Corporate Social Responsibility or Increased Market-Share: The Case of Juul Labs on Youth Vaping

If the beneficial consequences for a society or the world are what externally validate corporations being socially responsible, does it really matter whether or not such benefits serve as the validators within the corporations? In other words, how much does the motive matter if stuff is getting done such that society is benefitting? To be sure, the motive can influence how much is getting done and for how long, but if the societal results are the same, would the nature of the motive really matter? I lay to the side the perfectly valid point that providing goods and services of value to customers benefits a society because consumers are, after all, a part of society. The interesting cases tend to be those in which profits can be expected to be negatively impacted from a socially responsible policy or program. Of course, a corporate management may announce the expectation of reduced revenue even as the management has carefully calculated how acting responsibly will be likely to be a profit-oriented strategy in the long term (including the related enhancement of reputational capital from appearing to have been self-sacrificial. The case of Juul Labs, Inc., the vaping industry leader in 2019 with a market share of 64 percent, shows just how difficult it is to get to corporate motives, even though the beneficial consequences to a society are arguably more important.

In 2019, Juul “voluntarily pulled its sweet, fruity and mint-flavored refill pods from the U.S. market.”[1] The company’s CEO pointed out in a meeting at the White House that flavors can help adult cigarette smokers switch to a less harmful alternative, so the company “would defer to the science-based approach of the Food and Drug Administration.”[2] President Trump had announced his intention to ban all flavors except that of tobacco. In refusing to follow Juul’s lead, NJOY and Reynolds American, Inc., makers of the second and third most popular vapers, kept selling all of their respective flavors, including those especially popular with teenagers.

Joseph Fragnito, a manager at Reynolds, said at the meeting, “We believe we can market flavors responsibly.”[3] At that meeting, President Trump, fearful of banned flavors being sold on the street and thus unsafe, was coming to the same stance. So had Juul gone too far in having taking kid flavors off the shelves if even those flavors could be marketed responsibly? In other words, had Juul lost revenue when the company could have changed how it marketed the inflammatory flavors? On the other hand, can flavors so attractive to teenagers be marketed in such a way that teenagers do not vape? In such a case, responsibly market may be an oxymoron, especially given that NJOY and Reynolds supported raising the minimum vaping age to 21. U.S. Sen. Mitt Romney, also at the White House meeting, supported Juul’s ban on certain flavors. “Putting out cotton-candy flavor and what is it, unicorn poop flavor?,” he said in reference to Juul’s competitors. “Look, this is kid product,” he added. “We have to put the kids first.”[4] Therefore, I submit that Juul applied responsibility better in banning such “kid product” than NJOY and Reynolds did in applying the concept to marketing the kid flavors.

This does not, however, absolve Juul with respect to its motive. At the White House meeting, the company’s rivals claimed that Juul’s management had voluntarily pulled its flavored products because it could sit out and wait for authorization from the Federal Drug Administration (FDA) as smaller companies went out of business. Then Juul would be able to come back with even more market share. Juul’s CEO countered that the company had banned its flavored products to address the problem of youth use. Whether or not the company’s socially responsible action was ultimately designed to increase market share or reduce the youth use of vaping—that is, to increase profits in the long-term or reduce teen vapers—the question is: Does this make any difference if the benefit to society in terms of less youth vaping is the same? I contend that the difference is ethical in nature, except from a consequentialist standpoint. In other words, an ethical basis exists—that of consequentialism—that essentially treats the question of motive as a non-issue.

Of course, if the societal benefits differ according to motive, the motive would matter even from a consequentialist ethical basis. If the motive of Juul’s management was to increase market share rather than see fewer kids vaping, then should the market-share strategy become compromised or fail, the societal benefits could be expected to be less than had the company’s management been intending to reduce youth vaping, which in turn could be expected to result in less government intrusion and greater reputational capital.  

Regarding the market-share strategy, could not young Juul customers simply start buying the sweet flavors from the other companies? Although they would have to justify their flavors to the FDA, the president was inclined to allow the flavors to be sold because otherwise kids might get them on the street. Would not Juul eventually go back to competing in those flavors? The other companies would not have gone out of business because the FDA would have approved the flavors. Juul’s management had pulled its flavors when President Trump was inclined to ban them industrywide. The changed politics, likely influenced by industry pressure (and perhaps campaign contributions), may have taken the wind out of the market-share motive, in which case the societal benefit would be less than had the motive been that of reducing youth vaping.

In conclusion, motive can matter even from a consequentialist standpoint because the amount of benefit to society can differ. In cases in which such benefits are the same even if the motive is one thing or another, the motive does not matter from a consequentalist standpoint. Even so, we want to think it does, ethically speaking. We want to assume that a management acting in a socially responsible way values doing so, rather than merely using social responsibility to earn more profit even in the long term. The field of business and society looks at the degree of fit between societal and company values, norms, or policies (as the corporate values may not matter), whereas business ethics delves into the ethical basis of a management’s motive. For example, is it enough that society benefits? Shouldn’t a company’s management want that consequence even if it comes with some financial loss (or opportunity cost)? These two fields are typically conflated at this point of contact. To say that Juul’s motive was in line with societal values is not to say what the motive should be. More than description is needed to get to normativity: the matter of should. We want to believe that Juul’s motive was the right one, but this is an ethical point that may not be relevant from a consequentialist standpoint. In terms of the degree of fit between corporate policies and societal values, the extent to which a society benefits is the litmus test.

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1. Jennifer Maloney and Alex Leary, “Trump Warns of Dangers in Banning Vape Flavors,” The Wall Street Journal, November 22, 2019.

