Nissan's CEO Caught in the Crosshairs of Business and Society in Japan

Ordinarily, courses that include business & society (with business & government, and business ethics material also included as if the three fields were somehow one) have been relegated to the periphery in American business schools. Perhaps the business sector and its sycophantic deans have simply assumed that little actual cost comes from business managements deviating from societal norms and values. Admittedly, such a schism decreases reputational capital, a long-term intangible asset. Even so, the long-term-oriented and intangible can manifest as immediate jolts to such capital, with actual, measurable financial costs kicking in. They are triggered by news-worthy incidents in which a company or even one high-level manager, such as a CEO, are perceived societally as being in the wrong. The general perception of wrongness in turn depends on how far a company or manager have deviated from societal norms and values. Crucially but typically ignored, even though societal norms and values can absorb certain ethical principles or theories, business ethics is a distinct field because reasoning from or to ethical principles or theories lies at the core there. That is, no philosophical reasoning is involved in business & society; rather, the norms/values of a business sector, industry, or company are compared or contrasted with relevant societal norms and values. In this essay, I analyze the case of Carlos Ghosn, who was CEO of Nissan, Renault, and Mitsubishi on November 19, 2018 when he was arrested “on allegations that for years he had withheld millions of dollars in income from Nissan’s financial filings.”[1]
In 1999, Ghosn came to Japan “to carry out an American-style restructuring of a failing Nissan. The Japanese carmaker had $35 billion in debt, provided lifetime employment to a bloated work force and produced a fleet of the kind of cars you’d dread getting at the rental counter.”[2] He closed factories, cut suppliers, and laid off 14 percent of the workforce. As a VP at Renault, he “had helped oversee a turnaround at the middling French automaker, which had agreed to spend $5.4 billion to buy a 36.8 percent stake in Nissan Motors.”[3] On both counts, he was successful even though the CEO of General Motors at the time said Nissan was fixable.

In Japan, whose culture generally viewed outsiders with distrust, Ghosn “achieved a status bestowed on only a handful of chief executives. . . . In 2004, Emperor Akihito awarded him a Blue Ribbon Medal for his extraordinary contributions, making him the first foreign business leader to receive the honor.”[4] Ghosn, “a brash Brazilian-born and Lebanese- and French-educated engineer,” had been accepted in one of the most closed societies in the world.[5] Accolades aside, this made him extremely vulnerable should he intentionally or unintentionally violate a major societal norm or value. “From the start, he faced distrust from the Japanese policymaking and business establishment. The very idea of an outsider’s bringing free-market capitalism to Japan’s quasi-socialist corporate culture jabbed at historical wounds” even though Ghosn was not an American.[6] In other words, in “representing” a foreign economic system that a victor in World War II wore like a crown for the world to admire (even where it didn’t), Ghosn inadvertently put himself in a long-simmering wound in Japan. Not that any ethical principle had been violated; rather, his subtle predicament was predicated on a divide between a strongly valued societal norm and him as well as the company he ran. At the firm level, his “splashy—some would say autocratic—presence was out of sync with modest Japanese culture.”[7] As one Nissan employee put it, “No one dared to say anything that would confront [Ghosn’s] opinions.”[8] So a cleft between business and society can affect the degree to which a business leader’s style is accepted organizationally. That he cut 21,000 jobs but spent more than $200 million for Nissan to be a sponsor of the Rio Olympics in 2016, and that he hopped between homes paid by Nissan and flew in company jets would likely put him out in virtually any society in the world only gave the Japanese fetter for distrusting the foreigner in spite of his early contributions to Nissan and thus Japan’s economy.

