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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.

  •  HERBALIFE: Selling Short and Trashing the Company

    Tuesday, Mar. 18, 2014
    Source: Wikipedia

    Billionaire investor, William Ackman got his wish this month as the Federal Trade Commission has launched in investigation into allegations that Herbalife is a pyramid scheme. In December of 2012, Mr. Ackman began a high profile campaign against the direct seller of vitamins and health supplements, betting $1 billion that the company’s stock would fall. Since then, Mr. Ackman’s hedge fund Pershing Square has enlisted the help of PR firms to organize protests, conferences, and letter writing campaigns, in addition to converting a number of high ranking politicians to its cause — most notably, United States Senator Edward J. Markey. Mr. Ackman claims that Herbalife generates the majority of its profits from recruiting new distributors, as opposed to sales of goods to consumers. Herbalife, which reached a record $4.8 billion in sales last year, has aggressively denied the claims, even launching a massive campaign of its own. The case raises the question whether a short seller can use political tactics and advocacy for “victims” to further his own financial position.

      Kirk: I have no doubt that many others will copy Ackman’s strategy, but there is something distasteful about appearing to advocate for the public interest while actually only looking out for one’s self-interest. Regulators and lawmakers will have to watch that they don’t find themselves in a conflict of interest. Senator Markey should find it uncomfortable to be in partnership with Ackman.

      Patrick: There are definitely some concerns here — market manipulation, political influence for sale, and the like — but what if Herbalife is actually a pyramid scheme? Yes, Ackman stands to gain from their potential downfall, but if he’s right it’s an instance of the profit mechanism in the financial markets bringing about greater transparency and maybe even justice. The great fear is that, as Kirk mentions, other investors launch smear campaigns against perfectly legitimate businesses in hope of cashing in on their investments.

    After Big Bet, Hedge Fund Pulls the Levers of Power (NY Times)

    A Framework for Thinking Ethically (Markkula Center)

     

    NEXT STORY: Chipotle Steps Forward on Climate Change

  •  THE GOOD NEWS: Chipotle Lists Climate Change as a Material Risk

    Wednesday, Mar. 12, 2014
    Source: Wikipedia

    In its 10-K annual report, Chipotle listed “increasing weather volatility or other long-term changes in global weather patterns” as a material risk that could inhibit their ability to provide a number of their most popular ingredients. A Chipotle spokesperson shrugged off questions on the disclosure stating, “It’s routine financial disclosure, nothing more than that.” But climate change advocates see this as a significant advancement. They argue that Chipotle’s disclosure will set the precedent for shareholders of other companies to demand that their company either do the same or explain why climate change is not a material risk. We see this as a great step forward in corporations participating in meaningful dialogue on climate change, and we give all the credit to Chipotle for making the first move.

    Why Chipotle's Warning About Guacamole And Climate Change Are Not 'Routine' (Think Progress)

    A Framework for Thinking Ethically (Markkula Center)

  •  AUTOZONE: Employee Theft, Coercion, and False Confessions

    Tuesday, Mar. 11, 2014

    Take the suspect to an isolated place. Make sure the conversation isn’t being recorded. Engage in small talk to build rapport. Commence interrogation. These steps, outlined in a manual used by loss prevention specialists to question employees expected of theft, are a common practice in the retail space. Employee theft costs American retailers $16 billion a year, and it’s difficult to stop. Rarely is there any physical evidence, only an imbalance in the books or missing merchandise. To address this, retailers are increasingly turning to internal investigations headed by specialists trained in police interrogation techniques. These interrogations include insisting that the company knows the suspect is guilty, pointing to “bulging files or videocassettes,” and an array of psychological tricks to get the confession. But these techniques are often too effective, resulting in a false confession from the employee. The interrogations are often held while the employee is “on the clock,” meaning leaving could result in losing their job, and the retailers don’t allow them to be videotaped. A slew of recent lawsuits brought against AutoZone have shined light on this problem, even revealing that one of the loss prevention specialist received confessions in 98% of his cases. Given the growing evidence of this problem, should retailers abandon the use of police interrogation techniques in their investigations?

      Kirk: We’ve always known there was a danger of false confessions when employees, criminals, or preschoolers are browbeaten by an overzealous questioner. Criminal investigators have addressed this by videotaping every interview with clear consequences for misconduct. Corporate investigations still operate in the dark with few protections for suspected employees. It’s time to bring the process to light and build in employee protections. Beware the investigator who finds fraud in 98% of his cases.

      Patrick: I understand the reluctance of retailers to acknowledge this problem. Employee theft results in significant losses, and having no other recourse, it’s easy to see why they defer to strong-arming their employees. But these interrogations aren’t addressing the problem, and the resulting lawsuits aren’t doing the retailers any favors. The losses in productivity from employee dissatisfaction and resentment are enough for these practices to be sidelined. Not to mention, happy employees don’t steal.

