“Well written and an interesting perspective.” Clan Rossi --- “Your article is too good about Japanese business pushing nuclear power.” Consulting Group --- “Thank you for the article. It was quite useful for me to wrap up things quickly and effectively.” Taylor Johnson, Credit Union Lobby Management --- “Great information! I love your blog! You always post interesting things!” Jonathan N.

Saturday, June 4, 2011

The Corporate Apology

In classical literature, an apology can mean a defense, such as Plato’s Apology. In modern parlance, an apology is known as an expression of genuine sorrow and an acceptance of responsibility for having caused harm to another person. Consumers should be on guard lest a company use the semblance of an apology for marketing purposes.

Robert Bacal advises that an apology be used as a strategy to use “along with other techniques” (italics added, p. 19). According to Bacal (p. 19), “perfunctory or insincere apologies are worse than saying nothing at all.” Accordingly, he advises that a “sincere apology can help calm a customer, particularly when you or your company has made an error. You can apologize on behalf of your company.” However, how can an apology be both sincere and geared to manipulating a customer?

Creating the appearance of sincerity is not to proffer a sincere apology, yet such a distinction may be irrelevant to an entity that cannot feel. In other words, how can a collective entity such as a company can proffer a genuine apology when such entities can not feel because they are organizations.

So when a manager tells a wronged customer, “the company is sorry” for the conduct of one of the employees,” the sentence can be taken as sheer anthropomorphism—hence without real substance. This might not be a problem for the manager who wants to give the impression of an apology in order to disarm the aggrieved customer, but such manipulation is far from genuine sorrow and a willingness to take responsibility in terms of making things right.

Robert Bacal advises, “Keep in mind that tendering an apology doesn’t necessarily mean that you’re admitting responsibility.” Such having one’s cake and eating it too is in line with trying to make another sale without having to compensate for the last sale gone wrong. That is to say, the decoupling of an apology from admitting responsibility goes alone with maximizing self-interest, at least in the short term (i.e., selfishness). As profit-seeking machines, corporations are inherently oriented to their own interests; hence getting something out of apologizing while obviating any cost fits with the corporate apology.

In keeping with a business’ nature, it can also be argued that because corporations are economic entities rather than human, a corporate apology must involve compensation to be valid. In other words, unless a business gives something to the wronged consumer to make up for the error or mistake, no apology has taken place. For an economic entity to insist that “genuine feeling” is equally valid is for that entity to evince a category mistake, for corporations do not have feelings—only the individual humans in organizations do.

Bacal (p. 22) refers to a “bonus buy off” as a technique of “offering something of value to the customer as reimbursement for inconvenience or other problems.” However, Bacal (p. 22, italics added) adds that the monetary value need not be significant, “since the point is to be perceived as making an effort.” I contend that the point is not to be perceived as making an effort; rather, the compensation is to pay the customer for the harm done by company employees and compensate for the time and effort spent by the customer in seeking redress. A company is an economic entity, so this conception of paying ought to fit into the commercial lexicon (whereas genuine sorrow does not).

Therefore, customers should insist on the corporate apology being in the form of monetary value; otherwise, the apparent apology should be refused. A customer turning down a company’s easy apology can even use corporate lingo, saying something like, “Unfortunately (i.e., appearance of sorrow) I am unable (i.e., false rigidity) to accept the apology as it does not contain compensation and a business is, after all, a nexus (or entity) of economic transactions.” If the manager replies that the company “cannot” compensate for an error or mistake, the customer has the answer: no apology had been made after all. The customer should reply, “Accordingly, your company’s apology is not accepted” and end the call (and cease doing business with the company). In short, such a customer will have tested the “company’s sincerity” and found the entity wanting rather than genuine. Such pretense in place of sincerity violates the principle of honesty that is in business ethics.

According to Business Ethics for Dummies (p. 239), corporate apologies should be sincere, as soon as possible, and be coupled with a correction to the problem. I contend that the correction should include compensation for the customer, or the problem is not fully corrected in terms of making up for the harm caused by employees of the company (note that I avoid attributing moral agency on the organization itself). In Business Ethics, it is noted that if the compensation is too low—such as McDonald’s offer of $800 to compensate a hospitalized customer scalded by the hot coffee—the offer can be taken as an insult. This means that sufficient compensation is indeed part of taking responsibility, which in turn is implied in apologizing.

If a manager either refuses to compensate or does so as passive aggression (e.g., $800 for a week of hospitalization), the insult added to injury combination is a red flag ethically as well as psychologically. From such a mentality, the smart and self-confident customer simply disengages to greener pastures and happier days, leaving the squalid manager to consociate with his or her own kind: a new bird of prey known for its weakness and resentment, according to Nietzsche. The point is to see through the “perceived sincerity” and speak to managers in economic terms in order to separate the men from the boys. A corporate apology is an economic transaction, rather than an emotion. Kids play with emotions whereas adults are willing to put their money where their mouths are.


Sources:

Robert Bacal, Perfect Phrases for Customer Service, 2nd Edition (New York: McGraw Hill, 2011).

Norman Bowie and Meg Schneider, Business Ethics for Dummies (Hoboken, NJ: Wiley, 2011).

The European Council and the U.S. Senate: Intergovernmental Institutions in Modern Federalism

As part of comparing the U.S. and E.U., pointing to similarities between the U.S. Senate (especially as originally designed) and the European Council is particularly valuable because both institutions constitute the intergovernmental, and thus international, aspect of their respective unions. By contrast, both the U.S. House of Representatives and the E.U. Parliament constitute purely governmental, or “national,” bodies irrespective of the state governments. Hence both the E.U. and U.S. governments are hybrid governmental/intergovernmental, and thus neither national nor international.

The full essay is at "E.U. & U.S."


Conflicts of Interest: A Kantian Explanation

In a conflict of interest, either two duties conflict or a duty conflicts with self-interest—whether the “self” be an individual or an association of individuals (e.g., a department or an organization). Where two duties conflict, that which corresponds with the wider “constituency” is presumed to be ethically superior to that which is relatively narrow. For instance, a duty to society is typically thought (admittedly by the public) to ethically supersede a fiduciary duty to stockholders. This assumption is problematic because property rights are not charged with putting society first. Therefore the question of which duty is superior ethically-speaking may come down to one’s vantage-point. To be sure, the duty that is further from one’s self-interest can be said to be superior in most ethical theories with the notable exception of egoism. That theory defeats the typical ethical take on conflicts of interest even where a duty is pitted against self-interest itself.