2. Ibid.

3. Ibid.

4. Ibid.

Managing Externalities in Business: Heliogen’s Breakthrough in Combatting Climate Change

A company’s values and norms can resonate to some extent with their societal counterparts by the company providing goods and services of value to customers resulting in a reduction of their suffering or increase in their happiness. Providing a net-value (the value to the customer less the price) to people can resonate with societal values and norms that esteem happiness and frown on suffering from want. Indeed, a utilitarian ethic can apply to the provision of as much value as possible in the form of goods and services that reduce the suffering or increase the happiness of as many people as possible. Legitimate wealth can “result from having provided a significant amount of value to a significant number of people.”[1] Even fortunes, according to this ethic, are justified by the provision of “a very unusual form of value to a very unusual number of people.”[2] Utilitarianism is popularly known from the expression, the greatest good to the greatest number (i.e., of people). Of course, an ethic justifies what should be, whereas the extent to which a company’s values and norms approach those of society is a descriptive matter. Describing the degree of fit is not to say that a company’s values and norms should (i.e., normatively) have that degree of fit, or even more. Ethical reasoning would be needed to supply the normative contention; such reasoning involves argumentation that the extant societal values and norms should be held generally speaking and specifically by companies. The fact that the values and norms of many German companies in the NAZI era resonated with societal values and norms is not to say that the managements should have sought to fit organizational values and norms with NAZI values and norms. The field of business & society, which is oriented to the degree of fit that exists descriptively between a company (or the business sector) and a society (or internationally-held values and norms), is thus distinct from business ethics, which is oriented to providing ethical justification for what managers and companies should do. With regard to the former field, companies can orient themselves even closer to societal values and norms than by providing value to customers and even taking other stakeholder interests into account by being primarily oriented to taking on a serious societal or global problem. In terms of business ethics, such an orientation can be said to be one that a company should have because an unusual number of people (even beyond customers and other stakeholders) could receive an unusual amount of value. Climate-change is such a problem, and Heliogen’s breakthrough exemplifies such an extraordinary mission.

Generally speaking, a mission that is primarily geared to solving a serious societal (or global) problem goes beyond providing value to customers and even taking into account the interests of other stakeholders. In such a mission, a society or even the species itself is the main recipient of the extraordinary value even though customers receive value too. Whereas the traditional business model is geared to profiting by selling value to customers, a company’s mission that is dominated by providing extraordinary value to a society or to humanity worldwide views profiting from sales to customers as a means. An opportunity cost thus exists in such a mission due to the profit forgone from customers due to the orientation being foremost to the macro problem.

Even though spending capital to solve a macro problem is not the same as paying externalized costs of the problem, an opportunity cost can arise if the net present value of the profits in the long-term is less than the R&D spending up-front. Even if the mission fits within the traditional business model (i.e., the net present value is more rather than less), the risk taken on because the substantial R&D outlays are not met with immediate profits can be said to be an opportunity cost in pursuing an intractable societal or global problem by coming up with a breakthrough. The opportunity cost can be viewed as paying such that future externalized costs of the problem will not occur. Of course, if a company solves the entire problem, rather than merely reducing that which has been making and would otherwise make the problem worse, most or all of the current externalized costs may disappear and thus not need to be paid. Such a company has in effect taken upon itself the relevant externalities (i.e., covering those costs otherwise left to society).

By externality, I mean a cost that under the traditional business model is borne by society (or humanity) rather than by a company or the business sector. For example, as of 2020, companies had not had to pay even a fraction of the costs of climate change even though the business sector had contributed to the problem by polluting. The default stance under the traditional profit model is typically defensive; a less common proactive stance is to reduce the company’s contribution of the problem, such as airlines did in using more efficient engines. An even less common stance is to be primarily oriented to reducing the contributions from other sources and even to solving the macro problem itself. As argued above, just the risk taken on can put this stance beyond the traditional business model. Such a stance, in being oriented beyond customers and even other stakeholders to focus on a societal problem, fits under another paradigm. This is not to say that it is based on corporate social responsibility, for a company does not have a responsibility to orient itself to reducing or solving a societal problem except as may happen as a result of providing value to customers. Indeed, a company’s founding investors and management may want to tackle a societal problem, rather than feeling obligated. In the case of climate change, the likely downside for the species already known in 2019 could be enough of a motivation even if the founding investors and management do not feel responsible for the problem.

Even though a responsibility may not pertain, the organizational values and norms of a company oriented to minimizing or solving a societal problem stand a good chance of approaching their societal counterparts—closer than from merely satisfying customers and even other stakeholders. That is to say, beyond stakeholder management, externalities management can be said to be oriented to societal (or macro) level problems. Such management had been rare, at least by 2020, because few companies had been principally oriented to societal or global problems without simply relegating them to a corporate social responsibility program as if out of a sense of responsibility. Whereas the literature on stakeholder management and CSR had been around for decades by 2020, not much was written on externalities management that subordinates profit-seeking to reducing or solving a societal problem. 

 

Management geared to externalities can be problematic, especially for publically-traded companies, whose managements are bound by fiduciary duty to look primarily at the short-term returns to stockholders. This duty is firmly grounded in property rights. Can such managements afford to put solving societal problems as foremost? Heavy R&D spending upfront with (admittedly healthy) profits only if and after a breakthrough has been invented and implemented by customers is not the typical way of attracting and retaining equity capital. Language in the charters would have to specify the primary purpose of the company as meaning that expedited profiting would be excluded or subordinated to reducing or solving a particular societal problem. A company’s default purpose is admittedly to make a profit, but property-rights give the owners (i.e., the stockholders) the right to set another purpose in place of the default, in which case investors have no reason to be upset when the purpose is pursued even at the expense of quarterly earnings and dividends.

By 2020, climate change had emerged as a major problem facing humanity with dire consequences being predicted to occur in decades rather than centuries. Heliogen, a start-up funded in part by Bill Gates, the founder of Microsoft, and at least one other billionaire, commenced as such a company oriented to inventing a product that, when sold to industrial customers, would significantly reduce carbon emissions and thus hopefully stave off the worst of the dire consequences. That is, Heliogen put its capital toward discovering a breakthrough that would reduce future externalizable costs even though the company’s high R&D costs would not be met with profits for some time. With a focus on achieving a breakthrough that would be of significant value to the world even beyond stakeholders, the company’s management must have known that profits would be long-term-oriented, rather than relatively short-term profits from incremental values sold to customers.

