Shades of Grey

Enjoyed the following article by David Vogel:

When do 'good' firms go 'bad'?
Ranking corporations by ethics is popular, but telling the good guys from the bad is not clear-cut.
By David Vogel, DAVID VOGEL teaches business ethics at UC Berkeley's Haas School of Business and is the author of "The Market for Virtue: The Potential and Limits of Corporate Social Responsibility."
February 13, 2007

SUSTAINABLE FIRMS. Green businesses. Socially responsible corporations. A growing number of magazines, activist groups and websites publish such lists, suggesting that one can distinguish the good companies from the bad.

The claim that such distinctions are possible is likewise central to ethical mutual funds, indexes and stock rating services that recommend "responsible" investing — with some even asserting that "better" firms have superior financial performance.

But corporate social responsibility isn't such a clear-cut matter. People are rarely consistent in their ethical behaviors, as numerous psychological studies have shown. An individual can cheat on his spouse and file an honest income tax return, or be a model employee and an irresponsible parent. Andrew Carnegie and John D. Rockefeller were ruthless businessmen yet also generous philanthropists — a category in which some also place Bill Gates. Interestingly, the work of the Bill & Melinda Gates Foundation — criticized in The Times recently for "irresponsible" investing — reflected so well on Microsoft that the company topped the Wall Street Journal's Reputation Quotient survey.

So if it is difficult to judge the overall ethics of an individual, it is certainly more so in the case of complex business organizations. Few firms widely regarded as socially responsible consistently exhibit ethical behaviors, while even the most criticized are not without virtues. The more closely one looks, the harder the determination gets.

Consider, for example, British Petroleum — long entrenched in the pantheon of corporate responsibility because of its leadership on the issue of global climate change. Yet after a major oil leak last year, it was revealed that BP had not maintained its pipelines in Alaska. Corporate cost-cutting also contributed to a 2005 oil refinery explosion in Texas that resulted in 15 deaths and 180 injuries. How, then, should we rank BP's overall environmental record?

Another icon of corporate responsibility is American Apparel. This firm has been widely praised for manufacturing all of its products in the United States and for the high wages and other benefits it provides employees at its Los Angeles factory. Yet its marketing uses images of women that border on soft pornography, and its founder and chief executive has been repeatedly accused of sexual harassment. On balance, is American Apparel a virtuous firm?

Merck has been widely and appropriately applauded for its decision to develop, produce and distribute without charge the drug Mectizan, which prevents river blindness. Since 1987, Merck has distributed more than 250 million doses, and its programs currently reach 40 million patients a year. Yet this same pharmaceutical firm aggressively marketed the anti-pain drug Vioxx, which increased the risks of heart attacks and strokes. In measuring Merck's overall corporate virtue, how should we assess the millions of individuals saved from river blindness against the firm's belated response to the health risks of its highly profitable, bestselling drug?

On the other hand, consider Altria, which owns Philip Morris. It's shunned by virtually all ethical funds because it makes cigarettes, a product that is inherently harmful. Yet Philip Morris has long been a generous contributor to the arts as well as to the Congressional Black Caucus. Tobacco is still grown primarily on family farms, many of which are minority owned.

Wal-Mart, another corporate villain, is widely condemned for its low wages and unwillingness to provide adequate healthcare coverage for its employees. Yet by using its low costs to lower prices, Wal-Mart is estimated to save American consumers $30 billion a year — the equivalent of a gift of $270 to every family in the U.S. It has also embarked on a number of potentially far-reaching environmental initiatives.

No energy firm has been criticized as vehemently by environmentalists as Exxon Mobil, which refuses to acknowledge, let alone ameliorate, the risks of global climate change. Yet, in contrast to BP, since the 1979 Exxon Valdez oil spill, Exxon Mobil has had an exemplary record on both workplace safety and pollution control. And unlike Shell, another energy firm applauded for its commitment to "sustainability," its financial reporting has been a model of probity. How then should we rank Exxon Mobil's overall ethical behavior?

These examples are hardly atypical. Few "virtuous" firms are without sin, and few business "villains" have no good qualities. That does not mean we should give up comparing companies' social or environmental performance. But we shouldn't expect to find many black-hatted corporate villains or heroes on white steeds. In corporate America, it's usually shades of gray.