Grace Assignment

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Please see the attached case study, assignment as well as course material. As much relevant course material must be used as possible. Course material should be primarily used then please find outside sources. Please ensure that the assignment is read fully, including format, grammar, APA style, page length, etc. If the final work does not match the assignment details i will withdraw. Please let me know of any questions.

CASE STUDY The W. R. Grace Company was founded by, yes, a man named W. R. Grace. He was Irish and it was a shipping enterprise he brought to New York in 1865. Energetic and ambitious, while his company grew on one side, he was getting civically involved on the other. Fifteen years after arriving, he was elected Mayor of New York City. Five years after that, he personally accepted a gift from a delegation representing the people of France. It was the Statue of Liberty. Grace was a legendary philanthropist. He provided massive food donations to his native Ireland to relieve famine. At home, his attention focused on his nonprofit Grace Institute, a tuition-free school for poor immigrant women. The classes offered there taught basic skills—stenography, typewriting, bookkeeping— that helped students enter the workforce. More than one hundred thousand young women have passed through the school, which survives to this day. In 1945, grandson J. Peter Grace took control of the now worldwide shipping company. A decade later, it became a publicly traded corporation on the New York Stock Exchange. The business began shifting from shipping to chemical production. By the 1980s, W. R. Grace had become a chemical and materials company, and it had come to light that one of its plants had been pouring toxins into the soil and water underneath the small town of Woburn, Massachusetts. The poisons worked their way into the town’s water supply and then into the townspeople. It caused leukemia in newborns. Lawsuits in civil court, and later investigations by the Environmental Protection Agency, cost the corporation millions. J. Peter Grace retired as CEO in 1992. After forty-eight years on the job, he’d become the longest-reigning CEO in the history of public companies. During that time, he also served as president of the Grace Institute. The nonfiction novel A Civil Action came out in 1996. The best-selling, award-winning chronicle of the Woburn disaster soon became a Hollywood movie. The movie, starring John Travolta, continues to appear on television with some regularity. To honor the Grace Institute, October 28 was designated “Grace Day” by New York City in 2009. On that day, the institute defined its mission this way: “In the tradition of its founding family, Grace Institute is dedicated to the development of the personal and business skills necessary for self-sufficiency, employability, and an improved quality of life.” Source: Used from Creative Commons Attribution - NonCommercial ShareAlike 3.0 Unported license without attribution as requested by the work's original creator or licensor. INSTRUCTIONS Step 1: Write the Introduction Create the introductory paragraph. The introductory paragraph is the first paragraph of the paper and tells a reader the main points covered in the paper. Step 2: Answer the following 1. In what ways does the structure of a “C” corporation protect its owners from absorbing ethical responsibility for the company’s actions? 2. The triple bottom line is a form of corporate social responsibility where leaders analyze bottomline results. In addition, the company’s effects are evaluated in terms of the social realm as well as in terms of the environment. At the intersection of ethics and economics is sustainability, or the long-term maintenance of balance. In which way(s) did the W.R. Grace Company comply or violate: a. Economic Sustainability b. Social Sustainability c. Environmental Sustainability 3. There are three approaches to Corporate Responsibility - Corporate Social Responsibility; The Triple Bottom Line; and Stakeholder Theory. What is the importance of balancing stakeholder interests and how did the implementation or lack of implementation affect the W.R. Grace Company? 4. Is the best method of managing Corporate Social Responsibility a governmental obligation, marketplace responsibility, or a hybrid of the two? Explain. 5. What are the benefits of an Environmental Impact Statement; what are opposing arguments? 6. Do corporations have an ethical responsibility to finance environmental protections? Did the W.R. Grace Corporation have a financial responsibility to protect the environment? Explain 7. How does a Cost-Benefit Analysis align with Utilitarianism? How might a cost-benefit analysis pertain to the W.R. Grace Company? 8. Is the creation of “Grace Day” an ethical issue? Why or why not? Step 3: Review the Paper Read the paper to ensure all required elements are present. Use the grading rubric to ensure that you gain the most points possible for this assignment. Proofread the paper for spelling and grammatical issues, and third person writing. Read the paper aloud as a first measure; Use the spell and grammar check in Word as a second measure; Have someone who has excellent English skills proofread the paper; How to Set Up the Paper Create a Word or Rich Text Format (RTF) document that is double-spaced, 12-point font. The final product will be between 5-6 pages in length excluding the title page and reference page. Write clearly and concisely. Third person writing is required. Third person means that there are no words such as “I, me, my, we, or us” (first person writing), nor is there use of “you or your” (second person writing). If uncertain how to write in the third person, view this link: http://www.quickanddirtytips.com/education/grammar/firstsecond-and-third-person. Contractions are not used in business writing, so do not use them. Paraphrase and do not use direct quotation marks. Paraphrase means you do not use more than four consecutive words from a source document, but puts a passage from a source document into your own words and attribute the passage to the source document. Not using direct quotation marks means that there should be no passages with quotation marks and instead the source material is paraphrased as stated above. Note that a reference within a reference list cannot exist without an associated in-text citation and vice versa. Provide the page or paragraph number (required) when using in-text citations. If using the eBook, use Business Ethics followed by the Chapter/Section title and paragraph number. You are expected to use the case scenario, and weekly courses readings to develop the analysis and support the reasoning. The expectation is that you provide a robust use of the course readings. There is no need to use external source material. Material used from a source document must be cited and referenced. A reference within a reference list cannot exist without an associated in-text citation and vice versa. Use a wide array of the course material.
Chapter 10: The Tense Office: Discrimination, Victimization, and Affirmative Action from The Business Ethics Workshop was adapted by Saylor Academy and is available under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported license without attribution as requested by the work's original creator or licensor. Chapter 10 The Tense Office: Discrimination, Victimization, and Affirmative Action Chapter Overview Chapter 10 "The Tense Office: Discrimination, Victimization, and Affirmative Action" examines issues and ethics surrounding discrimination in the workplace. Next Saylor URL: http://www.saylor.org/books Saylor.org 428 10.1 Racial Discrimination LEARNING OBJECTIVES 1. Define racial discrimination. 2. Distinguish different ways that racial discrimination occurs in the workplace. 3. Consider legal aspects of racial discrimination in a business environment. 4. Discuss ethical aspects of racial discrimination in a business environment. The White Running Back Toby Gerhart is a bruising running back. Coming out of college at six feet and 225 pounds, he was drafted by the Minnesota Vikings football team with their first-round pick in 2010. It was a controversial choice. His playing style is unorthodox: he runs standing almost straight up and doesn’t do much faking and cutting. Most NFL runners get low and slip away from tacklers. Gerhart chugs and blows through things. That’s not Gerhart’s only distinction. In a league where running backs—almost all of them—are black, he’s white. On the days leading to the draft, Gerhart feared his skin color might be expensive. An anonymous quote had been circulating, suggesting that his position in the draft order could fall, bringing his paycheck down along with it: “One longtime NFL scout insisted that Gerhart’s skin color will likely prevent him from being drafted in Thursday’s first round. ‘He’ll be a great second-round pick up for somebody, but I guarantee you if he was the exact same guy—but he was black—he’d go in the first round for sure,’ the scout said.” [1] As it turned out, the scout was wrong. But the question of race in sports had flared, and the media came to it. One story appeared on an MSNBC-affiliated website called theGrio.com. Writer John Mitchell pointed out that twenty-seven of the NFL’s thirty-two general managers (those ultimately responsible for draftday selections) were white, and so, he asserted, it was “virtually impossible” that racism could work against Gerhart. [2] John Mitchell is black. In fact, if you go to the Grio.com’s contributor page, you’ll find that, as a rough estimate, 90 percent of the website’s writers are black, a number that’s far, far out of proportion with the global percentage of black writers out there. The disproportion, however, would be less surprising for Saylor URL: http://www.saylor.org/books Saylor.org 429 anyone who’d read the description the site presents of itself: “TheGrio.com is devoted to providing African Americans with stories and perspectives that appeal to them but are underrepresented in existing national news outlets. The Grio features aggregated and original video packages, news articles, and blogs on topics from breaking news, politics, health, business, and entertainment, which concern its niche audience.” [3] On that same page, surfers are directed to a video story about the Grio.co-produced by NBC New York, which is a station aimed at the general market, not the Grio.com’s niche audience. The story tells of the Grio.com’s origin and in an interview with the website’s founder, he remarks that his contributors are very diverse: “We have conservatives, liberals, old folks, young folks, rich folks, poor folks, politicians and plain folks.” [4] The NBC story also informs us that the idea for creating a site that aggregated news stories involving the black community was taken to NBC executives who agreed to sponsor the website. We don’t learn which specific NBC execs received the proposal, but a quick check of the network’s directors and programming directors and so on leads to the strong suspicion that most were white. Questions about racial discrimination are tangled and difficult. Here are a few of the knotted uncertainties arising from the Gerhart episode and its treatment in the press:  The story about Toby Gerhart in theGrio.com claimed that the white Gerhart couldn’t suffer racial discrimination because the people who’d be drafting him (or not) were white. Is that true, is it impossible for whites to be racists against other whites?  Overwhelmingly, running backs in the NFL are black. These are painful but very high-paying jobs with long vacations and lots of fringe benefits. Most young guys would be happy with the work, but a certain racial group holds a near monopoly. Is there racism operating here?  The Grio.com’s workforce is, according to its founder, very diverse in many ways but completely dominated by a single racial group. Racism?  MSNBC, which sponsors theGrio.com, currently has a prime-time TV lineup (Joe Scarborough and Mika Brzezinski in the morning and Chris Matthews, Ed Schultz, Rachel Maddow, and Lawrence O’Donnell at night) that’s all white. Racism? Saylor URL: http://www.saylor.org/books Saylor.org 430 What Exactly Is Racial Discrimination? Racial discrimination in the economic world can be defined in three steps: 1. An employment decision—hiring, promoting, demoting, firing, and related actions—affects an employee or applicant adversely or positively. 2. The decision is based on the person’s membership in a certain racial group rather than individual ability and accomplishment with respect to work-related tasks. 3. The decision rests on unverified or unreasonable stereotypes or generalizations about members of that racial group. The first step—someone has to suffer or benefit from the discrimination—is important because without that, without something tangible to point at, you’re left making an accusation without evidence. The second step—discrimination is based on race as opposed to job qualifications—is critical because it separates the kind of racism we typically consider vile from the one we normally accept as reasonable. For example, if actors are being hired to play Toby Gerhart in a biography about his life, and all the finalists for the role are white guys, well, the casting company probably did discriminate in terms of race, but this particular discrimination overlaps with qualifications helping the actor play the part. This contrast with the alleged racial discrimination surrounding the Gerhart draft pick: the suspicion that he couldn’t be very good at running over other people with an oblong leather ball cradled in his arm because his skin is white. If that’s a baseless premise, then it follows that within this definition of racism, the Grio.com’s claim that Gerhart has no reason to fear unfair discrimination because so many NFL general managers are white is, in fact, wrong. Whites can exhibit racial discrimination against other whites just as blacks can discriminate against blacks and so on. The difference between discriminating in favor of white males to play Gerhart in a movie and discriminating against white males as running backs is more or less clear. Between the extremes, however, there are a lot of gray areas. What about the case of hiring at theGrio.com? Just looking at the list of contributors, it’s hard to avoid wondering whether they’re picking people based on skin color as opposed to writing ability. On the other hand, since theGrio.com explicitly states that its mission is to tell stories affecting the black community, a case could be made that black writers are more likely to be well qualified since it’s more likely that their lives significantly connect with that community. It’s not, in other words, Saylor URL: http://www.saylor.org/books Saylor.org 431 that contributors are hired because they’re black; it’s the fact that they’re black that helps them possess the kind of background information that will help them write for theGrio.com. The definition’s third step—an employment decision rests on unverified or unreasonable stereotypes or generalizations about members of a racial group—is also important. Staying on theGrio.com example, there’s a difference between finding that in specific cases contributors well suited to the site also tend to be black, and making the stronger generalization that whites, Asians, Hispanics, and so on are by nature incapable of understanding and connecting with the realities covered by the web page. This second and generalizing claim eliminates the opportunity for those others to participate. Finally, questions about racial discrimination center on purely racial divisions but overlap with another distinction that can be similar but remains technically different: ethnicity. Race concerns descent and heredity. It’s usually visible in ways including skin, hair, and eye color. Because it’s a biological trait, people can’t change their race. Ethnicity is the cluster of racial, linguistic, and cultural traits that define a person as a member of a larger community. The Hispanic ethnic group, for example, contains multiple races, but is unified by common bonds tracing back to Spanish and Portuguese languages and customs. Though it’s not common, one’s ethnicity may change. A girl born in Dublin to Irish parents but adopted by an Argentine family living in East Los Angeles may ultimately consider herself Hispanic. The US Census Bureau divides individuals in terms of race and, with a separate question, ethnicity. It’s not unusual, however, for the two categories to be mixed in a business environment. Many organizations place Hispanic on the list of racial options when measuring their workforce’s diversity. In the real world, the line between race and ethnicity is blurry. Locating Racism in Business Questions about racism swirl around the Toby Gerhart episode, but it’s equally clear that getting a firm grip on which people and institutions involved actually are racist is difficult. Nearly all running backs in the NFL are black, and at least one scout presumes that racial discrimination in favor of that color is an active part of the reason. But there could also be social and cultural reasons for the imbalance. Maybe young black men are more likely to devote themselves to football because they see so many successful role models. Or it may be that players—regardless of their race—come from a certain economic class or Saylor URL: http://www.saylor.org/books Saylor.org 432 geographic part of the country where, in fact, blacks happen to be the majority. More explanations could be added. No one knows for sure which is right. On the other side, just as it’s prudent to be careful when using words like racist and pointing fingers, there is real evidence indicating wide and deep currents of racism in US business life. Generally, there are three evidence types: 1. Experimental 2. Statistical 3. Episodic One experimental indication of racism in hiring comes from economist Marc Bendick. He paired applicants for gender and appearance, loaded them with similar qualifications, and sent them to New York City restaurants in search of waiter jobs. The only notable difference between the two applicants was their race; whites, blacks, Asians, and Hispanics participated. After 181 restaurant visits in which the two applicants appeared within an hour of each other, the results were tabulated. Because four racial groups were investigated there are a lot of cross-tabs, but the basic finding was simple: with everything else as equal as possible, whites were significantly more likely to be given information about job duties, receive second interviews, and be hired. According to Bendick, “The important thing is that we repeated the experiment dozens of times so that we can be pretty sure when a pattern emerges it really is differences in employer behavior and not a random effect.” [5] In terms of statistical evidence of racism, racial disparities are significant in many areas. Income is not atypical. According to the US Census Bureau, in 2006 the median personal income for Asians was $36,000; for whites $33,000; for blacks $27,000; and for Hispanics $24,000. [6] The disparities contract significantly—but not all the way—when you adjust for education levels. Surveying only those who hold bachelor’s degrees yields these numbers: white, $44,000; Asian $42,000; black $42,000; Hispanic $37,000. Going back a little more than a decade, the federal Glass Ceiling Commission produced a set of striking statistics. According to its study, 97 percent of the senior managers of Fortune 500 companies are white (and 95 percent are male). That compares with a broader economic reality in which 57 percent of the working population is female, or minority, or both. [7] Episodic evidence of racism in business life is real-world episodes where decisions seem to have been made based on racial distinctions. The venerable clothier Abercrombie & Fitch, which once outfitted JFK Saylor URL: http://www.saylor.org/books Saylor.org 433 and now sells heavily to collegians, garnered considerable (and unwanted) media attention when Jennifer Lu, a former salesperson at the store, took her story to the CBS news program 60 Minutes. According to Lu, she was fired soon after corporate executives patrolled the store where she worked and informed the store’s manager that the staff was supposed to look like the models in the store’s display posters. If you’ve been in Abercrombie, you may remember that they tend to have the blonde, blue-eyed, football team captain look. Like Toby Gerhart. In an interview with 60 Minutes, Anthony Ocampo says, “The greeters and the people that worked in the in-season clothing, most of them, if not all of them, were white. The people that worked in the stock room, where nobody sees them, were mostly Asian-American, Filipino, Mexican, and Latino.” [8] A lawsuit against the store was settled out of court when Abercrombie agreed to pay almost $50 million to negatively affected employees and beef up their minority hiring. They also stated that their custom of seeking out new sales staff at predominantly white fraternities and sororities should be modified. Categories of Racial Discrimination When discrimination exists in a business environment, it can be distinguished into several categories. First, there’s a division between institutional and individual discrimination. Institutional discrimination is exemplified in the Abercrombie lawsuit. The preference given to white, football-player types wasn’t one person at one store; it was part of the corporate culture. Managers were instructed to include a certain look while excluding others, and presumably their job depended on their ability to meet that demand. The manager, in other words, who fired Jennifer Lu may (or may not) have thought it was a terrible thing to do. Regardless, the manager’s personal feelings had nothing to do with the firing. Instructions were provided by higher-ups, and they were followed. Individual racial discrimination, on the other hand, can occur in any organization no matter how determined leaders may be to create an organizational culture prohibiting it. The NFL, for example, established a requirement (commonly called “the Rooney Rule”) in 2003 requiring teams to interview minority candidates for football operations posts. It’s part of a broader effort by the league to ensure against racial discrimination. Still, this comes from a 2005 article by Sports Illustrated writer Dan Banks: “One Asian stereotype concerns size. A NFL personnel man told me on Thursday the problem with Chang Saylor URL: http://www.saylor.org/books Saylor.org 434 is ‘the kid is short.’ But when I noted that Chang was 6-1½ and 211 pounds, and taller than San Diego’s Drew Brees—the talent scout replied: ‘But he plays short. And he’s 211, but he looks frail.’” [9] A second broad distinction within the category of racial discrimination divides isolated from regularized incidents. An isolated case of racial discrimination is a one-time deal. Regularized incidents are repeated occurrences fitting into a pattern. The final distinction cuts through all those mentioned so far; it divides sun intentional from intentional discrimination. Take as a general example a seventy-year-old who grew up in a time and place where racism was normal and accepted almost without objection. For someone coming from those circumstances, it’s hard to imagine that from time to time some of that old way of seeing the world isn’t going to slip through. Of course the fact that racism is unintentional doesn’t make it less racist, but just like in everything else, there’s a difference between doing something without thinking about it and doing something with premeditation and full understanding. The Legal Side of Discrimination A complex web of legal precedents and civil rules apply to racial discrimination. At the center, the Civil Rights Act of 1964 covers all employers in both private and public organizations that have fifteen or more workers. The act’s crucial language can be found in Title VII, which confronts a host of discriminatory practices: It shall be an unlawful employment practice for an employer (1) to fail or refuse to hire or to discharge any individual, or otherwise discriminate against any individual with respect to his compensation, terms, conditions or privileges of employment, because of such individual’s race, color, religion, sex, or national origin; or (2) to limit, segregate or classify his employees or applicants for employment in any way that would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual’s race, color, religion, sex, or national origin. [10] You notice that employee is referred to as “his,” not “his or hers,” and employers are also “his,” not “his or hers.” That’s not a snarky comment; it’s just an example of how treacherous the issues of unfair discrimination are. Even those with the best intentions find it difficult to pull completely away from what others may perceive as signs and appearances of unfair practices. Saylor URL: http://www.saylor.org/books Saylor.org 435 The difficulty partially explains why the Civil Rights Act has been repeatedly modified and supplemented. The Equal Employment Opportunity Act of 1972 set down new rules and created a powerful commission to enforce and report on the status of anti-discriminatory efforts across the nation. These reports have played a role in many civil lawsuits brought by individuals or groups against employers suspected of discriminatory treatment. Additional requirements—some involving affirmative action (to be discussed further on)—were compiled for companies doing business with the US government. While these measures don’t bind organizations operating independently of government contracts, the pure size and spending power of Washington, DC, does send the measures far into the world of business. So the legal and governmental bulwark set up against racial and other types of discrimination stands on four legs: 1. Racial and similar types of discrimination are directly illegal. 2. Civil lawsuits may be filed by those who feel they’ve suffered from discriminatory practices. 3. Government oversight (the Equal Employment Opportunity Commission) is continuous. 4. Government regulations insist that companies wanting to do business with deep-pocketed Washington, DC, implement exemplary anti-discriminatory practices. The Ethics of Discrimination: Arguments against the Practice It’s difficult to locate a mainstream ethical theory for workplace life that can be twisted to support racial discrimination as it’s defined in this chapter. The arguments mounted against it generally fall into three groups: 1. Fairness arguments typically operate from the assertion that discrimination divides up society’s opportunities in an unacceptable way. (These kinds of arguments are sometimes called “justice arguments.”) 2. Rights arguments typically assert that discrimination contradicts the victims’ basic human rights. 3. Utilitarianism arguments employed in the economic world frequently assert that discrimination reduces a society’s economic productivity and so harms the general welfare, the happiness of the society. Fairness, as Aristotle defined the term, is to treat equals equally and un-equals unequally. People, that means, are to be treated differently if and only if there are job-pertinent differences between them. Burly Saylor URL: http://www.saylor.org/books Saylor.org 436 men should be favored over thin ones when you’re hiring an offensive lineman in the NFL, but not when you’re looking to contract a coach. The philosopher John Rawls advocated an ingenious way to, at least as a thought experiment, promote fairness. He proposed that individuals imagine the reality surrounding them as shaken up, with people pulled from their situation and randomly inserted into another. So if you’re a white guy in college looking for a summer job, you probably don’t mind too much that Abercrombie & Fitch is looking for your type more than any other. But if you imagine getting shaken up with your black, Asian, and Hispanic classmates and you don’t know beforehand what race you’re going to get assigned, then maybe you think twice about whether Abercrombie should be allowed to hire whites so pervasively. This is called a veil of ignorance test: you need to imagine how you’d like society to be if you don’t know beforehand exactly where you’ll be placed in it. The imagined reality, presumably, will be one where everyone gets a chance that’s fair. Rights arguments against discrimination typically depart from the premise that as humans we’re all endowed with a certain dignity and freedom that abides regardless of circumstances. These attributes are an essential part of what we are: they’re like pregnancy in the sense that you can’t have them halfway. You’re either pregnant or you’re not; you either possess full dignity and freedom just like everyone else or you don’t. If all of us do possess dignity and freedom, then it’s a short step to see that discrimination is an affront to them. Treating one group differently than another is to wrongly claim that they have different levels of basic dignity. Or, from the viewpoint of freedom, discrimination grants one group more freedom in the world than another. Again, the argument here is that dignity and freedom can’t be measured or parceled out; as essential rights, everyone must hold them perfectly, and they must be respected fully. The utilitarian argument holds that we ought to act in the business world in a way that maximizes our collective happiness and welfare. If that’s right, then we all have an interest in ensuring that the most qualified people occupy the various working slots in our economy. Possibly the examples of professional football and Abercrombie don’t lend themselves very well to this argument, but if we move to other professions, the inadvisability of discrimination becomes clearer. In the field of medical research, we wouldn’t want to lose a breakthrough because the one person who’d have the idea that could cure cancer happens to be Hispanic. The argument, therefore, is simply that as a society we benefit when each individual member is allowed the maximum opportunity to contribute. Saylor URL: http://www.saylor.org/books Saylor.org 437 The Ethics of Discrimination: Racism versus Job Qualification While few argue that discrimination is good or justified, there are equally few who deny that some situations do, in fact, allow for discrimination (the actor hired to play Martin Luther King is black, the person hired to monitor the women’s locker room is a woman). Between these extremes there stretches a tense set of debates about where the line gets drawn. When is some limited discrimination acceptable? The lawsuit against Abercrombie & Fitch alleging that the company hires a disproportionately white sales force and favors white employees for the best positions never went to court. Former employee Jennifer Lu turned up on 60 Minutes, CBS news started running stories about how Asians and Mexicans were confined to the stockroom, and with the bad publicity storming, Abercrombie opted to settle the matter and move on. That was probably a good business decision. Others, however, wanted to push the issue out to see the ethical consequences. One of those was lawyer and talk show host Larry Elder. He made this point: “Abercrombie & Fitch ought to have the right to set their own policies. Look, there’s a restaurant called Hooters. Hooters require you to have certain kinds of physical accoutrements, and I think people understand that. Should they have a right to hire waitresses because they want to attract a certain kind of clientele who want to ogle at the waitresses? I think so.” [11] Closing off the argument with respect to Abercrombie & Fitch, the point is that Abercrombie isn’t selling only clothes but also a look, an image, a kind of social message. And that message is crystallized by the kind of people they hire to walk around their showrooms and smile at consumers: white, attractive, fit, upper-middle-class. Not coincidentally, one of the company’s subsidiary lines of clothes is called Prep School. And if that’s what they’re selling—not just clothes but a social message—they should be able to hire the best possible messengers, just as Hooters is allowed to hire the kind of waitresses their clientele wants to ogle and just as the movie producer is allowed to hire a black actor to play Martin Luther King. There’s no racial discrimination here; it’s just business. At bottom, it’s no different from theGrio.com, which is selling a specific product and image that naturally leads to an almost entirely black organization. In every case, it’s not that the business starts out with a certain racial (or gender) type that they’ll contract; it’s that they start out with something they want to sell, and as it happens a certain racial type lends itself to the business. There are two types of responses to this argument. The first is to push back against the premise that the one racial type really does serve the business’s interest better than the others. Rebecca Leung, the CBS Saylor URL: http://www.saylor.org/books Saylor.org 438 reporter for the Abercrombie & Fitch case, shapes her story this way. The idea, Leung asserts, of prep schools and the all-American pursuit of upper-middle-class life that Abercrombie tries to represent belongs equally to all races. There’s no justification, Leung leads viewers to believe, for associating that ideal with a skin color. That’s why her report ends this way: “All-American does not mean all-white,” says Lu. “An all-American look is every shade,” Lueng asks. “Yes, absolutely.” [12] The other kind of response to the argument that Abercrombie’s business model lends itself to hiring whites is to concede the point but then to insist that it doesn’t matter. Because society’s general welfare depends on rallying against poisonous discrimination, it should be avoided in every possible case, even those where there might be some rational, business-based reason for engaging in the practice. Abercrombie, the argument goes, may have good reason for seeking out white sales staff. But even so, the larger social goal of developing a color-blind society requires Abercrombie’s participation, and the company ought to be required to participate even against its own short-term economic interest. Conclusion For historical reasons in the United States, discrimination in the reproachable sense of the word comes into sharpest focus on questions concerning race. Any distinguishing characteristic, however, can be levered into a scene of unfair marginalization. Women, for example, have suffered mistreatment in ways analogous to the kind discussed here for racial groups. And it doesn’t stop there. Age, national origin, religion, weight, whatever, all of us have features that can be singled out by others and then converted into favoritism or negative prejudice in the workplace. Somewhere there’s probably a high executive who’s convinced that individuals with knobby knees can’t do good work. In ethical terms, all these cases may be understood and handled as the question of race has. That is, by thoughtfully determining whether the identifying feature—the skin color, gender, age, religion, weight, the knobbiness of the knees—actually has a bearing on the person’s ability to successfully accomplish the tasks fitting the job. Saylor URL: http://www.saylor.org/books Saylor.org 439 KEY TAKEAWAYS  Racial discrimination is adverse treatment stemming from unfounded stereotypes about a person’s race.  Favoring or disfavoring members of a racial group may imply racism, or it may reflect a legitimate job requirement.  Evidence of racial discrimination may be accumulated experimentally, statistically, and episodically.  Racial discrimination in business can be divided into multiple kinds and intentions.  The Civil Rights Act of 1964 is a key legal document in the history of discrimination.  Ethical arguments against discrimination are generally built on theories of fairness, rights, and utilitarian arguments. REVIEW QUESTIONS 1. In your own words, what are the three steps defining racial discrimination? 2. What’s the difference between racial discrimination and a preference for race based on an occupational qualification? Provide an example. 3. List and define the six categories of discrimination in a business environment. 4. What are the main legal and governmental remedies set up against discrimination? 5. Why kind of business may favor Asians when hiring, and draw both reasonable defenses and criticisms of the practice? 6. What is the utilitarian argument against racism in the economic world? [1] Michael Silver, “Race Factors into Evaluation of Gerhart,” Yahoo! Sports, April 20, 2011, accessed May 31, 2011, http://sports.yahoo.com/nfl/news?slug=ms-gerhartstereotype042010. [2] John Mitchell, “White Running Back’s Draft Status Won’t Be Hamstrung by Race,”TheGrio.com, April 22, 2010, accessed May 31, 2011,http://www.thegrio.com/opinion/white-running-backs-draft-status-wont-be-hamstrungby-race.php. [3] “About theGrio,” TheGrio.com accessed May 31, 2011, http://www.thegrio.com/about. [4] “About theGrio,” TheGrio.com accessed May 31, 2011, http://www.thegrio.com/about. Saylor URL: http://www.saylor.org/books Saylor.org 440 [5] “City Room,” New York Times, NY/Region, March 31, 2009, accessed May 31, 2011,http://cityroom.blogs.nytimes.com/2009/03/31/racial-bias-seen-in-hiring-of-waiters. [6] U.S. Census, “Table PINC-03. Educational Attainment—People 25 Years Old and Over, by Total Money Earnings in 2005, Work Experience in 2005, Age, Race, Hispanic Origin and Sex,” in Current Population Survey (2006). [7] George E. Curry, “Race, Gender and Corporate America,” District Chronicles, April 24, 2005, accessed May 31, 2011, http://www.georgecurry.com/columns/race-gender-and-corporate-america. [8] Rebecca Leung, “The Look of Abercrombie & Fitch,” 60 Minutes, November 24, 2004, accessed May 31, 2011,http://www.cbsnews.com/stories/2003/12/05/60minutes/main587099.shtml. [9] Don Banks, “Hurdles to History: From Size, Stereotypes, System, Chang Fights Skeptics, “Inside the NFL (blog), Sports Illustrated, April 15, 2005, accessed May 31, 2011,http://sportsillustrated.cnn.com/2005/writers/don_banks/04/15/chang/index.html. [10] Civil Rights Act of 1964 (Pub. L. 88-352, 78 Stat. 241, enacted July 2, 1964). [11] Rebecca Leung, “The Look of Abercrombie & Fitch,” 60 Minutes, November 24, 2004, accessed May 31, 2011,http://www.cbsnews.com/stories/2003/12/05/60minutes/main587099.shtml. [12] Rebecca Leung, “The Look of Abercrombie & Fitch,” 60 Minutes, November 24, 2004, accessed May 31, 2011,http://www.cbsnews.com/stories/2003/12/05/60minutes/main587099.shtml. Saylor URL: http://www.saylor.org/books Saylor.org 441 10.2 Gender Discrimination and Occupational Segregation LEARNING OBJECTIVES 1. Define gender discrimination. 2. Consider the ethics of occupational segregation. 3. Discuss the doctrine of comparable worth. 4. Define the glass ceiling. 5. Examine the case of motherhood. Saylor URL: http://www.saylor.org/books Saylor.org 442 10.3 Discrimination: Inferiority versus Aptness Discrimination in the workplace moves in two directions. One is hierarchical, one group or another is stereotyped as simply superior or inferior. Historically, many cases of race discrimination fit on this scale. Discrimination can also move horizontally, however. In this case, divisions are drawn between different groups not so much in terms of general capability, but as naturally suited for some and naturally unsuited for other tasks and occupations. Gender discrimination frequently fits into this category. Here’s a list of professions where the workers are more than 90 percent women:  Dental hygienists  Preschool and kindergarten teachers  Secretaries and administrative assistants  Dental assistants  Speech-language pathologists  Nurses  Child-care workers  Hairstylists and cosmetologists  Receptionists and information clerks  Payroll clerks And another where the workers are 99 percent (not a typo) male:  Logging workers  Automotive body repairers  Cement masons  Bus and truck mechanics  Electrical power-line installers and repairers  Tool and die makers  Roofers  Heavy vehicle equipment service technicians  Home appliance repairers  Crane and tower operators Saylor URL: http://www.saylor.org/books Saylor.org 443 The lists come from a blog called The Digerati Life. [1] The author is a software engineer living in Silicon Valley. Because she’s a she, 78 percent of her colleagues don’t use the same bathroom. [2] What Exactly Is Gender Discrimination? Gender discrimination defines analogously with the racial version: 1. An employment decision—hiring, promoting, demoting, firing—adversely or positively affects an employee or applicant 2. The decision is based on the person’s gender rather than individual merit. 