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.

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.

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:


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:


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!