Sunday, December 18, 2011

Exporting Canadian Asbestos: A Reminder of Supply Chain Responsibility

Recently, two of Quebec’s asbestos mines shut down amid noisy political debates and a dramatic anti-asbestos news conference Thursday on Parliament Hill. I find this to be an interesting illustration of how fast-moving a relatively recent ballooning of criticism can turn into the dramatic stoppage of operations of an industry that has been left relatively untouched for years.

The growing interest was partly spawned by the Daily Show with Jon Stewart where Asaaf Manvi, one of the show’s correspondents, implicitly ridiculed Canada’s hypocrisy for exporting a substance (asbestos) that the country itself has banned in use domestically and is currently removing from federal buildings. What is more, Canada has fought tooth and nail any United Nations’ efforts to label asbestos a toxic substance, which would place a strong sanction against the use of asbestos in industrialized countries.

This is not unlike the long string of companies over the last two decades that have faced major public outcry and subsequent financial despair because they failed to take accountability for their supply chain. That is, companies think that the extent of their accountability is bound by their position in the supply chain rather than the actions of suppliers and customers that make up the supply chain.

Analogous to many CEOs and senior executives that have ignored the call for greater responsibility in the supply chain, Stephen Harper reacts to criticism by saying that the federal government’s actions are merely a response to global market forces. More specifically, if India is willing to purchase the product, we won’t stand in their way simply because they do not have the appropriate education and infrastructure in place to assure the substance’s safe handling, let alone the precautionary measures in place to withstand future exposure of the substance when buildings age and erode.

A very similar argument led to the boycott of Nike in the 1990s when then CEO Phil Knight argued that poor working conditions and penny wages in their supplier factories is not Nike’s concern and is merely a product of a global economic system. Company after company has fallen victim to "reacting" to criticism by arguing that what goes on in their supply chain is not their problem because they don't technically own those operations. Coca-Cola’s blatant disregard for killings in bottling factories, Apple’s disregard for suicides in its Foxconn factories, Hershey’s disregard for unfair treatment of cocoa farmers in Ghana, the list goes on and on. They typically begin with a reaction that absolves them of any responsibility. They then engage in a public relations campaign to distract the public from these problems before finally admitting that there is a problem and that they have to accommodate the requests put forward by activists and eventually the mainstream public. Unfortunately, companies do not engage in this “accommodative” stance until they’ve suffered financially or see fairly dramatic financial repercussions for not responding in a favorable way as determined by the public.

Why aren’t companies learning from other industries as they get lambasted in the form of heavy criticism? Is their memory that short? Is it a case of an evaluation of risk where they conduct a cost/benefit analysis of taking responsibility in the supply chain and comparing that with the potential implications of doing nothing? Is it the short-termism of the investor community that detracts from any consideration of longer-term financial implications?

Going back to the asbestos industry, the business community unfortunately operates under a very simplistic definition of value. Value, to economics and business, is the difference between the opportunity cost of holding on to the asbestos as an extractor (versus selling it) and the price customers are willing to pay for products that have asbestos in it. Notice that this definition is purely financial. That is, value is determined based on the cost of making the product and the cost of purchasing it. Nowhere in here is there room for calculating the erosion of value in terms of health or the environment.

So one answer to the above questions (why do managers continually fail to see the freight train associated with ignoring the supply chain), it becomes somewhat clear that managers are ill-equipped to incorporate social and environmental calculations into their decisions. And by ill-equipped I don’t only mean the skills required to understand the financial implications of these issues, I also mean the cognitive ability to first see their decisions in this way. So in effect, they cannot foresee that ignoring social and environmental considerations may someday influence how much a consumer is willing to pay for a product. Put another way, the executive is blind-sided by the perception that consumers only use financial-based variables in their purchasing decisions. But time and time again, firms have been railroaded for ignoring public perception on acceptable behaviour of business. Wouldn’t it be easier if consumers didn’t care about these sorts of issues?

Thursday, December 1, 2011

The Globe and Mail Compromises Truth for Politics

Margaret Wente, a right wing columnist for the Globe and Mail, recently argued that it is wrong and disastrous to science to suppress debate on climate change. She puts forward a string of anecdotal and disproven information to weave a web of doubt of climate change for the innocent and less-educated reader. She refers to Roger Pielke Jr. “one of the saner voices on the climate scene”, yet doesn’t point out that he presents no peer-reviewed empirical evidence to oppose the 97-98% (tens of thousands) of scientists who argue and have proven that climate change is real and man-made.

The question of whether Canada should or should not support a renewal of the Kyoto Protocol is a separate issue from what Wente is referring to here. Her objective is to create doubt when there is none in the science on climate change. It is perhaps no coincidence that this story has been published in the lead up to the UN Climate Conference on Monday, Dec. 5th, 2011 in Durban, South Africa. At this conference, Canada is expected to represent one of the strongest opponents to renewing the Kyoto protocol and, for that matter, any international commitments to mitigate climate change.

I fear that the newspaper’s decision to publish this highly inaccurate and misleading column is a political one rather than one that is in the best interests of the public. Here’s why:

The problem with these opinion pieces is that they plant seeds in the minds of readers that climate change is still debatable. That is, readers walk away with the belief that there is perhaps a 50% chance that the science behind climate change is accurate. The amount of news coverage in mainstream media reflects this with half the stories arguing that climate change is real and man-made and half the stories arguing the opposite. Yet if the media were doing its job and communicating to the public the truth based on sound science, we should see 97-98 out of 100 stories on climate change indicating that it is real and man-made and 2-3 out of every 100 stories with arguments against this science.

In effect, readers should understand that there is no longer any debate on climate change. The science is therefore clear. And by clear I don’t mean 100%. This is impossible. No concentration of scientific studies on a complex issue like this can claim 100% accuracy. We go on probabilities. Decisions are made everyday and conclusions to guide theory are made everyday based on 95% probability levels and sometimes 90% probability levels. This means that if we were to run experiments on a particular scenario, 19 out of 20 experiments would produce the same result. For climate change, we’re at a similar level of probability. This doesn’t dismiss the opportunity to prove these 97%ers wrong. But there needs to be a mountain of peer reviewed empirical studies to raise such doubt and there are few credible studies denying that climate change exists or is man-made.

Wente’s writing is outdated and completely inaccurate. Like most scientists who claim that climate change is not happening, she picks out isolated statistics yet overlooks the overwhelming evidence that opposes these outliers. The fact that we’ve experienced the warmest weather in 13 of the last 15 years is not discussed, nor is the rather remarkable rate at which the polar ice caps are melting, or the dramatic increase in freak weather events in the last decade. The list goes on and on and she speaks as if these rogue scientists represent mainstream thought.