The secretive clean-energy company announced in November 2019 that artificial intelligence and a field of mirrors could be used together to significantly reduce greenhouse emissions by industry. The invention could generate extreme heat above 1,000 degrees Celsius—a temperature that is about a quarter of that which is on the surface of the Sun. “The breakthrough means that, for the first time, concentrated solar energy can be used to create the extreme heat required to make cement, steel, glass and other industrial processes. In other words, carbon-free sunlight can replace fossil fuels in a heavy carbon-emitting corner of the economy that has been untouched by the clean energy revolution.”[3] These industries were “responsible for more than a fifth of global emissions, according to the EPA.”[4] Accordingly, Soon-Shiong, who sat at the time on the Heliogen board, said, “The potential to humankind is enormous  . . . The potential to business is unfathomable.”[5]  Indeed, the company’s mission was of such scope, rather than merely to finding a better way to make cement and steel, that a breakthrough could result. Externalities management is geared to making an enormous contribution to humanity. Even having an unfathomable potential to other industries can be viewed as lying within the purview of such management, as distinct from stakeholder management. Of course, this is not to say that something of value would or could not be sold to customers for a profit, but the emphasis lying elsewhere makes both Heliogen and externalities management distinct.

Such a mission as does not prioritize the traditional business model can be attractive to investors who have already made their fortunes by prioritizing that model and have gone on to worry about problems facing humanity not currently being adequately addressed by business and government. Heliogen provided a way for Bill Gates and at least one other billionaire to put their wealth to use on a global problem that could even render the species itself extinct. Start-up companies can be vehicles for rich former titans to turn their attention to such serious problems with a feeling not of responsibility, but, rather, of satisfaction from having saved the species. In other words, having been satisfied by playing within the traditional business model, the aspirations of former titans can shift to the societal or global level even if without having given up profiting completely.

In the early twentieth century, Andrew Carnegie and John D. Rockefeller retired from business to turn to charities. Among other things, Carnegie sponsored a library in Pittsburgh and Rockefeller founded a university in Chicago. In fact, Rockefeller, through his foundation, gave away roughly half of his fortune.[6] Both men had been ruthless in business; whether their respective giving afterward justified their business conduct (e.g., Carnegie against labor and Rockefeller against competitors) is another question. Rockefeller went so far as to view both his monopoly and charitable giving in Christian terms. In God’s Gold, I untangle whether Rockefeller’s monopolistic tactics (i.e., his business ethic, or lack thereof) can be justified by his religious mission in business and giving. For my purposes here, it suffices to say that neither titan would have viewed his respective company and charitable giving as being oriented to making a breakthrough on a humungous global problem. Indeed, Rockefeller filtered requests for his charitable giving by how efficient the money would be used; he was primarily oriented to using his fortune to solve a hitherto intractable serious problem facing mankind as Bill Gates was. Gate’s orientation was doubtless on keeping climate change from being an existential threat to future generations.

Externalities management is admittedly not a good fit for the vast majority of companies, which are oriented to maximizing profits while minimizing risks, but not every company must be made to fit within the traditional business model. A company can be formed and utilized in a way that puts profit-making through the funnel of externalities management geared to reducing or solving macro problems. Such a raison d’etre is distinct from undertaking a social responsibility program or being motivated by a sense of responsibility because such a company is not likely to be responsible for the problem even if some of its investors, as former titans of industry, were in their “other life.” The priority in such a company is that of reducing the costs of, or solving outright, an intractable societal or global problem, rather than self-blame or blaming others. This priority is why profit-seeking is regarded as secondary.

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1. Rod Burylo, The Wealthy Buddhist: Buddhist Ethics, Right Livelihood, and the Value of Money (Nepean, Canada: The Sumeru Press, 2018).

2. Ibid.

3. Matt Egan, “Secretive Energy Startup Backed by Bill Gates Achieves Solar Breakthrough,” CNN Business, November 19, 2019.

4. Ibid.

5. Ibid.

6. Skip Worden, God’s Gold: Shifting Sands of Christian Thought on Profit-Seeking and Wealth, available at Amazon.

Goodwill Dismisses a Solid Societal Norm: A Mentality beyond Unethical Conduct

When managers of a business or non-profit interact with a societal norm by openly rejecting any obligation to act in accord with the norm, the reaction from stakeholders can be utter disbelief. The refusal to act in accordance with the norm as it impacts the organization can be beyond bad management and even unethical conduct. The refusal to acknowledge a societal norm even as its impact on the business and stakeholders has been arranged by the business is beyond, though it can include, unethical conduct. Norms are not in themselves ethical, for as David Hume wrote, you can’t get an ought from an is; rational justification by ethical principles must be added before we can get to, “You ought to do X” from “X is the practice.” Yet ethical principles can be in norms, in which case we can say, “You ought to act in accordance with the norm because it is ethical.” In some cases, the norm-business relationship (i.e., Business and Society) can be more salient than an ethical principle in the norm itself. A managerial practice at Goodwill, a non-profit retailer based on donations for the poor, serves as a case in point.

Goodwill stores have tags of several colors on the merchandise. During yellow tag week, merchandise with a yellow tag is half off. Every other Saturday, all of the colors are half off. By the time the doors open, customers have likely formed a long line out in front. Such lines can cover most of the front length of a store. On one such morning at one store, I saw a customer stand by the front doors opposite of the line just five minutes before the opening. I saw the store manager let that customer in second, even though it was obvious that she was not in line. Curious, I entered the store to interview that manager. He told me that his responsibility is only to open the doors, not to determine that some people can come in and others cannot. His lapse would have been easily fixed not by telling the woman, who did not evidently think that store lines applied to her, that she could not enter the store, but, rather, that she would have to go to the back of the line. I asked the manager whether he believed that the line did not pertain to his store. “It is not on our property,” he answered. “We can’t say what people can do out there.” Observing my facial expression, he said he would make sure that customers come in first who are in line, and he even made an announcement lightly chastising “the individuals” who had not waited in line.

Nevertheless, later the same day, I returned to the store to interview two of the associate store managers, both of whom also touted the property point. “So if I come here just before 9am in two weeks, I don’t have to stand in line; I could go second or third?” I asked. “Yes,” one of the associate managers said, even as her hesitation in answering came, I suspect, from a recognition that her answer violates the ethical principle of fairness. This recognition should have given her the sense that something was wrong with the policy she was supporting.

Even though the violation of justice as fairness—it is just that people enter a building in order hence via making a line—is salient in this case, the fact that managers of a store disassociated it from the line to get into the store, hence pertaining directly to the store, is even more bizarre and thus significant. The societal norm here is that customers forming a line outside a store before doors open are to be let in first. For a manager to open a store door and assume that the norm does not apply to his store, and thus does not form an obligation on his part to see that the customers in line go in first, removes him, in effect, from the society or environment in which the store functions.