In short, conflicts of interest may be harder to crack in an ethical analysis than might be evident prime facie. Accordingly, it might be useful to attempt to get at the root of why a conflict of interest is ethically objectionable in itself. Why, for instance, do people have a seemingly-innate sentiment of disapprobation in coming upon the phenomenon? Why do conflicts of interest make us uncomfortable? The source may be the logical contradiction that lies at the core of such a conflict if it is “resolved” unethically.

Perhaps we can look to Kant’s categorical imperative for an explanation on why conflicts of interest are inherently unethical. Kant held that one’s maxim is ethical only if it can be universalized without logical contradiction. Cutting in line, for example, is unethical because if everyone were to do it, there would not be any such thing as a line so “cut in line” would be a contradiction in terms; the maxim contradicts itself internally if universalized. I argue elsewhere that such a logical contradiction triggers a sentiment of disapprobation (e.g., anger and frustration) in the typical human being. So if a logical contradiction lies at the core of a conflict of interest, this could explain why we object to them emotionally as well as rationally.

To Kant, if the principle of line-cutting cannot apply to everyone, then it is wrong to make an exception for oneself. For a maxim to be ethical, it must be in line with rational nature—meaning in line with reason, which is necessary and thus capable of being held universally. 2+2=4 is necessary because 2+2 cannot be 3 or 5. The answer must be 4, whether one is in Singapore or Calcutta, or living in the 1500s or the 1800s, and it will be so in the future and for every rational nature. Rational nature assigns values, including ethical values, and such assigning cannot take place outside of the domain of reason. Hence, maxims that are ethical must be capable of being universalized.

In terms of conflicts of interest, let’s take the example of Moody’s, which rates securities according to risk. The company is paid by the banks that issue the securities, so there is a conflict of interest facing it; namely, Moody’s has a financial incentive in line with self-interest to give a higher rating than deserved so the issuing bank will continue to use the agency. This incentive is in conflict with Moody’s broader interest in rating securities accurately as per its mission and its duty to the public, which is relying on the company to analyze the risk. This is a self-interest vs. wide duty sort of institutional conflict of interest.

In a Kantian sense, if Moody’s maxim were that the agency should make an exception from its duty in order to make more profit in the short-term, could this principle be universalized? What would happen if every rating agency inflated the rating on every security? The rating itself, like a line, would cease to exist as a rating. It would be like a mob of people trying to get on the plane first—each person trying to “butt” in front of the next. To say “inflate the rating” is a contradiction in terms if the inflating being universalized nullifies the meaning of “rating.”

There is thus a logical contradiction living in the conflict of interest! Kant would say: the conflict itself is unethical. To have two antipodal interests facing off is itself a contradiction; a person can’t go in both directions at once. It might be said, then, that the basis of an unethical conflict of interest is logical contradiction, and that such contradiction is precisely that which provokes in rational-emotional natures a sentiment of disapprobation.

Click to add a question or comment on conflicts of interest from a Kantian standpoint.

See Related Essay: “Institutional Conflicts of Interest

Corporations as Citizens: A Right to Donate to Candidates?

In Citizens United, the U.S. Supreme Court held that corporations and unions “should have the same right as individuals to pay for election ads and other electioneering,” according to The Wall Street Journal. Not addressed in the court’s decision was whether corporations and unions also have “the same right as individuals to donate money directly to candidates for Congress or the White House.”

After the ruling, the U.S. Court of Appeals for the 8th Circuit upheld the ban on direct donations, “saying the [U.S.] Supreme Court recognized Congress could enact such restrictions as a way of deterring corruption.” Given that corporations and unions can contribute to political campaigns through "independent" groups that air commercials favoring certain candidates, one might wonder whether the restriction on direct donations is of any importance whatsoever. Moreover, one might wonder whether any potential restriction could even channel the influence of powerful corporations in Congress and over regulatory agencies (even their own!). That is, the underlying problem is that the large concentrations of wealth and property in corporate form may be inconsistent with democracy. 

Even the ban on direct donations has been challenged. Specifically, Federal Judge James Cacheris of the Eastern District of Virginia ruled on May 27, 2011 that corporations and unions can donate directly to political candidates. In his decision, he wrote, “Citizens United held that there is no distinction between an individual and a corporation with respect to political speech. Thus if an individual can make direct contributions within [campaign-finance] limits, a corporation cannot be banned from donating the same thing.” At the time, federal law limited an individual’s donations to a particular candidate at $2,500 per election. Corporations could donate $5,000 per election to candidates through political action committees, which are funded by voluntary donations from employees.

Cacheris is on solid ground concerning drawing out the logic in Citizens United. Even so, it is the premise of that case that is vulnerable to critique. To claim that there is no distinction between an individual and a corporation (or union) with respect to political speech is to commit a category mistake regarding citizen and free association thereof. In spite of the faddish “corporate citizenship” slogan, a group of citizens is not itself a citizen. To claim otherwise is to engage in anthropomorphism. In other words, having a right to freely associate with other citizens does not give the ensuing group itself the rights of citizenship; only citizens, which are human beings, can have the rights of citizenship.

As retired Justice John Paul Steven pointed out in suggesting that the U.S. Supreme Court would need to clarify its reasoning in Citizens United, "it will be necessary to explain why the First Amendment provides greater protection to the campaign speech of some non-voters [i.e., domestic corporations] than to that of other non-voters [i.e., foreigners who were barred at the time from making campaign contributions]." In referring to corporations as non-voters, Stevens is saying that they are not citizens, and thus the rights of free speech, petitioning the government, and making political contributions do not apply. Relatedly, from the “legal person” judicial doctrine, which limits stockholders’ own liability, has come the spurious notion that money is somehow speech (another category mistake). With certain collective legal persons being deemed citizens, the right to free speech at the corporate level translates into spending money. In short, we as a society seem blind to some rather blatant category mistakes, and this lack of awareness just happens to be in the interest of the large corporations and banks. I'm reminded of the "church lady" who was a character on Saturday Night Live. "Well, isn't THAT convenient!" she used to say rather sarcastically to any given guest on her "talk show." 