    When Employees Confess, Sometimes Falsely (NY Times)

    Framework for Thinking Ethically (Markkula Center)

     

    NEXT STORY: Are Tech Firms Responsible for the Misuse of Their Products?

  •  CISCO: Are Tech Firms Responsible for the Misuse of Their Products?

    Thursday, Mar. 6, 2014
    Source: Wikipedia

    In a decision carefully followed by the tech sector and human rights activists, a US court cleared Cisco Systems of any wrong doing for human rights abuses in China. The lawsuit claimed that Cisco was liable for Beijing’s use of Cisco’s networking technology to find, arrest, and torture political activists. The lawsuit was filed under the 1789 Alien Tort Law, which allows foreign nationals redress in US courts for human rights abuses among other claims. The Chinese plaintiffs argued that not only did the technology facilitate the abuses, but Cisco also “actively customized, marketed, and provided support for its monitoring and censorship technologies.” The Maryland court found that Cisco’s technology remained a neutral product with numerous legitimate uses, and did not find evidence that Cisco tailored the technology to facilitate the human rights abuses alleged. Cisco’s General Counsel responded to the decision claiming that both Congress and the Commerce Department permit the sale of the technology in question, and that the technology has “helped billions of people around the world to access information.” With the legal proceeding settled, the questions remains: do technology firms have an obligation beyond compliance to ensure their products are not used to further human rights abuses?

      Patrick: There’s no free lunch, not even in technological advancement. The same product that allows billions of people to access information that was before inaccessible also can be used to facilitate human rights abuses. Technology’s moral value is often determined by the intentions of those using it. In this case, it comes down to whether Cisco actively customized and marketed the product to governments for the purpose of tracking and detaining individuals, and unfortunately it’s also a case of he said, she said. It’s unreasonable to expect companies to account for every possible misuse of their products, but active participation in those abuses is unacceptable.

    Cisco cleared in rights case, as tech center watches (Yahoo)

    Maryland Court Dismisses Landmark Case (Electronic Frontier)

    A Framework for Thinking Ethically (Markkula Center)

     

    NEXT STORY: Unilever Forms Partnership to Support Smallholder Farmers

  •  THE GOOD NEWS: IFAD and Unilever Align to Assist Smallholder Farmers

    Thursday, Feb. 27, 2014
    Source: Wikipedia

    This week, the International Fund for Agricultural Development (IFAD) and multi-national consumer goods corporation Unilever, announced a partnership aimed at improving food security through empowering smallholder farmers around the world.

    The 5-year agreement brings together IFAD's expertise in working with smallholder farmers with Unilever's abilities in sustainable agriculture. The partnership is aimed at improving food security through five pathways:

    1. Raising agricultural productivity
    2. Linking farmers to markets
    3. Reducing risk and vulnerability
    4. Improving non-farm rural employment
    5. Making agriculture more sustainable

    The agreement is a prime example of corporate self-interest being aligned with the achievement of social goals, but Unilever deserves all the credit for proactively forming this partnership and finding this "win-win" situation.

    IFAD and Unilever sign first global public-private partnership agreement (Unilever)

    A Framework for Ethical Thinking (Markkula Center)

     

    NEXT STORY: Unlimited Vacation - best practice or cost-cutting measure?

  •  UNLIMITED VACATION: Best Practice or Cost Cutting Measure?

    Thursday, Feb. 20, 2014
    Source: Wikipedia

    The average American receives 2 weeks of paid vacation, but a new trend among Silicon Valley tech firms goes against the norm by offering employees unlimited vacation time. Among the big names to implement the policy are Netflix, Best Buy, and Evernote, in addition to a number of startups. Employers adopt the policy with the hope of keeping productivity up in the long run, as well as a perk to recruit top talent. Employers also tout the policy as a way of “treating their employees like adults,” and building a culture of both freedom and responsibility. But there’s also a silver lining for employers — with unlimited vacation policies, days off are not accrued. This means that when a worker leaves the company, the employer no longer has to provide them with a lump sum for unused vacation time. Furthermore, at many fast paced firms, there is never a “good time” to take vacation, and without clear guidelines from employers, it may result in even less vacation time taken. Are unlimited vacation policies in the best interest of the employees or an underhanded cost cutting measure?

      Patrick: Unlimited vacation policies come down entirely to implementation. When coupled with a constant and extreme pressure to produce results, these policies put employees between a rock and a hard place — and at the end of the day, the company saves money at their expense. To be done right, unlimited vacation policies must be paired with a corporate culture that actually lives by responsibility and freedom, along with a clear message from management that employees are expected to take vacation time. Evernote addresses this by offering a $1,000 stipend, if and only if employees take a one-week vacation: those who don’t miss out entirely.

    A special thanks to Frances Mann-Craik for suggesting the topic!

