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Business ethics

I attended a conference on business ethics today. Interesting experience. The world’s big investment houses, like the U.S. giant pension fund Calpers, are increasingly using their muscle to force firms to stop certain activities which they deem wrong – such as using child labour or wrecking the environment – and do more in other areas, such as cleaning up their accounting standards.

This is a big and growing area of business reporting and activity. I have mixed views about all this. On the one hand, I question some of the arguments used by folk to decry certain businesses as unethical, such as those which use child labour, for instance. If a shoe manufacturer hires 13-year-olds in Malaysia, for example, we rise up in horror. But the question that should be asked is, what else would these youngsters be doing if no such jobs existed? Would they be in school? In fact, when investors boycott firms which employ such youngsters, they may unwittingly be making life worse, not better.

Yet clearly, if people feel strongly about certain issues, such as preserving wetlands, avoiding pollution or boycotting the arms trade, for instance, there is nothing wrong at all in them using their economic power to do so. So long as they do not at the same time demand government coercion, one can have no complaints.

In fact, using the forces of the market to bring about outcomes which we favour is surely a good way for us gung-ho capitalists to show those often traditionally hostile to capitalism about how the market can be a force for good. A useful meme to spread, I’d have thought.

A lot of focus on corporate behaviour, of course, centres on how to avoid repeats of the collapse of firms like Enron and WorldCom. Avoiding fraud is, as several speakers at today’s conference suggested, incredibly difficult. What is clear, however, is that in today’s increasingly service-orientated economy, one of the most valuable things a firm has is its reputation. Reputations take a long time to build but can be destroyed in days. Take the collapse of accountancy giant Arthur Anderson, which fell soon after its involvement with Enron’s accounting scams was disclosed.

And this surely rams home another good meme from the libertarian side – if you want to pursue self interest and achieve wealth, then being ethical about it is not a luxury which only the rich can afford – it is a brute necessity.

Maybe we all need the occasional Enron event to remind us of that fact.

15 comments to Business ethics

  • You bring up a good point about the child labor. I’m not so sure about that itself, but I do know that people are outraged that people in other countries are only getting paid $1 or so per day and have to work 10 hours. The other side of that though is that an American buck there is worth a lot more then a 20-minute phone call! Everything is relative, although I think companies should be more socially inclined.

    I believe a better question to be asking is what are the work conditions like for them for those 10 hours?

  • Andy

    While I totally agree with what you say…the fact that CALPers is doing it makes me nervous, since Calpers is just an arm of the government (of the State of California). It is too easy for Calpers to get caught up in political correctness.

  • Jonathan

    This kind of behaviour is not actually new for CALPERS. As long as I’ve been in the workforce, 20+ years now, they have been throwing their weight around. At first it was to demand better corporate governance and accountability to shareholders, which was beneficial for the most part. Lately they seem to have gotten away from that and become infected by the politics of the far left-liberal dominated Cailfornia legislature and whatever its latest pet PC cause is. I don’t think that bodes well for the retirement benefits of the state employees it is meant to provide.

  • Johan

    I found the point you (Johnathan Pearce) made about ‘child labor’ very interesting. A new viewpoint for me, that’s for sure. And I also agree with Blaine about how much $1 is actually worth there (there being wherever they are working). I don’t know (or claim that I know) much about economics and/or business, but what I do know is that when State interferes with businesses, companies etc. you’re bound to have a pretty bad result. Whenever politics become the most important thing in a country or any part of life, that’s scary. Take Dixie Chicks for example. They are artists/singers and not politicians. They should do what they do best; entertain – not express any political opinion simply because they probably lack any adequate knowledge in that area.

    Hmm…a bit off-topic here…back to my original point; politics and business. Bad idea. I live in Sweden, trust me, I don’t see anything positive with it so far….

  • Lou Gots

    Please refresh my recollection: what do you Libertines hold regarding unlawful combinations in restraint of trade–“trusts”–and the governmental measures aimed at controllng them? For that is what these measures partake of. We have had a series of scandals in the U.S. in which “leaders” of a certain nameless ethnic group (said group having had an unfortunate historical record of being bought and sold by its leaders) have been accused of using threat of boycott to extort money in one form or another from large corporations. Doesn’t economic pressure motivated by other that economic concerns always corrupt the free market?

