Thinking Ethically (Markkula Center)

     

    NEXT STORY: Wells Fargo's progress toward 2020 CSR goals