On the Reputational Capital of a Business Leader on a Societal Stage

Is it better that companies be publicly or privately held? Such a question is of such magnitude that glossy, simplistic answers should be eschewed. This is not to say that the answer is situational in nature. Rather, it is more likely that each comes with pluses and minuses from the perspective of an economic system as a whole. As business “leaders” give their advice, it is important to keep in mind whether any personal or institutional conflicts of interest exist and thus could warp the space itself of the advice. Yes, I am intimating Einstein’s theory of general relativity here. Rather than provide an answer without having studied the matter sufficiently, I will provide a way to look at the advice given by Jamie Dimon, CEO of JPMorgan Chase.

The full essay is at "Reputational Capital of a Business Leader."

On the Role of Business in a Societal or Global Catastrophe

While it is obvious that a business or industry can affect and be affected by its environment, such as by polluting a river and a hurricane, respectively, it is less well known that a business or an entire industry can cause or facilitate a societal or global crisis. Whereas polluting a river can be answered with government regulation, the very legitimacy (and thus ongoing operations) of a company or even an entire industry is arguably at risk in knowingly creating or significantly worsening a societal/global crisis. The latter role goes beyond the scope of government regulation and corporate social responsibility, although broadening or just enforcing anti-trust laws may be sufficient to deal with the lost legitimacy. That is to say, what I have in mind is another genre or type of problem.
For instance, Exxon funded its own scientific studies on the effects of the oil industry on the Earth’s climate as early as in the 1950s. Certainly by the 1970s, the company’s management knew that the ongoing release of CO2 into the atmosphere would cause severe climatic problems, and yet the company’s public-relations lied to the public that the company’s studies were not decisive. Given the industry’s clout/money with members of Congress and even presidents, the company could keep the government from legislating and regulating geared to an expected crisis. Exxon (and the entire industry) played a major role in causing global warming, which could result in the extinction of our species, not to mention reduce the production of food-stuffs and trigger mass-migrations and even wars such as over water-rights.
Business ethicists can be expected focus on the ethical principles violated lying and the related willingness to be a major contributor to a planetary crisis as regards habitability. In other words, what should Exxon have done? Scholars of business and societal culture focus on the incompatibility of corporate and societal cultural norms and values. Within that field of business and society, advocates of corporate social responsibility design company charitable programs oriented to specific societal problems, especially if the company had contributed to the ongoing (rather than crisis) problems. Operating a food bank for the poor is not like saving the planet, or our species. Political economists cover the legislative and regulatory capture by an industry and the resulting muted regulations. Systems theorists can explain how all of these parts work together—an entire system with a fatal flaw in its basic design and operation. The ability of business to cause or even greatly facilitate a societal or global crisis is perhaps so new in the twenty-first century that this sort of problem has not yet been studied.
In 2007-2008, mortgage producers and investment banks created sub-prime mortgages and made high-risk bonds based on the risky mortgages. Investment banks even sold insurance for holders of the bonds. The financial derivative and insurance markets became so large that when they collapsed, a financial crisis occurred. An industry had put the world’s financial system itself at risk of collapse. Financial regulation was not sufficient; a gigantic financial infusion from the Congress and the Federal Reserve was necessary. Unlike the banking crisis of 1907, more than a socially responsible J.P. Morgan would be needed. Society, through its government, had to step in both for the U.S. economy and the global economy. The crisis was that large. That the financial sector was culpable and yet could receive federal money without strings (so even bonuses could be paid!) suggests that the notion of a few large companies or an industry creating a major societal-level (e.g., the economy) crisis was new. Wall Street money as electoral campaign contributions doubtless played a role in the refusal of Congress and the U.S. president to break up the big banks, but the larger question of what to do when a business or industry creates a societal crisis rather than localized typical problems had not been considered in its own right.
To be sure, a government can enable a company to create a societal crisis. Take, for example, the public-health crisis during the coronavirus pandemic that began in 2020. In Phoenix, Arizona, the regional transit authority and the two subcontractor companies ignored local law requiring that masks be worn on the buses and light-rail. A significant proportion of bus drivers went maskless and/or allowed passengers to ride without wearing masks even when federal law required masks even of operators behind a plexiglass shield. A representative of TransDev, one of the subcontracting companies, said that the law didn’t matter because of the company’s policy, which permitted masks and presumably overrules federal regulations. A representative of Metro Valley, the regional authority, refused to enforce the federal regulation on the light rail as well as against the willful bus drivers (and passengers). A transit supervisor on the police force told me that the chief of police had told police employees not to enforce the federal regulation even though, according to the FBI, local law enforcement is regularly relied on to enforce federal law. “They are federal; we are state,” the police supervisor told me. He also told me that the governor had told the chief not to enforce the federal regulation. That federal money goes into the mass transit system in the Phoenix metropolitan area is apparently no reason to follow federal law on mass transit. One police employee told me that “bus drivers are state employees (which is false) so they are not bound by federal regulations. A second police patrol supervisor had told me that the only real law in Arizona is that which “goes through the state legislature.” All three men were not only sure that they could not be wrong, but were extremely rude and dismissive towards me. I concluded that Arizona is in need of federal oversight.
At the company level, TransDev has been knowingly misleading its bus drivers into thinking that they don’t have to wear a mask and that passengers need not either—in spite of the company’s own signs, “Per federal law, masks are required on the buses.” A representative from Metro Valley, the regional authority, told me to ignore the signs. This mentality within at least two organizations is itself a problem. In fact, with Arizona having the highest infection rate in the U.S. on at least November 3, 2021, the mentality and the resulting patchwork of masks on the local buses and light rail can be said to be a significant cause of the ongoing pandemic locally. At the very least, the positive correlation is troubling, though conveniently not to the governor, chief of police, regional transit authority, or TransDev company.  The brazenness alone is enough for informed minds to question the legitimacy of at least the local police department (which was being investigated by the FBI for having intimidated and stopped peaceful political protesters) and the TransDev company. The matter of the higher officials, including the governor, the mayor of Phoenix, and the city manager, is of course more political. I had spoken with the mayor’s office manager and had sent an email to the manager’s office (my request to speak with a managerial-level staffer resulted in a call from an intern). Besides the sheer willfulness, lack of respect for federal law, and ignorance all around, the culpability of a company (TransDev) in giving the ok for bus drivers and passengers to go maskless, and another company (Allied Security, backed up by Metro Valley) to allow security employees to go maskless and allow passengers to go maskless on the light rail when the state ranks highest in the pandemic-danger in the U.S. suggests that companies can create or severely worsen a crisis with impunity both within the companies themselves and in a corrupt and ignorant political culture. The question of legitimacy is in this case broader than just for a few companies.
Company managements are not always above lying to the public. The case of Boeing involves a management lying to its pilots, customers, and the public, resulting in preventable deaths, a significant decrease in the company’s reputational capital, and arguably even a societal-level crisis at an early stage regarding aviation. The company installed new software that could be influence by a sensor that could malfunction. Saving the company the cost of training the pilots, the company’s management did not inform those employees of the addition. The ethical dimension is pretty clear (consider Kant’s dicta about lying). What is less clear is the matter of a company being of such size in a market and the latter being so salient in society that the company can unilaterally cause a crisis at the societal level. Announcing a program in corporate social responsibility, such that helps children to keep up in school, wouldn’t suffice; the harm in a societal crisis is so much greater than are the societal problems to which CSR is geared. At the very least, the board and upper management could have been replaced by a law; the company’s response was to replace the CEO with the “Plan B” insider on the board. That is, playing a significant role in causing a societal crisis could justify the intervention of a government, rather than leaving it up to a company’s shareholders. Where the government is itself corrupt, such as in Arizona, the needed intervention can come from a federal government (e.g., U.S. and E.U.) or even other countries against both the government and the particular company involved. Corporate social responsibility and business ethics are geared to a lesser scale of harm. Causing a societal or global crisis does not reduce to unethical business and is not redressed by corporate social responsibility. Instead, society has more legitimacy to intervene and in a more drastic way, given the nature of a crisis.

