Gary Bender Adds His Thoughts On This Post: Business ‘Ethics’ Wrong Focus – Really?

Gary Bender is a friend of mine and more than that, he is well read and thinks. So I enjoyed his comment and share it with you.

Gary Bender writes –

Mr. DiLorenzo writes “Dishonest business people will be punished financially as customers cater to their competitors while suppliers refuse to do business with them. In cases of negligence, such as the BP oil spill, chief executives often lose their jobs, the company is sued, and the firm’s stock price plummets, as was in fact the case with BP. Such market feedback mechanisms do not guarantee ethical behavior, but they do reward it with customer loyalty – and profits. No such feedback mechanism exists in government, which is where much larger ethical problems exist.”

This is the usual nonsense we hear from the teabaggers and other blame-the-Democrats-I-mean-government right-wingers.

No, customers are not watchdogs. They buy for complex reasons that have little to do with the ethics of merchants. Likewise, suppliers sell to anyone.

As far as malfeasance, BP will continue to make huge profits long after the gulf spill is forgotten. Sure, a few people will lose their jobs, probably fewer than lost their lives in the explosion, and stock prices will rebound. Those who are intelligent enough to invest for the longterm will barely notice the stock dip.

It is in government where the people do have a feedback mechanism – their votes. Unfortunately, in the American two-party system, greedy capitalist are able to have more influence on government than the voters. Mr. DiLorenzo is one of those who would like to see more corporate influence on government. I believe that Benito Mussolini called the marriage of government and corporations fascism.

To suggest that capitalism and government are disjoint in America is disingenuous. To suggest that greed in capitalism is of no concern is downright evil.

Citizens United v. Federal Election Commission

I have been giving this Supreme Court decision some thought. Those of you with a legal bent will recall that this case ruled that corporations can give unlimited sums of money to political organizations seeking to influence elections. The court essentially recognizes corporations as persons under the law.

Is that a different animal than the previous creature? I mean if a corporation is more like a person than a contract, does it have citizen like responsibilities? Does it have a character, an ethos? … beyond earning money?

If a corporation is not a mutual agreement, a contract, between a number of individuals but an entity with rights, what does that imply?

It would seem to suggest that corporations are business and political organizations. What I mean to say is, this decision ratifies the idea of a corporation as essentially a small political party. Now, that may appear on its face to be no big deal. But let’s look more closely. Let’s say that a large corporation has 30,000 members counting stockholders and employees. There are many, many corporations with far larger numbers. Nevertheless, let’s use this as our example. The company has yearly profits of a little more than one billion dollars, again not particularly large considering the number and profitability of modern companies.

Thirty thousand members is not a large group compared to Democrats or Republicans or even Libertarians. However the Republicans and Democrats and other interest groups managed to spend about three and one-half billion dollars in the last election cycle’s presidential race. Our hypothetical company can play a major role in the presidential election with only a relatively small contribution of effort. If the company devoted 200 million dollars to the election they could have a major effect on the outcome. But what about the primaries? Well, let’s consider the Iowa primaries, a single state but often a make or break state for presidential candidates earlier on. What if our hypothetical company throws in a mere 20 million dollars to dispose of one candidate in a horse race of seven? How likely is that to be successful, particularly when the numbers are close in the first place?

Citizens United took corporations from a very significant though limited role in American politics and essentially created hundreds of small political parties unified under central leaderships with powerful legislative needs and freed them to use virtually unlimited funds to gain those ends.

I argue that some corporations will take on dual role, not just to make money but to forward pro business ideologies as well as traditional business needs and desires. Would shareholders be willing to tolerate a loss in profit during one quarter of a year every two years? And what if the company was able to prove that by its political advocacy it had made a return on the money of 50 or 100 percent?

Could you form an oil company or a manufacturing company whose sole purpose is to turn money into political power? Would there be people interested in doing this?

They would be investing in a political movement. Look at their advantages. Their money in the form of public shares would always be available. They could get it back provided the company was profitable. Yet, the continued investment in political action could get a far higher return than regular campaign contributions especially considering the unified leadership of a CEO and the other corporate officers who we may assume will have considerable political experience.

We might very well have a de facto multiparty state with all that that implies.

James Pilant

Business Ethics NEWS – Governor Rick Perry Has Accumulated A Cool Million During Twenty Years Of Government Service?!