Even the narrow property-limits rationale is bizarre, for Goodwill leased rather than bought the land and building, and the line of customers pertained to the store even though it did not extend to the sidewalk in front between the building and the parking lot. That the line pertained exclusively to getting into the store overrides the question of property in terms of the incurrence of an obligation because the customers in line had the societal expectation of being able to enter the store in order whether or not the sidewalk was owned by Goodwill. The managers with whom I spoke dismissed the customer’s expectation, whose legitimacy is societal (a societal norm) rather than company-based. The sheer dismissiveness is rude, not to mention bad customer service. Even though the ethical principle of fairness is in the societal norm, the bad attitude toward the customers, the lazy approach to opening the store’s front door, and the decision that the societal norm does not apply to that store are not necessarily unethical (or at least an ethical argument would need to be made).

Narrow self-interest, which business managers tend to adopt, is not in itself unethical. For one thing, the business and financial systems have infrastructures and norms that virtually necessitate it at the firm level. Even so, if stakeholders (or others) are harmed as a consequence, then the narrowness is culpable ethically. In this case study, the harm to the customers in line from one person entering second from opposite the line is small. Few of the customers in line could even see the interloper, and none of the customers—in line or afterward—would have guessed that the store manager’s initial position (and those of two of his associate managers) regarding the store’s responsibility to let the people in line in first.

In fact, that the associate manager who answered affirmatively that I would not need to stand in line (because Goodwill is only concerned, by right, with what goes on inside the stores) had come to such a nonsensical conclusion (and stood behind it) is not in itself unethical. She was not lying, for instance; she really believed herself. Moreover, that a person could believe anything so nonsensical (including the property argument) is also not unethical. Perhaps in the field of business and society, psychology figures in more than does even ethics. Of course, the norms-based field of business and society is (or ought to be!) distinct from business ethics even though the two relate, such as in there being an ethical principle (e.g., fairness) in a societal norm that is not in itself ethical because it merely is.

When Retail Marketing Goes Too Far

Marketing by retailers can go too far; this claim should be no surprise. That this has been so even when the marketing comes at the expense of existing customers may be less well-known and thus be in need of some elaboration. The underlying culprit, I submit, is psychological: difficulty with keeping within even societal and even self-imposed constraints. Put simply, the difficulty is with limits. The mentality is thus at the child-stage of development.

Service to the customer is a business mantra. In fact, an increasing number of retailers refer to their respective customers as guests. Target was among the first to do so. Then restaurants followed and even some of the services. One hair salon in Scottsdale, Arizona, even has guest parking, but the signs are technically lies; the slots are actually for customers, who have been conveniently renamed guests. It might be concluded that American business has been trying to outdo itself in how the customer is treated.

Some indications, however, suggest that existing customers may have been increasingly overlooked, at least as of 2019, in favor of gaining additional customers. In some fast-food restaurants in the U.S., for example, promotional signs on the large windows adjacent to the tables obstructed the ability of sitting customers to look outside the building. After spending money for a meal, who wants to look at giant promotions geared to prospective customers approaching or passing by the restaurant?

On an increasing number of city buses, advertisements covering the side windows made it more difficult for existing customers to see outside the bus, whether to enjoy the ride or determine where to get off the bus. In effect, all this says to the existing customers: the people outside are more important than you so regrettably we have to disrupt or detract your experience with us in some small ways. The regret is a lie, as is the lack of choice in the matter, and the impact on customer experience can be large. 

When the value given to existing customers is lessened while the price held constant or even increased, the gain goes to the business and the loss to the existing customers. Even in being hampered in trying to see outside a bus, the passenger suffers a loss because he or she would otherwise get the benefits of being able to see clearly through the windows. In fact, why even have windows if they are to be covered in various colors? Even the feeling of having been passively slighted in some way is part of the loss. From the standpoint of the business, existing customers are a given; the aim is to "grow" the business by attracting new customers even if at the expense of the current ones. 

The practice of taking away from the value that customers receive implies an unwillingness to be constrained even by the value-exchange set up by the companies. Perhaps the hope is that few passengers would notice the change and eventually it would be regarded as part of the status quo. The expectation of being able to see clearly through a bus window is replaced. 

Even in terms of cultural norms regarding the American holidays, retailers have gradually pushed up Christmas displays to September. You know something is wrong when you see Christmas trees and decorations then in front of the Halloween decorations and costumes. This shows that some manager did not even feel constrained to give each holiday its due. This can be viewed as an extension of not feeling constrained (by the existing value-exchange) to give existing customers their due. 

At another Lowes, the Christmas displays completely blocked the Halloween pumkins from being visible from the front aisle. 

Managers Going too Far: Targeting Linguistic Over-Reaches

The practice of using words beyond their contexts such that the words’ meanings are tortured and yet are pretended not to be was a trend in modern America during the 2010’s. The business manager instigated the trend in order to “gild the lily,” which means to claim more than is warranted or merited. Astonishingly, people dismissed or perhaps even didn’t recognize such over-reaches. Perhaps as long as people have used language, egos gripped in the pursuit of gain have presumed that keeping to a word’s extant meanings in a language is somehow optional.

To be sure, the malleability of words is one way in which a language changes in order to incorporate societal changes.  “I’ll text you tomorrow,” for instance, uses the noun text as a verb. Similarly, “I’ll email you later today.” These two verbifications did a lot to bring the English language up to date in the twenty-first century. Such adaptations are natural rather than pushed from an agenda.

A motive from an agenda pushes through, insisting that a word can be used all of a sudden in another context in which the meaning does not apply. In other words, the agenda reverberates from the sheer over-intensity of the insistence, or declaration, even above objections that are correct. Once a manager of a Target retail store insisted to me that the shoppers are guests rather than mere customers. Her tone was so forceful I could hear aggression in it. That manager was like arrogance on stilts during a flood; her claim should have been underwater.

