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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.

  •  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

    Source: StockMonkeys.com

    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

  •  THE GOOD NEWS: Walmart Hosts Inaugural Sustainable Product Expo

    Thursday, May. 22, 2014
    Source: Flickr (Phil)

    Walmart recently hosted its first Sustainable Product Expo, bringing some of the world’s largest suppliers under the same roof to discuss sustainability. The Expo is dedicated to the following goals:

    • Expanding sustainable products
    • Reducing waste
    • Increasing accessibility of food products
    • Expanding recycling capabilities in municipalities across the U.S.

    Walmart also partnered with over a dozen major corporations — including Monsanto, Unilever, and Pepsi — to advance innovation in sustainable agriculture and recycling.

    "We can do so much more to make a bigger difference for communities and stakeholders impacted by our business. Innovative work is happening daily, but many gaps and missed opportunities remain," said Walmart CEO, Doug McMillon.

    Walmart spearheads sustainability effort with first supplier expo (Guardian)

    A Framework for Thinking Ethically (Markkula Center)

     

    NEXT STORY: Cloud Service Providers and Their Access to Unprecedented Information

  •  BIG DATA: Cloud Providers and Their Access to Unprecedented Information

    Monday, May. 19, 2014
    Source: Flickr (Torkild Retvedt)

    Cloud services are becoming an increasingly important part of most business operations across sectors, industries, and geographic regions. Cloud service providers create a place for companies to run, build, and store applications without having to setup their own servers, in addition to offering other software and services. As firms flock to the cloud, the small number of major service providers such as Google and Amazon, now have access to a new type of growth indicator: spending on cloud services. Through monitoring the spending of the client base, across a wide array of businesses, providers are in a unique position to forecast market trends and even growth of particular companies. IBM has already stated intentions to use this data in their consulting practice, even with companies who do not use their cloud services. The debate is centered on whether “spending on cloud” is a special kind of metric, which violates the privacy of the clients, or if it’s akin to web traffic or app downloads. Some argue the metric is the type of information only an inside employee would have access to, and should be considered insider trading. What should we make of this new business practice?

      Kirk: The monetizing of this data is another example of the creativity and opportunism of American business. If I owned a public warehouse, it would be inappropriate for me to tell others how much space a user occupied. Cloud spending supercharges this, because the metric is such a powerful indicator of growth and future prospects. Given the privileged access to this information that cloud providers have, use of it for investing or consulting purposes would be insider trading in my view. This is one more example of the law failing to keep up with new technologies. We have plugged these holes in other situations: we should do the same here.

      Patrick: I’m on the other side of the fence on this one. I see “spending on cloud services” as a metric is organically produced in the course of doing business. Cloud service providers are not insiders, they’re service providers, and they are not bound by a professional code of ethics that necessitates discretion (e.g. attorneys, doctors). Also, allowing this information to be traded on will result in more efficient outcomes on the stock market, as prices will more accurately portray the value of the company. If cloud users demand “opt-out” clauses, then providers should take note; but that’s a business decision, not an ethics decision.

    Tech Giants Could Use the Cloud to Predict Their Future (Wired)

    A Framework for Thinking Ethically (Markkula Center)

     

    NEXT STORY: Google to Release Diversity Data

  •  THE GOOD NEWS: Google to Release Employee Diversity Data

    Friday, May. 16, 2014
    Source: Flickr (Keso S)

    This week, Google announced that it will release statistics on the diversity of its 50,000 workers; a first for the company. The data is compiled by all major U.S. employees, as required by the Equal Employement Opportunity Commission, but they are free to withold the information from the public. Google's decision comes as pressure on the tech industry to hire more minorities and women increases.

    "Many companies in Silicon Valley have been reluctant to divulge that data, including Google, and, quite frankly, we were wrong about that," said David Drummond, Chief Legal Officer.

    The data will be released next month. Hopefully other companies follow Google's lead on this issue.

    Google to release diversity data about workforce (USA Today)

    A Framework for Thinking Ethically (Markkula Center)

     

    NEXT STORY: General Solicitation and Startup Ethics

  •  STARTUP ETHICS: General Solicitation and Startup Fundraising

    Thursday, May. 8, 2014
    Source: Wikipedia

    The regulations overseeing startup fundraising got a boost late last year with startups now allowed to publicly advertise they are seeking investments, but its effect is still not clear. General solicitation, the act of announcing and inviting the general public to participate in an investment round, was previously banned by the SEC in order to protect investors and to entice companies to go public via IPO. With the ban in place, startups had to seek out investments through private conversations and going direct to investors, severely limiting the pool of money they could draw from. With the ban on general solicitation removed, startups can use newsletters, social media, and public speaking to announce their investment rounds to the general public. Is the investor now at risk?