The triggering incident that brought down Ghosn’s reputational capital in a flash stemmed from a divergence between how he had handled the matter of his compensation (i.e., business) and how CEO’s in Japan were supposed to handle it (i.e., society). “In Japan, salarymen slave away at the kaisha (or company) with a sense of communal pride almost as important as the salary.”[9] In 2017, Ghosn made $16.9 million ($8.4 million from Renault, $6.5 million from Nissan, and $2 million from Mitsubishi), which was nearly 11 times what the chairman of Toyota, the world’s largest automaker at the time, earned.[10] Astonishingly, Ghosn had “made the case to the public that he was underpaid.”[11] Even at the annual meeting in June, 2018, he said the company remained “financially very disciplined” in rewarding senior management.[12] Asked at the time by the Financial Times if he was overpaid, he laughed and replied, “You won’t have any C.E.O. say, ‘I’m overly compensated.”[13] Breaching yet again a valued societal norm in Japan, his “brazenness rankled employees and the public in Japan.”[14]

So when a whistle-blower in Nissan said in October, 2018, that the CEO had been instructing Greg Kelly, a top aide and a board member (which represents a conflict of interest) to split Ghosn’s compensation between that which would be paid in the current year and reported in the annual report and securities filings, and that which would be paid only after the CEO will have left the company. Nissan went to prosecutors to allege that Ghosn had been underreporting his income since 2009. The company added that Ghosn and Kelly had developed future plans to pay Ghosn a further $124 million in cash and other financial instruments—some as compensation for an advisory position after the CEO’s retirement. The issue was that of committed compensation (yet not to be paid in the year committed) not being reported in securities filings (as well as the annual report). Stakeholders, and the Japanese public at large, could be harmed by not knowing the full amount of the company’s long-term liabilities.

While such harm (as well as the economic inequality even in the CEO’s current compensation) could be useful in an ethical analysis, but in this business-and-society analysis, the issue comes down to whether Ghosn’s deviations from valued societal beliefs and norms added to the severity of the government’s response in going after the gilded CEO—a foreigner nonetheless and thus at bottom to be distrusted in Japan. The issue is not whether Japan’s norms are ethical; rather, in this analysis they are taken as given so a qualitative measure of Ghosn’s deviations can be made and related even causally to the outcome (i.e., the arrests without bail, as well as the extent of the blow to the man’s—and perhaps even his company’s reputational capital). It is indeed easy to conflate such an analysis proper in the field of business & society with that of business ethics, for we tend to apply should or should not to valued norms whether in business or society. Whereas existing norms (and cultural beliefs) are descriptive, ethical principles are normative. The two fields do share a border, however, as in asking whether a cleft between the norms (and related policies and conduct) of a business and of societies in which it conducts business is ethical or not. In going from the descriptive to the normative, ethical analysis is necessary, so I would classify this matter to lie within business ethics, drawing on the descriptive in business & society.

To be sure, legal analysis of the acts of Ghosn and Kelly would carry us a considerable distance in getting to bottom of this case study. Just when the Japanese police were going to release the CEO on bail, they rearrested him “on new charges that he shifted personal losses during the 2008 financial crisis temporarily onto Nissan’s books.”[15] The matter of an associated deviation from societal values may not be a material factor due to the crime itself, which rendered it offensive in virtually any civilized society at least at the time. This crime arguably goes beyond the failure to include committed but not paid out compensation in financial reports to the government (and in company annual reports). The impact of business & society as distinct from legal analysis was likely more significant in the failure to disclose committed compensation because Ghosn had at least gone through the company (admittedly via Kelly) in structuring his compensation. It was not as if he would get the total committed compensation in the years committed. In other words, going against valued societal norms can render a person or company particularly vulnerable, other things equal.

Business managers—even CEOs—may not recognize their own vulnerability and that of the company at which they work. For one thing, we humans tend to discount low-probability, high-cost events, especially if they are not expected in the short term. The immediacy of quarterly earnings (whether for their impact on managerial compensation or investors in the stock market) is typically of much greater concern. The design of Capitalist economy systems that emphasizes the short term is likely due in part to the fact that human beings (homo sapiens) have been “hardwired” through almost 2 million years to be oriented to immediate cravings such as hunger and sex (i.e., survival) and threats (i.e., to avoid getting eaten). Almost all of the natural selection, which gradually changes a species, took place during the hunter-gatherer stage of humanity; agriculture has only existed for the last 9,000 years. In other words, immediacy being foremost is a result not just of economic, political, and social systems giving it emphasis, but also of the context (i.e., hunter-gatherer) of human natural selection. As the context today is greatly different, perhaps systems should be designed that emphasize the long-term so as to counter how our species has evolved.