Ethical Human Resources Management

Ethics applied to human resource management is typically thought to boil down to treating subordinates well. Kant’s categorical imperative, treat other rational beings not just as means, but also as ends in themselves, applies to this sense of ethical HR management. Specifically, human beings are not only cogs in a machine; they have lives outside of work that should not be expected to reduce to serving the interests of the employer. Another side of HR management also exists, however, that concerns the handling of unethical employees. Such handling can be ethical or unethical.

Front-line employees who deal with customers whether in person or at a call center are especially subject to customer complaints. The choices that such employees make on how to deal with customer complaints regarding themselves can be ethical or unethical. For instance, an employee who resists a customer’s request to speak to the employee’s supervisor acts unethically by exploiting the conflict of interest. The conflict lies in the employee putting his or her own vocational interest above the interests of the customer and even the company. Gate-keeping refers to an employee’s efforts in getting the customer to say why he or she wants to speak with a manager so if the reason reflects badly on the employee, he or she can lie about a supervisor being available or insist that the customer speak only to the employee about the issue. Such an employee is operating at a primitive level—that of self-preservation—rather than as a duty-bound agent of a principal (e.g., a company).

I contend that a company’s management that does not have adequate safeguards against such an exploitation of a conflict of interest operates unethically with respect to its human resources. Should a customer inform a supervisor of a specific employee who is exploiting the conflict of interest and yet the supervisor does not set negative consequences for the employee and notify middle-management that the company’s safeguards against such exploitation are not sufficient acts unethically too. Safeguards are possible beyond relying on individual customer complaints. The latter strategy is flawed because the complaints that actually reach a supervisor are reduced in conditions in which employees can get away with exploiting the conflict of interest. Put another way, a company is unethical in relying on individual complaints to willow out problematic employees as a safeguard because it is hampered by the exploitation itself. Interestingly, whereas exploitation of employees is a common refrain, an employee’s exploitation of customers is less commonly known.

Stronger safeguards are ethical where their efficacy cannot be compromised by an employee’s exploitation of customers. Concerning phone calls, for example, the greeting could include the following: “At any time while speaking with a representative of the company, you can press 5 should you like to report a problem you are having with the representative.” The call could go to a designated manager who acts as a safeguard. In a store, a designated desk could be identified as the place where customers can go if they have had a problem with an employee. Unlike a typically customer-service desk, the person taking the complaints should hold a rank higher than that of the entry-level employees. Unfortunately, entry-level employees may tend to cover for each other, and thus extend the conflict of interest rather than curtail it.

Internal audit departments could definitely add assessing weak as well as presumably strong safeguards. Calls to respective customer-service departments could be made, and verification could be applied not only to those calls, but also on real complaints. Problems may be difficult to detect. As a case in point, the customer service process used by the regional transit authority in Phoenix, Arizona begins with an employee in Metro Valley’s customer-service department. Complaints on bus drivers are sent to their respective supervisors, yet they are known to cover for their respective drivers rather than provide accountability. Also, drivers circumventing company policies, including those regarding the coronavirus pandemic, has also been a major problem. Bad driving, such as braking too hard, and, relatedly, driving fast to accrue enough time to take smoking breaks, have also been endemic and beyond the reach the process of accountability. Aggravating the matter of accountability, the driver-supervisors work for the sub-contracted bus-operating companies; at least one of which dismissed videos of bad braking in 2018. In short, the customer-service department’s process of handling complaints and feedback is grossly inadequate, given the behavior of enough drivers and their supervisors. An audit would ideally uncover the corruption and come up with a process that takes the problematic drivers and supervisors (i.e., the dysfunctional culture) into account. Accountability is indeed difficult in such organizations in which employees regularly flaunt company policies and the immediate supervisors enable such behavior by refusing to enforce the policies even where unsafe driving and passenger health are concerned.

The Hebrew Bible on Business Ethics

The early Hebrews considered wealth to be an integral part of human perfection and, moreover, what ought to be.[1] The ideal man was wealthy and leisured, and yet occupied with honorable work.[2] In the Torah, as long as the Hebrews as a people obey God, including dutifully acting as stewards rather than as selfish exploiters of the land that God has provided, poverty should be nonexistent in Israel. “There need be no poor people among you, for in the land the Lord your God is giving you to possess as your inheritance, he will richly bless you, if only you fully obey the Lord your God.”[3] Blessed wealth is a reward for fidelity to Yahweh, whereas poverty here is indicative of, or even punishment for, disobedience, which will evidently always be the case in Israel, for, “There will always be poor people in the land.”[4] The conditionality leaps off the page, as does the notion of collective justice, and yet wealthy individuals, including business practitioners, are held to account. The ethic of work is upheld even though labor in Genesis is due to original sin. 