Gilding the lily even more, some of those guests are members. It was strange indeed to be asked by a cashier, “Are you a member?” “Of what,” I would naturally wonder, as clubs had members and Target was not a club because it had customers who were not members (and even the members didn’t have to pay dues!). In short, the company was going too far in insisting that its customers be called guests and members, as if the company were a house or club, respectively. When I have guests over and I give them gifts, I don’t charge them for it. In no sense is a customer a guest, especially considering how bad customer service can be. To find an employee referring to a customer as a guest and yet treating the person very badly demonstrates a real disconnect within the employee’s mind, and yet this has been common even since customers “became” (as if naturally) guests and members. Nothing had changed on the store end in terms of customer service, so insisting that customers are to be called guests and members was to pretend that the commercial relationship was something more than it really is. It is this something more that points to the underlying motive: trying to get something more by pretending something that really is not the case. Wanting to pretend that the customer is something better, rather than that word somehow had been sullied and thus naturally to be jettisoned, was the motive. Telling customers that they are guests rather than customers would reflect instead on the company’s arrogance and being in a state of denial.
As another example of going too far in order to claim more than is warranted, Target also designated its retail-area heads as area owners. So, one employee is the owner of the home furnishings, for instance. In a corporation, the stockholders own the corporate wealth collectively. To bestow the title of owner onto an employee simply because he or she is in charge of a given area of the store implies that the employee’s authority is more than it really is. In the process, the meaning of the word owner is violated without even an acknowledgement. Again, a state of denial plays the mental function of protecting the over-reach such that even the over-reach is not recognized as such. It is almost like the managers were living in fantasy lands governed by the simple rule: if changing a word’s meaning helps the business, then make the change and pretend that no such change was made. .

General Electric: Tax Avoidance with Former IRS Employees In-House

The name of the game in all too many corporate tax departments is to minimize the tax due as much as possible. No countervailing notion of “corporate citizenship” or even “fair share” exists in that economic world of single-minded minimization of what is to be paid out. Put another way, responsibility does not compute in the business calculus. Advocates of corporate social responsibility got this wrong for decades by naively assuming that people who work in management roles cannot compartmentalize. Whether due to the strictures of a job description or financial pressures on a company, managers themselves may regret having to compartmentalize in order to keep their respective jobs. Sadly, all too often, a manager faces internal and external pressure to sign off on something that is admittedly unfair or too greedy. That the playing field itself may be slanted in the financial interests of large businesses goes beyond a manager's pay-grade, and even that of a corporation itself. For one to speak out in order to make the tilt explicit in society would deny the operative role of compartmentalization. Managers, even CEO's, may personally want a level playing field wherein corporations cannot yield an undue amount of wealth at the expense of other entities or persons, such a desire is outside of the business calculus. 

One manifestation of the tilted field is the ability of companies to bring IRS agents in-house as employees. In the debate on whether to end the George W. Bush Tax Cuts, the nominal (or statue) tax rates were salient. Much less was said of the effective rates, which are calculated by dividing the actual tax paid by total income (individuals) or net income (corporations). The New York Times reported in 2011: Although “the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less.”[1] Although perfectly legal, the undue advantage means that the U.S. Government has had to look for other sources of revenue to make up for the lost revenue or do without the revenue, using debt to compensate. The "perfectly legal" aspect points back to the tax laws, and, more particularly, at the undue or even improper influence of the business sector in Congress. In fact, lest it be concluded that the business calculus is the reason for the tax avoidance (which is legal, unlike tax evasion), the financial power of business tilts the field not only by having too much influence in the crafting of tax legislation, but also in being able to hire ex-IRS employees to get "the inside scoop" on avoidance tactics. I now turn to the case of General Electric (GE) in 2010. 

General Electric reported global profits that year of $14.2 billion, $5.1 billion of which came from operations in the United States. Rather than owing any federal income tax on the $5.1 billion, however, the company claimed a tax benefit of $3.2 billion. Behind the “fierce lobbying for tax breaks and innovative accounting that enable[d] [the company] to concentrate its profits offshore,” the company’s tax department was led at the time by a former U.S. Treasury official, John Samuels.[2] Moreover, the department included “formal officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.”[3] G.E. had essentially brought the tax-writing and enforcement skill of the U.S. Government “in house.” As paid employees of G.E., the former government expertise was put under the aims of the private company, an organizational machine solely oriented to maximizing profit, whether short term or long.

Generally speaking, companies of such enormous financial wherewithal that annual profits are in billions of dollars can appropriate and harness governmental machinery for the sake of private gain. The issue here is not simply the existence of too much tax avoidance, hence at the expense of fairness; rather, the underlying problem is whether the existence of such large and powerful private enterprises is compatible with a democratic form of government. It is certainly not in the interest of the business sector that this question be interjected into public discourse. So the vested powerful interests, working through political stand-ins and the media, which itself is largely corporate, preoccupied with secondary issues, such as nominal individual tax rates, off-shore factories, and NAFTA. NBC, for instance, was owned by G.E. before being bought by Comcast. 

To be sure, the mantra well-known to many Americans in the 1950s, What is good for GM (or GE) is good for America, was supported by the notion that economic prosperity benefits everyone and a profitable company hires more employees than does an unprofitable company. What if the societal absorption of the value of this ideology made it possible for the business sector to have so much influence in Congress that the corporate taxpayers have practically been able to write their own tax laws? What if a pro-business society is too vulnerable to the rule by wealth (i.e., a plutocracy) that this underbelly can even keep itself hidden from view? Flaws exist in the assumption that what is good for GM or GE is good for America. Abstractly speaking, the good of a part is not necessarily the good of the whole. Private gain is more limited than is public gain. So if some of the parts come to dominate the whole and even define it in their own terms or image, the other parts and even the whole can be taken advantage of on the tilted board.

1. David Kocieniewski, “G.E.’s Strategies Let It Avoid Taxes Altogether,” The New York Times, March 24, 2011.
2. Bonnie Kavoussi, “General Electric Avoids Taxes By Keeping $108 Billion Overseas,” The Huffington Post, March 11, 2013.
3. David Kocieniewski, “G.E.’s Strategies Let It Avoid Taxes Altogether.”

McDonald’s Over-Reach: Blending a Restaurant and a Coffee Shop

In spite of essentially flat sales in the U.S. in February 2013 from the same month in 2012, McDonald’s CEO, Don Thompson, said he was confident that the people at the company had sufficient experience to “grow the business for the long term.” Even assuming that a business can be grown as if it were a geranium plant, the claim can be critiqued both in regard to the underlying assumption regarding “growth” and that of long-term viability. Fusing a restaurant with a coffee shop can be said to be an over-reach that had blended the company too much, at least at the store level.
In regard to the company’s long-term viability, changes in the business environment were important. The fast-food industry had obviously changed from 1970 to 2010, as did American society. As restaurant chains like McDonald's gained substantial economies of scale with the proliferation of restaurants, the increasing popularity of healthy meals gradually undercut the prospects for continued growth.