    Startups can only receive investments from “accredited investors” and will now have to ensure that their investors are in fact accredited; that is, either having an annual income of $200K or a net worth of over $1 million. Does a system that restricts investments to accredited investors do enough to protect against snake oil salesmen? Some have argued the burdensome system for verifying that investors are accredited will inevitably lead to a new set of problems: a compliance nightmare, resulting in both fines and an impediment to innovation. Will it?

      Elizabeth Powers: Trade secret law is the only law that protect ideas – patents protect inventions (more than an idea); copyrights protect unique expressions of the idea; trademarks are marketing tools. Trade secrets must remain secret, which inherently challenges an entrepreneur who needs to disclose her idea to a potential investor. Often, potential investors do not want to sign a Non-Disclosure Agreement (NDA), that would restrict the investor’s right to copy or use the disclosed information – what if the investor had already invested in another company with the same idea? Or chooses to invest in a different company that presented the same idea? Investors simply don’t want that risk.

    So, as with any potential investor pitch, the entrepreneur seeking investment in a new business idea, either from a commercial bank, an angel investor, a venture capital fund, or a family member, must carefully consider the information disclosed to the investor. The entrepreneur must carefully remove any unnecessary information from the publication or disclosure (e.g., the actual algorithm, how the website will function, etc.)

    Easier said than done. For example, if the idea is for a website (or a mobile app) that allows users to post and organize photos of garden designs, the idea itself is the trade secret. Once the entrepreneur tells someone that idea, without an NDA, there is no clear restriction preventing that person from creating the same website/mobile app, because there is no “secret” algorithm or functionality associated with implementing this particular idea. When solicitations for investment are published, there is no NDA associated with the publication – it makes any idea or information essentially available to the public. With this new freedom to advertise, the entrepreneur must carefully consider what MUST be published to convey enough information to entice investors, and what does NOT need to be published. I see an opportunity for a creative solution here.

      Joe Schmid: Opening a new avenue for raising money doesn’t mean going down that road is right for every situation. The JOBS Act did not eliminate the struggle between disclosure and protection of ideas and intellectual property as Elizabeth warns.

    “Misrepresentation” and “concealment” are watchwords for both the issuer and the investor coming to terms with the definition of “material facts”. The JOBS Act did not strip away compliance with antifraud prohibitions; and it didn’t lessen the requirement of investor diligence.

    Startups are high risk. The classification of accredited investors by wealth and income uses a presumption of investor sophistication as well as a notion of limiting exposure. The verification process is to protect the issuers not the investors. Non-accredited investors tend to be more problematic anyway.

    The best advice is to thoroughly understand where the venture is at any point in time and carefully select how to manage increasing cash demands. Because its ‘new’ or you can leverage ‘social media’ doesn’t mean it’s a fit for the situation at hand. Maxing credit cards and Uncle Bernie may still be the better option.

      Martin Zwilling: It remains to be seen whether the right to general solicitation by entrepreneurs brings more value to them than the cost of validating that every potential investor is accredited. I believe the entrepreneur is more at risk than the investor. Compliance is definitely a new burden, and could become a nightmare.

    Investors have long been required to "certify through signature" that their net worth or income qualifies them to become accredited, so their burden and risk haven't changed yet. Some investors fear that this new general solicitation rule will lead to bank statement or tax return disclosures, which will be a bigger burden, and will likely cause many qualified investors to back out of the pool. Angel groups fear the loss of many members for the same reason. Here again, the entrepreneur will be the one hurt, having less access to money.

    We are all still waiting for how general solicitation to non-accredited investors (equity crowd funding) will work. Overall, it's still too early to jump to conclusions

     Eliminating the Prohibition Against General Solicitation (SEC)

    A Framework for Ethical Thinking (Markkula Center) 

     

    NEXT STORY: Meet Our Startup Ethics Bloggers!

  •  STARTUP ETHICS: Meet Our Startup Ethics Bloggers!

    Wednesday, May. 7, 2014

    The Business Ethics in the News blog is introducing a special series on startup ethics. Each month we will take a look at a new and pressing issue in the startup community, and will offer ethical analysis on the topic. We're very fortunate to have assembled a team of experts in the field to lead the conversation. Meet them below!

      Elizabeth Powers – Attorney at Silicon Valley Law Group specializing in trademark prosecution, licensing, and technology transactions, in addition to being a Professor of Practice at Santa Clara University's Law and Business Schools. More on Elizabeth here

      Joe Schmid – Managing Principle of Oak Leaf Consulting with over 30 years experience in change leadership, lean operations, and developing high performance organizations. Oak Leaf Consulting Website

      Marty Zwilling – CEO & Founder of Startup Professionals, Inc; Blogger at Startup Professional Musings; and author of several startup books. Startup Professionals Website

     

    NEXT STORY: Should Executives be on Social Media?