Claims like “no one knows with any certainty the exact impact of carbon dioxide emissions” is completely inaccurate. So is, “what long-term climate trends will be or the effect of other factors, such as the sun”. These alternative explanations have been disproven time and time again and are therefore unrelated to the changes in climate we’re seeing today. She spends time talking about climategate despite the fact that three independent studies were conducted to see if the science behind climate change was compromised as a result of these emails. All three independently concluded that there is absolutely no evidence that the science on climate change has at all been put into doubt as a result of these scandals. Recently Exxon and other climate-change deniers funded an independent study which concluded that climate change is happening and that it is caused by man. Finally, she refers to old quotations from rogue scientists, many of whom, are not even experts in climatology and in some cases have been funded by oil and gas companies (see Climate Cover-Up by James Hoggan)

So Wente is completely hypocritical when she says that science needs healthy debate yet doesn’t produce any empirical evidence that such a debate is warranted. Put another way, she’s advocating for sound science based on healthy debate without using the very scientific principles upon which this is meant to occur.

I respect the views of the conservative right. They are legitimate and important in our society. But when these views ignore the unbiased science that is meant to provide society with knowledge to make decisions, they become an obstruction to democracy. A democratic society requires accurate information and opinions based on sound science. It needs media outlets that publish stories that reflect the findings of unbiased sources rather than stories that create inaccurate views in society.

The fact that this article has been published in Canada’s top newspaper is disgraceful. Wente’s views sadly align closely with the expected stance of our government in Durban on Monday. One has to wonder whether this column was published intentionally by the Globe and Mail as a political statement to defend against the tidal wave of criticism our country will face in the next week. When a media outlet like the Globe and Mail compromises its purpose of helping the public distinguish rhetoric from fact and myth from science, they have lost their role in society and, in my view, are no better than the infamous and highly misleading Fox News. Recently a study found that Fox News viewers were less informed than people who don’t watch the news at all. Is The Globe and Mail heading in that direction?

Wednesday, November 30, 2011

The Occupy Movement and Business Schools

I was fortunate to take part in a panel discussion today at the Ivey School of Business on the relevance of the Occupy Movement to business schools. While there were some heated discussions, I think all four panel participants agreed that change is needed in business schools to produce leaders who can make decisions that consider a wider range of interests. There also appeared to be agreement that the old adage that profit maximization is how business contributes to society is outdated in light of the uncontroversial evidence of a negative correlation between profit levels and societal and/or environmental welfare.

This places business schools in a precarious position when their foundation largely hinges on the maximizing of the universal metric of financial performance. While all business schools have in their mission some reference to social good, ethics, and benefit to society, there is no doubt that the underlying objective behind all decisions in the classroom is financial accountability to shareholders within the confines of the law and, if necessary, at the expense of society and the environment. This is fundamental and while I acknowledge business schools’ fluffy wording on their commitment to society, it rings hallow when it comes down to class discussion.

But it was clear from student reactions today that they struggle with the notion that business is as bad as the occupy movement says it is. I can imagine that a 21-22 year old, part of one of the top business programs in the country and the world, would be disheartened to read about a movement that is against everything that they’ve pinned their future career on. Even as a business professor pushing for change in business schools, this is not an easy thing to read and hear about. But as I’ve written before, the occupation’s painting of business with the same brush is not only unfair but entirely inaccurate. That being said, there is no doubt that many businesses have and are continuing to play a major role in creating the inequality that the occupy movement is concerned about.

One area of disagreement among the panel members and perhaps among the students was the notion that consumers are ultimately accountable for their own decisions. So, going into unmanageable debt is nothing but irresponsibility of the consumer not the fault of companies. To me, this is a very naïve argument because it overlooks the fact that we all live in a society that is socially constructed. History has shown that when actors are powerful in society, they play a substantial role in shaping the norms and beliefs of that society, sometimes for millennia. Religious organizations, once the most powerful actors in society, institutionalized a number of taken-for-granted belief systems that we see followed today for good and bad. The dominant actor today is business, more powerful than religion and more powerful than most governments.

Here’s the kicker, what happens when a for-profit entity is able to wield power that intentionally or unintentionally influences social norms and beliefs? I discussed this in more detail in a previous posting.

Bringing this back to what we teach in a business school, company profit maximization largely hinges on the creation of a monopoly or near-monopoly situation wherever possible. By default then, the objective is to weaken the power of consumers by discouraging their search for information that would allow them to make informed decisions, influencing how that information is presented, influencing consumer interpretation of that information, and/or reducing the options available to consumers regardless of their absorption of information. The oil and gas industry’s attempts to create doubt in the science of climate change is an example here. Also the financial industry’s efforts as of late to destroy or at least weaken the Consumer Financial Protection Agency, a body meant to help educate and protect consumers from complicated financial innovation, proves quite remarkably that companies do not hope for consumer irresponsibility to pave their fortunes but instead create conditions that inhibit informed decisions.

This all comes down to a perverse incentive based on profit maximization exclusively with no consideration of the social and environmental consequences of these decisions. Combined with immense power that business as a social actor holds in shaping consumer behaviour, business’ role in influencing society is not the next conspiracy but merely an obvious and highly predictable outcome of what we’d expect these actors to do in our current socio-economic system.

So in my view, when the occupy movement voices its concerns over social inequality, they’re also implicitly referring to the disruptive effects on democracy when those in power work to maintain the status quo by shaping the views and beliefs of society.

Sunday, November 6, 2011

My Experience at Occupy Toronto

I joined Occupy Toronto on a Friday and Saturday in late October, 2011. On Friday, I was part of a silent march that started at St. James Park, passed through Toronto’s financial district at King and Bay, and ended at old city hall. The gathering at St. James Park was relatively small with a majority of the population exhibiting behaviours that many people would stereotypically associate with a very left wing persona: some meditation, incense, a Marxist table and a number of signs calling for the abolishment of capitalism and corporate greed. My conversations with people there indicated to me that while we may have differences in how we go about expressing what the problem is (a clear reason why the media perceives the protests to be incoherent and unfocused), we all seemed to agree that the current institutionalized economic system is not working for a majority of people.

But I was most struck by the reaction of Torontonians and working people to our silent march and our presence at old city hall. Many would stop and stare not with a look of criticism or repulsion but with a look of interest, curiosity and resonance. By resonance I mean their growing awareness that the movement, now present in dozens of locations around the world, was not for some marginalized, isolated cause but for the defense of the middle class. Where I could, I tried to talk with these people to learn what they thought of the protests. To my surprise, everyone I spoke with was very concerned that the status quo is not working for a majority of people and that change is needed. While their busy-schedules, mild temperaments, and hesitation to join what many perceive to be a “hippy-march” discourage their participation, they also feel obligated to respond to the seriousness of the issues around the world and the impact on future generations. One woman said to me, “I’m a working mom and quite successful in my career but I’m concerned for my kids and my grandkids”. It seemed like by observing the occupy Toronto protest, these people, for the first time, were able to personalize the very abstract and seemingly distant stories they’ve read about in the news.