The full essay is at "Ancient Judaism on Wealth."

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[1]. Charles R. Smith, The Bible Doctrine of Wealth and Work (London: Epworth Press, 1924), 21.

[2]. Smith, The Bible Doctrine, 22, 33-34.

[3]. Deut. 15:4-5.

[4]. Deut. 15:11.

Putin’s Pals: Billionaire Junkies

Arkady Rotenberg, a former judo coach, became a billionaire industrialist by selling pipe to the state-owned gas monopoly, Gazprom. Meanwhile, owning a minority state in a small bank in St. Petersburg that won control of another of Gazprom subsidiaries, Yuri Kovalchuk gained a net worth of $1.5 billion. Gennady Timchenko, “once the little-known sales manager of a local oil refinery,” went on to become one of the richest men in the world by co-owning “a commodity trading company that moves about $70 billion of crude oil a year, much of it through major contracts with Rosneft, the Russian national oil company.” What these billionaires shared besides getting rich was a certain connection—namely to Vladimir Putin.

                           Vladimir Putin arrives for a campaign rally in Moscow.  Agence France-Presse/Getty Images

The New York Times stated that “these relationships are evidence of deeply entrenched corruption.” Critics view the billionaires as examples of what was essentially government-sanctioned theft connected to Russia’s abundant natural resources. “The basic point is that these guys have benefited and made their fortunes through deals which involved state-controlled companies, which were operating under the direct control of government and the president,” said Vladimir Milov, a former deputy energy minister who turned into an opposition leader. For his part, Putin denied any role in enriching his friends into billionaires. He also denied involvement in their project to build him a “palace” on the Black Sea—a “sprawling resort complex” costing as much as $1 billion. Even so, Sergei Kolesnikov, one of Putin’s former associates from St. Petersburg, fled Russia with a trove of documents that support the contention that Putin was connected to the resort being built for him. Kolesnikov has also described other business dealings in which money had been funneled, often as loans, to businesses controlled by Putin’s friends or relatives.

According to the New York Times, the dealings between Putin and his acquaintances would likely come under even more scrutiny with the growth of the opposition and its increased pressure for governmental reforms. At the same time—just before the Russian presidential election in March 2012—the Western media was reporting that Putin was almost certain to win the election even in spite of the huge protests. Even though this could simply mean that conservatives across Russia greatly outnumber the protesters, I suspect that the election of a man amid such documented corruption says something more generally about the strength of accountability in a democracy.

Meanwhile in the U.S., The Huffington Post was running a headline saying that people who invest in SuperPacs for Mitt Romney could see their “investments” in him pay off handsomely. As the story went, a campaign contribution buys the ability to get the office-holder’s ear (or that of an aide). The examples of new wealth in Russia conveniently connected to Putin suggests that much more was involved in the return on investment. Neither Putin nor Romney seemed hurt by the (at the very least) unseemly mix of contributors or connections already having benefitted or expecting huge “dividends.” In Romney’s case, his close ties with Wall Street both personally and in business as well as political contributions did not seem to bother many people even though Wall Street had been culpable in the financial crisis of 2008. It is enough, it seems, to be a pretty boy with connections in the establishment; the lack of ideological substance, or vision, in a candidate-fixated electoral culture enables such candidates. Their support becomes a self-fulfilling prophesy, with well-connected backers in it with the expectation of a huge economic payoff.

The real culprit, I’m afraid, is neither Putin nor Romney. Rather, it may go back to the premise of John Adams and Thomas Jefferson that a viable republic depends on an educated and virtuous self-governing citizenry—that is to say, an electorate that is not easily manipulated or hoodwinked. How Putin could be poised to win even on the first round in spite of the corruption, and how the Republican Party establishment (rather than the rank and file) could manage the primaries with the Wall Street candidate being favored so soon after 2008 suggests to me that democracy is either weak or deeply flawed—conveniently tilted to the establishment rather than the people. Yet it could also be that too many voters, both Russian and American, vote as though the three blind men in the opening of James Bond’s Dr. No. I suspect the tilting toward the “men on top” dovetails with an enabling electorate, and this in turn provides a default wherein corruption is the norm. In other words, the corrupt are too ensconced—too comfortable as they know they are beyond being touched.

Beyond giving business ethics a bad name, the Putin billionaires, the Romney contributors from Wall Street reflect badly on democracy because they take advantage of its lapses in accountability. Ultimately, We the People could do much better were we to get off our sofas, turn off the remotes, and vote the bastards out and put in people who would go after the connections and bad businesses that have been enabled for far too long. This would undoubtedly take more than one election cycle of replacements before those in power get the message that maintaining the status quo is no longer sufficient. Yet even as I write these lines, I can feel the weight of the status quo bearing down on me. I can sense the herd-like mentality of the vast majority of the voters in any country continuing to chew the cud even if they do happen to hear bits and pieces on how established connections enrich themselves and even attack other people with impunity.

Source:

Andrew Kramer and David Herszenhorn, “Midas Touch in St. Petersburg: Friends of Putin GlowBrightly,” The New York Times, March 2, 2012.

Democracy Held Hostage: The Case of a Street Name

Claims of systemic racism can also be attacks on democracy itself. In fact, if overdone, such claims may themselves be racist. The situation would then be that of racists holding democracy ransom in the mistaken belief that the whole must be consistent with the interests of one of its parts to be legitimate; otherwise, the democratic principle of majority rule is itself presumed to be invalid. The case of the change of a street's name in Kansas City, Missouri, can serve as a case study.

