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Exploitation –

In a recent talk (available in full length at Youtube; see embedded below) Matt Zwolinski, a political philosopher at the University of San Diego, argues that what is usually considered exploitation can at least be perceived to be morally better than the behavior most of us demonstrate in face of catastrophes and emergencies – namely neglect/ignorance/inactivity.

The argument presented by Zwolinski is pretty powerful, especially when considering morality (as consequentialists do) as aiming at the creation of the greatest good for the greatest number (or the minimization of suffering). When looking at cases of exploitation (such as price gouging or the working conditions in sweatshops in developing economies) with a rational, logical perspective, it seemingly is difficult to object to Zwolinski’s argument – even though our moral intuition, our gut feeling and emotions, might clearly say something different: The exploiter does at least provide some value/benefit to the victim of the exploitation, but the inactive people (like ourselves) don’t do anything for them. So how could exploitation be bad but neglect acceptable?

How can we resolve the puzzle? Should we ignore the moral intuition on basis of the rational argument and just move forward by accepting exploitative behavior on basis of the benefits for all involved parties? When looking at the situation short-term this seems to be a compelling conclusion, but I would still tend to disagree: One possible reason to condemn exploitation (and even to introduce legislation against certain types of exploitation, such as price gouging) can be understood to have a social dimension: Through the condemnation of exploitation and through anti-exploitation legislation, we all (and as a consequence entire societies) signal to all of their members that unfair behavior is not acceptable.

In the short-term exploitation might bring real benefits for the involved parties of the exchange (individuals, groups, organizations) – be it the exploiters or those that are being exploited. But in the long-run societies might have a significant benefit, from punishing (through moral despise or possibly even through legal sanctions) the exploiters. To substantiate this point: let’s look at examples of exploitation that Zwolinski doesn’t address: How about black-mailing? Such cases might also bring benefit for all both involved parties, but there are good reasons to morally condemn them and I guess that even Zwolinski wouldn’t defend them.

I fully agree with Zwolinski’s point that neglect / inaction is morally vastly undervalued – and that we should pay more attention to driving people to become active for the benefit of all involved parties. But I just don’t buy the argument, that this would be a good reason to accept exploitation – not even from a normative perspective.

I believe that Zwolinski’s argument against neglect (by criticizing three types of biases) is well substantiated – but there are at least two fundamental problems:

  1. The overall presentation commits a logical fallacy: Just because Zwolinski can show that neglect is bad doesn’t make exploitation any better (not even if exploitation was less bad than neglect). There are good reasons to sanction exploitation to ensure that those who act, act positively in a more general sense, irrespective of benefits for the exploited party. Exploitation is not only appalling because of “the way in it affects the vulnerable people that are taken advantage off” (32:20 min), but also because it is a behavior that if generalized/generally accepted will be (a) either a violation of basic moral principles/rules (Deontological perspective), (b) or yield severely negative long-term consequences (Consequentialist perspective). And there is of course no reason to believe that there are only two options – neglect or exploitation. The moral disdain people show for exploitation might aim at opening our eyes for the simple fact that we could look for non-exploitative ways to solve our problems. Just to use Zwolinski’s examples: After a natural catastrophe – why can’t business help to supply the goods to people in need in a non exploitative way? Couldn’t they simply set maximum amounts of goods to be handed out per customer to avoid out-of stock? Couldn’t they try to get more goods and simply add the additional cost to the price, instead of charging the truly excessive prices that have frequently been charged in the past? How about sweatshops: Even if life and working conditions in sweatshops are already above the average in certain countries, couldn’t the large importers of textiles do more in order to ensure good and safe working conditions, e.g. through collaboration with broader stakeholder networks?
  2. A recent study by Jim A. C. Everett,  David A. Pizarro, and Molly J. Crockett (Published in the Journal of Experimental Psychology; see also here and here) came to the conclusion that “agents who express dontological moral judgments are more valued as social partners”. Now this is obviously irrelevant from a normative perspective (because all people or at least in the people in the study might all be showing a morally undesirable behavior), but I rather would read this as an example of the social dimension that Zwolinski seems to neglect or at least down play: Only looking at marginal improvements/better consequences (which – I agree – can sometimes [at least seemingly] be morally imperative) might on the other hand sometimes have negative long-term/overall consequences. And in the cases that Zwolinski discusses (namely price gouging and sweatshops) I do believe that the moral condemnation is justified as defending it might bring relatively better results than the neglect/inaction that most of us show. But it comes at the cost not only of the people who are being exploited but also at the cost of seemingly accepting a behavior that should (normatively) change.

The Open Syllabus Project

Last week a database of open access syllabi from many educational institutions around the globe, the Open Syllabus Project (http://explorer.opensyllabusproject.org), was published. This is a truly fascinating database (see also this article http://www.nytimes.com/2016/01/24/opinion/sunday/what-a-million-syllabuses-can-teach-us.html?smprod=nytcore-iphone&smid=nytcore-iphone-share&_r=0). Even though it lacks representativeness, it does include references to a total of almost 1 million different readings from many syllabi from different fields of subject and 5 countries (all English speaking: US, UK, Canada, Australia, New Zealand). Given this number, it does allow for some conclusions about the current state of educational affairs at colleges and universities.