It is perhaps beyond coincidence that in a society and polity wherein large corporations are powerful, they have been deemed not only legal persons, but citizens as well—and with the rights of free speech, petition, and campaign contribution. I suspect that beyond the sheer power exists a pro-business ideology in the society, which enables this double-counting of citizens who associate in corporations and unions. A manager, for instance, can exercise rights of citizenship not only individually, but also in directing an organization (association) in its public affairs department.

Rather than worry about whether relaxing particular restrictions might enable corruption, we might examine whether our fallacies (i.e., category mistakes) are both a result and facilitator of it. Our parents and grandparents willfully created an organizational world, such that organizations could gain such assumed legitimacy that they have been able to become citizens having much more wherewithal than the human kind. Merely to write “the human kind” demonstrates how warped the default has become. One might wonder if it is still possible to wind back the line to contain the absurdity from becoming the accepted logic.


Sources:

Brody Mullins and Brent Kendall, “Court Lets Corporations Give to Candidates,” The Wall Street Journal, May 28-29, 2011, p. A4.

Mike Sacks, "Citizens United Attacks from Justice Stevens Continue," The Huffington Post, May 30, 2012. 

Federalism Facilitating Self-Preservation


The rights to life, liberty and the pursuit of property (Locke) or happiness (Jefferson) can all fit within a federal system that enables its two systems of government—that of the federation itself and the republics  or (member) states—to check and balance each other. The alternative, at least for a federal empire, may be a return to the state of nature.

Hamilton writes, “If the representatives of the people betray their constituents, there is then no resource left but in the exertions of that original right of self-defense, which is paramount to all positive forms of government” (Federalist Papers, #28, p. 178). Ironically, Hobbes espouses a broader right—that of self-preservation—even over the sovereignty that he claims must be vested with a viable monarch. Whereas self-defense is largely limited to repelling attack, self-preservation includes the right to sustenance, including food, shelter and medical care. Madison recognizes this right as “the great principle of self-preservation” (Federalist Papers, #43, p. 297). One might say that this right or principle is in the right of life in “life, liberty and the pursuit of happiness.”

The right to survival is antipodal to the state of nature, where life hinges on dog-eat-dog contests for food and shelter (and mates). According to Madison, “the weaker individual is not secured against the violence of the stronger” in the state of nature (Federalist #51). So too, the weak individual is not secured against hunger and sickness, or homelessness.  Such life is, according to Thomas Hobbes (in Leviathan), “solitary, poor, nasty, brutish and short.” 

So we look to government not only to further our happiness, but also to provide a net below which lies the raw state of nature.  This is essentially what government is for; human nature has a penchant for returning to nature, so governmental institutions must use coercion to sustain the social contract.

Madison looked to the State Governments to enact laws in fulfillment of this principle. Whereas the powers “delegated by the proposed Constitution to the Federal Government, are few and defined,” those “which are to remain in the State Governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negociation, [sic] and foreign commerce,” … the “powers reserved to the several States will extend to all the objects, which … concern the lives, liberties and properties of the people” (Federalist Papers, #45, p. 313). To the extent that the federal government is at all involved in public housing, food stamps and health-insurance, Madison would say that that government has encroached on the prerogatives of the States. He might conclude, moreover, that the balance of power in federalism between the general and State governments has been severely compromised or lost.

Madison assumed that the State governments would be better administered than would the federal government, and that the people would side with their respective States.  To the extent that these undergirding assumptions are invalid, the federal balance is at risk.  To what harm?

The loss of the checks enabled by the balance in a federal system means that the more powerful government can more easily act tyrannically at the expense of our liberties.  In other words, we can expect further encroachments by the federal government.  This is at the expense not only of our liberties, but of the inherent diversity that exists within the United States, which is an empire-scale union of republics.  We forget what we are at our own peril. Sadly, Madison assumed that the people would be ever vigilant in protecting the balance of federalism. Without this vigilance and electoral political power, federalism itself, as well as its checks and balance, is doomed.  It is, one might contend, already a fait accompli.

Source:

The Federalist, ed. Jacob E. Cooke, Hanover, N.H.: Wesleyan Press, 1961.
 

Friday, June 3, 2011

Tornado Victims and the Unemployed: Tough Luck?

In the fall of 2010, the following was said on Fox News: “The government should spend more on the war in Afghanistan in order to fight terrorism. The problem is that the government has gotten into entitlements.”  The latter presumably includes food stamps, public housing, Social Security, Medicare, and Medicaid.  To say that government ought to be engaged in defense and not in supplying needy citizens with food, shelter and health-care is distinct from saying that the federal government should concentrate on foreign policy and defense, while entitlements are formulated and funded by the state governments as their domestic programs. In other words, advocacy for a certain priority in government and for less government is distinct from advocacy for restoring balanced federalism.

Most Europeans in the E.U. undoubtedly view the redistributive right for sustenance resources as founded on human rights and thus as a legitimate part of government.  In contrast, Americans do not typically apply a human rights justification to entitlements for other Americans even as foreign aid may be justified in part on this basis.

For example, on June 3, 2011, Donald Trump told a forum in Washington, D.C.: "A certain Republican representative, two nights ago -– I watched on television -– Representative Cantor, who [sic] I like, said we don't want to give money to the tornado victims, . . . (a)nd yet, in Afghanistan we are spending ten billion dollars a month but we don't want to help the people that are devastated by tornadoes -- wiped out, killed, maimed, injured. We don't have money for them but we are spending ten billion dollars a month in Afghanistan. We are spending billions of dollars in Iraq where they have the second largest oil fields in the world … and we can't help people that got flooded in Mississippi that got hit horribly by tornadoes." The U.S. House Majority Leader was holding up funds for basic necessities at home as leverage in debt-ceiling negotiations with the Democrats, while allowing billions of dollars to continue to flow in foreign aid (and to the U.S. military in Iraq and Afghanistan).  Canter’s antipathy toward government aiding citizens who would otherwise be left to the state of nature represents a rather warped understanding of a social contract.

People such as Eric Canter believe that the market mechanism trumps any right to have one’s basic needs satisfied. Resources are viewed as commodities produced and distributed by private enterprise, even though the market does not guarantee that every citizen’s basic needs are met. Even so, it can be asked whether the right to survival (i.e., life) is part of the American social contract. If so, then relying on the market mechanism alone is not sufficient.