On November 5, 2019, voters in Kansas City voted overwhelmingly (nearly 70%) in favor of restoring the name of a street to The Paseo (inspired in 1899 by Mexico City’s mayor, Paseo de la Reforma). A mere two months before the vote, the City Council had changed the street name to honor Martin Luther King, Jr, an American civil-rights leader in the turbulent 1960s. Members of the Save the Paseo movement said that their motive was historical preservation rather than racism. According to one member, the Paseo was “historical I people’s memory” rather than just on paper.[1] The members “were upset that the council [had] made the change without input from those who [lived] along the street.”[2] A city statute required such input, according to the members. The mayor admitted that the city had not engaged with “enough different community members.”[3] The key word here is different, for the campaign to change the street’s name to that of the civil-rights leader had been led by black pastors. So the city council made the change based on the advocacy of a segment of the population with a vested interest in the change, rather than reaching out to first ascertain whether the sort of unity that Martin King had preached could be achieved on the measure. In short, the council had put a part ahead of the whole.

For its part, the part, represented by Rev. Vernon Howard, president of the Southern Christian Leadership Conference of Greater Kansas City, claimed that racism was the main motive of the opposition to retaining the King name. “This is a white-led movement that is trying to dictate to black people in the black community who our heroes should be; who we honor; where we honor them and how we honor them,” Howard said. “This is the pathology of white privilege and that is the epitome of systemic structural racism,” he added.[4] In other words, the pathology of white privilege is the epitome of systemic structural racism. Had the reverend sought to provide a religious rather than a psychological account, he might have claimed that certain social structures are evil whereas others are sacred. A Unitarian minister in my hometown had once insisted to me that certain social structures (i.e., egalitarian systems) are sacred. I countered that a human claiming that a human artifact is divine constitutes self-idolatry.[5] He dismissed my counter-claim instantly, as if he presumed that he could not be wrong whereas I must be so. Had he also insisted that societal structures that contain inequality are pathological, I would have pointed to the over-reach of his religious basis onto psychology.

I submit that in dismissing the meaningfulness of The Paseo to people generally in Kansas City, Howard’s reductionism to racism is erroneous. Essentially, he was claiming that cases in which majority rule does not dovetail with his interpretation of black interests, the democratic principle itself is culpable as part of systemic structural racism and thus is pathological in nature. In other words, the particular interests of one segment of the whole must be consistent with the majority for the democratic principle of majority rule to be devoid of the stain of racism and thus valid.

Furthermore, in so closely relating “white privilege” to systemic racism, the reverend overlooked or dismissed outright the racism in the black community. On the morning following the vote, for example, I endured fifteen minutes of racist insults from a black woman on a local bus in Phoenix, Arizona. Her voice could be heard throughout the bus as she claimed that “whites are ugly when they age, whereas black people age good.” Furthermore, whites are red-necks whose “dominance will end someday.” As she declared herself to be a racist, I noticed that the driver, also a black women, was refusing to stop the woman. Such passive aggression can be considered tacit racism. That was not the only instance in which I had observed black racism on a Phoenix bus. Once a driver had decided not to intervene as a black woman shouted insults at a Caucasian man until the woman called the driver a racist for not having kicked the man off the bus! The reputation of the local bus drivers in the phoenix metro, including Tempe, was sordid in terms of their attitudes and bad in terms of their driving, and accountability at least regarding the latter was deliberately obstructed by First Trans, a sub-contractor of Valley Metro. The subcontractor was in denial concerning the role of its pathetic hiring of people with bad attitudes to drive the buses. Such a flawed system enabled black racism (as well as reckless driving, such as in going from 40 or 50 mph to zero in a turn lane). Put another way, systemic structural racism can be due to black privilege (and facilitated or enabled by a corrupt, incompetent organization).

The reverend’s partial account can be taken as confirmation of being a part within a whole not reflecting the whole or its interests. Holding majority rule subject to such a partial perspective is not in itself in the interests of a whole. In Kansas City, the municipal government followed a flawed process (of input) in changing the street to Martin Luther King Jr Blvd. Such a flaw is not racist even if the segment that benefitted from the flaw no longer benefits once the flaw has been corrected by the voters. In fact, for an electorate to correct its delegated government is laudable from a democratic standpoint, as the People, as the popular sovereign, is the basis of a republic. For that basis to somehow be held ransom by a part thereof undermines the foundation of democracy, whether direct or representative.

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[1] William Cummings, “Kansas City Voters Overwhelmingly Approve Mesure to Drop Martin Luther King Jr.’s Name from Street,” USA Today, November 6, 2019.

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] See the last chapter of my book, God’s Gold, for an elaboration on self-idolatry.

The U.S. Justice Department and Facebook: Secretly Mining Personal Information

Collusion between business and government has hardly been a rarity; the extent of secrecy regarding it , however, may be a surprise. Whereas business-government economic partnerships (as well as university-government partnerships) have typically been made public, the extent to which government uses businesses to get information on citizens has hardly been transparent. In spite of a U.S. federal law enacted in 2015, documents released in September of 2019 “show how far beyond Silicon Valley the practice extends—encompassing scores of banks, credit agencies, cellphone carriers and even universities.”[1] The documents, which cover 750 of the half-million subpoenas issued since 2001, reveal that more than 120 companies and other entities received subpoenas for information on customers, users, or students. F.B.I. could lawfully “scoop up a variety of information, including usernames, locations, IP addresses and records of purchases” without a judge’s approval.[2] A gag order keeps the businesses from divulging even the receipt of a subpoena. So much secrecy accompanying so much power is, I submit, dangerous to a republic. In fact, the subtle effects on citizens in the public square can easily be overlooked even if the negative impact on freedom is serious.

The documents reveal that the credit agencies received a large number of subpoenas, as did financial institutions like Bank of America. Universities including Kansas State University and cellular providers including AT&T and Verizon, as well as tech companies like Google and Facebook also received subpoenas. The public was kept in the dark, due to “several large loopholes” enabling the U.S. Justice Department to refuse even to review “a large swath” of gag orders.[3] Loopholes have been a common practice in legislation impacting business, given the power of large businesses or industries to influence lawmakers via large campaign contributions. I submit that the loopholes enabling secrecy on the subpoenas are even worse for a republic’s viability because of the extent of governmental power that is possible from mining private data on citizens. The potential uses—again in the dark—go well beyond reducing or preventing crime.

Political uses, for example, should not be discounted. Even as Facebook’s CEO, Mark Zuckerberg, was assuring users that they had control over what data is shared, the company’s COO had devised a business model that would substantially raise Facebook’s revenue by secretly allowing third-party “app” companies access to user data. The practice enabled Cambridge Analytic to influence users politically without the users’ knowledge. In the case of the F.B.I. subpoenas, partisans in governmental roles could conceivable gain access to the data through political pressure (e.g., from Congress or the White House).

