Hannah Arendt And The Banality of (Corporate) Evil

In this world of ongoing financial turmoil and unrest against the current form of capitalism it is interesting to see how the search for intellectual resources to fuel our thinking about a changed world is taking us to new shores.

This week, as part of the Holocaust Education Week, an exhibition about the philosopher Hannah Arendt started in Toronto. In many ways, this could not have been a timelier moment to have her heritage reinvigorated. Arendt is a staple in many discussions over 20^th century history and philosophy. Of Jewish origin, born in Germany in 1906, she emigrated to the US during the Nazi regime and became a vocal analyst on how oppression, totalitarianism and violence affects the individual and what the conditions and options of resistance are.

Now much of this seems to be a far cry from the life of many of us in the 21^st century. But it gets much more colorful if we add Arendt’s voice audible in later phases of her work: most notably, her book on the trial of Adolf Eichmann in the 1960s. It is here where the famous phrase of the ‘banality of evil’ was coined. It adumbrates the fact that Eichmann – in today’s lingo the ‘logistics-zsar’ of the holocaust – talked about his ‘job’ in his trial in Israel just like any Fed-Ex or UPS manager would describe her/his work today. It was just about ‘getting the job done’. That he was managing a ‘supply chain’ that started in ordinary people’s home and ended in a gas chamber was just a minute detail for Eichmann – otherwise a (more or less) faithful husband and a loving father of four. It was just a slight ethical glitch that his nine-to-five-job happened to be in the business of delivering some six million people to the gas chambers as smooth, efficient and cost-effective as possible. And boy, he was good at that!

Here is where Hannah Arendt’s unique vantage point kicks in: she was not so much interested in the individual’s guilt, evilness or criminal inclinations. In fact she thought that those aspects were rather marginal. The evil of Eichmann’s actions was in fact ‘banal’ as it occurred to amount just to some ‘executive decisions’ of an individual who never questioned the ethical nature of the wider organization he was operating in.

It is indeed a rather contemporary perspective. We are in the middle of a ‘financial crisis’ which has dominated our lives and attention now for more than three years. The ‘Occupy Wall Street’ protests have taken over globally and – despite a cacophonic range of claims – have highlighted the fact that our current economic and political system produces outcomes that are patently unethical by most available standards of judgment. And apart from Bernie Madoff or Raj Rajaratnam we had a hard time to attribute this mess to any particular individual.

Hannah Arendt’s legacy speaks to the fact that ethical agency of individuals is intricately interwoven and embedded in the social systems in which they are enacted. Fine. Maybe not that much of a spectacular finding, some of us might think. But it nevertheless raises the question of how ethical the systems are in which we live and work. What I like about Arendt is that she was not just stopping to blame the specific historical contingencies of the holocaust. It was never about just taking fascism, the Nazis or, for that matter, Germany as a culprit to task. Her central analytic take-away was that societies are able to ‘rationalize’ all sorts of atrocities. Consequently, in the 1970s, when the creeping ecological destruction of our planet reared its first signs of appearance, she talked about the capitalist system as a form of ‘economic totalitarianism’ which rationalizes the destruction of the planet. She plainly coined it as ‘eco-cide’ (as a pun on ‘genocide’).

In the current situation, Arendt’s vantage point highlights many of the questions, the ‘Occupy...’ movement elucidates. These are ongoing questions which will, it has to be said, occupy us a little longer than this blog can last. However, Arendt also raises the important question (initially with regard to her study of Adolf Eichmann):

‘The moment you come to the individual person, the question to be raised is no longer, how did this system function, but why did the defendant become a functionary of this organization?’

This is in some ways the more compelling question. How do we individually act in a system that, by many people’s conviction, has created blatant inequality, ecological destruction, and a public largely disenfranchised from democratic decision making? Arendt in this sense is a master optician alerting us to the ‘grey zones’ of human ethical existence. But also lets us never get off the hook in terms of questioning our role in the wider societal or organizational contexts we are embedded in.