How do you do that? I guess you could be really clever. Or you could take some ethical shortcuts. I remember reading Milton Friedman, he says you are supposed to make the maximum profit for shareholders within the rules of the game. Now, I find ole Miltie utterly contemptible. However, that phrase “within the rules of the game” has always troubled me. What does that mean? Here is a situation in which the rules appear to be very flexible. What’s more – How vigorously can you fight or maintain the public interest with such “close” friends?

The Houston Chronicle suggests it might be like thisDuring two decades of full-time government service, Gov. Rick Perry has accumulated a net worth of about $1 million – perhaps through good investment timing.

However, almost everyone who steered Perry to his money-making deals has seen rewards from Texas government.

Six received key state government appointments or jobs. Two benefited from government actions that had the potential to enhance their real estate holdings. Another was poised to get a state grant for his business until the deal fell through.

The bottom line is, all of the real estate deals that made Perry money occurred because of an insider’s tip. The profits mostly go into a blind trust outside of public view or scrutiny.

“Every transaction I have been involved in has been at arms length, has been transparent and it has been reported on so many cotton-picking times that, if there was something there, it would have been reported on,” Perry said recently.

Southern Methodist University political scientist Cal Jillson said Perry’s real estate deals remind him of the story of Texas oilman Sid Richardson hiring future governor John Connally as a lawyer. Richardson told Connally his salary would not be big, but “I’ll put you in the way to make some money.”


A Brief Comic Strip Explaining CDO’s And How The Banks Use Them

Go to this web site.

Banks Created Fake Demand To Keep Home Sales Going

Back in 2006, when the housing market began to slow banks began to have difficulty moving their CDO’s (collateralized Debt Obligations). So, they created an artificial demand by selling them to each other.

Tens of billions of dollars in deals were exchanged between the banks. The CDO’s were becoming increasingly risky as solid mortgage investments disappeared. But the banks had strong influence over the managers who created the CDO’s and how couldn’t they? A billion dollar CDO made the manager a millionaire off that once transaction.

Without these deals keeping demand high and luring new investors into the game, the housing market would have slowed much earlier with much less damage.

Investment firms like Merrill Lynch cultivated the CDO managers –

As the head of Merrill’s CDO business, Ricciardi also wooed managers with golf outings and dinners. One Merrill executive summed up the overall arrangement: “I’m going to make you rich. You just have to be my bitch.”

The mortgage debts varied in risk, so the banks kept the top 80% and marketed the high risk bottom 20%. But bizarrely, the banks bought each others CDO’s. That’s right, the bottom 20%. But remember, a one billion dollar deal results in five to ten million in fees. That’s a lot of incentive to make bad deals. Bad for your bank but very, very good for you.

The banks were so successful in creating this artificial demand that in 2006, the amount being traded doubled in spite of the cooling real estate market reaching a value of 226 billion dollars.

These were the kind of toxic assets the banks were holding. The banking industry would have you believe that home buyers got in over their heads looking for easy loans. How does that figure when the banks are buying each others’ mortgage investments? How does that work when the banks are creating artificial demand?

And you know the end of the story, how the federal government used tax money to buy those toxic investments which the banks bought from each other knowing they were toxic investment. Do you feel good?

This is isn’t about overenthusiastic home buyers, this New Depression is the result of financial mismanagement and naked greed.

James Pilant

Protestant Business Ethics


Like the Catholic Church, the Protestant denominations were torn by controversies over the economic and social changes brought on by industrialization during the latter part of the 19th century. There were two approaches to this. One was the Social Gospel. The other was a focus on religious matters and neutrality toward economic issues.

Mainline Protestant churches like the Methodists, Lutherans, and to a lesser extent the Episcopalians chose the Social Gospel. The Southern Baptists chose neutrality.

The Social Gospel is based on the belief that for Christ to arrive on earth, humans must prepare the planet by moving the world toward righteousness.

The movement begins slowly in the 1870’s and builds up influence until by the 1910’s, it is a major force on the American political scene.

Today, the mainline Protestant Churches meet regularly and reaffirm their belief in the importance of economic justice.

The Principles of the United Methodist Church

Methodists have a long history of social activism being one of the first churches to advocate women’s rights, oppose the slave trade and advocate for humane conditions in American jails prisons.

The Church adopted its first social creed in 1908. I quote in full

We deem it the duty of all Christian people to concern themselves directly with certain practical industrial problems. To us it seems that the churches must stand ¡ª

For equal rights and complete justice for all men in all stations of life.

For the right of all men to the opportunity for self-maintenance, a right ever to be wisely and strongly safeguarded against encroachments of every kind.