A few observations and ideas from my side after a first short glance at the list:

1) The top items on the list are quite often philosophical in nature – and make you wonder, why in reality Philosophy is such a marginal subject (at least when counting number of professors and students). (In reality the explanation is, that many of these texts are being used in multiple disciplines, but given the importance that other fields seem to put on philosophy it still makes you wonder why philosophy has such a limited voice in many contemporary debates.)

2) When selecting only syllabi from the discipline area “Business” – only 2 out of the top 15 readings in the syllabi are not finance, accounting or marketing; 10 out the top 15 are in fact finance or accounting! Three possible explanations come to my mind: Either there are just more finance, accounting and marketing syllabi in the data base, which in turn could be (a) explained by the fact that there are just more finance, accounting and marketing courses than other disciplines, or (b) other disciplines are more secretive about the syllabi which is why they don’t end up in the database. Alternatively (c) the dominance of finance, accounting and marketing texts at the top of the list could be explained by a higher level of agreement between teachers about what are the most relevant texts in the discipline. – Maybe there are even more explanations, but all of the three listed above somehow disappoint me:

(re a) That just shouldn’t be the case, because business is so much more than just finance, accounting and marketing!

(re b) Why should educators from other disciplines be so much more secretive about their syllabi? Wouldn’t it be much more important  to be public and transparent about the content of courses in fields that deal with the business in its larger context (CSR, business ethics, business and law, business and government et.)?

(re c) That would just be an expression that the underlying believes and assumptions of finance, accounting and marketing are more shared /  more common than those in other fields – and I don’t see any good explanation for that. In fact: maybe it should be the obligation of educators and researchers in other domains to challenge some of these assumptions… (And just by the way: even when only looking at accounting, shouldn’t it be expected that at least one text on integrated reporting, triple bottom line or the like makes it pretty far up in the list?)

3) There is only a truly disappointing list of texts in the domain of business ethics. Yes, there are some texts from syllabi in the field of business education with the keyword “ethics” – but in the top 1,000 texts this is only true for 13 plus 2 with the keyword “moral”. In total  only 1.5% of the total text body is directly related to ethics/moral. And out of these 15 only 6 are in the top 500, whereas 9 titles are found between 501 and 1,000. There is not a single text with “moral” or “ethics” in the top 100!

It doesn’t get much better if you include more search terms: There is no text with “CSR” or “responsibility” in the title, only one with “stakeholder” (but this is already in the 13 with “ethics”) – and the picture doesn’t get substantially better with any other keyword that came to my mind in the larger context of business – “environment”, “social”, “ecology”… All together a look at what is missing in the top 1,000 titles is truly disappointing and seemingly only supporting highly cynical views on business overall.

 

Full list of the 13 texts with keyword “ethics” plus 2 with the keyword “moral” in the top 1,000 texts of the database:

    1. 179 Ethics by Aristotle
    2. 340 Business Ethics : A Stakeholder and Issues Management Approach by Weiss, Joseph W.
    3. 414 Business : Its Legal, Ethical, and Global Environment by Jennings, Marianne
    4. 418 Business Ethics : Concepts and Cases by Velasquez, Manuel G.
    5. 485 Computer Ethics by Johnson, Deborah G., 1945
    6. 491 Case Studies in Business, Society, and Ethics by Beauchamp, Tom L.
    7. 553 Business and Professional Ethics for Accountants by Brooks, Leonard J.
    8. 604 Nicomachean Ethics by Aristotle
    9. 641 Ethics and the Conduct of Business by Boatright, John Raymond, 1941
    10. 665 Moral Issues in Business by Shaw, William H., 1948
    11. 819 Regulation of Lawyers : Problems of Law and Ethics by Gillers, Stephen, 1943
    12. 821 Moral Issues in Business by Barry, Vincent E.
    13. 831 Sex and Virtue : An Introduction to Sexual Ethics by Grabowski, John S.
    14. 866 Perspectives in Business Ethics by Hartman, Laura Pincus
    15. 886 Business Ethics : Ethical Decision Making and Cases by Ferrell, O. C.

 

Dealing with white collar crime

The former CEO of the German conglomerate Arcandor, Thomas Middelhoff, was recently sentenced to three years in prison for mis-using company resources for private purpose. Despite the fact that Middelhoff can (and in fact did) appeal against this ruling, he was arrested immediately in the court room last Friday (November 14, 2014). The judge feared Middelhoff might otherwise avoid his detention (because of the high sentence as well as because Middelhoff’s permanent place of residence is outside of Germany and because he doesn’t currently seem to have a stable job). This arrest gained a lot of attention in the German media as Thomas Middelhoff certainly was a particularly prominent and rather controversial business leader even before this latest in an entire series of falls.

