Thursday, January 12, 2017

Moral Licensing - The Dark Side of Philanthropy

There is a growing trend associated with the relationship between business and civil society that has sparked some interesting discussion. 

Consider the following:

Growing Power is an NGO that works with youth to establish community food systems where local stakeholders grow and distribute food.  Several years ago, Growing Power was offered a donation of $500,000 from Monsanto as part of Monsanto’s ambition at the time to help youth in need.  The money would have been a boon for the struggling NGO to help expand their infrastructure of independent food communities for marginalized youth. 

In a seemingly unrelated story, Pfizer, this past year, offered to donate one million pneumonia vaccines to Doctor’s Without Borders.  With pneumonia being the leading cause of death in children (1.4 million per year), the donation would have been a boon for the efforts of DWB in developing country regions.    

Yet both Growing Power and Doctors Without Borders rejected the donations!

In explaining their decision, a spokespoerson from Growing Power explained:

“We turned it down because of the kind of work we do, the belief in our vision...we advocate seed saving and slow food, and...if we accepted the Monsanto funds we would have legitimized their work.  Our youth look to us as role models.  You’re no better than what you are trying to defeat if you do the same thing and get sucked into that system”

Similarly, someone from Doctor’s Without Borders explained

“I’m all for donations…but in this case, to accept a donation is to accept the status quo in which health technology is beholden to the priorities and values of [comanies like Pfizer] whose interests exceed simply finding a solvent path to technlogical progress and human well being. While the donation would benefit people under the Care of DWB immediately, accepting it could mean problems for others, and problems longer-term”

Growing Power and DWB are part of a growing number of non-governmental organizations and social enterprises that are rejecting donations from the very organizations that spawned their creation.  This is fascinating to me because it means that society is beginning to connect the dots when it comes to the causes and persistence of social problems.  In the above two examples, Growing Power and DWB recognize that accepting these donations not only represents a drop in the bucket of a major problem, it also validates the behaviour of Pfizer and Monsanto to continue their egregious behaviour.  In the case of Pfizer, and their pharmaceutical company peers, the fundamental source of frustration for DWB is the problem of accessibility of the drugs.  Accepting the donation would give license to Pfizer to continue disrupting market forces that would otherwise keep prices accessible to the public.  In the case of Monsanto, the purpose of Growing Power is to challenge the very fabric of Monsanto’s business model.  Monsanto’s business model is as ingenious as it is deplorable in its attack on food independence because its thrust is to monopolize the food system.  If Growing Power were to accept Monsanto’s donation, they would be validating their behaviour and undermining their very purpose as a non-governmental organization. 

What is more fascinating to me though is thinking about why Monsanto and Pfizer’s are offering these donations.  Academic literature points to a wide range of explanations. One is that Monsanto and Pfizer are trying to offset the growing pressure from society to curb their egregious behaviour and its negative impact on society.  One way to do this is to donate a portion of the profits you’ve made from this behaviour.  Another explanation is that it is useful to target those stakeholders who have the greatest salience in terms of media splash about the damaging effects of your behaviour.  Although, on the surface, it looks hypocritical to support the very organizations that have emerged as a result of your behaviour, the decision is well calculated.  For one, if an organization like DWB accepts the donation from Pfizer, there is a better chance that DWB will lessen the complaints about Pfizer and instead focus on the competition.  Also, it paints a relatively positive picture that although the companies are complicit in the social issue, they do care by contributing part of their profits.  Consumers can acknowledge this effort and justify Pfizer’s more sinister behaviour elsewhere.

Although these explanations make sense, I offer an alternative called moral licensing.  Moral licensing occurs when a person, group, or organization gives itself permission or license to do something “bad” because it has done something “good”.  Consider a simple example, in the rare occasion that I rent a car, I decide to go with a gas guzzler (e.g. hummer) because 99% of my travel is through environmentally benign public transit. 

I think that moral licensing is the primary reason why companies like Pfizer and Monsanto set out to donate large sums of money to organizations like Growing Power and DWB.   As the quotations state above, if companies donate money to these causes (something good), they are better able to justify the negative impact (something bad) of their core operations.  If this explanation holds, it means that Pfizer and Monsanto are likely behaving worse than had they not given the donation.  Executives, when thinking about whether to arbitrarily increase prices of drugs or further their monopoly position on seeds, will think of the donations they’ve made to these organizations in deciding how far they should go in these efforts.  Had they not made these donations, they may pull back on some of the more egregious forms of social toxicity. 