From "Americana" to "Enjoy Getting Fat": A change in the business environment in the last quarter of the twentieth century in the U.S. that impacted McDonalds at its core.    source: McDonalds.com

The management at McDonald's did relatively well in introducing healthy alternatives to its menu by 2010. The strategy also included blending the restaurant with a coffee shop experience, the enjoyment of which had also expanded due to Starbucks. To cut into that market, McDonald's introduced new drinks, such as smoothies, mochas and lattes, and added wireless internet service. As a result of having adjusted to the health-conscious and coffee shop mini-cultures in the business environment, McDonald’s U.S. sales rose 11.1% in February 2012 from the year before.[1] By 2013, Burger King was renovating its restaurants and adding "coffee shop" drinks too. Even so, the flat McDonald's sales figure in February 2013 was a bit of a surprise. Although the problem could have been the newly introduced fish product, I suspect that the market may have been questioning McDonald’s expansion into the coffee shop business as being an over-reach even it did enjoy certain synergies.
McDonald's was admittedly poised to give Starbucks a "run for its money" concerning that the giant coffeeshop chain had gotten away with mass-producing drinks to sell as premium prices. That coffee chain was essentially charging a premium price for non-premium products, given the manner of production. Even though McDonald's could undercut Starbucks on price and thus potentially gain market share, a McDonald's facility looked and functioned more like a restaurant than a coffeeshop where people would feel comfortable hanging out and getting work done or socializing. 
Adding to the discordance was the decision of McDonald's management to continue to stress the “dollar menu” for the “budget conscious” customer. Put somewhat delicately, the business strategy assumed that two very different market segments would co-exist in the same room. Starbucks had the same problem because of its "third place" policy, wherein people could hang out without purchasing anything. I know of at least one Starbucks' store in which the number of homeless "customers" has driven out otherwise paying customers. McDonald's management, through at least the 2010's, was essentially blurring the company's identity by seeking continued sales growth by trying to combine a restaurant with a coffee shop.
In general terms, a company’s senior management (or board of directors) should not get so caught up with important changes in the business environment that the resulting strategic change involves trying to remake the company into something the company is not. A fast-food restaurant is not a coffee shop. Although some people in the fast-food crowd would relish mocha, blending the social distance between the two cultures could result in a bitter drink that satisfies nobody. Had McDonald's management concentrated simply on adding new healthy fast-food (i.e., restaurant) products, sales would probably have improved without risking an identity crisis at the restaurant level. Alternatively, McDonald's could have built real coffee shops, with suitable furniture and decor, and synergies could still have existed. Perhaps fusing different lines of business, in cases in which each has a distinct culture and customer base, is not wise. To keep up with societal shifts and profit from them while not blurring the business’s identity is the sort of balance that a corporate management should attempt to reach and sustain in formulating strategy over the long-term.

For a critique of Starbucks, see Bucking Starbucks' Star, available at Amazon. 

1. Candice Choi, “McDonald’s Sales Drop Despite New Fish McBites,” The Huffington Post, March 8, 2013.

A Lack of Good Will at Goodwill

Redefining words to suit a business’s financial interest is misleading, even if the herd animals who serve as customers look the other way, or, even worse, do not notice the fact that the words have been redefined! At a Goodwill store in Phoenix, Arizona,  I bought a black suit for singing in a choir. Before I paid, I asked a manager whether I could return the suit as long as I do so within a week. “Yes, you can get a refund,” he replied. Three days later, I returned to the store to return the suit. I approached an available cashier, but she told me that I had to go to the other cashier if I had a return. That cashier was not even at his register, and even when he returned I had to wait at least five minutes for one customer. Only the head cashier can process refunds, whereas any cashier can accept money—an interesting, meaning convenient, asymmetry. Money comes in easier than it goes out.

When the head cashier processed my refund, he handed me an in-store credit card. I asked the assistant store manager why a return was instead being treated as an exchange. “In the Goodwill network,” he replied, “returns are exchanges.” I was stunned. “But the two are not the same thing; returns result in refunds, which are not store credits,” I retorted. “Not at Goodwill,” the manager said in a definitive tone.

Having essentially redefined a return for a refund contrary to the word’s meaning and common usage, the ploy can be said to be misleading. Given customers’ legitimate assumption that a return results in a refund, which is not a store credit, the redefinition effectively involves false pretenses. No good will comes with such a nefarious, deliberate misuse of language. Indeed, the very name of the organization, Goodwill, connotes a lie if the good will under the roofs is lacking. 

See "It's Only Fair."

“No Loans” on Gun Sales: G.E. as Socially Responsible or Financially Savvy?

In the wake of the Sandy Hook school shooting in Newton, Connecticut in late 2012, General Electric announced that the company would no longer finance consumers’ gun purchases. Russell Wilkerson, a G.E. spokesman, wrote in an email that the new policy was being adopted “in light of industry changes, new legislation and tragic events that have caused widespread re-examination of policies on fire-arms.” In other words, the policy shift was not simply a reaction to Sandy Hook. Rather, the company’s executives were adapting to changes in the organization’s environment, including the industry itself. This opens up the question of whether the new policy can be classified under the rubric of corporate social responsibility (CSR). Perhaps the adaptation was simply good business, with the appearance of “CSR” adding some reputational capital through a good public-relations campaign.