  • Snide

    ‘Libertines’? Don’t be a schmuck, Lou.

    Economic pressure (pressure pertaining to who attracts money from whom) and government pressure (which is really just the threat of violence in the final analysis) are not the same thing either in kind or in form or in means. If people organize boycotts for ‘political’ ends, unless that is backed by the threat of violence, it is still an economic matter. You can just ignore them or organize a counter BUYcott if you wish. Just because people use markets to do thing you (and probably I) do not like, that does not make it a ‘corruption’ of a market.

  • Larry

    “Avoiding fraud is, as several speakers at today’s conference suggested, incredibly difficult.” Oh my! This is a conference on business ethics? What on Earth could be so difficult about avoiding fraud? Do they do “fraud avoidance” conferences? Really smells bad to me. Mr. Conference Leader: All you have to do to avoid fraud is be scrupulously honest. There, is that so “incredibly difficult”?

  • Byron

    What on Earth could be so difficult about avoiding fraud?

    Some of the more complex financial instruments and arrangements can push the envelope, as Enron demonstrated. I think companies need to identify the reasons behind some of their more exotic financial structures – is it to hide excess liabilities from Wall St., or a creative solution to a financing problem? That answer should provide all the ethical guidance they need.

  • Ted Schuerzinger

    I would guess the reason it’s so difficult to avoid fraud is because you’ve got Big Government defining “fraud” and setting up extremely complex rules at the same time. Here in the States, the tax code runs to thousands of pages, if not tens of thousands. How can you possibly expect anybody to understand the $#@!$#@! thing? I remember several years ago, Boston libertarian radio host David Brudnoy called the IRS’ toll-free tax line on air trying to get an answer to a tax question asked by one of his callers. He was on the phone for a good 15 minutes, and nobody was able to help. And the question was a relatively straightforward one at that.

  • Liberty Belle

    Jonathan, I can assure you there are no shoe manufacturers hiring 13 year olds in Malaysia. You ask what “these youngsters” would be doing if they weren’t toiling away in the shoe factory. Would they be in school? Well, uh, yes, actually. Schooling is mandatory until age 17 and a very high proportion of them go on to university, either at home or in the UK or Australia. Almost all Malaysians are at least bi-lingual in Malay and fluent English. The Chinese and Indians are tri-lingual as a matter of course. Malaysia is a highly developed modern society, more first world than some declining first world countries I could name. They’re a prosperous, educated, hard working society with a very low crime rate. Please don’t confuse such a well run, affluent modern country with a pisspot like Indonesia, which is the country to which I think you intended to refer. Malaysia most resembles the country you can walk to over the Straits of Malacca Causeway: Singapore.

  • Johnathan Pearce

    Liberty Belle, thanks for the above point, I mentioned Malaysia as a purely theoretical example. Of course, that country has many fine features, which you mention.

    Larry, when I referred to the statements at the conference about fraud being very hard to prevent, I had in mind the kind of off-balance sheet scams employed by Enron executives and which are now quite common in parts of the modern financial markets. Ultimately, if we want to eradicate fraud, we need the mixture of harsh penalties for fraud, coupled with the Darwinian impact of harsh market forces blasting out firms which allow their accountants and finance directors to abuse investors’ trusts.

    Of course, we could try to abolish Original Sin, but that may take us some time……….

  • There was an NPR or BBC piece about children (in India, I think) organizing for higher wages rather than an end to child labor. A lot of them don’t have families to do even a sketchy job of supporting them.

    As for the difficulty of avoiding fraud, there are always going to be some tricky cases, since fraud has a lot to do with expectations, and language doesn’t have enough bandwidth to cover all the possibilities of the real world. Most transactions are pretty straightforward, but there are always going to be both honest and dishonest misunderstandings.

  • Byron

    Jonathan probably meant Vietnam. Last I heard, that’s where Nike has kids in shoe factories.


  • Larry

    Thank you, Jonathon. I think we agree. Scam =fraud. It wasn’t difficult for Enron to avoid fraud. They deliberately engaged in fraud. No matter how complex the $&^((%@$&(^# IRS Code, honesty and transparency go along way toward “fraud avoidance”.

  • Larry

    Arrrggghhh…*go a long way*