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

  •  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

  •  THE GOOD NEWS: Walmart Hosts Inaugural Sustainable Product Expo

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