Moreover, I submit that a government with a lot of information on citizens is totalitarian with respect to information, and such a near-totality can easily breed a totalitarian state in the sense of control over citizens. They in term could be expected to increasingly fear sharing personal data with businesses. In 2018, for instance, I tried out Facebook. After just weeks with an account, I was surprised when the company demanded that I send a photo in which my face is recognizable. I had read that the company had been working on facial recognition technology, and the explicit demand for a recognizable face seemed strange to me. I also knew that Facebook regularly shared user information with third-parties, whether business or governmental in nature. I had nothing to hide, but I did not like feeling invasiveness even in the demand itself. So I experimented by taking a picture on a public sidewalk of a poor person not likely to have an account. Facebook deleted my account without explanation. I would have deleted the account anyway rather than use a fake picture. I wanted to see whether Facebook would use its facial-recognition technology to assess the picture. Either the person whom I photographed had an account or Facebook already had access from an external entity (such as my web-site) of my face. Even just the use of secret software to assess the photo I had submitted struck me as excessive, and I would not have been surprised to discover that Facebook had access to more personal information that what I had shared on my account. Facebook itself could be said to be a private totalitarian state. Given the compromised ethics in the company’s brief history, I felt uncomfortable with Facebook having any of my personal information and, moreover, concluded that such a company with a totalitarian approach to information as a means at the very least of raising revenue is major problem. Sadly, given the susceptibility of the Congress and White House to political influence from large campaign-contributions,  the company’s wealth and thus political pull could keep a law from being enacted that would force Facebook to permanently remove all information pertaining to me at my written request. It would be interesting if any U.S. citizen could have access to any data collected by the F.B.I. from businesses and other external entities unless deemed classified by a judge in the Judiciary. The purpose would obviously not be to help criminals.

With personal data being provided on “social networks,” as well as to other companies, banks, phone companies, and internet providers (including universities), and with the U.S. Government having unlimited access to that information, a person could be expected to feel that he or she has a contracted personal space. Even in one’s home, if a cell phone or computer is on (and even if it is off, I have read), the government may have a way to look in. Not even a personal conversation on a cell phone can any longer be regarded as private. The sphere of a sense of freedom of expression has likely come to be feel very restricted. I suspect that Americans have resisted this encroaching de facto sense of limitation on their personal freedom by being in the illusion that an actual phone call is private and that neither a government agency nor Facebook is keeping tabs on which sites are being visited or what is being said or done on a phone. Yet the diminishment of the sense of freedom, especially when a person is in public but also on private property, is real, which a decrease in the quality of life going along with the masked fear. The People can regard this constriction of freedom as being subject to the Will of the People rather than merely something that can evolve by means of vested interests inside and out of government. In other words, an electorate need not be passive.

Moreover, a government’s totalitarian approach to gaining information on the citizenry is contrary to the notion of a limited government wherein the People are the popular sovereign. A limited government is a key part of a republic, whereas a totalitarian government is vital to a dictatorship wherein the People have no power. Adding to the concern is a private company’s totalitarian approach to information-gathering, especially if such a company has lied to its users about it. Interestingly, the third-party commercial app makers can be considered the company’s clients, whereas the users supplying the data are suppliers. In other words, the users are not the customers. The suppliers are not paid in monetary terms; rather, Facebook pays those bills by allowing the suppliers to use the company’s platform—activity that increases the supply of information!

In supplying something, a supplier transfers a commodity to a buyer; the supplier cannot claim ownership or control of the commodity once it has been supplied. Obviously if the buyer lies to the supplier regarding the contract, the supplier has grounds to take back the commodity supplied. The suppliers did not agree (and thus were not “paid”) to allow Facebook to contract with Cambridge Analytic, a client, to use the commodity to manipulate the suppliers themselves. To be sure, ordinarily a supplier would not expect to have any say as to what a buyer does with the commodity, but Mark Zuckerberg made oral promises that the company’s user-suppliers would continue to have a veto over how Facebook uses the commodity, including with whom the said commodity is shared. Because the CEO lied, it is important for the suppliers to realize that what had begun as a social network for college students became a business model. Unfortunately, the typical user is not even aware that he or she is actually a supplier. 

Government use is of course different; it can legally be done secretly, thus without the knowledge of Facebook’s suppliers. So it becomes a political question of whether the People should allow their government, assuming it is a republic, to have access. Citizens would be wise to remember that absolute power corrupts absolutely, and that with great power comes a huge responsibility even if the powerful may tend to shrug off the responsibility as they seize even more power.

See related: Taking the Face Off Facebook: Strategic and Ethical Issues, available at Amazon.

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1. Jennifer Valentino-DeVries, “Secret F.B.I. Subpoenas Scoop Up Personal Data From Scores of Companies,” The New York Times, September 20, 2019.

2. Ibid.

3. Ibid.

On the United Technologies-Raytheon Merger: The Macro Level of Analysis

In analyzing a merger, incorporating the macro context is vital. For very large mergers, for instance, public policy concerns inevitably surface even if they are typically ignored not only in merger analyses, but also by in societal and even governmental public discourse. Analysis at this level takes a societal standpoint, including on the relationship of business and government. This does not diminish the salience of firm-level analysis, for even how the respective organizational cultures would mesh is very important to a functional merged company. This is even true regarding the respective business-ethics climates, for it is not a given that a healthy organizational culture dominates an unethical one.

In June, 2019, United Technologies “doubled down on the aerospace market with an all-stock deal to merge with defense contractor Raytheon Co., after UTC executives early chose to exit from the escalator and air-conditioning businesses.”[1] The anticipated combined company, “valued at more than $100 billion after planned spinoffs, would be the world’s second-largest aerospace-and-defense company by sales behind Boeing.”[2] The annual revenue for 2019 would be $74 billion. UTC’s CEO at the time estimated a billion dollars in cost-savings. Additionally, spending on research could be increased.

