“Austerity” was recently called the word of the decade in the Wall Street Journal. From the perspective of business the primary deficits to be tamed are those in public spending, but the truth is that our economy and consumer culture are as over-extended as our public purse. In fact, we face multiple deficits simultaneously.
In The Sustainability Revolution, systems-learning pioneer Peter Senge explains that stabilizing “CO2 in the atmosphere at levels that minimize catastrophic consequences will require 60 percent to 80 percent reduction in emissions in the next two decades.” Michael Pollan, who writes about the culture and the environmental costs of food, has observed that our eating habits enfold us in three interrelated crises: the energy crisis, since food production and transportation account for consumption of 20 percent of the world’s yearly oil output; the health crisis, because processed and fast foods contribute to the obesity and type-2 diabetes epidemics that are bankrupting healthcare systems; and the environmental crisis, as deforestation proceeds to accommodate cattle grazing, and fisheries are vacuumed to the point of species extinction. Fiscal austerity is prudent, but to only focus restraint on spending misses the larger, structural deficits that will become even more destabilizing and dangerous in the not too distant future.
We have usually adopted austerity as a corrective – a short-term measure to reduce debts and restore balance. Just as weight-loss diets rarely work for human beings, instant cuts in spending – no matter
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Either as deliberate policy or by necessity, governments and companies are almost everywhere adopting austerity measures. The stringency in spending is required for the simple reason that debts aggregating over decades cannot be sustained. As it happens, economists, politicians and chambers of commerce have focused their austerity demands on public spending, were deficits have become particularly onerous. Mostly forgotten in this rush to cut spending is any acknowledgment that the current ballooning of public expenditure was in large part caused by having to extend trillions of dollars of liquidity, bailout and stimulus support for the economic crisis unleashed by the private sector. No one has yet articulated an “ethics for austerity” that takes stock of the complex causes of our current fiscal disorder, or that envisions a framework for generating social, moral and economic possibilities out of this new reality defined by constraint.
There are indeed serious fiscal issues that need to be addressed in the public sphere relating to costs for healthcare, dealing with the social services for an aging population, and the cost of other so-called “social entitlements.” However, while we have seen already radical and disruptive spending cuts in education, social services, and public sector jobs and pensions, companies have largely refused to share in any of the sacrifices that austerity brings in its wake. Bankers have rebuffed calls to change the sector’s compensation structures, despite the evidence that distorted incentives fueled the egregious behavior
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Let’s do a thought experiment. Focus group moderators will often ask participants to anthropomorphize a company or brand. For example, to probe aspects of corporate character or brand personality, researchers will ask: “If BMW were a person, whom would that person be?” Many companies today have officers or functions for overseeing ethics or compliance, so for this thought experiment, I would ask: “If current business ethics functions were a person, who would that person be?” In such exercises, experts tell us to go with our first impression, trusting what immediately comes to mind as representing some kind of subconscious truth. Without too much pondering, whom do you identify as the personification of the business ethics discipline?
In my case, I began this thought experiment in response to the plethora of business ethics failures that have emerged in only the last few weeks. Facebook was caught trying to plant false stories about Google’s supposedly questionable privacy practices in newspapers, and with influential bloggers. Bad enough that the defining social media company in the world was made to blush over its indiscretions, but that it secretly hired Burson-Marsteller to do the dirty work also implicates one of the world’s largest PR companies in the intentional dissemination of unproven–and for many experts, inaccurate–information. This subterfuge about privacy was played out
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I for one am the disappointed that BP CEO Tony Hayward has been fired. From press reports about his response to the oil-spill disaster it is hard to argue against cause. Clearly overwhelmed by the emergency, Hayward committed numerous personal and corporate miscues during BP’s efforts to deal with the human, social and environmental fallout of the oil well explosion. He must have been a smart guy to earn the top-job at BP, however, when it counted most in crisis, he displayed much more insensitivity than intelligence. While I’m all for the principle of accountability, I can’t help feeling that firing Tony Hayward was too easy, and in some ways a missed opportunity.
First, the problems leading to the Gulf oil-spill precede Hayward’s tenure as CEO.
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Among its many missteps in the Gulf, BP has now hired public relations executives to pose as journalists along the beaches besmirched by its oil spill. With so much incompetence and deception on display, it is hard to believe that only recently BP earned recognition from corporate social responsibility innovators as the most accountable large corporation in the world. BP won the Account Ability Rating™ award outright in 2004 and 2005, and came in second in 2006. With such credentials we need to ask some tough questions. Is it that the corporate culture that earned kudos somehow turned 180˚ in a few short years? Or is the premise and criteria for such awards faulty and now suspect? Oil industry experts are acknowledging that the scale of the spill in the Gulf will have a structural impact on industry assumptions and procedures. Are the corporate social responsibility experts who created the matrices for accountability – and who anointed BP as a paragon – also willing to reconsider their stance and methods for evaluation?
These are important questions for several reasons. First, the real lesson of recent corporate ethical impropriety is not that executives will overreach their legal mandate, or that companies will lose sight of their ethical responsibilities to the community, but that the sentinels intended to protect the public interest have been too easily co-opted into supporting the abuses they were intended to guard against. This is what happened when Arthur Andersen
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With the world’s attention focused on BP’s troubles, the news that the Indian government this week convicted seven former employees of Union Carbide for “death by negligence” slipped under the radar. In fact, the Bhopal gas plant leak that killed thousands of people in 1984 deserves both the dignity of recognition, and respect for being a cautionary tale about what is unfolding in the Gulf. Critics such as Amnesty International have described the long-delayed legal convictions in India as “too little, too late”. Forty tons of toxins released from the plant killed 3000 people at the time of the accident, and between as many as 7,000 – 15,000 since. A horrific toll continues to be paid by victims, many suffering disfigurement, blindness and other illnesses from the poisoning. Altogether, the Indian government estimates that nearly 600,000 people have been affected by the Bhopal disaster.