How prevalent is this practice?  Evidence of moral licensing is everywhere and is useful in explaining some bizarre phenomena.  For instance, rankings of corporate social performance and responsible business are often ridiculed because the very companies that make the top of the list are the same companies a week or two later that end up in the news regarding some scandal.  Similarly, ethical funds (e.g. NEI Investments) filter out companies that are meant to be responsible leaders in their industry.  Yet these same companies are fraught with scandal.  Consider CIBC, a Canadian bank that is on NEI’s Canadian Large Capital Fund, recently faced a major ethical scandal when the media exposed that it helped set up offshore accounts to facilitate tax avoidance for some of its major clients.  Barrick Gold, similarly touted as a leader in CSR in light of the millions of dollars they’ve contributed to social programs, regularly faces a barrage of complaints regarding barbaric practices in developing regions. And TD likely justifies their reluctance to withdraw funding to the North Dakota Access Pipeline because they do so many wonderful social and ecological initiatives elsewhere.

I call on other organizations receiving donations from large companies to reflect on how the more fundamental operations of these businesses (everyday decision and behaviour) actually undermine the cause that represents your existence.  I call on organizations that accept funding from CIBC’s Run for the Cure, organizations that receive funding from Tim Horton’s healthy eating programs, among others to think about joining a movement of organizations that forces companies to rethink their fundamental business proposition by shaming them the next time they offer a donation. 

Friday, October 21, 2016

TD Complicit in North Dakota Pipeline Controversy

Recently, protesters chained themselves to a TD branch to protest the bank’s funding of the controversial North Dakota oil and gas pipeline.  The pipeline is meant to transport natural gas from U.S. fracking operations.  Despite President Obama and the justice department directly intervening to block the pipeline's progress due to the lack of stakeholder engagement and consent, the media has not been covering the issue to any great extent.

Earlier this week, Schulich School of Business hosted the Senior Director of CIBC's Environmental Group.  The Schulich MBA alumnus explained how CIBC screens projects based on their environmental risk to the client.  This is what we’d call the business case for sustainability because it makes financial sense for CIBC to do this.  These sorts of initiatives are labeled as a commitment to sustainability when they are simply business practices that maximize the bottom line.  As a 12 year old article in the Economist noted, this is not CSR, this is simply good business.  But the problem is that the bank’s determination of what is an environmental risk is not the same as society’s determination of an environmental risk.  For instance, a bank may push their clients to consider the effects on their operations of devastating storms resulting from climate change but they will not consider the negative impact of those same operations on nearby waterways upon which local communities depend if there is nothing in place, such as regulation, to facilitate the potential for financial costs.  This is why CIBC often looks completely hypocritical considering that they continually boast their commitment to breast cancer research through funds raised for CIBC Run for the Cure yet will not bring their environmental risk standard to a level that would preclude funding those businesses that produce and/or use the chemicals that contribute to breast cancer.  

TD’s blunder in the North Dakota access pipeline represents a very similar example of this because the project likely passed their weak environmental risk standard, a standard they boast to be part of their commitment to sustainable development.  But what their standards did not include was the necessary social license to operate that companies should have before receiving funding from TD.  This is because TD would determine this to be low risk, even though broader society as represented by the protests there (including the US President and Justice Department), deem this high risk.  The bottom line is that the banks' standards around sustainability will only become as strict as is necessary to optimize profitability.  This is insufficient if any bank is serious about responsible business.  Let's be clear:  standards that are necessary to prevent negative social impact yet are unnecessary to prevent substantial risk - because government regulation is too laxed or behind in enforcing certain practices,  or the risk of stakeholder revolt at the time of the loan and its impact on the client's brand is negligible - would represent a drop in profit.  