For the right of workers to some protection against the hardships often resulting from the swift crises of industrial change.

For the principle of conciliation and arbitration in industrial dissensions.

For the protection of the worker from dangerous machinery, occupational disease, injuries and mortality.

For the abolition of child labor.

For such regulation of the conditions of toil for women as shall safeguard the physical and moral health of the community.

For the suppression of the “sweating system.”

For the gradual and reasonable reduction of the hours of labor to the lowest practicable point, and for that degree of leisure for all which is a condition of the highest human life.

For a release from employment one day in seven.

For a living wage as a minimum in every industry, and for the highest wage that each industry can afford.

For the most equitable division of the products of industry that can ultimately be devised.

For suitable provision for the old age of the workers and for those incapacitated by injury.

For the abatement of poverty.

To the toilers of America and to those who by organized effort are seeking to lift the crushing burdens of the poor, and to reduce the hardships and uphold the dignity of labor, this Council sends the greeting of human brotherhood and the pledge of sympathy and of help in a cause which belongs to all who follow Christ.
The current Methodist approach to Business Ethics is encapsulated in their “Social Principles of the United Methodist Church 2009 – 2012.” These principles are revised every four years. This document is divided into seven sections. Although Section IV entitled “The Economic Community” deals directly with business ethics, many other sections are directly relevant.

Section IV is in 10 sections:
1. Property
2. Collective Bargaining
3. Work and Leisure
4. Consumption
5. Poverty
6. Foreign Workers
7. Gambling
8. Family Farms
9. Corporate Responsibility
10. Trade and Investment

The Property section advocates ownership of property although with limitations for the public good. In essence, all ownership of property is a responsibility to God.

The Collective Bargaining section supports the right of workers to organize unions and for bargaining between management and unions to take place in an atmosphere of fair dealing devoid of violence or worker replacement. It also calls for innovative changes such as representatives of the public interest.

The Work and Leisure Section calls for a “living wage.” There are a number of definitions of the phrase, living wage. A simple one would be “a salary large enough so that a worker could afford the basic amenities of life: food, housing, etc, while also providing enough resources for meaningful leisure time. This is of course a gross simplification of a difficult concept. There is also a call for government intervention for full employment. However, the most important words from this section are the following:

“We believe that persons come before profit. We deplore the selfish spirit that often pervades our economic life.”

This quote is indicative of a mind set that disputes the idea that money is the measure of all things, a rejection of the moral minimum and a call to act without always being focused on self interest.

The section on consumption advocates the manufacture of useful goods without damaging the environment or using slave labor in its production.

The section on poverty calls for a fairer distribution of the world’s resources. To quote:

“As a church, we are called to support the poor and challenge the rich.”

The section on Foreign Workers calls for limitations on the exploitation of these workers and advocates that they receive the same benefits and privileges of citizen workers.

The seventh section concerns Gambling. The Methodist Church is against it.

The eighth section is about Family Farms. This actually covers a much wider area. The Church opposes the concentration of farming resources into the hands of transnational corporations. They believe that the family farm has an enduring value and deserves state action in its support.

The ninth section concerns itself with Corporate Responsibility. This is the first paragraph.

Corporations are responsible not only to their stockholders, but also to other stakeholders: their workers, suppliers, vendors, customers, the communities in which they do business, and for the earth, which supports them. We support the public’s right to know what impact corporations have in these various arenas, so that people can make informed choices about which corporations to support.

The last section deals with International Trade. It affirms a belief in the importance of such trade but calls for safeguards for human dignity and the environment.

James Pilant

Newspaper Columnists – Business Ethics Roundup 8/24/2010

David Moon at Knoxvillebiz decries reliance on the federal government. He is particularly incensed by the money provided to Fannie Mae and Freddie Mac, (Mortgage giants). I disagree with his position but I agree this whole bailout business has been a boon to the banks and little has been asked in return. I worry about the mortgage holders, not the villains who preyed on them like deranged vultures.

Edward Lotterman at TwinCities.com explains the difference between cyclical and structural problems in the economy. He explains that the problems besetting us are structural and take a long time to sort out. Lotterman is excellent teacher of economics. If you follow his columns you will pick up the jargon and understand the key terms.