BP is not Bhopal in human suffering, although the eventual scope of the health consequences from the oil spill is hardly estimable or minor. As at Bhopal, people died in the accident. And now the spreading clouds of oil are destroying livelihoods for perhaps as many – if not more people – than were impacted in India. There are as many parallels as differences between Bhopal and BP, but the key lesson from this week’s court decision in India is that our global systems of accountability are inadequate for dealing with the global impacts of corporate negligence.
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With our recent history of corporate scandals, financial meltdown, and environmental disasters, one would think that “crisis-management” would be high on the competence list for leadership. Painfully, this expectation has proven false. Tony Hayward is now called the “Bumbler from BP” for his leadership during the oil spill. Wall Street CEOs made every misstep imaginable before, during, and after the crisis they caused. And Toyota’s executives showed as little sensitivity to public anguish as their car company colleagues who two years ago flew separate corporate jets to Washington to petition lawmakers for public bailout funds.
Business schools have been teaching crisis management as a discipline since the 1980s, after Johnson and Johnson set a benchmark for diligence for recalling Tylenol in the midst of fatal product tampering. Somehow, even though crisis has become commonplace, the hoped-for proficiency has yet to emerge.
Perhaps we are looking in the wrong place. Perhaps, because crisis management has become a strategy, it is too easy for executives to stay within the referents of business even when the stakes or consequences have become moral. Perhaps, rather than study business, we would be wiser to study history.
Etty Hillesum was not a CEO, but just may be the moral exemplar we all need for crisis management.
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Some citizens of New York are roiled by the prospect of a new mosque to be built two blocks from the footprint marking the Twin Towers of the World Trade Center. I certainly have sympathy for the local residents who suffered the unspeakable trauma, and cannot imagine but that those who lost loved ones in the attack will feel their wounds ripped open by the debate concerning the now sacred ground. Whatever the city planners may have decided, we owe a preferential option to the considerations of those who have suffered the most.
Even with this preference, I nonetheless believe that the possibility of a mosque near Ground Zero poses too important a question for Western culture, and for the economy of which that Wall Street neighborhood epitomizes, to not consider the issue more critically and carefully.
I need to disclose that as a business ethicist and a theologian-in-training, I have been a keen participant in interfaith dialogue, particularly in relation to the moral resources that we need to develop within globalization, and towards sustainable development. From this experience, and from the understanding of my religious tradition as a Roman Catholic, I stand with the Muslim community that has conceived, and won approval for building their house of worship in lower Manhattan.
On one level, we cannot quarantine tolerance. History has shown us that when we exclude others, we in the end only ghettoize ourselves, compromising our dearest values.
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Just as bankers insisted on netting bonuses for themselves when the recession they created was still causing mayhem in the global economy, BP has announced that it will “go ahead with a $10bn shareholder payout” even as the oil from Deepwater Horizon continues to spill and spread. The organizing math of markets is to earn rewards from investing in smart risks. But for large companies, payout is becoming a given regardless of whether or not the bets executives make pan out. As economist Joseph Stiglitz notes, the rules of the market now make it easy for companies to privatize profits while socializing the costs from mistakes or failure.
Since markets and autopilot CEO’s like BP’s Tony Hayward only respect the rights of shareholders, the solution is to make victims of corporate malfeasance or incompetence owners as well – what I call “Mistakeholders.” This would involve assigning equity to victims that corresponds in value with the losses they have been forced to bear from risks not of their own choosing, that have gone askew. President Obama admitted that the oil spill is “brutally unfair” on Gulf residents. Granting mistakeholders shares ues the market’s own logic and strengths to tangibly addresses this unfairness.
For the last decade companies have acknowledged responsibilities to stakeholders, but the reality of fiduciary duty remains fuzzy. Management scholars are still debating whether it makes sense for managers, as “agents” of owners, to dilute their focus by addressing needs or expectations of groups that are outside the equity clique. Usually stakeholders include employees, interest groups, communities, or representatives of issues such as labour conditions in sweatshops, or threats to the natural environment.
Existing Stakeholder theory is in my view fundamentally flawed because,
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On Monday night my wife and I had an Orthodox rabbi and scholar from Jerusalem as an overnight guest. As Toronto-based Roman Catholics, we have had the privilege of gracious encounters with persons of other faiths. And in our work and writings, my wife and I both have been active in inter-religious learning and dialogue. Still, the experience of having a rabbi eating with us, and sleeping in our guestroom study, involved a degree of familiarity that was at once a great honor and adventure.
The Rabbi and I had set up this meeting to continue a conversation that began in Amman, Jordan two years ago. Now face-to-face, we wanted to explore possibilities for extending the dialogue that is occurring between faiths in pockets around the world to include the business community. Very simply, the idea is to draw upon the vast wisdom from the world’s religious traditions as a resource for energizing thoughtful, ethical management. In the course of several hours we laid out a conceptual framework for testing this hypothesis, recognizing that there are many obstacles to such a conversation, but confident that the effort and risks would be worth it, given that so many of the social and environmental expectations for corporate performance now involve inherently moral considerations.
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