On Saturday, I was part of a much larger march advocating the need for a Robin Hood Tax. This march began at St. James Park and made its way around downtown blocking one direction of traffic before ending up at King and Bay (see video here). While one could debate the merits of this Robin Hood tax idea I think the highlight of the day was the fact that the march was filled with a substantial number of the middle class. These people echoed much of the concerns I heard from people on the street the day before. While they didn’t have any answers or solutions, they felt that it was more important to be part of the conversation and to start a dialogue. As many have argued, the complexity and systemic nature of the issue commands a grassroots movement to kick start a global conversation on what needs to change and how, without any naïve and pre-conceived solutions.

But most important was the difference in the crowd between Friday and Saturday. This suggested to me that the wide range of people who have concerns with this inequality issue are not necessarily the ones doing the protesting. This results in an inaccurate depiction by the media of who is representing the movement. So when the media describes these protests as representing a certain demographic, they are presuming that those most concerned are only those doing the occupying on a full time basis not those hundreds of thousands of people who recognize the problem and want to do something about it, yet are simply not occupying. The Daily Show’s John Oliver nicely captured this in one of his satirical story coverages.

When I invited via email friends and colleagues to join me at the protests, it didn’t take long for the message to reach a wide number of audiences. My message to them was that I felt business schools and business more generally needed to be a part of this discussion rather than an actor in opposition. I received about 30 responses from executives, entrepreneurs, other business faculty, graduates, and business and non-business students. A majority of these were very supportive with apologies that they couldn’t join me. A colleague in the office next to me at Ivey mentioned that she was having dinner with a number of executives. Although she was expecting them to voice a rather smug and harsh discontent with the occupation, to her surprise they instead voiced support and a broader concern that what these people are protesting about is indeed a systemic problem that needs to be closely examined and talked about.

I received 5 harsh criticisms, surprisingly all from business students. I didn’t receive one criticism from a non-student audience. This was perplexing to me and some of my students shared their thoughts on why this might have been the case. They said that perhaps these students perceived the occupation to be a threat to the years of personal investment they’ve made to succeed in the existing system. They also said that perhaps business students naively view the protests as being a symbolic opposition to the very idea of business. Finally, like many others, these students are perhaps more strongly frustrated by the incoherent message of the occupation and the rather blanketed criticism of business more generally. But make no mistake, the people walking beside me at the march on Saturday and the many people occupying around the world are employees of business, executives of business, and owners of business and are therefore strong supporters that business needs to be part of the conversation.

Many people have asked me, somewhat out of frustration, what the purpose of the occupation actually is. Is it corporate greed, lack of jobs, the financial crisis, our current recessions, austerity measures, social inequality, environmental issues? (See Stiglitz' opinion piece in Aljazeera for a good summary) These same people exhibit a rather strong criticism that there is no point occupying unless the message is coherent and unless solutions are presented. Recently, my students voiced their preference for more solutions to the first half of a course that examines the relationship between corporations and society. Yet the focus of the first half of the course was not to uncover solutions but to understand how the interests of business do not always align with the interests of society and that instances of conflict are growing in number. Exploitative labour, environmental crises, the financial crisis, and social inequity represent a signal that business is perceived to be prospering at the expense of the broader community. Because solutions to these problems are not readily available under the current systems, our objective in this first half was to instead engage in critical thinking to understand the complexity of these problems, why they emerge, and what it means for business in society. Perhaps their struggle with this approach partly explains their frustration with the occupation movement.

But I did receive several emails from business students very supportive of my participation in the movement. Just the other day, 70 students from an Economics 10 course at Harvard walked out of class because of what they perceived to be an “an overly conservative bias in the course”.

I believe that business schools and economics faculties will have to face a decision about whether they are going to join the conversation about what needs to change so that our economic systems better reflect society’s needs or whether they are going to vehemently oppose the movement as the symbolic counterweight. Time will tell I’m sure. I’m of the opinion that the occupation represents an opportunity to start a conversation within business schools as educators of future managers. What does this mean for our programs? What does this mean for the overarching ideology of the business discipline? These are unnerving questions that need to be discussed in the hallways of a number of professional institutions. My students suggested that Ivey have a panel of business and non-business faculty to discuss what the occupation means more broadly to our current systems and way of life to reflect on how business can better serve the interests of society.

I couldn’t agree more. For anyone out there who doesn’t believe the occupation is doing anything of substance, they may be overlooking the many conversations taking place around the world, including the one I just had with future business leaders.

Tuesday, October 25, 2011

Business to Join Occupy Protest - Friday, Oct 28th at 4pm

As you're all quite aware, the occupation that started on Wall Street in New York has ballooned into a social movement, extending to a number of cities around the world, including Toronto. Although its cause ranges from corporate greed to social inequity to the financial crisis, the underlying theme is an immense discontent with our current socio-economic system. More than 33% of Americans are in support of Occupy Wall Street and anyone who might argue that this is not relevant to Canadians overlooks the clear reality that we are all subject to the whims of a global economic system, that social inequity in Canada has reached unprecedented levels, that Canadian debt levels are tops in the world, and, more generally, that businesses in today's economic system are increasingly prospering at the expense of society.

I'm showing my support for these protests because I believe business needs to be part of the conversation. I recently posted on my blog why all Business Schools around the world should be part of this:

My colleagues Andy Crane and Dirk Matten at the Schulich School of Business posted a blog on why the protests should be top of mind for business leaders and employees in general.

This is a call to business students, business professors, business graduates, and business employees to join my peaceful walk around downtown Toronto on Friday, October 28th beginning at 4pm in front of the St James Anglican Cathedral on the corner of Church Street and King Street (65 Church St.). Anyone who would like to join me, please meet me there.

For those of you not in or near Toronto, I encourage you as actors of business (e.g. graduates, employees, faculty, students) to join the conversation in your municipality.

Feel free to pass this along.

Friday, October 14, 2011

Why Business Schools Should Join "Occupy Wall/Bay Street"

The Occupy Wall Street protests have ballooned into one of the most powerful grassroots social movements since the Great Depression and there doesn’t seem to be an end in sight. Once perceived by the elite to be a trivial display of immature angst by a bunch of hippies, the mainstream media has had no choice but to cover the protests to the chagrin of their corporate owners. For this protest, as Caplan and Grzyb explained, is of “the larger, ugly truths about modern capitalism” and as business professor Michael Porter explains, reflects the perception that corporations are “prospering at the expense of the broader community”. I think Finance Minister Jim Flaherty and Central Bank Governor Mark Carney overlook the broader message the protest is conveying when they focus on the financial crisis as the source of angst among protesters. I would argue that his was only the catalyst for a greater march against the inequities of the existing capitalist system. As Ed Clark, CEO of TD Bank said, "If you think this system is working for everyone, it's not".