On the macro scale, the merger would intensify the consolidation in the aerospace and defense industry. Better terms from supplies and the Pentagon had been putting pressure on contractors “to cut costs and invest more of their own money in new technologies, such as space systems and cyber security.”[3] Consolidation has a major drawback, however, in that competition and thus trade can be stifled. Society, through its government, rather than consolidated industries must resolve anti-trust problems, and this is difficult when those industries have significant power over legislative bodies and regulatory agencies. Hence, for example, anti-trust law had not been applied to the five largest American banks even after their complicity in the financial crisis of 2008. In fact, the bankers were able to use government funds to pay themselves bonuses!  So the question can legitimately be raised whether anti-trust law even can be enforced when the consolidated company or industry is not in favor.

If very large consolidated companies can rebuff regulatory attempts to constrain or limit those companies, then even very unethical managements can enjoy perches of power that are worrisome from a societal standpoint. In the late 1990’s, for example, Hughes Aircraft merged with Raytheon Missile Systems. In 2002, dioxane, a carcinogenic chemical that Hughes Aircraft/Raytheon had been using as a solvent, was discovered in the ground water under South Tucson, Arizona. Previously, Hughes had used cancer-causing trichloroethylene since 1981, and several local residents had won settlements on that chemical from Hughes.[4] Perhaps Raytheon’s management fail to use adequate oversight over Hughes, especially given that company’s track record, or was the purchasing company tacitly involved. Something to ponder for a company on the cusp of growing substantially through another merger in 2019, for an environmentally callous group to be so big would indeed be a big deal.

At the company level, a board of directors subservient to management or even a sordid corporate culture, such as that of Enron, can be enough to thwart efforts to clean up from unethical conduct. Wells Fargo, for instance, faced an entrenched corporate culture in “efforts” to stop charging customers for unordered products. Plutocracy, or the rule of wealth, at a governmental level means that such companies can not only continue acting unethically but also extract monopoly or oligarchic rents. In the case of the defense industry, the increasing power of the major contractors can even result in pressure on lawmakers to go to war when diplomacy would have been a better route. Indeed, a government’s spending can become loop-sided in favor of defense because the major contractors are powerful enough to demand it because it is good business. Hence U.S. President Lyndon Johnson kept the Vietnam conflict going in large part because he was getting kick-backs from certain contractors. In short, from being able to evade anti-trust enforcement to being able to pressure or pay off presidents in favor of military engagements, consolidated defense contractors can be said to have too much power. 

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[1] Cara Lombardo and Doug Cameron, “Merger to Create Aerospace Giant,” The New York Times, June 10, 2019.

[2] Ibid.

[3] Ibid.

[4] Tony Davis, “South-side Tucsonans Mobilize for Another Water-Pollution Struggle,” Arizona Daily Star, April 16, 2017.

NASA and It's Contractors: The Challenger Disaster

Roger Boisjoly was a booster rocket engineer at a NASA contractor, Morton Thiokol. Boisjoly blew the whistle both within the company and to NASA regarding the danger of the rubber in the o-rings, which seal the connections in the shuttle’s rockets, being insufficiently elastic in cold weather. Although The Challenger Disaster (2019) is not a documentary, the film’s narrative, which centers on Roger, or "Adam," is oriented to understanding why the Challenger space shuttle exploded after being launched on January 28, 1986. In other words, although some names are different and the conversations are not verbatim in the film, the factors that contributed to the actual explosion are presented. In fact, the film leans too much on technical details before the disaster and legal arguments afterwards without adequate entertaining elements to make the film enjoyable. However, the film's political function in informing a mass market of why part of the government-business system was broken is valuable. In fact, this mission demonstrates that the medium of motion pictures is capable of aiding in social, political, economic, and religious awareness and education, and thus development. 

The full essay is at "The Challenger Disaster."

Facebook: Holding User Accounts Hostage

A Facebook “challenge” asking users to post a current photo and one from a decade earlier went viral in early 2019. Even though it is unlikely that the company was behind the “challenge” going viral, that the company had been working on facial recognition technology had users being suspicious on the motive behind the “challenge.”[1] A writer for Wired wrote at the time, “Imagine that you wanted to train a facial recognition algorithm on age-related characteristics and, more specifically, on age progression (e.g., how people are likely to look as they get older). Ideally, you’d want a broad and rigorous dataset with lots of people’s pictures. It would help if you knew they were taken a fixed number of years apart—say, 10 years.”[2] Why would Facebook want to track how a person is likely to look years later? Some users may put up an old picture of themselves or simply not update the existing photo, but why would Facebook want to know what those users are likely to look currently? Perhaps Facebook wanted to be able to identify those users in current pictures uploaded by others. So why did the company deny using the “challenge” for such a legitimate purpose as connecting people socially? Nonetheless, the company insisted that it had no benefit from the “challenge” going viral. This statement seems suspicious, especially given the company’s earlier lapses on user privacy. I contend that an even more toxic subterfuge existed at the time at Facebook—a cloak that held user accounts hostage until a clear facial picture could be supplied.

Perhaps because of the company’s track record since Cambridge Analytica on user privacy, the company’s statement also sought to reassure users by reminding them that they “can choose to turn facial recognition on or off at any time.”[3] While technically true, the company could freeze any user’s account supposedly for security reasons—to protect the user—until a current picture that clearly shows the face is supplied.

In spite of the fact that no legitimate security concerns could be raised a month or so after I created a user account, I discovered one day that Facebook’s computer had blocked my account until such time as I could verify the phone number I had used in setting up the account (when verification on the number was successfully made). I followed through nonetheless the second time, only to find days later that a current picture clearly showing my face was needed “for security reasons.” Until then, I could not use my account to protect my security. That I had not used the account for anything remotely suspicious, not to mention trolling or spam, led me to view the “security” rationale as fake, or at least as excessive. In demanding a face picture from me, the company indicated that the picture will not go on my profile, but this differentiation makes no difference in the company being able to use facial recognition software on me for the company’s internal uses (and even those of external stakeholders like the FBI) from then on. Facebook’s work on facial recognition AI for the previous two years had included such uses as tagging users in other users’ photos even if the photographed user does not know the photographer. Under the subterfuge of a “security need” for a current picture that other users will not see, the picture can still be used in tagging the user without his or her awareness.