It is tempting to point to the parallel of Thomas Middelhoff and Jeffrey Skilling, the ex-CEO of Enron: Both of them were particularly shiny CEOs, covered in numerous articles and praised as examples of successful leadership – and both left their CEO-positions voluntarily and unexpectedly just a few months before the insolvency of their organizations. Both cases are classical examples for the study of corporate vanity and arrogance – and both end in jail. But next to this coincidental resemblance, the case allows to quickly reflect about at least five interesting business ethics aspects:

1) Increasing attention towards (and sentences against) white-collar crime
In the more recent past there have been quite a few legal cases against business leaders, e.g. because of tax fraud, corruption or (as here) because of misuse of company resources. I wouldn’t necessarily describe this as a new trend, but it seems to be at least somewhat different from the past, that nowadays these cases quite often affect previously well-respected business people. I don’t know of an equally high number of similar cases from the 1960s or up to the 1990s. As a consequence managers today and tomorrow will definitively need to be prepared to eventually face legal consequences for immoral behavior in their leadership role – or to just stop doing it, because the old assumption that nothing bad will happen to themselves is no longer valid.

2) Mixing private life and business 
Thomas Middlehoff was convicted for the misuse of company resources. Two of the most prominent accusations (he was convicted for 27 out of 44 accusations that were brought up by the prosecutor):

(a) He used a private jet at the company’s expense (cost of 91,000 EUR) to travel to New York in order to attend a board meeting of the New York Times, where he served as non-executive board member as a side-job.

(b) He mandated a celebration publication for this mentor Mark Wössner, the ex-boss of Bertelsmann, Middelhoff’s previous company (cost of 180,000 EUR).

The prosecutor claimed that both of these expenses (plus several others such as use of helicopters to fly from his private home to work, despite the fact that he had a personal driver and an apartment close to his office) were not related to his job as CEO of Arcandor, but rather private in nature. And this is not only important for executives, but for almost all of us: business and private lives have been getting less clearly separated in the last few decades; not only for Thomas Middelhoff. But as both dimensions are getting more and more interwoven, it will be getting increasingly important, that we draw a sharp line with respect to usage of resources, expense reports, company assets etc.. Even if we work from home, this doesn’t mean that we are allowed to take company property home. And this is particularly true for people who are active for multiple companies, employers, clients etc. at the same time. It is important to diligently separate between these different actors.

3) The Al Capone tactics of public prosecutors
No, Thomas Middelhoff is certainly not Al Capone. But there is a bit of a resemblance in the tactics of the public prosecutors: As commonly known, Al Capone was finally arrested and convicted on basis of rather insignificant crimes/violations (such as contempt  of court, vagrancy or tax fraud), all of which are close to irrelevant when compared e.g. to the assumed order of the Saint Valentine’s Day Massacre. Middelhoff certainly never ordered a shooting or anything even close to that – this is not the point. But what can somehow be compared is the fact that from a moral perspective the charges that brought Middelhoff to jail (a total of 500,000 EUR of misused company property) are rather insignificant when compared to the fall of Arcandor, one of Germany’s previously largest companies. The shareholders, the customers and the more than 85,000 employees (status 2008) certainly had to (and are) suffering more since the insolvency than a total value of 500,000 EUR. Not all of this can or should be attributed to Middelhoff personally, but it seems to be widely accepted that at least one of his managerial decisions contributed significantly to the fall of Arcandor: In order to raise capital for investments, the management board of Arcandor agreed to a massive sell-and-lease-back deal for the real estate of their department store business. The monthly rent proofed to be a poisonous pill, but it is not only the decision in itself that is dubious: Thomas Middelhoff himself and personally invested in a fund that bought from and then rented the department stores to Arcandor – and this is certainly a drastic case of conflict of interest, and from my perspective (a) economically more damaging and (b) morally even worse than the flights to New York. The rather harsh sentence of 3 years in jail can well be considered to also include some sort of moral condemnation for other behaviors than just the 27 accepted accusations.

4) (Executive) compensation and misappropriation of company resources
In the German public there have been repeated discussions around several cases of low-level employees who were fired/convicted for theft of company resources – many of which were cases with insignificant monetary value. Cases included stories of people taking home a loaf of bread from a bakery that was left over after closing the store and similar situations. In many cases employers and courts reacted rather harshly and insisted that theft was violating the necessary trust in the relation of the individual and the organization. But up until this case of Thomas Middelhoff there have been significantly fewer cases about misuse/misappropriation/theft of company assets by a board member.

In the past, I did observe (and am currently designing a short study to analyze this aspect) a tendency to be – at least in Western, free-market societies – harsher with respect to the moral evaluation of theft/misappropriation by lower level employees compared to more senior people in the organization, even despite the fact that the latter earn much more and can therefore not claim to have acted out of a financial need. The case however should make us consider to what extend we evaluate the same underlying behavior differently dependent upon the status, hierarchical position and salary of the actors.

