Santa Clara University


Business Ethics in the News

A discussion of the week's top business ethics stories by Kirk O. Hanson, Executive Director of the Markkula Center for Applied Ethics and John Courtney Murray S.J. University Professor of Social Ethics

  •  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

  •  THE GOOD NEWS: Wells Fargo's Progress Toward 2020 CSR Goals

    Monday, Jun. 23, 2014

    Source: Yongho Kim

    Last week, Wells Fargo released its 2013 Corporate Social Responsibility Report, highlighting impressive progress in reaching its 2020 CSR goals.

    "Among the highlights, Wells Fargo has achieved three of its 2020 goals and 11 goals are ahead of schedule. The three goals achieved include:

    • Providing $7.7 billion in principal forgiveness since 2009, helping financially challenged homeowners and exceeding our goal early.
    • Financing $1.2 billion in “green” affordable housing and commercial proprieties in low-to moderate-income communities since 2012, exceeding our goal early.
    • Met our goal to launch a Human Rights Statement and Supplier Code of Conduct

    "We’re committed to meeting our 2020 CSR goals, and will continually find ways to integrate sustainability practices into all of our business strategies, products, operations and culture to benefit our customers and the communities we serve.” Jon Campbell, executive vice president and head of Government and Community Relations

    Wells Fargo Reports progress toward 2020 Corporate Social Responsibility goals (Wells Fargo)

    A Framework for Thinking Ethically (Markkula Center)

    NEXT STORY: Adobe, World's Greenest IT Company


  •  THE GOOD NEWS: Newsweek Ranks Adobe World's Greenest IT Company

    Thursday, Jun. 12, 2014

    Source: Wikipedia

    In its annual Green Rankings, Newsweek rated Adobe the world's greenest IT company and third overall. The rankings are based on 6 key principles:

    • Transparency
    • Objectivity
    • Public Data
    • Comparability
    • Engagement
    • Stakeholders

    "This ranking is a clear recognition of our deep commitment to managing our environmental impact and to the transparency of our operations." Michelle Crozier Yates, Director of CSR, Adobe

    World's Greenest Companies 2014 (Newsweek)

    Newsweek Ranks Adobe World's Greenest IT Company (Adobe)

    A Framework for Thinking Ethically (Markkula Center)


    NEXT STORY: Performance-based Pay and the Law of Unintended Consequences

  •  VETERANS AFFAIRS: Performance-based Pay and the Law of Unintended Consequences

    Tuesday, Jun. 10, 2014


    Source: Christian Schnettelker

    It is clear that the problems at the VA go deeper than individual workers, all the way to core leadership and systemic failures. In an effort to turn the organization around during the Clinton Presidency, performance-driven metrics were introduced throughout the VA. The most important being that patients not wait more than 14 days from their preferred appointment date. But the new system created an unintended consequence: supervisors created a parallel reporting system and pressured schedulers to manipulate appointments to meet performance measures. On paper, the Phoenix facility reported an average wait of 24 days with 43% seen within the 14-day window, but an investigation uncovered an average wait of 115 days and only 16% seen within the 14-day window. How can an organization implement performance-driven metrics, but avoid the pitfalls of incentive gaming and flat out manipulation?

      Kirk: At the same time you implement performance measures you have to put an emphasis on the importance of accurate reporting and the penalties for dishonesty. In a system as large as the VA, it is inevitable that there will be those who actively game the system. Weeding out this behavior must be a top priority of management, even if it is only a few bad apples. To do so, it requires performance measures to be coupled with adequate auditing of those measures. Firms have long neglected to give “human metrics” the same attention as financial measures. It’s time to change this.

      Patrick: This is a culture problem, but in a bureaucratic behemoth such as the VA, fixing it is easier said than done. One thing is certain, when performance-based incentives are introduced without a culture of accountability, misconduct and scandal will soon follow. Going forward, steps need to be taken to maintain the integrity of the metrics, but perhaps more importantly, legislators and management must have realistic expectations. The VA backlog has been a long-time coming, and this is what you get when you try to wish a problem away.

    The problem at the VA: 'Performance perversity' (LA Times)

    A Framework for Thinking Ethically (Markkula Center)


    NEXT POST: How far does "for the sake of the customer" go?

  •  AMAZON: How Far Does "For the Sake of the Customer" Go?

