Reading #20: Consumer Privacy

We've already discussed Employee Privacy. Much of that conceptual framework carries over to Consumer Privacy, especially the distinction between private and public information.

 First of all, the concept of "information" is epistemologically complex. The distinction between "public information" and "private information" is deeply rooted in Adam Smith's original distinction between "property" and "information." If there is a such thing as "private property," then why not "private information?" In what sense do individuals "own" information pertaining to their "private lives?" If there is a "right to privacy" is it a moral right or legal right? If there is a legal or moral right to privacy, then is that right a Positive Right or a Negative Right?  

So if corporations have a duty to respect the privacy of consumers, what kinds of information ought to be kept private, who is responsible for keeping it private, and how do they do it. Some kinds of information are widely recognized as "private:" financial information, health information, sexual preference, preferred Internet sites, online purchases etc. 

Stockholder Theory argues that, ultimately, it's consumers' responsibility to protect their own privacy, by limiting their communication to businesses that promise to protect that privacy. Health insurance companies need your personal health information in order to provide health insurance. Good health insurance companies would promise to protect that information via state-of-the-art information technology, or would consult patients before sharing with other third parties: employers, family members, the media, other sellers etc. 
No laws are necessary. Companies that promise to effectively protect confidentiality, will attract buyers that value confidentiality. Companies that do not promise to maintain confidentiality, may attract buyers who do not care about confidentiality. For example, I often visit guitar sites, both guitars and playing guitars. I don't care if those sites share my guitar interests with other sellers. However, I'd rather keep most of my health-related information private, therefore I rarely post anything online that relates to my personal health. No governmental involvement is necessary. Over time the free market will protect privacy, to the extent that some buyers demand it in various contexts. 

Stakeholder Theory argues that the free market often fails to protect consumer privacy, and that privacy can often be invaded without consumers even knowing that it is being invaded. Therefore, stakeholder theorists argue we need laws to protect consumers from the invasion of privacy, and the sharing (selling) of that private information to interested third-parties. For example, there are laws that protect the confidentiality of medical information. All providers are legally responsible for asking patients exactly who may have access to that information. The problem with these laws is that they make it difficult for friends and family to find out what's going on; and health care providers are forced to go through time-consuming, and resource-consuming bureaucratic lengths to provide the health care that patients want and need. Utilitarians might, therefore, argue that the costs of protecting consumer information far exceeds the benefits.             

Executive Compensation

The question of executive compensation is one of the more recent moral issues attract the attention of business ethicists. Here's the basic issue: "Are there moral constraints on how much corporate executives are paid?" The salient moral principles are utility, liberty, and justice.

Utilitarians argue that executive pay ought to be subject to the "greatest happiness principle:" or "the greatest happiness to the greatest number." Thus, there are consequences for both over-paying and under-paying executives. If the CEO is a utilitarian, then he would be inclined to

Stockholder Theory says that the CEOs primary moral/legal obligations are toward the owners of the company, the stockholders. Compensation of any given "executive" would be based on how much he contributes to the value of the company's stock. If that executive is (in fact) largely responsible for increased stock value, other companies might seek to hire that executive, and offer more salary, thus contributing to a bidding war. Thus, it's up to stockholders to determine "how to pay executives" and how much to pay executives." It is widely accepted among stockholder theorists that the interests of the stockholders and the executive must be aligned. So if any given executive (or CEO) earn more for the stockholders, the ought to pay him more. If not, they ought to pay him less. In the end, if valuable executives are under-paid, then they'll exercise the Liberty Principle and move to another company, when their contract has expired. If stockholders over-pay executives, there will be less money available to pay other employees, less money for advertising, less money for research and development etc. In the end, the Liberty Principle rules supreme, no governmental bans or mandates are necessary. The free market determines fairness.   