On the impacts of human evolution (and other sciences) on modern management, see William C. Frederick, Natural Corporate Management, available at Amazon.
For cases of unethical business, see Skip Worden, Cases of Unethical Business, available at Amazon.

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1. Amy Chozick and Motoko Rich, “The Rise and Fall of Carlos Ghosn,” The New York Times, December 30, 2018.

2. Ibid.

3. Ibid.

4. Ibid.

5. Ibid.

6. Ibid.

7. Ibid.

8. Ibid.

9. Ibid.

10. Ibid.

11. Ibid.

12. Ibid.

13. Ibid.

14. Ibid.

15. Ibid.

Superficial Hospitality in Hospitality Management: A Case of Weak Accountability?

Staying at a motel or in a hotel can involve being at close quarters with people coming with various backgrounds and cultures, and with different lifestyles. A group of teenagers may be in one room, while an elderly couple is trying to sleep next door. It seems to me that hospitality management should take a look at Crowne Plaza's instituting “snore monitors” to patrol corridors in the designated quiet zones in the hotels in London, Leeds and Manchester in the E.U. While the monitors were apparently particularly oriented to detecting particularly loud snorers, such an understanding of the problem may be superficial, for most noise issues, I submit, involve others things, such as people shouting, or loud television or music. In short, the sheer extent of inconsiderateness toward strangers in society generally is doubtlessly reflected in hotels and motels. What may be surprising is the extent to which employees and even managers working in the hotels or motels are inconsiderate themselves in refusing or otherwise failing to enforce their own noise rules. This weakness may have a wider extent within the business sector, at least in the U.S., wherein employees and their supervisors act as individuals (with momentary power over customers) rather than as agents, for significantly less power is involved in the latter than the former role/mentality.
I applaud the management of Crowne Plaza for having instituted floor monitors, but I suspect that limiting them to snorers and only on quiet floors did not go far enough. It would have more optimal had the company had its monitors walk through the non-quiet areas at night so as to be on guard for excessive noise that could be expected to keep other people up. Hotels (and especially motels) should not simply assume that assigning or reassigning customers to particular “zones” is the way of handling the situation of noise. The wider problem is that hotel (and especially motel) employees and even managers too often refuse to enforce their own noise restrictions. Such weakness, whether out of fear of sheer laziness, has come to characterize too many franchisees especially, except on the high end. 

Sometimes weakness can be in the building itself. The building types built by Extended Stay and Studio Plus, for example, have virtually no insulation between floors so customers might get to hear stomping late at night and even into the morning. I once tried to move rooms because of an "all nighter" in the room above mine, but the front desk employee decided to ignore my reserved room change, telling me it had been cancelled and the other room had been given to another customer, or “guest.” Another employee remarked in a matter-of-fact tone, "People can walk in their rooms." Trying to correct for that situation involved even more headaches in dealing with the corporate "customer service" people, who also made promises and went back on them with impunity. Meanwhile, I discovered the local “area” manager had a penchant for eves-dropping on customers, or “guests.”

The true colors of the management mentality at the company really came out after I stopped a huge water-leak from the room above mine from flooding my room and the room below mine (a toilet overflow, which the customer failed to report). Essentially, I began and headed the multiple-pan and towel operation, with the able (and friendly) assistance of the young woman working at the front desk. In spite of the fact that I saved the company thousands of dollars, however, the management was unwilling to compensate me in any way, such as by offering me a discount on my bill (or even promising the same rate should I have extended, which I did not, or potentially stay again at an Extended Stay or Studio Plus—which I would not recommend to anyone). Even the front desk person who had assisted me was astonished that her company’s management had been so niggardly in its response to my generous efforts, which, by the way, had been spontaneous and unconditional even given the noise issue). 

The lesson is perhaps the following: When a sordid (i.e., unreliable) management ensconced in a company as its very culture is combined with a cheap building model, the question is perhaps how such a company could survive bankruptcy and continue operating. This is not to say that the company operating Studio Plus and Extended Stay is the only culprit from which we can assess how far down the hospitality industry goes.