If life is not part of the social contract, then the hungry and homeless, as well as the untreated sick, are (and can legitimately behave as if) in the state of nature. As much as some of the rich do not want to be taxed so the least fortunate can survive, the prospect of the latter behaving as if in the state of nature must surely be even less palatable.

James Madison writes in Federalist #51, “the weaker individual is not secured against the violence of the stronger” in the state of nature. Nor is the weaker secured against starvation and sickness.  Without the police to protect their property, are the rich sufficiently strong to ward off the hungry and homeless? Who is the strong and who is the weak in a dog-eat-dog contest between two human beings—one with a bank account and the other with a left hook? Life, Thomas Hobbes writes, is “solitary, poor, nasty, brutish and short” in the state of nature are all equal in the sense that any one of us can be killed in our sleep. Suddenly having some of one’s tax directed on a human-rights basis may not sound so bad.

What keeps those whose survival is so tenuous from simply taking from the rich is of course the funded social contract that protects property with police force even as there is no guarantee for survival. Such a warped social contract is an aberration in terms of social contract theory.

  The social contract undergirding a political society is meant to alleviate the fear of the want of necessities (and self-defense) while working for the happiness of the members.  In other words, there is a right to shelter, food and medical care. Otherwise, the society is only marginal or partial in obviating the insecurity that exists in the state of nature.

Therefore, to say that government should merely defend citizens from the insecurity of foreign invasion does not go far enough from the standpoint of why government is instituted as part of a social contract that takes people out of the state of nature. However, to say that an empire-level government ought to be charged with protection from foreign invasion, while the individual republics are tasked with ascertaining their citizens with protection from starvation, the elements, and sickness. Without anxiety, foreign or domestic, every citizen—rich or poor—would be freed up from a basic insecurity that without a viable social contract is simply part of life.

Click to add a question or comment on basic needs in a social contract.

Sources:

The Federalist, ed. Jacob E. Cooke, Hanover, N.H.: Wesleyan Press, 1961.

Sam Stein, “Trump Takes Aim at Cantor, Krauthammer, U.S. Foreign Policy,” The Huffington Post, June 3, 2011.

Ignoring Institutional Conflicts of Interest

I submit for your consideration the thesis that people, particularly in American society at least, tend to have keen radar for conflicts of interest specific to individuals while institutional conflicts of interest tend to go undetected. The reason may be that a conflict of interest in which a specific person benefits is more tangible (e.g., receiving a bribe of $50,000) than is the on-going pressure on a department or organization to pursue an unethical policy or decision from an institutional conflict of interest. It may also be that we, as human beings, are more envious when another human being enriches oneself unethically than when an institution profits at the public’s expense—even if the ethical and financial damage of the latter is greater.

The bias in favor of detecting individual-level conflicts of interest over the institutional-level variety (including intra- and inter-institutional) can be gleamed from the section on protecting the public interest in utility monopolies in chapter 12 of Business Ethics for Dummies (it never hurts to go back to the basics—which is one reason why university professors should not shirk from teaching undergraduate survey courses in BA, JD/LLB, M.Div, MD, or BS programs).

Utilities such as energy, telephone, cable television, and transportation have been allowed to be monopolies due to the extent of investment needed in the infrastructure (and the infeasibility or undesirability of duplicating it). To inhibit monopoly rents at the expense of consumers, such monopolies have typically been subject to extensive government regulation. When government has opened such utilities to competition, one of the principal issues has been how to handle the infrastructure. The company that had paid for it deserves to be compensated, yet not as an excuse to drive out the new competition. Hence, government typically has regulated the leasing of telephone and cable lines as well as railroad tracks.

The regulation is an attempt to counter the enduring structural (or institutional) conflict of interest. Specifically, the utility that built an infrastructure to be shared with other companies is both providing the basis for an industry and stands to profit by using this basis to stave off competition. In other words, the duty to support the industry itself is at odds with the utility’s profit-motive (which seeks to reduce gain market-share from competitors). Duty vs. Self-Interest is the underlying ethical tension in the case of utilities that have gone from regulated-monopoly to regulated-competition. The regulation regulates rather than obviates the tension and potential abuse. To extirpate the structural conflict of interest, the government would either have to insist that the monopoly divest the infrastructure either by selling it (at a fair price) to the government or to a company not providing service in the industry. There would still be a need to regulate the infrastructure, as it would either be owned by government (i.e., socialism) or by one company (i.e., monopoly), but at least the conflict of interest would be eradicated. There would thus be less pressure for unethical pricing (because the government or monopoly operator/owner) would not have an interest in also profiting by offering service.

In a general sense, market competition itself has an inherent pressure toward monopoly. Hence the Sherman Antitrust Act of 1890 was enacted to break up (or prevent) monopolies in order to prolong a competitive marketplace. Structural conflicts of interest add ethical pressure on top of the proclivity of a market to head toward monopoly. Whereas it is difficult to extract the innate pressure from competition, structural conflicts of interests need not be tolerated. 

Therefore, I was struck by the fact that the authors of Business Ethics for Dummies are satisfied with utility companies leasing the use of their respective infrastructures to competitors as if we must accept the institutional conflict of interest. The surrender is all the more pellucid because the section ends with a warning concerning individuals who serve on public utility boards and even local government officials evaluating telecommunications contracts. Being only human, such officials are “susceptible to the same conflicts of interest and other ethical issues as anyone” (p. 212). Suddenly the dreaded monster raises its head! It is as if government regulation effectively dissolves institutional conflicts of interest such that they no longer exist even in applying subtle pressure on managers, while the public should keep a clear eye on particular people at regulatory agencies lest they are promised high-salary positions at one of their regulated companies.

While the warning is prudent, the authors’ selective attention to conflicts of interest runs counter to the fact that whereas the ethical damage from one government official giving a company favored treatment in exchange for a promised job is temporary, the structural conflict of interest in a utility leasing its infrastructure to competitors while continuing to use it continues even in the midst of government regulation; the leasing utility will try to game the regulations for as long as the underlying structural conflict of interest continues, whereas the individual conflict of interest of the individual government official is limited to that person’s power in the agency and ends as soon as he or she moves on to industry.