3. The decision rests on unverified stereotypes or generalizations about members of that gender. The difference, again, is that the stereotypes and generalizations tending to surround women in the United States during our lifetimes have branded the group as naturally suited to some types of work and not others; and, correspondingly, men also find their natural roles pointing in some directions and not others. This division of labor raises provocative questions. More sparks fly when two other factors add to the mix: concrete and broad statistics showing that women receive lower wages than men when doing distinct but comparable work; and women who do pursue career lines dominated by men can find their advance up the promotion ladder halted by a difficult-to-see barrier, a kind of glass ceiling. So three ethical issues connecting with gender discrimination in the workplace are occupational segregation, comparable worth, and the glass ceiling. Occupational Segregation: The Causes What causes occupational segregation? One explanation is biological. Differences, the reasoning goes that are plainly visible physically also exist on the level of desires and aspirations. Women and men are simply divergent; they pursue distinct goals, define happiness in separate ways, and tend to have dissimilar kinds of abilities. For all those reasons, women gravitate to different kinds of professions. Now, if all those things are true, then we should expect to see just what we do see: significant occupational segregation. The biological explanation also functions less directly when career paths and family paths conflict. Women who physically carry children find themselves removed—willingly or not—from work for significant periods. If you see that coming in your not-distant future, then you may opt into a field where that kind of absence is less damaging to the company and your own long-term prospects. Saylor URL: http://www.saylor.org/books Saylor.org 444 One clean argument against the biological explanation for gender segregation in the workforce starts with the suspicion that visible physical differences may be leading us to mistakenly believe that there are underlying psychological differences where few actually exist. People, the reasoning goes, are making an invalid argument when they suppose that because women and men look different on the outside, they must be different on the inside too. There’s no reason that’s necessarily true, just like there’s no reason to think that a Cadillac painted blue and one painted pink are going to perform differently on the road. A second and frequently cited explanation for occupational segregation is social precedent. Young men and women making career decisions normally have very limited experience in the workplace and so depend on what others have done. It’s very reasonable, therefore, for a young man trying to decide between, say, going to work as an assistant to a dentist and going to assist a roofer to notice that a lot of other guys are working on roofs, but not many are in dentists’ offices. Women see the same thing, and the occupational segregation that already exists in society gets repeated. In this case, it’s the individual men and women themselves who are effectively volunteering for professional separation. A third explanation—and the one drawing the sharpest ethical attention—is discriminatory prejudice. Those in charge of hiring stack the deck to favor one gender over another because of unverified generalizations about differences between men and women. In his book Business Ethics, Manual Velasquez relates an experiment done by the ABC news program Primetime Live. Two early careerists— Chris and Julie—were outfitted with hidden microphones and tiny cameras and sent out to answer the same help-wanted ads. Their experiences were for TV entertainment, not a scientific study, but they do illustrate how discriminatory occupational segregation can work. [3] Both she and he were in their mid-twenties, blond, and attractive. They presented virtually identical résumés, and both claimed to have management experience. What they got from their interviewers, however, was very different. When Julie appeared at one company, the recruiter spoke only of a position answering phones. The same day the same recruiter offered Chris a management job. In a gotcha-followup interview, the flustered recruiter told the camera that he’d never want a man answering his phone. Another instance wasn’t quite so clear-cut. The two visited a lawn-care company. Julie received a typing test, some casual questions about her fiancé, and was offered a job as a receptionist. Chris’s interview included an aptitude test, some casual talk about keeping the waistline trim, and a job offer as a territory manager. When confronted in his gotcha interview, the owner strongly defended his actions by pointing Saylor URL: http://www.saylor.org/books Saylor.org 445 out that being a manager at a lawn-care service means actually doing some of the outdoor work; and Chris—an objectively stronger candidate in the physical sense—seemed more apt for that. The question to ask here—and it’s one that comes up time and again in discussions of occupational segregation—is the extent to which the outdoor work requirement is a legitimate reason for hiring Chris or an excuse for excluding Julie (because the owner doesn’t believe women should be in that line of work). The Ethics of Women’s—and Men’s—Work What kind of ethical arguments can be mounted for and against the idea that occupational segregation ought to exist? Possibly the strongest argument in favor runs through a utilitarian theory—one that judges as ethically correct any act that raises a society’s overall happiness. The theory’s cutting edge is the requirement that individual interests be sacrificed if that serves the greater good. For example, occupations requiring hard physical strength (firefighter, logger, construction) may require strength tests. These tests, which more or less measure brute power, are going to weed out most women—so many, in fact, that it may make practical sense to essentially designate the job as a male realm, and to do so even though it may be unfair to a very few physically strong women. That unfairness is erased, in ethical terms, by the requirement that the general welfare be served. There are a number of responses to this argument. One is to say that the general position of firefighter should be open to everyone, but every firehouse should make sure there are a few big guys in the mix in case smoke-inhalation victims need to be carried down perilous ladders. Another response is to concede that there are some occupations that may be right for one or another gender but draw the line firmly there and demand equal opportunity everywhere else. Another, more polemical argument is to assert that the goal of a gender-neutral society is so important and worthwhile that if it means sacrificing performance in some occupations, then the sacrifice should be made. The greater good is better served by occupational equality than by the certainty that the 250-pound weight-lifting guy will be the one who happens to be in the firehouse when the alarm goes off even if it goes off because it’s your apartment that’s on fire. Another way to argue against occupational segregation of any kind, no matter the circumstances, starts from rights theory and the premise that the highest ethical value is personal freedom and opportunity: what’s always recommendable is maximizing our ability to pursue happiness as each of us sees fit. Within Saylor URL: http://www.saylor.org/books Saylor.org 446 this model, it becomes directly unethical to reserve some jobs for women and others for men because that setup limits both men and women; it impinges on their basic freedom. Like utilitarian theory, this freedom-based argument can be twisted around to work in the other direction. If individual freedom is the highest ethical good, the reasoning goes, then shouldn’t business owners be able to hire whomever they like? There may be an owner out there who simply doesn’t want to hire guys. Perhaps there’s no rational reason for the exclusion, but if individual freedom is the highest good, there’s no strong ethical response to the preference. The only open pathway is to say that if you don’t like the fact that this owner isn’t hiring men, then you should make your own company and you can hire as many of them as you wish. Comparable Worth Going back to the list of gender-concentrated occupations, some on the women’s side really aren’t so different from those on the men’s side in terms of skill and training required, effort exerted, and responsibility held. Take hairstylists and cosmetologists from the woman’s list and automotive body repairers from the guy’s list. While it’s true that a lot of the hairdressers wouldn’t be caught dead working in the body shop and vice versa, their jobs really aren’t so different: fixing hair and giving cars makeovers. The wages are different, though, at least according to statistics that come from the San Jose Mercury News. Doing hair will net you about $20,000 a year, and working in the car shop gets you $35,000. [4] This reality is at odds with the doctrine of comparable worth, which states that when two occupations require comparable levels of skill, training, effort, and responsibility, they should be rewarded with comparable salaries. The gender problem associated with comparable worth is that statistical evidence suggests that so-called women’s work has consistently garnered lower wages than men’s work. The hairdresser and the body shop example isn’t an anomaly but a representative of the larger reality. According to the US government, the median income of American working women is $27,000, while for men it is $39,000. More, the differences hold when adjusting for educational levels. For high school grads, it is $21,000 versus $32,000. For college grads, it’s $40,000 versus $60,000. At the PhD level, it’s $55,000 versus $78,000. [5] Saylor URL: http://www.saylor.org/books Saylor.org 447 These statistics don’t tell the whole story, however; they never do. As it happens, statistician is one of those professions where there’s a notable pay gap between genders—$49,000 versus $36,000 as a median salary—and women get the $49,000. [6] Glass Ceiling What happens when a woman goes into a field traditionally dominated by men and starts strong, receiving salary and treatment comparable with her male workmates but then hits a promotion wall? Called the glass ceiling, it’s the experience of women topping off in their career for, apparently, no reason beyond the womanhood. A good example of the glass ceiling—and also of breaking it—comes from Carly Fiorina, the former CEO of the very masculine Hewlett-Packard. In an interview with the web magazine Salon, she discusses the topic candidly. Five of her ideas come through loudly. [7] First, in Silicon Valley Fiorina believes there is a glass ceiling at many companies. Second, she buys the notion that women and men are fundamentally different, at least in this way: they feel comfortable with different kinds of languages and ways of communicating. Compared with Silicon Valley guys, she says, “Women tend to be more communicative, collaborative, and expressive. The stylistic differences get in the way [of mutual understanding]. That’s why diversity in the workplace takes real work.” [8] Third, differences in the way women and men communicate ultimately doom many women’s professional ascent. As the office culture becomes increasingly male on the way up, women are decreasingly able to communicate with and work well with colleagues. Fourth, Fiorina believes that given the way things are now in Silicon Valley, if a woman wants to break through to the highest echelons of management, she’s probably going to have to learn male rules, and then play by them. For example, she once pulled on cowboy boots and a cowboy hat, stuffed socks down her crotch, and marched into a hall full of (mostly) men to proclaim, “Our balls are as big as anyone’s in this room!” In the Salon interview, she explains it this way: Saylor URL: http://www.saylor.org/books Saylor.org 448 Fiorina: Part of the reason I succeeded in Silicon Valley was that I talked to people in a language they understood. When I negotiated in Italy, I ate a lot of pasta and drank a lot of wine. In bringing a team together to focus on a common goal, you have to find common language. Interviewer: And the language of the business world remains male? Fiorina: Yes, and particularly that case you cited, it was an incredibly male-dominated, macho culture. They understood balls and boots, they understood what that meant. [9] Fifth, in the medium to long term, Fiorina believes the way to truly demolish the glass ceiling is for women to work their way up (like she did) and occupy more high-level posts. “When I went to HP,” she says, “I hoped I was advancing women in business by putting women in positions of responsibility. But it’s clear that we don’t yet play by the same rules and it’s clear that there aren’t enough women in business, and the stereotypes will exist as long as there aren’t enough of us.” [10] The Special Case of Motherhood One advantage Carly Fiorina had on the way up was a husband who cooperated extensively in rearing her children. Still, women alone physically bear children and frequently hold principal responsibility for their care at least through the breast-feeding stage or further. For that reason, a discrete area of business ethics has been carved out for managing the tension between the legitimate interest businesses have in employees continuing their labors without the occasional childbearing and rearing interruption, and the legitimate interest professional women and society generally hold in motherhood and in ensuring that a healthy generation will be arriving to take over for the current one. One proposal has been the creation of a dual-track career system: one for women who plan to have children at some point in the not-so-distant future and another for those who either do not plan to have children or envision someone else as assuming primary child-care responsibility (a husband, a relative, a paid nanny). Under this scenario, companies would channel women planning for motherhood and child rearing into positions where work could be interrupted for months or even years and then resumed more or less from the same spot. A potential mother would receive an at least informal guarantee that her spot would be held for her during the absence, and upon resumption of duties, her career would continue and advance as though there had been no interruption. In fact, in many European countries including Spain, France, and Germany, such leave is actually required by law. In those countries, the birth of a child automatically qualifies one of the parents (the laws generally treat fathers and mothers indiscriminately Saylor URL: http://www.saylor.org/books Saylor.org 449 as caregivers) for an extended leave with the guarantee of job resumption at the end of the period. Laws in the United States are not so worker oriented (as opposed to business oriented), though some companies have taken the initiative to offer extended parental absences without adverse career effects. These include Abbott Laboratories, General Mills, IKEA, and others. Theoretically, granting professional leaves for the fulfillment of parental responsibilities makes sense. The problem is that in the real world and in many industries, it’s nearly impossible to go away for a long time and then resume responsibilities seamlessly. In the interim, projects have been completed and new ones have begun, clients have changed, subordinates have been promoted, managers have moved on, and the organization’s basic strategies have transformed. Reinsertion is difficult, and that leads to the fear that companies and managers—even those with the best intentions—will end up channeling those they presume will seek parental leaves into less important roles. The potential mother won’t be the one chosen to pursue research on the company’s most exciting new product—even if she’s the best researcher— because the firm won’t be able to just put product development on hold at some point in the future while she’s away. The end result is that the so-called mommy track for professional life becomes the dead end track. There are no easy solutions to this problem, though there are ways to limit it. Technology can be a major contributor. Just something as simple as Skype can allow parents at home with young children to “come into” the office regularly. Further, companies can, and increasingly are, providing day care facilities in the building. Ethically, one way to manage the conflict between professional life and parenting is to locate the interests of those involved, set them on a scale, and attempt to determine how the issue weighs out. So, who are the primary stakeholders along the mommy track: whose interests should be considered and weighed? The mother, to begin with, has a right to pursue success in professional life, and she has the choice to embark on motherhood. A born child has a right to nurturing care, and to the love parents give. A business owner has a right to hire employees (and fire) employees in accord with rational decisions about what will benefit the organization and help it reach its goals. The coworkers and subordinates linked to a prospective parent have the right to not be bounced around by someone else’s personal choices. Society as a collective has a responsibility to nurture the growth of a new generation fit to replace those who are getting old. Saylor URL: http://www.saylor.org/books Saylor.org 450 The next step is to put all that on the scale. In the United States today, the general consensus is that the business owners’ rights to pursue economic success outweigh the parents’ interest in being successful in both professional and family life and society’s concern for providing an upcoming generation. That weighing can be contrasted with the one done in most countries of Western Europe where, not incidentally, populations are shrinking because of low birthrates. In Europe, there’s a broad consensus that the workers’ interest in combining professional and personal lives, along with society’s interest in producing a next generation, outweighs the business’s interest in efficiency and profit. For that reason, the already-mentioned laws guaranteeing extended family leave have been implemented. KEY TAKEAWAYS  Gender discrimination can take the form of occupational segregation.  Strong ethical arguments may be formed for and against some forms of occupational segregation.  The doctrine of comparable worth prescribes comparable pay for distinct occupations that require similar capability levels.  The glass ceiling blocks women from advancing to the highest professional levels for reasons outside of dedication and capability.  The fact that women can also be mothers introduces a broad set of ethical questions about the rights of employers and a society’s priorities. REVIEW QUESTIONS 1. What are the three steps defining gender discrimination? 2. What are some of the causes of occupational segregation? 3. What is an argument in favor of some occupational segregation? What is an argument against occupational segregation? 4. What is comparable worth? 5. What are two explanations for the existence of a glass ceiling? 6. How might the existence of a career track dedicated to those who expect to rear children be criticized in ethical terms? Saylor URL: http://www.saylor.org/books Saylor.org 451 [1] Silicon Valley Blogger, “Traditional Jobs for Men and Women and the Gender Divide,” The Digerati Life (blog), May 29, 2007, accessed May 27, 2011,http://www.thedigeratilife.com/blog/index.php/2007/05/29/traditionaljobs-for-men-and-women-the-gender-divide. [2] Claire Cain Miller, “Out of the Loop in Silicon Valley,” New York Times, April 17, 2010, accessed May 31, 2011,http://www.nytimes.com/2010/04/18/technology/18women.html?pagewanted=1. [3] Manuel Velasquez, Manual Business Ethics: Concepts and Cases (New Jersey: Prentice Hall, 2002), 306. [4] Silicon Valley Blogger, “Traditional Jobs for Men and Women and the Gender Divide,” The Digerati Life (blog), May 29, 2007, accessed May 27, 2011,http://www.thedigeratilife.com/blog/index.php/2007/05/29/traditionaljobs-for-men-and-women-the-gender-divide. [5] “Table PINC-03. Educational Attainment—People 25 Years Old and Over, by Total Money Earnings in 2005, Work Experience in 2005, Age, Race, Hispanic Origin and Sex,” Current Population Survey (CPS), accessed May 31, 2011,http://pubdb3.census.gov/macro/032006/perinc/new03_000.htm. [6] Jeanne Sahadi, “39 Jobs Where Women Make More than Men,” CNNMoney.com, February 28, 2006, accessed May 31, 2011,http://money.cnn.com/2006/02/28/commentary/everyday/sahadi_paytable/index.htm. [7] Rebecca Traister, “The Truth about Carly,” Salon, October 19, 2006, accessed May 31, 2011, http://www.salon.com/life/feature/2006/10/19/carly_fiorina. [8] Rebecca Traister, “The Truth about Carly,” Salon, October 19, 2006, accessed May 31, 2011, http://www.salon.com/life/feature/2006/10/19/carly_fiorina. [9] Rebecca Traister, “The Truth about Carly,” Salon, October 19, 2006, accessed May 31, 2011, http://www.salon.com/life/feature/2006/10/19/carly_fiorina. [10] Rebecca Traister, “The Truth about Carly,” Salon, October 19, 2006, accessed May 31, 2011, http://www.salon.com/life/feature/2006/10/19/carly_fiorina. Saylor URL: http://www.saylor.org/books Saylor.org 452 10.4 The Diversity of Discrimination and Victimization LEARNING OBJECTIVES 1. Indicate characteristics beyond race and gender that may be targeted for discrimination. 2. Form a general definition of discrimination in the workplace. 3. Define minority status. 4. Analyze victimization. The Diversity of Discrimination There’s a difference between history and ethics. Historically, racism and sexism have been the darkest scourges in the realm of discrimination. In straight ethical terms, however, discrimination is discrimination, and any isolatable social group is equally vulnerable to negative prejudice in the workplace. The Civil Rights Act of 1964 extends protection to those stigmatized for their religion or national origin. In subsequent years, amendments and supplements have added more categories, ones for age and disability. Currently, there are no federal laws prohibiting discrimination based on sexual orientation, though measures have been enacted in states and localities. Other measures identifying and protecting further distinct groups exist on local levels. What holds all these groups together is that they fit into the most general form of the definition of discrimination in the economic realm: 1. A decision affects an individual. 2. The decision is based on personal characteristics clearly removed from job-related merit. 3. The decision rests on unverified generalizations about those characteristics. Even though discrimination in the realm of business ethics can be wrapped up by one definition, it remains true that distinct groups victimized by discrimination have unique and diverse characteristics affecting the way the issue gets managed. Two types of characteristics will be considered here: discrimination based on traits that are concealable and discrimination based on traits that are (eventually) universal. Saylor URL: http://www.saylor.org/books Saylor.org 453 Concealable and In-concealable Status One of the enabling aspects of race and gender discrimination is that it’s normally easy to peg someone. If you don’t think Asians do good work, you’re probably going to see who not to hire. The same goes for gender, age, and many disabilities. Other traditionally discriminated-against groups aren’t so readily identifiable, though: the characteristics marking them as targets are concealable. For example, it’s not so easy to detect (and not so difficult to hide) religious beliefs or sexual orientation. John F. Kennedy, many young people are surprised to learn today, faced considerable resistance to his presidential ambitions because of his religion. In fact, he considered the fact that he was the first Roman Catholic president of the United States as one of the higher virtues of his story. While the Protestant-Catholic divide has faded from discriminatory action in America, other splits have taken its place—Christian and Muslim, for example. No matter the particular religion, however, most individuals going into the work world do have the opportunity to simply reduce that part of their identity to a nonissue by not commenting on or displaying their religious beliefs. A similar point can be added to considerations of national identity. Only a generation ago Italians were disdained as “wops.” Legendary football coach Joe Paterno (no stranger to insults himself: “If I ever need a brain transplant, I want it from a sports reporter because I know it’s never been used.”) remembers being derided as a wop in his career’s early days. If you wander down the street calling people a “wop” today, however, hardly anyone will know what you’re talking about, which indicates how quickly discrimination against a group can fade when the source (in this case nationality) isn’t readily visible. Ethical questions raised by the possibility of invisibility include “In the business world, do those who feel they may be discriminated against for a personal characteristic that they can conceal have any responsibility to conceal it?” and “If they choose not to conceal, and they’re discriminated against, do they bear any of the blame for the mistreatment?” Universality versus Individuality One obvious reason it’s easy for white men to discriminate against racial minorities and women is that they don’t have to worry about riding in that boat themselves. Age is different, however. All of us have gray years waiting at the end of the line. That hasn’t stopped people from denying jobs to older workers, however. Take this report from California: Saylor URL: http://www.saylor.org/books Saylor.org 454 When a then-emerging Google recruited engineer Brian Reid in the summer of 2002, it appeared to have landed a Silicon Valley superstar. Reid had managed the team that built one of the first Internet search engines at AltaVista. He’d helped co-found the precursor company to Adobe Systems. He’d even worked on Apollo 17. But within two years, Google decided that the 54-year-old Reid was not a “cultural fit” for the company and fired him, allegedly after co-workers described him as “an old man,” “slow,” “sluggish” and “an old fuddy-duddy.” Reid responded with an age discrimination lawsuit blasting Google’s twenty something culture for shunning his generation in the workplace. [1] Reid can take satisfaction in knowing that, eventually, these twenty something are going to get what’s coming to them. Is it more than that, though? Is the fact that they too share that fate a license for their discrimination? Assuming those who fired Reid aren’t hypocrites, assuming they accept that one day they too will be subject to the same rules, can Reid really claim any kind of injustice here? In terms of fairness at least, it seems as though the Google whippersnappers should be able to treat others in terms they would accept for themselves. On the other side, if his work performance matches his younger peers, if the only difference between Reid and the others is that his hair is gray and he doesn’t know who Lady Gaga is, then his case does fit—at least technically—the definition of invidious discrimination. Google might be wrong on this one. Regardless of which side you take, there’s a fundamental ethical question here about whether discrimination can count when it’s based on a characteristic that’s universal, that everyone shares. What Is a Minority? The boundaries marking who can rightfully claim to belong to a group falling victim to systematic discrimination in the workplace are shifting and uncertain—in different times and places the victims share different characteristics. For that reason, it makes sense to try to form a definition of personal vulnerability that doesn’t rely only on describing specific personal traits like skin color or gender but that can stretch and contract as society evolves. The term minority, as understood within the context of workplace discrimination, is sometimes summoned to perform this role. To be part of a minority means to belong to a group of individuals that are the minority within a specific organizational context. Whites, for example, are not a minority population in the United States, but white Saylor URL: http://www.saylor.org/books Saylor.org 455 students are a minority at the University of Texas–San Antonio. Similarly, women make up more than 50 percent of the population but count as a minority in corporate boardrooms where they represent only a small percentage of decision makers. Being part of a minority doesn’t just mean suffering a numerical disadvantage; it also means having so few peers in a situation that you’re forced to adapt the language, the styles of dress, the sense of humor, the non-work interests, and so on of people very different from yourself. In the case of the minority white population at University of Texas–San Antonio, it’s difficult to claim that their numerical minority status also forces them to adapt in any significant way to the Hispanic majority—whites can get by just fine, for example, without speaking any Spanish. By contrast, the case of Carly Fiorina wadding up socks in her crotch and screaming out that she has big balls, this is minority behavior. For minorities in a man’s world, if you want to get ahead you have to adapt. To a certain extent, you need to speak and act like a man. The term minority can be defined by three characteristics: 1. Physical and/or cultural traits set a group of individuals within a community apart from the customs and members that dominate the collective. 2. The physical and/or cultural traits that set the group apart are either disapproved of, or not understood by the dominant group. In Carly Fiorina’s case, these traits included her gender and, more importantly, her feminine use of language. As she put it, “The stylistic differences get in the way” [2] of trying to communicate well with male colleagues. She was a minority because she wasn’t well understood. 3. A sense of collective identity, mutual understanding, and common burdens are shared by members of the minority group. Fiorina sensed this collective identity and burden very clearly when she said, “I hoped I was advancing women in business by putting women in positions of responsibility. But it’s clear that we don’t yet play by the same rules as men, and it’s clear that stereotypes about women in business will exist as long as there aren’t enough of us.” [3] The advantage of using the term minority to name a group vulnerable to discrimination in the workplace is connected to the rapidly changing world, one where those subjected to discriminatory treatment come and go. For example, a tremendous influx of Spanish-speaking immigrants from Mexico have recently made that group a target of sharper discrimination, while the marginalization that the Irish once experienced in the United States no longer seems very threatening. There’s no reason to believe that this Saylor URL: http://www.saylor.org/books Saylor.org 456 discriminatory evolution will stop, and in the midst of that shifting, the term minority allows the rules of vulnerability to discrimination in the workplace to remain somewhat steady. What Is a Victim? As the number of characteristics classified as vulnerable to discriminatory mistreatment has expanded, so too has a suspicion. It’s that some of those claiming to suffer from discrimination are actually using the complaints to abuse others, or to make excuses for their own failures. This is called victimization. To accuse someone of being a victim is to charge that they are exploiting society’s rejection of discrimination to create an unfair advantage for themselves. There are a range of victimization strategies running from strong to weak. Strong victimization is individuals in protected groups who aren’t suffering any discrimination at all claiming that they are and making the claim for their own immediate benefit. This is what’s being alleged in an Internet post where a supervisor writes the following about an employee: This person came out & stated in this meeting that I use a racial slur on a very regular basis in my vocabulary. With my profession, this is something that is EXTREMELY HARMFUL to my status in my job, my respect in my job & community, my reputation, etc. But that word has NEVER been in my vocabulary. I am SO UPSET I do not know what to do! [4] Assuming this supervisor’s allegations are true, then the employee was never subjected to racist language or offended by slurs. There was no workplace discrimination. Instead, it sounds like the employee may actually be disgruntled and is aiming for revenge by getting the supervisor in trouble. If that’s what’s going on, then the accusation of racial discrimination has become a workplace weapon: the charge can be invented and hurled at another with potent effect. Weak victimization occurs when someone works in a context where discrimination is a constant subject of attention, one permeating daily life in the office. In that situation, it can happen that a worker suffering an adverse work evaluation (or worse) comes to the conclusion that it wasn’t poor job performance but minority status that actually caused the negative review. (Possibly, one of the few universal human truths is that we all find it easier and more comforting to blame others for our problems than ourselves.) In the interview with Carly Fiorina—which was done not long after she’d been fired from Hewlett-Packard—the interviewer broaches this possibility very gingerly. Here’s how she puts the question: Saylor URL: http://www.saylor.org/books Saylor.org 457 I’m predisposed to be sympathetic to the notion that you were treated differently because of your gender. But I’ve also read a lot about actual business mistakes you made. Fiorina comes back with an ambiguous answer and the interviewer lets it go. For a while. Suddenly, however, after a few softball questions she tries again, more forcefully: Interviewer: I want to press you on the fact that you missed a quarter’s projections big-time… Fiorina: Wouldn’t be the first top company that missed a quarter either. Or the last. Right. But that miss was huge. And you wrote in the book that “building a culture of accountability and execution of discipline requires real and clear consequences for failure to perform.” If you had been told that you were fired because you missed the quarter, would you [5] Interviewer: have understood? What’s being intimated here is that Fiorina got so caught up in being a woman in a man’s world that when she got fired, she was so invested in that battle-of-the-sexes way of seeing things that she ended up suspecting sexist discrimination where maybe there wasn’t any. Weak victimization means that someone is twisting discrimination claims into an excuse for their own imperfections, shortcomings, and failures. Everyone faces adversity in their lives. When that happens, the choices are deal with it or collapse. Accusing someone of being a victim in the weak sense is saying they’re collapsing; they’re using racism or sexism or whatever as an excuse to not confront what most people face every day: an imperfect and sometimes difficult world. So weak victimization is an accusation tinged with exasperation. Here’s what the accusation sounds like in longer form, as posted on an Internet forum: I genuinely don’t believe that in this country that persecution of minorities exists anymore. This is not to say that these things don’t exist, of course they do in isolation, but being black or gay or a woman is not in any way a barrier to achieving anything that you want to achieve. I told her that she was playing the victim against an oppression that doesn’t exist, is looking for excuses about things she can’t do rather than looking at what she can do (which is anything she wants) and that she’s being patronizing towards all those from ‘minority’ groups who had gone on to be successful. Thatcher didn’t whine about latent sexism, Obama didn’t complain that being black meant he wasn’t able to do the most powerful job in the world. [6] In the ensuing discussion, quite a few posters pick up on the claim that “being black or gay or a woman is not in any way a barrier to achieving anything that you want to achieve.” Some agree, some not so much. Saylor URL: http://www.saylor.org/books Saylor.org 458 What’s certain is that somewhere between Carly Fiorina stuffing socks down her pants and Carly Fiorina leading one of the world’s most powerful companies and somewhere between black slavery and a black president, there’s a line. No one knows exactly where, but it’s there and it divides a reality where sexism and racism are vile scourges from another reality where they’re things people whine about. An ethical argument against victimization—against someone playing the role of a victim of discrimination—can be outlined quickly. It begins with the duty to respect your own dignity, talents, and abilities. Those blaming their failures on others are essentially giving up on their own skills; they are concluding that their abilities are worthless when they may not be. If Carly Fiorina believes that her gender makes success in Silicon Valley impossible, and it really doesn’t, then by denying her own talent she’s subtracting from her own dignity. KEY TAKEAWAYS  Discrimination may be applied in a society to a group defined by any physical or cultural trait.  A successful general definition of discrimination in the workplace must evolve as society and the face of discrimination change.  Minority is a general category meant to include those vulnerable to discrimination.  Victimization occurs when vulnerability to discrimination converts into a weapon to use against others, or an excuse for failure. REVIEW QUESTIONS 1. In your own words, explain the general definition of discrimination. 2. What’s the difference between a concealable and in-concealable characteristic that may leave one vulnerable to discrimination? 3. In your own words, define what it means to be a minority. 4. What’s the difference between strong and weak victimization? [1] “Ex-Google Worker’s Case Goes to High Court,” San Jose Mercury News (CA), May 24, 2010. [2] Rebecca Traister, “The Truth about Carly,” Salon, October 19, 2006, accessed May 31, 2011, http://www.salon.com/life/feature/2006/10/19/carly_fiorina. Saylor URL: http://www.saylor.org/books Saylor.org 459 [3] Rebecca Traister, “The Truth about Carly,” Salon, October 19, 2006, accessed May 31, 2011, http://www.salon.com/life/feature/2006/10/19/carly_fiorina. [4] UT alum, August 24, 2005 (9:09 a.m.), “Falsely Accused of Racist Slur,” ExpertLaw Forum, accessed May 31, 2011, http://www.expertlaw.com/forums/showthread.php?t=2887. [5] Rebecca Traister, “The Truth about Carly,” Salon, October 19, 2006, accessed May 31, 2011, http://www.salon.com/life/feature/2006/10/19/carly_fiorina. [6] Gerogerigegege, February 26, 2010 (10:27), “Does Racism/Sexism/Homophobia Exist in Any Meaningful Way in Modern Britain?,” DrownedinSound.com, accessed May 31, 2011,http://drownedinsound.com/community/boards/social/4248929. Saylor URL: http://www.saylor.org/books Saylor.org 460 10.5 The Prevention and Rectification of Discrimination: Affirmative Action LEARNING OBJECTIVES 1. Define affirmative action. 2. Elaborate arguments for and against affirmative action. 3. Discuss the ethics of affirmative action. 4. Indicate why some organizations implement affirmative action policies. Race-Based Scholarships “The scholarship,” according to Carlos Gonzalez, an overseer appointed by a federal court, “was designed essentially as a jump-start effort to get the process of desegregation under way.” He was talking about a new race-based scholarship at Alabama State University (ASU). It was triggered by a federal court’s finding that “vestiges” of segregation remained within the Alabama university system: the state was ordered to spend about $100 million to racially diversify the student body. Two years later, 40 percent of ASU’s budget for academic grants went to minority students even though they represented only about 10 percent of the student population. That meant minority students got about $6 of aid for every $1 going to everyone else. One beneficiary of diversification was a grad student who accumulated $30,000 in scholarship money. She said that she would’ve attended the school anyway, but getting the money because of her skin color was an added bonus. “I think it’s wonderful,” she exclaimed, according to a CNN report. [1] Not everyone came off so well. One big loser was another grad student, Jessie Tompkins. The effort to balance the student body racially meant funding he’d been promised got reassigned to others. He remembered the moment vividly. He’d received an assistantship for three years, but when he went to apply the next year, he learned that the scholarships had been reserved for those with a different skin color. “I said, ‘Ma’am?’ She said, ‘You can apply, but you won’t get it.’” [2] As word of the new scholarship policy circulated, temperatures rose. They heightened even more when news got out that the race balancers were more lucrative than the old funding mechanisms that had been Saylor URL: http://www.saylor.org/books Saylor.org 461 available to everyone. The minority set-asides paid for tuition, books, and for room and board, and then added on almost $1,000 for personal use. While the new students got all that just for showing up inside their color-appropriate skin, Tompkins remembered that he hadn’t even received enough to fully cover tuition; in exchange for his aid, he’d worked for the school by helping coach the track team and by scheduling tennis court use. The situation reached a boil with one more detail: the revelation that the minority scholarship recipients weren’t as academically qualified as those including Tompkins who were now suddenly being turned down at the funding office. To qualify for financial aid, the new recipients only needed a C average, significantly below what had been required of all applicants in the earlier, color-blind system. That led the editor of the university newspaper, Brandon Tanksley II, to express his frustration and anger this way, “It’s not that they’re minority students, it’s that they’re not competitive.” [3] As for Jessie Tompkins, with his scholarship no longer available, he was forced to drop out and take a job handling packages at United Parcel Service. The next year he returned on a part-time-student basis and once again applied for his old scholarship. Again he was rejected. In a newspaper interview he said, “We don’t need race-based quotas. I don’t want anyone telling my children they’re the wrong color. If you want something, you work for it; you just work for it.” [4] Eventually, Tomkins connected with the Center for Individual Rights, a nonprofit public interest law firm with conservative and libertarian leanings. The firm was experienced with this kind of complaint: it had previously led a charge against the University of Texas’s affirmative action program. In an article in the Wall Street Journal, Tompkins compares himself to a plaintiff in that important case, Cheryl Hopwood: “We were bumped aside, regardless of our qualifications, because of our race.” [5] Tompkins says he’s just like Hopwood, even though she’s a woman and he’s a man, and even though she’s white and he’s black. As for the administration at the traditionally black Alabama State, they chose not to respond to Tompkins directly, but they did stand behind their affirmative action program. William Hamilton Harris, president at ASU, defended the set-asides this way, “Bringing whites and blacks together on campus will broaden the quality of education and the quality of life at Alabama State.” Saylor URL: http://www.saylor.org/books [6] Saylor.org 462 What Is Affirmative Action? The Civil Rights Act aimed to blind organizations to gender and race and similar distinctions removed from merit. The idea behind the law is an ideal, a theoretically perfect society where discrimination in the invidious sense doesn’t exist. Unfortunately, the real world rarely lives up to ideals. Affirmative action enters here, at the realization that things won’t be perfect just because we make laws saying they should be. What affirmative action does—as its name indicates—is act. It’s not a requirement that organizations stop discriminating; it’s a set of preferences and policies that aggressively counter discrimination, usually in ways that themselves hint at discrimination. There is, even ardent defenders admit, a troubling element of fighting fire with fire where affirmative action operates. In practice, affirmative action comes in various strengths:  In the strongest form, quotas are employed to guarantee that individuals from disadvantaged groups gain admittance to an organization. A number of slots—whether they are seats in a classroom or posts in an office—are simply reserved for individuals fitting the criterion. Since quotas inescapably mean that certain individuals will be excluded from consideration for certain posts because of their race, gender, or similar trait, they’re relied on only infrequently.  In strong form, significant incentives are deployed to encourage the participation of minority groups. In universities, including the historically black Alabama State University, special scholarships may be assigned to attract whites to campus. In private companies, bonuses may be offered or special accommodations made for targeted individuals. A mentor may be assigned to guide their progress. Statistics may be accumulated and care taken to ensure that salary hikes and promotions are being distributed to members of the aggrieved demographic.  Moderate affirmative action measures typically mean something akin to the tie goes to the minority. Whether a university is admitting students to next year’s class or a business is hiring new sales representatives, the philosophy here is that if two candidates are essentially equally qualified, the one representing a disadvantaged group will be selected.  Weak affirmative action measures refuse to directly benefit one or another identity group. Steps are undertaken, however, to ensure that opportunity is spread to include minority candidates. Frequently, this means ensuring that the application pool of candidates for a post or promotion includes individuals from across the spectrum of genders, races, and similar. A commitment to implement his policy was part Saylor URL: http://www.saylor.org/books Saylor.org 463 of the Abercrombie & Fitch discrimination lawsuit settlement. The company in essence said they’d been doing too much recruiting at overwhelmingly white fraternities and sororities, and they promised to branch out. The history of affirmative action has been brief and turbulent. Since the early 1970s, the courts—including the US Supreme Court—have visited and revisited the issue, and repeatedly reformed the legally required and allowed strength of affirmative action. The specific physical and cultural traits affirmative action policies address have also stretched and contracted. In the midst of all that, individual states have formed their own rules and guidelines. And for their part, companies have scrambled to bring policies into line with accepted practice and, in some cases, to take the lead in establishing standards. Because there’s no sign that the legal and historical developments will settle in the near future, this section will concentrate only on the ethics and the broad arguments surrounding affirmative action. Arguments for and against Affirmative Action Policies Arguments in favor of affirmative action include the following: 1. Affirmative action is necessary to create fairness and equal opportunity in organizations because discrimination is so ingrained. When Carly Fiorina went to Hewlett-Packard, she found a culture so thoroughly masculine that it was difficult for her to communicate well with her colleagues. In that kind of environment, one where it’s difficult for a woman to really make herself understood, forcing women into the workforce is necessary to open channels of communication so that more may flow without needing the help. Similarly at the historically black Alabama State University, the concern was that few white students would want to be the first to confront the specific traditions and customs of the longtime black school. Consequently, it’s necessary to force the doors open with attractive scholarships so that later, with the comfort level raised, more whites will follow. 2. Affirmative action will stimulate interest in advancing at lower levels of the organization. Even if HewlettPackard really is gender neutral with respect to picking a CEO, it may be necessary to put a woman in the post so that younger women at the company feel that the way is open to the very highest levels. In other words, it’s not until people actually see that they can become a CEO or enroll at Alabama State that they really make the attempt. In the absence of that seeing, the aspiring may not be there and the result is a Saylor URL: http://www.saylor.org/books Saylor.org 464 company without women leaders, or a historically black university without whites, even though the doorways are wide open to them. 3. Affirmative action benefits third parties. Sometimes we think of affirmative action as being about a tight set of winners and losers. When Carly Fiorina went to HP, it’s very possible that a white guy didn’t get the job. When a white student got a scholarship at Alabama State, Tompkins lost his. But the stakeholders don’t end there. Society as a whole will be more harmonious as discrimination recedes. To the extent that’s true, the tangible benefits of affirmative action climb significantly even while it remains true that there are individual losers. 4. Affirmative action can reduce tensions in a university, an office, or any organization by offering assurances that discrimination of minorities will not be tolerated, and also by opening the workplace to a diversity of viewpoints. 5. Affirmative action benefits organizations by helping them reach their goals. The more open an organization is to all candidates for all positions, the better the chance that they’ll find someone truly excellent to fill the role. Affirmative action, by expanding the range of people considered for posts, helps the organization excel in the long term. 6. Affirmative action is necessary as compensation for past wrongs. Even if tomorrow all discrimination magically disappears, there’d still be a long legacy of suffering by minorities who didn’t get the opportunities available to their children. By giving those children a little advantage, some of the historical unfairness balances out. Common arguments against affirmative action include the following: 1. Affirmative action is discrimination (just in reversed form), and therefore it’s wrong. When you privilege a minority at the expense of, say, a white male, you’re treating the white male unfairly because of skin color and gender, and that must be unacceptable because the reason we have affirmative action in the first place is that we’ve all agreed that racial and gender discrimination are unacceptable. 2. Affirmative action is discrimination (just in reversed form), and therefore it reinforces what it combats. When you privilege a minority at the expense of, say, a white male, you’re treating the white male unfairly, and so you’re sanctioning the way of thinking that caused the problem in the first place. When you start selecting people for scholarships or jobs because of their skin color or gender, the larger point is you’re reinforcing the habits of discrimination, not eliminating them. Saylor URL: http://www.saylor.org/books Saylor.org 465 3. The best way to eliminate discrimination is to let the law, markets, and time do their work. The law, which prohibits discrimination, should be enforced scrupulously, no matter who the in-fractor might be. More, companies that are discriminatory will put themselves out of business in the long term because competitors that hire the best talent regardless of minority status will eventually win out. With time, the conclusion is, discrimination will be stamped out, but trying to hurry the process may just create social rancor. 4. Affirmative action can be unfair and damaging to third parties. Surgeons, firefighters—those kinds of jobs are vital to all individuals. Lives are at stake. If a surgeon who otherwise would have failed medical school eventually got her degree because the school needed to graduate a few minority female doctors to fulfill their affirmative action requirements, the people who pay may be patients. 5. Affirmative action is unfair to minorities who are treated as tokens. Minority candidates for positions who would win the post on merit alone see their hard work and accomplishments tarnished by suspicion that they didn’t really earn what they’ve achieved. Minorities, consequently, can never be successful because even when they merit respect in the classroom or in the workplace, they won’t get it. 6. Affirmative action creates a tense organization. The web of resentments lacing through classrooms and offices touched by affirmative action are multiple and complex. Nonminority workers may resent special privileges given to those favored by affirmative action. Also, because such privileges are handled discretely by HR departments, the tensions might exist even where affirmative action isn’t active: suspicion that others are receiving special treatment can be as aggravating as the certainty that they are. The list of potential angers continues, but the larger problem with affirmative action is the social stress it may create. 7. Affirmative action damages organizations. By forcing them to evaluate talent in ways outside of merit, it diminishes their competitiveness, especially against companies from other states or nations where affirmative action implementation is less rigid. 8. Affirmative action doesn’t compensate past wrongs. Those who suffer today because their scholarship or their promotion is taken by an otherwise undeserving minority are paying the price for past discrimination even though they may have never discriminated against anyone. Further, those who benefit today aren’t the ones who suffered in the past. Saylor URL: http://www.saylor.org/books Saylor.org 466 Finally, an important point to note about the debate swirling around affirmative action is that there’s broad agreement on the goal: diminishing and eliminating discrimination in organizations. The conflicts are about how best to do that. The Greater Good versus Individual Rights: The Ethical Prism of Affirmative Action In business ethics, few subjects raise emotions like affirmative action. There are a number of reasons, and one is that the ethics are so clear. In all but its weakest form, affirmative action stands almost straight up on the divide between individualism and collectivism.  Do you belief ethics are about individual rights and responsibilities, or should ethics revolve around society and what benefits the larger community?  Where does right and wrong begin? Is it with you and me and what we do? Or is it the society as a whole that must be set at the start and before any other concern? If you believe that individuals center ethics, it’s going to be hard (not impossible) to defend favoritism, no matter how noble the goal. An ethics based on fundamental personal duties—especially the requirement for fairness—demands that all men and women get an even shot in the workplace. Any swerve away from that principle, whether it’s to favor whites at a historically black university in Alabama, or women in Silicon Valley, or any other minority group anywhere else, is going to be extremely difficult to justify. Further, if you believe that ethics begins with individuals and their rights to freedom and to pursue happiness, then blocking the opportunities allowed for some just because they don’t fit into a specific race or gender category becomes automatically objectionable. On the other side, if you believe in the community first, if you think that society’s overall welfare must be the highest goal of ethical action, then it’s going to be hard (not impossible) to deny that some form of affirmative action balancing, at some places and times, does serve the general welfare and therefore is ethically required. Thinking based on utilitarianism accepts that divvying out opportunities in terms of minority status will harm some individuals, but the perspective demands that we only bear in mind the total good (or harm) an action ultimately does. With respect to affirmative action, it may be true that its proponents sometimes push too far, but it’s very difficult to look at workplaces and schools through the second half of the twentieth century and not concede that society as a whole does in fact benefit in at least Saylor URL: http://www.saylor.org/books Saylor.org 467 some of the instances where special efforts are made to support the opportunities of some historically disadvantaged groups. Specific individuals may suffer when these social engineering strategies are implemented, but the general benefit outweighs the concern. Why Do Public Institutions and Private Companies Implement Affirmative Action Policies? There are a number of reasons organizations implement affirmative action policies, and not all are motivated by social idealism. First, some companies are simply required to do so because they want to work for the US government. According to current law, all businesses holding contracts with Washington, DC, in excess of $10,000 are required to have at least a weak affirmative action program in place. With respect to public institutions including universities, since their funding derives to a significant extent from the government, they typically are subject to governmental policy directives. Another very practical reason affirmative action policies are implemented is to prevent future lawsuits. The suing of organizations, businesses, and individuals for damages alleging discrimination can be quite lucrative, as the $40 million lawsuit against Abercrombie & Fitch indicates. More, a business may even choose to quickly hand over millions of dollars to settle a lawsuit of dubious merit just to avoid the bad publicity of a nasty, public, and prolonged court fight. Lawyers, of course, have picked up on this and are constantly probing for weak organizations, ones where just the appearance of some kind of discrimination may be enough for a shakedown. Given that reality, prudent companies will take preventative action to insulate themselves from claims that they’re discriminatory, and an affirmative action policy may serve that purpose. A set of more positive reasons for an organization to implement affirmative action policies surrounds the belief that companies benefit from a diverse workforce:  Diversity may help win business with a new consumer group.  Diversity may help break minds out of ruts or just shake things up creatively.  An affirmative action policy may be part of an organizational strategy to benefit from underused human resources in an area. This strategy generally begins with a utilization analysis, which is a spreadsheet representation of all the work positions in an organization, along with the characteristics of those filling the slots and then a comparison between those numbers and the demographic of qualified people in the Saylor URL: http://www.saylor.org/books Saylor.org 468 immediate geographic region. If, to take a simple example, the company’s legal team is 90 percent white, and local data shows that 50 percent of the area’s lawyers are Asian, that tends to indicate the area’s legal resources are being underutilized: there are a lot of good Asian legal minds out there that for some reason aren’t getting into the company workforce. Finally, regardless of whether an affirmative action policy may help the bottom line by protecting against lawsuits or by improving employee performance, some organizations will implement a program because they believe it’s part of their responsibility as good corporate citizens in a community to take steps to serve the general welfare. KEY TAKEAWAYS  Affirmative action seeks to end discrimination by giving some amount of preference to minorities.  There are multiple strong arguments in favor of and against affirmative action.  The ethics of affirmative action center on the question of whether the individual or the community should receive priority.  Organizations implement affirmative action policies for reasons of self-interest or for altruistic reasons. REVIEW QUESTIONS 1. What are the differences between strong and weak affirmative action? 2. Explain two arguments in favor of affirmative action. 3. Explain two arguments against affirmative action. 4. Why does conflict between individualism and collectivism exist at the core of the ethics of affirmative action? 5. Why may a company pursue a strong affirmative action policy? [1] Brian Cabell, “Whites-only Alabama Scholarship Program Raising Eyebrows,” CNN, October 30, 1999, accessed May 31, 2011,http://www.cnn.com/US/9910/30/white.scholarships/index.html. Saylor URL: http://www.saylor.org/books Saylor.org 469 [2] June Kronholz, “Double Reverse: Scholarship Program for whites Becomes a Test of Preferences,” The Center for Individual Rights, Wall Street Journal, December 23, 1997, accessed May 31, 2011, http://www.cirusa.org/articles/103.html. [3] June Kronholz, “Double Reverse: Scholarship Program for whites Becomes a Test of Preferences,” The Center for Individual Rights, Wall Street Journal, December 23, 1997, accessed May 31, 2011, http://www.cirusa.org/articles/103.html. [4] June Kronholz, “Double Reverse: Scholarship Program for whites Becomes a Test of Preferences,” The Center for Individual Rights, Wall Street Journal, December 23, 1997, accessed May 31, 2011, http://www.cirusa.org/articles/103.html. [5] June Kronholz, “Double Reverse: Scholarship Program for whites Becomes a Test of Preferences,” The Center for Individual Rights, Wall Street Journal, December 23, 1997, accessed May 31, 2011, http://www.cirusa.org/articles/103.html. [6] June Kronholz, “Double Reverse: Scholarship Program for whites Becomes a Test of Preferences,” The Center for Individual Rights, Wall Street Journal, December 23, 1997, accessed May 31, 2011, http://www.cirusa.org/articles/103.html. Saylor URL: http://www.saylor.org/books Saylor.org 470 10.6 Case Studies The Zinger and the Slur ve e g ma I o rem et u dd py o oc ti h rig s. e ssu Football coach Joe Paterno’s on-field prowess is only slightly more legendary than his sharp tongue. This is one crowd favorite: “If I ever need a brain transplant, I want one from a sports writer because I’ll know it’s never been used.” [1] Most people find this to be pretty funny. And though it rubs some sports writers the wrong way, no one is going to file a lawsuit or claim anti-discriminatory protection is needed to protect the offended. On the other hand, JoePa—as he’s called around Pennsylvania—he suffered taunting as a younger man. People called him a “wop,” a slur attacking someone’s Italian heritage (like the more common “guido” or calling a Chinese person a “Chink”). QUESTION 1. From an ethical viewpoint, and within a discussion of discrimination, why does the brain transplant zinger get a green light while the wop slur seems objectionable? Saylor URL: http://www.saylor.org/books Saylor.org 471 Working at Columbia University ved emo age r opy oc due t es. issu right Im This comes from the Columbia University website: “As an equal opportunity and affirmative action employer, the University does not discriminate against or permit harassment of employees or applicants for employment on the basis of race, color, sex, gender (including gender identity and expression), pregnancy, religion, creed, national origin, age, alienage and citizenship, status as a perceived or actual victim of domestic violence, disability, marital status, sexual orientation, military status, partnership status, genetic predisposition or carrier status, arrest record, or any other legally protected status.” [2] QUESTIONS 1. Looking at this list of characteristics that Columbia doesn’t discriminate against, can you quickly put in your own words what each of them means? 2. What’s the difference between unintentional and intentional discrimination? o Are some of these characteristics more vulnerable than others to unintentional discrimination? Which ones? Why? o Are some of these characteristics more vulnerable than others to intentional discrimination? Which ones? Why? 3. Which of the protected characteristics are concealable, meanings that in most cases a job applicant could fairly easily hide or not reveal whether he or she has the trait? Which aren’t so concealable? 4. Which characteristics are universal (we’re all afflicted and therefore vulnerable to discrimination) and which ones are individual (some of us have the trait and some don’t)? In your opinion is one group more vulnerable to discrimination? Why? Saylor URL: http://www.saylor.org/books Saylor.org 472 5. If you wanted to stop discrimination at Columbia University, could you rank the protected characteristics in terms of their importance? Which forms of discrimination would be most important to combat and which wouldn’t matter so much? Or are they all equally important? Justify your answer. 6. Are there any characteristics you would add to the list? In terms of doing ethics, is there any problem with a list this long? 7. Are there any characteristics that really shouldn’t be on the list? Which ones? Why? 8. Hypothetically, John Smith has applied for a maintenance post at Columbia. The job entails routine and emergency plumbing and fixing of general problems, everything from burned-out light bulbs to graffiti. More or less, the job is to walk around and make sure things are in working order. He’d be working the night shift from 11 p.m. to 7 a.m. His assigned buildings would be a classroom and three coed dorms. He has been arrested three times for attempted rape of young women, but there was never enough evidence to convict. o Susan Rieger heads the Columbia University employment office. It’s part of her job to defend the school’s policies. In ethical terms, how do you suppose she might defend Columbia’s refusal to discriminate on the basis of arrest record? 9. Columbia won’t discriminate on the basis of religious belief. Historically, some creeds have been singled out more than others for abuse, but one that’s not often found on the list of mistreatment is Haitian Voodoo. Houngan Hector of New Jersey identifies himself as an asogwe priest of Haitian voodoo. His story is interesting. He claims to have been “mounted” by an ancestor at the age of seven, and so began his spiritual journey. Eventually, it led Houngan Hector to perform spiritual cleansings for money. They haven’t always gone well. According to this newspaper story in the Philadelphia Daily News: “Lucille Hamilton paid $621 to have her ‘spiritual grime’ removed by voodoo high priest Houngan Hector in an ordinary townhouse in Camden County. Hamilton, 21, a male living as a woman, flew in on Friday from her home in Little Rock, Arkansas to take part in the three-day spiritual cleansing. By Saturday night Hamilton was dead, and authorities are awaiting results of an autopsy and toxicology tests to determine exactly what happened.” [3] Here’s Houngan Hector’s advertisement for his services on his MySpace page, as it was reported in Odd Culture: “I have over 15 years of experience helping individuals resolve their issues, and Saylor URL: http://www.saylor.org/books Saylor.org 473 well over 9 years of helping people through the means of the Haitian Voodoo tradition. Having gotten individuals out of jail, brought lovers back, and improved people’s financial situation, I keep myself humble remembering it is not I who does it. It is God and Ginen who resolves.” [4] The three basic ethical arguments against discrimination (and, in this case, discrimination based on personal religious belief) are fairness, rights, and utilitarianism. o Choose one and make the case that Houngan Hector—who was never charged with any crime— should be treated like any other applicant for a job at Columbia University. o Can any of the three arguments be used to show that discriminating against Haitian voodoo believers is ethically acceptable, even recommendable? Susan Rieger in Trouble: Randy Raghavendra and Zenobia White-Farrell g Ima ed d ov e rem pyri co ue to es. ssu ght i Susan Rieger heads Columbia University’s Office of Equal Opportunity and Affirmative Action, and she has a tough case with Randy Raghavendra. He’s an analyst at Columbia’s Office of Institutional Real Estate who got passed over for a promotion. The spot went to a younger white woman. Raghavendra, who’s a dark-skinned Indian American, accused that “Columbia practices blatant racial discrimination and various deceptive tactics to keep out blacks and other dark-skinned minorities from higher-paying managerial and executive positions of power.” Saylor URL: http://www.saylor.org/books [5] Saylor.org 474 QUESTIONS The case’s specifics go back and forth: 1. Raghavendra points out that when he interviewed for the promotion, it had already been given to the white woman. His interview, therefore, was a “joke,” as he put it, “a fake interview.” The university answered that the hiring for that post had been handled by an outside headhunting company, which was a common practice at Columbia. Assume the outside company did engage in discriminatory practices. Does the fact that it’s an independent enterprise cleanse Columbia University of responsibility? Or is the university equally responsible? Or is it actually worse that they’re hiding behind an outside firm? Justify your answer. 2. An administrator at the university once asked Raghavendra, “Do you often get hassled at airport security?” The suggestion, according to Raghavendra, was that he looked like a potential terrorist. The administrator didn’t deny the comment but affirmed that the idea that it was racist was “bizarre” and “silly beyond belief.” o How could you make the case that this is an example, of individual, isolated, unintentional discrimination? o Who gets to decide whether a comment is racist? How is the decision made? Does or doesn’t this conflict resemble the one you see on MTV videos where blacks openly refer to each other with a specific term that would earn a white person who used the word a lifetime ban from the channel? 3. Raghavendra argues that he didn’t get his own office while several white workers in lower posts did have their own office as well as a separate mailbox. The university responded that office and mailbox space is distributed by seniority: the lower-level white workers who had their own office had worked there longer. Seniority is viewed by most as a generally fair way of distributing offices. It’s also fair, according to common opinion, to divide them up in terms of rank. Would it be right or wrong, however, Saylor URL: http://www.saylor.org/books Saylor.org 475 for Columbia to simply say that either of the two systems will be used interchangeably, but the choice will be made in terms of minorities: whichever system allots the best offices to minorities will be implemented? Justify your answer. 4. Raghavendra originally took his case to Susan Rieger, head of the Office of Equal Opportunity and Affirmative Action. After three months he withdrew it, however, claiming that they played games with him and never really investigated the charges. The university responded that he “failed to utilize internal administrative remedies provided by Columbia.” Raghavendra is claiming that Columbia discriminates against him. As an employee of Columbia, does he have any ethical responsibility to try to work out the issue inside that organization? If so, what is the responsibility? As a member of society, does he have an obligation to take his claim outside the university? If so, what is the responsibility? 5. Raghavendra sued for punitive damages. That’s money as punishment for discrimination, and it’s an amount beyond that which may have been lost in wages and benefits because of mistreatment. More, as part of any settlement, Raghavendra wanted to be awarded a job assignment as manager of finance and accounting at Columbia. He says he’d like to stay at the university after the suit is settled. Does this decision affect the way you see his case against Columbia? Why or why not? Should it? Why or why not? 6. Raghavendra notes that there are no African Americans in higher-level positions in his office. There is a Pakistani who has a higher title, but Raghavendra points out “he’s not really that darkskinned.” Within the context of the ethics of discrimination, what does it mean to be a victim? What types of victimhood are there? Is there any reason to ask here whether Raghavendra might be one of these kinds of victims? If so, what is it? If not, why not? 7. What makes the case especially difficult for Rieger, the Columbia point person on all this, is that she’s trying to balance discrimination claims while fending off a lawsuit herself. Her post had been occupied—on a provisional basis—by Zenobia White-Farrell, a black woman. Columbia offered to make the job permanent with a salary of $80,000. White-Farrell responded that she’d accept but only on the condition that the salary was upped to $100,000. Columbia offered only Saylor URL: http://www.saylor.org/books Saylor.org 476 $83,000. White-Farrell resigned. Soon after, Columbia hired Rieger at a salary of $107,000. White-Farrell sued, alleging discrimination. o What factors could possibly have justified offering Rieger so much more than White-Farrell? o How could you describe this case as an example of a glass ceiling for minority women? o The Columbia nondiscrimination code protects both gender minorities (women) and racial minorities. Is White-Farrell more protected than Rieger because she fits two categories and Rieger only one? Does the answer affect the ethical strength of White-Farrell’s case? Justify your answer. o Assume that, strictly in terms of merit, Rieger deserved a higher salary than White-Farrell for the same job. Rieger had, say, more years of experience and a higher degree. Could you make a utilitarian argument that because the ethically right thing to do is just that which serves the general society’s welfare, White-Farrell should have been offered $100,000, even though, again, strictly in terms of merit, she didn’t deserve that much? 8. Columbia University is an Affirmative Action institution. They aren’t satisfied with gender and racial neutrality; it’s the institution’s policy to promote and to some extent favor minority candidates for jobs. o Can you make the case that, with respect to the particular job of overseeing all hiring at the university, there’s a good practical reason—which is also ethically acceptable—to seek a white male to direct the office? What is the case? o Can you make the case that with respect to this particular job, there’s a good practical reason— which is also ethically acceptable—to seek a multiple minority (a gender plus racial minority or some similar combination) to direct and oversee hiring? What is the case? 9. The name of the office Susan Rieger leads is the Office of Equal Opportunity and Affirmative Action. What is “Equal Opportunity?” What is “Affirmative Action?” Does the title of this office make sense? If so, how? If not, why not? Saylor URL: http://www.saylor.org/books Saylor.org 477 Google Celebrates Diversity…and Profit es. ssu ht i yrig mo re age ue d ved op to c Im This statement comes from Google CEO Eric Schmidt on the corporate web page titled “Google Celebrates Diversity”: “Our products and tools serve an audience that is globally and culturally diverse—so it’s a strategic advantage that our teams not only encompass the world’s best talent but also reflect the rich diversity of our customers, users, and publishers. It is imperative that we hire people with disparate perspectives and ideas, and from a broad range of cultures and backgrounds. This philosophy won’t just ensure our access to the most gifted employees; it will also lead to better products and create more engaged and interesting teams.” [6] This is a very carefully worded paragraph, and beneath its motivational tone there are firm statements about diversity in the Google workplace. They include the following:  Google carefully avoids mentioning race, gender, and similar requirements for any particular position. The company doesn’t get involved in discussions about how many Catholic females over fifty years old and with a disability work there. Like most contemporary organizations, Google avoids strict quota systems.  Google will seek to hire “the world’s best talent.”  Google, apart from hiring the best raw talent, will seek employees reflecting “the rich diversity of our customers.” There are also clear justifications for the diversity side of the hiring strategy. Google will take action to contract a rainbow of workers because  diversity in hiring will help Google connect with its diverse consumer base,  diversity in hiring will ensure Google has access to all gifted employees, Saylor URL: http://www.saylor.org/books Saylor.org 478  diversity in hiring will help Google produce better products,  diversity in hiring will help Google create more engaged and interesting teams. Concretely, what is Google doing to diversify the people forming its company? Besides directly hiring a diverse workforce, the company offers a number of scholarships and internships aimed at those historically underrepresented in the technology industry. [7] QUESTIONS 1. In a nutshell, the commonly cited arguments in favor of affirmative action include the following: o It creates fairness and equal opportunity within organizations. o It benefits third parties: society as a whole will be more harmonious as discrimination recedes. o It reduces tensions in an organization. o It benefits organizations by helping them reach their goals. o It is compensation for past wrongs. Which of these arguments appear to stand behind affirmative action at Google? Explain. Are any of the other justifications applicable even though they may not be the reason Google seeks diverse talent? 2. In sweeping terms there are two types of arguments in favor of affirmative action. First, it serves a broad social good by integrating society. Second, companies employing affirmative action do better in the marketplace than those that don’t. If you had to choose one of these as a better and more persuasive argument for affirmative action, which would you choose? Why? 3. At some publicly funded universities, scholarships are, in essence, set aside for minorities. Google privately funds scholarships that are, in essence, set aside for minorities. Taxpayers, in other words, fund one affirmative action endeavor and private investors the other. Now, is one endeavor ethically superior to the other? Why or why not? 4. In a nutshell, the basic arguments against affirmative action include the following: o It is essentially discrimination, and therefore it reinforces what it combats. o The best way to eliminate discrimination is to let equal opportunity law, markets, and time do their work. Saylor URL: http://www.saylor.org/books Saylor.org 479 o It is unfair to minorities who are treated as tokens. o Forcing organizations to evaluate talent in ways outside of merit diminishes their competitiveness. o It creates resentment and tensions in an organization. o It doesn’t compensate past wrongs (because those benefitting and suffering today aren’t those who suffered and benefitted in the past). Looking at this list, how do you suppose Google CEO Eric Schmidt might argue against each item? 5. With an eye on these arguments against affirmative action, can you make the case that Google’s efforts are ethically reproachable? 6. What does the veil of ignorance test for discrimination? Put yourself under the veil of ignorance. Now, do you believe Google’s hiring policies are ethically good or bad? Why? Susan Rieger in More Trouble: Madonna Constantine ov em ge r Ima ue ed d righ t py o co s. ue t iss Madonna Constantine is a professor of psychology and education specializing in race studies and prejudice. Growing up as one of five children in a lower-middle-class family in Lafayette, Louisiana, she’d benefitted from parents who never finished college and vowed she would: they saved and scrimped together enough money to get her started at the upper level. Constantine took it from there. She began her remarkable journey at Xavier in New Orleans. Next, she went to the University of Memphis, and then to the University of Texas, and Temple University, and finally to the Ivy League’s prestigious Columbia, Saylor URL: http://www.saylor.org/books Saylor.org 480 where she earned tenure with more than thirty articles authored and published: “Most people may go up for tenure with 15 or 20 articles,” she said. “I figured as a black woman, I needed at least double that.” [8] As it turned out, the numbers weren’t the whole truth. Constantine had plagiarized significant amounts of her writings from students and another professor. Upon discovering the truth, Columbia fired her. Constantine responded, “I am left to wonder whether a white faculty member would have been treated in such a publicly disrespectful and disparaging manner.” [9] Next, she sued Columbia for racial discrimination. Columbia University is having a rough time: Randy Raghavendra, Zenobia White-Farrell, and Madonna Constantine are all suing the traditionally very white institution for color discrimination. QUESTIONS 1. In your own words, and in general terms since there isn’t space here to provide every detail of every case, what would it mean to accuse these people of being victims? What’s the difference between strong and weak victimhood? 2. With the facts provided, create a picture of Madonna Constantine as a victim. What kind of victim would she be? How could that conclusion be supported? 3. Sketch an argument that society as a whole is better off with occasional cases of discrimination than it is with occasional cases of victimhood. 4. Use a utilitarian argument to make the case that even if Columbia’s affirmative action policies are fostering cases of victimization, they should maintain those policies. [1] Mike Bianchi, “Panthers Gm Proves Paterno Barb Wrong,” Orlando Sentinel, January 31, 2004, accessed May 31, 2011, http://articles.orlandosentinel.com/2004-01-31/sports/0401310276_1_sports-writer-silly-stuffrecruiting-visits. [2] “Office of Equal Opportunity and Affirmative Action,” Columbia University, accessed May 31, 2011, http://www.columbia.edu/cu/vpaa/eoaa. [3] “Transvestite Dies At Voodoo Ceremony,” OddCulture, accessed May 31, 2011,http://oddculture.com/culture/transvestite-dies-at-voodoo-ceremony. Saylor URL: http://www.saylor.org/books Saylor.org 481 [4] “Transvestite Dies At Voodoo Ceremony,” OddCulture, accessed May 31, 2011,http://oddculture.com/culture/transvestite-dies-at-voodoo-ceremony. [5] “NRI Sues Columbia University for Racism, Times of India, November 22, 2003, accessed May 31, 2011,http://businessethicsworkshop.com/Chapter_10/susan_rieger_in_trouble.html. [6] “Diversity@Google: A place to be you,” Google, accessed May 31, 2011,http://www.google.com/corporate/diversity/index.html. [7] “Diversity and students,” Google, accessed May 31, 2011,http://www.google.com/diversity/students.html. [8] Elissa Gootman, “Noose Case Puts Focus on a Scholar of Race,” New York Times, October 12, 2007, accessed May 31, 2011,http://www.nytimes.com/2007/10/12/education/12columbia.html?_r=1&pagewanted=all. [9] Karen W. Arenson and Elissa Gootman, “Columbia Cites Plagiarism by a Professor, “New York Times, February 21, 2008, accessed May 31, 2011,http://www.nytimes.com/2008/02/21/education/21prof.html. Saylor URL: http://www.saylor.org/books Saylor.org 482