Stakeholder Theory says that there is a social cost for overly-generous executive compensation. The more you pay executives, the less money you have left to pay other employees, financiers, and suppliers. Therefore, the CEO must take into account there other stakeholders. Some stakeholder theorists even defend the concept of a maximum wage, an objective limit on how executives are paid, and how much they are paid. Sometimes maximum wage might be set as a percentage of how much the lowest-paid workers are paid; maybe no more than 500% (5X)  of the minimum wage. Others might argue, that all "raises" must be across the board, and that if an executive gets a 10% raise, so should everyone else. Of course, most stakeholder theorists would argue that there must be laws governing both minimum and maximum wages.

 Today, executive compensation is often determined on the basis of cronyism; that is, the executives and the chairmen of the boards (stockholders) choose to reward one another, regardless of merit. Then, they disguise their mutual rewards behind a smokescreen legalese and/or verbal contracts behind closed doors. Stockholders, therefore, must insist on transparency, in order to minimize cronyism. The media often plays a role in exposing overly-generous compensation for both executives and board members.             

Reading #23: Bribery and Corruption

Another problem associated with the global market is the widespread use of bribery and kickbacks in other countries. In most Western countries, offering a bribe and paying a bribe are considered immoral, but the legal systems tend to treat the offerers different from the payers. In many parts of the world, bribery is regarded to be a necessary evil, a business expense, and the cost of doing business. Many cultures regard gift-giving as a necessary part of establishing working relationships. So, one of the initial puzzles is how to differentiate between a “gift” and a “bribe.”

In many countries bribery is regarded as tradition. Public officials in many countries are routinely under-paid relative to market forces, and therefore they supplement their income by taking bribes. Of course, there are small time petty “bribes” by lower level public officials, and big time “BRIBES,” by higher level officials. Is bribery always wrong, never wrong, or sometimes wrong? Are there hyper-norms involved?

The most serious problem with regulating bribery at a global level is that it is that it is almost impossible to monitor and enforce laws against it. It takes place in private. Bribes are often perceived by both offerers and payers as a business opportunity, and therefore tend to perpetuate the tradition.

Conceptually, bribery is a problem for both stockholder and stakeholder theorists. Stockholder theorists tend to embrace “When in Rome do as the Romans do." But on the other hand, bribery obviously raise the cost of doing business, without adding to the value of the product or service. Stakeholder theorists promote international laws that insist on corporate “transparency” and laws that make it more difficult to pay bribes, especially laws against money laundering. Stockholder theorists often argue that some of these laws violate the right to privacy, or that these laws are costly and ineffective.

Reading #18: Consumer Health and Safety

We already discussed Employee Safety in the workplace. What do business ethicists have to say about Consumer Health and Safety? Again, the two basic philosophical issues are: How healthy is a healthy product or service? And, how safe is a safe product or service. In short, what are the moral/legal standards?

First, let's admit that there are no products and services that are 100% healthy and/or safe. That's because, both health and safety are subject to both short-term and long-term utility. Eat a steak for dinner tonight, will certainly be a highly pleasurable experience; especially if it's accompanied by a couple of glasses of wine. There are also health benefits associated with eating red meat. Problems arise when consumers eat steak at every meal over a period of many years. Obviously, there is a financial cost associated with eating steak every day. But there are also health risks associated with eating large quantities of red meat over a  long period including: cancer risks and heart disease risks. As for safety, eating steak carries with it a risk of choking, therefore, it is advisable that you chew your steak thoroughly before you swallow it.

There are also short-term and long-term benefits and risks associated with drinking wine. Over the short run, wine will aid in the pleasure digestion of food, but it can also be financially risky. If you drink more than 2-3 drinks, you are liable to get intoxicated, or at least intoxicated enough to crash your car and/or get a ticket for DUI. If you are pregnant, drinking alcohol poses a risk to developing fetuses. Over the long run you can also become an alcoholic, end up in prison, and ruin your family life.

