are ethics the same internationally?

If you want to be bored at a conference, walk into a session on cultural differences on international teams. God knows why these are uniformly dull as toast, when the reality of working across boundaries is an intellectual minefield.

Take ethics. My friend James Balassone of the Markkula Center for Applied Ethics at Santa Clara University tells me that ethics are the same internationally -- what differs from country to country is culture. So when you're talking about whether you should turn your friend into the police for running over a pedestrian, you know, regardless of what country you live in, what's right and wrong. The difference in how the question is addressed is only your relationship with police, and how they were seen in your country, as you grew up.

I posed this argument to my friend SoonKheng Khor of Malaysia, and he called bullshit. SK says it doesn't matter whether the differences are ethical or cultural -- what matters is how we behave, and that culture is the excuse for a lot of bad behavior.  It's said that there is only one reason why you bribe a police officer in Nigeria, and you don't bribe a police officer in Canada.  In Nigeria, it costs a lot less to bribe a police officer -- it's affordable.  In Canada, it not only would be very expensive to bribe a police officer, as they make a good income, but the costs of getting it wrong would be very high, as there is a high likelihood that you will get in trouble for trying to bribe a police officer.  In Nigeria, perhaps you might get into more trouble if you DON'T try to bribe the police officer.

I often wonder what I would do in that situation.  I heard today an interview today with Jeffrey Swartz, the President of Timberland, a US shoemaker.  He said he has an absolute rule when it comes to the amount of time a worker can work a week.  Even in less developed countries, even in their busy season, no worker is allowed to work more than 60 hours. Workers in poor countries complain, because they want to work more, in order to get more overtime.  Hopefully, he uses that as an excuse to bump up the pay for those workers.  

But it made me wonder. Timberland's 60-hour rule reminded me of this posting from a cook I came across a couple weeks ago.  In France, no one can work more than 39 hours.  But restaurants require much longer hours of work.  So he works 50 hours of work every week, but he is only paid for 39, and only 39 are reported to the government.  The difference is "supplemental." How does Swartz certain that in none of Timberland's factories, people are being told they need to work many more hours, but can only report 60? The answer is auditing, and it sounds like they try to do a lot there. While compliance is certainly a challenge, Timberland's declaration and commitment reflects an intent and a culture which can cross boundaries. Now that's progress.

what i'd do with a million dollars

Back when I lived in Indiana, we young wage slaves used to pool our money a couple times a year to buy a bunch of state lottery tickets. This always led to the inevitable daydreaming: "What would you do with a million dollars?" First, of course, everyone would quit their jobs. Then they'd travel the world, buy a boat and live on it, live the life they've always dreamed, but was always just out of grasp.

I guess that's why I'm always stunned by embezzlers, senators and other bandits caught stealing money that doesn't belong to them.

EVERYONE spends their ill-gotten gains on granite countertops, a new deck, new cabinets.

Really? You've just made a very bold move and there's no turning back -- you've committed a crime and your life is on the line -- and the reason you did it is to redecorate your kitchen?

When I lived in Dayton in the late 80's, we used to all joke about "the house that NCR built." The story was, this couple both worked for NCR, and one of them (the man, if I recall correctly) began to embezzle money from the company. Over the years, the couple stopped getting along, so they built a wall down the center of their property, each building out their side to an elaborate mansion, but with separate entrances and exits. None of this was apparent from the street -- it looked like a normal home. The woman wouldn't divorce him, as she wanted the ill-gotten gains, and he had to keep supporting her or she'd turn him in. Eventually, they both went to prison, and that's when the world discovered the segregated house.

Wow. People really lose their imagination as they get older.

Explaining Milton Friedman on Corporate Social Responsibility

Brad DeLong had a recent post on how he thinks Milton Friedman's take on Corporate Social Responsibility is bunk.

He says, among other things, that "If customers don't want to pay higher prices and so buy from corporations that pursue social responsibility, they are (as long as product markets are competitive) free to do so at their option." The unfortunate reality of CSR is that for the most part, if given the choice, most people want CSR, but only if there is no cost to themselves.