Chapter 12: The Selling Office: Advertising and Consumer Protection from The Business Ethics Workshop was adapted by Saylor Academy and is available under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported license without attribution as requested by the work's original creator or licensor. Chapter 12 The Selling Office: Advertising and Consumer Protection Chapter Overview Chapter 12 "The Selling Office: Advertising and Consumer Protection" considers the ethics of selling by examining advertising, and the ethics of buying by examining conceptions of the consumer. Saylor URL: http://www.saylor.org/books Saylor.org 529 12.1 Two Kinds of Advertising LEARNING OBJECTIVES 1. Define and characterize informational advertising. 2. Define and characterize branding advertising. Old Spice One reason guys like to have the controller when couples are watching TV is so they can flip the channel fast when ads like this come on: Viewed from the waist up, you see a perfectly bodied man wrapped in a low-slung towel. With gleaming eyes locked on the camera he intones, “Hello, ladies, look at your man, now back to me, now back at your man, now back to me.” While guys at home cringe, he comes to an indisputable conclusion, “Sadly, he isn’t me.” After letting the reality sink in, he soothes his female viewers with the information that “He could at least smell like me if he switched to Old Spice body wash.” Next, he asks us to “Look down,” and while everyone’s eyes drop to his towel, some green screen magic allows him to seamlessly appear on a romantic sailboat in the Caribbean. His hand overflows with diamonds, then a bottle of Old Spice arises along with them, and we learn that, “Anything is possible when your man smells like Old Spice.” Advertising is about enticing consumers. It comes in many forms, but the two central strategies are (1) informational and (2) branding. Ads: Information and Branding There are more and less sophisticated ways of enticing consumers. At the lowest level, there are producttouting ads and comparisons giving straight information. When Old Spice set aside some money to sell their body wash, they could have gone that route, they could’ve dabbed some product on a shirt and asked random women to stop, take a sniff, and report on the scent. Then magazine spreads could be produced announcing that “three out of four women like the Old Spice scent!” A bit more aggressively, women could be given a blind sniff test featuring Old Spice and Axe products, or Old Spice and some “leading brand,” Saylor URL: http://www.saylor.org/books Saylor.org 530 one probably chosen because it fares particularly poorly in the comparison test. In any of its forms, this is informational advertising. It presents facts and hopes that reasonable consumers buying body wash will choose Old Spice. Other kinds of informational advertising include price comparisons (Old Spice costs less than Axe) and quality comparisons (the Old Spice scent lingers eight hours after showering, and Axe is gone after only six). Naturally, different kinds of products will lend themselves to different kinds of factual and informational claims. Sometimes, finally, this kind of advertising is called transactional because it’s directly about the exchange of money for a good or service. Moving toward more sophisticated—or at least less rational and direct—advertising, there’s branding, which is the attempt to convert a product into a brand. In the advertising and marketing world, the word brand has a very specific meaning. It’s not the name of the company making the product, not the words Old Spice or Kleenex. Instead, a brand is a product or company’s reputation; it’s what you think of when you hear the name and it’s the feelings (good or bad) accompanying the name. Technically, a brand is what a product or company is left with when you take everything away. Exemplifying this in the case of Old Spice, imagine that tomorrow all their production factories burn down, their warehouses flood, and their merchandise sells out at every store. Basically, the company has nothing left, no factories to make product, no stock to ship out, and no items left to sell on any shelf. Now, if you were a wealthy investor, would you buy this company that has nothing? You might. You might because it still has its brand, it still has a reputation in people’s minds, and that can be worth quite a bit. Frequently, when we visit a store and stand in front of shelves packed with different versions of a single kind of item, we don’t have time or the patience to carefully go through and compare price per ounce or to Tweet questions to friends about what they recommend. We choose one body wash—or one style of underwear or Eveready batteries instead of Duracell—because of an idea about that product planted in our mind. Maybe we don’t know exactly where the idea came from, or exactly what it is, but it’s there and guides us to one choice instead of another. It makes a product seem like it’s our kind of product (if it’s the one we end up buying) or not our kind of product. The Old Spice commercial is an exercise in branding. It’s funny, sexy, embarrassing, and extremely sophisticated. Looking at the commercial, the first question to ask is “in the most literal terms, what’s the message?” Is it that Old Spice is a good value? No, there’s no talk about price. Is it that Old Spice smells Saylor URL: http://www.saylor.org/books Saylor.org 531 good? No, the only claim is that it can make you smell like an attractive actor. Is it that the actor (and former pro football player) Isaiah Mustafa uses Old Spice? No, he says he does, but that’s not the message. If anything, his message to potential consumers is that, if he wanted to, he could steal their girlfriends. This is not the kind of information that wins market share. Fortunately for Old Spice, branding isn’t about facts or truths; it’s about producing an attitude and connecting with a specific sense of humor and outlook on life. Like a style of clothes or a preference for a certain kind of music, Old Spice is conveying a personality that you appreciate and like or, just as easily, dislike. That’s why the whole commercial comes off as a kind of joke about a certain vision of attraction and romance and sex. Do you enjoy the joke? If you don’t, then Old Spice is going to have to find a different way to get into your (or your boyfriend’s) wallet. If you do like it, if the whole thing seems zany and funny and you wouldn’t mind pulling it up on YouTube to watch again, then you’ve been branded. Old Spice has found a way to get past all the defenses we usually set up when we see advertising, all the skepticism and cynicism, and gotten us to feel like we’re part of something that includes that company’s products. In broad strokes, finally, there are two kinds of advertising, two strategies for influencing consumption choices. One works by appealing to facts and provides information; the other appeals to emotions and creates a lifestyle. Both kinds of advertising raise ethical questions. 1. Informational ads provoke questions about truth and lies. 2. Branding efforts provoke questions about the relation between our products and who we are as individuals and a culture. KEY TAKEAWAYS  Informational advertising employs facts to persuade consumers.  Branding advertising attempts to attach a personality and reputation to a product. Saylor URL: http://www.saylor.org/books Saylor.org 532 REVIEW QUESTIONS 1. Can you think of an example of an informational ad? What information is provided, and how does it persuade consumers? 2. Can you think of an example of a branding ad? What personality and attitude are attached to the product? How might those characteristics persuade consumers? Saylor URL: http://www.saylor.org/books Saylor.org 533 12.2 Do Ads Need to Tell the Truth? LEARNING OBJECTIVES 1. Delineate different types and degrees of deceitful advertising. 2. Discuss legal and regulatory responses to deceitful advertising. 3. Map the ethical issues surrounding deceptive ads. Types of Deceitful Advertising An initial way to distinguish informational advertising from branding is by asking whether consumers are supposed to ask whether the claims are true. In the case of the Old Spice body wash TV spot, there’s no question. The actor asserts that “anything is possible with Old Spice” as diamonds flow magically from his hands. But no one would buy the product expecting to receive diamonds. They wouldn’t because branding ads are neither true nor false. Like movies, you enjoy them (or you don’t) without worrying about whether it could really happen. Informational ads, on the other hand, derive their power from selling consumers hard facts. When the ad claims the product costs less than similar offerings from rivals, the first question is “really?” When the answer is “no,” the advertising is deceitful. There are four ways that informational advertising can be deceitful: 1. False claims directly misrepresent the facts. For example, an Old Spice body wash ad could announce that it costs less per ounce than Axe. When you go to the store, however, the opposite is true. It may be that the manufacturer’s suggested retail price is less, or Axe is on a special sale, but if the ad says Old Spice is cheaper and it’s not, that’s a false claim. 2. Claims that conceal facts are more common than directly false ones because they’re not flatly untrue and so can’t be easily disproven. A body wash, for example, may conveniently leave out the fact that chemical scents frequently react differently with different skin types and body temperatures, meaning a product may smell great on one man but come off as nauseating when used by most others. Another set of examples surround the infamous fine print on contracts. Every day, someone somewhere receives an offer for a free issue of a magazine and sends the business reply card in. It’s not until a few months later; Saylor URL: http://www.saylor.org/books Saylor.org 534 however, that they realize that getting the free one also committed them to buying a year’s worth. Another example of a concealed fact is a juice made from “natural ingredients,” and it turns out the natural ingredient is sugar, which is natural, but not the fruit juice from real oranges you were expecting. 3. Ambiguous claims resemble concealed facts in not being directly untrue. Where claims that conceal facts manipulate consumers by leaving something out, ambiguous claims mislead by putting too much in. For example, a body wash may announce that it “kills the smelly bacteria that women hate most,” and that may be true, but the implication that only Old Spice does that is misleading because all soaps and washes wipe out some bacteria. Just water washes a good bit away. Similarly, Viagra announces that before using the product, men should check with their doctor to “ensure that you are healthy enough to engage in sexual activity.” The misleading idea is that the rock and rolling will be so intense it could be life threatening. The truth is that the drug itself may be dangerous for the unhealthy. Finally, cigarette companies use a similar strategy when they advertise light cigarettes as (truly) containing less cancercausing tar, but they leave out the fact that the lower nicotine levels cause many smokers to light up more often and so take in as much, or even more, than they otherwise would have. In every case, the ad’s claim is technically true, but it leads consumers toward possibly false assumptions that just happen to make the product more attractive. 4. Puffery is a technical term in the advertising world. It signifies expressed views that are clearly subjective exaggerations or product slogans, and not meant to be taken literally. In the Old Spice ad, the actor’s claim that “anything is possible with Old Spice” is actually an ironic joke about puffery: the ad is poking fun at those other personal care products that in essence claim the women (or men) will come running. Here are two standard examples of puffery: Budweiser is “The King of Beers” and Coke is “The Real Thing.” More generally, any product labeled “The Finest,” and all services that announce them “Can’t be beat!” are engaging in the practice. Of course these kinds of slogans can be harmless with respect to their violation of strict truth telling, but they do place a burden on consumers to be wary. Deceitful advertising, finally, is not the same as false advertising. All false ads are also deceitful, but there are many ways of being deceitful that don’t require directly false claims. Saylor URL: http://www.saylor.org/books Saylor.org 535 Legal Responses to Deceptive Advertising Created in the early 1900s, the Federal Trade Commission (FTC) was originally tasked with enforcing antitrust laws. With time, its responsibilities have expanded to include consumer protection in the area of marketing and advertising. Today, many legal conflicts over truth and sales run through its offices. The act authorizing the FTC to begin regulating advertising declares that “unfair and deceptive practices” are illegal, and the agency is charged with the responsibility to investigate and prevent them. [1] In judging what counts as deceptive, two models are frequently used. The reasonable consumer standard is the looser of the two. It presumes that protections should only be extended to cover advertising that would significantly mislead a thoughtful, moderately experienced consumer. One advantage of this stance is that it allows the FTC to focus on the truly egregious cases of misleading advertising, and also on those products that most seriously affect individual welfare. Very close attention is paid to advertising about things we eat and drink, while fewer resources are dedicated to chasing down garden-variety rip-offs that most consumers see through and avoid. One borderline case is the FTC v. Cyberspace.com. In that case, and according to their press release, the FTC charged that the defendants engaged in an illegal scheme to deceive consumers by mailing $3.50 “rebate” checks to millions of small businesses and consumers. The check came with an attached form that looked like an invoice and used terms like “reference number,” and “discount taken,” making it look like there was a previous business relationship. By cashing the checks, the FTC alleged that many small businesses and consumers unknowingly agreed to allow the defendants to become their Internet Service Provider. After the checks were cashed, the defendants started placing monthly charges of $19.95 to $29.95 on the consumers’ telephone bills. According to the FTC, the defendants then made it very difficult to cancel future monthly charges and receive refunds. [2] The judge sided with the FTC. Whether or not these businesspeople should have seen through the free-money scam and thrown the “check” in the trash, it’s certain that the FTC should have stepped in under the ignorant consumer standard. Within this framework—which is much stricter than the reasonable consumer version—consumers are protected even from those scams and offers that most people recognize Saylor URL: http://www.saylor.org/books Saylor.org 536 as misleading. One point to make is that the “ignorant consumer” isn’t synonymous with dumb. Though the category does catch some people who probably should’ve tried a bit harder in school, other ignorant consumers may include immigrants who have little experience with American advertising practices and customs. The elderly too may fall into this category, as might people in situations of extreme or desperate need. One example would be late-night TV commercials appealing to people in deep debt. Some ads promise that loan consolidation will lower their overall debt. Others imply that filing for bankruptcy will virtually magically allow a start-over from scratch. Both claims are false, but when creditors are calling and threatening to take your home and your car, even the most reasonable people may find themselves vulnerable to believing things they shouldn’t because they want to believe so desperately. The federal government, finally, through the FTC has the power to step in and protect these consumers. Strictly from a practical point of view, however, their resources are limited. The task of chasing down every ad that might confuse or take advantage of someone is infinite. That factor, along with good faith disagreements about the extent to which companies should be able to shine a positive light on their goods and services, means (1) the ignorant consumer standard will be applied only sparingly by government regulators, and (2) borderline cases of advertising deceit will be with us for the foreseeable future. The Ethics of Deceitful Advertising One way to enter the ethical debate about dubious product claims is by framing the subject as a conflict of rights. On one side, producers have a right to talk sunnily about what they’re selling: they’re free to accentuate the positives and persuade consumers to reach for their credit card. On the other side, consumers have a right to know what it is that they’re buying. In some fields, these rights can coexist to some significant extent. For example, with respect to food and drink, labeling standards imposed on producers can allow consumers to literally see what’s in their prospective purchase. Given the transparency requirement, companies can make a strong argument that they should be allowed to advocate their products with only minimal control because consumers are free to check exactly what it is they’re buying. Even these clear cases can become blurry, however, since some companies try to stretch labeling requirements to the breaking point to suit their purposes. One example comes from breakfast cereal boxes. On the side, producers are required to list their product’s ingredients from high to low. At the top Saylor URL: http://www.saylor.org/books Saylor.org 537 you expect to see ingredients including flour or similar, as quite a bit of it goes into most dry cereals. At the bottom, there may be some minor items added to provide a bit of flare to the taste. One specific ingredient many parents worry about is sugar: they don’t want to send their little ones off to school on a massive sugar high. So what do manufacturers do? They comply with the letter of the regulation, but break the spirit by counting sugar under diverse names and so break up its real weight in the product. Here are the first few lines of the ingredients list from Trix cereal: Corn (Whole Grain Corn, Flour, Meal), Sugar, Corn Syrup, Modified Corn Starch, Canola and/or Rice Bran Oil, Corn Starch, Salt, Gum Arabic, Calcium Carbonate, High Fructose Corn Syrup, Trisodium Phosphate, Red 40, Yellow 6, Blue 1. Sugar is sugar, corn syrup has a lot of sugar, high fructose corn syrup has even more sugar. We’d have to get a chemist to tote up the final results, but it’s clear that a reasonable consumer should figure this is a sugar bomb. Is it fair, though, to assume that an immigrant mother—or any mother not well versed in sugar’s various forms—is going to stop and do (or be able to do) a comprehensive ingredient investigation? The question goes double after remembering that the first image consumers see is the product’s advertising on the box featuring a child-friendly bunny. More generally, in terms of a pure rights-based argument, it’s difficult to know where the line should get drawn between the right of manufacturers to sell, and the right of consumers to know what they’re buying. The arguments for pushing the line toward the consumer and thereby allowing manufacturers wide latitude to make their claims include the following: 1. Free speech. The right for people to say whatever they want doesn’t get suspended because someone is trying to sell a product. Further, on their side, consumers are completely free to buy whatever they want, they’re free to listen to pitches from competing merchants, and they can consult the Consumer Reports web page and talk to friends. Ours is, after all, a free market, and advertisers participate in it. The right to make whatever advertising claims one wishes is justified on principle, on the ideal of a liberal (in the sense of free) economic world. 2. Marketers have a moral responsibility to do everything they possibly can to sell because they’re obligated to serve their employers’ interest, which is to make money, presumably. In this case, deceitful advertising may be morally objectionable but less so than failing to turn the highest profit possible. Saylor URL: http://www.saylor.org/books Saylor.org 538 3. Within the context of an open market economy, one way to help it function efficiently, one way to get products and services sent where they’re supposed to go in a way that benefits everyone, is by maximizing the amount of information consumers have before they purchase. And one way to maximize information, it could be argued, is by letting competing sellers advertise freely against each other. They can say whatever they like about themselves and point out exaggerations and untruths in the claims of competitors. This is similar to what happens in courtrooms where plaintiffs are allowed to say more or less whatever they want and defendants can do that too. Both sides cross-examine each other, and in the end, the jury weighs through it all and decides guilt or innocence. Returning to the economic realm, the argument is that the best way to get the most information possible out to consumers is by allowing a vibrant advertising world to flourish without restriction. On the other side, distinct arguments are frequently proposed to defend the position that sellers should operate within tight restrictions when advertising the virtues of their goods and services. The consumer should be vigorously shielded; the reasoning goes, from claims that could be deceptive. Arguments include the following: 1. Consumers have a fundamental ethical right to know what they’re buying, and even mildly ambiguous marketing techniques interfere with that right. If a box of breakfast cereal is marketed with a harmless and helpful bunny, then the ingredients of Trix cereal better be harmless and helpful (and not sugar bombs). Everyone agrees, finally, that advertisers have a right to free speech, but that right stops when it conflicts with consumers’ freedom to purchase what they really want. 2. Advertisers are just like everyone else insofar as they’re bound by an ethical duty to tell the truth. That duty trumps their obligation to sell products and help companies make profits. 3. Both advertisers and the manufacturing companies are duty bound to treat everyone including consumers as ends and not as means. The basic ethical principle here is that no one should be treated as an instrument, as a way to get something else. There’s no problem with advertising a product and allowing consumers to decide whether they want it, but when the advertising becomes deceptive, consumers are no longer being respected as dignified human beings; they’re being treated as simply means to ends, as ways the company makes money. Consumers become, in a sense, indistinguishable from the machines in the factory, nothing more than cogs in the process of making owners wealthy. Saylor URL: http://www.saylor.org/books Saylor.org 539 4. Purchasing a product is also the signing of an implicit contract between producer and consumer. The consumer gives good money and expects a good product, one in line with the expectations raised by advertising. Just as companies are right to apply drug tests to workers because those companies have a right to a full day’s good labor for a full day’s pay, so too when the consumer pays full price for a product it should fully meet expectations. 5. Though the idea of allowing marketers to say whatever they want may sound good because it allows consumers to maximize information about the products that are out there, the theory only works if consumers have massive amounts of time to study the messages from every producer before making every purchase. In reality, no one has that much time and, as a result, advertisers must be limited to making claims that are clearly true. Conclusion. There’s a lot of space between truths and lies in advertising; there are many ways to not quite tell the whole truth. Both legally and ethically, the limits of the acceptable can be blurry. KEY TAKEAWAYS  Deceitful advertising occurs along a range from exaggerations to direct falsehoods.  Legal responses to deceitful advertising may be organized through the FTC.  The degree of consumer legal protection depends on premises about the marketplace sophistication of the consumer.  Ethical debates concerning deceitful advertising pit the rights of marketers to sell against the rights of consumers to know what they are purchasing. REVIEW QUESTIONS 1. What’s the difference between deceitful advertising and direct falsehoods? 2. Define the reasonable consumer standard for consumer protection. How is it different from the ignorant consumer standard? 3. What are two arguments in favor of granting marketers wide latitude to promote their products? 4. What are two arguments in favor of forcing marketers to stay very close to the pure truth when promoting their products? Saylor URL: http://www.saylor.org/books Saylor.org 540 [1] Section 5, Federal Trade Commission Act. [2] “Bogus ‘Rebate’ Offers Violate Federal Law,” Federal Trade Commission, August 5, 2002, accessed June 2, 2011, http://www.ftc.gov/opa/2002/08/cyberspace.shtm. Saylor URL: http://www.saylor.org/books Saylor.org 541 12.3 We Buy, Therefore We Are: Consumerism and Advertising LEARNING OBJECTIVES 1. Define consumerism. 2. Discuss the power and problems surrounding advertising that creates desires. 3. Consider special issues surrounding advertising and children. 4. Investigate the penetration of advertising in life. What Is Consumerism? The word consumerism is associated with a wide range of ideas and thinkers, ranging from American economist John Kenneth Galbraith and his book The Affluent Society to the French postmodern philosopher Jean Baudrillard. While definitions of the word and responses to it vary, consumerism in this text is defined in two parts: 1. We identify ourselves with the products we buy. Consumerism goes beyond the idea that our brands (whether we wear Nike shoes or TOM’s shoes, whether we drive a Dodge Charger or a Toyota Prius) are symbols of who we are. Consumerism means our products aren’t just things we wear to make statements. They are us; they incarnate the way we think and act. 2. If we are what we buy, then we need to buy in order to be. Purchasing consumer items, in other words, isn’t something we do to dispatch with necessities so that we can get on with the real concerns of our lives—things like falling in love; starting a family; and finding a satisfying job, good friends, and fulfilling pastimes. Instead, buying becomes the way we do all those things. The consumption of goods doesn’t just dominate our lives; it’s what we do to live. The subject of consumerism goes beyond business ethics to include every aspect of economic life and then further to cultural studies, political science, and philosophy. Staying within business ethics, however, and specifically with advertising, the subject of consumerism provokes the following questions:  Does advertising create desires (and is there anything wrong with that)?  Do advertisers have a responsibility to restrain their power? Saylor URL: http://www.saylor.org/books Saylor.org 542  Should there be different rules for advertising aimed at children?  Is advertising too intrusive in our lives? Does Advertising Create Desires (and Is There Anything Wrong with That)? Our society is affluent. With the exception of marginal cases, all Americans today eat better, enjoy more effective shelter from winter cold and summer heat, are healthier, and live longer than, say, the king of France in 1750. In fact, necessity in the sense of basic life needs hardly exists. We struggle heroically to afford a better car than our neighbor, to have a bigger home than our high-school classmates, to be thin and pay the doctor for a perfectly shaped nose, and so on, but no one worries about famine. Our economic struggles aren’t about putting food on the table; they’re about eating in the most desirable restaurant. How do we decide, however, what we want—and even what we want desperately—when we don’t truly need anything anymore? One answer is that we create needs for ourselves. All of us have had this experience. For our entire lives we lived without iPhones (or even without cell phones), but now, somehow, getting halfway to work or campus and discovering we left our phone at home causes a nervous breakdown. Advertising plays a role in this need creation. Take the Old Spice body wash ad. Body wash as a personal grooming product was virtually unheard of in the United States until only a few years ago. More, as a product with specific characteristics, it’s hard to see how it marks an advance over old-fashioned soap. This absence of obvious, practical worth at least partially explains why the Old Spice ad provides very little information about the product and nothing by way of comparison with other, similar options (like soap). Still, the Old Spice body wash is a hit. The exact techniques the ad uses are a matter for psychologists, but as the sales numbers show, the thirty-second reel first shown during the Super Bowl has herded a lot of guys into the idea that they need to have it. [1] Is there anything wrong with that? One objection starts by pointing out that corporations producing these goods and selling them with slick ad campaigns aren’t satisfying consumer needs; they’re trying to change who consumers are by making them need new things. Instead of fabricating products consumers want, corporations now fabricate consumers to want their products, and that possibly violates the demand that we respect the dignity and autonomy of others. The principle, for example, that we treat others as ends and not means is clearly transgressed by any advertising that creates needs. First, guys out in the Saylor URL: http://www.saylor.org/books Saylor.org 543 world aren’t being respected as “ends,” as individuals worthy of respect when corporations stop producing their required products better or more cheaply. Second, guys out in the word are being treated as means— as simple instruments of the corporations’ projects—when their desires are manipulated and used to satisfy the corporations’ desire to make money. Another argument against this kind of desire-creating advertising starts from a rights approach. According to the theory that freedom is the highest good, we’re all licensed to do whatever we want as long as our acts don’t curtail the freedom of others. The argument could be made that using sophisticated advertising campaigns to manipulate what people want is, in effect, curtailing their freedom at the most fundamental level. Old Spice’s advertising strategy is enslaving people to desires that they didn’t freely choose. A final argument against need creation with advertising is the broad utilitarian worry that consumers are being converted into chronically, even permanently unhappy people because they have no way to actually satisfy their desires. If you work to attain something you’ve been told you’re supposed to want, and the second you get it some new company enters with the news that now there’s something else you need, the emotional condition of not being satisfied threatens to become permanent. Like mice trapped on a running wheel, consumers are caught chasing after a durable satisfaction they can’t ever reach. On the other side of the argument, defenders and advocates of desire-creating advertisements like the one Old Spice presented claim (correctly) that their announcements aren’t violating the most traditional and fundamental marketing duty, which is to tell the truth. The Old Spice ad, in fact, doesn’t really say anything that’s either true or false. Given that, given that there’s no attempt to mislead, the company is perfectly within its rights to provide visions of new kinds of lives for consumers to consider, accept or reject, buy or pass over. Stronger, advocates claim that consumers are adults and attempts to shield them from ads like those Old Spice produced don’t protect their identity and dignity; instead, they deny consumers options. Consequently, ethical claims that ads aiming to generate new desires should be constrained actually violate consumer dignity by treating them like children. We should all be free, the argument concludes, to redefine and remake ourselves and our desires in as many ways as possible. By offering options, advertising is expanding our freedom to create and live new, unforeseen lives. Saylor URL: http://www.saylor.org/books Saylor.org 544 Do Advertisers Have a Responsibility to Restrain Their Power? The Old Spice ad didn’t end after its thirty seconds of fame on the Super Bowl broadcast. The actor Isaiah Mustafa went on to became a Twitter sensation. By promising to respond to questions tweeted his way, he effectively launched a second phase of the marketing effort, one designed to stretch out the idea that body wash is big and important: it’s what people are talking about, and if you don’t know about it and what’s going on, you’re out of the loop, not relevant. The tone of the invitation to Twitter users to get involved stayed true to the original commercial. Mustafa asked people to “look for my incredibly manly and witty and amazing responses” to their questions. [2] On YouTube, Mustafa’s status went to instant legend: not only has his commercial been viewed about 20 million times (by people who actually want to watch and pay attention and at zero cost to Old Spice), there’s also a long list of copycat videos, derivative videos, spoof videos, and on and on. The depth of the advertising campaign is now virtually infinite. You could pass years watching and listening and reading the social media generated and inspired by the original commercial. All that is advertising. It’s not paid, it’s not exactly planned, but it is part of the general idea. When Old Spice spent big money to get a Super Bowl slot for their ad, they weren’t only trying to reach a large audience; they were also hoping to do exactly what they did: set off a firestorm of attention and social media buzz. Called viral advertising, this consumer-involved marketing strategy drives even further from traditional, informational advertising than the activity of branding. Where branding attempts to attach an attitude and reputation to a product or company independent of specific, factual characteristics, viral ads attempt to involve consumers and exploit them to do the company’s promotional work. When viral advertising is working, the activity of branding is being carried out for free by the very people the advertising is meant to affect. In a certain sense, consumers are advertising to themselves. Of course, consumers aren’t rushing to donate their energy and time to a giant corporation; they need to be enticed and teased. The Super Bowl ad with its irresistible humor and sex-driven come-on does that—it provokes consumers to get involved. Viral ads—and the techniques of public enticement making them spread contagiously—come in many forms. One ethical discussion, however, surrounding nearly all viral advertising can be framed as a discussion about knowledge and resource exploitation. Two critical factors enabled Old Spice, along with Saylor URL: http://www.saylor.org/books Saylor.org 545 its advertising agency Wieden+Kennedy, to generate so much volunteer help in their endeavor to get the body wash buzz going: 1. Knowledge of consumer behavior 2. Tremendous resources—especially money and creative advertising talent—that allowed them to act on their knowledge Compared with the typical person watching a TV commercial, the raw power of Old Spice is nearly immeasurable. When they aim their piles of money and sharp advertising experts toward specific consumers, consumers are overwhelmed. Without the time required to learn all the skills and strategies employed by today’s advertisers, they literally don’t even know what’s hitting them. From that fact, this ethical question arises: Don’t today’s sophisticated marketers have a responsibility to inform consumers of what they’re up to so that potential purchasers can at least begin to defend themselves? Making the last point stronger, isn’t the economic asymmetry—the huge imbalance in monetary power and commercial knowledge favoring today’s professional advertisers—actually an obligation to restraint, a responsibility to not employ their strongest efforts given how comparatively weak and defenseless individual consumers are? The “yes” answer rests on the duty of fairness—that is, that we treat equals equally and un-equals unequally. In this case, the duty applies to companies just as it does to people. Frequently people say to large, muscle-bound characters caught up in a conflict with someone smaller, “Go pick on someone your own size.” It’s simply unfair to challenge another who really has no chance. This duty comes forward very graphically on a video snippet from MTV’s Jersey Shore when a thin girl attacks the physically impressive Ronnie. He just shoves her aside. When her boyfriend, however, who’s about Ronnie’s size and age, shows up and starts swinging, he ends up getting a good thumping. Leaving aside the ethics of fistfights, it doesn’t take profound thought to see that Ronnie understands his superior physical power is also a responsibility when harassed by a comparative weakling to hold himself in check. [3] While the case of Old Spice and Wieden+Kennedy isn’t quite as transparent as Ronnie on the street, it does obey the same logic: all their power and marketing expertise is both a power over consumers and an equally forceful responsibility not to exercise it. Compare that situation with the famous “I’m a Mac, I’m a PC” advertising campaign. No one objects to powerhouse Apple taking some figurative swings at powerhouse Microsoft since that company clearly has the means to defend itself. When a corporation Saylor URL: http://www.saylor.org/books Saylor.org 546 manipulates innocent and relatively powerless individual consumers at home on the sofa, however, it’s difficult to avoid seeing something unfair happening. The argument on the other side is that consumers aren’t powerless. There’s no real imbalance of might here because consumers today, armed with their Twitter accounts and Facebook pages, are perfectly capable of standing up to even the mightiest corporations. Viral messaging, in other words, goes both ways. Old Spice may use it to manipulate men, but individual men are perfectly free and capable of setting up a Facebook group dedicated to recounting how rancid Old Spice products actually are. Beneath this response, there’s the fundamental claim that individuals in the modern world are free and responsible for their own behavior, and if they end up voluntarily advertising for Old Spice and don’t like it, they shouldn’t complain: they should just stop tweeting messages to Isaiah Mustafa. Further, the proposition that consumers need to be protected from Old Spice is an infringement on the dignity of those who are out in the world buying. Because today’s consumers connected to social media are alert and plugged in, because even a solitary guy in pajamas in his basement running his own YouTube channel or Facebook group can be as influential as any corporation, attempts to shield him are nothing less than disrespectful confinements of his power. Protection, in this case, is just another word for condescension. Should There Be Different Rules for Children? The discussion of knowledge and resource exploitation leads naturally to the question about whether children should be subjected to advertising because the knowledge imbalance is so tremendous in this particular case. According to a letter written by a number of respected psychologists to their own professional association, children should receive significant shielding from advertising messaging. The first reason is a form of the general concern that advertising is creating desires as opposed to helping consumers makes good decisions about satisfying the desires they have: “The whole enterprise of advertising is about creating insecure people who believe they need to buy things to be happy.” [4] The problem with advertising that creates insecurity is especially pronounced in the case of society’s youngest members because once that attitude of constant need and consequent unhappiness is bred into these consumers, it’s difficult to see how it will be removed. Since they’ve known nothing else, since Saylor URL: http://www.saylor.org/books Saylor.org 547 they’ve been taught from the very start that the natural condition of existence is to not have the toys and things that are needed, they have no way of escaping into a different (non-consumerist) way of understanding their reality. Finally, if this entire situation is set inside a utilitarian framework, it’s clear that the ethical verdict will fall somewhere near reprehensible. If, as that ethical theory affirms, moral good is just any action contributing to social welfare and happiness, then advertisements consigning children to lifetime dissatisfaction must be prohibited. The second part of the psychologists’ argument elaborates on the condition of children as highly vulnerable to commercial message techniques. Children aged three to seven, for example, gravitate toward the kind of toys that transform themselves (for example, Transformers). Eight- to twelve-year-olds love to collect things. Armed with these and similar insights about young minds, marketers can exploit children to want just about anything. The virtual defenselessness of children, the point is, cannot be denied. Still, there is a case for child-directed advertising. It’s that where children are defenseless, parents have a responsibility to step in. First, they can turn off the TV. Second, no young child can buy anything. Children depend on money from mom and dad, and to the extent that parents enable children to live their advertising wants, its parents who are at fault for any feelings of insecurity and dissatisfaction affecting their kids. Whether advertising aimed at children is right or wrong, the stakes are certainly high. Children under twelve are spending around $30 billion a year, and teenagers are hitting $100 billion in sales. [5] Are Ads Too Intrusive in Our Lives? Another sentence from that letter written by concerned psychologists indicates a distinct area of ethical concern about advertising: “The sheer volume of advertising is growing rapidly and invading new areas of childhood, like our schools.” [6] It’s not just children in their schools. We all go to concerts at the American Airlines Center, our shirts and shoes are decorated with the Nike swoosh, public parks are sponsored by corporations, the city bus is a moving billboard, the college football championship will be determined at the FedEx Orange Bowl. Every day it’s harder to get away from ads, and each year the promotions and announcements push closer to those parts of our lives that are supposed to be free of economic influence. Maybe someday we’ll attend Saylor URL: http://www.saylor.org/books Saylor.org 548 Mass at the Diet Coke Cathedral, weigh guilt and innocence in the Armor All courthouse, elect senators to vote in the Pennzoil chamber. And maybe that’s OK. The push of advertising into everything is a proxy for a larger question about the difference between business life and life. It could be that, at bottom, there is no difference. We are Homo economics’. The anti-romanticists were right all along: love can be bought with money, fulfillment is about consuming, and that bumper sticker “He who dies with the most toys wins” is true. Since serious thought about what really matters in life began in Greece 2,500 years ago, people have promoted the idea that there are more important things than money and consumption. Those usually illdefined but nonetheless more important things have always explained why most poets, artists, priests, and philosophy professors haven’t had much in the way of bank accounts. Possibly, though, it’s the other way. Maybe it’s not that there are more important things in life that lead some people away from wealth and consumption; maybe it’s that some people who don’t have much money and can’t buy as much as their neighbors explain away their situation by imagining that there are more important things. Who’s right? The ones, who say money and economic life should be limited because the really important things are elsewhere, or the ones who say there are no other things and those who imagine something else are mainly losers? It’s an open question. Whatever the answer, it will go a long way toward determining the extent to which we should allow advertising into our lives. If there’s only money and consumption, then it’s difficult to see why the reach of the branding factories and viral marketers should be significantly limited. If, on the other hand, there’s life outside the store, then individuals and societies wanting to preserve that part of them may want to constrain advertising or require that it contribute to noneconomic existence. KEY TAKEAWAYS  Consumerism places our entire life within the context of consumer goods and services.  