And as CEO of Arcando Middelhoff did not only earn significantly more than others, his total compensation also showed a spectacular increase: From 955,000 EUR in 2005 (for 7 months) to 3,863,000 EUR in 2007/2008 (full year) – despite a horrific loss of 562,000,000 EUR (EBT) in this year. It is possible to imagine that someone who earned so much money, somehow lost the touch and understanding of what 91,000 EUR for a trip to New York mean. A person like Middelhoff might possibly have imagined that it didn’t really make a difference if he directly used company resources or just would have asked for a salary increase equivalent to this sum.

5) Moral luck
And finally the case nicely reminds us about the importance of such seemingly irrelevant aspects as luck in moral issues. In his sentence the judge correctly pointed out that there wouldn’t have been anyone to accuse Thomas Middelhoff if the company hadn’t gone into bankruptcy shortly after his resignation as CEO. It was the liquidator of the remaining assets after the insolvency who started to investigate into Thomas Middelhoff’s use of company property. In total the judge accepted claims that totaled 500,000 EUR, which Middelhoff misused for non-company related purposes. Compare this to his annual compensation of more than a million EUR at Arcandor (in addition to e.g. a rather generous golden handshake only a few months before the end of the company), it is indeed more than likely that nobody would have taken the effort to compile the fussy details of the evidence that finally led to this incarceration. This should be a call to humility for all of us: How often did we behave in a wrong way/immoral? If you are anything like me, you will easily come up with several case examples that only due to luck remain unknown to the public – and we can be happy to have this luck.

The challenge of setting the right fine for corporate misbehavior and the role of national interests

In a recent article in the DealB%k of New York Times, Peter J. Henning (Professor at Wayne State University Law School) discusses the very interesting issue of government fines for corporate misbehavior. (Peter J. Henning: “For Settlements, Companies Sketch Contours of a Black Box”. February 18, 2014.)

Next to pointing to the fact that reserves in corporate balance sheets provide interesting insights into fines and/or settlements, Henning also refers to some of the structural problems in the current system of settlement. He quotes the NGO Better Markets that filed a law suite against the US Department of Justice’s settlement with JP Morgan Chase that claimed: “In effect, the DOJ acted as investigator, prosecutor, judge, jury, sentencer, and collector, without any check on its authority or actions, even though the amount is the largest in the 237 year history of the United States.

History provides some powerful lessons about the value and importance of the segregation of power. And there is certainly no good reason, why this system shouldn’t be applied to settlements for all sorts of corporate misbehavior (e.g. corruption, tax evasion, manipulation of interest rates, cartels etc.). But in addition to Henning’s correct observations and comments, the cases that he mentions also allow for the discussion of some of the possible root causes for the violation of this fundamental principle.

According to standard thinking, a fine should be determined as a function of (a) the profit that was gained on basis of the misbehavior and (b) the likeliness of getting caught plus a certain premium. Clearly the problem is to determine the likeliness of getting caught. Assuming that the dark figures can be quite high for some sorts of violations, the discovery of a single case could demand a enormously high fine.

And this is exactly why governments and government agencies suddenly might have an interest in not being too specific and explicit about fines and settlements: In many cases – including many of those mentioned by Henning like JP Morgan Chase, Avon or BNP Paribas – the government find themselves in the position of having to fine companies that are of national significance in terms of workplaces, tax income, domestic investments etc. And suddenly they are faced with a clear conflict of interest: Imposing really high fines might possibly harm (or possibly even kill) national champions which in turn could harm governments and societies.

Quite a few cases of really high corporate fines have been imposed on “foreign” companies (such as Microsoft in the European Union or Siemens in the US). In such cases governments might also be much more willing to disclose details of the process and fine.

In order to prevent this special form protectionism, governments will need to come to harmonization, i.e. to supra-national agreements on how to deal with corporate fines.

A shortcut to writing a great case: use case teaching for case writing

One of the things I love about participant-centered learning is that the instructor learns while teaching. I teach mostly executives and it is exciting to collect their experience and insights during a case discussion. In fact: I quite often use case discussions also for my own case writing. In text books and seminars on case teaching and case writing these two topics are treated as completely separate/independent. But I believe that the power of case teaching is getting particularly evident when using case teaching for case writing and vice versa.

Whenever I’m thinking about writing a new case study, I’m waiting for an opportunity to try the case a few times in class in order to
(a) fine-tune the case itself, and
(b) get insights for the teaching note.

 

Re (a): Fine tuning of case

I often use the basic situation of a case way before having a traditional text case. Frequently I will just prepare a set of slides, present this to my students/participants and then open the discussion. Then I make a few modifications and try it again. This approach has several benefits:

1) You start with only a few slides (you will only be able to show a few slides as introduction to the session, so it cannot be hundreds of slides) – and this will help you to write a short and concise case (which is in line with the current trend of using rather shorter case studies).