Monday night in Toronto the opening of the ‘Hannah Arendt Denkraum’ (= thinking space) took place. In some ways it was an event riddled by irony. Located in the German Consulate it appeared, in language and in ritual, like yet another atonement for the empirical backdrop of Arendt’s work. This contextualization in some ways could not be further from Arendt’s initial ideas. Equally ironic, the speaker rather skillfully highlighted the general implications of Arendt’s work, and its damning view of contemporary capitalism etc. – while the entire event was sponsored by the German multinational Miele whose executives were rather uncomfortably clinging on to their wine glasses hoping the speech would be over rather sooner than later. What all those millionaire-sponsors of the Holocaust Education Week, listening to a fairly astute reading of Arendt’s anti-capitalist messages were thinking – I could hardly guess. I am very sure though what Arendt - hardly ever photographed without a cigarette in her mouth - would have thought of the oppressive North American 'ethics' on smoking indoors if she would have ever dared to light a fag on this event in her honour in the German Consulate...


The picture on top is from the 'Hannah Arendt Denkraum' exhibition by ovit, the picture below was taken from G4Gti - all reproduced under the Creative Commons Licence.

Why Occupy Wall Street should occupy corporate leaders' minds

This weekend, the Occupy Wall Street protest will go global. Protests, marches and occupations are planned across the world, with almost a thousand events across every continent scheduled to go ahead on October 15th. Here in Toronto, the financial district around Bay Street is preparing for an occupation that has so far garnered more than 9000 followers on Facebook. In London, social media sites have registered more than 15000 followers for the planned occupation of the London Stock Exchange. Similar smaller scale events are in the offing from everywhere from Alaska to Auckland. Whatever the success of these protests, it is remarkable the speed at which a local event in New York which was hardly reported on two weeks ago, has now been turned into a global movement.

Although the range of issues and demands of the Occupy Wall Street campaign and its various international incarnations are many and diverse, they share a strong single point of focus. The financial sector is very much the villain here. This is in some contrast to the movement that the current events most parallel, the anti-globalization protests that took to the streets in late 1990s and early 2000s, exemplified best by the Battle in Seattle in 1999. At that time, although many of the issues were the same as those receiving attention now, the main point of focus was international finance and trade organizations such as the WTO and the IMF, and meetings of political leaders such as the G8 were major targets. Now, by occupying the financial centers of major cities, the focus is much tighter. The financial sector is public enemy no.1.

In many respects, this is not too surprising. Economies across much of the developed world have been in a constant state of crisis for the past three years. Austerity measures are biting hard. Unemployment is up. And a significant proportion of society feels excluded, exploited, and ready for an alternative. The financial sector is an obvious target because it is here that the systemic risks have been created, and it is here that so much of taxpayers money has ended up, shoring up institutions that are too big to fail. When these same organizations continue to post substantial profits, pay out huge bonuses and generally carry on as before, it is fairly predictable that they will become the focus of so much public ire.

Much of the initial response to Occupy Wall Street has been dismissive. The financial sector, which must be getting quite used to being the bad guy these days, has hardly raised a murmur in response. As of yet, we haven't seen a single press release on the events from major financial services organizations such as Bank of America, Barclays, Citigroup, Goldman Sachs, HSBC, or anyone else. Don't business leaders have anything to say about what's going on?  Don't they want to be part of the conversation? Or are they just so concerned that anything they say will just be ridiculed by the protesters, or simply set them up as even more of a fall guy, that they are fearful of trying to put their position across in public?

But big business, and big finance in particular, needs to take this seriously. Here's why.

First, because governments are looking to be responsive and populist, especially with elections around the corner in the US. That could mean tighter controls, less freedom and more regulation. As even Dominic Barton of McKinsey made clear in the Harvard Business Review earlier this year, "Business leaders face a choice: They can reform the system, or watch as the government exerts control ... there is growing concern that if the fundamental issues revealed in the crisis remain unaddressed and the system fails again, the social contract between the capitalist system and the citizenry may truly rupture, with unpredictable but severely damaging results." Better regulation might fix some of these problems, but knee-jerk regulation, borne of anti-corporate prejudice is not going to be the best fix for the capitalist system, and not necessarily the one that we need.