A rather polarized dynamic has played out between the right and left sides of the spectrum with the right relegating protesters to a bunch of “left wing nut bars” (Kevin O’Leary) or “a collection of ne’er doers” (Murdoch’s WSJ) and the left asserting that we live in a society of “government of the 1%, by the 1%, for the 1%” (J. Stiglitz) and that “we the people have found our voice” (Professor Cornell West). More than 33% of Americans are in support of Occupy Wall Street and anyone who might argue that this is not relevant to Canadians overlooks the clear reality that we are all subject to the whims of a global economic system, that social inequity in Canada has reached unprecedented levels (81% of Canadians agree with this), that Canadian debt levels are tops in the world, and, more generally, the troubling trend that business in today's economic system is increasingly prospering at the expense of society (51% of Canadians agree with this).

So where are business schools in all of this? Naturally, business is expected to side with the right, defending their powerful position in society by putting forth rhetoric that touts the societal benefits of free markets such as job creation, access to cheap goods and services, and (perhaps taken to the extreme) individual freedom. Yet, I would argue as a business academic, perhaps paradoxically, that business schools should be an active voice in the protests not as a mouthpiece for the right but as a stark supporter of the need for change.

Here are three reasons why:

First, the last decade has proven unequivocally that Adam Smith’s original supposition that the pursuit of commercial interests leads to optimal gains for society is misguided at best. An unprecedented number of circumstances have emerged where the pursuit of corporate interest has left society worse off. Smith’s ingenuity presumed that business would make decisions using a moral lens and therefore fit a time when business represented a relatively small actor in society shadowing the power of the church and the state. Since then, we’ve seen business become the dominant societal actor with the power to not only ignore broader societal interests but to circumvent those interests. As I’ve written before, why should business be passive players responding to regulatory constraints or market demands when they can wield their growing power to influence regulation and what the market demands. To that end, many executives have essentially taken business school fundamentals to the extreme by deliberately shaping those environments to their liking with little regard for society. Wall Street’s active suppression of government regulation of derivatives and their relentless effort to defer risk to the public is one such example. Reducing these behaviors to "corporate greed", as many protesters have voiced to be the crux of their cause, overlooks the broader fundamental practices of our current economic system. So business schools, in my view, are obligated to occupy wall/bay street to voice the need for change in the fundamentals of the business discipline.

Second, I think it’s important to make sure that we don’t paint all businesses with the same brush. There are a growing number of companies, large and small, that define their purpose and operations on precisely what these protesters stand for: equality, human rights, and environmental sustainability. They adopt triple bottom line businesses with the purpose to co-create value along social, environmental, and economic systems not as isolated endeavors but as an integrated value proposition to society. Businesses like Grameen Bank, Interface, Patagonia, Better Place, Frogbox, Terracycle, and SEKEM represent the hope for business in a sustainable society. They are challenging the practices of those companies in the previous paragraph and redefining the purpose of business in society. Business schools should be marching to demonstrate their commitment to understanding these sorts of businesses and to build theories and frameworks that educate future managers to replicate this role.

Finally, any academic at a university is held to an obligation to engage in activity that advances new knowledge for the purpose of contributing to the welfare of broader society. If we’ve reached a stage in history where our business school teachings and research are partly responsible for the negative impacts on society, then is it not our duty to lead the charge in understanding what needs to change? One approach of business schools, which I presume is the most common, is to distance ourselves from the protest thereby further fueling the polarization of society. Another is to be part of the conversation so that we are truly doing our job as academics and understanding how the private sector can better respond to the needs of society. This takes a combination of courage and humility because it suggests that what we’ve taken for granted in the classroom and in our management journals might need radical change.

Saturday, October 1, 2011

Canada at Odds with Peace Laureates

Of the first 50 and most popular comments in response to last Wednesday’s web-based front page Globe and Mail article describing the Nobel Laureates’ efforts to persuade Stephen Harper, and by default Canada, to cancel expansion of oil sands development, all 50 were harshly blasting the Laureates’ cause as repugnant and revolting. Some of the more common responses included the following:

  1. The exploitation of Canadian resources is a decision left to Canadians…so mind your own business!
  2. The demand for oil will persist and so it’s better to get it from a democratic nation with large reserves than a human rights suppressing nation in the Middle East, Africa, or Latin America
  3. The environmental implications are overstated. Industry has put in impressive measures to reduce environmental issues
  4. There are worst things in the world right now and Canada’s oil sands are way down the list. Why bother with us? These Laureates must have some kind of hidden agenda.

Aside from the complete embarrassment I felt in reading these highly ill informed, rash, and toxic comments, I thought it necessary to put forth my own response to these comments:

First, climate change is a global and complex issue. Decisions we make in one part of the world have huge consequences on other parts of the world not privy to those decisions. To suggest that we have a right to make decisions as one country that will undoubtedly leave other countries under water, plagued by drought, overwhelmed with forest fires, and/or bombarded with hurricanes and typhoons is either a demonstration of our blatant disregard for humanity, our primitive emphasis on national sovereignty at the expense of everyone else, or complete idiocy. On top of all this, future generations not yet born will be looking back at our ignorant, arrogant, and uneducated rants demonstrating our lack of understanding of complex systems such as the climate. I’m in a time warp if a good chunk of Canadians mistakenly strive for national sovereignty over global sovereignty now that we know how interconnected national decisions are to the welfare of the planet and our future generations.

Second, any environmental improvements made by the oil sands sector can only be evaluated with a starting point of how catastrophic this process is to begin with. I have not seen any evidence to refute the very common claims that the resources required to produce 1 barrel of oil from the oil sands are several times that of light crude and that the CO2 emissions to produce one barrel is several times more than that of other sources of oil. When scientists link the systematic extraction of oil sands to the planet’s tipping point on climate change – the point of no return – there is no way that incremental efficiencies by industry are going to make any difference.

Third, as I’ve written many times before, our continual reliance on fossil fuels is no accident. To make comparative judgments on other renewable sources of energy at a point in time when government policy has supported non-renewable sources and demand for these sources pale in comparison to other environmental devastating sources is preposterous and overlooks the role of inertia and momentum in locking societies into particular sources of energy. We are so dependent on oil that movement away from the substance is going to take more than just silver bullet technologies. It’s going to take political, economic, and social courage to be part of the transition to renewable sources.

Fourth, clearly many people do not understand how interconnected our planet really is. Many of the comments I read were blasting the Laureates’ decision to prioritize Canadian actions over other atrocities that are occurring in the world today. But as the article rightly mentioned, many of the issues we’re seeing today is largely brought on by climate change. Tribal conflicts in Sudan and Kenya are primarily based on drought conditions. Imagine what will happen for several countries in the future if we continue to exploit these resources. So the Laureates are bang on because they know exactly what sorts of decisions take place in the Western world that fuel the fire of conflict in other regions.