In Supercapitalism, Robert Reich points out, even for such a simple and clearly beneficial issue as dolphin-safe tuna, customers vote only with their pocketbooks. J. W. Connolly, former president of Heinz U.S.A., which was the parent company of StarKist, explains that “consumers wanted a dolphin-safe product,” but “if there was a dolphin-safe can of tuna next to a regular can, people chose the cheaper product. Even if the difference was a penny.”

Where Brad missed the issue was not due to consumer choice, but rather a misunderstanding of Friedman's core argument. Friedman posed that an employee has direct responsibility to his employers, to make as much money as possible while conforming to the basic rules of society. If a company spends money on reducing pollution, for example, below the level required by law, it’s not his money he’s spending. He’s spending the shareholder’s money. The employee is no longer acting as an agent of the stockholders or customers, if he spends the money in a different way than they would have spent it.

One of the commenters noted that Friedman's argument meant that if a company is dumping waste into the stream, polluting it and killing the fish, it has a moral obligation to keep doing so. He's right, within certain parameters. If there was no chance that the company would be fined, would receive bad PR, or otherwise have negative financial consequences, then yes, they should continue dumping in the river, according to Friedman. There are still some countries where this is the case, but that number shrinks every year.

If a company was not created on the basis of maximizing return to investors, but had instead a different commitment, such as Smith and Hawken or REI, where investors know at the outset that social and environmental concerns will be built into company operations, then that company has a different contract with its shareholders, and there's no chance of social efforts causing a breach of contract with the investing community.

But times are changing. Investors are expecting less in the way of "bad behavior" by corporations, and most no longer want to see negative articles about sweatshop labor, bribery and extortion in the companies they love. As the requirements of the shareholders change, then the company must change to stay in line with investor expectations. Some companies, such as GE with their "Ecomagination" initiative, have used CSR as a way of staying ahead of changing shareholder requirements, but they end up having to sell their efforts to shareholders by describing long term capital returns on CSR.

you almost feel sorry for Henry Paulson....

In one speech yesterday, Hank Paulson talks about how Americans have come to expect the Federal Reserve to step in to avert a crisis, but then complains that the Fed does not have the clear statutory authority to do this. To resolve this gap, he's requesting that we give Federal Reserve the authority to access necessary information from complex financial institutions - whether it is a commercial bank, an investment bank, a hedge fund, or another type of financial institution - and the tools to intervene to mitigate systemic risk in advance of a crisis. Why is this only coming to light now? Why was he not demanding such reform months ago, if it's really the right way forward?

Okay, so Henry thinks we need to be able to bail out financial institutions, and the Fed needs more transparency in order to do that right. Now that financial risk is hitting panic level, he wants the Fed to be able to access data in financial institutions, so the Fed can step in to avert a crisis. But in the next breath, he says that financial institutions must be allowed to fail. Is it any wonder the market's having trouble reading his signals?

However, when financial institutions are protected from the negative impacts of risk, that will only encourage further risky behavior. Charles Schumer, chair of the Senate banking committee, said: "Fannie Mae and Freddie Mac are too important to go under. If they need additional support, Congress will act quickly."

The Bush administration needs to show some leadership in this issue, as there is a need for swift action, and that requires everyone at least pointing in the same direction....

Strategic adaptive planning in the US military, or "a study in banging one's head against the wall"

When I was a child, I received a piano as a gift from an elderly neighbor. I was excited to begin playing, but my mother told me she wouldn't pay for lessons until I demonstrated a commitment to the piano by playing it regularly. But every time I sat down to try to play, she would tell me to stop pointlessly plinking on the piano.

This comes to mind when I reflect on the state of our military today. Many critical business processes, from strategic planning to project management, have come from the Department of Defense. However, when business adopts a military practice, it gets changed and morphed to meet business objectives, and before long becomes an iterative, adaptive process. Meanwhile, the military languishes with processes that don't adapt to new realities.

Paul Masson gave a great illustration of this issue with Col. Ed Hatch of the USAF.