I also had to contend with noise while staying once at a Red Roof Inn. I complained about late night noise (a drunken party) in the room next door only to have the front desk person give up because he "got a busy signal" when he tried to call the room. Couldn't he have knocked on the room's door or at least have called security? One would think that the report of a party going on at 1am on a weeknight would trigger something more than giving up because of a busy signal. Part of the problem, I later learned from a front desk employee, was that the management had instructed the employees to accept virtually anyone of age who wanted a room. “We can’t anticipate what someone might do from how they act when they arrive at the front desk,” the employees were apparently told. The manager of the particular motel was also retaining rather than refunding the accumulated room tax owed by law to customers, or “guests,” staying more than thirty days. Ironically, both the manager and her desk employees were self-described Christians, and had no qualms in expressing their views of sinful “orientations.” Out of the blue, one front desk employee told me that another employee only seems gay, but is actually a “wholesome Bible brotha.” I was still back on how tax fraud jives with being Christian. What stood out for me most during my stay at that motel was that none of the employees seemed capable of recognizing that they could be mistaken, even as they were incompetent (and unethical) in many ways. This fault applies to the management of Extended Stay as well.

Convenient excuses, abuse of discretion, and lack of follow-through may be ubiquitous at badly-managed motels and hotels. It astonishes me that one industry can have such a breadth of quality within it. I'm glad that a hotel chain is instituting hall monitors. Doubtless not every motel and hotel will do so.

It seems to me that hospitality management may ironically be at the bottom end of management practice. Perhaps the existence of bad practice in at least part of the industry has given the entire industry a sense of (or tacit invitation to) shallowness, for even at the best hotels the hospitality is only skin-deep, being conditioned on money and thus utterly contingent and shallow. Indeed, using the word “guest” and conditioning it on paying money not only misuses the term itself, but also renders “hospitality” rather superficial and may even belie its very meaning. This can manifest even as "higher end" hotels, whose employees can be very rude indeed to real guests.

I remember, for example, being invited to the weekday late-afternoon reception at a Staybridge hotel by a "guest" staying at the hotel on business. He told me it was not uncommon for "guests" there on business to invite a friend or coworker from time to time--a practice that the hotel management went along with to please its business "guests." However, because I was not a "real" guest, but, rather, a guest more in keeping with the meaning of the term, the employees involved in the reception (and at the front desk) made it rather obvious to me that they were ignoring me while being nice to my host--their "guest." It occurred to me that the employees had no idea how to treat a real guest--one not conditioned on having paid money for the "privilege." The fraud of the "hospitality" at Staybridge was thus made transparent to me as well as to their "guest." In short, hotels use "guests" too conditionally, as well as in a way contrary to the term's meaning, for no real host would charge a guest. The hospitality industry seems to have decided to use a term at odds with that term's meaning, so as to reap the benefits nonetheless. Such hypocracy, which people can readily sense, is ultimately as counter-productive as it is self-serving, and yet hotel managers are utterly unrepentant in their usurption--as if they have done nothing of the sort.

Considering the hospitality industry's "mindset," or default, it is perhaps not completely unexpected that even some of the companies reputed to be among the best are actually rather superficial with respect to hospitality, while some motels, such as Extended Stay and Red Roof Inn, continue to operate without any hint of salubriousness and yet somehow manage to remain in the industry. Perhaps the industry itself is problematic, at least relative to the standards of management in other industries. The hospitality industry itself may simply be rather inhospitable, or low, as in base, under the subterfuge of hospitality itself.

In such a context, unethical conduct can spread unchecked. For example, while staying at a Best Western hotel, I negotiated with the general manager on a rate on which I would extend my stay. He gave me a counter-offer and a day or two to decide. On the second day, I accepted his rate in deciding to extend, but his assistant told me, "The manager changed his mind. He wants quite a bit more."  I called Best Western's "customer service," but to no avail as there was no accountability. I did not extend my stay. I subsequently heard that the manager was part of a class action lawsuit alleging that he improperly conducted himself with waitresses in the hotel's bar. Hospitality management, it would seem, may be an inferior sort of management under the facade of hospitality.

Source:

Msnbc.com, “Light Sleepers Rejoice: Hotel Chain Drafts ‘Snore Patrols’ as Shuteye Sentries,” July 21, 2011. 