Of course, an institutional arrangement wherein government officials can expect to secure good jobs in the firms they regulate (such as in Japan) evinces an institutional conflict of interest. Even a cultural expectation (akin to corporate culture but inter-organizational) can proffer or support such a conflict of interest. A government policy such as a two-year wait may seem to obviate the conflict, but the cultural-institutional arrangement (which goes beyond particular individual cases) would still exert pressure on the companies to game the system in order to get preferential treatment. As TEPCO evinces, such an institutional conflict of interest involving business and government can literally eventuate in a melt-down, ethical and nuclear. It is not sufficient, in other words, to go after particular officials who get favors; the institutional conflict of interest is still there.

Click to add a question or comment on the hegemony of individual-level conflicts of interest.

Source:

Norman E. Bowie and Meg Schneider, Business Ethics for Dummies (Hoboken, NJ: Wiley, 2011).

Wednesday, June 1, 2011

The Basis of American Aristocracy: Wealth & Property

In the constitutional convention of the United States in 1787, the property-interests were well-represented. Even so, a fear of a plutocracy was voiced by those property-protectors as well. While one might conclude at first glance that the wealthy delegates were duplicitous, their position is not self-contradictory, even if the bias toward wealth is discomforting for those of us who value representative democracy.

Governeur Morris, on July 5, asserted that property is “the main object of Society.” (1) Rutlidge, on July 5, concurred, maintaining, “Property was certainly the principal object of Society.” (2) Hamilton, on June 26, argued that the “inequality of property constituted the great & fundamental distinction in Society.” (3) King, on July 6 averred that “property was the primary object of Society.” (4) In Morris’ view, property is thus “the main object of [Government].” (5) Hamilton articulated this view in the Federalist by writing that the adoption of the Constitution will afford additional security “to the preservation of [republican] government, to liberty and to property.” (6) “I am convinced,” he writes, “that this is the safest course for your liberty, your dignity and your happiness.” (7) So his statement that “the vigour of government is essential to the security of liberty” can be read as a plea for a General Government primarily to protect property interests. (8) Butler, on July 11, claimed likewise that government is “instituted principally for the protection of property.” (9) At the very least, these remarks evince a reductionism wherein society and government were viewed in terms of wealth. Shouldering a minority view on this point, Wilson, on July 13 in the convention, “could not agree that property was the sole or the primary object of [Government] & society. The cultivation & improvement of the human mind was the most noble object.” (10) This object, he suggested, is a personal right. (11) As much as this object is laudatory, it is not the object of government, which I contend is to provide and ensure order, which goes beyond the protection of property. If there is a higher purpose, government can express and operationalize societal ideals, which can thus orient whatever order government provides.

The primary result of the delegates’ property-centric view was the formation of a General Government of the U. States to counter the risk that State legislatures would act democractically at odds with the interests of the wealthy. Just a year before the convention, the Massachusetts legislature had attempted to act in the interest of debtors (i.e., unpaid soldiers who were still expected to pay on their farm debts; the representatives sought to stop this injustice at the expense of the creditors). Shays’ Rebellion was the unhappy result. Govereur Morris, on July 2, alluded to this affront on property interests in stating, “Every man of observation had seen in the democratic branches of the State Legislatures, precipitation—in Congress changeableness, in every department excesses [against] personal liberty [,] private property & personal safety.” (12) However, what if private property is acquired unjustly at the expense of another’s liberty? In other words, liberty may run counter to the interests of the rich.

Madison, on June 26 in the convention, remarked that “we had not among us those hereditary distinctions, … nor those extremes of wealth or poverty which characterize [the modern States in Europe]… . An increase of population will of necessity increase the proportion of those who will labour under all the hardships of life, & secretly sigh for a more equal distribution of its blessings… . a leveling spirit… the future danger.” (13) Leveling would actually be in line with liberty if wealth has been acquired unjustly, as for example, under duress. Moreover, too great an inequality of wealth can threaten the viability of a republic. For example, in 1985, the top five percent in the U.S. held $8 trillion in wealth. By 2007, they had $40 trillion. Besides being in part from the dot.com and housing bubbles wherein asset values were overvalued, the concentration of wealth cannot but undermine representative democracy wherein each person has one vote. Interestingly, even as they sought to protect their wealth from being leveled via representative democracy, the delegates also feared that the U. States would end up as a plutocracy (i.e., ruled by the wealthy who would be our aristocracy). Governeur Morris, on July 2, expressed the following. “Let the rich mix with the poor and in a Commercial Country, they will establish an oligarchy. Take away commerce, and the democracy will triumph. Thus it has been all the world over. So it will be among us.” (14) Madison reports that Morris feared “the influence of the rich.” (15) That the U.S. was even then an extended republic on the scale of an empire was thought, at least by Morris, to strength the ability of the rich to rule.  “The schemes of the Rich,” he maintained, “will be favored by the extent of the Country. The people in such distant parts can not communicate & act in concert. They will be the dupes of those who have more knowledge & intercourse.” (16) Govereur Morris, on July 2, maintained that “The Rich will take advantage of their passions & make these the instruments for oppressing them. The Result of the Contest will be a violent aristocracy, or a more violent despotism.” (17)

Madison reports that Morris’ “creed was that there never was, nor ever will be a civilized Society without an aristocracy. His endeavor was to keep it as much as possible from doing mischief.” (18) To contain such mischief (and to protect property-rights), the delegates wanted the proposed U.S. Senate to represent the interests of the wealthy (as well as wisdom and the state governments—a combination they problematically assumed would play well together in the Senate). Govereur Morris, on July 2, claimed that “The Rich will strive to establish their dominion & enslave the rest. They always did. They always will. The proper security [against] them is to form them into a separate interest.” (19) Accordingly, Davy, on July 6, urged that “wealth or property ought to be represented in the [second] branch.” (20)

The Senate was to be a conservative institution, wherein the vested property interests must sign off on any reform.  This could partially explain why passing health-insurance reform in 2010 was so arduous (and why extant health-insurance companies were able to kill off a competing public option). It could also explain why the wealthy could insist that their tax cuts be extended even as the U.S. Government was facing another deficit over $1 trillion also in 2010.