2) During the discussion you will get a good feedback about which elements of the case work well and which aspects need to be worked on. This is particularly true for:

  • Protagonist/perspective: Sometimes you can write a case from the perspectives of different people (e.g. headquarter versus business unit perspective; marketing versus finance perspective; company versus stakeholder perspective; more senior versus less senior protagonist). Try different perspectives in different courses and you will get a good feeling which perspective is leading to the most fruitful discussions.
    (E.g. in a case about “Vodafone in Egypt” during the revolution in 2011 (forthcoming in 2013), we had to decide between the perspective of the local management in Egypt and the perspective of the Vodafone group headquarter. Using the case in class, I realized that the local perspective was much more engaging and controversial.)
  • Content: Quite frequently individual case situations can be discussed from different conceptual angles. Dependent upon your specific interest you might want to try different variants in order to find the one that resonates best.
    (E.g. I co-authored a case on the German football club “Borussia Dortmund GmbH & Co. KGaA”. All kinds of topics seemed to be interesting, e.g. the accounting specialty of recognizing players in the balance sheet, the strategic question of how to run a football club as business, the purpose question of which stakeholder should define the purpose of the organization (and the potential principal agent problems in this specific situation), the governance question of how to involve the different stakeholders in the formal organization, the question of executive remuneration, the ethical challenges connected with treating players as assets (incl. buying and selling them), etc. – It did take quite a bit of testing to identify which topics worked best in which contexts for this particular case study.)
  • Timing/hook: Quite often the stories that you want to use for your case writing would allow for different cuts in time (using different hooks, e.g. opening of business, first consideration to move into new country, financial issues etc.). Trying different hooks/timings in different sessions will again help you to see which discussions are better in stimulating learning and development.
    (E.g. I wanted to write a case study about a Berlin based snack bar called “Konnopke’s Imbiß”, but for a long time I was missing a hook that would stimulate an interesting discussion. Then I quickly had two alternative hooks: The company was asked to move its location and the son of the owner was opening a competing business. But which hook offered the more interesting discussion? Which hook would lead the discussion closer to the intended use of the case in class? Only use in class would help to clarify these questions.)
  • Structure: Especially when developing cases about events that unfold over longer periods of time, it is often difficult to slice the content well. Cases like these are often transformed into case series. But sometimes it is a bit difficult to decide about the specific split of content. Similar to the question of timing/hook, you might want to experiment with different cuts and then finally pick the one that was the most logical and resulted in the most intense discussions.
    (E.g. I wrote a case series about some corruption issues of “IKEA in Russia” (forthcoming in 2014). Starting with an individual event, the story is getting more and more complex over time. Only after several usages in class, I was able to come up with the final split of the story into four case parts: case A (single and rather external corruption event), case B (rather internal aspect of corruption), case C (corporate responsibility vis-à-vis corruption) and case D (outlook).)

Now given all these possible variations, I believe that summarizing/telling the cases with the support of a few slides, will make your life much easier: If you were to test all these variants on basis of somewhat polished text cases, you would have to do a whole lot of editing, writing and re-writing. But just changing a few slides usually requires significantly less work. And in many situations you would have had to prepare quite some of these slides anyway for your regular teaching.

Of course you need to make sure that this testing of a new case takes place in the right environment (e.g. seniority of students/participants, position of case in course etc.). Pick a few situations with limited exposure for your testing.(E.g. at my institution [ESMT European School of Management and Technology] we do host events for the general public (such as the “Long night of science”) and for the last few years I used material for new cases in these open lectures. After that I had a pretty good feeling if it was worth turning the lead into a full case study or not.)

Once I have used the case in class successfully a few times, I will produce the formal text case study – but frequently I would still wait a bit longer with the production of the teaching note.

 

Re (b): Getting insights for Teaching Note

While using a new case in the classroom I pay particular attention to documenting the contribution of the participants on a blackboard. After the class I take pictures of the blackboards and immediately make notes about what went well during the discussion, which subjects/aspects should rather be skipped during the discussions and what should be added. Over time – i.e. when using the case in different sessions – I make small variations to the sequence.

 

How about you? Can you share tips and tricks how to use case teaching for case writing?

Law versus ethics – a visual approach: Part 1 Venn diagrams / Set theory

When teaching business ethics – especially when using moral dilemmas from business life -, the class discussions often touch the topic of the relation between law and ethics. Even when I explicitly ask for moral/ethical arguments, many participants respond with references to legal frameworks. In the last few months I have repeatedly used this topic for a short visual exercise. I have asked my students/participants to draw a picture to illustrate their understanding of the relationship between law and ethics. And the results are just great!

From now on, I will post every once in a while a few pictures that I collected during these exercises. Today I will start by sharing the broad set of responses that use some sort of Venn diagram, i.e. that would roughly fall into the set theory, i.e. all those visualizations that use circles, squares etc. to put law and ethics into a relation by referring to their relative dimension.