So the basic issue remains: what are the moral/legal duties that accompany selling various products and services? Traditionally, most sellers willingly "warn" buyers of the most serious harms. Most alcoholic beverages are legally required to post a warning label that informs pregnant women that alcohol consumption might harm their fetus. Tobacco products are legally required have a warning label stating the risks of cancer and heart disease. Again, for business ethics, the main issue here is whether the government ought to force sellers to disclose all known harms or whether the free market will adequately inspire sellers to expose risks to buyers.

Stockholder Theorists argue that it's probably in the interest of sellers to share information about the health and safety of products and services. If they don't other third parties will do it, especially consumer groups and the media. However, labels are designed, primarily to attract buyers, therefore labels that are excessively complex, loaded down with minimum risks, are counter-productive: buyers are less likely to read a long diatribe. Once, buyers are warned of risks, the Liberty Principle guarantees that consumers have a right to take risks; and that State Paternalism violates the Liberty Principle.

Stakeholder Theorists are Kantians, and therefore argue all products and services ought to be as healthy and safe as possible, and that government ought to set those standards, monitor and enforce those standards. Some unhealthy and unsafe products and services are deemed illegal for everyone, others are illegal only for certain groups. When health or safety standards are violated, government punish sellers with fines and/or other legal sanctions. Stakeholder theorists tend to expand State Paternalism, by regulating what can be sold to whom. State paternalism is especially evident in laws that forbid and/or regulate: prostitution, gambling, and selling pot. Most Stockholder theorists argue that the more states regulate buying and selling, the fewer the buying opportunities, and the less happy we all are. In short, there is an inevitable tradeoff between legally imposed health and safety standards, the cost of products and services, and the happiness of consumers. I'll have another serving of steak and another glass of cheap wine. But I'll pass on the heroin and the prostitute. I don't need any advice or protection from government. 
           

Reading #17: Marketing Ethics

In the Western moral tradition, buying and selling involves marketing of various products and services to various individuals and groups. Thus advertising is an essential part of business enterprise. The longstanding idea here that "fair" business transactions must be based on rationality and free will of both buyers and sellers; that is, both must know what is being offered and be able freely to reject or accept offers based on self-interest. Historically, marketing certain kinds of products and services to vulnerable buyers (that lack either rationality or free will) has been viewed as morally problematic. Potentially vulnerable buyers include: children, poor people, sick people, desperate people, people that speak other languages, and or old people.

Brain science now recognized two major systems in the brain that are responsible for all decisions, including buying decisions: System I (fast decision-making) is located, primarily, in the central regions of the brain which is responsible for emotions. Marketing experts induce consumers to purchase various products and services by manipulating emotions: usually fear and sex. System II (slow decision-making) is located mostly in the cerebral cortex and is responsible for slow, rationally-based decisions. Marketing based on System II, pleads to consumer rationality, and therefore tries to logically convince consumers, by arguing that the benefits outweigh the costs. 

 Traditionally, business ethics has focused on System II, whereby buying decisions must conform to the principle of informed consent, which means that forcing people to buy something they really don’t want (by telling lies) is regarded as fraud in the inducement a form of theft. Fraud usually involves the presenting false information to buyers in order to sell a given product or service. It is an intentional attempt to trick System II reasoning. A classic example of fraud involves telling potential buyers that you are selling a Cadillac when it’s really a Ford.

 

In recent years, a growing number of marketing strategies do not plead to rationality; but rather plead to System I emotions. Marketing home security systems, invariably, invokes the fear of strangers breaking into your home. Marketing erectile dysfunction drugs, invariably depict good-looking elderly couples that are about to engage in pleasurable sexual intercourse.  

 

Effective marketing strategies usually involve the manipulation of both systems. But what are moral/legal limits of marketing? Are there limits on how far sellers can go in manipulating consumer rationality and emotionality?  