In short, the delegates to the constitutional convention were concerned that a “leveling danger” not be allowed to redistribute wealth even as they feared the advent of a plutocracy as essentially aristocratic governance. Government should protect wealth but not be run by it. In modern terms, this position might seem familiar as: CEO’s like Lloyd Blankfein of Goldman Sachs should not run the government, but the latter should not be used by those without to take from the wealthy. Yet as the CEOs’ agents in government essentially operate in the interest of the corporations and the wealthy, does not the government’s orientation to property already evince a plutocracy by a moneyed aristocracy? If so, Jefferson and Adams, who were for a natural aristocracy of talent and virtue rather than money (the latter being an “artificial aristocracy,” which the two founders believed was taking hold in the U. States even in the early 1800s), would doubtless demur. It is telling for us that government protecting wealth is virtually taken for granted among the American people even as the fear of an impending plutocracy and moneyed aristocracy is nearly absent. Any balance from the delegates’ two fears has dissolved in favor of property. The bias is so engrained in American society and government that it has become invisible.

1. James Madison, Notes in the Federal Convention of 1787. New York: Norton, 1987, p. 244
2. James Madison, Notes in the Federal Convention of 1787. New York: Norton, 1987, pp. 245
3. James Madison, Notes in the Federal Convention of 1787. New York: Norton, 1987, p. 196
4. James Madison, Notes in the Federal Convention of 1787. New York: Norton, 1987, pp. 247
5. James Madison, Notes in the Federal Convention of 1787. New York: Norton, 1987, p. 244
6. Alexander Hamilton, Federalist #1, in Jacob E. Cooke, The Federalist, Hanover, N.H.: Wesleyan University Press, 1961, p. 7
7. Alexander Hamilton, Federalist #1, in Jacob E. Cooke, The Federalist, Hanover, N.H.: Wesleyan University Press, 1961, p. 6
8. Alexander Hamilton, Federalist #1, in Jacob E. Cooke, The Federalist, Hanover, N.H.: Wesleyan University Press, 1961, p. 5
9. James Madison, Notes in the Federal Convention of 1787. New York: Norton, 1987, p. 268
10. James Madison, Notes in the Federal Convention of 1787. New York: Norton, 1987, p. 287
11. James Madison, Notes in the Federal Convention of 1787. New York: Norton, 1987, p. 287
12. James Madison, Notes in the Federal Convention of 1787. New York: Norton, 1987, pp. 233
13. James Madison, Notes in the Federal Convention of 1787. New York: Norton, 1987, p. 194
14. James Madison, Notes in the Federal Convention of 1787. New York: Norton, 1987, pp. 233-34
15. James Madison, Notes in the Federal Convention of 1787. New York: Norton, 1987, pp. 235
16. James Madison, Notes in the Federal Convention of 1787. New York: Norton, 1987, pp. 235
17. James Madison, Notes in the Federal Convention of 1787. New York: Norton, 1987, p. 235
18. James Madison, Notes in the Federal Convention of 1787. New York: Norton, 1987, p. 251
19. James Madison, Notes in the Federal Convention of 1787. New York: Norton, 1987, p. 233
20. James Madison, Notes in the Federal Convention of 1787. New York: Norton, 1987, pp. 248

Click to add a question or comment on the basis of American aristocracy.

Wall Street Banks: Price-Making and Law-Breaking?

According to the New York Times, The U.S. Senate Permanent Subcommittee on Investigations found that “two Goldman employees, Deeb Salem and David Swenson, tried to manipulate prices of securities used to bet against mortgages. Both tried to help Goldman pile on larger bets against the mortgage market, and they wanted to be able to buy such negative bets more cheaply, the report said. Goldman, as a broker, was able to affect prices in the market through the bids and offers it gave out. Mr. Swenson wrote in May 2007 that the bank should try to ‘start killing’ prices on certain positions so that Goldman would be able to ‘pick some high quality stuff,’ according to the Senate report. The strategy, Mr. Swenson wrote, would ‘have people totally demoralized.’ The pair were [sic] unsuccessful in their attempt, and both denied making it to the Senate committee. Mr. van Praag said last week that the report had no evidence of manipulation. Still, the Senate report said that ‘trading with the intent to manipulate market prices, even if unsuccessful, is a violation of the federal securities laws.’”
Analysis:
Price-making rather than taking is a classic trait of an oligopoly or monopoly. As of the beginning of 2011, in the U.S. the top ten banks held 77% of the bank-assets. One effect of the financial crisis of 2008 and the related U.S. Government’s TARP program was to make the big banks that survived even bigger.
As a result, the big boys on the street that came out of the financial crisis could potentially (or in actuality) affect markets and perhaps even presume that they could break (or even make!) the law with impunity. That is to say, the consolidation of the banking sector is a threat not only to the economic world of Adam Smith, but also to the political world of Thomas Jefferson. Competition is the currency of efficient and effective markets, and representation is the signature of virtuous and vibrant republics.  Price-taking and law-taking rather than price-making and law-making are proper for any business firm in a republic.
Where banks have gotten too big for their breeches with respect to being in a republic rather than a plutocracy (i.e., rule by wealth), it is the responsibility of the people and their elected representatives to look through the marketing campaigns and banking lobbyists and enact legislation breaking up those banks into competitive bits. Lest it be protested that large MNCs need big banks, we might apply our Adams-Jefferson criteria to those companies as well.
Just as it is unclear whether executive compensation had to go from five to ten percent of corporate income, it is far from evident that now that big business is here, it is necessary and here to stay. For a commercial form so young to engage in the pretense of historical necessity is a bit like gilding a lily whose flower has fallen over on itself. Just as it is in the interest of the CEOs on boards’ compensation committees to overstate executive compensation, it is utterly unremarkable when PR people in mega-corporations claim that the latter are vital to the modern economy. Let us depend rather on a less self-interested party to make such judgments—namely, government of the people, by the people, for the people.
Click to add a question or comment on whether Wall Street Banks are too big to compete (TBTC).
Source:
Louise Story and Gretchen Morgenson, “S.E.C. Case Stands Out Because It Stands Alone,” The New York Times, May 31, 2011.