On Nietzsche's moral philosophy applied to business managers and employees, see On the Arrogance of False Entitlement: A Nietzschean Critique of Business Ethics and Management, which is available at Amazon.

The Underbelly of Corporate Charity as Corporate Social Responsibility

Why do corporate managements spend corporate money on charities? The obvious reason is to reduce the amount of corporate income tax due. Yet another motive, not as transparent, has to do with reputational capital, and that motive may also explain corporate social responsibility.
Achieving the low 12.6% effective tax rate was undoubtedly on Bernie Madoff’s mind when he made his firm's charitable contributions. This rationale was by no means unusual at the time.  Furthermore, Madoff would not have been above using charity in order to display himself as a very wealthy person. According to Martin Press, a tax attorney, “If [Madoff] actually gave the money to charity, it is a common theme of Ponzi scheme people to make large charitable contributions to show people how wealthy they are.”[3] The perception of Madoff as a financially successful personally rendered him trustworthy in being capable of making investors rich, and the apparent charitable giving gave the impression of trustworthiness in its normative sense (i.e., honesty and integrity).

Similarly, moreover, corporate strategies may include programs under the rubric of corporate social responsibility as a means of cultivating the impression that the corporation itself is financially successful and trustworthy both in terms of competence and fairness. That is, corporate social responsibility may be more about amassing reputational capital for the corporation than any acknowledged responsibility to society (other than to provide consumers with effective products). 
Lastly, charitable giving can be motivated by the wrong assumption that it can make up morally for unethical policies. In the case of Bernie Madoff, the firm's business was inherently unethical as a ponzi scheme. Besides providing merely a patina of morality, therefore, charitable giving can also be "rationalized" in corporate boardrooms or CEO offices as making up for any unethical policies or conduct. Like any patina, charitable giving specifically and corporate social responsibility more generally cannot make up for a sordid company culture and any unethical policies or conduct within a company. Put another way, fighting the temptation to have an unethical company when expedient is worth more ethically than having a corporate-responsibility program. Theoretically speaking, such a program is not primarily ethical; rather, it narrows the gap between existent corporate and societal norms, whereas an ethical policy or conduct is so because it survives critique of the underlying ethical justification. The difference here is between the is and the ought. To get ought out of is (i.e., business ethics out of a CSR program) is, according to David Hume, the naturalistic fallacy. Norms exist, and therefore are, whereas ethical policies and conduct pertain to what should be. 

Sources:

1.  John Waggoner, “Madoff ‘Donated’ a Lot to Charity,” USA Today, December 13, 2013.

2. Ibid.

3. Ibid.

The Founder of Theranos: A Flawed Charismatic Vision and Leader

“Theranos rose quickly from being a college dropout’s idea to revolutionize the blood analysis industry to a hot tech bet that accrued $700 million in funding and many famous names for its board.”[1] Elizabeth Holmes, the company’s founder, was stripped of her position at the company in 2018 after the SEC discovered her deep involvement with the fraud at the company. Her “smarts, fierce determination and Steve Jobs-inspired look . . . were critical” to her being able to perpetuate the lie that the company had a device that could do blood tests with just a scant amount of blood, obviating the unpleasant experience of having blood drawn by needle.[2] Although Jack Welsh, Bill Gates, and Steve Jobs accomplished enough to warrant their fame, I submit that companies are too prone to create “champions”—even strangely calling them “rock stars.” In other words, even though charismatic vision is of value to a business, neither such a leader nor his or her vision itself should be overplayed. Business, I submit, has a marked tendency to do just that, and often with impunity.

The full essay is at "Fraudulent Charismatic Vision at Theranos."

On leadership vision, see Skip Worden, The Essence of Leadership: A Cross-Cultural Foundation

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[1] Marco della Cava, “Behind the Scenes of Theranos’ Dramatic Rise, Fall,” USA Today, March 16, 2018.

[2] Ibid.