    Some Companies Give Workers Unlimited Vacation (NBC)

    A Framework for Thinking Ethically (Markkula Center)

     

    NEXT STORY: Trucost Announces 2014 Natural Capital Leaders

  •  THE GOOD NEWS: Trucost Announces 2014 Natural Capital Leaders

    Thursday, Feb. 13, 2014
    Image Source: Pixabay

    Trucost and the GreenBiz Group recently published the Natural Capital Leaders Index of 2014. The index recognizes the leading company of each industry in two categories: Natural Capital Efficiency (best use of natural capital to generate revenue) and Natural Capital Decoupling (increasing revenue while decreasing natural capital impacts).

    "The Natural Leaders index is designed to recognize natural capital leadership -- and in addition, break new ground by identifying those companies that are truly 'moving the needle' by decoupling growth from natural capital impact."

    Among the companies recognized are: PG&E, Kimberly-Clark, Ford Motor Company, eBay, and a number of others. Recognition of the progress made by these companies goes a long way in making this behavior the norm. Check out the rankings with the links below.

    2014 Natural Capital Leaders (Trucost) 

    Natural Capital Leaders Index 2014 Methodology (Trucost)

    A Framework for Thinking Ethically (Markkula Center for Applied Ethics)

     

    NEXT STORY: IS THE TWO-TIER SYSTEM ETHICALLY PROBLEMATIC?

  •  KELLOGG: Is the Two-Tier System Ethically Problematic

    Wednesday, Feb. 12, 2014
    Image Source: Flickr

    The 226 workers at Kellogg’s Memphis plant have been “locked-out” from their jobs producing Frosted Flakes and Froot Loops for over 3 months. Company management and the union representing the workers — the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union — reached a stalemate in negotiations in October, resulting in the lockout. The primary issue is Kellogg’s demand of dramatically increasing the amount of temporary workers, who would earn $6 less and be entitled to much fewer benefits: effectively creating a two-tier system at the plant. Under the current agreement, Kellogg has the right to use temporary workers for up to 30% of the workforce, but the union claims Kellogg is now pushing for 100%. The workers, who have had their health insurance suspended by Kellogg, fear that their jobs will either be replaced entirely by temporary workers, or they will be forced to take lower wages. Kellogg, in the midst of a 4-year cost reduction effort labeled, “Project K,” claims that the change is necessary to remain competitive and that current employees will be unaffected by the change. Are two-tier systems ethically problematic?

      Kirk: Kellogg has ignored lessons learned by the airline industry that dividing employees into two classes of citizens won’t work for very long. American Airlines, with a host of others, started a plan in 1983 that instituted a two-tier system separating current employees from future hires into different pay scales. By 1987, the company had to significantly overhaul the program. Two-tier systems create tension between the employees, resentment of management, higher turnover, and further complicate union relations. In the long run, these programs are not sustainable. They undermine the concept of shared sacrifice, shared reward, and make development of a strong corporate culture exponentially more difficult.

      Patrick: I don’t think tiered systems are inherently unethical, although it is largely a matter of fairness. In the case of American Airlines, and most likely the Kellogg lockout, new hires will be doing the same job as existing employees but will get paid significantly less. “Treat similar cases similarly” goes a long way here. Anything else will create an imbalance and undermine the company in the long run. On the flip side, Google famously uses a tiered system, assigning different color “badges” for full-time employees, contractors, and interns. Yes, they create divisions between the groups, but they also strengthen the group identity of the subgroups and incentivize employees to “climb the ladder.” It’s Darwinian, but fair.

    Labor Battle at Kellogg Plant in Memphis Drags On (NY Times)

    A Framework for Thinking Ethically (Markkula Center for Applied Ethics)

     

    NEXT STORY: CVS TO PULL TOBACCO PRODUCTS FROM ITS SHELVES 

  •  THE GOOD NEWS: CVS To Pull Tobacco Products from Its Shelves

    Thursday, Feb. 6, 2014
    Source: Wikipedia

    CVS Caremark, the largest drugstore chain by both sales and pharmacy sales, announced Wednesday that they would no longer sell tobacco products at its stores by October of this year.

    "We came to the decision that cigarettes and providing health care just don't go together in the same setting" - Larry J. Merlo, cheif executive of CVS.

    The company anticpiates a loss of $2 billion in sales from removing tobacco products, but hopes to make up some of that with smoking cessation programs, beginning with a campaign to help half a million Americans stop smoking. While $2 billion is a fraction of the company's $123 billion revenue (in 2012), this is a proactive measure on their part in demonstrating their commitment to health care services.

    There's also an ethical angle here as well: is this an example of CVS going above and beyond, or should we expect this from all stores with pharmacies?

    CVS Vows to Quit Selling Tobacco Products (NY Times)

    Ending Tobacco Sales in Pharmacies (Journal of American Medicine)

    A Framework for Ethical Thinking (Markkula Center for Applied Ethics)

     

    NEXT STORY: OLYMPIC SPONSORS HIT WITH MASS PROTESTS