Advertising can create desires.  Advertising creating desires raises questions about whether ads violate consumers’ dignity and rights.  The knowledge and financial power of companies (and their ad agencies) may also be an obligation for restraint.  Children are especially vulnerable to sophisticated advertising and may require special protections. Saylor URL: http://www.saylor.org/books Saylor.org 549  Discussion of the advertising that creates needs is a proxy for a larger discussion about the role of money and consumption in our lives. REVIEW QUESTIONS 1. Put into your own words the definition of consumerism. 2. How can an ad create a desire? 3. Why might an advertiser seek to create a desire? 4. Make the case that ads that create desires violate a consumer’s basic rights. 5. Why might a consumer want advertisers to create desires? 6. What is a viral ad? 7. With reference to the concept of economic asymmetry, why is advertising aimed at children the subject of special concern? 8. Why might an advertising company feel obligated to limit the places in which its work appears in the name of protecting the noneconomic parts of our lives? 9. Why might someone want advertising to be everywhere? [1] Noreen O’Leary and Todd Wasserman, “Old Spice Campaign Smells Like a Sales Success, Too,” July 25, 2010, Adweek, accessed June 2, 2011,http://www.adweek.com/news/advertising-branding/old-spice-campaignsmells-sales-success-too-107588. [2] Meena Hartenstein, “Old Spice Guy Takes Web By Storm in Viral Ad Campaign, Creating Personalized Videos for Fans, Celebs,” New York Daily News, July 14, 2010, accessed June 2, 2011, http://www.nydailynews.com/entertainment/tv/2010/07/14/2010-0714_old_spice_guy_takes_web_by_storm_in_viral_ad_campaign_creating_ personalized_vide.html. [3] Nicholas Graham, “Jersey Shore Fight: Ronnie Gets Into Vicious Fight,” Huffington Post, August 1, 2010, accessed June 2, 2011,http://www.huffingtonpost.com/2010/01/08/jersey-shore-fight-ronnie_n_416259.html. [4] Rebecca Clay, “Advertising to Children: Is it Ethical? Monitor On Psychology 31, no. 8 (September 2000), 52, accessed June 2, 2011,http://www.apa.org/monitor/sep00/advertising.aspx. Saylor URL: http://www.saylor.org/books Saylor.org 550 [5] Rebecca Clay, “Advertising to Children: Is it Ethical? Monitor On Psychology 31, no. 8 (September 2000), 52, accessed June 2, 2011,http://www.apa.org/monitor/sep00/advertising.aspx. [6] Rebecca Clay, “Advertising to Children: Is it Ethical? Monitor On Psychology 31, no. 8 (September 2000), 52, accessed June 2, 2011,http://www.apa.org/monitor/sep00/advertising.aspx. Saylor URL: http://www.saylor.org/books Saylor.org 551 12.4 Consumers and Their Protections LEARNING OBJECTIVES 1. Delineate the issue of consumer protection from defective goods and services. 2. Outline five conceptions of the consumer. 3. Consider the ethics of consumer protection surrounding each conception of the consumer. Google Search: Make Money on the Stock Market One of the top results of a Google search for “make money on the stock market” links you to a page called 2stocktrading.com. It claims, “If you just follow my technique, then I guarantee you will be able to turn $2000 into $1.7 Million in just 1.9 years!” People turn small amounts into large amounts fast on Wall Street. It happens every day. Many of those people, however, have spent years in school studying economics and business and then decades more studying data and preparing for a speculative opportunity. That studious patience may be a good way to find success, but it isn’t the 2stocktrading.com recommendation. According to them, “You don’t need to spend hours reading charts, doing technical analysis and stuff like that.” So what do you do to prepare for sudden riches? You’ve got to buy a special book that they sell on the website. Then, you follow 5 simple steps explained in the book. Within 10 minutes, you have found a stock trade that is bound to make you money in any market condition…Go make coffee. Have a little breakfast. And wait for the market to open…Call your broker to place an order. That’s it…Your job is done for today. Trust me. Of every one hundred people who read the pitch from 2stocktading.com in this business ethics textbook, how many do you think will take a second to check out the site? And of that group, what percentage will actually spend some time reading through the whole page? And of that group, which percentage will end up sending in money? Saylor URL: http://www.saylor.org/books Saylor.org 552 Everybody would like to know the answer to that last question for this reason: everyone has been ripped off, and afterward, everyone has looked at themselves and asked, “Well, was it my fault?” Sometimes the answer is disagreeable, and it’s comforting to know that at least some people out there—like the ones sending in money to 2stocktrading—are even more gullible. The business ethics surrounding the consumer mainly concerns gullibility, mistreatment of the consumer, and responses to the mistreatment. The questions are about how much freedom consumers should have to spend their money and how much responsibility suppliers should take for their goods and services. One way of organizing the answers is by considering five conceptions of the consumer, five ways of arranging the rights and responsibilities surrounding the act of spending money: 1. The wary consumer 2. The contracting consumer 3. The protected consumer 4. The renegade consumer 5. The capable consumer The Wary Consumer Caveat emptor is Latin; it translates as “Let the buyer beware.” As a doctrine, caveat emptor means the consumer alone is responsible for the quality of the product purchased. If, in other words, you send your money to 2stocktrading.com and you end up losing not only that but also the cash invested in disastrous stock choices, that’s your problem. You don’t have any claim against this particular get-rich-quick scheme. And if you don’t like the results, that only means you should have been a more careful consumer. The doctrine of caveat emptor entered the American legal lexicon in 1817 (Laidlaw v. Organ). Since then, the legal tide has flowed in the other direction: toward consumer protection and the idea that offering a good or service for sale is also, implicitly, the offer of some kind of guarantee. If a product doesn’t do what a reasonable person expects, then there may be room for a legal claim against the seller. On the ethical front, caveat emptor sits at one extreme of the buyer-seller relation. It’s what you have when you buy a used car marked As Is. Even if it’s a lemon, you’re stuck with it. As far as justifying this view of the consumer and mounting an argument that our economic life ought to be organized by the idea Saylor URL: http://www.saylor.org/books Saylor.org 553 that when buyers hand over their money, they get their item and nothing else, there are several routes that may be followed:  Caveat emptor maximizes respect for the consumer. By placing all responsibility in the consumer’s hands, a high level of dignity and freedom is invested in those who buy. It’s true that when there’s a rip-off, there’s no recourse, but it’s also true that the consumer is allowed to make decisions based on any criteria he or she sees fit. The case of 2stocktrading.com is a good example. Reading about the scheme, it’s normal to be tempted to say, really, these guys shouldn’t be allowed to advertise their service. What they’re claiming is clearly untrue (if their stock-picking system really worked so well, they’d spend their time picking stocks, not trying to sell other people ideas about how to pick stocks). And it’s true that were consumers banned from sending money in, more than a few would be better off. But do we really want a society like that, one where we don’t get to make our own choices, even if they’re bad ones? A critical component of showing respect for others is allowing them to mess up. Its worth, the argument closes, allowing those mess ups if what we get back for them is consumers endowed with the dignity of making their own decisions.  Another argument justifying caveat emptor is that it maximizes a certain kind of economic efficiency. When deals are done, they’re done and everyone moves on. This allows two kinds of savings. First, there are no expensive lawsuits where everyone pays and mainly lawyers walk away with the cash. Second, though it’s impossible to put a number on the cost, it’s certain that a huge amount of resources are devoted in our economy today to warnings and similar that are meant to protect companies against consumer claims of fraud and abuse and lawsuits. Take, for example, the TV ads we see for prescription drugs. Sometimes it seems like half the airtime is devoted to reciting warnings and complications associated with the medication. In a world of pure caveat emptor, those kinds of efforts could be minimized because sellers wouldn’t have to worry so much about getting sued. With respect to ethics, finally, it may be possible to argue here that maximizing economic efficiency is also the best way to maximize a society’s happiness, and if it is, then the doctrine of caveat emptor is sanctioned by utilitarian theory. On the other side, there are also solid ethical arguments against envisioning consumers as protected only by their own wariness. Saylor URL: http://www.saylor.org/books Saylor.org 554  An ethics of care sets the maintenance of a community—of its relationships and unity—as the highest value. If that’s the final definition of good, if what we seek in the business world is smooth and continuing cooperation everywhere along the line from the production to the sale and finally to the use of products, then it’s difficult to see how sellers could wash their hands after a transaction, or why buyers would be restrained from complaining when things don’t work out the way they were supposed to.  In our society, an ethics based on virtue also stands against the caveat emptor model of consumption. Proponents of virtue ethics typically cite senses of fairness and civility as key components of a good ethical life. If they are, it seems clear that customers who don’t receive what they honestly thought they were getting should be listened to and compensated, not ignored and spurned. In conclusion, caveat emptor envisions consumers as free and empowers them to do as they wish. However, by freeing sellers to be as unscrupulous as they like, it may create an economic society that seems more savage than civil. The Contracting Consumer The contractual view of the consumer sees transactions as more than a simple passing of money one way and a good or services the other. The transaction is also the creation of an implicit contract. It’s true that nothing may be written on a piece of paper or signed, but the contract’s terms may nonetheless be deduced from the transaction itself. In order to begin deducing, the nature of a contractual relationship should first be summarized in general form. Entering into a contract implies the following three requirements: 1. Freedom. Neither party may be forced into the agreement. One of the memorable scenes from the Godfather movies involves the mafia’s attempt to win a movie role for young Frank Sinatra. The Hollywood executive resists the casting, until he wakes up one morning with the severed head of his favorite horse in his bed. A contract is quickly sent out. That’s not a true story, but it’s an example of entering a contract under duress. A more subtle violation of contractual freedom occurs on the 2stocktrading web page. If you scroll to the bottom you find the price of the product is about $200, but if you buy immediately you’re eligible for a half-price discount. The aim here is to limit the consumer’s freedom to think things through before entering into a purchasing contract by forcing a yes-no decision right now. Saylor URL: http://www.saylor.org/books Saylor.org 555 2. Information. Both buyers and sellers must have reasonably complete knowledge of the agreement they together enter. The issues here range from simple to complicate. If the price, for example, is set in dollars, does that mean US dollars or the Canadian version? More thorny would be the question as to what exactly you receive when you send in your money to 2stocktrading.com. They claim you’ll get the stock-picking secrets, but what exactly does that mean? Is it a textbook in economics, a subscription to the Wall Street Journal, a crystal ball? If you go through the company’s web page carefully, you get the idea that a set of books will be mailed your way, but again, exactly how these books convey secret knowledge is harder to see. 3. Honesty. Both sides have to tell the truth. Consumers who send in checks must have money in their accounts. Sellers who promise stock tips that will make you rich must, in fact, send you good stock tips. The vision of the consumer as entering a contractual relationship essentially moves ethical questions into the legal realm. What’s morally right or wrong becomes a matter of contract law, and decisions made on the ethical front loosely parallel those that would be taken in the courts. The ethical work that needs to be done here occurs in the deduction of exactly what terms and clauses make up the implicit contract as it’s implied by the circumstances of the agreement. In the field of law, of course, we know what the contract’s terms are because they’re actually spelled out on a piece of paper. In the case of the contractual view of the consumer, it will be necessary to start with a specific ethical theory, and move from there to the conceiving of an agreement entered into by both sides. An ethical theory of traditional duties, which values honesty highly, may move all the claims made on the 2stocktrade.com web page directly over to the implicit contract. If, it follows, the people selling the stockpicking service say you’ll get rich in two years by following their recommendations and you follow them and you don’t get rich, the sellers have not fulfilled their contract. Both economically and ethically, they haven’t held up their end of the bargain. At this point, the concept of an implied warranty activates. An implied warranty, just like an implicit contract, elaborates what consumers may claim from sellers if the good or service fails to meet expectations. In this case, one where the implicit contract guaranteed wealth, it seems obvious that consumers who don’t make any money should get their original purchase price back. They may also be able to claim that any money lost on the stock market should be refunded because it was invested underneath the assumption that it would produce a gain. At the outside extreme, they might be able to demand the wealth they were supposed to receive for their investments. Saylor URL: http://www.saylor.org/books Saylor.org 556 Looking at this situation differently—which means using a different ethical theory to produce the terms of an implicit contract between 2stocktrading.com and a consumer—a culturalist ethics may not be quite so stringent. A culturalist ethics accords right and wrong with the habits and customs of a society. And in America today, there’s a common understanding that in a free market, sellers are sometimes going to get a little overenthusiastic about their products. Of course consumers have a right to expect some truth from advertisements, but there’s also an agreement that exaggerations occur. In this case, the implicit contract would require that stock-picking tips actually be delivered, but it might not require that the people who use them actually get rich or make any money at all. If, in other words, reasonable people in our society who read the web page don’t come away believing they’ll really rake in the cash by using the stock-picking techniques, then the implicit contract arising between seller and buyer doesn’t include that guarantee. Regardless of how the implicit contract—and consequent implied warranty—are construed, there’s a significant disadvantage to this approach: ambiguity. Law firms earn their entire income by disputing what written contracts actually mean in the real world. If even perfectly explicit and signed agreements between buyers and sellers don’t yield easy determinations about the obligations imposed on the two sides, then answering those questions for implicit contracts, ones where nothing is written, is going to be tremendously difficult. The theory of the consumer as entering a contractual relationship with the seller certainly makes sense, but in practice, it may not help resolve problems. The Protected Consumer Most economic transactions don’t threaten grave losses even when they go wrong. You buy a half gallon of milk at the grocery store, bring it home, and find the package was slightly punctured so the milk is curdled. You buy a pen and no ink flows. You pay for a nice haircut and get butchered. These kinds of economic hiccups occur all the time and the defects normally don’t matter too much. The defect definitely does matter, however, when you buy a car and a design error causes the gas pedal to get stuck, leading to wild, unbreakable speeding and entire families are dying in flaming wrecks. While it’s unclear how many people have been victims of Toyota’s gas pedal manufacturing error, it has become stuck at full acceleration on multiple occasions and has caused real human suffering completely incomparable with the kinds of petty losses typical consumers absorb every day. Saylor URL: http://www.saylor.org/books [1] Saylor.org 557 Another important aspect of buying a Toyota, or any car, is that it’s a complex transaction. That means there’s a large distance between the individual who actually takes your money, and the people in faraway plants who physically made the car. In the case of 2stocktrading.com, it may well be that the people who invented the stock-picking system get the money directly when you hit the Internet “Buy” button. A car, however, is typically purchased in a dealership from a salesman who may not even know where the car he’s selling is made. Even if he does know, he certainly can’t tell you where all the components came from. In today’s interconnected world, more and more products are like cars—they’re composed of parts that come from all over the place and then they’re shipped halfway across the country (or the world) for sale by people who have nothing to do with any design or manufacturing flaws. These two factors—the possibility of severe injury coupled with the difficulty in locating who, exactly, is to blame—support the proposal that in some cases ethics may not be enough to protect consumers. Legal protections with sharp teeth could work better. These protections generally move along two lines: manufacturer liability and government safety regulation. Manufacturer liability is the consumer right to sue manufacturers—and not just the local dealership with which a sales contract is signed—for injuries caused by a defective product. As for specific types of defects incurring liability suits, there are three: 1. Design defects are errors in the product’s blueprint. The physical manufacturing, in other words, may be perfect, but because the design isn’t, consumers may be harmed. 2. Manufacturing defects are part of the production process. In this case, a product may be generally safe but dangerous in a specific instance when it comes off the assembly line missing a bolt. 3. Instructional defects involve poor or incomplete instructions for a product’s safe use. The product may be designed and built well, but if the instructions tell you it’s OK to use the blow-dryer in the shower, there could be problems. The legal origin of manufacturer liability is MacPherson v. Buick Motor Company. In that 1916 case, Donald MacPherson was injured when his Buick veered out of control. A defective wheel caused the accident, one that Buick purchased from another company. Buick argued that they weren’t liable for MacPherson’s injury for two reasons: a quasi-independent dealership, not Buick itself, sold the car, and Buick didn’t even make the wheel that failed. The court ruled against both arguments. The result was a concept of legal liability extending beyond explicit contracts and direct manufacturing: the concept of Saylor URL: http://www.saylor.org/books Saylor.org 558 due care recognizes that manufacturers are in a privileged position to understand the potential dangers of their products and have, therefore, an obligation to take precautions to ensure quality. Those obligations remain in effect regardless of who ultimately sells the product and no matter whether a subcontractor or the larger corporation itself made the defective part. Over the last century, the notion of due care has strengthened into the legal doctrine of strict product liability. This holds that care taken by a manufacturer or supplier—no matter how great— to avoid defects is immaterial to court considerations of liability. If a product is defective and causes harm, liability claims may be filed no matter how careful the manufacturer had been in trying to avoid problems. Proponents of these legal protections argue that social welfare is improved when companies exist under the threat of serious lawsuits if their products cause damage. Critics fear that liability suits can be unfair: companies may act in good faith to produce safe products, but nonetheless fail, and be forced to pay massive amounts even though they took all precautions they honestly believed necessary. Government safety regulation is the second main legal route toward a protected consumer. As is the case with liability protection, government regulation has expanded over the last century. Key moments include the establishment of the National Highway Traffic Safety Administration in 1970 and the Consumer Product Safety Commission in 1972. These federal agencies are charged with advocating for consumers by imposing regulations, and then enforcing them through the agencies’ legal arms. In actual practice, the agencies frequently act in cooperation with manufacturers to ensure public safety. For example, when news broke that Toyota gas pedals were sticking, causing runaway vehicles, the NHTSA pressured Toyota to redesign the gas pedal and then recall the malfunctioning vehicles to have their pedals replaced. [2] Regulatory action resembles the extension of liability protection in that proponents believe the measures serve the social welfare. People live better when governmental forces work to ensure protection from defective products. Almost inevitably, the argument in the background is a version of utilitarianism; it’s that the ethical good equals whatever actions serve the public welfare and happiness. If society as a whole lives better with strict regulations in effect, then imposing them is good. Critics fear that the cost of these regulations may become burdensome. In straight economic terms, an argument could be mounted that the dollars and cents spent by corporations in their attempts to comply with regulations are actually superior to the social cost of letting some defective goods out into the Saylor URL: http://www.saylor.org/books Saylor.org 559 marketplace. There’s a possibility, here, to meet advocates of regulation on their own ground by claiming that at least in monetary terms, society is better off with less regulation, not more. It’s much easier, however, to put a price tag on the cost of complying with safety rules than it is to measure in terms of dollars the cost of injuries and suffering that could have been avoided if more stringent safeguards had been in place. (Of course, if you happen to be one of those few people who gets a seriously defective item— like a car that speeds out of control—then for you it’s pretty clear that the regulations are recommendable no matter the cost.) Another argument cautioning against regulatory action is that bureaucratic overreach threatens legal paternalism. Legal paternalism is the doctrine that, just as parents must restrict the freedom of their children in the name of their long-term welfare, so too regulators in Washington, DC (or elsewhere) must restrict the freedom of citizens because they aren’t fully able to act in their own self-interest. One simple example is the seatbelt. In the late 1960s, federal action required the installation of seatbelts in cars. Subsequently, most states have implemented laws requiring their use, at least by drivers. Society as a whole is served by these regulations insofar as injuries from traffic accidents tend to be reduced. That doesn’t change the fact, however, that people who are alone in their cars and presumably responsible for their own welfare are being forced to act in a way they may find objectionable. Parallel discussions could be followed on the subject of motorcycle helmets, bicycle helmets, and similar. Conclusion. Liability lawsuits against manufacturers, together with government regulations, protect consumers from dangerous goods and services. The protections cost money, however, and regulations may seem intrusive or condescending to some buyers. The Renegade Consumer The best defense can be a good offense. That’s probably the idea the owner of a chronically breaking-down Range Rover had when he parked his car on a public street in front of the dealership where he bought it and pasted bold letters on the side announcing that the car is a lemon. Probably, the display put a dent in the dealership’s business. [3] It was work and sacrifice for the car owner, though. Whoever it was had to hatch the plan and then go out and buys stick-on lettering to spell the message on the Range Rover’s side. Then it was necessary to give up use of the car for the duration of the protest. (It also might have been necessary to constantly plug a Saylor URL: http://www.saylor.org/books Saylor.org 560 parking meter with coins.) Regardless of the cost, the renegade consume seeks justice against product defects by going outside the system. Instead of making ethical claims against producers based on the idea of an implicit contract, and instead of seeking refuge underneath governmental protection agencies, this kind of buyer enters a no-holds-barred battle against (perceived) dirty sellers. Parking a car marked lemon in front of the dealership that sold it is an old—and potentially effective— maneuver. Today’s social media, however, allows newer strategies with possibly higher impacts and less inconvenience. One example is Rip-off Report, a website allowing consumers to post complaints for all to see. Browsing the page, it takes only a moment to grasp that the site compiles more or less unedited consumer rebellions. There are stories of being gypped by department stores, robbed by banks, defrauded by plumbers, and nearly everything imaginable. People can add their own comments, and a convenient search box allows anyone to get a quick check on any company they may be considering doing business with. The website’s tagline, finally, is very appropriate. It reads, “Don’t let them get away with it. Let the truth be known!” [4] These two sentences correspond well with the two ethical categories into which the renegade consumer naturally falls:  The imperative “don’t let them get away with it” fits the conception of the renegade consumer as acting in the name of retributive justice.  The imperative “let the truth be known!” fits the conception of the renegade consumer as a consumer advocate. Retributive justice proposes that it’s ethically recommendable to seek revenge against those who have wronged you. “You cost me time, money, and trouble,” the logic runs, “and now I’ll return the favor.” The notion is probably as old as humanity, and it appears in many of history’s oldest texts. (The Bible’s Matthew 5:38 contains the proverbial “An eye for an eye and a tooth for a tooth.”) Two aspects of retributive justice are significant. First, there’s a strong sense of proportionality in the idea. The code isn’t “A life for an eye” because the goal of retributive justice is to make things even again; it’s to restore a balance that was there before the problematic transaction. Retributive justice is a theory of proportional revenge. In the case of the lemon Range Rover, it seems about right that a dealership that refuses to fix (or replace or refund) a client’s defective car should in turn see losses to its business that approximately equal the money they save by mistreating consumers. The second point to make about the Saylor URL: http://www.saylor.org/books Saylor.org 561 notion of retributive justice is that it fits within and is a subset of the duty to fairness. What drives retributive justice is a notion that the two sides of an economic exchange should be treated in the same way, equally. These two characterizations of retributive justice are important because they separate the calculated act of vengeance from being nothing more than a blind and angry outburst. It’s normal when we’ve been wronged to want to simply strike out at the one who’s mistreated us. Probably, there’s a good bit of that anger behind the Range Rover owner and many of the rip-off reports. What makes those acts also ethically respectable, however, is their containment within the rules of proportionality and the duty to fairness. The renegade consumer can also find an ethical slot in the category of consumer advocate. When the Ripoff Report asks contributors to let the truth be known, reports are enlisted not as individuals seeking revenge but as wronged consumers performing a public service. Here, the rule of fairness is not in effect; instead, it’s the utilitarian idea of the general good. If what ought to be done is just that which brings the greatest happiness to the greatest number, then the public calling out of car dealerships that don’t stand behind their product becomes a public utility or good. Renegade consumers become consumer advocates when they help others avoid their fate. Conclusion. Renegade consumers are the mirror image of caveat emptor consumers. Both place extremely high levels of responsibility in the hands of the buyer. The difference is that the caveat emptor vision places that entire responsibility in the consumers’ buying judgment and so disarms them: it places an ethical restriction against consumer complaints because the entire transaction process is wrapped in the idea that before anything else the consumer should be wary about what’s being purchased. Renegade consumers also take full responsibility, but their obligations come at the end of the process, not the beginning: they rebalance the scales after a seller tries to get away with taking money for a defective product. Instead of swallowing their loss, renegade consumers act to make sure that the seller who cheated them pays a price. The Capable Consumer The capable consumer is a free market ideal. The combined economic-ethical notion underneath it is that business functions most smoothly—and thus produces quality of life at a maximum pace—when Saylor URL: http://www.saylor.org/books Saylor.org 562 consumers play their marketplace role efficiently. Their marketplace role is to use purchasing decisions to reward good companies, ones that produce better goods at a lower cost, while penalizing those companies producing inferior goods. As successful companies grow, and as poor performers fall away, the general welfare improves: products do their jobs more satisfyingly, and people gain more disposable income for pleasure spending (because necessities will be less expensive). If, finally, right and wrong in the economic world is about bringing the greatest good and happiness to the most people, then the marketplace economy supports this moral demand: a society should do everything possible to perfect the consumer. The perfected consumer is  able,  informed,  free,  rational. The able buyer is sufficiently experienced to manage marketplace choices. Just about everyone has been taken in at one point or another by unrealistic promises like those made on the 2stocktrading.com web page. The difference between the incapable and the capable is the ability to learn; it’s a kind of acquired instinct that sets off warning signals when an offer sounds too good: it might be too good to be true. Specifically on the stock-picking deal, able consumers don’t need to carefully study the whole spiel before realizing that, probably, the best thing to do is close the web page. The informed buyer is sufficiently knowledgeable about a specific product category to make a good purchasing choice from within the various options. Different types of items, of course, require different levels of expertise. Making a good decision about a garage door opener is much easier than making a good decision about a car because the latter is so much more complicated and filled with highly specialized components. For example, Dodge spends a lot of time lauding their cars and trucks as including a hemi, but not many people understand what the actual benefits of that feature are. In fact, many people don’t even know what a hemi is. It’s always possible, of course, to learn about the intricacies of car engines, but in the real world of limited time, qualifying as an informed buyer requires only one of these two skills: either you know a lot about what you’re buying, or you learn which sources of information can be trusted. The search for a trustworthy source may lead to Consumer Reports magazine or Rip-off Report or something else, but the result should be a purchasing decision guided by real understanding. Saylor URL: http://www.saylor.org/books Saylor.org 563 The free buyer has choices. No amount of education about car quality will help anyone who only has one product to select. Most consumer items, however, do provide choices—abundantly. Standing in front of the shelves in any supermarket shows that the ideal of the consumer as free is, to a large extent, satisfied in our society. Still, there are exceptions. Cable TV and phone services can be limited in certain areas, as can electricity providers and sanitation services. Rational buyers use their experience and information to make good choices. For the qualities of the ideal consumer to cash out, they must be orchestrated by careful thought. Of course this hardly seems worth mentioning in the abstract. All buyers are perfectly rational when they’re reading a textbook section about buying. It’s easy to be cold and analytical sitting on a sofa. The problem comes when the actual buying is happening. Dealers use all kinds of tricks and techniques to get consumers to, at least momentarily, suspend their good judgment and leap. One of the most common is the disappearing deal, which can be found on the 2stocktrading.com site and almost inevitably appears in the car buying experience. The salesman always has some special opportunity that you can get now, but if you wait until tomorrow, well…Sometimes the claim is that there’s a sale on, but it’s ending tonight. Or there’s only one left in stock and another customer has been asking about it. The salesman shakes his pen at you and pushes the contract across the desk and the car right behind him is gleaming and new and in those moments the capable consumer is the one who takes a deep breath. Conclusion Most ethical questions surrounding consumers are about how much freedom they should have to spend their money. In the case of the wary consumer—the caveat emptor buyer—freedom is maximized, but the dealer takes no responsibility for what’s sold. In the cases of the contracting, protected, and renegade consumer, buyers sacrifice some of their freedom in return for the guarantee that if a good is defective, they’ll have some recourse against the dealer. In many cases, the freedom that consumers lose is minimal or even positive (most people are happy to not be free to buy a lemon car). It’s inescapably true, however, that when you force dealers to stand behind what they sell, there are goods and services that they won’t bring to market. This newspaper story, for example, relates how it came to pass that holiday season cookie makers in California had to make do one December without those little silver ball sprinkles that frequently decorate the season’s cookies. A crusading lawyer had decided the Saylor URL: http://www.saylor.org/books Saylor.org 564 balls might be harmful, and the threat of a lawsuit caused the item to be removed from store shelves. [5] Probably, most people were able to enjoy their holiday celebrations just fine without the sprinkles, but the stakes go up when drug manufacturers are forced to consider pulling effective diabetes drugs like Avandia off the market because of a discovery that it may increase the risk of heart attacks. [6] KEY TAKEAWAYS  Wary consumers are safeguarded from defective goods and services only by their own caution. They enjoy maximum freedom in the marketplace and suffer minimal protection.  The contracting consumer is protected from defective goods and services by the affirmation that their purchase is also an implicit contract with the seller guarantying quality similar to expectations.  The protected consumer is safeguarded from defective goods and services by liability lawsuits and governmental regulatory action.  The renegade consumer takes individual action to penalize sellers whose products fail to meet expectations.  The capable consumer minimizes the need for buyer protection while maximizing a market economy’s efficient functioning. REVIEW QUESTIONS 1. What does caveat emptor mean? 2. What are some purchases that are typically made within a consumer ethics of caveat emptor? 3. What is an implicit contract? How is it created from a particular transaction? 4. What are the two main ways that consumers are backed up by legal protections? 5. How do renegade consumers create protections against defective products? 6. What characteristics make up a capable consumer? [1] “Toyota to Replace 4 Million Gas Pedals After Crashes,” Fox News, November 25, 2009 accessed June 2, 2011, http://www.foxnews.com/us/2009/11/25/toyota-replace-million-gas-pedals-crashes. Saylor URL: http://www.saylor.org/books Saylor.org 565 [2] “Toyota Announces Fix for Gas Pedal Sticking Problem,” US Recall News, November 26, 2009, accessed June 2, 2011, http://www.usrecallnews.com/2009/11/toyota-announces-fix-for-gas-pedal-sticking-problem.html. [3] “Range Rover Owner Advertises Faults On Lemon Parked Outside Dealer,” Jalopnik, June 3, 2009, accessed June 2, 2011, http://jalopnik.com/5277286/range-rover-owner-advertises-faults-on-lemon-parked-outside-dealer. [4] Rip-off Report home page, http://www.ripoffreport.com. [5] Carol Ness, “Bay Area Faces Holidays Without Little Silver Balls on Baked Goods,” San Francisco Chronicle, December 23, 2003, accessed June 2, 2011,http://articles.sfgate.com/2003-12-23/news/17524040_1_drageesholiday- cookies-silver-balls. [6] Andrew Clark, “Relief for GlaxoSmithKline as US Regulators Reject Ban on Avandia, “Guardian, July 15, 2010, accessed June 2, 2011,http://www.guardian.co.uk/business/2010/jul/15/glaxosmithkline-avandia-fda-expertcommittee. Saylor URL: http://www.saylor.org/books Saylor.org 566 12.5 Case Studies We Can Lie Too Tappening is run by a couple of guys who don’t like bottled water. The liquid is fine, but they worry about those small transparent bottles. First, the air gets polluted when they’re fabricated and then, after they’ve been emptied and tossed in the trash, the plastic doesn’t quickly break down and reenter the ecosystem. The Tappening people also notice that bottled-water advertising can be deceitful. The labels and ad campaigns are known to feature mountain streams in forest paradises, breeding the idea that the water is pumped from pristine natural sources when the truth is a lot of it comes from the tap, usually with some filtering applied. Faced with the distasteful situation—polluting water bottles and deceitful advertising—the Tappening crew could’ve put together some of their own ads revealing the true source of common bottled waters and the destiny of the containers, but they chose to mount a more aggressive campaign. One effort is a print ad with a crying polar bear drawn at the center, sitting on a melting arctic glacier. Under the title “Bottled Water,” the text says, “98% melted ice caps, 2% polar bear tears.” At the bottom, in small print, a message reads, “If bottled water companies can lie, we can too.” [1] QUESTIONS 1. In broad strokes, there are four types of deceitful advertising: those that make false claims, conceal facts, make ambiguous claims, and engage in puffery. o The Tappening ad makes two apparently false claims. What are they, and what makes them seem false? o What are the producers trying to communicate with their claims? o Does the fact that the ad admits at the bottom that it’s a lie diminish (or entirely eliminate) the fact that false claims are made? Why or why not? o The people at Tappening believe that bottled water ads featuring flowing natural streams can be deceitful because frequently the water comes (essentially) from a faucet. What specific kind of deceitful advertising is that? Explain. Saylor URL: http://www.saylor.org/books Saylor.org 567 o Is there any puffery in the Tappening print ad? If so, where? 