Investment Bank Dinners with Corporate Executives and Hedge Fund Managers: The General Public Not Admitted

The Case Study:

“One day in early March [2011], the phone lines of hedge-fund traders around London and New York suddenly lit up. A stock that many of them had placed hefty bets on—Pride International Inc., an energy company in the process of being sold to a rival—was falling. The traders had no idea why. They soon figured it out: J.P. Morgan Chase & Co. had hosted a meeting that day between a handful of hedge-fund traders and executives from a company that was considered a prime candidate to start a bidding war for Pride. One of those executives had indicated they weren't likely to make a bid.”

“The prospect of a bidding war had lifted Pride's shares above where they likely would have traded in the absence of a potential interloper. . . . At the March 8 lunch, though, as the traders munched on scallops and fish, Seadrill vice president and board member Tor Olav Trøim splashed cold water on the idea of a bid. He recalls telling traders that the company's Feb. 24 statement was ‘not normally what you would say if you were interested in bidding yourself. His intended message, according to one person familiar with the matter, is that Seadrill was "very unlikely’ to launch a competing offer for Pride. The information was market-moving, traders say. In the hours after the lunch, some traders wagered that the odds of a bidding war had declined. Seadrill's shares rose more than 1% as it was viewed as less likely to pursue a costly acquisition. Pride's shares fell by about 0.5% in the minutes before markets closed.”

“The moves may seem small, but they were significant for ‘merger arbitrage’ traders, who make short-term bets on deal stocks. In the case of the Ensco-Pride deal, the movements translated into a sudden 64% spike in the deal's ‘spread.’ That arcane measure reflects the difference between a target company's stock price and the per-share value of the acquirer's offer. The spread is closely watched by hedge funds that focus on merger arbitrage, which stand to gain or lose large sums based on the spread's movement. As the shares moved, anxious investors bombarded Seadrill's investor-relations office with phone calls, trying to figure out whether the company had issued new guidance about its appetite for bidding on Pride, according to a person familiar with the matter. Company officials responded that they hadn't released any new information. . . . Trøim says Seadrill executives regularly meet with large and small investors and that it is appropriate to help them understand the company's strategy. ‘We cannot see that we in any way have crossed any lines for giving privileged information,’ he says.”

The Issues:

“Hedge funds are a big business for banks. U.S. and European hedge funds last year shelled out a total of about $3.7 billion in brokerage commissions to banks for equity trades, according to research firm Greenwich Associates. . . . Investment banks vie for business from elite hedge funds by offering traders at those funds special access to senior deal makers and corporate executives at dinners and other gatherings. The traders sometimes pick up valuable nuggets of information that aren't available to other investors, according to people who have attended such gatherings.”

“Representatives of the banks say their investment bankers aren't permitted to discuss material nonpublic information, and that the meetings serve a legitimate business purpose. In addition to helping the banks win trading business, the get-togethers allow the bankers and corporate executives to cultivate relationships with the hedge funds, the banks say. The funds often are major shareholders in multiple companies and frequently help determine the outcome of key corporate events that are subject to shareholder approval, such as mergers and acquisitions.”

“Amid intensified scrutiny of insider trading, the U.S. Securities and Exchange Commission recently warned some banks that they need to be careful that such meetings don't result in the improper exchange of privileged information, according to people familiar with the matter.”

“Under insider-trading laws, it is generally illegal to buy or sell securities based on ‘material,’ or significant, information that isn't publicly available. Securities lawyers say the appropriateness of the meetings banks set up with hedge-fund traders depends on whether such information changes hands and is subsequently traded upon.”

“It is unclear how often useful trading information is disseminated in the meetings. The meetings appear to have made some banks nervous. . . . ‘It made me congenitally nervous,’ said a banker who until recently worked at a top Wall Street investment bank. ‘It certainly should be on [regulators'] radar.’ . . . Goldman Sachs Group Inc.'s compliance department [in 2010] barred its brokers from arranging dinner meetings between Goldman's bankers and outside hedge-fund traders, say people familiar with the matter. Bank of America's investment-banking arm, Bank of America Merrill Lynch, [in 2011] cut down on the gatherings after the SEC expressed concern, although it still allows them in some circumstances, according to people familiar with the matter. Many banks nevertheless continue to hold closed-door meetings with hedge funds on a regular basis, according to traders, bankers and other industry officials. Banks try to differentiate themselves from rivals by dangling access to key players—coveted by hedge funds, for which incremental bits of information can be extremely valuable. The banks also set up lunches and other ‘corporate access’ meetings that give the traders the chance to grill top corporate executives about pending deals and other matters. Such opportunities are rarely available to individuals and other small investors.”