So I balk at Schulich's CIBC presenter and the rest of the big banks’ bold commitments of environmental sustainability because they are simply following the buck.  It is now more attractive for banks to go in this direction because of looming regulation, serious stakeholder revolt if they fail to do so, and the negative impacts of decades of negligence in the lending practices these banks have ultimately facilitated (e.g. climate change).  To now say that this movement into environmental markets is a solid example of their commitment to sustainability is like saying that Tim Hortons' or McDonald’s introduction of healthier food options is a bold movement towards responsible business.  The reality is that they are now profiting from a growing awareness that what they were feeding society over these last several decades was garbage.  The banks have profited off of the negative externalities they were complicit in creating as the intermediary of capital and now they are profiting off of the growing market for environmental practices meant to correct what they helped to create.  That's f$%#& up!

Thursday, February 4, 2016

Putting the "Public" Back into "Publication"

Let’s talk about the academic publishing industry.  Or, as I like to refer to it, knowledge hoarders!

I’m an academic.  It is my job to publish research in reputable journals to contribute to knowledge, knowledge that tells us important things like causes of cancer, whether climate change is real and human driven, whether particular foods are more or less associated with diabetes and obesity, and, this is true, that Pacific herring farts, unlike human farts, are essential in helping to build social bonds

Now there are different types of publishing.  We’re most familiar with the publishing of books and textbooks.  But I want to talk today about the publication of academic articles.  They key difference between an academic article and say a book is that the article is vetted by expert anonymous reviewers (unknown to the author) so that the reader has some assurance that what the article is saying is in fact reflective of sound science.  Academic publications filter out hearsay, myth, and fear-mongering bullshit that tends to come from a simple google search and sometimes books.  Could you imagine if we devised regulatory policy based on the seemingly airtight consensus on the internet that eating gluten is unhealthy? 

Yet, here’s the rub…although the word “public” is in the word “publication”, public access to the knowledge inside these publications couldn’t be more private.  

There are three main publishers of academic knowledge – Elsevier, Springer, and Wiley-Blackwell.  Together they own the access rights to 42% of all academic journals.  To put that differently, they own the access rights and are thus the gatekeepers to 42% of knowledge in the academic community.  Things haven’t been that bad since Immortan Joe from Mad Max Fury Road controlled the flow of water to desperate citizens of a parched world or when Donald Trump controlled what was considered real news.

But unlike Immortan Joe who likely paid the high costs associated with drilling and accessing that water, publishing companies don’t pay the salaries of the scholars nor do they cover any expenses associated with the research they conduct.  Instead, the cost of research falls on the backs of you, the taxpayer, through the salaries and expenses public colleges and universities pay its professors.  This means that even though taxpayers are paying to produce knowledge, they can’t access that knowledge unless they fork over an average $30 for a single article and $4,000 to $20,000 for a single journal subscription paid for by universities and colleges that students access through tuition fees.  It is no coincidence that there is a strikingly strong correlation between student tuition fee increases over the last two decades and journal subscription fee increases that universities and colleges have little choice but to pass on to students.

Think about that for a minute.  That’s like paying $45,000 for a car and then being prohibited to use the car until you pay the car dealer a monthly fee to use it.  Or that’s like buying a house from Rose and John and not taking ownership until you pay them a monthly fee to use it.  That’s fucked up!

Publishing companies claim that there are enormous costs associated with distributing knowledge that justify the fees.  Printing costs have become incredibly expensive…all that paper, and the cost of binding the journals, not to mention shipping journals to the many colleges and universities around the world...that’s crazy expensive.  

Except, the Internet happened!

So what costs do these companies sustain to justify these prices?  What value are they adding to knowledge creation? According to a 2012 article in Nature , they provide a wide range of services.  They edit the draft of the article, they select scholars to review the work to determine whether it is suitable for publication, they work with the author to enhance the article, they translate the author’s illustrations to journal level formatting, and they provide the platform for access along with “other enhancements”.  That sounds helpful.

But there's one problem, it’s bullshit.  By the time the article is accepted to the journal, the draft is typically well written by the authors, requiring very little editing by the publisher.  But get this, Elsevier recommends that authors hire an editor to proof edit the work.  In fact, Elsevier offers editing services at, get this, $115 a pop for a proof read.  

Wait, what?  

Taxpayers are paying the scholar to prepare their draft and then are also paying publishing companies for the editing of the manuscript, something these companies say is part of what justifies their high fees.  Back to my house purchase analogy with John and Rose.  Not only are you paying these former owners a monthly fee to use the house that you bought, you’re also paying John and Rose’s expenses to live in their new house. 