Do business principles mandate treating this product like any other?  Source: NBC News

Well-meaning moralists in particular may have a tendency to project their own strident sense of obligation onto other people, and even organizations as if they too could be moral agents. Yet an organization, like a biological organism, must adapt to its changing environment, or risk being replaced by a competitor that has achieved a better fit to the new environment. Does such adaptation, which renders a company more fit by means of a sort of competitive natural-selection process, involve obligation manifested as responsibility to that environment, or is the adapting simply a matter of survival and even accruing surplus? To do one’s duty is not typically said of what a person wants to do anyway in line with self-interest. A person would quickly see through my claim that it is my duty to eat the remaining chocolate sundae so not to waste food. People do not typically fall over themselves to do something out of a feeling of duty or felt responsibility. For the sense of obligation or responsibility to be the primary motivator, the person (or persons, in the case of a company) must not otherwise be inclined, as from the anticipation of a benefit, to act. When stimulated, self-interest tends to eclipse the feeling of duty of responsibility. This thesis can be applied to GE’s policy on financing firearm purchases. 
First, though, can the policy be said to fall under the rubric of corporate social responsibility? What if marketing the policy was simply good business? The societal benefit in making it more difficult for people to buy guns may simply have been intended as a byproduct. Surely the societal good of a byproduct has worth even without having been motivated when the policy was chosen. Even so, the primacy of self-interest--the profit motive--irrationally taints the resulting societal good. Such a company's societal reputation would be enhanced by the good of the byproduct and decreased by the primary motivation of self-interest.  
How salient was the profit-motive in GE's decision to stop lending on gun sales, and how great was the impact in terms of the benefit to society, beyond the company? GE Capital Finance had already stopped providing consumer financing for new gun-shop customers in 2008. The policy change in 2013 merely extended the ban to existing customers. So it is not as though potentially new customers would be discouraged from buying a gun on impulse for nefarious purposes. The impact on the bottom line from lost sales could not have been assumed to be great; even if new and existing gun customers had been eligible for financing before the policy change in 2013, we would still be talking about a small fraction of GE’s revenue. Additionally, according to USA Today in 2013, GE’s “decision affects fewer than 75 retailers, which GE says is about 0.001% of all gun retailers.” This is because the policy “affects only retailers that sell firearms exclusively.” General merchandise stores, such as Walmart, were excluded from the company’s lending ban. 
However, Wells Fargo had stopped financing gun purchases in 2004 “for business reasons,” according to company spokeswoman Lisa Westermann. Perhaps it was good business at GE too, but not directly. 
Indeed, the "corporate social responsibility" policy as promotion could have been expected to boost sales companywide without much cost in foregone gun sales on credit to new customers in gun stores only. In fact, the policy as promoted could even be misleading, as in the article's title in USA Today, “GE Won’t Make Loans to Buy Guns” even though GE would still be financing guns—just not through stores that sell only guns. The gap itself between the publicized and actual policy could mean that the managers' intent had been to use “marketed CSR” to boost the company's reputational capital with as little cost as possible. In other words, the profit-motive was likely the motive. If most of GE’s lending on gun purchases was through multi-merchandise retail stores, GE could capitalize financially on sympathy from the school shooting without having to give up much financially. Interestingly, the shooter’s father, Peter Lanza, was a GE executive at the time—the company being based in Fairfield, Connecticut. Had other GE executives felt obligated, also being at such close range to the tragedy, to protect the kids, we would not have seen the sort of motivation that led to the exceptions and allowing the misleading storyline to go uncorrected. Were the primary intent that of protecting kids at schools from getting shot, the loopholes would not have been allowed to exist even if GE had to wait for contract renewals with general-purpose retailers such as Walmart.  
Often corporate social responsibility and business ethics are conflated. The distinction in this case is clear. The fitness of a policy to societal norms is a descriptive matter of whether organizational values are in sync with societal ones, whereas the misleading claim to have have ended loans on gun sales is a normative matter. Whether the norm in GE is consistent with the societal norm on the role of guns in the tragedies does not require justification by ethical reasoning and principles or theories. In contrast, whether a company should be misleading or even fail to stop it in the press necessarily includes resort to ethical principles, for only they can justify the claim that the motive or consequence is unethical. 
Still another lesson to take from this case involves the choice to wade into a controversial societal issue. As in the case of gun control, which is really about access to guns, entering a controversial debate puts a company at risk for being negatively viewed by the “other side.” This could significantly reduce the good  to the company obtained from the use of corporate social responsibility. 
A USA Today poll taken at the time of the policy change in 2013 found public support for new gun-control legislation “slipping below” 50 percent. GE risked many people agreeing with John Meek, the owner of a gun store in Illinois, who called GE’s policy “an injustice” because the instrument rather than the user is being blamed. Howard Schultz of Starbucks, in contrast, correctly judged the changing American attitude toward gay marriage in using the company to promote the cause, even if a CEO using a company for a personal political agenda is unethical. A dramatically changing shift in societal mores, norms, or attitudes is like a wave that managers strategizing corporate social responsibility programs and policies can ride, whether the motive is financial gain only or includes improving the social good. What might seem like an easy way to enhance a company's societal reputation can easily backfire if not done with attention to a changing business environment. 

Source:

Paul Davidson, “GE Won’t Make Loans to Buy Guns,” USA Today, April 25, 2013.

Karl Lagerfeld: An Artistic (and Marketing) Genius

Weeks after Karl Lagerfeld’s death at 85 in February, 2019, I poured over interviews that the eternally-modern yet classic Renaissance man had given. “I only answer questions,” he had said an interview in at a WWD conference in 2013. His answers provide as inside as possible a look at l’homme extradinaire.  He considered himself a fashion designer, a book publisher (regular and picture books), and a photographer, though he did much more. I’m not sure whether his books, interior designs, architecture, and photography can be considered marks of genius, but that he extended his method of fashion-design and did so well is a testament to the man’s inner-workings. His answers remind me of Frank Lloyd Wright, the famous architect from Wisconsin whose work so revolutionized homes from the Victorian era. Essentially, he ushered in open homes from the closed roomed Victorian houses. Lagerfeld was also innovative, taking the classic Chanel look and adding bits of modernity, such as in combining a black dress with sneakers. Both men produced homes/dresses that were inexpensive and expensive. Neither was beyond reach, yet as visionaries so far above most other people. Lagerfeld, like Wright, saw things differently than most of their respective contemporaries did. This is perhaps their shared mark of genius: not be so tied to yesterday, combined with being inspired to use creative freedom then expanding its application. This is all based in the inner constitution of the two men, which I suspect was similar. As Lagerfeld said, “I am down to earth—just not this Earth.” This is actually quite telling of genius, for such minds typically think "outside the box" and so can easily see through even societal sacred cows and thus proffer very different perspectives. The thinking, intuition and/or artistic perspective, in other words, innately go beyond the societal and individual assumptions that most people do not even realize they live by or hold. I contend that Karl Lagerfeld's artistic, or visual genius went far beyond fashion-designing.  