Tell me I’m awesome every day — I’ll pay you. is the intriguing name of Jay Hancock’s current column. It seems there is a company that will call you up once a day for a month for $10 and tell you how awesome you are. I will now quote the quote Mr. Hancock uses from the company’s advertisement (Do you suppose I will ever get the opportunity to quote the quote from another quote?) –

With AwesomenessReminders, a real person will call you every day to tell you how much you rock. If you’re not around, we will leave you a voicemail. Our founder, Zack Burt, has studied psychology in-depth at the university level and found that social reinforcement is critical to maintaining our “frames”, also known as our “point of view”. Getting positive social feedback, via a daily reminder call, is instrumental to progress. Experts agree. This study from Wake Forest University also shows that social feedback has clear effects on self-esteem, even if individuals claim that they are unaffected by social feedback.

Keith Chrostowski from the Kansas City Star quotes Milton Friedman, “The social responsibility of business is to increase profits.” (This, of course, is a magnificent philosophy if the destruction of your nation is your intent.) Chrostowski is urging the formation of “B” corporations. This kind of corporation is designed to make a profit and do good, socially useful good. This turns Mr. Friedman’s insane prediliction for Utopian abstractions on its head. There is a web site where the “B” corporation idea is being pushed. You might give it a look.

Jon Talton in his column, Sound Economy, writes about the demise of “Shareholder Nation.” This was the idea that the great majority of Americans would realize the sound investment qualities of the stock market and invest their money. These Americans were taken to the cleaners in the last two years and are fleeing the stock market and its pseudo security. The idea of shareholder nation has fallen victim to the cold, naked greed and incompetence of our banking class.

Loren Steffy, writing for the Houston Chronicle, explains the game that British Petroleum is playing with those injured by its gross incompetence. It seems that if you accept payment now before you have any real concept of the continuing damage you sign away your right to sue. If you refrain from accepting the settlement offer, you face years of litigation. It is difficult to find any column by Steffy to be anything but a good read, very consistent high quality.

It is difficult decision for me to make, but I have decided to talk about the government response to the spill and here is my opinion.

The federal government’s response to the catastrophe in the gulf was ill conceived, strongly favorable to BP, a failure of leadership and grossly incompetent. The government failed in its most basic responsibility to protect its citizens and threw its lot in with the perpetrators of a vast economic disaster. It is difficult to conceive of any possible decision making worse than what the government has done. It calls into question the basic competence of the current administration.

An Introduction To Business Ethics

This is my thoroughly acerbic intro to my business ethics class.

Business Ethics is the study of what is right or wrong in the world of business. We are going to explore your views of ethics. While you will learn about many ethical systems, the emphasis of the class is upon your ethical development.
It is possible that you live in a moral vacuum. You could have no beliefs whatever as to what should or should not be done. However, this possibility is so rare as to be almost impossible.

More likely is that you have been influenced by society and have accepted the viewpoints of those around you. You float in a sea of belief systems absorbing what is “normal” and usually what is comfortable.

Some, a good number, have been educated into a moral system. The most common system would be that of a religion although other systems of ethics which can be found in organizations as diverse as political parties, charities, and organizations such as Ala-non. These other systems vary dramatically in the depth and importance of ethics in them.
The few remaining individuals will have actively considered what is right or wrong. Some have reflected on these issues a great deal; others less.

The intent of this course is that you actively consider your ethics as they relate to issues in business.
You move from moral vacuum, society’s choices, religious systems, organizational beliefs and your own reflections to a highly active consideration of ethical choices.

There is no rejection here of any system of ethics. It is quite likely that individuals will find in our attempt at developing a moral framework a ratification of their previous beliefs. It is likely that the strongest choice for many will be a religious system and those that have worked to develop their own judgment will usually find their search to have been significant.

Hopefully, all students in the class will develop their system of ethics in some sense. However, if a student begins the class with a system of ethics or an absence of such a system and finishes with no change, which will have no effect on the grade received.

What we will study

We will begin by exploring religious codes of ethics. Many religions, in particular Protestant and Catholic Christianity, Judaism and Islam have created sets of rules that apply directly to morality in the business context.

From there we will journey through the often confusing field of philosophy. We will discuss the impact of the major schools of thought on business ethics.

We will look at legal obligations of duty, fair dealing and care.

After this comes current thought, in particular American philosophies of business ethics.

We then investigate the issues of crime and ethical issues concerning business. A focus on particular moral issues concerning individual business fields like accounting.

Ethics programs and their implementation are next followed by human rights concerns and the last chapter concerns social responsibility.

Business ethics is a relevant and vital subject, but this field of ethics had been full of difficulty.

Business involves large sums of money, interactions between humans at different levels of power, interactions between one business and others, and interactions between business and government.