The proliferation of these sorts of comments and other articles in defense of the oil sands puts to rest any confusion I might have had about why the conservatives are in power. Even if these comments represent a minority, it’s very clear that this is indeed a rather pervasive sentiment in Canada. I for one do not want to be included in the company of my prime minister or anyone else who doesn’t recognize the sensitivity of this issue, perceived by Nobel Laureate Williams as someone “who doesn’t really care”.

It took all but an hour to remove this article from the front web page of the Globe and Mail to several screens down and then another few minutes before it was relegated from front news altogether. We can only speculate why G&M did this. Is this what they normally do? Are they responding to public sentiment rather than putting forward the facts? Or were they influenced by some powerful individuals who would prefer that Canadians not learn about this story?

Tuesday, September 27, 2011

The Meaning of Life According to Brands

Naomi Klein's No Logo has become a rather influential book that discusses the growing presence of advertisements and branding in society and the corresponding effects it has on our daily lives. I had the pleasure of discussing some of the implications of her work with my students last week using the tobacco industry’s attempts to brand a cool and hip identity for their cigarettes.

Klein nicely chronicles the evolution of advertising over the past several decades where companies have shifted away from advertising a product to building a brand identity to which consumers can attribute meaning. Examples include Starbucks’ “It’s the romance of the coffee experience”, GM’s “New age of spirituality”, Polaroid’s “A social lubricant”, and Nike’s “Enhance people’s lives through sport and fitness”.

I asked my students whether they were okay with a society where the mechanisms through which we attach meaning and identity to our lives originate from business? To my surprise, I received three common responses:

Most common is that this is ultimately okay because consumers will always have a choice to detach from these identities. Indeed many of these students will be able to step back from these messages. But there is a presumption here that the average consumer has the ability and foresight to decouple from the emotional messages they are receiving. This view also overlooks the inherent incentive on the part of business to influence what information is available to the consumer, how that information is interpreted, and what choices consumers do have to respond to that information. These three cognitive pivot points are important levers for companies who are searching for repeat consumers. The rather pervasive climate change denial campaign is an effective illustration of how companies can play an effective role in shifting how consumers interpret information related to climate change science.

The second response is that this is a good thing. Our lives revolve around finding meaning and companies are merely one of the actors in society that allow this to happen. On the bright side, is there really something wrong with identifying yourself with the Body Shop’s brand of ethics and the environment? I often wonder whether people my students’ age are able to conceive of a life that isn’t solely dominated by commercial transactions when the only alternative to capitalism existed when they were 2 or 3 years old.

The third response is that this is a major issue and that if we allow this to go unchallenged in society, peoples’ interpretations of reality will be based on a confluence of company identity messages that dictate what a person should or should not be doing to find meaning in life. There was a time when the state assumed this role…a time when the church assumed this role. Now is the time when corporations assume this role. As Klein explained, this is where we start to see the profound imperialistic aspirations of capitalism. These students worry that in light of a corporation’s narrowly defined purpose of profit maximization, they are poorly positioned to determine what we as society define as meaningful.

There is no doubt that everything we see around us throughout our daily lives is a social construction. The very idea of an objective reality is indeed difficult to grasp. But does that mean that we should allow power imbalances to afford certain actors in society to inform that social construction in a way that benefits them? One of my students sent me a song that nicely answers this very question.

Tuesday, September 13, 2011

Canadians Losing Interest in the Environment

Canadian concern about the environment has dropped off a cliff in only 3 years with only 27% of Canadians concerned compared with 38% in 2008, according to a study conducted by Bensimon Byrne. Women exhibited the most striking drop where only 32% are concerned compared with 46% in 2008. Only 23% of Canadians are very motivated to make personal changes to benefit the environment although I'm sure this would have dropped dramatically had there been a proviso in the question that there would be a cost attached.

The authors explain that marketers need to consider the fact that environmental concerns are waning as a tool to attract consumers to their products. But certain environmental issues were more important than others such as the use of less packaging, recyclability and re-usability of the product rather than whether the company used greener fuels to run their operations.

The study found that environmental issues fall well behind concerns related to the price of gas, adequate pensions, the state of the economy, and ethics in politics. Either unethical politics has in the last 3 years threatened to dismantle the trust of Canadians or we've done a complete 180 on the importance of the environment.

The study authors attribute the drop to the dire economic situation, although 2008, when we cared about the environment, was the year that we experienced the greatest economic low. I recall studies in 2008 suggesting that "despite the economic horizon, consumers are still committed to acting green". On top of all this, at the time of the study, the Canadian economy was looking really good (unlike now).

The study seems to suggest that environmental consumerism is a bit of a fad, which dangerously suggests that company interest in this area will wane. This is a scary thought. I only wish that the environmental destruction we're causing as Canadians and global citizens echoed the reversible luxuries of a fad. But unfortunately market behaviour doesn't seem to reflect the realities of the environment.

I think consumers' thinning wallets is only part of the explanation here. Environmental issues are so distant in our minds. We don't see them around us like we do the gas prices on every street corner, stock market trends on every business website, the fluctuations of our investments through online banking and the behaviour of our politicians on the front page of every newspaper and website. So the media has a role here!

I think humanity is incredibly fickle when it comes to these sorts of issues that command long-term views and personal sacrifice. Only when a highly provocative video like The Inconvenient Truth comes out do we stop to think and perhaps make a couple of sacrifices. But each new documentary that illuminates the environmental realities we face has to out-revolutionize the previous for any of us to pay attention to it, otherwise it's the same old thing...more environmental awareness campaigns that we start to ignore. In fact, Al Gore is trying to revive this once global concern.

I haven't given up on my fellow Canadians yet. We're all very busy. But i know of many organizations, including businesses, that are playing very active roles in educating consumers about environmental issues and developing technologies and products that avoid the perceived trade-off between economic and ecological sustainability.

Wednesday, August 17, 2011

My Experience in San Antonio Texas

I just returned from the annual Academy of Management conference (AOM) this year held in San Antonio, Texas. AOM is a conference hosted by the Academy of Management, an organization whose vision is to "inspire and enable a better world through scholarship and teaching about management and organizations".

It's been 3 years since the largest financial crisis in history; a crisis that demonstrated the highly destructive behaviour business can have on society. Alongside such travesties as the BP oil debacle and the many documented atrocities on local indigenous communities, the financial crisis has shown quite unequivocally that business is prospering at the expense of society.

Nowhere in the conference was there discussion of our complicity in this behaviour as academics teaching future managers to make the very decisions that led to these crises. Like zombies we walk from session to session discussing trivial independent and dependent variables that ultimately mask the need for fundamental change in management thought. Is this any different from those incumbent businesses that ignore the problems they've created to preserve the status quo that has afforded them so much wealth?

At the conference, I endured the shame of eating breakfast at the hotels where food and drinks were served on styrofoam plates, all of which were slated for the garbage. Imagine 9000 conference attendees disposing of these plates, cups and cutlery over the 5 conference days multiplied by the dozens of conferences like these throughout the year.