Second, because the protests create a great opportunity for collective action on the part of business. Problems of financial risk, executive pay and corporate lobbying aren't going to be fixed by individual company initiatives, or even by national government regulation. If one firm or one country reduces its attractiveness by, for example, controlling pay, then talent will likely migrate to more rewarding shores. If one company puts a limit on government influence, then the attention of policy makers will simply be taken up by its competitors. That's the savage logic of the global marketplace. The best recipe for meaningful change is collective action across an entire industry. Like a financial sector executive pay protocol. Or a banking industry code of practice on political influence. But to be effective these would need to include government and civil society participation and include effective monitoring and sanctions across borders. No one is pretending this wouldn't require a huge effort. But crises of trust, like the current protests, could be the context that is needed for collective action such as this to arise and prosper.

Third, because these protests clearly signal that for some proportion of the population, all the money, time and effort expended on CSR simply isn't working. And spending more isn't going to make a difference. These people are looking for a change in the system, in the rules that govern business and it's relationship with government.They're looking for more accountability, less political influence, and if their demands are for better corporate citizenship, they mean the kind of citizenship where you pay your fair share of taxes and don't just simply offshore when it suits you. This requires a very different approach to CSR than the one now predominant in the corporate sector. It means fixing attention on how to devise better rules, not how to behave better within the existing rules.

The challenge here, clearly, is a big one. Perhaps then it is no surprise that corporate leaders have been content so far to just cover their ears and hope it all blows over. But there are fundamental issues that need addressing at the heart of our model of global capitalism. Occupying Wall Street, Bay Street, or the City of London may not be any kind of solution, but that does not mean it should just be dismissed either. Business leaders would be foolish not to see this as an opportunity to create an improved system of capitalism that serves us all better.

Photo by david_shankbone. Reproduced under Creative Commons licence 

What the hype around Steve Jobs really says about us

Let me confess this right upfront: I have never been an avid user of Apple’s products. I briefly owned an iPod in the mid 2000s but when it fell into my toilet (true!) one day I didn't really miss it. So writing about Steve Jobs this week feels a little like an atheist writing an obituary for the pope.

This said though, the remarkable expressions of sympathy for Steve Jobs’ untimely death wasn’t lost on me. They are extraordinary in number (2.5m tweets in the first 13 hours), source (e.g. Obama) and nature. It all reminds me a little of what happened when Princess Diana or JFK died, I guess. The question here of course is: what is it that causes millions of people to respond so emotionally and affectionately to the death of this business tycoon?

It is obvious that most of the usual features of these icons of popular culture do not really apply to Jobs. He was hardly a charismatic business leader with big PR value such as Richard Branson (Virgin) or Jack Welch (GE). In fact, many of his co-workers actually describe him as rather awkward and geeky in personal interactions. It also can’t be his generosity to society which has given business leaders such as Bill Gates or Warren Buffet some more charisma these days: up to now Steve Jobs has only engaged rather reluctantly in charity and so far has refused to join Gates’ initiative to pledge large parts of his personal wealth (at least $6.5bn) to social causes.

Talking of responsible business practices, in fact there might be a group of people who are actually a tad gleeful about seeing Jobs go: Chinese factory workers in Suzhou poisoned two years ago by toxic chemicals at Apple’s touchscreen factory wrote to Jobs directly, asking for his help in getting medical care and compensation for their illnesses and lost work time. Jobs never even cared to reply.

Much of the hype focuses on his ‘vision’, his ‘innovation’, his ‘genius’ etc. But is that really true? One of the first ‘inventions’ credited to Steve Jobs – the computer mouse and the clickable workspace (later adopted by Microsoft Windows) were initially invented at the Xerox PARC laboratories in the late 1970s. Jobs saw these ideas there first, and then just went on to commercialize them. All in all, Apple in this sense lives with ‘creation myth’, as Malcolm Gladwell recently put it.

Was it his business acumen? Maybe, but even here, until he was fired from Apple in 1985 the Macintosh PC was a niche product. It was rather Bill Gates who played that phase of the game to perfection. And as Robert Reich points out in Supercapitalism (Chapter 2) Steve Jobs and the entire Silicon Valley phenomenon was by no means initiated by all that ‘American entrepreneurship’ or ‘True spirit of modern capitalism’ which is now touted on all the American TV networks reminiscing about Jobs’ life. The American IT boom was initiated mostly by whopping defence contracts from the Pentagon and NASA – i.e. good old ‘socialist’ government money – in a quest to keep up in the cold war arms race in the 1970s and 80s.