Some businesses have stolen incredible amounts of money, caused or contributed to the death of millions of people, damaged the fabric of the world economy, colluded with other businesses to set prices or drive other businesses out of existence, bribed government officials, evaded taxes and by giving an impression of constant criminality and dishonesty damaged the social fabric of many nations and poisoned their relationships with other countries.
Business ethics has been taught in the United States for about forty years. It has been a disaster. Corporate scandals so huge as to threaten the world’s financial systems have occurred several times. The more mundane corporate crimes ranging from tax evasion to the participation in causing injury and death are so commonplace they require little discussion.

Most of the individuals in these crimes were educated in business schools with business degrees probably the most common, the MBA. They had business ethics as a course. The fruit of that teaching is evident. There is no fruit. There is no positive result.

It can be claimed that business ethics has had some immeasurable effect that cannot be calculated. If that is a justification for having this course why don’t we teach a wide variety of other classes that might be effective. Is that how a business school is to be run: in the hope of a course being useful? Perhaps we should seek business success with Ouija boards, séances, and voodoo curses?

If we admit that current business ethical teaching is a failure. What can be done?

First, let’s have a look at our current textbooks. They contain many fascinating elements. First there are thought problems at regular intervals. A student is told in this thought problem that he is in position of having dire financial problems and at the same time he is confronted with an ethical problem involving a superior. If he does the morally correct thing, it could result in dismissal and the end of a career. If he does the wrong thing, he will keep his job and the risks are quite low that he will be caught. The student will of course give the proper response to the teacher. But he has already digested the principal lesson of the example. Don’t make waves. Don’t risk your career. When you get out into the real world you are going to have real financial pressure and if you lose your job, there will be consequences for the rest of your life.

How about that section on ethical systems, a vital part of the text? After all most of us attempt to work out our problems through with ethics code we already have and this is usually one common in our society. In most textbooks, there will be several pages perhaps even a large part of a chapter explaining the base elements of philosophy. This is so the eager business student has a good grasp on normative as opposed to descriptive ethics. You see that normative ethics is a system in which you try to figure out what is right or wrong. Descriptive ethics involves studying the current systems of belief or lack thereof. You see if we taught what was right or wrong we might offer students moral choices. But we give it a quick pass and offer students the choice of doing whatever is being done now, a convenient way of avoiding any moral choices at all. You see telling students what is right or wrong means forcing our ideas on them rather than allowing them the total freedom to act without any direction at all.

Then there comes the heart of the matter, a discussion of ethical systems that can range over as much as two to three pages. In one textbook which will remain nameless, Christianity is give two entire paragraphs, although there are reliable reports that a considerable number of Americans claim to live by its tenets. We then discuss utilitarianism and Kantian ethics. Occasionally to amuse myself at the beginning of the semester, I ask the class how many of them live by utilitarian ethics. After a long period of silence, I try out Kant and the categorical imperative. Would you believe that our students don’t seem to make any of their moral decisions based on this thought? They don’t even seem to know what these things are! But if you ask about that Christianity thing, the one with two paragraphs, many of them react. Then you will find several students who are trying to figure out what is right or wrong in their own minds developing their own philosophy. And last you will always find two or three students who believe that money is the only measure of morality in this world, a descriptive ethic.

Our intent here is to explore the world of business in view of the many ethical systems that deal directly with business moral issues and there are more than a few. We also intend to look at your own moral development over the course of your life span.

Most importantly we will learn to consider morality and ethics as an active endeavor. You don’t put judgment in the back of your head as to what is right or wrong, you think about it actively. You have to think about what is right before the issue comes up or many times you will simply not realize the moral implications of your actions. You have a world to win, fight for it.

James Alan Pilant

Corporate social responsibility (via Thinking Beyond Competition)

This is an excellent piece on corporate hypocrisy. I am impressed. This is clever and speaks volumes of the intelligence of the author. I think this article should be on the desk of every business ethics teaching in the U.S. Go give it a read!
Nice Work!

James Pilant

The October 2005 issue of Reason Magazine featured a fascinating debate on the subject of corporate social responsibility between John Mackey (the CEO of Whole Foods), Milton Friedman (the libertarian economist famous for the Free to Choose book and video series he created along with his wife Rose), and T. J. Rodgers, a Silicon Valley entrepreneur. (Here's the Wikipedia entry on corporate social responsibility). Both Mackey and Friedman make good … Read More

via Thinking Beyond Competition