I contend, therefore, that Facebook’s demand for a clear face photo is unethical. Besides the company’s horrendous track record on safekeeping user privacy, having users’ accounts held ransom nonetheless can seem presumptuous, like a bad child nonetheless demanding that his parents take him to Disneyland. The unethical verdict is also due to the felt-vulnerability that is natural (even among innocent people!) in handing a face picture to unknown people, even if they have a good reputation in securing privacy. For a company to dismiss the vulnerability and go so far as to demand a clear face picture can be reckoned as a harm (even as passive aggression) that is unjustifiable ethically.  Furthermore, the lying, such as in Facebook’s claim that it had no benefit from the treasure-trove of before-and-after pictures, and the subterfuge that a user can always turn facial-recognition off (even as the company uses it under the lie of a security need to connect a face to an account) are themselves unethical. Anticipating the future revelations on the privacy breaches, I wrote a booklet, Taking the Face off Facebook, on the unethical management at the company. It may therefore be that I’m on a “make problems for” list at Facebook, but other users have complained of having their accounts held hostage too, so I suspect the problem was still with the company’s managers, including its CEO. 

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1. Nicole Martin, “Was the Facebook ’10 Year Challenge’ a Way to Mine Data for Facial Recognition AI?,” Forbes, January 17, 2019.

2. Ibid.

3. Ibid.

It’s Only Fair

Astonishingly, organizations can violate their own mission statement without any manager or non-supervisory employee being aware of the violation. This can happen even when the people in an organization really do take their mission seriously. At Goodwill, the mission is to end poverty, a laudable goal. It follows explicitly (i.e., according to a sign in the stores) that “every customer has an equal opportunity to purchase any item for sale.” Although the sign bases this point on the fact that the goods “come from public donation,” I submit that ending poverty by giving the poor access to relatively low-priced merchandise is hampered if some customers are permitted to fill their carts with on-sale (i.e., color of week) items when the doors open. Certainly allowing those resale-minded customers to deprive other customers of a selection of items on sale (especially clothing, which even homeless people need) is not fair.

According to the sign, possible violations include any employee or volunteer of a store being able to purchase items in the store whether for themselves or others. “Nor may merchandise be reserved or set aside for anyone.” To be sure, recognition is also given to the possibility that a customer might think that the organization is not being fair. When I interviewed a store manager about whether allowing customers who resell items on sale in “garage sales” conveniently misconstrued as businesses to buy in such bulk that effectively deprives other customers, whose use for the clothing is for personal use, she dodged the question itself but took my point implicitly by admitted that she knew of no way in which the practice could be thwarted. I told her I had a few ideas, but she was not interested in them. I topld her I am a business ethicist and would be writing on this case. Patronizingly, she quipped, “Have fun writing your paper!” In retrospect, I wish I had replied, “Have fun managing!” How interested would the organization’s management be? I wondered at the time.

Goodwill could indeed have stepped in to prevent the obviously unfair practice of certain customers, who actually compete with each other in going around—as part of their re-selling businesses—to different Goodwill stores to swoop up as many shirts or pants on sale. 

A "garage sale" of a reseller open for business at her personal residence. Beyond the cars is the Goodwill store at which I had observed the opening of a major, half-off, sale on shoes and clothing (and misc) just a week earlier. Some of the athletic shoes, which sold for $7 without any negotiation (a sign that a reseller is hosting the "garage sale"), I had seen in a cart full of such shoes at the beginning of the sale at the Goodwill store. 

The personal-use customers can have little chance, or practical opportunity, to get an item on sale because Goodwill allows customers even at the opening of a sale to fill their carts entire of one kind of item (e.g., athletic shoes). Even if a wife/mother is buying athletic shoes for her husband and teenage kids, a whole cartful is suspicious. I witnessed a woman head immediately to the shoe section when the doors open and quickly throw as many athletic shoes in her card as she could before other customers had a chance to take advantage of the sale. Clearly, the monopolistic character of the woman’s behavior and that her commercial interests could eclipse the personal-use interest of other customers who would do without as a result not only reek of unfairness, but also violate the “equal opportunity to purchase any item in the store.”

A reseller had her cart full just seven minutes after the Goodwill store opened with a sale that would practically guarantee that the reselling would be lucrative. The number of men's shorts alone in this cart points to something beyond personal use. The resellers do not pay taxes on their profits because the sales, primped as "garage sales," are easy not to report. Legally, the income from genuine garage sales is taxable.

Meanwhile, Goodwill looks the other way undoubtedly because more revenue and less risk of having items unable to be sold are obtained when the re-sellers buy in bulk. In other words, the lack of recognition of the tilted status quo and of ideas on how to restore balance may not be accidents. A false premise that the status quo must be balanced, or that the status quo does not justify effort to achieve balance may also be in the mix. A policy could be put into effect that limits the number of same-classification items on sale that can be purchased by each customer.

Already I can think of ways in which the commercial customers could get around this limitation, for profit-seekers hate limits, whether internal or external. They could bring along family and friends to divide up the quickly stashed merchandise. They could fill their respective carts when the doors open and carefully stash their carts so to be able to make multiple trips to different cashiers.

At some point, however, store employees and even managers can be relied on to help enforce the policy by being on the lookout for such tricks. A customer’s claim that she needs a cartful of sneakers in order to try them on to find one that fits can be easily rebuffed. Only six items are allowed in the fitting rooms anyway. Such games and how to deconstruct them could be incorporated into training. It is not difficult, for example, to see people quickly filling their respective carts with one or two item-classifications shortly after the doors open. The store manager with whom I spoke had no problem in identifying the re-sellers who buy in bulk. Her hands’ off, laissez faire attitude was problematic as it did not fit with the organization’s mission to reduce poverty in a fair way, which in turn requires equal access to the merchandise. Hiding behind the relatively effortless status quo, as if it were intractable or even as fair as possible, evinces a willingness to live with an unfairness that could otherwise be reduced even if it cannot be eliminated. Not having any ideas when imperfect measures could make a dent evinces an unwillingness to think too far from the status quo (i.e., outside the box).

See "A Lack of Good Will at Goodwill."

See also Cases of Unethical Business: A Malignant Mentality of Mendacity, available at Amazon. 