The classic visualization, that typically about 20% of all participants will develop, roughly looks like this:

Set theory 1 - ClassicThe basic point of this illustration is usually the overlap. As explanation for such illustrations, participants will typically mention, that there is an overlap between law and ethics, but that both of them can also be isolated. Accordingly the picture allows for:

  1. actions that are legal but not ethical
  2. actions that are ethical but not legal
  3. actions that are legal and ethical
  4. actions that are neither legal nor ethical

Sometimes the same idea is brought into slightly different forms, such as this squared version:

 

Set theory 2 - squared and proportionalThe artist of the picture above did two important modifications compared to the classical version: (1) He drew the law box to be significantly smaller than the ethics box. (2) He positioned the two boxes in a way, that the law box is almost completely included within the ethics box (only a small portion of law is not ethical to his understanding), while the ethics box has lots of space outside of the law box.

And very much in line with this last point there are often quite a few variations of the classical picture that either rather focus on the overlap or on the discrepancies between law and ethics. One participant brought this into the following nice picture:

IMG_1928

The three different variants are supposed to illustrate differences between different countries (law) or societies (ethics) – different being understood as different in history or geography. The participant explained that in some countries/societies there is/was more overlap than in others.

Quite often I also see two clearly opposing variants of the classical version: More often law is being embedded within ethics:

Set theory 4 - Law in ethics

Much more rare is the following illustration, where ethics is embedded in law:

Set theory 3 - Ethics in law

It is worth noting that these two concentric models implicitly assume that there is either:

  1. nothing legal that is unethical (1st picture)
  2. or nothing ethical that is illegal (2nd picture)

Another interesting picture was designed by a student who wanted to express his conviction that law can be perceived as the common ground within a society between very different individual ethical belief systems:

IMG_1927

Interestingly you could also think about an exact inversion of this model, so that Ethics would bee seen/understood as something universal whereas law would be country specific, multifold and only partially overlapping with Ethics and/or the law in other countries.

The following picture is already a bit of a preview to other versions that I will share in later posts:

Set theory 5 - Law as foundationThis picture also shows two overlapping forms, but has two important differences compared to the classical version:

  1. Ethics is shown as circle and law as triangle: The implicit connotation is that law is more edgy/sharper than ethics.
  2. The ethics circle is shown on top of the law triangle: Law seems to have a certain character as basis for ethics.

In order to provide some structure and stimulate the thinking process, I sometimes also draw a picture that is fairly close to the classical model:

Set theory 6 - matrixThe basic idea of this 2×2 matrix is to not to show relative size of the boxes, but to allow for a conceptual discussion with my participants. The South-West and the North-East corner of this matrix don’t require a lot of imagination. So I typically divide the class into two groups:

  1. one group searching for examples of ethical behavior that is illegal (North-West);
  2. the other group searching for examples of unethical behavior that is legal (South-East).

Re 1: Frequent business-related examples include:

  • whistle-blowing in all variants,
  • stories like the German government buying CDs that were stolen in Switzerland and contain information about German tax evaders,
  • some types of legal violations done by investigative journalists,

or non-business examples such as:

  • parking in a non-parking zone in medical emergency situations,
  • mutiny against oppressors,
  • tyrannicide.

Re 2: Frequent business-related examples include:

  • higher levels of pollution than technically feasible but within legal framework
  • some forms of discrimination in international contexts
  • decisions to shut down mobile telecommunication services during demonstrations/revolution

or non-business examples such as:

  • marital infidelity in Western Europe,
  • private waste of resources such as water/energy/food.

When explicitly asking for drawings/visualizations for the relation of law and ethics one shouldn’t be surprised to get pictures such as the ones above. They all have clear messages and important lessons, but in future posts you will find that some participants come up with totally different ways of illustrating this relationship.

Stay tuned and/or send me your pictures!

The just end of a company?

Are ethically suspicious, corrupt or unethical companies less successful than ethical corporations? We might want that – but empirical research is unfortunately inconclusive. Many companies with dubious business practices operate very successfully at the market place. All of us can certainly list some examples.

But as soon as a company goes down the drain that was criticized recurrently as being unethical, the public seems to react with great satisfaction. This is currently the case with Germany’s largest drugstore chain. The company Schlecker is a privately owned business that grew rapidly after its start in 1975 and successfully expanded into several international markets. But at the same time the company repeatedly made it to the press with many different negative news. The highly secretive organization was criticized in particular for the way it treated its employees. Among other issues, trade unions and the press condemned exploitation, low wages, excessive workload and the fact that Schlecker seems to have spied on its employees in several of the 5,400 stores. The company was found to have kept negative lists about “problematic” employees and to have actively prevented the formation of workers councils.

Management tried to play the public criticism down, but new issues surfaced over and over again. – Even after the founder and owner, Anton Schlecker, stepped down as CEO and handed over control to his two children, Lars and Meike, who started remodeling and re-imaging activities. Early 20110 the trade union Verdi accused Schlecker of forcing permanently employed staff members into new contracts as temp workers with lower wages and inferior working conditions. This criticism was picked up by the government – and Germany’s Federal Ministry of Labour and Social Affairs, Ursula von der Leyen, announced to start official investigations. Again Schlecker’s dingy image was confirmed in the public.

