Saturday, January 31, 2009


That was President Obama’s comment on this week's news that Wall Street Bankers had been paid a total of $18.4bn in bonuses for 2008. The very banks in fact that had just received a multibillion dollar bailout package from the government, i.e. the American taxpayer. The most blatant case being Merrill Lynch (annual loss 2008: $15.3bn) which paid bonuses earlier than normal in December, just before being taken over by Bank of America with expected new government funding of $20bn.

The news came on the day when we discussed the corruption perception index of Transparency International in class at Schulich. We had a nice discussion why it is that often poor countries range high on the list and one student suggested that in poorer countries bribes are just that much more seductive as people are relatively poorer, and therefore more tempted to take advantage of a situation. But its not just poverty: comparing Sweden and Italy – countries of similar wealth one could argue – it is interesting to see the difference of more than 4 points on the 10 point scale. Italy is a more collectivist culture, where family ties and long term relationships matter more than in individualistic and meritocratic countries.

From an ethical perspective the question really is: why is it so much more corrupt to succumb to the temptations of poverty or to give preferential treatment to friends and family (earning you a bad score on the TI index) than to do what has been standing practice in business now for decades: to reward managers according to the market performance of the assets under their fiduciary trust?

These practices raise eyebrows and produce anger (one has hardly seen Obama so agitated in 2 years on the campaign trail) now where these bonuses come directly out of the taxpayers’ pockets and happen in the face of utter failure of the rewarded managers. But in our view it just exacerbates the general issue: what exactly is the ethical justification for the explosion of executive compensation particularly in the Anglo-Saxon parts of the world? Being rewarded for success – fine. But more often than not, the link between stock prices and individual managers’ performance is more than tenuous.

This ‘height of irresponsibility’ (Obama) will ask for new rules for the game. Obama will hardly avoid addressing this problem of executive compensation. Certainly in the eyes of most Americans (and the rest of us, for that matter) there is something deeply questionable about these practices. Bank of America CEO Thain has resigned over the scandal. Whether he paid back his bonus though was not reported…

Tuesday, January 27, 2009

World's stupidest Gaza boycotts?

As a follow-up to our last post, this interesting blog entry from the folks at Foreign Policy may raise some laughs .. or a few hackles. The comments are interesting too. Thanks to Kejia for alerting us to this one...

The world's stupidest Gaza boycotts

Predictably, Israel's continued assault in Gaza has led to
renewed calls to boycott Israeli products. Everyone has a right to express their political views any way they see fit, but it's safe to say that some proposed boycotts are less productive than others.

More than 2,000 restaurants in Malaysia have
removed coca-cola because of the United States' support of Israel. The Malaysian Muslim Consumers Association has also pushed for boycotts of Starbucks, Colgate, McDonald's and Maybelline in order "to protest Zionist cruelty."

Coca-Cola is a particularly odd target since it's bottled and sold locally by a Malaysian-owned company, so the activists are really just hurting their own country's economy. (I remember from college that students campaigning for a campus boycott against
"killer coke's" Latin American business practices faced the same problem.) It's also ironic given that the company was once criticized as anti-Semitic because of its reluctance to break an Arab League boycott by selling coke in Israel.

Post continues ....

Thursday, January 22, 2009

Should business boycott Israel?

With all the excitement in Washington over Barack Obama's inauguration, it may be tempting to put to one side for a little while the continuing problems in Gaza that so occupied the public and media attention throughout the last month. But one person clearly not watching Obama's swearing-in ceremony was the UN Secretary-General Ban Ki-moon who spent the day visiting the Gaza strip and Southern Israel. As the world's media widely reported, Ban, standing in front of the smoking rubble of a UN building described the scenes as "heartbreaking", and condemned the destruction as "outrageous, shocking and alarming".

It was an important and symbolic visit by the UN leader who was careful not to take sides in his condemnation of the "excessive force" used by both Israel and Hamas. And it clearly serves to highlight the fragility of the current ceasefire and the need for more determined resolve in finding a lasting solution to the problem. But the burning question, of course, is how can genuine progress to be made in such a complex and volatile political situation?

One suggestion recently put forward by the Canadian activist and author Naomi Klein is that businesses and consumers should take a role in addressing the conflict by actively boycotting Israel. Citing the Palestinian campaign group Boycott, Divestment and Sanctions (BDS). Klein argues that "economic sanctions are the most effective tools in the nonviolent arsenal." And she is not just talking about economic sanctions at the governmental level, but at the level of individual consumers and businesses too.