With the very humid heat, the large energy-sucking conference rooms populating the hotels were pumped with air conditioning to the point where many participants were wearing scarves. The justification for the styrofoam cups was partly based on the fact that the coffee will get cold in the over-sized refrigerators we were working in.

On top of all this, I have never found it so hard to find a vegetable over a 4 day period. Waffles, eggs, muffins, tarts, white bread, cheerios, meat, chicken and tortillas were all I could find. Absolutely frozen from the air conditioning, a colleague joined me in a session and told me about her dinner experience the night before. She ordered a vegetarian dish at a restaurant and the server expressed her shock and fascination that such a plate had existed on the menu. Either no one ever orders it or the very thought of a vegetable plate appears absurd.

Finally, as I'm boarding my flight home, I'm noticing that one of the most well respected academics doing work in business and the natural environment is boarding the plane before the rest of us to fly First Class!!!

Oh, the irony!!

Thursday, August 4, 2011

Fox and Friends Latest on Climate Change Denial

Anyone who argues that Fox News is an objective, fair and balanced news network only has to take a look at the latest Fox and Friends episode on climate science. In the episode, they talk about the Department of Education's initiative to educate children on climate change using the Spongebob cartoon. On the Fox news channel screen read phrases like "Spongebog's Bias", "Cartoon blames man for global warming", and "Spongebob only tells one side of the debate". The subsequent comments from Fox's Steve Doocey and the sit-in across from him are absolutely ludicrous. There is no debate on the science, there is no concentration of scientists that believe climate change is not caused by humanity, manmade climate change is not unproven science, and, most importantly, this is not one of those natural "gigantic climactic phases".

Fox is consistently criticized for pushing a political debate on climate change and more generally for pushing a highly right-wing conservative ideology heavily influenced by those most in jeopardy of political action on climate change. You can see in their tone that their objective is not to convey fact but to sing the highly charged rhetoric of a few elite individuals and corporations. Fox is indeed one of the darkest institutions in global society today.

Take a look here at Gleick's criticism and the video

Wednesday, July 20, 2011

Rupert Murdock Fails Management 101

Rupert Murdock apologized profusely today in response to accusations form the UK parliament but accepted no responsibility for all that happened under his watch as the leader of News Corp. Rebecca Brooks similarly seemed to suggest that her lack of awareness of the scandals absolves her of any responsibility. These remarks are particularly striking because they naively overlook the influence of institutions on the behaviour of individuals. By institution I mean the business itself that possesses an intricate array of complex systems and processes that shape norms, standards, belief systems, and principles resulting in collective behaviour and a well-defined and highly influential culture. Consider an organization's aggressive reward systems or promotion criteria that elicit a highly aggressive competitive environment or internal norms related to unethical behaviour that leaders endorse or ignore. As Noam Chomsky put it in describing the behaviour of organization members of particularly psychopathic corporations:

“When you look at a corporation, just like when you look at a slave owner, you want to distinguish between the institution and the individual. As individuals they may be nice to their slaves, benevolent, friendly, nice to their children, caring about other people. But in their institutional role they may be monsters, because the institution is monstrous” (Chomsky from The Corporation).

Decades of research has concluded that leaders, executives, and managers shape and mold the culture of their organizations through the institution of these systems and structures and, most importantly, through their own behaviour. In explaining the downfall of Enron, “The Smartest Guys in the Room” nicely showed the similarity between the leadership style of President Jeff Skilling and the highly competitive and aggressive behaviour of their traders. The aggressive culture created by Enron leaders transcended to other parts of the organization. Management research would therefore predict that these traders may not have engaged in similar behaviour in another organization under a different culture.

The influence of leaders on the behaviour of their organizations is undeniable. Although Murdock might not have known about particular scandals, there is no question that he is indirectly responsible for the behaviour of his employees. In fact, I would argue that Murdock’s molding of News Corp’s culture is more destructive than his role in choreographing any individual hacking initiative. To absolve responsibility as a leader in situations like these ignores the fundamentals of Leadership 101. Rupert presumes that organizational culture is irrelevant and that individuals behave through their own devices. Large organizations are complex and leaders of these organizations accept a risk and responsibility of the actions of the organization. Otherwise, they do not belong in these positions.

Photo taken from reproduced through Creative Commons

Monday, July 11, 2011

Canada's Oil Sands and the Survival of Humanity

In light of ongoing US debate about whether to go ahead with the Keystone XL oil pipeline that would connect Alberta to the southern states, a number of articles have emerged flagging the climactic consequences of extracting oil from the tar sands. While these assertions are not at all new, recent articles have stressed warnings put forward by James Hansen, which suggest that if all the oil were to be extracted tomorrow, CO2 emissions would increase from 390 parts per million today to 600 parts per million, well above the scientifically recommended 350 parts per million.

600 parts per million is an amount equivalent to a time millions of years ago when life on Earth nearly died. Several people are therefore positioning Canada’s decision to exploit this resource as the defining moment that will determine whether humanity curbed its effect on the climate or whether, as Stern worries, it is "essentially game over".

In a recent post, I argued that Canada's enthusiastic extraction of oil is ultimately a signal of our country's unsustainability. But lately, authors are extending the consequences of Canada’s decision to the survival of the human species.

Unfortunately the people of Canada, while seemingly concerned about these sorts of issues, are not at all eager to initiate pressure on their governments to stop this infernal machine. As I’ve written before, Canada’s culture fundamentally lacks the leadership required to initiate social change. This lack of leadership is particularly pervasive in our government but it is also evident in Canadian citizens. I asked a Calgarian the other day about her thoughts on the climate change impacts of oil sands extraction and her answer was, “but that’s where the money is right now”.

The climate change story is getting oil; so old that while people know it's a problem, serious action to curb our impact has taken a back seat. Nowhere is this more obvious than in Alberta where many (not all) people are raking in thousands at the expense of future generations. Keeping our heads in the "oil" sand is not only going to compromise future Canadian generations but, as Stern notes, the future of humanity. We have the power as Canadians to show leadership. The question is: will we exercise that power and re-brand our position in the world as thought leaders in curbing climate change? I sure hope so!

Saturday, June 11, 2011

Barrick Gold's Failure to Engage Local Communities

Barrick Gold has interestingly managed to escape relatively unscathed in the mainstream media thus far for its complicity in the massacre that is unraveling in its Tanzanian operations. Although several people have died and dozens have been injured and/or wrongfully imprisoned, the media seems to be quite silent in covering the story. Those who have paint the local community trespassers as “invaders” implicitly sympathizing with the corporation’s perceived innocence, quoting the apparently shocked executives as saying phrases like “highly disturbed”, “deeply distressed”, and “regret the loss of life”.