Analysis:

To keep participants within the world of business from speaking with each other in closer terms than are available to the general public strikes me as utterly fanciful and doomed to failure—especially if a profit relationship is involved. Intimating a company’s strategy alone can proffer hints of information not available to the public and yet useful for trading. Are the courts to become embroiled in interpreting every nuance at every meeting in which investment bankers bring together corporations and hedge funds so they may behave as though in public? Policing such meetings is at best an uphill battle, and more realistically like trying to keep the rising tide back from one’s sand castles. It is the castles that are artificial, not the water presumably to be held back by them.

In terms of prohibiting insider-trading more generally, what is really being reputiated or denied is the concentric nature of the respective circles of family, friendships and finally the general public identified by Cicero in his theory of justice wherein caritas naturalis (natural love) is limited to the circle of amicitia (friendship). It is just by nature that friends share a love that does not hold in the wider public. This theory of justice is more restricted than the caritas universalis (universal love)—extending even to strangers—preached by Augustine. That loving strangers is difficult while loving one's friends is easy attests to the qualitiative differences between the concentric circles that inform Cicero's theory of justice, which insider-trading laws contravene.

In any social context, friends are not going to behave as though all they know of each other is what the general public knows. Just as it is natural that people closer will exchange more information than people in the wider public, it is also natural for the latter to envy those who are closer except when they themselves are in close relation with their own friends and colleagues. Enforcing publically-available information on business practitioners having mutual dealings is to conflate the widest circle with narrower circles. It is to pretend that caritas naturalis seu amicitia simply does not exist—that everything is universal rather than natural love being of friendship.

Fueling resentment of insider-trading may be our natural distaste for exclusion. As a student at Yale, I felt exclusion when my political party in the Yale Political Union invited me and the other new members to a Friday night party in a room in the clock tower. The chairman told me that we would all be initiated into the party’s secret society because the party owned it; we were members of the party, after all. In actuality, only a few members—those who had new leadership positions in the party—were tapped by the older leadership; the rest of us were invited so there would be an excluded element heightening the feeling of inclusion. My resentment was a function of my illusion (facilitated by the chairman) that an inner circle would treat a wider circle as equivalent.

As much as I detest the “insider/outsider” diremption, I must admit that it is a part of the human social condition. As social animals, we naturally find ourselves in relations wherein some people are closer to us than others. We fool ourselves if we presume that people who are closer will somehow open their relations up to a wider circle as if there were no narrower circle. Some of us, however, relish exacerbating the natural distances by excluding others solely for the pleasure of being cruel. For example, I grew up in a family that broke up into two camps, both of which relished excluding a family member. Even though the betrayal in such exclusion was unnatural, I must admit that narrower and wider circles naturally develop as human beings interact.

To pretend that there is only a general public is to deny the human condition in its social setting. Insider-trading law may be predicated by a denial of relationships that go beyond the general public.

Furthermore, the “harm” from insider trading is largely one of opportunity cost, as the benefits obtained by insiders are not shared by the general public. In contrast, the harm from fraud is felt by the victims, who are outsiders. In a wider sense, the systemic risk of the failure of a financial system is shared by the general public. Legislation and enforcement ought to take into account the difference between an opportunity cost and direct harm.

Therefore, for the SEC to put resources into insider-trading at the expense of going after banks and other companies that evince systemic risk is something more than misplaced priorities. In terms of punishment, to treat a business practitioner who benefits financially from information overheard from a CEO as though he or she committed fraud by lying to investors or murdered someone is to conflate categories of different degrees of harm.

Lastly, human behavior is such that it cannot be totally regulated. Nor can human nature itself manifested socially be remade as though there were just a general public without caritas naturalis seu amicitia. Business practitioners cannot be held back from exchanging information that is not available to the general public. Like jelly in a hand, the harder you squeeze it the less of it you will have within your grip. The illusion of micro-managing regulation to every facet of business ignores this principle, which is based in human nature rather than artifice.