Regulating Smoking in China: A Socialist Conflict of Interest

Government ownership and control of a means of production is the standard definition of socialism even if some linguistic revisionists want to redefine the term as merely the control of a business or industry. In short, a government must own the economic enterprises to meet the definition of Socialism rather than merely government regulation of private businesses. Socialism, I contend, involves a structural conflict of interest that a government that both owns an controls an enterprise, industry or even an entire economy may be tempted to exploit for its own ends rather than the public good. The key here is the regulating of that which is owned. Specifically, where a government as owner enjoys the benefit of profit or surplus, that government has a financial interest that can be against the restriction of the produced product. Such a monopolistic restriction could admittedly be warranted by public health or safety, but the gain could also be private in the sense that it is limited to the government and even the personal financial interests of government officials. In other words, the public good can be distinct from a government’s own financial (and related political) interest even as that government is charged with acting in the public interest in part by owning and regulating state enterprises. It is the pivot between the public and private interest that sets up the conflict of interest because the human urge is to go with a narrower, private interest at the expense of the public good. In other words, the very possibility, even likelihood given human nature, that a government would exploit the wider distribution of benefits for the narrower one (i.e., to the government itself) is the basis of a conflict of interest. I argue elsewhere that even the mere possibility renders even an as-yet unexploited conflict of interest inherently unethical. Here, I examine the matter of public health in China as a case of a socialist (in part) government that has had a conflict of interest. 

Three hundred million Chinese were smokers in 2010. This number is roughly equivalent to the entire U.S. population in 2000. In 2010, the addiction killed an estimated 3,000 people a day in China; this translates into 1.2 million tobacco-related deaths for the year. One out of three cigarettes smoked worldwide was smoked in China. It was estimated that smoking would kill about a third of Chinese men under 30. On May 1, 2011, the Chinese government banned smoking in indoor public places. However, the law contained no penalties. According to Time magazine, the law was not likely to have any effect.[1]

The reason for the lenient regulation may have had something to do with the powerful China National Tobacco corporation, a state-owned and controlled enterprise. In 2010, taxes and profits from the monopoly were roughly 7% of the government’s revenue.[2] That gave government officials an incentive to protect the enterprise's revenue and a disincentive to issue regulations that could be expected to reduce the consumption of cigarettes in China even if a reduction were in the public interest. This combination of incentive and disincentive is an earmark of a conflict of interest, the basis of which is the human instinctual urges behind the combination. 

This may be why more incentive typically exists to protect and increase revenue coming in than to minimizing costs even if they exceed the revenue. Even if the government’s expense in covering health-care costs for the 3,000 Chinese a day who died of smoking in 2010 exceeded 7% of the government’s total revenue, even a partial loss of revenue would likely be resisted by government officials.  Attention to revenue can dwarf that to costs especially where no market competition exists because extracting more revenue is relatively easy whereas cost-containment is still difficult.
Ethically, the government officials otherwise tasked with regulating so as to protect the public health in China and thus preventing deaths from smoking suffered from the personal (if kickbacks were involved) and institutional conflict of interest wherein the government’s financial interest and public-health goals were in conflict. That is to say, the officials not only had their own ethical dilemmas to resolve; there was also a larger institutional problem akin to a house being designed to be at odds with itself. The part of the government oriented to protecting and even increasing the revenue may have had disproportionate influence beyond that of the public-health department because the narrower the benefits are, the greater the incentive. Seven percent of the state's revenue doubtless got more attention from the state itself than its broader public-health measures, including those that made it more difficult for people to smoke in public. 

See related essay: Socialism Where You Might Least Expect It.

See related book: Institutional Conflicts of Interest:Business & Public Policy.

1. “A Smoking Ban without Teeth,” Time, May 20, 2011.
2. Ibid.

Facebook Defies Markets: No Accountability for Unethical Managements

When Facebook announced a record $6.9 billion profit for the final quarter of 2018, up 61% from the last quarter of 2017, the company’s management could also boast of an estimated 2.7 billion users of Instagram, WhatsApp, Messenger and Facebook each month, 1.52 billion of whom used Facebook every day.[1] This was particularly surprising at the time because the company had “earned the ire of users and regulators [in the E.U. and U.S.] for a growing list of privacy issues, including the Cambridge Analytica data scandal and a massive security breach.”[2] Cambridge had improperly used information on tens of missions of Facebook users, and hackers had accessed the telephone numbers and email addresses of 30 million users. Even though Facebook’s CEO, Mark Zuckerberg “touted the steps taken by the company [in 2018] to deal with the missuse of the platform,” his company had been criticized on the eve of the announcement for being in violation of the agreement with Apple regarding an iOS app (Facebook Research) distributed to employees and customers through Apple’s “Enterprise Development Program.”[3] That program prohibited distribution to customers and accessing “information such as private messages, web searches and location data.”[4] How could users not have reacted negatively, hence bearing on Facebook’s stock-price and profit-level? How could a company’s unethical management—a point I had documented in Taking the Face Off Facebook in 2015, prior to the scandals—not be punished by the market?

Interviewing Facebook users and industry insiders at the time, I learned that the evolving norm among Facebook users was not to share so much personal information, including opinions. Some went from active users to keeping the social network to keep in touch with contacts, and of course business reasons still existed. In spite of knowing that using Facebook could help my book sales, I kept away. It does not seem that many other people walked away before or even during the scandals. So it was difficult for me to comprehend the herd-mentality and thus why Facebook numbers had improved in 2018. Why should I continue to boycott Facebook? I asked myself at the time of the announcement.

Moreover, if financial markets do not take account of unethical conduct it could be expected to spread because of the lack of financial accountability. Economic accountability may necessitate that people have an active disgust for excessively self-seeking, unethical managements, especially in cases in which users or customers have been the primary victims. In the case of Facebook, apparently billions of people did not care, at least enough to go beyond protecting themselves by limiting the personal information they would share on the site. Just as a viable republic requires an educated and virtuous citizenry, according to John Adams and Thomas Jefferson of eighteenth-century America, so too do markets that can act to weed out companies with unethical managements. In other words, perhaps we get what we deserve.

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[1] Seth Fiegerman, “Facebook Posts Record $6.9 Billion Profit Despite privacy Scandals,” CNN Business, January 30, 2019.

[2] Ibid.

[3] Kaya Yurieff and Ahiza Garcia, “Apple Says Facebook’s Controversial Market Research App Violated Its Policies,” CNN Business, January 30, 2019.

[4] Ibid.