Regarding his creativity, Lagerfeld said that perfect work conditions permit creative freedom such that fits of inspiration can run their course like a stream unimpeded by obstacles. Working for a label need not detract. “I do the job because I enjoy it,” he said. “I love to photograph architecture,” for example. He eschewed analyzing his work. “To analyze is very unhealthy,” he said. “The worst thing in fashion . . . is the ivory tower.” So Lagerfeld’s genius did not manifest chiefly through the commonly presumed realm of reason. “I don’t listen to my voice,” he said, “I listen to my inspiration. . . . When I like something, I don’t ask myself why,” he said. “I am like a building that has an antenna; I look at everything.” His genius may have been in both how he looked at everything (i.e., from a distinct vantage-point transcending his own day) and how his inspiration was related to the raw empirical sensory data. “I’m a story teller. From a little detail a story can be made.” The underlying mechanism is difficult to describe “Most of the time, there are strange accidents.” These are innately unprogramable and therefore beyond turning into a programmed series of steps (i.e., mechanization). “I’m not an office person, you know.” Both his unique way of looking at modernity and his inspiration were clearly not easily translated by reason. Yet curiously he viewed his sketching and writing as “the same thing,” which may imply that genius is genius underneath regardless of how it manifests.

Lagerfeld also had a unique approach to work. Believing that “there is always room to improve,” he stated, “I don’t want to rest on what I’ve done; I’m only interested in what I’m doing and what I will do.” He relished being stimulated, which is undoubtedly why he was so interested in looking at what is new at the time. “I lose interest very quickly. A lack of excitement can quickly result in a change in course, “or if people think they know better than I do” or cause complications because they think they think they are professionals. People who work to justify their salary is the worst.”

Although his father was a businessman (who made his fortune from introducing dry milk to Europe), Karl felt no need to assume a business function; he left that to others. He left business to others, though he could be accused of having had an eye for marketing his collections through elaborate shows. Even so, he was not a “business type.” For instance, he said, “People are supposed to work together. If they do, “you don’t need a contract.” A business practitioner would view this, and his dictum that he only works on things he wants to work on, as highly naïve. His lack of humility might have rubbed business practitioners the wrong way. On himself as a fashion designer, he said, “Somebody might do better, but I don’t know who.” Yet interestingly, he included himself in his observation, “Things are step by step; sometimes you go back two steps, but that is a healthy thing too.” He also valued competition, which is cherished in the business world even as its practitioners seek monopolization. “Do you know something heathier than competition?” he said, “I don’t want to rest on my success.” Friends thought he got only a few hours of sleep a night. “I’m not really a party freak, ” he remarked, “I have so little time.” As he kept working so, being open to learning more about the craft and to following through on his fits of inspiration, he may have felt he had earned the right to brag. At around 80 years of age, he still said, “My problem is to show collections that are right for the moment and right for the label.” He was corporate enough to subordinate himself under Chanel even though the company had given him free artistic license, which he regarded as necessary as part of good working conditions. Ironically, in ceding some control, the company’s CEO got more loyalty and financial success from the man. How many business practitioners past their first few promotions stay so eager to push themselves to learn more and improve rather than settle in?

Finally, the unique nature of his perspective looking out at the world as it was is in the moment, rather than looking back retrospectively, shows us how utterly distinct the vantage-point of genius is. As Fredrich Nietzsche had written in the last half of the nineteenth century in Europe, a philosopher is not a man of his time. Genius, whether analytically or artistically, can easily go beyond the status quo and its underlying operative paradigm (e.g., assumptions), and yet Lagerfeld relished the excitement from looking at modernity, which he defined as that which “is right for the moment and the next moment.” Avant guard, he noted, is an antiquated, overused word. Overused, no doubt, by minds that are not able (or willing) to transcend what they take for modernity.

Even Lagerfeld’s reason for not going back over his own story is different, and thus telling. “No memoirs,” he said, “I have nothing to say, and what I could say I don’t want to say. . . . There were important people in my life but I don’t want to give them the pleasure of mentioning them again.” Bravo! Lagerfeld was interested in history, though not of his own, which he said he already knew it so why waste time going over it? Not being moored to a particular culture, present or past, he could critique it particularly well and yet go beyond it and critique a novel trend. For instance, He said of the eighties in France: “I prefer to forget about that.” The seventies, in contrast, “were not about money.” That decade had been one of freedom. “Today if you go to a party, you bring your body-guard; there are body-guards all around.” This is an astoundingly accurate observation and indictment of the increasing security consciousness gripping the urban West. Even just the increasing intimidation in the amassed security forces by businesses and police forces by universities and cities can snuff out the atmosphere of freedom that characterized European and American culture in the 1970s. Genius is out of place, yet so vital to a people ensconced in the status quo (or what has subtly entered the status quo unexamined and perhaps even uninvited).

Sadly, I was too young to partake of the hippie culture of freedom from the late 1960s to mid 1970s; my first political memory is of the Watergate congressional hearings in which then President Nixon was dropped even by his fellow Republicans on account of his law-breaking in office. That memory, plus that of OPEC-induced gasoline shortages and President Carter’s failure to return the Americans held hostage in Iran, gave a pessimistic hue to the decade to me and many other Americans. Fortunately, Europe had a different hue, as Lagerfeld would point out: Greater freedom rather than more corruption. I share his view of the 1980s as being more about money. In Reagan’s America, prosperity was the Gospel and the rich (and business schools) thrived. I’m not surprised to learn that that spread to Europe. Lagerfeld could look back at all the wealth created back in the 1980s and still say in 2013, “Many rich people of the past are poor today (relative to today’s rich).” In spite of the financial crisis of 2008 and the ensuing European debt crisis, the 2010s can be said to be about the super-rich and the related widening disparity in income and wealth approaching that of the Gilded Age. As for Lagerfeld on politics, he was interested in the news (and it was relevant to fashion), but he could proudly proclaim, “I never voted in any country; I am a free European.” The man who had wanted as a child to be an illustrator when he grew up had in fact grown up to pour his genius perspective into images and cultural critiques.

Source: “Interview with Bridget Foley,” The WWD Apparel and Retail CEO Summit, January 7-8, 2013.

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