Barrick’s response thus far has been textbook PR demonstrating remorse for the events that have unfolded and deferring all investigations to the supposed independent local police force. But more interesting is the discrepancy between Barrick’s account of the events and information emerging on the ground. One Barrick executive said, “North Mara regularly faces illegal intruders who are armed and aggressive, and many are linked to organize crime”. But Mobhare Matinyl, writing for The Citizen in Tanzania, asked how it was possible for 1500 people to “meet, plan and carry out such an operation without the authorities noticing something unusual”. Most striking perhaps is Canadian journalist Geoffrey York’s correspondence in Africa where he interviewed a number of these supposed “invaders”. He found compelling evidence suggesting that the police and Barrick’s security forces were out of line in their attacks on the people uncovering a rather pervasive discrepancy between what Barrick is saying in terms of citizen attack on the police and what witnesses and the police themselves are saying, including the regional police commander who said that the “seven injuries among the police were all caused by stones”.

But clouded behind Barrick’s PR rhetoric and the details on the ground is the fact that what is happening in Tanzania is a symptom of a greater systemic problem that Barrick has chosen to ignore for some time. First, it’s important to consider how Barrick’s western ideology influences their judgment on how to operate in an environment like this. Based on what we teach in business and economics textbooks, Barrick appears to be the innocent victim in all of this. They are considered by many to be a company going about its business of extracting gold for export. It’s not their problem that the surrounding communities are living in extreme poverty and that public services are virtually non-existent. They are not breaking any laws and they have full approval from the Tanzanian government to extract the gold. They pay royalties and taxes that are meant to be filtered down to the local communities. It’s not their problem that the government isn’t doing their job to pass on these royalties or is corrupt. On top of all this, Barrick has an impressive CSR program that contributes resources for schools, hospitals and infrastructure…something that is beyond the law. So this is a problem that should be addressed by the Tanzanian government and local authorities so that companies like Barrick are encouraged to invest in these regions on an ongoing basis. (See Wente's column for this very misguided and outdated perspective)

Although this discourse continues to be plastered in business schools, it is becoming quickly outdated especially in the global south . Since the 1990s, we’ve seen example after example of intense foreign direct investment and supposed economic growth having little, no, or an exacerbating effect on social inequity. In fact, there are countless examples of companies operating under this philosophy and facing huge financial backlash as a result. Shell’s infamous Niger Delta debacle is very similar to Barrick’s reaction here where they are relying on existing institutional infrastructure to solve the problem. This is their first mistake. Companies operating in this region should not be under the false impression that there is a reliable institutional infrastructure to which to defer these issues. By institutional infrastructure, I’m referring to a reliable and objective police force whose priority is for the long-term welfare of local communities, a proper legal system with due process that addresses community issues and a democratic system that ensures those in power are accountable to the citizens who put them there. Deferring to the police force may be appropriate in the West but in many locations in this part of the world such a strategy is akin to handing the investigation over to the mob. And who can blame the police force for being corrupt when they too see millions of dollars leaving their countryside in the form of gold while they are making pennies a day.

But beyond this incident is the fact that a weak institutional environment implies substantial voids in public service for surrounding communities. By public services, I mean access to health care, education, water, proper infrastructure and, more importantly, opportunity for capacity building, entrepreneurship and grassroots economic growth. Combined with the export of rich natural resources like gold that sell for an amount that local villagers earn in three years (USD $1600), it’s no wonder why revolt ensues. This places companies in a very unfamiliar position where they must engage in political activity to fill voids in public services and to help build local governance structures to deal with poverty issues. While Barrick has been quite active in the corporate social responsibility arena by building schools and hospitals, they chose not to engage in a more systematic, long-term community building strategy that would ultimately prevent these sorts of instances from taking place (see this article for a description of the difference). In my view, the privilege of operating in this region along with the benefit of extracting rich natural resources at low cost means that companies must get involved politically to prevent what Hilary Clinton calls New Colonialism. This is not a nice thing to do but a must do!

For too long companies have been at odds with their local communities, keeping roles separated as they presume government agreement parallels local community acceptance rather than looking for opportunities to collaborate locally. A couple hundred kilometers north of the North Mara mine is a small village called Magadi in Kenya. Tata Chemicals Magadi (previously called Magadi Soda Ash) operates a large soda ash plant surrounded by 30,000 Masai who, after a massive drought in the 1990s, imposed similar pressure on the company as we’re seeing on Barrick today – albeit without the presence of gold. The company underwent a 5-year process of building close relations with the surrounding community and instituting a platform through which multiple stakeholders (senior chiefs, elected officials, NGOs, company representatives, community-based organizations) work together to address public service issues with the ultimate objective to reduce poverty through a self-sustained and informed community governance system. In effect, the company helped create a local governing body that encompassed all actors in the region emulating the very principles of sustainability – inclusion, interconnectedness, and equity.

But most companies like Barrick resort to exclusive and disconnected approaches to helping communities resulting in power imbalances, dependency inequality, corruption, and an unsustainable community situation. Building schools and hospitals and then touting on your website all that you’ve spent and built may address public service gaps in the short-term but doesn’t address the need for community capacity, integrity, and dignity that fuels grassroots economic development. What is happening in Tanzania is very sad but it is not inevitable. For-profit companies have a choice on how they deal with highly complex situations such as the extraction of a rich substance from an impoverished region. The easy way is to throw money at high-profile initiatives to create the impression that you’re a good company not there to merely take resources and to leave the rest to government. The hard way is to challenge corrupt governments and to build relationships, local capacity and local governance systems involving multiple stakeholders making decisions collaboratively for the long-term welfare of the community. Only then will companies begin to understand what sustainability means.

Photo acquired from Amnesty International reproduced under Creative Commons

Thursday, May 26, 2011

Tim Horton's Drive-Thru Coffee Brought to You by Coca-Cola©

Last year I found myself sitting in a Tim Horton’s drive-thru in Gravenhurst Ontario; a town of about 11,000 people located 100 miles north of Toronto, Canada. Not one who is privy to these sorts of experiences, I was somewhat in awe by two very interesting characteristics of this drive-thru. First, as I’m figuring out where the line of a dozen or so vehicles ends, I notice a second adjacent lane that is meant to absorb over-flow traffic so that the lineup doesn’t extend into the main street. Similar to the ending of a passing lane, vehicles are expected to merge into one lane as they approach the intercom. Drivers knew to take turns: left lane, right lane, left lane, right lane….it worked seamlessly. Customers either were frequent users of this drive-thru or, unlike me, were smart enough to figure it out.

Second, as you make your way around the corner to place your order, drivers are exposed to a string of advertisements posted on a long cement wall adjacent to the outlet. Printing companies, insurance companies, financial institutions, auto mechanics, you name it, a whole host of companies taking advantage of this apparently lucrative advertising space. As the driver behind me crudely leaned on his horn for me to close my jaw and move forward, I couldn't help but reflect on the absurdity of what I was observing and how this symbolized a number of very disturbing trends in our Western society.