Schlecker had ignored an important lesson: All companies are dependent upon several different stakeholders that are relevant for survival. Most importantly next to the owners/investors (in this case the patriarch Anton Schlecker) are employees and customers. To be sustainably successful, companies need to constantly balance the potentially conflicting interests of these – but also many other – stakeholder groups. This is where Schlecker failed: The drugstore giant continuously ignored the interests of its employees – until this even started to have effects on a second stakeholder group: the customers. They finally didn’t want to shop from a company that was famous for treating its employees poorly and stayed away. The business model that was based on continuous growth and expansion was at stake.

The attempt to change the negative image came to late. In 2010 the company started a remodeling of its stores and tried to access new – desperately needed – customer segments. The company stopped the practice of using temp workers and came to a collective agreement with the trade union Verdi. But even now many activities failed: The attempt to access new customers in the internet lead to a major data leakage – sensitive data of 150,000 customers became visible. Schlecker also introduced a new slogan with a wild mix of German and English language: “For you. Vor Ort.” The slogan was criticism by a group of language purists – to which the head of corporate communication responded with a letter that leaked to the public and provoked vivid reactions: The PR person wrote that he – as person with an academic education in humanities – would also disapprove the usage of “Denglish” (a term used to describe the mixture of German and English), but the “average Schlecker customers” rather had a “low to medium level of education”. Again Schlecker was perceived as company that only focused on the interests of the owner and did not show respect for the other stakeholders.

Such dilettante mistakes prevented the planned success of the transformation. On January 20, 2012 the company had to file bankruptcy. As the company was operating as a non-incorporated, private firm (“registered merchant”/”eingetragener Kaufmann”) Anton Schlecker will be liable personally. According to press reports he might even run into personal bankruptcy.

This might now be perceived to be the just consequence for an unbalanced or even unethical management style. But we shouldn’t forget one important aspects: Yesterday the liquidator announced that almost half of the employees will need to be laid off and almost half of the store will be closed. The story illustrates that unbalanced management will harm all stakeholders in the long run – but it is very unfortunate that the ones suffering most will again be the employees. So shouts of triumph about Anton Schlecker’s suffering are completely inappropriate.

Offering services – that are “misused”?

Yesterday I was cycling through Berlin when I made an interesting observation:

In two weeks there will be elections for the state and city of Berlin. Only a few major parties are likely to pass the 5% threshold that is set by German election laws. (Any party that collects less than 5% will not make it into the parliament.) But in addition to the 5 main parties there are 13 other parties competing in Berlin. One of them is a far right wing party called “Die Freiheit” (“The freedom”). They are certainly a party that is at the very far end of the political spectrum and intentionally provoking and polarizing, especially with anti-Islam, anti-foreigner and Euro-skeptic propaganda.

Yesterday they were driving through the streets with trucks covered with banners and their slogans, e.g.: “Kick the overly indebted countries out of the Euro”, “Stop islamistic parallel societies” (a poster with a German flag in the background in which you can find the Turkish symbol of the moon and the star in the red part of the German flag), or “Zero tolerance for criminals”.

Non of this would be a topic for a business ethics blog. But while the big, established and rich parties usually buy (or lease) entire buses and paint them, the party “Die Freiheit” obviously decided to rent trucks. And while they were driving around the city everybody could simultaneously see the party banners — AND the name of the rental company: “LEX Autovermietung” (i.e. “LEX car rental”).

Accidentally, I was on my way to a (different) car rental company. And so I was immediately thinking: Would I rent a truck from a company that also rents cars to political parties that subsequently use the trucks for political advertisement (way outside of the the main-stream political spectrum)? The party is legal and can run for the election. (According to German law there is a [rather very difficult] process to prohibit political parties if they openly reject the constitution; which “Die Freiheit” doesn’t.) But aren’t their political objectives harmful to the friendly coexistence within the city? Is it ok to rent trucks to them?

On the other hand – if the car rental company was rejecting “Die Freiheit”, should they also reject other parties? Which ones? All? All except for those that are represented in the parliament? All except the one supported by the owner of the company? How about the employees? And if the company decided to prohibit the rental of trucks to “Die Freiheit”: How should they enforce this?

Is there any responsibility of the rental company with respect to their customers’ usage of their trucks? For questions like this many quote the legendary knife producing company and its alleged position of not being responsible if somebody uses their knife to kill someone. Is this true for the car rental company? Are they not responsible for the usage of their cars – especially as long as the usage is legal?

These were some of my questions while cycling to the rental company. And as I was preparing to rent a car myself, I was imagining that the party might have fixed the posters on the trucks while still on the premises of the rental company.

I have to confess: implicitly and subconsciously I was inferring that the rental company supported the party and their political agenda.

Fortunately, I decided to use this situation to blog a few questions on a companies responsibility vis-à-vis the usage of its products / services by the customers. I did a bit of research on the rental company and found an interesting website and coincidence:

“Politically Incorrect” is a right wing blog in Germany. In November 2009 they reported about a demonstration of Muslims in the German city of Dresden that was (amongst others) demanding the closure of the website “Politically Incorrect”.