2. Here’s one thing the Tappening polar bear ad neglects to inform people: Tappening isn’t just trying to get us to stop drinking bottled water; they’re also trying to sell something. Water bottles. They cost $14.95 (plus $3 shipping and handling). For the money you get a Tappening plastic bottle made for reuse and emblazoned with the company’s slogan: “Think Global. Drink Local.” You can also buy a message shoulder bag from the company. It announces that it’s “Made with 100% post-consumer recycled materials: yesterday’s discarded bottles and yogurt containers.” That costs $49.95, plus the shipping and handling. [2] Make the case that Tappening is engaging in deceitful advertising by concealing facts in its polar bear ad. More broadly, what is the ethical case against Tappening? 3. No one doubts that reusable water bottles can be better for the environment than disposable ones. Does the fact that Tappening’s purpose is noble diminish the moral objection to the company’s deceitful advertising? Explain. 4. For consumers, water bottles are not high stakes. If some guy reads the Tappening ad, gets caught up in the message that bottled water is environmentally disastrous (“98% melted ice caps, 2% polar bear tears”), visits the web page and, in the passion of the moment, buys ten reusable water bottles and the shoulder bag, he’ll be out about $250. It’s doubtful that his life will be significantly worsened by that kind of monetary loss. Later on, however, he may feel conned when he realizes that the air was polluted to make his presumably environmentally friendly water bottles, and most of the time when he needs bottled water, it’s not foreseen, and so he ends up just buying the disposable bottles anyway. The reusable containers with their enviro-friendly slogans get left at home and forgotten and the only thing that really changes is the guys at Tappening made some money. o As considered against this background, do you believe the FTC should get involved to rein in Tappening’s deceitful advertising? In ethical terms, why or why not? o The FTC can use one of two standards for deciding whether action is required to combat deceitful advertising: the ignorant consumer standard and the reasonable consumer standard. Could both standards lead to action against Tappening or only the ignorant standard? Explain. Saylor URL: http://www.saylor.org/books Saylor.org 568 5. Make the case that, in ethical terms, bottled water companies should be allowed to freely label their bottles with flowing, natural streams even though the water is taken from a city supply and filtered. Consumerism e Imag o co ue t ved d remo sues. ht is pyrig Two curious news stories. The first comes from the BBC and tells of a shopaholic, a woman who purchased so much she could hardly fit it all in her apartment. When she passed away from pneumonia, it took more than a day to find her body underneath all the purchases. A friend commented, “It gave her pleasure to buy things, she only bought things she really liked.” [3] The second story relates that in India, according to a UN report, there are about 560 million cell phone users, but only 360 million people have access to toilets. [4] QUESTIONS 1. Consumerism replaces the model of the consumer as someone who buys necessities in order to get on with their lives, with the model of the consumer as someone who buys in order to live. Can you put that definition in your own words? 2. How could the story of a woman buried and dead underneath her endless purchases be construed as an example of consumerism? 3. How could the story of India having more cell phones than toilets be construed as an example of consumerism? 4. One way of characterizing much of the work of advertising agencies is as nurturing consumerism. Can you make the ethical case that advertising agencies should be banned from society? Saylor URL: http://www.saylor.org/books Saylor.org 569 5. In ethical terms, make the case that consumerism is good. She’s Gotta Have It…or Maybe Not ved emo ge r Ima pyr co ue to d ues. iss ight Statistics aren’t available, but the amount of time guys spend spilling seduction lines—and the amount of time women spend dealing with them—is very high. Most women can deal with it coming from most guys, but what happens when the lines come from a powerful corporation? The giant pharmaceutical company Boehringer Ingelheim has stumbled onto a drug (Flibanserin) that makes women want sex. That’s not going to earn them any money, though. To get sales, they’ve got to convince women that they want to want to have sex. The problem is interesting. The drug company has discovered the cure to a disease that, by definition, no one has. If a woman—or a man—doesn’t feel like having sex, then she doesn’t feel like she’s missing something by not doing it. The opposite is the case. She doesn’t want to do it, so the fact that she doesn’t feel like doing it isn’t a problem at all. It’s perfect, actually. What the company needs to do, therefore, is create a desire. It has to make women want (or even need) something they didn’t know they wanted. According to the New York Times, “Boehringer has been trying to lay the consumer groundwork with a promotional campaign about women’s low libido, including a Web site, a Twitter feed and a publicity tour by Lisa Rinna, a soap opera star and former Playboy model who describes herself as someone who has suffered from a disorder that Boehringer refers to as a form of ‘female sexual dysfunction.’” [5] That advertising campaign is geared to create a desire for a form of women’s Viagra by convincing women that they’re supposed to want sex, and there’s something wrong with them if they don’t. The effort has its critics. Here’s one argument: “Boehringer’s market campaign could create anxiety among women, making Saylor URL: http://www.saylor.org/books Saylor.org 570 them think they have a condition that requires medical treatment. ‘This is really a classic case of disease branding,’ said Dr. Adriane Fugh-Berman, an associate professor at Georgetown University. ‘The messages are aimed at medicalizing normal conditions, and also preying on the insecurity of the patient.’” [6] QUESTIONS 1. Dr. Fugh-Berman says that Boehringer’s marketing campaign is “aimed at medicalizing normal conditions.” o What does “medicalizing normal conditions” mean? o How does “medicalizing a normal condition” serve Boehringer’s purpose? 2. The goal of Boehringer’s marketing is to create a desire for a product. There are a number of ethical objections to this kind of campaign. o What does it mean to say that trying to convince low-libido women (or men) that they need a drug to want more sex is to treat them as a means and not an end? o How could the attempt to sell the idea that women (or men) need to need sex be construed as a violation of their basic right to freedom? 3. Boehringer created a web page dedicated to its sex drug—http://www.sexbrainbody.com— which has since been taken down. On it, a successful actress and Playboy model left a testimonial. It concluded with her encouraging readers to learn about sexual health and to feel comfortable talking about it. “Both,” she asserted, “play an important role in overall health and well-being. It’s time to focus on you!” o [7] What are some of the ways this message—and the messenger—create the need for consumers to have sexual health the way the Boehringer pharmaceutical company defines the term? o Justify, from an ethical perspective Boehringer’s use of these techniques. o Boehringer has decided to take the page down. What ethical argument may have convinced them to do that? Saylor URL: http://www.saylor.org/books Saylor.org 571 4. A New York Times article relates that prestigious medical journals have published research affirming that low libido really is a problem, and one suffered by a large number of women. The article also notes that “such studies have been financed by drug companies.” [8] o What is knowledge and resource exploitation by advertisers? o Make the case that the knowledge and resources at the disposal of Boehringer and its advertising company are also an ethical obligation to not use that power to sell products. 5. Assume the critics are right. Assume that women (or men) with low libidos aren’t suffering any kind of medical problem; they’re just not that into sex, and there’s no reason why that condition should be “cured.” Make the case that even so, Boehringer is ethically justified in trying to create the need for their desire-enhancing pill. 6. A pharmaceutical company stumbles upon a drug that kills the sex drive for men and for women. The company devotes millions of dollars to a seductive advertising campaign designed to convince consumers that they really want to not want sex, and therefore they need this new medication. Make the case that this is not only ethically acceptable but laudable. Hot Coffee ved emo ge r Ima due ri py to co es. ssu ght i In a world of get-rich-quick schemes, few are mentioned more frequently than lawsuits. One of the reasons is the infamous McDonald’s coffee case (Liebeck v. McDonald’s Restaurants). This is what happened in 1992 in Albuquerque, New Mexico. Stella Liebeck, seventy-nine, was riding in a car driven by her grandson. They stopped at a McDonald’s drive-through, where she purchased a Styrofoam cup of coffee. Wanting to add cream and sugar, she squeezed the cup between her knees and pulled off the Saylor URL: http://www.saylor.org/books Saylor.org 572 plastic lid. The entire thing spilled back into her lap. The searing liquid left her with extensive thirddegree burns. Eight days of hospitalization—which included skin grafts—were required. Initially, she sought $20,000 from McDonald’s, which was more or less the cost of her medical bills. McDonald’s refused. They went to court. There it came to light that about seven hundred claims had been made by consumers between 1982 and 1992 for similar incidents. This seems to indicate that McDonald’s knew—or at least should have known—that the hot coffee was a problem. Most of the rest of the case turned around temperature questions. McDonald’s admitted that they served their coffee at 185 degrees, which will burn the mouth and throat and is about 50 degrees higher than typical homemade coffee. More importantly, coffee served at temperatures up to 155 degrees won’t cause burns, but the danger rises abruptly with each degree above that limit. So why did McDonald’s serve it so hot? Most customers, the company claimed, bought on the way to work or home and would drink it on arrival. The high temperature would keep it fresh until then. Unfortunately, internal documents showed that McDonald’s knew their customers intended to drink the coffee in the car immediately after purchase. Next, McDonald’s asserted that their customers wanted their coffee hot. The restaurant conceded, however, that customers were unaware of the serious burn danger and that no adequate warning of the threat’s severity was provided. Finally, the jury awarded Liebeck $160,000 in compensatory damages and $2.7 million in punitive damages (about two days’ worth of McDonalds’ coffee sales). The judge, however, reduced the $2.7 million to $480,000. McDonald’s threatened to appeal, and the two sides eventually came to a private settlement agreement. [9] QUESTIONS 1. What does caveat emptor mean? o According to this doctrine, who is responsible for Stella Liebeck’s burns? Explain. o Does the fact that she’s seventy-nine years old make it more difficult to justify a caveat emptor attitude in this case? Saylor URL: http://www.saylor.org/books Saylor.org 573 o One aspect of the caveat emptor doctrine is that it maximizes respect for the consumer as an independent and autonomous decider. Could that be a reason for affirming that a seventy-nineyear-old is a better candidate than most for a caveat emptor ethics of consumption? 2. In general terms, what does it mean to claim that an implicit contract arises around a transaction? How does that contract protect the consumer? 3. From the information provided, and from your own experience, what are the main terms of the implicit contract surrounding the purchase of coffee at a fast-food drive-through? o What does the restaurant owe the consumer? o What does the consumer owe the restaurant? 4. In order for an implicit contract to arise, the following three conditions must be met: o Both sides must enter the contract freely. o Both sides must be reasonably informed of the agreement’s terms. o Both sides must be honest. Were these three conditions met in the McDonald’s coffee case? Explain. 5. Make the case that the original offer by Liebeck—$20,000 from McDonald’s to cover the medical bills— is ethically recommendable within the structure of an implicit contract. Use the concept of an implied warranty. 6. The concept of manufacturer liability gives consumers the right to sue manufacturers for defective goods. There are three kinds of product defect: o Design defects (errors in the product’s design) o Manufacturing defects (errors in the production of one specific case of a generally safe product) o Instructional defects (poor or incomplete instructions for a product’s safe use) Which (if any) of these defects are applicable in the McDonald’s coffee case? Explain. 7. What is the concept of strict product liability, and how could it be applicable in this case? 8. In ethical terms, justify the original jury award to Liebeck: $160,000 in compensatory damages and $2.7 million in punitive damages (about two days of McDonalds’ coffee sales). Saylor URL: http://www.saylor.org/books Saylor.org 574 9. Of these three ethical structures for conceiving of the coffee-buying consumer and her protections— caveat emptor, the implicit contract, and manufacturer liability—which do you believe is best? Why? Cancel the Account g Ima ed d ov e rem pyri co ue to es. ssu ght i This is a condensed version of a dialogue between Vincent Ferrari and AOL, an Internet services provider known especially for its e-mail. AOL Rep: Hi, this is John at AOL. How may I help you today? Vincent: I wanted to cancel my account. AOL Rep: OK. You’ve had this account for a long time. Vincent: Yep! AOL Rep: You’ve used this quite a bit. What was the cause for turning this off today? Vincent: I just don’t use it anymore. AOL Rep: Do you have a high-speed connection like DSL or cable? Vincent: Yep. AOL Rep: OK. AOL Rep: How long have you had that, the high speed? Vincent: Years. Saylor URL: http://www.saylor.org/books Saylor.org 575 AOL Rep: Well, actually, I’m showing a lot of usage on this account. Vincent: Yeah a long time ago, not recently. AOL Rep: I’m looking at this account… Vincent: Either way, whatever you’re seeing… AOL Rep: Well, what’s the cause for turning this off today? Vincent: I don’t use it. AOL Rep: Well, OK. Is there a problem with the software itself? Vincent: No. It’s just I don’t use it. I don’t need it. I don’t want it. I don’t need it anymore. AOL Rep: So when you use it, the computer, is it for business or for school? Dude, what difference does it make? I don’t want the AOL account anymore. Can you please Vincent: cancel it? AOL Rep: Well, on June second this account was signed on. It’s been on for seventy-two hours. Vincent: I don’t know how to make it any clearer. AOL Rep: Last year was five hundred fou—last month was 545 hours of usage. I don’t know how to say this any clearer, so I am just going to say this one last time. Cancel the Vincent: account please. AOL Rep: Well explain to me what’s—wha—why? Vincent: I am not explaining anything to you. Cancel the account. AOL Rep: Wha—what’s the matter man? We’re just—I’m just trying to help. Vincent: You’re not helping me. You’re not helping me. AOL Rep: I am trying to, OK. Listen, I called to cancel the account. Helping me would be canceling the account. Please help me Vincent: and cancel my account. AOL Rep: No it wouldn’t actually. Vincent: Cancel my account! AOL Turning off your account would be the worst— Saylor URL: http://www.saylor.org/books Saylor.org 576 Rep: Vincent: Cancel the account! Cancel the account! AOL Rep: Is your dad there? Vincent: I’m the primary payer. I’m the primary person on the account, not my dad. Cancel the account! AOL Rep: OK, ’cause I’m just trying to figure out— Cancel the account! I don’t know how to make this any clearer for you. Cancel the account. The card is mine, in my name. The account is mine and in my name. When I say, “cancel the account,” Vincent: I don’t mean help me figure out how to keep it. Cancel the account. This went on for almost five minutes. Part of the audio can be heard here: Cancel AOL Back in the days before Internet, exchanges like this would’ve been entirely positive for AOL. The worst that could’ve happened is that the company would lose the client, who they were going to lose anyway. By dragging the cancellation out, they may have convinced him to stay on, so that’s what they did. Today, with Internet, things are different. Ferrari (who, apparently, suspected that AOL would try some shenanigans) taped the conversation and posted it. The Slashdot effect—a website overwhelmed by a huge spike in traffic—followed immediately. It wasn’t long before Ferrari and his conversation were appearing on shows like Today. The damage to the AOL brand was catastrophic. Revenue plummeted, and with no hope for recovery, the company that owned and controlled AOL at the time, Time Warner, sold off the shriveled remains. Certainly, the Ferrari tape didn’t alone bring down AOL, not even close, but it’s difficult for any company to be profitable when recordings like Ferrari’s are going out over national TV and available for anyone to hear, twenty-four hours a day, seven days a week, forever, online. QUESTIONS 1. After listening to the Ferrari tape, what would consumers associate with the AOL brand? How is that brand different from a pure economic understanding of the value of AOL as a company? Saylor URL: http://www.saylor.org/books Saylor.org 577 2. In broad strokes, what is retributive justice? How did it work in this case? How is this case study in this textbook involved? 3. As an ethical theory, most conceptions of retributive justice highlight a notion of proportionality. o What does proportionality mean? o Just in general terms, and from the provided information, did Ferrari’s response to AOL satisfy the proportionality requirement? Why or why not? 4. Ferrari couldn’t have foreseen the how fast and how much his AOL-bashing would grow. Part of the reason is that much of the negative publicity wasn’t provided directly by him. NBC rebroadcast his tape through millions of TV sets. Countless blogs and websites excerpted sections and linked to the original. (Eventually, the transcript even turned up in a business ethics textbook.) Should Ferrari take responsibility for how far things went? Justify. 5. Two ethical values support consumer revenge in the marketplace: fairness and public welfare. Fairness is the idea that the company hurt the consumer, so the consumer ought to hurt the company. Public welfare is the idea that by publicly attacking companies, consumers actually do other consumers a favor by warning them away from poor service providers. Sketch an ethical justification for Ferrari’s action based on the idea that he’s serving the public welfare. 6. In ethical terms, what are some advantages of consumer revenge when compared with these other forms of consumer protection: the concept of the implied contract, the legal right to sue? [1] “New Tappening Ads Tell Lies—Honest,” Adweek, July 23, 2009, accessed June 2, 2011,http://www.adweek.com/aw/content_display/creative/news/e3i04ac5aa7296d367cc7c7c9623bc3df48. [2] Tappening, order page, accessed June 2, 2011,http://www.tappening.com/Order_Tappening_Bottle. [3] “Shopaholic Died under Purchases,” BBC, July 28, 2009, accessed June 2, 2011,http://news.bbc.co.uk/2/hi/uk_news/england/manchester/8173271.stm. [4] “India Has More Mobile Phones Than Toilets: UN report,” Telegraph, April 15, 2010, accessed June 2, 2011,http://www.telegraph.co.uk/news/worldnews/asia/india/7593567/India-has-more-mobile-phones-thantoilets-UN-report.html. Saylor URL: http://www.saylor.org/books Saylor.org 578 [5] Duff Wilson, “Push to Market Pill Stirs Debate on Sexual Desire,” New York Times, June 16, 2010, accessed June 2, 2011,http://www.nytimes.com/2010/06/17/business/17sexpill.html?src=me&ref=business. [6] Duff Wilson, “Push to Market Pill Stirs Debate on Sexual Desire,” New York Times, June 16, 2010, accessed June 2, 2011,http://www.nytimes.com/2010/06/17/business/17sexpill.html?src=me&ref=business [7] Melissa Castellanos, “Lisa Rinna on ‘Sex, Brain, Body’ Connection,” CBS News, May 18, 2010, accessed June 2, 2011,http://www.cbsnews.com/stories/2010/05/18/entertainment/main6496015.shtml?tag=mncol;lst;2. [8] Duff Wilson, “Push to Market Pill Stirs Debate on Sexual Desire,” New York Times, June 16, 2010, accessed June 2, 2011,http://www.nytimes.com/2010/06/17/business/17sexpill.html?src=me&ref=business. [9] Consumer Attorneys of California, “The Actual Facts About the McDonalds’ Coffee Case,” The ‘Lectric Law Library, 1995, accessed June 2, 2011,http://www.lectlaw.com/files/cur78.htm. Saylor URL: http://www.saylor.org/books Saylor.org 579
Chapter 13: The Responsible Office: Corporations and Social Responsibility from The Business Ethics Workshop was adapted by Saylor Academy and is available under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported license without attribution as requested by the work's original creator or licensor. Chapter 13 The Responsible Office: Corporations and Social Responsibility Chapter Overview Chapter 13 "The Responsible Office: Corporations and Social Responsibility" defines different legal structures for businesses and explores ways that individual companies may be understood not only as pursuing economic goals but also as possessing broad ethical responsibilities in society. Saylor URL: http://www.saylor.org/books Saylor.org 580 13.1 What Kind of Business Organizations Are There? LEARNING OBJECTIVES 1. Distinguish and define the principal ways of organizing a business. 2. Consider liability and ethical responsibility as they relate to different forms of businesses. 3. Sketch the organizational structure of a corporation. Paramount Pictures Movies from Paramount Pictures begin with an image of a mountain flashed onto the screen. That mountain, reputedly, was quick-sketched on a notepad by the company’s founder W. W. Hodkinson. Hodkinson got started in the movie business in the early 1900s when he opened a theater in Ogden, Utah. He shuffled films faster than his competitors (the town’s two other movie houses), and so came to dominate the local market. Soon he expanded to the big city of Salt Lake, then Los Angeles, and onward. Looking to keep his enterprise growing, Hodkinson founded a company called Paramount to provide upfront money to cash-strapped movie producers. In exchange, he got exclusive rights to screen their work in theaters. Grateful for the help, for the trust, and above all for the cash, struggling moviemakers including Adolph Zukor, Samuel Goldfish (later Goldwyn), and Cecil B. DeMille signed on to the project in five-year deals. By 1915, they were all wealthier. Now that they no longer needed his up-front money, Zukor and the rest started trying to squirm out of their deal. Having initially taken the risk to launch their careers, Hodkinson refused to let them go. So Zukor and friends hatched a plan. Pretending to have been faced down by Hodkinson, they not only embraced the deal they’d already inked, but they also extended it for twenty-five more years in exchange for a lump sum. They took that money, opened a line of credit, and began secretly buying Paramount stock. When they accumulated enough, they took it over, and in what would be a good premise for a revenge movie, they kicked Hodkinson out of his own company. Saylor URL: http://www.saylor.org/books Saylor.org 581 Types of Businesses One lesson of Hodkinson’s story is that the way a business is organized is critically important. He left Paramount open to a financial sneak attack by not keeping the whole company in his name as a sole proprietorship. When he let shares go out—when he allowed others to buy part ownership in his enterprise—he was setting himself up for what happened. Of course it’s also true that he probably wouldn’t have had the money needed to get the enterprise going in the first place had he not gotten a capital injection from selling off pieces of ownership. Every form of business organization comes with advantages and disadvantages, and the specific kinds of organization that may be formed are numerous and change from state to state. There are, however, a number of basic types:  Sole proprietorship  Partnership  Limited liability company  S corporation  Nonprofit organization  Corporation A sole proprietorship is the easiest kind of business to start. All you need to do is go down to the county courthouse and fill out a DBA, which is a form officially registering that you’re opening a business with the name you choose. DBA means doing business as, so Jan Jones can go register her company as JJ’s Midnight Movie House, and she doesn’t need to do anything more: her tax ID number for the business is just her Social Security number, and when she’s filling out her IRS forms, she counts her profits as income, just like a paycheck. Benefits of a sole proprietorship include the speed and ease of getting it going. Further, sole proprietors can take advantage of tax accounting fitted to business reality. If you’re Jan Jones and you sign contracts to pay $2,500 to rent a vacant warehouse along with the rights to show Paramount’s Mommie Dearest, and you receive $3,000 from ticket buyers, you don’t pay income tax on the whole $3,000, only on the $500 profit. Finally, sole proprietorships have the advantage of belonging to their owner: she can do whatever she wants with her company without fear of being taken over by someone else. Saylor URL: http://www.saylor.org/books Saylor.org 582 The main disadvantage of a sole proprietorship is that the company really is an extension of you, and you’re on the hook for whatever it does. So if you screen your movie and no one shows up, you can’t just call the whole thing a bad idea, declare bankruptcy, and walk away. Your lenders can sue you personally for the $2,500 you agreed to pay as JJ’s Midnight Movie House. Worse, if people do show up, but someone smokes in the theater, which starts a fire and causes injuries, those injured people can sue you personally, and maybe take everything you own. The fact that Jan Jones has to take full responsibility for what her company does is called unlimited liability. That liability, finally, is legal, but it’s also clear that there’s an ethical dimension to the responsibility. While few assert that it’s morally wrong to fail in business, there is a reasonable objection to be made when those who fail try to avoid paying the cost. A partnership resembles a sole proprietorship. The main difference, obviously, is that there’s more than one owner: maybe there are two partners with 50 percent each or one with 50 percent and then a group of smaller shareholders each owning 10 percent of the enterprise. The bookkeeping is pretty straightforward since profits are allotted in accordance with how great a share each partner owns. All partnerships must have, finally, at least one general partner who faces unlimited liability for the company’s actions. On the ethical front, responsibility starts getting murky as you move to multiple owners. If the theater burns down, and one individual partner had been assigned (and failed) the task of making sure there were a few fire extinguishers around, does that one partner bear the entire ethical burden of the injuries? Is it doled out in accordance with the percentage owned? What if one of the owners just kicked some money in as a favor to a friend, and wasn’t involved in the actual operation, does she bear any responsibility for what happened? Limited liability companies (LLC) and S corporations are very similar. They’re both hybrids of partnerships and corporations. From the partnership side they take the tax structure. Called passthrough taxation, profits are divided among the partners or shareholders. Then those individuals pay taxes on the money like its income, a normal paycheck. What these two take from the corporate side—and the main reason people form an LLC or an S corporation—is that the enterprise’s legal status provides some protection against liability lawsuits. If you, Jan Jones, and a few others form an LLC and the theater burns and people get injured, you may get out without losing all you have. Creditors and lawyers for the injured will be able to sue the company and probably take any money left in the till, but they’ll have a harder time trying to take your personal car or the house you live in. Specific rules, it’s Saylor URL: http://www.saylor.org/books Saylor.org 583 important to note, vary depending on the business and the location, but both options are typically limited to a certain number of participants. On the responsibility front, this is the pressing ethical question: If the theater burns down for an LLC, the owners will likely enjoy some legal protection. Does that protection, however, extend to the ethics? Is there any difference in terms of moral responsibility between a partnership operating a burning theater and an LLC? Nonprofit corporations exist in a class by themselves. Usually formed to serve a charitable or civic cause, they don’t have to pay taxes since they don’t make profits: they spend all their income promoting the cause they’re set up to serve. The operators of nonprofits often enjoy complete protection from liability claims. What about the ethics? If a nonprofit screens Mommie Dearest to raise money for the cause of orphans, and the theater burns, does the fact that the entire endeavor was arranged for the public good provide moral protection from guilt when people get hurt? Technically, what most of us mean when we use the term corporation is a C corporation (as opposed to an S corporation). One financial difference between the two is that a C corporation is taxed twice. First, the government takes a chunk of the corporation’s profits before they’re distributed to the company’s owners, who are all those individuals holding shares. Then when the shareholders get their part, each must pay taxes on it again. Another difference is that C corporations are not limited in terms of number of shareholders. Finally, most of the corporations that people are familiar with are public, meaning that the company’s shares are available for purchase by anyone with the money to spend. There are, it should be noted, private corporations (and the similar “closely held” corporations) where share allocation is limited to a group or single person, but again, most of the commonly referenced incorporated companies are listed for public sale in places including the New York Stock Exchange, and you or I may become partial owners. In fact, and as the story of W. W. Hodkinson teaches, if we get enough money, we can buy the shares to take over the business. Corporations step away from easier-to-form partnerships by providing protection to owners against liability claims. In the case of C corporations, that protection is significant. In many cases, the protection is total: completely insulated from liability, shareholders can lose their investment if the company does something it shouldn’t and gets sued, but their personal possessions are completely safe. This is the case, for example, with the mega movie chain Regal Cinemas. The price of one share of that company today was Saylor URL: http://www.saylor.org/books Saylor.org 584 $13.77. If you buy that, then no matter what the company does tomorrow, the most you could possibly lose is a little under $15. No one likes to lose $15, but still, there’s a very large freedom from responsibility here. If Regal tries to save some money (and therefore boost its share price and your profit) by intentionally not charging their fire extinguishers, and on the day a blockbuster gets released ten theaters in various states burn with accompanying human suffering and a major number of deaths, the company may go bankrupt under a flood of lawsuits and justifiable public outrage. But you, one of the owners, would be out three $5 bills. Corporations play a very large role in business ethics for two reasons. First, their independence from their specific owners opens questions about who—if anyone—should take moral responsibility for what the corporation does. Second, because corporations today have grown so large and powerful, because they touch all our lives in so many ways so often, the ethical questions they raise become hard to avoid. Both these dimensions of the modern corporation, the ethical ambiguity and the potentially huge size, relate to the history of the institution. A Very Brief History and Description of the Corporation Exxon Mobil’s market value is around $450 billion. Just to compare, the GDP of Portugal—the total value of all goods and services produced in the country each year—is about $250 billion (when converted to US dollars). Wal-Mart’s revenues are climbing above $375 billion, which is a full third of the total revenues (in the form of taxes) collected by the US federal government from individuals. If Wal-Mart were a sovereign nation, it would be China’s fourth largest export market. Less abstractly, the size and penetration of the Ford Motor Company can be felt just by going out on the street and watching their products pass by. And if you go to a movie from Paramount, or laugh for a while with the Comedy Channel, or check out music videos on MTV, you’re patronizing the behemoth called Viacom. All these businesses, along with the rest of the corporations on the Fortune 500 list and then the many that didn’t make the top tier, change our lives most every day. If you outfitted your dorm room or apartment at Wal-Mart, it was a decision made by an executive buyer that determined the choices you’d have. If you’re thinking about voting this year, Jon Stewart at Comedy Central is doing all he can to guide the way you decide which lever to pull. If you go to see a concert next weekend, an MTV executive may have been the one who originally pulled that group out of obscurity. Publicly held corporations, all this Saylor URL: http://www.saylor.org/books Saylor.org 585 means, aren’t just places where we go to work, or manufacturers that supply our necessities: they set the parameters and directions of our lives. The first corporations extended directly from governments. In 1600, the English monarchy designated the British East India Company to manage international trade between the homeland and the Indian subcontinent. Shareholders did extremely well. By the 1800s, private enterprise was breaking away from tight governmental association; the corporation as we know it today began taking shape when individuals started claiming a right to freely associate for their economic benefit without direct governmental oversight and license. Modern corporations are formed by a group of people who fill out the papers and register the name. Once it’s created, however, the business exists as a legally distinct entity. In the eyes of the law, it is  perpetual—it can survive even after its founders have passed away;  responsible—just like a person—in the narrow sense in that it holds specific legal obligations and rights. In 1819, the US Supreme Court defined a corporation as “an artificial being, invisible, intangible and existing only in the contemplation of the law.” [1] This legal independence clears the way for owners (shareholders) to escape liability claims made against the corporation. Because the business stands on its own, because it is a “being,” all claims must be made against it, not the shareholders standing behind. Corporations are structured in diverse ways, but the basic governing form starts with the shareholders electing a board of directors. Wal-Mart, for example, is governed by a fifteen-member board, which is elected each year. The board holds two main responsibilities. One is oversight; it keeps track of what’s going on and reports back to shareholders. The other responsibility is operational. The board selects individuals who’ll run the company on a day-to-day basis. Frequently, a chief executive officer (CEO) leads this team and is ultimately responsible for making sure Wal-Mart is buying from suppliers at the lowest possible price, getting goods into the stores before stock runs out, and convincing customers to return and do more buying. If the CEO and management team is good, there’s a decent chance the company will be successful and grow. Good leadership, however, can’t alone explain the mega-dimensions of today’s larger corporations. One critical element of the corporate structure that contributes to the size is the owner-as-shareholder model. The model allows businesses to collect large amounts of cash quickly. Simply by printing up and selling more shares, a corporation raises potentially huge sums. That capital can be reinvested in the Saylor URL: http://www.saylor.org/books Saylor.org 586 business—maybe to build new Wal-Mart stores in growing suburbs—and the corporation’s value goes up. It’s true that the original shareholders now own less of the company on a percentage basis (because there are more owners), but their shares are worth more because the company is worth more, so they’re unlikely to complain. As long as that virtuous cycle continues, well-run corporations can grow very quickly. While all that growth is going on, the actual owners—shareholders—can be at home sitting in front of the TV. Many shareholders, actually, have almost no idea of what’s happening inside the company they partially own. With respect to business ethics, this adds another level of complexity to the question about whom, if anyone, should be held morally responsible for what the corporation does. If you just go out in the street and ask a passerby, “Who do you think bears moral responsibility for what a company does?” the answer you’ll probably get is the owners. But in the case of corporations, they’re protected legally by a liability firewall, and now they’re also protected structurally by the fact that they—along with the multitude of other owners scattered all over the country and even the globe—aren’t necessarily involved in making the company’s operational decisions. These two factors combined have thrust this question to the forefront of questions about ethics in the economic world: can these artificial beings called corporations themselves have moral responsibilities to go along with their legal responsibility to operate within the law? KEY TAKEAWAYS  Businesses can be organized in various ways.  The way a business is organized affects economic questions about profits, legal questions about liability, and ethical questions about responsibility.  In sole proprietorships and partnerships, owners take economic, legal, and moral responsibility for what the company does.  In public corporations, owners are shielded from legal responsibility for the enterprise’s actions; the question about moral responsibility remains open.  The structure of corporations—the ability to sell shares publicly—is instrumental in their ability to grow economically. Saylor URL: http://www.saylor.org/books Saylor.org 587 REVIEW QUESTIONS 1. What are the main ways of organizing a business? 2. What kind of business organization might be suitable for a plumber? Explain. 3. Why might someone choose to organize as an LLC instead of a sole proprietorship? 4. In legal terms, what is the relation between a corporation and those individuals who found the corporation? 5. In what ways does the structure of a corporation protect its owners from absorbing ethical responsibility for the company’s actions? 