Tuesday, May 31, 2011

FIFA: Weaving an Unethical Web

Soccer is the world’s most popular sport. Unfortunately, the Federation Internationale de Football Association (FIFA), the international association of soccer, has “repeatedly faced charges of corruption while operating with a lack of transparency and little oversight,” according to the New York Times. Even though corruption necessarily involves a proclivity among individuals, institutional processes and structure can come into play. In such cases, it is not sufficient to isolate and remove the sordid persons.
In FIFA, Mohamed bin Hammam and another FIFA official, Jack Warner of Trinidad and Tobago, were suspended on May 29, 2011 by a FIFA ethics committee. Bin Hammam had been accused “of offering cash payments of $40,000 apiece to about two dozen officials from Caribbean nations, with the understanding that they would vote for Bin Hammam over [the then-current president, Sepp] Blatter.” Blatter, too, was accused of corruption, but managed to evade the net of the association’s ethics committee. Accordingly, bin Hammam withdrew his candidacy for the presidency and Blatter was able to run unopposed for a fourth term.
To be sure, Blatter was undoubtedly extremely powerful within the association. However, the latter was complicit in its arrangements. For example, FIFA places a large amount of discretion in a comparatively small number of individuals. According to the New York Times, “Unlike the International Olympic Committee, whose 100-plus delegates vote on important matters like the awarding of the Winter and Summer Games, FIFA’s power is concentrated in a 24-member executive committee.” This concentration enables corruption because it is easier to buy off 24 than, say, 100 people. Also, it is easier for a cabal to dominate 24 than one hundred.
Furthermore, the executive committee has the power to check any country-level opposition. Specifically, the committee can “decertify any country’s soccer federation if it perceives interference from a national government. Critics say this leaves politicians reluctant to intervene, fearful of facing public wrath if a country’s soccer team is suddenly declared ineligible to compete.” In other words, FIFA’s head can disable the sort of check and balance that federalism can proffer if the system is in balance in terms of power between the members and the federal head. This example can in turn point to the sort of corruption that might be in store for the U.S. Government, should its consolidation of power vis á vis the state governments continue unimpeded.
In general terms, federalism itself is a governance structure that can, if in balance, proffer a check on corruption as ambition is pitted against ambition. If a federal head can compromise the wherewithal of the federal members, however, this check is compromised or enervated. Indeed, such a weakening of federalism can put the governance system in the service of corruption.
In addition to implications for governance, the case of FIFA involves business ethics not only for FIFA, but for companies benefitting from their relationships with the association. For example, companies sponsoring FIFA were under pressure to make a call on whether to continue in their capacity with the association. The management of Coca-Cola, one of FIFA’s international sponsors, announced that even though the charges of corruption were “distressing and bad for the sport,” the company would not withdraw its sponsorship. The soft-drink company’s managers undoubtedly thought that the company would make more money through continuing the sponsorship than what would be lost from any negative reputational attribution due to the company’s association with the association. Given the corruption in FIFA, it is possible that certain managers at the company had individual conflicts of interest in the form of bribes or other inducements from FIFA officials.

To be sure, standing on ethics can cost money, even just in terms of an opportunity cost, in the short run. This factor is decisive for many managers, as the benefit in terms of reputational capital is often long term and intangible. It is more difficult to determine far-off financial benefits from taking an ethical stand than what would be lost from the lost advertising.

In terms of corporate social responsibility, managers of companies sponsoring FIFA were undoubtedly assessing, even if implicitly, whether continuing their sponsorships would give the impression to the public  that the respective companies had moved away from societal norms. This assessment is distinct from ethical analysis, as societal norms are not necessarily moral (e.g. norms in Nazi Germany).  Like the ethical dimension, the benefits from staying in line with societal norms can be intangible and long-term, while allowing a breach to open can enable more immediate financial benefits. Although managers rarely discern it, the question is really whether a company is to be viable in the long term. The question is whether a given lapse from societal expectations is significant enough to jeopardize such viability. Under the sway of a loss of revenue in the short and medium-terms, such judgment can be distorted. Of course, it could also be that an association of sponsorship is not apt to be on the societal radar-screen. However, establishing or enabling a trajectory away from societal norms can make it more difficult should a really big judgment come along.

It should be noted that if a societal norm is itself unethical, standing on ethics would inflict long term costs in terms of being viewed at odds with society. However, in this scenario, a company’s CEO or Chair can engage in societal leadership; if the society comes along, the company can stand to gain big, financially and in terms of long-term reputational capital. In the case of Coca-Cola and FIFA, the relevant societal norm against corruption is ethical, so in staying with the association, the company risked losses in reputational capital both ethically and in terms of societal norms.  

In conclusion, FIFA illustrates a confluence of unethical persons and a conducive institutional arrangement. This combination is difficult to break. At a news conference on May 30th in Zurich, Blatter promised “zero tolerance” of illicit behavior in the future. However, “he remained defiant, according to the New York Times, remarking that “FIFA was experiencing ‘difficulties’ but not a crisis.” He “dismissed calls” by people including Hugh Robertson, a sports minister in the E.U., that the election should be postponed because the results lacked credibility. The day before, Blatter had asserted,  “I am the president of FIFA; you cannot question me.” This statement indicates an attitude so squalid that it almost certainly implies the existence of an enabling institutional structure and process. “I think the system is completely broken, and it’s set up that way,” said Grant Wahl, a senior writer at Sports Illustrated. “It seems like the main purpose of these guys is just to stay in power. And they will do that at whatever the cost.” My point is simply that the institution and its arrangements with other organizations are set up, kein Zufall, to enable just such a strategy. A sort of negative feedback loop exists, which inevitably infects the other organizations in its system.

Click to add a question or comment on corruption in FIFA and unethical systems in general.

Source:

Jeré Longman, “Accusations Are Replaced by Anger at FIFA,” The New York Times, May 30, 2011.

Sunday, May 29, 2011

The U.S.A.: Nature's Racial Melting-Pot

The 2010 U.S. census reignited the question of racial identity among multi-racial residents.  “I can’t fit in a single box on the census form” was the typical refrain among the fastest growing segment of the US population.  According to The New York Times in February, 2011, "when it comes to keeping racial statistics, the nation is in transition, moving, often without uniformity, from the old “mark one box” limit to allowing citizens to check as many boxes as their backgrounds demand." The number of mixed-race Americans was at the time rising rapidly, largely on account of increases in immigration and intermarriage. In 2010, for example, one in seven new marriages was interracial. Politically, some racial interest groups believed that the use of a catch-all category marginalized minority races in particular. As a result, the Census Bureau created 63 categories of possible racial combinations (a typical bureaucratic solution to a political problem).