So – what is it really? At a time when IT has become a key instrument not just for work but for most areas of our life many of us ‘consumers’ are pretty gutted by the quality of products we are ‘forced’ to use. Who of us has not despaired over the dismal quality of his Office software or the unreliability of his Windows browser? Who among us has not gone ballistic at the slow speed of their hardware at times or been incensed that the next ‘generation’ of software now forces us to by yet another, faster computer? Or utterly despaired when ploughing through an incomprehensible user manual or trying to install the new TV or some software on the PC for the umpteenth time?

One thing Steve Jobs obviously had understood is this: that consumers are actually happy when they use products that are suited to them: easy to operate, fun to use, opening new experiences or simply making life easier. Apple’s recent products - and the real beacons of Jobs’ fame and commercial success - are different in this one aspect: they put the user and his preferences first. And even as a heathen in the church of Apple followers I am ready to admit that the iPhone or the iPad provide an ergonomics and a scope of service which is really phenomenal. Especially compared to what is otherwise on offer.

So, in somewhat cynical terms, what is the real regret about Jobs’ untimely death? We will miss a CEO who put consumer interests first. It is that simple. While this should be a normal thing in a free market economy the reaction to Jobs’ death in my reading just goes to show how modest we have become as consumers. This is particularly true in the world of IT, where we rely in many areas on just one monopolist (Microsoft). Who has treated us over the years not exactly well. To a degree that the one entrepreneur, who really gave us our money’s worth, who offered us products and services which really add value to our life - we no longer see this as the normal result of free consumer choice in a competitive market, but as a gift bequeathed to us by a god-like figure of divine foresight, clairvoyance and care. St. Steve, as it were.

(DM)

Artwork by Cea, reproduced under the Creative Commons Licence.

UBS and that missing $2.3bn: Rogue trader, rogue company or rogue industry?

Revelations last week that UBS, the Swiss-based global financial services company, had shipped close to $2.3bn due to "unauthorized trading" in its London investment banking division focused intense media speculation on the derivatives trader at the heart of the scandal, Kweku Adoboli. Earning himself the now familiar epithet of the "rogue trader", Adoboli also claimed the dubious honor of a position at number 3 in the all time Rogue Trader Top 10, placing well behind Jérôme Kerviel at number 1 (with nearly $7bn in losses), but close to Yasuo Hamanaka at number 2 ($2.6 bn) and well in front of Nick Leeson at number 4 ($1.3bn). Like those before him, Adoboli's losses have had grave repercussions for his employer and for the bank's stakeholders. UBS's share price dropped by 10% after the losses were reported, and with almost the entire quarterly earnings of the firm wiped out, the bank is reportedly aiming to accelerate a major restructuring of its business, involving thousands of job losses. Meanwhile UBS was quick to reassure its well-heeled customers that none of their money was at risk, though a downswing in the bank's reputation and overall trust levels seems inevitable.

The narrative of the "rogue trader" is a seductive one in making sense of events like those at UBS. A lone trader going off the rails, committing fraud to make himself rich - what could be a simpler explanation? But as with Kerviel, Leeson and others before him, Adoboli does not appear to have been seeking to profit directly from the unauthorized trades (although clearly would benefit indirectly in terms of a higher bonus if the gamble paid off). In reality it was more a case of taking an illegal route to try and make the firm more money. Likewise, Adoboli hardly fits the stereotype of the evil genius that many will picture when thinking of a rogue trader. By all accounts the Ghanaian born, 31 year old seems to be pretty unremarkable.  He likes art and photography. He's "very polite", "very loyal" to his employers a "really nice guy" according to the neighbors, even his former landlord speaks highly of him. He went to private school and graduated from a respectable university (Full disclosure: actually he studied at the University of Nottingham, and graduated whilst Crane and Matten were teaching there - but did not, we might add, attend our ethics class). Clearly, a major share of the blame for UBS's losses must rest of the person who cooked the books to keep his spiraling losses secret. But he's hardly much of a rogue, it has to be said.