6. How can corporations raise money? [1] Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518 (1819). Saylor URL: http://www.saylor.org/books Saylor.org 588 13.2 Three Theories of Corporate Social Responsibility LEARNING OBJECTIVE 1. Define and discuss the three main theories of corporate social responsibility. Corporations as Responsible A Civil Action was originally a novel, but more people have seen the movie, which was distributed by W. W. Hodkinson’s old company, Paramount. One of the memorable scenes is John Travolta playing a hotshot lawyer speeding up a rural highway to Woburn, Massachusetts. He gets pulled over and ticketed. Then he continues on his way to investigate whether there’s any money to be made launching a lawsuit against a company that allowed toxic industrial waste to escape into the town’s aquifer. The polluted water, Travolta suspects, eventually surfaced as birth defects. After checking things out, he races his Porsche back to Boston at the same speed. Same result. [1] One of the movie’s messages is that many corporations are like greedy lawyers—they have little sense of right and wrong, and their behavior can only be modified by money. The lesson is that you can’t make Travolta slow down and drive safely by appealing to the right of others to use the road without being threatened by speeding Porsches, or by pleading with him to respect general social well-being that is served when everyone travels at about the same speed. If you want him to slow down, there’s only one effective strategy: raise the traffic ticket fine. Make the money hurt. Analogously for companies, if you want them to stop polluting, hit them with harder penalties when they’re caught. What if that’s not the only way for corporations to exist in the world, though? What if people who directed businesses began understanding their enterprise not only in financial terms (as profits and losses) but also in ethical ones? What if companies became, in a certain moral sense, like people, members of society bound by the same kinds of duties and responsibilities that you and I wrestle with every day? When companies are seen that way, a conception of corporate social responsibility comes forward. Saylor URL: http://www.saylor.org/books Saylor.org 589 Three Approaches to Corporate Responsibility According to the traditional view of the corporation, it exists primarily to make profits. From this moneycentered perspective, insofar as business ethics are important, they apply to moral dilemmas arising as the struggle for profit proceeds. These dilemmas include: “What obligations do organizations have to ensure that individuals seeking employment or promotion are treated fairly?” “How should conflicts of interest be handled?” and “What kind of advertising strategy should be pursued?” Most of this textbook has been dedicated to these and similar questions. While these dilemmas continue to be important throughout the economic world, when businesses are conceived as holding a wide range of economic and civic responsibilities as part of their daily operation, the field of business ethics expands correspondingly. Now there are large sets of issues that need to be confronted and managed outside of, and independent of the struggle for money. Broadly, there are three theoretical approaches to these new responsibilities: 1. Corporate social responsibility (CSR) 2. The triple bottom line 3. Stakeholder theory Corporate Social Responsibility (CSR) The title corporate social responsibility has two meanings. First, it’s a general name for any theory of the corporation that emphasizes both the responsibility to make money and the responsibility to interact ethically with the surrounding community. Second, corporate social responsibility is also a specific conception of that responsibility to profit while playing a role in broader questions of community welfare. As a specific theory of the way corporations interact with the surrounding community and larger world, corporate social responsibility (CSR) is composed of four obligations: 1. The economic responsibility to make money. Required by simple economics, this obligation is the business version of the human survival instinct. Companies that don’t make profits are—in a modern market economy—doomed to perish. Of course there are special cases. Nonprofit organizations make money (from their own activities as well as through donations and grants), but pour it back into their work. Also, public/private hybrids can operate without turning a profit. In some cities, trash collection is handled by this kind of organization, one that keeps the streets clean without (at least theoretically) Saylor URL: http://www.saylor.org/books Saylor.org 590 making anyone rich. For the vast majority of operations, however, there have to be profits. Without them, there’s no business and no business ethics. 2. The legal responsibility to adhere to rules and regulations. Like the previous, this responsibility is not controversial. What proponents of CSR argue, however, is that this obligation must be understood as a proactive duty. That is, laws aren’t boundaries that enterprises skirt and cross over if the penalty is low; instead, responsible organizations accept the rules as a social good and make good faith efforts to obey not just the letter but also the spirit of the limits. In concrete terms, this is the difference between the driver who stays under the speed limit because he can’t afford a traffic ticket, and one who obeys because society as a whole is served when we all agree to respect the signs and stoplights and limits. Going back to John Travolta racing his Porsche up and down the rural highway, he sensed none of this respect. The same goes for the toxic company W. R. Grace Incorporated as it’s portrayed in the movie: neither one obeys regulations and laws until the fines get so high they’ve got no choice. As against that model of behavior, a CSR vision of business affirms that society’s limits will be scrupulously obeyed, even if the fine is only one dollar. 3. The ethical responsibility to do what’s right even when not required by the letter or spirit of the law. This is the theory’s keystone obligation, and it depends on a coherent corporate culture that views the business itself as a citizen in society, with the kind of obligations that citizenship normally entails. When someone is racing their Porsche along a country road on a freezing winter’s night and encounters another driver stopped on the roadside with a flat, there’s a social obligation to do something, though not a legal one. The same logic can work in the corporate world. Many industrial plants produce, as an unavoidable part of their fabricating process, poisonous waste. In Woburn, Massachusetts, W. R. Grace did that, as well as Beatrice Foods. The law governing toxic waste disposal was ambiguous, but even if the companies weren’t legally required to enclose their poisons in double-encased, leak-proof barrels, isn’t that the right thing to do so as to ensure that the contamination will be safely contained? True, it might not be the right thing to do in terms of pure profits, but from a perspective that values everyone’s welfare as being valuable, the measure could be recommendable. 4. The philanthropic responsibility to contribute to society’s projects even when they’re independent of the particular business. A lawyer driving home from work may spot the local children gathered around a makeshift lemonade stand and sense an obligation to buy a drink to contribute to the neighborhood Saylor URL: http://www.saylor.org/books Saylor.org 591 project. Similarly, a law firm may volunteer access to their offices for an afternoon every year so some local schoolchildren may take a field trip to discover what lawyers do all day. An industrial chemical company may take the lead in rehabilitating an empty lot into a park. None of these acts arise as obligations extending from the day-to-day operations of the business involved. They’re not like the responsibility a chemical firm has for safe disposal of its waste. Instead, these public acts of generosity represent a view that businesses, like everyone in the world, have some obligation to support the general welfare in ways determined by the needs of the surrounding community. Taken in order from top to bottom, these four obligations are decreasingly pressing within the theory of corporate social responsibility. After satisfying the top responsibility, attention turns to the second and so on. At the extremes, the logic behind this ranking works easily. A law firm on the verge of going broke probably doesn’t have the responsibility to open up for school visits, at least not if the tours interfere with the accumulation of billable hours and revenue. Obviously, if the firm does go broke and out of business, there won’t be any school visits in any case, so faced with financial hardship, lawyers are clearly obligated to fulfill their economic obligations before philanthropic ones. More difficult questions arise when the economic responsibility conflicts with the legal one. For example, to remain profitable, an industrial plant may need to dispose of waste and toxins in barrels that barely meet legally required strengths. Assuming those legal limits are insufficiently strict to guarantee the barrels’ seal, the spirit of the law may seem violated. The positive economic aspect of the decision to cut corners is the ability to stay in business. That means local workers won’t lose their jobs, the familial stresses of unemployment will be avoided, suppliers will maintain their contracts, and consumers will still be served. The negative, however, is the possibility—and the reality at Woburn—that those toxins will escape their containers and leave a generation of workers’ children poisoned. Knowing what we do now about those Woburn children, there’s no real conflict; anything would have been better than letting the toxins escape. If necessary, the company should have accepted bankruptcy before causing the social damage it did. At the time of the decision, however, there may have been less certainty about exactly what the risks and benefits were. Even among individuals promoting a strong sense of corporate responsibility for the surrounding community, there may have been no clear answer to the question about the proper course of action. Regardless, corporate social responsibility means every Saylor URL: http://www.saylor.org/books Saylor.org 592 business holds four kinds of obligations and should respond to them in order: first the economic, then the legal, next the ethical, and finally the philanthropic. The Triple Bottom Line The triple bottom line is a form of corporate social responsibility dictating that corporate leaders tabulate bottom-line results not only in economic terms (costs versus revenue) but also in terms of company effects in the social realm, and with respect to the environment. There are two keys to this idea. First, the three columns of responsibility must be kept separate, with results reported independently for each. Second, in all three of these areas, the company should obtain sustainable results. The notion of sustainability is very specific. At the intersection of ethics and economics, sustainability means the long-term maintenance of balance. As elaborated by theorists including John Elkington, here’s how the balance is defined and achieved economically, socially, and environmentally:  Economic sustainability values long-term financial solidity over more volatile, short-term profits, no matter how high. According to the triple-bottom-line model, large corporations have a responsibility to create business plans allowing stable and prolonged action. That bias in favor of duration should make companies hesitant about investing in things like dot-coms. While it’s true that speculative ventures may lead to windfalls, they may also lead to collapse. Silicon Valley, California, for example, is full of small, start-up companies. A few will convert into the next Google, Apple, and Microsoft. What gets left out, however, of the newspaper reports hailing the accomplishments of a Steve Jobs or a Bill Gates are all those other people who never made it—all those who invested family savings in a project that ended up bankrupt. Sustainability as a virtue means valuing business plans that may not lead to quick riches but that also avoid calamitous losses. Moving this reasoning over to the case of W. R. Grace dumping toxins into the ground soil, there’s a possible economic-sustainability argument against that kind of action. Corporations trying to get away with polluting the environment or other kinds of objectionable actions may, it’s true, increase their bottom line in the short term. Money is saved on disposal costs. Looking further out, however, there’s a risk that a later discovery of the action could lead to catastrophic economic consequences (like personal Saylor URL: http://www.saylor.org/books Saylor.org 593 injury lawyers filing huge lawsuits). This possibility leads immediately to the conclusion that concern for corporate sustainability in financial terms argues against the dumping.  Social sustainability values balance in people’s lives and the way we live. A world in which a few Fortune 500 executives are hauling down millions a year, while millions of people elsewhere in the world are living on pennies a day can’t go on forever. As the imbalances grow, as the rich get richer and the poor get both poorer and more numerous, the chances that society itself will collapse in anger and revolution increase. The threat of governmental overthrow from below sounds remote—almost absurd—to Americans who are accustomed to a solid middle class and minimal resentment of the wealthy. In world history, however, such revolutions are quite common. That doesn’t mean revolution is coming to our time’s developed nations. It may indicate, however, that for a business to be stable over the long term, opportunities and subsequently wealth need to be spread out to cover as many people as possible. The fair trade movement fits this ethical imperative to shared opportunity and wealth. Developed and refined as an idea in Europe in the 1960s, organizations promoting fair trade ask businesses—especially large producers in the richest countries—to guarantee that suppliers in impoverished nations receive reasonable payment for their goods and services even when the raw economic laws of supply and demand don’t require it. An array of ethical arguments may be arranged to support fair trade, but on the front of sustainability, the lead argument is that peace and order in the world depend on the world’s resources being divided up in ways that limit envy, resentment, and anger. Social sustainability doesn’t end with dollars; it also requires human respect. All work, the logic of stability dictates, contains dignity, and no workers deserve to be treated like machines or as expendable tools on a production line. In today’s capitalism, many see—and the perception is especially strong in Europe—a world in which dignity has been stripped away from a large number of trades and professions. They see minimum wage workers who’ll be fired as soon as the next economic downturn arrives. They see bosses hiring from temporary agencies, turning them over fast, not even bothering to learn their names. It’s certainly possible that these kinds of attitudes, this contempt visible in so many workplaces where the McJob reigns, can’t continue. Just as people won’t stand for pennies in wages while their bosses get millions, so too they ultimately will refuse to accept being treated as less dignified than the boss. Finally, social sustainability requires that corporations as citizens in a specific community of people maintain a healthy relationship with those people. Fitting this obligation into the case of W. R. Grace in Saylor URL: http://www.saylor.org/books Saylor.org 594 Woburn, it’s immediately clear that any corporation spilling toxins that later appear as birth defects in area children isn’t going to be able to sustain anything with those living nearby. Any hope for cooperation in the name of mutual benefit will be drowned by justified hatred.  Environmental sustainability begins from the affirmation that natural resources—especially the oil fueling our engines, the clean air we breathe, and the water we drink—are limited. If those things deteriorate significantly, our children won’t be able to enjoy the same quality of life most of us experience. Conservation of resources, therefore, becomes tremendously important, as does the development of new sources of energy that may substitute those we’re currently using. Further, the case of an industrial chemical company pouring toxins into the ground that erupt years later with horrific consequences evidences this: not only are resources finite, but our earth is limited in its ability to naturally regenerate clean air and water from the smokestacks and runoff of our industries. There are, clearly, good faith debates that thoughtful people can have about where those limits are. For example, have we released greenhouse gases into the air so heavily that the earth’s temperature is rising? No one knows for sure, but it’s certain that somewhere there’s a limit; at some point carbon-burning pollution will do to the planet what toxic runoff did in Woburn: make the place unlivable. Sustainability, finally, on this environmental front means actions must be taken to facilitate our natural world’s renewal. Recycling or cleaning up contamination that already exists is important here, as is limiting the pollution emitted from factories, cars, and consumer products in the first place. All these are actions that corporations must support, not because they’re legally required to do so, but because the preservation of a livable planet is a direct obligation within the triple-bottom-line model of business responsibility. Together, these three notions of sustainability—economic, social, and environmental—guide businesses toward actions fitted to the conception of the corporation as a participating citizen in the community and not just as a money machine. One deep difference between corporate social responsibility and the triple bottom line is cultural. The first is more American, the second European. Americans, accustomed to economic progress, tend to be more comfortable with, and optimistic about, change. Collectively, Americans want business to transform the world, and ethical thinking is there (hopefully) to help the transformations maximize improvement across society. Europeans, accustomed to general economic decline with respect to the United States, view Saylor URL: http://www.saylor.org/books Saylor.org 595 change much less favorably. Their inclination is to slow development down, and to keep things the same as far as possible. This outlook is naturally suited to sustainability as a guiding value. It’s important to note that while sustainability as a business goal puts the breaks on the economic world, and is very conservative in the (nonpolitical) sense that it favors the current situation over a changed one, that doesn’t mean recommending a pure freeze. Sustainability isn’t the same as Ludditism, which is a flat resistance to all technological change. The Luddites were a band of textile workers in Britain in the 1800s that saw (correctly) that mechanized looms would soon rob them not only of their livelihood but also of their way of life. To stop the change, they invaded a few factories and broke everything in sight. Their brute strategy succeeded very briefly and then failed totally. Today, Ludditism is the general opposition to new technologies in any industry on the grounds that they tear the existing social fabric: they force people to change in the workplace and then everyplace, whether they like it or not. There’s an element of (perhaps justifiable) fear of the future in both Ludditism and the business ethics of sustainability, but there are differences between the two also. For example, sustainability concerns don’t always stand against technological advances. Actually, innovation is favored as long as advances are made in the name of maintaining the status quo. For example, advances in wind power generation may allow our society to continue using energy as we do, even as oil reserves dwindle, and with the further benefit of limiting air pollution. Stakeholder Theory Stakeholder theory, which has been described by Edward Freeman and others, is the mirror image of corporate social responsibility. Instead of starting with a business and looking out into the world to see what ethical obligations are there, stakeholder theory starts in the world. It lists and describes those individuals and groups who will be affected by (or affect) the company’s actions and asks, “What are their legitimate claims on the business?” “What rights do they have with respect to the company’s actions?” and “What kind of responsibilities and obligations can they justifiably impose on a particular business?” In a single sentence, stakeholder theory affirms that those whose lives are touched by a corporation hold a right and obligation to participate in directing it. As a simple example, when a factory produces industrial waste, a CSR perspective attaches a responsibility directly to factory owners to dispose of the waste safely. By contrast, a stakeholder theorist Saylor URL: http://www.saylor.org/books Saylor.org 596 begins with those living in the surrounding community who may find their environment poisoned, and begins to talk about business ethics by insisting that they have a right to clean air and water. Therefore, they’re stakeholders in the company and their voices must contribute to corporate decisions. It’s true that they may own no stock, but they have a moral claim to participate in the decision-making process. This is a very important point. At least in theoretical form, those affected by a company’s actions actually become something like shareholders and owners. Because they’re touched by a company’s actions, they have a right to participate in managing it. Who are the stakeholders surrounding companies? The answer depends on the particular business, but the list can be quite extensive. If the enterprise produces chemicals for industrial use and is located in a small Massachusetts town, the stakeholders include:  Company owners, whether a private individual or shareholders  Company workers  Customers and potential customers of the company  Suppliers and potential suppliers to the company  Everyone living in the town who may be affected by contamination from workplace operations  Creditors whose money or loaned goods are mixed into the company’s actions  Government entities involved in regulation and taxation  Local businesses that cater to company employees (restaurants where workers have lunch, grocery stores where employee families shop, and similar)  Other companies in the same line of work competing for market share  Other companies that may find themselves subjected to new and potentially burdensome regulations because of contamination at that one Massachusetts plant The first five on the list—shareholders, workers, customers, suppliers, and community—may be cited as the five cardinal stakeholders. The outer limits of stake holding are blurry. In an abstract sense, it’s probably true that everyone in the world counts as a stakeholder of any serious factory insofar as we all breathe the same air and because the global economy is so tightly linked that decisions taken in a boardroom in a small town on the East Coast can end up costing someone in India her job and the effects keep rippling out from there. Saylor URL: http://www.saylor.org/books Saylor.org 597 In practical terms, however, a strict stakeholder theory—one insistently bestowing the power to make ethical claims on anyone affected by a company’s action—would be inoperable. There’d be no end to simply figuring out whose rights needed to be accounted for. Realistically, the stakeholders surrounding a business should be defined as those tangibly affected by the company’s action. There ought to be an unbroken line that you can follow from a corporate decision to an individual’s life. Once a discrete set of stakeholders surrounding an enterprise has been located, stakeholder ethics may begin. The purpose of the firm, underneath this theory, is to maximize profit on a collective bottom line, with profit defined not as money but as human welfare. The collective bottom line is the summed effect of a company’s actions on all stakeholders. Company managers, that means, are primarily charged not with representing the interests of shareholders (the owners of the company) but with the more social task of coordinating the interests of all stakeholders, balancing them in the case of conflict and maximizing the sum of benefits over the medium and long term. Corporate directors, in other words, spend part of the day just as directors always have: explaining to board members and shareholders how it is that the current plans will boost profits. They spend other parts of the day, however, talking with other stakeholders about their interests: they ask for input from local environmentalists about how pollution could be limited, they seek advice from consumers about how product safety could be improved and so on. At every turn, stakeholders are treated (to some extent) like shareholders, as people whose interests need to be served and whose voices carry real force. In many cases transparency is an important value for those promoting stakeholder ethics. The reasoning is simple: if you’re going to let every stakeholder actively participate in a corporation’s decision making, then those stakeholders need to have a good idea about what’s going on. In the case of W. R. Grace, for example, it’s important to see that a stakeholder theory would not necessarily and immediately have acted to prohibit the dumping of toxins into the soil. Instead, the theory demands that all those who may be affected know what’s being dumped, what the risks are to people and the environment, and what the costs are of taking the steps necessary to dispose of the chemical runoff more permanently and safely. As already noted, we know now what W. R. Grace should have done under most every ethical theory. At the time, however, stakeholders fully informed of the situation may have been less sure because it wasn’t so clear that the runoff would cause so many problems (or any problems at all). Given that, owners may have favored dumping because that increases profits. Next, what about workers in town? It’s important to Saylor URL: http://www.saylor.org/books Saylor.org 598 keep in mind that the safe removal of the waste may have lowered company profits and potentially caused some layoffs or delayed wage hikes. As stakeholders, they may have been willing to agree to the dumping too. The same goes for community politicians who perhaps would see increased tax revenue as a positive effect of high corporate profits. What’s certain is that stakeholder theory obligates corporate directors to appeal to all sides and balance everyone’s interests and welfare in the name of maximizing benefits across the spectrum of those whose lives are touched by the business. Conclusion on the Three Forms of Corporate Social Responsibility Traditionally, the directors of companies have had an extremely difficult but very narrowly defined responsibility: guide the enterprise toward money. The best companies have been those generating the highest sales, gaining the most customers, and clearing the largest profits. As for ethical questions, they’ve been arranged around the basic obligation to represent the owners’ central interest, which presumably is to profit from their investment. Consequently, the field of business ethics has mainly concerned conflicts and dilemmas erupting inside the company as people try to work together to win in the very competitive economic world. The idea of corporate social responsibility—along with the related ideas of the triple bottom line and stakeholder theory—opens a different kind of business ethics. Morality in the economic world is now about corporate directors sensing and responding to a broad range of obligations, ones extending through the town where the business is located and then out into surrounding communities and through society generally. In Woburn, Massachusetts, in the early 1980s, this conflict between two ways of running a business played out in the Hollywood depiction of the lawyer played by John Travolta. At the movie’s beginning, right and wrong for a business got decided in dollars and without broader sensibility. Travolta’s law firm existed to make money and operated by accepting only cases that promised big payouts. That’s what brought Travolta to Woburn, the chance to sue deep-pocketed W. R. Grace for poisoning the land with toxic runoff and for destroying the lives of families living near the pools of contamination. Over the course of the movie, however, Travolta becomes attached to Woburn’s cause and the social good of fighting for a clean environment. By the end, he’s risking his firm’s high profits—and, according to his law-firm Saylor URL: http://www.saylor.org/books Saylor.org 599 partners, all common sense—to make sure that harmed people living in town get their good lives back, and to ensure that a Woburn-like toxic disaster won’t happen again. In terms of business ethics, it’s not difficult to interpret Travolta’s transformation from a businessman taking care of the bottom line, to one engaged by a broader vision of social responsibility. Each of the three discussed theories—corporate social responsibility, the triple bottom line, stakeholder theory—can be fit into the movie A Civil Action. In terms of corporate social responsibility, Travolta came to believe that his job as the law firm’s leader obligated him to satisfy his economic responsibility to make money for the firm by suing for financial damages while also acting legally. Further, his firm needed to satisfy the ethical responsibility to help others in Woburn gets their good lives back. Here, there is a basic duty to help others in need when you have the capability. Finally, there was an element of philanthropy in Travolta’s endeavor because his law firm pursued a case that served the greater good even though more profitable work opportunities were available. In terms of the triple bottom line of economics, society, and the environment, Travolta came to believe that his job as the law firm’s leader obligated him to take account of and do well in all three areas. It was no longer enough to win money; his business had a moral responsibility to win for society and to win for the environment also. The long-term goal was to ensure the economic sustainability of his firm, the sustainability of healthy family life in Woburn, and the sustainability of clean earth and air in that part of Massachusetts. In terms of stakeholder ethics, Travolta came to believe that his job as the law firm’s leader obligated him not only to work for the firm’s owners (including himself) but also to take direction from those who would be affected by the firm’s actions. That meant considering—trying to balance and to add up—the interests of his partners and all those who lived in Woburn. Finally, because Travolta’s story was also a Hollywood story, his transformation on the big screen was presented as the change from an aloof bad guy to a caring good guy. It’s not clear, however, in the real world whether a corporate ethics based on social responsibility, the triple bottom line, or all stakeholders is actually recommendable. The debate between the two ways of thinking about business—the traditional, profit-centered view and the broader, socially responsible view—is hard-fought and intensified by good arguments on both sides. Saylor URL: http://www.saylor.org/books Saylor.org 600 KEY TAKEAWAYS  Corporations may have obligations that go beyond generating profits and include the larger society.  Corporate social responsibility as a specific theory affirms that corporations are entities with economic, legal, ethical, and philanthropic obligations.  Corporations responsible for a triple bottom line seek sustainability in the economic, social, and environmental realms.  Corporate ethics built on stakeholder theory seek to involve all those affected by the organization in its decision-making process. REVIEW QUESTIONS 1. For corporate advocates of the specific CSR theory, what are the responsibilities the corporation holds, and how are conflicts between those responsibilities managed? 2. Create a hypothetical situation in which philanthropy would not be required of a corporation by CSR theory. 3. What does sustainability mean within each of the three columns of the theory of the triple bottom line? 4. How does the fair trade movement fit together with the triple-bottom-line theory of corporate responsibility? 5. Who are the stakeholders in stakeholder ethics? 6. What does it mean for a corporate director to “balance stakeholder interests”? 7. What basic elements do CSR, the triple bottom line, and stakeholder theory have in common? [1] A Civil Action, directed by Steven Zaillian (New York: Scott Rudin, 1998), film. Saylor URL: http://www.saylor.org/books Saylor.org 601 13.3 Should Corporations Have Social Responsibilities? The Arguments in Favor LEARNING OBJECTIVE 1. Define and elaborate the major arguments in favor of corporations having social and environmental responsibilities. Why Should Corporations Have Social Responsibilities? Broadly, there are three kinds of arguments in favor of placing corporations, at least large and fully developed ones, within an ethical context of expansive social and environmental responsibilities: 1. Corporations are morally required to accept those responsibilities. 2. The existence of externalities attaches companies, in operational and economic terms, to those responsibilities. 3. Enlightened self-interest leads to voluntarily embracing those responsibilities. The Moral Requirement Argument The moral requirement that business goals go beyond the bottom line to include the people and world we all share is built on the following arguments:  Corporations are already involved in the broad social world and the ethical dilemmas defining it. For example, factories producing toxic waste are making a statement about the safety and well-being of those living nearby every time they dispose of the toxins. If they follow the cheapest—and least safe—route in order to maximize profits, they aren’t avoiding the entire question of social responsibility; they’re saying with their actions that the well-being of townspeople doesn’t matter too much. That’s an ethical stance. It may be good or bad, it may be justifiable or not, but it’s definitely ethics. Choosing, in other words, not to be involved in surrounding ethical issues is an ethical choice. Finally, because companies are inescapably linked to the ethical issues surrounding them, they’re involved with some form of corporate social responsibility whether they like it or not. Saylor URL: http://www.saylor.org/books Saylor.org 602  Corporations, at least well-established, successful, and powerful ones, can be involved in the effective resolution of broad social problems, and that ability implies an obligation. Whether we’re talking about a person or a business, the possession of wealth and power is also a duty to balance that privilege by helping those with fewer resources. Many accept the argument that individuals who are extraordinarily rich have an obligation to give some back by, say, creating an educational foundation or something similar. That’s why people say, “To whom much is given, much is expected.” Here, what’s being argued is that the same obligation applies to companies.  Corporations rely on much more than their owners and shareholders. They need suppliers who provide materials, employees who labor, a town where the workplace may be located, consumers who buy, air to breathe, water to drink, and almost everything. Because a business relies on all that, the argument goes, it’s automatically responsible—to some extent—for the welfare and protection of those things.  Because businesses cause problems in the larger world, they’re obligated to participate in the problems’ resolution. What kinds of problems are caused? Taking the example of an industrial chemical factory, toxic waste is produced. Even though it may be disposed of carefully, that doesn’t erase the fact that barrels of poison are buried somewhere and a threat remains, no matter how small. Similarly, companies that fire workers create social tensions. The dismissal may have been necessary or fully justified, but that doesn’t change the fact that problems are produced, and with them comes a responsibility to participate in alleviating the negative effects. Conclusion. Taken together, these arguments justify the vision of any particular enterprise as much more than an economic wellspring of money. Businesses become partners in a wide world of interconnected problems and shared obligations to deal with them. The Externality Argument The second type of argument favoring corporate social responsibility revolves around externalities. These attach corporations to social responsibilities not morally but operationally. An externality in the economic world is a cost of a good or service that isn’t accounted for in the price (when that price is established through basic laws of supply and demand). For example, if a corporation’s factory emits significant air pollution, and that results in a high incidence of upper respiratory infections in the nearby town, then a disproportionately high number of teachers and police officers (among others) are going to call into work Saylor URL: http://www.saylor.org/books Saylor.org 603 sick throughout the year. Substitute teachers and replacement officers will need to be hired, and that cost will be borne by everyone in town when they receive a higher tax bill. The corporation owning the pollution-belching factory, that means, gets the full amount of money from the sale of its products but doesn’t pay the full cost of producing them since the broader public is shouldering part of the pollution bill. This strikes many as unfair. Another example might be a company underfunding its pension accounts. The business may eventually shut its doors, deliver final profits to shareholders, and leave retired workers without the monthly checks they’d been counting on. Then the government may have to step in with food stamps, welfare payments, and similar to make up for the shortfall, and in the final tabulation, the general public ends up paying labor costs that should have been borne by shareholders. Externalities, it should be noted, aren’t always negative. For example, the iPhone does a pretty good job of displaying traffic congestion in real time on its map. That ability costs money to develop, which Apple invested, and then they get cash back when an iPhone sells. Apple doesn’t receive, however, anything from those drivers who don’t purchase an iPhone but still benefit from it: those who get to where they’re going a bit faster because everyone who does have an iPhone is navigating an alternate route. More, everyone benefits from cleaner air when traffic jams are diminished, but again, that part of the benefit, which should channel back to Apple to offset its research and production costs, ends up uncompensated. Whether an externality is negative or positive—whether a company’s bottom line rises or falls with it—a strong argument remains for broad corporate responsibility wherever an externality exists. Because these parts of corporate interaction with the world aren’t accounted for in dollars and cents, a broad ethical discussion must be introduced to determine what, if any, obligations or benefits arise. The Enlightened Self-interest Argument The third kind of argument in favor of corporations as seats of social responsibility grows from the notion of enlightened self-interest. Enlightened self-interest means businesses take on broad responsibilities because, on careful analysis, that public generosity also benefits the company. The benefits run along a number of lines: Saylor URL: http://www.saylor.org/books Saylor.org 604  Corporations perceived as socially engaged may be rewarded with more and more satisfied customers. TOM’s shoes is an excellent example. For every pair of shoes they sell, they give a pair away to needy children. No one doubts that this is a noble action—one displaying corporate vision as going beyond the bottom line—but it’s also quite lucrative. Many people buy from TOMS because of the antipoverty donations, and those customers feel good about their footwear knowing that a child somewhere is better off.  Organizations positively engaged with society or the environment may find it easier to hire top-notch employees. All workers seek job satisfaction, and given that you spend eight hours a day on the job, the ingredients of satisfaction go beyond salary level. Consequently, workers who select from multiple job offers may find themselves attracted to an enterprise that does some good in the world. This point can also be repeated negatively. Some organizations with more checkered reputations may find it difficult to hire good people even at a high salary because workers simply don’t want to have their name associated with the operation. A curious example to fit in here is the Central Intelligence Agency. Some people will accept a job there at a salary lower than they’d make in the private realm because it’s the CIA, and others won’t work there even if it’s their best offer in terms of money because it’s the CIA.  