Regardless of how the U.S. Government slices the deck, the reality on the ground was that the United States were finally turning the corner on racial-bonding in the beginning of the twenty-first century; the U.S. had gone from some states outlawing miscegenation (i.e., the mixing of different racial groups through marriage, cohabitation, or sexual relations) as late as the 1960s to the multiracial segment of the population being the fastest growing.  America in the late twenty-first century would undoubtedly look rather different than how it looked even at the turn of the twenty-first century. We should not be surprised at nature having overflowed the laws that  were designed to keep the races separate, and thus “pure.” What a strange adjective to apply to something like race!

The lesson here is that life is a fluid thing. The naturalist ethic in line with the flow of life tends to have the last word, even though particular laws can seem daunting in their hayday. Any generation can expect that the world it knows will be morphed by life's forces into yet another world even if it takes a few centuries. As strong as they may seem, governmental restrictions in the face of natural forces are doomed to fail, like sandcastles fending against a rising tide. In other words, nature has the last word. In terms of race, nature's instinct can be called a naturalistic ethic because it is in the direction of attraction rather than hatred.

That the multiracial “category” is the fastest growing in the American census can be regarded as the natural solution to racial problems that have plagued North America since the time of the colonies.  Whereas Cortez and his followers in New Spain quickly mixed the Indian, Black and Caucasian races, the British colonies further north quite intentionally kept the three groups separate and distinct. In spite of having some members out of parts of New Spain, the United States followed the British tradition until well into the second half of the twentieth century.

The courageous people who risked pain and even death in the Freedom Ride cracked the societal shell that had enabled the artificial laws to hold nature temporarily at bay. By the 1970s, attitudes in most of the United States were shifting, such that by the turn of the next century race relations in general bore scant resemblance to those back in 1960. Beyond changed race relations, a growing multiracial segment was tasked with making sense of themselves in the new society.

Cheryl Contee, for example, wrote in a CNN opinion piece in 2010, “When I look in the mirror each morning, my face epitomizes the American melting pot. I can’t ignore the pale skin of my white forebears, the slanted eyes of my Indian relatives nor the full lips and curly hair of my African blood.”  However, because there are many white Africans (e.g., in South Africa), her distinction of “white” and “African” is a false dichotomy.  She is treating two different categories as though they were one.  Better stated, Cheryl has Caucasian, Black, and Indian ancestors, hence she is multi-racial.  She puts it as follows: “When I look in the mirror each morning, my face epitomizes the American melting pot.”  Her melting pot constitution is something for her to be proud of because it instantiates the natural, rather than the governmental, solution to what has been an intractable problem in the U.S. for centuries. Looking forward, her situation is one of transition; her great grandchildren may look back at old pictures of Blacks and Whites as strange book-ends.

Click to add a question or comment on the multiracial population in American society.

Sources:

Cheryl Contee, “I Can’t Fit in a Single Box on a Census Form,” CNN Opinion, March 30, 2010.

Susan Saulny, “Counting by Race Can Throw Off Some Numbers,” The New York Times, February 9, 2011.

Fox News: Partisanship over Profit?

Roger Ailes “is the most successful executive in television by a wide margin, and he has been so for more than a decade. He is also, in a sense, the head of the Republican Party, having employed five prospective presidential candidates and done perhaps more than anyone to alter the balance of power in the national media in favor of the Republicans. ‘Because of his political work’—Ailes was a media strategist for Nixon, Reagan, and George H. W. Bush—‘he understood there was an audience,’ Ed Rollins, the veteran GOP consultant, [said]. ‘He knew there were a couple million conservatives who were a potential audience, and he built Fox to reach them.’”

“For most of his tenure, the roles of network chief and GOP kingmaker have been in perfect synergy. Ailes’s network has dominated the cable news race for most of the past decade, and for much of that time, Fox News attracted more viewers than CNN and MSNBC combined. Throughout the George W. Bush years, the network’s patriotic cheerleading helped to marginalize the Democrats. . . . The problem wasn’t that ratings had been slipping that much— [Glenn] Beck’s show declined by 30 percent from record highs, but the ratings were still nearly double those from before he joined the network. It was that, with an actual presidential election on the horizon, the Fox candidates’ poll numbers remain dismally low (Sarah Palin is polling 12 percent; Newt Gingrich and Rick Santorum, 10 percent and 2 percent, respectively). Ailes’s ­candidates-in-­waiting were coming up small. And, for all his programming genius, he was more interested in a real narrative than a television narrative—he wanted to elect a president.”

Analysis:

The last sentence is particularly revealing: “he wanted to elect a president.”  With Beck’s 30% drop in ratings still leaving him with a profitable rating, Ailes’ motive was not commercial, neither was it to improve the network’s journalism. Typically, news networks are criticized for sacrificing good journalism for commercial interests. Here, journalistic integrity and profit play second fiddle to partisan objectives.

To be sure, this case can be used to illustrate a point regarding stockholder (property) rights. Were Ailes’ political strategy that of the Fox owners, it would point to the right of property wherein profit is merely the default objective for corporate wealth. That is to say, a corporation’s owners can have their corporate wealth used toward any number of legal objectives. The owners of Ben & Jerry’s, for example, made selling ice cream not just about profits. Theoretically, a company could limit profit to that which is necessary for the company to continue—with the remaining profits to be spend on whatever aims the stockholders choose.

Even so, if a given company is presented as a news network only to use its situs to elect the next U.S. president, the duplicity is ethically squalid. If the objective of shareholders is to use Fox News in order to advance political partisan aims, that division should be presented as such rather than under the guise of journalism, for the subterfuge has a sort of gravitational pull on the news companies that would otherwise be content to manage journalistic integrity and commercial interests. In other words, American journalism itself may have already taken a hit in going down a slippery slope due to the duplicity at Fox News.

Click to add a question or comment (or view comments) on journalistic integrity and politics in the media and Fox News.

Source:

Gabriel Sherman, “The Elephant in the Green Room,” New York Magazine, May 22, 2011.