So where does the rest of the blame lie? UBS itself certainly has to take a large proportion of the responsibility. After all, what kind of financial institution doesn't realize that one of its employees is taking such wildly speculative positions and then cooking the books to hide it? Adobodi appears to have been making some unauthorized trades since 2008. In the end it was the trader himself who blew the whistle on his activities, not those who were responsible for exercising financial control. Internal and external auditing, back office controls, risk management, compliance -aren't they supposed to stop this kind of thing happening? Moody's the rating agency is belatedly pointing at "ongoing weaknesses" in the bank's risk management."We have continued to express concerns with regards to the ability of management to develop a robust risk culture and effective control framework," the agency said in the aftermath of the last week's disclosures. But this is hardly news for a bank like UBS that lost $37bn in the subprime mortgage crisis and had to be bailed out by Swiss taxpayers.

Myret Zaki, the author of a best-selling book on the bank has presented the situation as "a never-ending story repeating itself". "I'm not surprised at all about this," she told the UK newspaper the Telegraph "[UBS CEO] Oswald Grubel kept advocating an increase in risk-taking. When you have a CEO talking like that, you are not in a climate where you feel restricted, as a trader. He was on the side of continuing to make money on the markets, even though wealth management was employing 30pc fewer staff for double the profitability." Others, such as Richard Abbey, the senior managing director of financial investigations at Kroll, point to UBS's recent downsizing as a factor: "It's no coincidence that after downsizing and lay-offs these type of losses are more common. There may not be enough people to physically control checks and balances. It may be institutions are too reliant on computer controls and they are the easiest to bypass." In many respects then this was a time bomb waiting to go off - with Adobodi as much the symptom as the cause. This could be "rogue bank" just as much as "rogue trader".

Taking a broader perspective on the scandal, maybe we don't need to stop the blame game at Adobodi  and UBS. As with the recent financial crisis, perhaps this is also a deeper rooted problem of the financial services industry as a whole. According to the Telegraph, "unauthorized" trading could be considerably more widespread than the occasional huge rogue trader incident suggests: "experts and insiders warn the amount of risky unauthorised trading is difficult to quantify and often not brought to the public eye unless losses are huge enough to be announced". The paper goes on to quote a "senior trader" at a London bank: "People are fired every year for having stuff on their book that they shouldn't. All the banks tend to know what has happened and why someone has left, but it doesn't get publicised. It's usually only a couple of million bucks." So while Adobodi may be number 3 in the rogue trader top 10, we never even get to hear about all those entries lower down the charts. Jérôme Kerviel, who's still there at the top of the list has suggested that companies like Société Générale, his then employer, may even tacitly endorse such trades as long as they are making the bank money. It's only when they start registering huge losses that the controls really kick in. As even the Wall Street Journal recently quipped: "what do you call a 'rogue' trader who makes $2 billion? A Managing Director!" These may of course be little more than jokes, rumors and groundless accusations. But clearly the financial services industry has a major task ahead of it to clean up its reputation and regain the trust of its stakeholders. The events at UBS are going to make that task even harder now. We don't just have a rogue trader on our hands. We have a rogue industry.


Photo by Ahmad Nawawi. Reproduced under Creative Commons Licence

Has 9/11 changed business ethics?

I can’t believe I just wrote this headline. Looking at today’s punch lines in North American papers or on TV, you can get the impression that 9/11 was the all defining event of the new millennium. And that pretty much nothing in the world has remained the same ever since.

There is a lot of hyperbole out there these days. As shocking as 9/11 appeared at the time the last decade has seen – in terms of loss of life or any other criteria we want to apply – much worse tragedies, injustices and atrocities. This includes a number of ways in which America and its allies have responded to 9/11 (8,500 American soldiers and contractors killed, 103.000 Iraqi civilians killed, according to today’s New York Times).

World politics aside – and there are more gifted minds and eloquent writers out there to address those issues – it’s still worth just engaging in this little thought experiment. So let’s play around with this thought for a second: if 9/11 is the day ‘that changed everything’ – what has its effect been on the niche of the world we are commenting on in this blog? Here are some thoughts off the cuff.

Blurring lines between the public and the private. 9/11 has given many governments new legitimacy in redefing the public and the private in their relation to their citizens. Email, phone conversations, financial records, tax statements are just prominent examples where governments have attempted to intrude the privacy of citizens – all of course in the name of fighting ‘the war on terror’. Conspicuously, many of this information is administered by private companies. Unsurprisingly, we then see that electronic privacy, identity protection and a host of other privacy issues have turned in ethical dilemmas for private business. Arguably, many of the ethical issues here would be on the agenda without 9/11 though, as the main driver of ethical contestation is the mere fact that advances in information technology have made those new ways of information gathering possible in the first place.

