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

  •  G.M.: Clawback Policies and Executive Accountability

    Tuesday, Apr. 8, 2014
    Source: Wikipedia

    As details continue to emerge on G.M.’s faulty ignition switches in the Chevrolet Cobalt, linked to 13 deaths, one substantial question is left unanswered: Who decided that the 90 cents it would have taken to fix each switch was too much? Shareholders will inevitably get stuck with the bill for the cost of litigation and fines, but many fear that the executives involved will get a free pass. Returning past pay is an outcome some are pushing for, but it is highly unlikely in this case. G.M.’s compensation policies, particularly for recovery of bonuses, are generally limited to only accounting fraud—not unethical behavior. Similar to the majority of U.S. corporations, these clauses only require returning pay when the misconduct is intentional, and even then, only the highest ranking executives are subject. Advocates are pushing to increase the scope and severity of these "clawback policies" to cover siutations like G.M.'s faulty ignition switch. Are expanding these “clawback policies” a step in the right direction?

      Patrick: If one thing is clear, it’s that we don’t know the full story behind the G.M. faulty ignition switch mishap. Regardless of the particulars, I think expanding the jurisdiction of these clawback policies is a surefire way for Boards to send the message that they are proactively hedging against this type of behavior. At the same time, I think there is a danger of over expanding the policy, as I can see it leading to an increase in scapegoating individuals for behavior that permeates an organization. Then again, that’s part of the job for top executives.

    The Wallet as Ethics Enforcer (NY Times)

    A Framework for Thinking Ethically (Markkula Center)


    NEXT STORY: Mozilla CEO Under Fire for Prop 8 Contributions

  •  MOZILLA: Mozilla CEO Under Fire for Prop 8 Contributions

    Monday, Mar. 31, 2014
    Source: Wikipedia

    Mozilla, the makers of the popular web browser Firefox, is facing a media firestorm in protest of their recent promotion of Brendan Eich to CEO. Eich was an internal promotion for the company, having been CTO since 2005, but it’s Eich’s $1000 contribution to the 2008 anti-gay marriage “Proposition 8” that sparked the controversy. Mozilla, a nonprofit organization, is heavily committed to “keeping the web open” as well as values such as equality and inclusivity. In response to Eich’s promotion a number of key employees and developer groups called for his resignation on Twitter and other social media sites. Eich responded in a personal blog post that he would continue Mozilla’s effort of “commitment to equality in everything we do.” Critics are largely unsatisfied by the response, demanding either a retraction and apology from Eich or his resignation. Complicating matters, three of Mozilla’s six board members resigned this week, citing their desire to hire an outsider with expertise in mobile computing. Can a CEO have personal values that conflict with the values promoted by the organization?

      Kirk: If Eich were anything but the CEO (or perhaps a C-level executive), this would be a nonissue. Employees are clearly entitled to have their own views on matters, regardless of whether they conflict with those of the company. The question is, when does one’s personal values become inextricably linked to the identity of the company? It’s safe to say that CEO is on the other side of that threshold. Eich’s blog post reiterating his commitment to equality and inclusivity at Mozilla is a step in the right direction, but the critics’ demands for a full explanation are not unwarranted.

      Patrick: This is a tough one. In my book, Eich is entitled to his personal beliefs, but employees are well within their right to question the new CEO’s ability to reflect the company’s values. Like mixing Diet Coke and Mentos, some things just don’t go together. It leaves me wondering what the CEO hiring committee expected to happen here, particularly given the desire to hire a mobile oriented CEO by half the board. This case also leaves us with an interesting question: does Mozilla’s commitment to inclusiveness and openness demand that they embrace Eich and his views, despite disagreeing with them?

    Objecting to new CEO, resignations sweep Mozilla board (CNET)

    Inclusiveness at Mozilla (Eich)

    A Framework for Thinking Ethically (Markkula Center)


    NEXT STORY: Is Oculus Leaving Early Backers Out to Dry?

  •  OCULUS VR: Leaving Early Backers Out to Dry?

    Friday, Mar. 28, 2014
    Source: llh3

    In the wake of Facebook’s $2 billion buyout of virtual reality startup Oculus VR, a number of Oculus’ 9,522 early backers are up in arms. In an ongoing trend, Oculus took to crowd funding site Kickstarter to raise seed money for their company, and it was an outright success raising over $2.4 million. While the backers “invest” knowing they receive no ownership in the company (instead receiving early access to products or memorabilia), many of the backers feel that the Oculus pulled a “bait and switch” by taking the Facebook deal: “I might as well have handed my money right to Facebook and I feel a little sick.” Adding insult to injury, as recent as last month, Oculus’ founder assured backers that he had no intention of selling the company. Backers flocked to Oculus believing that the company was their best hope for an independent platform for virtual reality gaming, but now “it’s Facebook’s platform.” Did Oculus wrong their Kickstarter cofunders? Do companies owe anything to their early internet “backers?”

      Patrick: I sympathize with the disgruntled backers, but Oculus is in the clear here. For one, Oculus raised an additional $16 million from traditional sources. Second, consulting or “even keeping in the loop” 9,522 backers is the equivalent of opening up the company’s boardroom to the general public. The only thing Oculus owes its early backers is the items offered in exchange for the contribution: t-shirts, posters, and development kits. Beyond that, Oculus ought to treat the early backers as loyal enthusiasts. No more, no less.

    Cofunders of the Maker of Oculus Rift Denounce a Facebook Buyout (NY Times)

    Oculus Rift (Kickstarter)

    A Framework for Thinking Ethically (Markkula Center)


    NEXT STORY: Keurig Backs Clean Water Initiatives

  •  THE GOOD NEWS: Keurig Green Mountain Invests In Clean Water Initiatives

    Thursday, Mar. 20, 2014
    Source: Wikipedia

     Wednesday, Keurig Green Mountain announced an $11 million commitment to address local and global water challenges. The partnership is aimed at improving water access, conservation, and watershed restoration. Here are the four partners:

    Later this year, Keurig is also hosting the first ever Keurig Green Mountain Water Summit to convene water experts to address the global water crisis.

    Being 98% of a cup of coffee, quality water is a must for a solid cup of joe. Kudos to Green Mountain for thinking beyond their immediate interests and turning this fast fact into a meaningful campaign.

    Working With Others For Clean Water (Keurig Green Mountain)

    A Framework for Thinking Ethically (Markkula Center)


    NEXT STORY: Ackman vs. Herbalife - selling short and trashing the company

  •  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?