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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.

  •  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?

  •  PAYPAL: Should Executives be Allowed to be on Social Media?

    Tuesday, May. 6, 2014
    Source: Jason Howie (Flickr)

    Friday night, recently hired (and now fired) PayPal director of strategy sent out a series of both odd and inflammatory tweets. The messages, by Rakesh Agrawal, read more like drunken ramblings and included derogatory remarks toward specific executives of PayPal. The company responded on Twitter: “Rakesh Agrawal is no longer with the company. Treat everyone with respect. No excuses. PayPal has zero tolerance.” As the social media craze continues, companies are increasingly asking their executives to cultivate an online presence, but they are very sensitive to the kind of presence. While there are a number of benefits for companies — letting customers put a face to the company, showing a commitment to users, and cheap advertising — the Agrawal v. PayPal debacle demonstrates how the process can go awry. As executives craft their personal brands, they do so with the name of the company in their “taglines and bios.” Are the risks too great to ask an executive to blog and tweet with his or her corporate identity? On the other hand, can a company impose restrictions on what an employee says online?

      Kirk: Companies seem to want it both ways. They want the credibility of an executive interacting online as an individual, but also want to control the positions and image they present. Clearly a company cannot afford to have employees criticize customers or other shareholders, but it’s on them to call it like it is: it’s not free speech; it’s corporate PR. With that as the starting point, companies can then come to an agreement with employees who enter the social media sphere on behalf of the company.

      Patrick: The line between “professional” and “social” life is increasingly disappearing: does listing where you work on a profile mean you are continually representing the company in an official capacity? I agree with Kirk when applied to employees who are online at the company’s request, but things get more interesting when their efforts are unprompted—or better yet, when a disgruntled former employee takes to social media. Then again, an interesting byproduct of social media is that anyone can create a platform to voice their thoughts: an important balance to the power differential between employees and employer.

    The Complete Saga (So Far) of PayPal vs. Former Executive (The Wire)

    A Framework for Thinking Ethically (Markkula Center)

     

    NEXT STORY: McDonald's Announces 2020 CSR Plans

  •  THE GOOD NEWS: McDonald's Announces 2020 CSR Plans

    Thursday, May. 1, 2014
    Source: CA Maylasia (Flickr)

    Wednesday, McDonald's released its first ever "Corporate Social Responsibility and Sustainability Framework" to guide the company through 2020. The Framework was developed through collaboration with suppliers, franchisees, customers, and sustainability experts. 

    Aspirational Goals:

    • Supporting sustainable beef production by collaborating to develop global principles and criteria, and committing to begin purchasing a portion of beef from verified sustainable sources in 2016
    • Sourcing 100 percent of coffee, palm oil and fish that is verified to support sustainable production
    • Procuring 100 percent of fiber-based packaging from certified or recycled sources
    • Serving 100 percent more fruit, vegetables, low-fat dairy or whole grains in nine of its top markets
    • Increasing in-restaurant recycling to 50 percent and minimizing waste in nine of its top markets
    • Increasing energy efficiency in company-owned restaurants by 20 percent in seven of its top markets

    "We're on our way to mainstream sustainability ... making it part of our everyday business life and the lives of our customers," Bob Langert, VP of CSR and Sustainability.

    2020 Corporate Social Responsibility and Sustainability Plans (McDonald's)

    A Framework for Ethical Thinking (Markkula Center)

     

    NEXT STORY: Kirk Hanson on Donald Sterling and LA Clippers

  •  NBC Bay Area: Kirk Hanson on Donald Sterling and L.A. Clippers

    Wednesday, Apr. 30, 2014

    This week, Markkula Center Executive Director Kirk Hanson, spoke with NBC Bay Area about the Donald Sterling and L.A. Clippers controversy.

    Click here for the story and video on our Facebook page

     

    NEXT STORY: Racism in the Corner Office

  •  CLIPPERS: Racism in the Corner Office

    Tuesday, Apr. 29, 2014
    Source: Wikipedia

    Los Angeles Clippers owner Donald Sterling is under heavy fire this week, after an audio recording was released of Mr. Sterling making a series of racist remarks. The NBA responded with a swift investigation, and announced today that Mr. Sterling is to be fined $2.5 million and banned from all NBA events for life. This is not the first time Mr. Sterling has been accused of discrimination. In 2009, Mr. Sterling was sued for housing discrimination, resulting in a settlement of over $2.7 million. He was also sued for racial discrimination by the former general manager of the Clippers, Elgin Baylor. The release of the recording, along with the public outcry, raises the question: can a person who holds racist views own and operate a company in the United States today?

      Kirk: A generation ago we may have looked the other way on the attitudes, beliefs, and behavior of CEOs and owners, but today we are more concerned with the private behavior and beliefs of the CEO. We recognize that these things are models for behavior for all employees in the organization and directly impact the culture of the company. From a purely business standpoint, these comments will cause the organization to lose a great deal in sponsors, fan base, and even players, if corrective action isn’t taken. The only surprise here is that this hasn’t come to a head sooner.

      Patrick: To answer the question, a racist can own a company—Mr. Sterling proved this to be the case for the past 33 years—but it doesn’t mean they should. Based on Mr. Sterling’s past, as well as the comments he made about the team’s players, it was inevitable that his views would result in discrimination. The line I fear we are in danger of crossing is that of becoming the “thought police;” that is, punishing discriminatory thoughts instead of discriminatory actions.

    N.B.A. Investigation Racial Remarks Tied to Clippers Owner (NY Times)

    A Framework for Thinking Ethically (Markkula Center)

     

    NEXT STORY: Kids in the Workplace

  •  WORK ENVIRONMENT: Kids in the Workplace

    Saturday, Apr. 26, 2014
    Source: Pixabay

    As American women continue to exit the workforce at an increasing rate, talk is turning to ways of making working and having children more compatible. The proposed solution? Allowing employees to bring kids to the workplace. In a recent survey asking whether employers should let workers bring kids to work, 61% responded yes, with limits; 26% responded no; and 13% yes. Proponents argue that the added flexibility for parents would quell the exit rates and increase productivity through relieving stress. While just about anyone could agree that a group of loud kids running the office isn’t preferable, others point to another concern: fairness to workers without kids. Many feel that parents should not receive special privileges, so to level the playing field, nonparents should be permitted to adapt the workday to their lifestyles as well. Should kids be allowed in the workplace? Are employees with kids entitled to more flexibility than those without children?

      Kirk: Maybe it’s my age, but this trend leaves me cold. I don’t see how a worker with children to care for could at the same time concentrate and be productive. I applaud firms that offer daycare, particularly onsite daycare; but please, not in the office. Then again, I do think parents are should receive extra help from the company; child rearing is a common good that benefits the whole community.

      Patrick: I think the answer to this question comes down to the particular company and their culture, not to mention their facilities (cubicles and kids don’t go well together). The key here should be to get everyone at the company on the same page and coming to a clear understanding of where the line is. Management should take into account the lifestyle and wellbeing of their employees, along with the demands of the job, and look for measures that are mutually beneficial: whether that be offering onsite yoga or daycare.

    Kids should be welcome in offices, with limits (Al Jazeera America)

    A Framework for Thinking Ethically (Markkula Center)

     

    NEXT STORY: Paying Employees to Quit