Now what about the cost of finding experts to review submitted articles, another of the many services publishing companies allegedly provide?  Every journal has an editor, typically with a team of senior editors who manage this process.  These people ultimately decide whether an article is to be published based on reviews from anonymous or blind experts.  Both the editors and the blind reviewers are not employed by the publishing company but are instead scholars, employed by you, the taxpayer.  This means that the publishing company is completely separate from the process by which an article is determined suitable for publication and therefore incurs no cost associated with this.  Let me rephrase that, they do not in any way add value to the determination of whether something should or should not be published. 

Any remaining services they provide add virtually negligible value to the knowledge creation and dissemination process.  In fact, I would argue that in their pursuit to restrict access to knowledge, their net contribution to the public good is negative.

But the real kicker that puts to shame any argument that publishers have costs that justify their exorbitant fees is that the average profit of these companies is around 40% of their revenue.  That means that for every dollar they make from universities, only 60 cents is used to cover their costs.  Apple, one of the most successful companies in the world uses an average of 77 cents to cover one dollar of revenue, over the last 10 years, while Google uses 78 cents in the last couple of years.  Exxon, one of the most hated companies in the world, peaks at around 88 cents in costs for every dollar.

Things have gotten so ridiculous that Harvard University, one of the wealthiest institutions in the world, has cut some subscriptions as a way to control costs, demonstrating that even such a giant of an institution with billions of dollars in endowments, is vulnerable to predatory publishing.  That’s like Vladimir Putin pulling out of Ukraine because, well, the price of oppressive politics has become much too crazy these days.

But more sinister is what differentiates high quality journals from low quality journals i.e. the $20,000 subscription versus the $4,000 subscription that universities and colleges pay.  Fascinatingly there is virtually no difference in cost of the publishing company between these two sets of journals.  The reason why there is such a price difference is that the quality of the research is so much higher in the $20,000 journal.  That is, there is much more demand for these journals, which drives up the price.  But as I said, publishing companies have nothing to do with that variation in quality.  Normally, when consumers pay more for product A than B, it’s because the producer of Product A is providing the consumer more value due to some additional capital investment over time. But, in this case, the publishing company’s costs are unchanged because the taxpayer is footing the bill by paying more for scholars who publish high quality work. In actual fact, the taxpayer (i.e. the public) is getting kicked in the ass not only with high research costs but with footing the bill for the $20,000 subscription fee.  That’s nuts!  Think about that for a minute!  That would be like paying for the materials in a smartphone, the labour to put it together, the shipping to get it to your hands, the labour at the retail outlet and then on top of that paying the ridiculously high retail price of $600 to purchase it.  On the one hand, you’re saving Apple from incurring these costs and on the other, you’re giving Apple an extra $600.  But unlike Apple or its competitors, publishing companies incur no marketing costs to convince you to pay the $600 because you don't have a choice!

As a business professor, the sad thing is that this is what we teach business students to do.  To business education, this is an impeccable business model, but to society this is a disaster.  How impressive is it to have your customer not only pay you a high price but to also have your customer pay for the costs to produce what you’re selling.  Let me be honest…business students who think of these sorts of business models will get an A+ in the typical strategy or entrepreneurship class even though at the end of the day the public gets a boot in the ass and society is worst off because important knowledge is restricted. 

As an academic, how my compensation is determined and how I’m promoted is based on whether I write stuff that gets locked into this private club of knowledge privilege.  I therefore contribute to an infernal machine that does nothing but screw the public and income-poor students.  What an asshole! 

So what can we do?  Tweet your support to #puttingpublicbackintopublication and as a taxpaying citizen who pays professor salaries and expenses to do research, pressure professors around the world to publish in open access locations.  Otherwise, as a society, we should collectively fire them…including me!

And don’t fall victim to those seemingly independent people who opine that open source would be a disaster in that it would erode knowledge quality because scholars would simply purchase journal space to cover shoddy research.  There is no solid empirical evidence to prove this.  In fact,  a study by Stuart Shiever (professor of computer science and faculty director of the Office of Scholarly Communication at the Harvard Library) noted an extremely high positive correlation between the quality of the journal and its APC.

Put that in your journal and smoke it!