    Wednesday, Jun. 4, 2014

    Source: Natalia Romay

    The highly publicized battle between Amazon and major book publisher, Hachette, has reached a boiling point this week. Unable to come to an agreement on terms on e-book pricing, Amazon, the largest retailer of books, has resorted to strong-arm tactics to break the stalemate. Hachette titles are currently not available for advance order, often take over 2 weeks to be shipped, and in some instances have been removed from Amazon entirely. Hachette has dug in its heels, accusing Amazon of “preventing its customers from connecting with their authors’ books,” and in effect, undermining the marketplace of ideas. Many also see this as an antitrust issue, due to the immense power that Amazon has in the publishing industry. Amazon, in a rare press release, argued: “When we negotiate with suppliers, we are doing so on behalf of customers,” and even suggested customers purchase Hachette titles from one of their competitors — Walmart is offering Hachette titles at a 40% discount. Is Amazon hurting or helping customers with these tactics? Is there an ethical significance to the product in question being books?

      Patrick: This is what happens when major industry players don’t adapt to changing conditions. The major publishers failed to respond to the move to online book sales — Amazon did — now they have to play ball with Amazon. The anti-trust red flags are premature: the ready availability of Hachette books at Walmart, at a discount, is evidence of this. Hachette has leverage here too: they can pull their books from Amazon entirely. But given Amazon’s importance to their business, they won’t, and that’s yet another reason for them to reach across the aisle here.

      Kirk: While I buy all my books from Amazon, this is not yet an anti-trust issue. For now, it does not appear that access to these books has been limited outright, but it is still a potential problem for the future. Presumably, customers stand to gain from Amazon’s tactics as they will most certainly lead to lower prices, but there are also concerns. We must always be careful when we subject things we value, in this case books and their production, to market pressure. “For the good of the customer” justifies bargaining, but not shameless opportunism. The book publishing industry will continue to evolve, which is a good thing, provided it doesn’t collapse upon itself.

    Amazon Absorbing Price Fight Punches (NY Times)

    Hachette/Amazon Business Interruption (Amazon)

    Hachette Press Release (Hachette)

    A Framework for Ethical Thinking (Markkula Center)


    NEXT STORY: Another Hoop for Applicants to Jump Through

  •  ZAPPOS: Another Hoop for Job Applicants to Jump Through

    Wednesday, May. 28, 2014


    Zappos, the Amazon-owned online retailer, is removing their job postings from traditional job boards and even the company website. Instead, job applicants will have to join Zappos Insiders, a social network for applicants to interact with current employees and demonstrate their fit with the company. Applicants will be sorted by personal interests and skill sets, be placed in pipelines (e.g. Sales or HR), and will participate in digital Q&A’s and contests. Critics have argued that participating in a meaningful way would require significant time and energy with no promise there would be a return on your time. Zappos argues the new system will allow them to keep a pool of qualified and available applicants at the ready, and will reduce the volume of applications: last year, Zappos received 31,000 applicants, hiring about 1.5% of that number. Zappos hopes that the social network approach will allow their recruitment team to work more purposefully, and give prospective employees a better platform for differentiating themselves. Is requiring job applicants to participate in a social network an abuse of power, or a way to let truly interested and qualified applicants stand out in the crowd?

      Kirk: Depending on how Zappos manages the social network, it could very likely be both exploitative and abusive toward applicants. For one, there is a significant power differential between employers and job applicants, as there are so few jobs available. To quell this dynamic, an increasing number of universities now prohibit personal videos, sample projects, and batches of cookies so they do not start an arms race amongst applicants. My fear is that this will set off such an arms race; not to mention, what happens when an applicant is applying to more than one company? Zappos would do better to describe its needs in such detail that applicants could sort themselves out and not waste their time even applying.

      Patrick: I’m with Zappos on this one. We all can agree that the job application process needs a makeover, and if anything we should treat “Zappos Insiders” as an experiment and wait to see what happens. In theory, this system will allow both applicants and employers to get a better sense whether it is a fit, resulting in more efficient hiring practices. The arms race is a concern, but the currency in play is time, as opposed to money, which everyone has equal access to. And let’s not pretend that searching for a job is a bed of roses as is.

    Zappos Zaps Its Job Postings (WSJ)

    A Framework for Thinking Ethically (Markkula Center)


    NEXT STORY: Walmart Hosts Inaugural Sustainable Product Expo