Interestingly most of the users / supporters of “Politically Incorrect” are anti-Muslim, and the webpage makes advertisement for the party “Die Freiheit”. But what do we find in this report about the “Muslim demonstration”? A picture of some people speaking while standing on the cargo area of a truck – rented from the very same rental car company – “LEX Autovermietung”!! Not as a big surprise a user called “Rudi Ratlos” leaves a comment (comment 218) stating that the LEX rental car company will be added to his personal boycott list (“LEX-Autovermietung kommt auf meine Boykottliste.”).

So, ironically LEX-Autovermietung seems to be serving two seemingly opposing camps of the political spectrum. What a nice lesson in neutrality and independence of a company…

Proximity of stakeholders and cultural/national biases

I just finished the ETP Salon – an short executive education program exclusively for alumni of ESMT‘s Executive Transition Program. We discussed the broad topic of “Learning from crisis” from various different perspectives. During our discussions we touched a topic with interesting ethical questions:

After the earthquake, tsunami and subsequent problems with the Fukushima nuclear power plant, many international corporations immediately offered their expatriates to return to their home countries (see e.g. the German online portal “SPIEGEL Online“).

On the first sight, this seems to be the right thing to do: After sending their employees to Japan, companies can be understood to have an obligation to ensure their physical well being (see also here). Most of these expatriate employees will have been based in the greater area around Tokyo. The nuclear emission might not have passed the thresholds yet, but the threat was imminent.

So where is the ethical issue when companies act as they ought to do?

The issue lies in the scope / limitation of the target group of such rescue programs: Large international companies (such as Siemens, GE, DHL, Starbucks, McDonald’s etc.) certainly employ more Japanese people in Japan than expatriates. Is it fair just to help the expatriates? Why?

  • What are the limits of a company’s obligation to help it’s employees?
  • Is this just a question of numbers, i.e. the argument that even the large multinational companies just cannot afford/manage to bring all their employees out of the country and therefore have to limit their effort so a small number?
  • Or is the difference only driven by demand? The Japanese employees just might not have wanted to leave the country and/or they might not have been able to relocate to another country e.g. because they didn’t have the necessary visas or financial resources.
  • Is there a bias towards the people from the “own” country? (Which anyway is getting less and less clear: As employees, customers and investors of multinational companies nowadays usually do not come mainly from only one country, we know less clearly what the “own” country of a company is.) Are the expatriates closer to the company than the Japanese employees?
  • Is there a certain element of nationalism, e.g. the assumption that at the end of the day people should end up in their “own” country – so let’s bring back the Germans to Germany, the French to France etc. and sort everything
  • To see how messy it quickly gets, let’s just take the fictitious example of Hans. Hans was born in Japan as son of German parents that worked for Toyota. He spent most of his life in Japan.  But after his studies in Japan he was hired by Volkswagen in Germany. He went to Wolfsburg. But after two years Volkswagen decided to send him as an expatriate (due to his passport and German work contract) to Japan. Compare this situation to Hiroki: Hiroki was born as son of a Japanese couple that lived and worked for Volkswagen in Germany. After his studies in Germany he decided to get to know the country of his parents. There he joined Volkswagen on basis of a local contract. What is the difference in Volkswagen’s obligations to help Hans or Hiroki?

And then you can change the question one more time: How about the large Japanese companies that employ international staff in their headquarters? How about the French, English, American, Indian or South African employees of Sony in Minato, Tokyo? Should they be sent “back” while their colleagues stay in Japan?

A question of life and death

When teaching business ethics to managers and MBA students most of the topics and cases we discuss are serious issues. We even often discuss dilemmas that (potentially) have heavy consequences for involved parties. When talking about damages to the environment, the effects of poverty and inequality or the potentially damaging side effects of products on consumers and others (e.g. tabacco), we even occasionally touch questions of health and life.

However in most settings, managers don’t have to decide about life and death directly and personally. Usually there are intermediate actors that seemingly reduce the individual responsibility. And this is a certain contrast to many of the most famous dilemmas (such as the trolley car dilemma) that are discussed in the ethical literature for decades and centuries.

But right now there is such an issue of life and death in a business setting. It is going on for more than three months now and was brought back to our attention today:

According to news reports, TEPCO, the Japanese company operating the nuclear power plants in Fukushima, made public that a melt-down did not only occur in reactor 1 but also in 2 and 3. And as the situation is still very serious, we have to ask about the moral implication of having employees work in an environment that violates the normal thresholds for nuclear contamination.

Most of us will highly appreciate the fact that several workers fight hard to limit the disastrous effects of the earthquake, tsunami and subsequent melt down. But they are at the same time employees of TEPCO. Is is / can it be legitimate for a company to asks its employees to risk their lives? Can managers be justified to send employees into contaminated workplaces – even if the employees agree to do so on a voluntary basis? Is this only justified when the employees try to prevent bigger harm to society or can companies also look for volunteers that risk their lives/health just for the commercial success of the company?