Stockholder Theory argues that marketing ethics is bound by the Liberty Principle, and therefore rational competent buyers and sellers have a moral and legal right to engage in business transactions, based on their own self-interest. Its mantra is best described as “Buyer Beware.” Some buyers are cognitively unable to “beware” because of diminished rationality or free will. Diminished rationality might include low IQ, a lack of knowledge or education, or speaking another language. Diminished free will might involve physical/emotional addiction to various products and services, or the unwanted exercise of influence by third parties. Buyers, who lack either rationality and/or free will, often make purchases that others find irrational and/or harmful. In recent years, hoarders have become increasingly common; that is buyers who are especially vulnerable to System I and System II marketing.  I have several friends who own 20-30 guitars, and cannot resist buying more. Do guitar stores have a moral obligation to ask prospective buyer, how many guitars they already own? If they already own 20 guitars, do those stores have a duty to refuse to sell them another one? Or at least contact the buyer's wife? What if the buyer is a multi-millionaire and also owns 10 homes? Stock holder theorists argue that sellers cannot reasonably, be held legally or morally accountable, unless there is outright fraud committed. Unwise transactions may, however, be subject to paternalistic intervention by other third parties; such as parents, friends, adult children, physicians, and others. However, laws are necessary only to the extent that they monitor and enforce rules against “fraud in the inducement.” Therefore, at most, Stockholder theorists argue that potential consumers must be warned of non-obvious risks. False advertising, invariably involves either lying about the quality or price of any advertised product or service. In the modern era, false and/or misleading marketing is often revealed by private consumer groups and the media.  

Stakeholder Theory, argues that corporations have moral responsibilities to consumers beyond the Liberty Principle. Therefore, marketing products and services may involve other moral principles: especially, Utility, Non-Maleficence, and Justice. One might argue, for example, that marketing unhealthy breakfast cereals to children has contributed to our ongoing obesity epidemic, and therefore, this negative utility ratio suggests that cereal marketed to children violates the principles of non-maleficence and/or utility. The same hold true the marketing of tobacco, alcohol, and/or firearms to children. Sometimes toys are deemed unsafe for children of various ages. For example, toys with small parts might present a choking hazard for infants. Toy guns that look like real guns are also dangerous.

 

In a self-interested world dominated by mass communication and computer technology, false advertising is probably inevitable. Indeed, false advertising is partially supported by a longstanding traditions in the advertising industry that condones the telling of "white lies" in advertising. Sometimes these white lies make claims so outrageous that any rational person ought to know that they are false. For example, the old Keystone Beer commercials promised consumers a visit from the Swedish Bikini Team. Soft drink advertisers promise to make our lives more exciting, vitamin advertisers promise to make us feel and look younger etc. But the line between white lies and black lies is not always very clear.             

 

 

Discrimination

Discrimination is a violation of the formal principle of justice because it gives some individuals more than they deserve and others less than they deserve. But if we do adopt affirmative action policies, then some previously advantaged groups become disadvantaged: in particular, white males. Some libertarians argue that reverse discrimination also violates the formal principle of justice and therefore it is equally wrong. In sum, the key philosophical questions raised by affirmative action include:

1. In terms of public policy, should government treat persons as individuals or as group members? If, we are fundamentally group members, which group determines our identity? Am I essentially unique individual or am I simply a white male? In other words, should public policy be based on "impartiality" and be blind to the attributes of particular individuals such as race, gender, age, or sexual preference; or should it exercise "partiality" and help the disadvantaged?

2. What role should government play in mediating the competition for scarce resources between groups and individuals? Should government simply guarantee the freedom to compete, or should it redistribute resources based on moral principles such as merit, need, equality, or social utility? Do individuals or groups have only a negative right to compete for resources,or do they also have a positive right to possess at least some resources?

3. What role should government play in fighting economic effects of racism, sexism, and other forms of prejudice?

4. Should public policy aim at utility (preventing future injustice) or retribution (paying back) groups and individuals that have suffered injustice in the past?

 

5. Does the Principle of Liberty, at least sometimes, trump the Principle of Justice?