In fact, her two main examples of anti-Israel boycotting are both business-level actions: first, her own decision to switch publishers in Israel from a commercial publishing house to a small, anti-occupation acivist publisher; and second, a British telecom company, Freedomcall, which had recently sent an e-mail to the Israeli tech firm MobileMax saying "as a result of the Israeli government action in the last few days we will no longer be in a position to consider doing business with yourself or any other Israeli company."

Boycotts against Israel have been mooted, or activated, by academics, journalists and others in recent years - typically to storms of controversy. In the US, companies participating in anti-Israel boycotts can even be fined. However, recent developments in Gaza have clearly prompted a fresh look at some of these tactics by some, although specific instances of boycotts by western companies still appear to be very rare. Our very unscientific search only came up with one other report from the last two weeks - of a London-based Pashmina company which had joined a voluntary boycott on Israel due to "the horrors committed by the Israeli army". However, Ethical Performance also recently reported on Unilever selling its stake in a factory in an illegal Israeli settlement on the West Bank – but also noted that despite the protestations of campaign groups, had done so as part of a broader divestment process from non-core business rather than any "ethical considerations".

Similar protestations of what Klein calls "cold business calculation" are also evident at Freedomcall, where the managing director is quoted by her as saying "We can't afford to lose any of our clients, so it was purely commercially defensive." Such amoral language and the refusal by business to acknowledge that they are also involved in politics is not unusual. But what is unusual is Klein's appararent readiness to accept that business should be taking an active role in state politics, depsite (or even because of) their focus on commercial self-interest. The author of No Logo and The Shock Doctrine is better known for criticising the role of the private sector in the public domain.

It seems unlikely to us that too many companies will feel comfortable joining an anti-Israel boycott, whether for commercial or political reasons. Why? Well, the ethics are simply too contentious for most business leaders to be comfortable making that kind of a call. Apartheid-era South Africa, or the current situation in Burma have a degree of moral consensus that presages corporate decision-making in a way that the problems in Gaza do not. Yes, maybe business leaders should be encouraged to stand up for what they believe in, but this is less likely to happen when they think their customers and other stakeholders might not agree with them. If even Ban Ki-moon is so careful in choosing and balancing his words of censure, corporations will no doubt tread even more carefully. Only concerted efforts by consumer groups and NGOs will be likely to change their views on whether a political boycott makes good sense. For better or for worse, that is the cold hard logic of business that Klein will have to recognize.

Photo copyright Tom Spender

Saturday, January 10, 2009

Is Brazil the model?

Happy New Year to the readers of our blog. Today’s installment comes from Brazil. Rio de Janeiro, to be precise. Oh what a city! The weather, the scenery, the music, the dancing, the Caipirinhas, the beaches, the beautiful people - just to name a few things which enthrall every visitor willing to see it. Ah, and not to forget, the Favelas, the crime, the gaping social inequality and the conspicuous presence of military police at every second corner.

Being in Brazil for a relaxing week one can’t help to evoke Michael Lind’s notion of ‘Brazilianization’ as one of the social science ideas which caused a bit of a stir over the last ten years. No, this does not mean free Brahma beer and Samba for all! It rather refers to a pretty somber vision of change in most western societies toward a model that has been commonplace in Brazil for decades now. Here is how Lind defines the B-word:
‘Brazilianization is symbolized by the increasing withdrawal of the white American overclass into its ... world of private neighborhoods, private schools, private police, private health care, and even private roads, walled off from the spreading squalor beyond. Like a Latin American oligarchy, the rich and well connected members of the overclass can flourish in a decadent America with Third World levels of inequality and crime.’ (pp. 14, 215-16).
Such a model is nowhere more visible than in Rio. While enjoying a luxurious day at the Copacabana you may well see the Favelas just a kilometer away, but thanks to armed police, private security, iron bars around every house you don’t need to worry too much. The ‘underclass’ mostly enters this world after dark - during daylight at best as beach vendors or garbage collectors. Other than that, these poor people are a parallel universe largely left to their own devices (though admittedly the Lula government in recent years has done quite a bit to address the gap).

As Lind and others argue we see a similar trend to the weakening, dissolution, or privatization of basic public institutions, be it in healthcare, education, security or transport in many (so-called) developed economies. In our latest book we argue that this retreat of the state and the privatization of what we refer to as basic entitlements of citizens is indeed happening. The interesting thing for us then is that a lot of business ethics, CSR - or whatever you might call it - is actually motivated by this shift. Or if you like – some form of ‘Brazilianization’ in Western societies.

This conspicuous role of companies in addressing those shifts is not at least visible in Brazil itself. Looking at the website of Ethos, Brazil’s leading CSR organization, or googling ‘CSR and Favela’ in fact shows that many companies have actively started to address some of the institutional void and social exclusion in these parts of the Brazilian society. In some ways then Brazil might actually offer some relevant lessons for companies and societies in the West.