A few decades ago, the US' only enemy, for the most part, was the Soviet Union. In much the same way that corporations could make twenty year strategic plans, because their markets weren't expected to change much, the military historically takes 18-24 months to develop contingency plans, which then sit on a shelf and don't change when conditions change. This made sense before the proliferation of nuclear weapons in the hands of tiny despots all over the world. After spending so much time developing contingency plans, if there was a crisis, the contingency plan wasn't implemented, but a whole new crisis plan was planned and executed, as the contingency plan was too far out of date to be useful. Not only is the process too long, but the strategic plans across governmental and military units were never coordinated, causing tremendous confusion, inefficiency and conflict. How do you manage strategic planning across 4 armed forces and a NATO alliance?

The military is addressing this problem by transitioning to what they term an Adaptive Planning and Execution System (APEX). This system would create continuous, living plans, rather than fixed contingency plans, augmented with crisis plans.

So today, a national security strategy is developed with each new administration. (This replaces the simpler defense plans of decades past.) From that is developed a national military strategy. The national military strategy needs to be translated down to 69 individual strategic plans for different sectors of the military. Sectors can be geographical, such as Europe or South America, or functional, such as transportation and joint forces, and of course, four are the Army, Navy, Air Force and Marines -- who have all the money and power and ability to get things done.

It's funny, having worked exclusively in the private sector, some things that seem obvious to me are brand new concepts to the military. In talking to Paul, he was concerned about the fact that they hadn't developed risk management and disaster recovery into their strategic planning. When I told him that those aren't strategic issues, per se, but operational control issues, he said that such delineation never takes place in the military, and if it's not in the plan it's not going to get addressed. Wow. They have a long way to go. It's great that portions of the military are reaching out to the private sector, trying to figure out what they can learn, and how they can perform adaptive planning better.

But they have barriers I could never imagine. When they start to implement a new idea, and begin working through the initial plan, a defense contractor will try to get the partially developed plan, take it up the chain of command, have it decreed ineffective and incomplete, and get it shut down. Defense contractors look at outreach to the private sector as a threat to their livelihood, and will do whatever they can to either control it or kill it. Col. Hatch spoke of situations where he's had to bury a contract, so that defense contractors wouldn't find out about it. One defense contractor found out about it, and secretly bought up all the IP, so the project couldn't move forward without the defense contractor. This happens ALL the time. Whenever they identify a solution in the private sector, a defense contractor tries to shut down the innovation. While Col. Hatch likes working with private industry, who don't have skin in the game, or a vested interest in a particular solution, defense contractors are not impartial. Defense contractors think anyone in private industry DOES have skin in the game, because private industry doesn't guarantee that money is going to the defense contractor.

Efforts to modernize the military's strategic planning are continuing, but the barriers are almost unfathomably huge.

I never did get piano lessons, and my folks eventually sold the instrument -- no one had ever learned to play it. I hope things work out better for our military.

fear and loathing in business ethics

When I presented at the PMI Global Congress in Malta about Corporate Social Responsibility, an American from a large insurance firm posed a question.

"I like your ideas about integrating CSR into corporate strategy, and evaluating projects not just for risks to schedule and costs, but also looking at ethical and social risks. I want to take these ideas back to my company and implement them. But what happens if I talk to my boss, and he doesn't like the idea? What then?"

"Well," I said, "Ultimately you need to determine where your priorities are. If you think this is a good idea for your firm, and will ultimately change how your company does business for the better, as well as preserve its reputation, it may be in your best interest to talk to others within the company, to circulate the ideas and see if they can get traction."

He laughed. "I need your business card! If I do that and lose my job, I'M CALLING YOU!"

It's sad when people are afraid to speak up, especially when what they have to share isn't bad news about their project or budget, but rather a good idea on how they can make their company better. But more than sad, it represents a risk to the company's ethical culture.

Marianne Jennings of the Makkula Center of Applied Ethics believes that to front-line employees, the line between right and wrong is very bright. Something happens to people as they climb up through management. The bright line seems to fade. The challenge is getting information about ethical breeches from the front line up to the right people who will take action. Too often, fear and silence thwart those efforts.

Are these fears unfounded?

According to the journal Strategic Finance ,

Based on the total failure of whistleblowers to obtain protection from discrimination under the provisions of SOX Section 806, perhaps employees still have good reason to fear retaliation. Of the nearly 1,000 complaints filed under SOX 806 in the five years since its enactment, not one person has survived the appeal process and won his/her case.