Organizations taking the initiative in regulating themselves in the name of social betterment may hold off more stringent requirements that might otherwise be imposed by governmental authorities. For example, a lab fabricating industrial chemicals may wrap their toxic waste in not only the legally required single, leak-proof barrel but a second as well, to positively ensure public safety. That proactive step is not only good for the environment, but it may help the bottom line if it effectively closes off a regulatory commission’s discussion about requiring triple barrel protections. Enlightened self-interest starts with the belief that there are many opportunities for corporations to do well (make money) in the world by doing good (being ethically responsible). From there, it’s reasonable to assert that because those opportunities exist, corporations have no excuse for not seeking them out, and then profiting from them, while helping everyone else along the way. One basic question about enlightened self-interest is, “Are corporations making money because they’re doing good deeds, or are they doing good deeds because it makes them money?” In terms of pure consequences, this distinction may not be significant. However, if the reality is that social good is being done only because it makes money, then some will object that corporate social responsibility is twisting Saylor URL: http://www.saylor.org/books Saylor.org 605 into a clever trick employed to maximize profits by deceiving consumers about a business’s intention. CSR becomes an example of cause egoism—that is, giving the false appearance of being concerned with the welfare of others in order to advance one’s own interests. KEY TAKEAWAY  There are three broad arguments in favor of corporate social responsibility: it is morally required, it’s required by externalities, it serves the interest of the corporation. REVIEW QUESTIONS 1. In your own words, what are a few reasons a corporation may feel directly required to respond to broad social obligations? 2. What is an example of an externality? How could the existence of that externality be transformed into an argument in favor of corporate social responsibility? 3. List three ways a corporate bottom line may be improved by serving the public welfare. Saylor URL: http://www.saylor.org/books Saylor.org 606 13.4 Should Corporations Have Social Responsibilities? The Arguments Against LEARNING OBJECTIVES 1. Define and elaborate the major arguments in favor of the corporate purpose as limited to increasing profits. 2. Define and elaborate major arguments against corporations accepting broad social and environmental responsibilities. The Only Corporate Responsibility Is to Increase Profits In 1970, just as the idea of corporate social responsibility was gaining traction and influential advocates in the United States, the economist Milton Friedman published a short essay titled “The Social Responsibility of Business is to Increase its Profits.” Possibly the most provocative single contribution to the history of business ethics, Friedman set out to show that large, publicly owned corporations ought to be about making money, and the ethical obligations imposed by advocates of CSR should be dismissed. His arguments convinced some and not others, but the eloquent and accessible way he made them, combined with the fact that his ideas were published in a mainstream publication—the New York Times Magazine—ensured their impact. [1] Businesses, as discussed at the chapter’s beginning, come in all shapes and sizes. When the topic is social responsibility, however, attention frequently fixes on very large corporations because they’re so big (and therefore able to do the most good) and powerful (the philosophies driving them tend to set the tone for business life in general). Friedman’s essay concerns these large, publicly held corporations. Here are his arguments. The Argument That Businesses Can’t Have Social Responsibilities A business can’t have moral responsibilities any more than a wrench can. Only humans have moral responsibilities because only we have consciousness and intentions: we’re the only things in the world that can control our actions, that can distinguish between what we want to do and what’s right to do. Saylor URL: http://www.saylor.org/books Saylor.org 607 Therefore, only we can have responsibilities in the ethical sense. What, then, is a business? Nothing more than a tool, something we make to further our ends. It may work well or poorly, but no matter what, it doesn’t do what it wishes, so we can’t blame or credit the business, only those individuals who use it for one purpose or another. In Woburn, Massachusetts, according to this argument, it makes no sense to say that W. R. Grace has some kind of corporate responsibility to keep the environment clean. A company doesn’t have any responsibilities. It’s like a wrench, a thing out in the world that people use, and that’s all. Would you accuse a wrench of being irresponsible if someone uses it to loosen the bolts on some truckers’ tires and so causes an accident and disastrous spill of toxins? You’d probably accuse the person who used the wrench of acting irresponsibly, but blaming the wrench for something would be madness. The Argument That Corporate Executives Are Responsible Only to Shareholders Corporate executives are employees of the owners of the enterprise. They’re contracted and obligated to conduct the business as the owners’ desire, not in accord with the wishes of some other people out in the world advocating broad social concerns. Executives in this sense are no different from McDonald’s burger flippers: they’re hired and agree to do a certain thing a certain way. If they don’t like it, they’re free to quit, but what they can’t do is take the job and then flip the hamburgers into the trash because their friends are all texting them about how unhealthy McDonald’s food is. What do corporate owners desire? According to Friedman, the typical answer is the highest return possible on their investment. When you buy shares of the industrial chemical maker W. R. Grace, you check once in a while what the stock price is because price (and the hope that it’s going up) is the reason you bought in the first place. It follows, therefore, that executives—who in the end work for you, the owner—are duty bound to help you get that higher share price, and the quickest route to the goal is large profits. What about the executive who decides to dedicate time and a corporation’s resources to social welfare projects (to things like reducing runoff pollution even further than the law requires or hiring released felons as a way of easing their passage back into society)? Friedman is particularly cutting on this point. It’s despicable selfishness. There’s nothing easier than generosity with other people’s money. And that’s Saylor URL: http://www.saylor.org/books Saylor.org 608 what, Friedman hints, CSR is really about. It’s about corporate executives, who like the idea of receiving accolades for their generous contributions to society, and they like it even more because the cash doesn’t come out of their paycheck; it’s subtracted from shareholder returns. There’s the seed of an argument here, finally, that not only is corporate social responsibility not recommendable, it’s reproachable: in ethical terms, corporate leaders are duty bound to refuse to participate in social responsibility initiatives. The Argument That Society Won’t Be Served by Corporate Social Responsibility One serious practical problem with the vision of corporate executives resolving social problems is it’s hard to be sure that their solutions will do well. Presumably, corporate executives got to be executives by managing businesses profitably. That’s certainly a difficult skill, but the fact that it has been mastered doesn’t automatically imply other talents. More, given the fact that corporate executives frequently have no special training in social and environmental issues, it’s perfectly reasonable to worry that they’ll do as much harm as good. One example of the reversed result comes from Newsweek. Executives at the magazine probably thought they were serving the public interest when they dedicated space in their April 28, 1975, issue to the threatening and impending environmental disaster posed by global…cooling. Not a very enticing subject, they probably could’ve done more for their circulation numbers by running a story (with lots of pictures) about the coming summer’s bathing suit styles, but they did the science to stoke broad discussion of our environmental well-being. As for the stoking, they certainly succeeded. Today, many scientists believe that global warming is the real threat and requires corporations to join governments in reducing carbon emissions. They have a hard time getting their message out cleanly, though, when there’s someone around bringing up that old Newsweek article to discredit the whole discussion. The Right Institution for Managing Social Problems Is Government Social problems shouldn’t be resolved by corporations because we already have a large institution set up for that: government. If members of a society really are worried about carbon emissions or the disposal of toxic waste at chemical plants, then they should express those concerns to elected representatives who will, in turn, perform their function, which is to elaborate laws and regulations guiding the way all of us— Saylor URL: http://www.saylor.org/books Saylor.org 609 inside and outside of business—live together. Government, the point is, should do its job, which is to regulate effectively, and those in the business world should do their job, which is to comply with regulations while operating profitably. Underneath this division of labor, there’s a crucial distinction. Friedman believes that human freedom is based to some significant degree in economic life. Our fundamental rights to our property and to pursue our happiness are inviolable and are expressed in our working activities. The situation is complicated, however, because it’s also true that for us to live together in a society, some restrictions must be placed on individual action. No community can flourish if everyone is just doing what they want. There’s room for quite a bit of discussion here, but in general, Friedman asserts that while government (and other outside institutions) have to be involved in regulation and the imposing of limits, they shouldn’t start trying to mold and dictate basic values in the economic realm, which must be understood in principle as a bastion of individual liberty and free choices. At this juncture, Friedman’s essay reaches its sharpest point. The notion of corporate social responsibility, Friedman asserts, is not only misguided; it’s dangerous because it threatens to violate individual liberty. Stronger, the violation may ultimately lead to socialism, the end of free market allocation of resources because rampant political forces take control in the boardroom. The movement to socialism that Friedman fears comes in two steps: 1. Environmental activists, social cause leaders, and crusading lawyers will convince at least a handful of preening business executives that working life isn’t about individuals expressing their freedom in a wideopen world; it’s about serving the general welfare. The notion of corporate social responsibility becomes a mainstream concern and wins wide public support. 2. With the way forced open by activists, the risk is that government will follow: the institution originally set up to regulate business life while guaranteeing the freedom of individuals will fall into the custom of imposing liberty-wrecking rules. Under the weight of these intrusive laws, working men and women will be forced to give up on their own projects and march to the cadence of government-dictated social welfare projects. Hiring decisions, for example, will no longer be about companies finding the best people for their endeavors; instead, they’ll be about satisfying social goals defined by politicians and bureaucrats. Friedman cites as an example the hiring of felons. Obviously, it’s difficult for people coming out of jail to find good jobs. Just as obviously, it’s socially beneficial for jobs to be available to them. The problem Saylor URL: http://www.saylor.org/books Saylor.org 610 comes when governments decide that the social purpose of reinserting convicts is more important than protecting the freedom of companies to hire anyone they choose. When that happens, hiring quotas will be imposed—corporations will be forced to employ certain individuals. This intrusive workplace rule will be followed by others. All of them will need to be enforced by investigating agents and disciplining regulators. As their numbers grow and their powers expand, freedom will be squeezed. Ultimately, freedom may be crushed by, as Friedman puts it, “the iron fist of Government bureaucrats.” [2] It’s difficult to miss the fact that Friedman’s worries were colored by the Cold War, by a historical moment that now feels remote in which the world really did hang in the balance between two views of working life: the American view setting individual freedom as the highest value and the Soviet view raising collectivism and the general welfare above all personal economic concerns and liberties. Still, and even though today’s historical reality is quite different from the 1970s, the essence of Friedman’s objection to CSR hasn’t changed. It’s that you and I get to be who we are by going out into the world and making something of ourselves. When our ability to do that gets smothered beneath social responsibility requirements, we may help others (or possibly not), but no matter what, we sacrifice ourselves because we’ve lost the freedom to go and do what we choose. This loss isn’t just an inconvenience or a frustration: it’s the hollowing out of our dignity; it’s the collapse of our ability to make ourselves and therefore the end of the opportunity to be someone instead of just anyone. The Best Way for Corporations to Be Socially Responsible Is to Increase Profits The final major argument against corporate social responsibility in its various forms is that the best way for most corporations to be socially responsible is to contribute to the community by doing what they do best: excelling in economic terms. When corporations are making profits, the money isn’t just disappearing or piling up in the pockets of the greedy super rich (though some does go there); most of it gets sent back into the economy and everyone benefits. Jobs are created, and those that already exist get some added security. With employment options opening, workers find more chances to change and move up: more successful corporations mean more freedom for workers. Further, corporations don’t get to be successful through luck, but by delivering goods and services to consumers at attractive prices. Corporate success, that means, should indicate that consumers are doing Saylor URL: http://www.saylor.org/books Saylor.org 611 well. Their quality of life improves as their consumer products improve, and those products improve best and fastest when corporations are competing against each other as freely as possible. What about the public welfare in the most general sense, the construction of parks, schools, and similar? Here, too, corporations do the best for everyone by concentrating on their own bottom line. More hiring, sales, and profits all also mean more tax revenue flowing to the government. And since elected governmental entities are those organizations best equipped to do public good, the most a corporation can hope for with respect to general social welfare is to succeed, and thereby generate revenues for experts (or, at least democratically elected officials) to divide up wisely. The term marketplace responsibility, finally, names the economic and social (and political) view emerging from Friedman’s arguments. The title doesn’t mean ethical responsibility in the marketplace so much as it does the specific conception of ethical responsibility that the open marketplace produces. It has two aspects: first, the notion of corporate social responsibility is misguided and dangerous, and second, the corporate purpose of profit maximization serves the social welfare while cohering with the value of human freedom that should be paramount in business ethics. Conclusion: Corporate Social Responsibility versus Marketplace Responsibility Advocates of corporate social responsibility believe corporations are obligated to share the burden of resolving society’s problems. They maintain that the responsibility stands on pure moral grounds. More, there are operational reasons for the responsibilities: if businesses are going to contaminate the environment or cause distress in people’s lives, they should also be actively working to resolve the problems. Finally, there’s the strong argument that even if the corporate purpose should be to make profits, social responsibility is an excellent way to achieve the goal. Advocates of marketplace responsibility—and adversaries of the corporate social responsibility model— argue that by definition corporations can’t have moral responsibilities. Further, to the extent ethical obligations control corporate directors, the obligations are to shareholders. More, corporate directors aren’t experts at solving social problems, and we already have an institution that presumably does have expertise: government. Finally, there’s a strong argument that even if the corporate purpose should Saylor URL: http://www.saylor.org/books Saylor.org 612 include broad social responsibilities, free individuals and corporations in the world making profits is an excellent way to achieve the goal. KEY TAKEAWAYS  The first argument against theories of corporate social responsibility is corporations can’t have ethical responsibilities.  The second argument is corporate executives are duty bound to pursue profits.  The third argument is corporations are ill-equipped to directly serve the public good.  The fourth argument is social issues should be managed by government, not corporations.  The fifth argument is marketplace ethics reinforce human freedom and corporate social responsibility threatens society with socialism.  The sixth argument against theories of corporate social responsibility is the best way for corporations to serve the public welfare is by pursuing profits. REVIEW QUESTIONS 1. What does it mean to say that, in ethical terms, a corporation is no different from a wrench? 2. What primary responsibility do corporate directors have to shareholders? Why do they have it? 3. Why should social issues be managed by government and not corporations? 4. What is the connection between corporate social responsibility and the threat to freedom posed by socialism? How does socialism limit freedom? 5. What is an example of a company doing good by doing well—that is, making profits—and for that reason improving the general welfare? How can the example be converted into an argument against the theory of the corporation as having social responsibilities? [1] Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits,” New York Times Magazine, September 13, 1970, accessed June 7, 2011,http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html. Saylor URL: http://www.saylor.org/books Saylor.org 613 [2] Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits,” New York Times Magazine, September 13, 1970, accessed June 7, 2011,http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html. Saylor URL: http://www.saylor.org/books Saylor.org 614 13.5 Case Studies Casinos and Crime g Ima ed d ov e rem pyr co ue to ues. iss ight Earl Grinols and David Mustard are economists and, like a lot of people, intrigued by both casinos and crime. In their case, they were especially curious about whether the first causes the second. It does, according to their study. Eight percent of crime occurring in counties that have casinos results from the legalized gambling. In strictly financial terms—which are the ones they’re comfortable with as economists—the cost of casino-caused crime is about $65 per adult per year in those counties. [1] When casinos come to town, the following specific crimes increase:  Robbery (in all three major categories: of individuals, of their homes, of their cars)  Aggravated assault  Rape The crimes also increased to some extent in neighboring counties. Situation: A casino regular runs out of money after a string of bad cards. She coasts out to the street and drops her purse in front of an out-of-towner. When the chivalrous guy bends over to pick it up for her, she picks his back pocket. With the $100 stolen from the wallet, she heads back into the casino, spends $40 on hard liquor, loses the rest at the roulette table, and goes home. She wakes up alone, though some underwear she finds on her floor makes her think she probably didn’t start the night that way. She can’t remember. Saylor URL: http://www.saylor.org/books Saylor.org 615 QUESTIONS 1. Sole proprietorship o What is a sole proprietorship? o What are the basic legal steps to take on the way to making a sole proprietorship? o How are taxes paid in this kind of organization? o In most casino states and counties, laws protect owners from liability claims arising from problems caused by gambling. In ethical terms, however, if you’re the sole proprietor of the casino, do you feel any responsibility for this episode? Why or why not? If you feel responsibility, to whom would it be? What could you do to set things right? 2. Partnership o In business, what is a partnership? o You own only 5 percent of a partner-owned casino, and don’t pay too much attention to what goes on inside. In fact, you don’t like gambling and only invested in the enterprise as a favor to a friend. Do you feel any ethical responsibility for this episode? Why or why not? 3. Nonprofit organization o What is a nonprofit organization? o You’re an equal partner in a nonprofit organization that runs the casino to support the cause of building schools for children in impoverished sections of Peru. You spend a few months every year down there building schools and giving free English-language classes. In ethical terms (and regardless of what the law allows), do you believe anyone involved in this episode should be able to sue you personally for their suffering? Why or why not? 4. Large, public corporation o Large public corporations protect their owners from the ethical implications of what the corporation does through the business’s organizational structure. What is that structure, and how does it protect shareholders? o Say that the casino under discussion in this set of questions is the MGM Grand Hotel and Casino in Las Vegas, which is owned by a large, public corporation. You have five shares of stock inherited a few years ago when a relative died. You are legally protected from liability claims. In Saylor URL: http://www.saylor.org/books Saylor.org 616 ethical terms, however, do you believe that anyone involved in this episode should be able to sue you personally—or just plain blame you—for their suffering? Why or why not? 5. The woman in the story is your eighteen-year-old daughter. Does that change any of your answers? 6. What is an externality? What externalities probably belong to casinos? Are there any positive externalities that probably belong to casinos? 7. Pigouvian taxes (named after economist Arthur Pigou, a pioneer in the theory of externalities) attempts to correct externalities—and so formalize a corporate social responsibility—by levying a tax equal to the costs of the externality to society. The casino, in other words, that causes crime and other problems costing society, say, $1 million should pay a $1 million tax. o In terms of casinos, would such a tax more or less satisfy any ethical claim that could be made against them for the social problems they cause? Why or why not? o The way these social scientists measured the cost of each crime was, more or less, by totaling the quantifiable costs—that is, those things that could receive a price tag fairly readily. If, for example, your car gets stolen and sold for parts by a desperate gambler, you can put a price on the crime’s cost by checking the car’s Kelly Blue Book value. Added to that there are administrative costs—at the police station, the insurance company—and those too may be figured in terms of time and wages. Still, quite a bit of the cost of crime escapes (as the authors readily admit) their measure. Their calculations don’t include lost productivity, social service, and welfare costs. They also don’t include emotional costs, the tears, and distress of the victim. Is there any way for those cost—especially the emotional suffering—to be put into dollars and cents? If so, how? If not, is there some other kind of requirement that could be strapped onto casinos to help make them socially responsible for their activities? Grace ved du mo Image re ssues. yright i e to cop Saylor URL: http://www.saylor.org/books Saylor.org 617 The W. R. Grace Company was founded by, yes, a man named W. R. Grace. He was Irish and it was a shipping enterprise he brought to New York in 1865. Energetic and ambitious, while his company grew on one side, he was getting civically involved on the other. Fifteen years after arriving, he was elected Mayor of New York City. Five years after that, he personally accepted a gift from a delegation representing the people of France. It was the Statue of Liberty. Grace was a legendary philanthropist. He provided massive food donations to his native Ireland to relieve famine. At home, his attention focused on his nonprofit Grace Institute, a tuition-free school for poor immigrant women. The classes offered there taught basic skills—stenography, typewriting, bookkeeping— that helped students enter the workforce. More than one hundred thousand young women have passed through the school, which survives to this day. In 1945, grandson J. Peter Grace took control of the now worldwide shipping company. A decade later, it became a publicly traded corporation on the New York Stock Exchange. The business began shifting from shipping to chemical production. By the 1980s, W. R. Grace had become a chemical and materials company, and it had come to light that one of its plants had been pouring toxins into the soil and water underneath the small town of Woburn, Massachusetts. The poisons worked their way into the town’s water supply and then into the townspeople. It caused leukemia in newborns. Lawsuits in civil court, and later investigations by the Environmental Protection Agency, cost the corporation millions. J. Peter Grace retired as CEO in 1992. After forty-eight years on the job, he’d become the longest-reigning CEO in the history of public companies. During that time, he also served as president of the Grace Institute. The nonfiction novel A Civil Action came out in 1996. The best-selling, award-winning chronicle of the Woburn disaster soon became a Hollywood movie. The movie, starring John Travolta, continues to appear on television with some regularity. To honor the Grace Institute, October 28 was designated “Grace Day” by New York City in 2009. On that day, the institute defined its mission this way: “In the tradition of its founding family, Grace Institute is dedicated to the development of the personal and business skills necessary for self-sufficiency, employability, and an improved quality of life.” Saylor URL: http://www.saylor.org/books [2] Saylor.org 618 QUESTIONS 1. The specific theory of corporate social responsibility encompasses four kinds of obligations: economic, legal, ethical, and philanthropic. o How are business leaders meant to organize these four responsibilities? Which ones take precedence over the others and why? o Judging the man named W. R. Grace through the lens of CSR, how well did he respond to his obligations? Explain. o Judging the company’s more recent activities in the 1980s through the lens of CSR, how well did it respond to its obligations? Explain. 2. The triple-bottom-line theory of corporate responsibility promotes three kinds of sustainability: economic, social, and environmental. o What does the term sustainability mean within this theory and within each of the three categories? o The W. R. Grace Company has a long history. From the information provided, what are some of the steps the company has taken to become economically sustainable? Explain. o What are some of the steps the W. R. Grace Company has taken to promote social sustainability? Explain. o What is environmental sustainability? How can the dumping of toxic waste in Woburn be categorized as unethical within the area of environmental sustainability concerns? Explain. 3. Stakeholder theory affirms that for companies to perform ethically, management decisions must take account of and respond to stakeholder concerns. o What is a stakeholder? o Looking back at the early company in New York in the 1800s, who would have been some of the stakeholders surrounding the Grace shipping company? o Looking to more recent history, to the corporation as a producer of industrial chemicals in Woburn, Massachusetts, who were some of the major stakeholders surrounding Grace? Saylor URL: http://www.saylor.org/books Saylor.org 619 o Explain why the Grace Institute, which receives generous support from the W. R. Grace industrial chemical corporation—and the women receiving training there—are stakeholders in the W. R. Grace Corporation. o The Grace Institute—the people employed there and the women receiving free training— depend to some extent on the chemical company being profitable. Could you construct an argument in favor of the chemical company being environmentally irresponsible if that allows profits and therefore necessary support for the Institute? 4. As this question is being written, the share price of W. R. Grace is $26.17, and there are a total of 72,780,100 shares out there in the world. You’ve saved some money from a summer job and invested in Grace, 100 shares to be exact. That costs you $2,617, and means you own a not-overwhelming 0.000137 percent of the company. Next, you e-mail this to the CEO: “I worked hard for my $2,617, I bought stock to see that amount rise, and I want you to pour a little bit more of the profits into research and development of new products, and a little less into the Grace Institute.” Assuming the CEO is a proponent of stakeholder ethics, what do you suppose the response would be? 5. There are a number of arguments supporting the proposal that corporations are autonomous entities (apart from owners and directors and employees) with ethical obligations in the world. Themoral requirement argument contains four elements: o Corporations are already involved in the broad social world and the ethical dilemmas defining it, and therefore they are obligated to participate and help solve problems. o Well-established, successful, and powerful corporations can be involved in the effective resolution of broad social problems, and that ability implies an obligation to do so. o Corporations rely on much more than their owners and shareholders. They need suppliers, employees, a town in which to locate, consumers, air to breathe, and water to drink. That reliance implies an obligation to care for the welfare and protection of those things. o Because businesses cause problems in the larger world, they’re obligated to participate in the problems’ resolution. How can each of these general arguments be specified in the case of W. R. Grace? 6. Summarize the externality argument in favor of corporations having ethical obligations in the world. How can it be specified in the case of W. R. Grace? Saylor URL: http://www.saylor.org/books Saylor.org 620 The Body Shop e rem Imag o e to c du oved . ssues ht i pyrig The Body Shop is a cosmetics firm out of England, founded by Anita Roddick. “If business,” she writes on the company’s web page, “comes with no moral sympathy or honorable code of behaviors, then God help us all.” [3] Moral sympathy and an honorable code of behaviors has certainly helped The Body Shop. Constantly promoted as an essential aspect of the company and a reason to buy its products, the concept of corporate social responsibility has been a significant factor in the conversion of a single small store in England to a multinational conglomerate. Maybe it has been too significant a factor. That’s certainly the suspicion of many corporate watchers. The suspicion isn’t that the actual social responsibility has been too significant but that the actions of corporate responsibility have been much less energetic than their promotion. The social responsibility has been, more than anything else, a marketing strategy. Called green washing, the accusation is that only minimally responsible actions have been taken by The Body Shop, just enough to get some good video and mount a loud advertising campaign touting the efforts. Here’s the accusation from a website called thegoodhuman.com: The Body Shop buys the palm oil for their products from an organization that pushed for the eviction of peasant families to develop a new plantation. So much for their concern about creating “sustainable trading relationships with disadvantaged communities around the world.” [4] Saylor URL: http://www.saylor.org/books Saylor.org 621 QUESTIONS 1. What is the enlightened self-interest argument in favor of corporate social responsibility? How does the case of The Body Shop illustrate and make that argument? 2. From the perspective of the enlightened self-interest argument in favor of corporate social responsibility, what can be made of the accusation that The Body Shop is a green washer? Explain. 3. With reference to Milton Friedman’s marketplace ethics—essentially the idea that corporations have only one ethical responsibility, to make money—what can be made of the green washing accusation? Is it possible that it’s not so much an accusation as a compliment? 4. If a corporation acts in a way that does good in the world, does motive matter, does it matter why the corporation does what it does? Justify your answer. Greed Is Good ved emo age r py o co t e u d es. issu right Im It’s probably the most repeated business ethics line in recent history. Michael Douglas—playing Wall Street corporate raider Gordon Gekko—stands in front of a group of shareholders at Teldar Paper and announces, “Greed is good.” Teldar has been losing money, but the company, Douglas believes, is fundamentally strong. The problem’s the management; it’s the CEO and chief operations officer and all their various vice presidents. Because they don’t actually own the company, they only run it, they’re tempted to use the giant corporation to make their lives comfortable instead of winning profits for the actual owners, the shareholders. As one of those shareholders, Douglas is proposing a revolt: get rid of the lazy executives and put in some new Saylor URL: http://www.saylor.org/books Saylor.org 622 directors (like Douglas’s friends) who actually want to make money. Here’s the pitch. Douglas points at the CEO and the rest of the management team up at their table: All together, these men sitting up here own less than 3 percent of the company. And where does the CEO put his million-dollar salary? Not in Teldar stock; he owns less than 1 percent. Dramatic pause. Douglas earnestly faces his fellow shareholders. You own the company. That’s right—you, the stockholder. And you’re all being royally screwed over by these bureaucrats with their steak lunches, their hunting and fishing trips, their corporate jets and golden parachutes. Teldar Paper has 33 different vice presidents, each earning over 200 thousand dollars a year. Now, I have spent the last two months analyzing what all these guys do, and I still can’t figure it out. One thing I do know is that our paper company lost 110 million dollars last year. The new law of evolution in corporate America seems to be survival of the un-fittest. Well, in my book you either do it right or you get eliminated. He adds, In the last seven deals that I’ve been involved with, there were 2.5 million stockholders who have made a pretax profit of 12 billion dollars. [5] QUESTIONS 1. Douglas says, “In my book you either do it right or you get eliminated.” o In economic terms, what does “do it right” mean? o In ethical terms, and with reference to a marketplace morality resembling the one Milton Friedman proposes, what does “do it right” mean? 2. The structure of most large, publicly held corporations separates owners from actual managers who are hired to run the company. They’re employed agents of the owners. What does that mean as far as their ethical obligations go with respect to the purpose of the company they are leading? 3. In the real world, the paper company Weyerhaeuser promotes itself as socially and environmentally responsible. On their web page, they note that they log the wood for their paper from certified forests at a percentage well above that required by law. Saylor URL: http://www.saylor.org/books [6] Carefully Saylor.org 623 defining a “certified forest” would require pages, but basically the publicly held corporation is saying that they don’t just buy land, clear-cut everything, and then move on. Instead, and at a cost to themselves, they leave some trees uncut and plant others to ensure that the forest they’re cutting retains its character. o How could Douglas’s speech at Teldar be rewritten as a criticism of the management at Weyerhaeuser? o What specific criticism would Douglas launch at Weyerhaeuser managers who spend corporate money planting trees? o If it turned out that the sustainable forest initiative cost Weyerhaeuser some money up front, but ultimately won them positive publicity and consequently more consumers, would Douglas approve of the practice? Explain. 4. One broad argument against the various ideas of corporate social and environmental responsibility is that corporations can’t have moral responsibilities at all. How could that argument be specified in the case of Weyerhaeuser? 5. According to the Weyerhaeuser web page, the US government sets certain rules for sustainability with respect to forests. Weyerhaeuser complies and then goes well beyond those requirements. According to Milton Friedman and the ideals of marketplace responsibility, broad questions about social and environmental corporate responsibilities should be answered by democratically elected governments because that’s the institution we’ve developed to manage our ethical life. Governments should try to succeed in the ethical realm by making good laws; companies should try to succeed in the economic realm by making good profits. o Weyerhaeuser notes on its web page that in China and Uruguay it obeys local regulations with respect to logging. Apparently, however, the company isn’t doing quite as much in those places to avoid the environmental problem of deforestation. Land is very inexpensive in vast, poor nations like these two, and it looks like Weyerhaeuser more or less does what’s required and that’s it. Maybe the company simply buys acres, cuts them, and moves on. Make the case that in ethical terms, the corporate actions in Uruguay and China are more respectable than the actions here in the States. Saylor URL: http://www.saylor.org/books Saylor.org 624 6. The first part of Douglas’s speech concerned problems with the corporate organization’s structure, and with out-of-control managers: people employed to run a company who promptly forget who their bosses are. The speech’s second part is about what drives life in the business world: The point is, ladies and gentleman, that greed—for lack of a better word—is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms—greed for life, for money, for love, knowledge—has marked the upward surge of mankind. Greed, Douglas says, is an imperfect word for what he’s describing. What words might have been better? What words might advocates of marketplace ethics propose? 7. One word that might have worked better than greed is ambition. Whether the word is greed or ambition, it has, according to the Douglas character, marked the upward surge of mankind. Assume that’s true. Can you speculate about how the upward surge would play out in a developing nation like Uruguay when a multinational comes to town, brings money, creates jobs, and wrecks the forests? [1] Earl Grinols and David Mustard, “Measuring Industry Externalities: The Curious Case of Casinos and Crime,” accessed June 7, 2011, http://casinofacts.org/casinodocs/Grinols-Mustard-Casinos_And_Crime.pdf. [2] “Our Mission,” Grace Institute, accessed June 1, 2011,http://www.graceinstitute.org/mission.asp. [3] “Our Values,” The Body Shop, accessed June 7, 2011,http://www.thebodyshop.com/_en/_ww/services/aboutus_values.aspx. [4] “Green wash of the Week: The Body Shop Business Ethics,” The Good Human, September 30, 2009, accessed June 7, 2011, http://www.thegoodhuman.com/2009/09/30/greenwash-of-the-week-the-body-shop-businessethics. [5] Wall Street, directed by Oliver Stone (Los Angeles: Twentieth Century Fox, 1987), film. Saylor URL: http://www.saylor.org/books Saylor.org 625 [6] “Forest Certification,” Weyerhaeuser, accessed June 7, 2011,http://www.weyerhaeuser.com/Sustainability/Footprint/Certification. Saylor URL: http://www.saylor.org/books Saylor.org 626

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Report: Case Study-Grace

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Running Head: CASE STUDY GRACE

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Case Study Grace
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Course
Date

CASE STUDY GRACE

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Case Study Grace
The development and establishment of any company aim at improving the financial
position as well as the success of the particular firm in the market. In that regard, many
organization tries many options that may result in increased chances of success for them. The
individual firm needs to decide on the type of product to produce in that case to facilitate
increased sales thus elevated success. However, the failure to make an ethical decision may
cause an organization to provide some products that may affect the general public. This action
may bring about the complicated situation as the firm in question may lose its reputation in the
market as well as exposing its employees to hazards that may bring about hardships in their lives.
Further, each organization needs to research the market that they may wish to join to
assist in decision making regarding the product to offer (Babin & Zimkund, 2015). This analysis
allows the particular firm to determine the most profitable outcome that may bring about
increased revenue to the...

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