First and perhaps more obviously, the popularity of the drive-thru illuminates our very sedentary lifestyle. If there are any doubters out there that our consumer-oriented society is linked to obesity, one only has to take a look at this fascinating phenomenon. The fact that there is now a market for advertising in what was once an unpopular or at least peripheral means of getting served shows that we live in a society where walking on our own two feet is a nuisance. Shopping complexes are built with stores separated by massive parking lots encouraging consumers to move their vehicle from one store to another. This reminds me of the creative Disney film Wall-E where an envisioned future shows human civilization restricted to a hovering chair that has all the amenities available at the touch of a button. In the same way that we hover to make our orders in the drive-thru would we hover into our houses if the technology were available?

Second, the drive-thru has become so commonplace that the line-ups in the store that originally motivated the drive-thru are all but gone. This means that the time actually saved is marginal. In fact, substantial time is lost when you are vehicle number 15 when no one is in the store. It’s no wonder that when one actually goes in the store, they are neglected because staff are catering to the onslaught of customers making their way through the drive-thru.

Third, and more striking to me, is the fact that there is an apparently lucrative market to offer advertising space along the drive-thru route. There is so much traffic that marketers consider this platform to be an effective means of spending their advertising dollars. This either means that we’ve come to a point where we slice and dice every possible combination of opportunities to bombard people with messages or it means that a majority of Gravenhurst citizens go through this drive-thru. Perhaps it’s a combination of these. Whatever the case, I can’t help but consider this to be a sad state of affairs that very likely extends beyond this sleepy town.

The documentary “The Greatest Movie Every Sold” by Morgan Spurlock (see his Ted talk) nicely illuminated the extreme nature of corporate involvement in society by symbolically funding the entire film with product placements. The film was likely trying to illustrate the potential dangers of living in a society that is wholly owned and funded by corporations. Recent public services such as education and health care, in light of tightening budget constraints, have explored corporate product placements as a means of generating revenue.

Is there anything wrong with the bombardment of advertising in our lives? Is the above Tim Horton's example merely the evolutionary nature of advertising doing its work? Or is this a warning of a potentially perverse future that derides our sense of reality and objectivity at a time when many of us are searching for truth and meaning?

Photos taken by the author

Friday, May 13, 2011

Apple and Google's Passive Approach to Privacy Issues

Privacy concerns associated with Google and Apple’s smartphone locational services made headlines for a brief couple of days last week as the U.S. Judiciary Subcommittee on Privacy subpoenaed the two companies for questioning. Research by O’Reilly Radar found that Apple is collecting location data that is unencrypted and unprotected and storing it in a hidden file on the iPhone. In response, Apple's spokesperson said, “Apple does not track users’ locations…Apple has never done so and has no plans to ever do so”. Later though, the Apple spokesperson said that Apple “may collect, use and share precise location data”. When asked by subcommittee chair Senator Franken whether Apple’s and Google’s locational data are traceable and thus not anonymous, an independent researcher said that both were possible. Both Apple and Google scrambled to respond to a scolding by the US government.

Locational services have been a recent and highly instrumental service for customers using GPS and looking for nearby businesses. They have also been useful for companies aiming to conduct target advertising based on locational information of customers. It is this latter service that has sparked some debate on whether locational services may have some important drawbacks when we consider how much companies would be willing to pay for data breach disclosure. According to ABI Research, the market for location-based services is expected to increase to $4.7 billion by 2015 from $1.6 billion in 2010. Advertisers would be particularly interested in using locational data to develop consumer profiles to which they can target specific advertising. Those companies developing “apps” for the smartphones are motivated to give the apps away for very little so that they can collect and sell personal information on users to advertisers.

Is there anything wrong with this? On the one hand, some may argue that this targeted advertising allows consumers to avoid those messages that don’t appeal to them. Single people wouldn’t be exposed to baby and children advertisements and teenagers wouldn’t be bothered by advertisements targeted to their parents. But another argument is that consumers may slowly detach from reality as they become locked into their own bubbles in an ever-increasing digital world exposed to specific information that is based on their individual behaviour. Some may recall the film Minority Report where advertisements are automatically allocated to particular consumers through the reading of their eye-balls, the content of which is likely based on years of individual activity, behaviours, and routines. On the one hand, the fear is that we would be stuck in a perceptual loop, unable to challenge ourselves to think differently. On the other hand, consumers would be exposed to certain messages that benefit corporate interests rather than their own. Given that society is highly influenced by advertising, wouldn’t it be in the best interests of these advertisers to use the captive audience to tell them what to buy and what to do? Conspiracy theory? I don’t think so. This is merely a systemic outcome of a technology used by an actor (i.e. business) whose primary and often exclusive accountability is to shareholders. If you were in their position with data that allowed you to very effectively influence the purchase decisions of consumers, wouldn’t you be interested in doing so considering that you’re being evaluated on the amount of shareholder wealth you’re creating?

During the supposed “scolding”, Apple and Google were asked whether they felt it was their responsibility to control or at least influence the actions of app developers. Using an analogy, Apple spokesperson said, "We don't go after trucking companies because they happen to handle damaged goods…we go after the manufacturers." This is no different than Nike in the 1990s denying responsibility for the horrific labour conditions of their suppliers in Asia. These manufacturers of Nike products are independent companies outside the control and supposed responsibility of Nike, explained Phil Knight and several other Nike VPs. Given that app developers are not under Apple and Google’s control, they appear to be saying the same thing, this time for the digital supply chain. We all know the lessons Nike learned.

A major difference between what is happening now and what is happening to Nike is that the affected stakeholder is the Western consumer not the developing country worker. Because of that, government is eager to get involved. But as it stands now, there is no comprehensive federal regulation that enforces data breach disclosure." Consider this gap in regulation against the philosophy among tech companies that "all data is good". Jason Weinstein, deputy assistant attorney general at the Department of Justice is bang on when he said that the proliferation of handheld devices is a breeding ground for data theft.

Whose responsibility is it then to deal with this? Is it the market to demand privacy protection? Jessica Rich, deputy director of the Bureau of Consumer Protection at the Federal Trade Commission, said the FTC believes "consumers have no idea about the layers of sharing [data] that goes on behind the scenes." Relying on government to build regulation as a response is time consuming and is highly dependent on the identification of the issue, which, in this case, happened somewhat by chance. What happens for those issues that are left unidentified or for those issues that are identified but take months, sometimes years, to be addressed? What happens until then?

As I regularly explain to my business students, managers need to make a decision about whether they will act passively in response to consumer demands and government regulation, or whether they will incorporate ethical criteria in their decisions proactively. Clearly, Google and Apple are blinded by the economic opportunities associated with locational services and do not have the mental models to consider non-economic factors such as breach of privacy until they demonstrate a direct and observable impact on their bottom line, which is essentially what happened last week. Will companies ever learn by being proactive or will they consistently go through the very reactive exercise of figuring out through negative media exposure what other social and ecological issues are inextricably tied to financial performance?

Photo taken from reproduced under Creative Commons