I guess not.

The problem with the triple bottom line: Corporate Social Responsibility reporting

In the world of CSR and business ethics, "triple bottom line" is the idea that a company should measure their success not just financially, but on three axis -- financial, social and environmental.

The truth is, there is no quantitative measure -- no way to evaluate what my "triple bottom line" is. Even the concept of the "triple bottom line" is deceiving. It implies that social and environmental results can actually have a bottom line, a measure that a company can evaluate themselves and others against. I'm sure that using that term helps some executives get through the feeling that CSR activities are only warm and fuzzy, with no real end result for the corporation.

This article from Business Ethics gets to the core of the issue.

So we might reasonably ask of firms like The Body Shop, or British Telecom, or Dow Chemical – all companies that have claimed to believe in the 3BL – what their social bottom line actually was last year. But just posing this question conjures up visions of Douglas Adams’s comic tour de force, The Hitchhiker’s Guide to the Galaxy, in which the greatest of all computers is asked to come up with an answer to “the great question of Life, the Universe and Everything”. That answer, which takes seven-and-a-half million years to calculate, is “42”. At least part of the charm in this Hitchhiker shtick is that “42” seems wrong not because it arrives at the wrong number, but because it is ridiculous to think that the answer to such a question could be expressed numerically or even just with one word (especially a dangling adjective – 42 what?).

The paper further poses that if I make a promise and keep it, I am seen as ethical. But if I make ten promises and keep them, I am not seen as more ethical than when I only made and kept one promise. Flattening multidimensional ethical issues for the purpose of measuring is bound to create some errors.

But I disagree with the paper in his conclusion that there's no point in trying. Is the jargon of "triple bottom line" misleading? Absolutely! Is the current state for measuring a company's commitment and effectiveness in this area defective? Absolutely! Has the concept of Corporate Social Responsibility been hijacked by PR departments who only address CSR issues as part of a marketing portfolio? You know the answer -- Absolutely!

The idea of the triple bottom line has significant potential. It took generations for us to develop effective and thorough financial reporting rules and guidelines, and they are still being undermined by creative accountants. We've only just started incorporating social and environmental ideals into corporate performance -- it will take several years before the first rudimentary reporting standards begin to emerge. I have no doubt that our largest audit firms are energetically exploring this new market opportunity.... = )

How do you measure corporate social responsibility?

No one really knows yet how to measure corporate social responsibility.

Every month, a new report is issued which lists the most socially responsible companies. McDonalds is listed as one of the top companies, due to their work in the environment. (What about the fact that their very existence causes obesity?) Wal*Mart is listed in another as well, due to their focus on zero waste. (What about their low wages?)

The dichotomy is inescapable. Every company is good in some ways, bad in others. So in my CSR report, I highlight the areas we've improved, and where we might be doing better than our competitors. This year I talk about labor relations in Nigeria, next year I talk about labor improvements in Ghana. Does that mean conditions in Nigeria are the same, or is Nigeria's absence from the report indicative of the fact that there's something to hide?

How can an independent party ever hope to evaluate whether a company is "good" or "bad?" And is there even such a concept? You know how in the US legal system, if a person commits a crime, he can be let off the hook because he is criminally insane, or incapable of determining right from wrong. Corporations are criminally insane. You can't think of a corporation as good or bad, right or wrong, because the corporation isn't a human, with the ability to discern the difference. So okay, the corporations aren't good or bad, but the leaders are. Well, that doesn't make sense either.

If a government wants to change the way a company does business, to make all companies "good" companies, it would change the current rules. Without laws in place that determine what every company has to follow, the least socially responsible will have the greatest competitive advantage. In 1993, Levi Strauss phased out production in China because of concerns about its human rights record. In 1998, they reversed their policy, as they were losing out in the competitive game.

Don't get me wrong. I'm thrilled when I see a company out in front of an issue, as they can guide legislation. I just don't think that CSR alone is the whole answer. Yes, it's easier to lobby a company for change than to drive change through our political system. But we don't accept workarounds in our professional life -- isn't this more important?