New business opportunities. Looking at how America and its allies have approached the wars in Iraq and Afghanistan it is evident that we have seen a surge in business opportunities for private military contractors, mercenary companies and security providers. As the Wall Street Journal investigation ‘Top Secret America’ has highlighted this also pertains to intelligence gathering, counterterrorism or homeland security. This all has propelled private business in a sphere traditionally occupied by governments and other – at least on paper – publicly and democratically accountable societal actors. Again, we can legitimately ask in how far this is really triggered by 9/11. As Naomi Klein has pointed out (‘The Shock Doctrine, Chapter 14), it was exactly on September 10, 2001, when Donald Rumsfeld held a Town Hall Meeting in the Pentagon announcing far flung privatization of military operations leading CNN to the headline on the very eve of 9/11: ‘Defence Secretary Declares War on the Pentagon’s Bureaucracy’! In this sense then 9/11 might have accelerated these developments and provided some much needed legitimacy – but the underlying ideas and intentions were hardly new.

Soaring government deficits. The current debate on government deficits in the US, UK and elsewhere is often directly linked to the so-called financial crisis of 2008/9. This however overlooks the fact that due to the ‘response’ to 9/11 certainly the US and the UK, had already heavily overstretched their budgets. The New York Times today cites a figure of $1.6trillion in costs for just the wars post-9/11. In some ways one could even argue that due to the constant distraction of two wars the looming financial disaster could grow largely unnoticed by governmental scrutiny. And the need to finance those wars made it all too tempting to keep interest rates low - with the widely known effects on cheap credit in America. As a result we now see more or less in all Western democracies an increase slashing of classic welfare state provision. As many commentators have pointed out retreating governmental provision of health, education or other public services has been a key driver in a shifting expectation towards business in engaging in these arenas – the UK probably being the best laboratory to substantiate that thesis.

New issues in diversity and discrimination. Certainly in the US, 9/11 has heightened scepticism towards all things Muslim. This is certainly reflected in tightened immigration laws and the general perception of the public. Conspicuously, there is relatively little case evidence that this has also played out in business. While gender or sexual orientation have been well documented there is only scant evidence of actual discrimination on the basis of being of Muslim faith. This may, however, be more credited to the fairly palpable ‘Teflon’ of political correctness with which those topics have been touched since then in business.

A multipolar world and the rise of China and India. One of the most interesting developments in the US has been its heightened restrictions on immigration of highly educated young people including those graduating from American universities. This has had a number of implications for business both in the US and the rest of the world. Most obvious are changes in those industries where America is still quite advanced, most notably IT, electronics and software. All these industries have in the past and still at present do rely heavily on an influx of foreign-born professionals. While it has become more difficult to hire this talent at home, places such as India have immensely benefited from this. Much of the software development and business process outsourcing of leading US companies is now done in Bangalore, Hyderabad or Mumbai. In this sense, with the US becoming less open to a free movement of people we see that this has benefited other parts of the global economy. This has also been visible in University education. Countries such as the UK, Canada or Australia have seen a surge in international students who found their ambition to study in the US rendered impossible after 9/11.

For business ethics this move towards a world where the US in many fields has lost a pole position is quite interesting. With growing business interests in emerging economies we see, at the same time, an interest in business responsibilities and ethics growing in these parts of the globe. We can certainly argue that the last decade has seen much stronger influence and relevance of other areas of the globe. Business ethics, 30 years ago, was by and large an American subject. This is no longer the case today.

Arguably, much of the changes we discuss here have a fairly tenuous link to 9/11 as such. The events had their most severe impacts on ethics in government, warfare, international relations and how governments have (dis-)respected basic human rights since then. Some of it, as we think, has had a trickle-down effect on business. But maybe the gist of it is still best summarized by commodity trader Carlton Brown in the movie The Corporation: ‘In devastation, there is opportunity!’

Photo by JessyeAnne, reproduced under the Creative Commons licence.