Source:

David Enrich and Dana Cimilluca, “Banks Woo Funds with Private Peeks,” The Wall Street Journal, May 16, 2011.

Christianity and “Social Capitalism”

The SEC charged Ephren Taylor with a fraudulent $11 million Ponzi scheme in April 2012. According to Reuters, “Taylor fraudulently sold $7 million of notes said to bear 12 percent to 20 percent annual interest rates, to fund small businesses such as laundries, juice bars and gas stations.” He “had conducted a multi-city ‘Building Wealth Tour’ in which he spoke to congregations” on the importance of “giving back.” He called himself a “social capitalist.” In actuality, he used the money on himself and his wife’s attempt to become a singer.

The congregants’ susceptibility to Taylor can be understand from grasping the larger historical trend within Christianity wherein the prosperity gospel—in which it is believed that God rewards “true believers” with material wealth—had replaced the anti-wealth view wherein being rich and saved is like a camel getting through the eye of a needle. In other words, the shift in historical Christian thought from a close coupling of wealth and greed to an outright rejection of such a linkage made it more likely that the lay Christians would view investing in “social capitalism” as sufficient to justify having wealth beyond subsistence living.

Secondly, Taylor’s assumed conflation or mixing of Christianity and social performance in business enabled the congregants to open their wallets presumably for religious purposes in line with a social conscience. It is worth pointing out that camel is not given a pass for using wealth in a socially responsible manner. In other words, if simply having wealth is indicative of underlying greed, how one uses the wealth is not sufficient to undo the linkage and justify having the wealth in the first place.

Moreover, fidelity to a social norm such as corporate social responsibility is not religious. Even though Unitarians maintain that certain social structures are the object of their faith, the religious domain contains a transcendent referent.  That is, faith in a religious sense is oriented to an object that lies beyond the limits of human cognition and perception.  Specific social structures do not qualify because they are in our human domain.

In fact, to advocate a particular social norm is not to justify ethically with ethical reasons.  That is to say, corporate social responsibility is not business ethics.  The difference can be explained by referring to David Hume’s naturalist fallacy, which holds that what “is” the case cannot justify what “should” be. In other words, you can’t get ought out of a melon. You need ethical reasons, such as “it is fair because x,” to justify what one should do. To advocate a social norm is not to provide an ethical reason; more would be needed to provide support for why a certain norm that can exist should exist.

Therefore, I question Taylor’s linking “social capitalism” to religion (and Christianity in particular). The application cannot even be justified under the rubric of religious ethics. In addition, the congregants were too gullible because they had applied or bent Christianity too far from its native turf.

See: God's Gold, available in print and as an ebook at Amazon.

Source:

Jonathan Stempel, “SEC Charges Ephren Taylor II ForAllegedly Bilking Churchgoers In $11 Million Ponzi Scheme,” The Huffington Post, April 12, 2012.

Religion and Business Clash at a Church’s Food Pantry

The sacred and the profane are like oil and water—oil for anointing and water for cleaning. The viability or value of the sacred does not depend on denigrating that which is exogenous to it. In other words, praising the sacred does not require trashing the world. Being in the world but not of it does not imply that the world is necessarily bad. From this perspective, the sacred and profane can both be viewed as viable in their own rights, respectively. The inevitable distance that distinguishes them so starkly is breached only with great difficulty, even if pressed out of sheer practicality. For example, a theological interpretation undergirding a religious organization’s food pantry can clash with a business calculus such as would be held by an auditor pouring over the numbers and procedures. As theology and business enjoy their own, sui generis (i.e., of its own genus or type) bases of justifications or rationales, unraveling a clash can be notoriously difficult for want of a common denominator.

One pantry, which I will call here “Food Pantry of the Church of the Ossifier,” faced a challenge when the local food bank, which distributes meat to the local pantries, informed the pantry’s director, Sue, that the amount allotted would decrease on account of supplier issues. Specifically, as the price of meat increased, grocers had more of a financial incentive to more efficiently manage their respective inventories—with less left over nearing expiration dates. Translated into the Ossified Pantry’s terms, only 80 out of 430 families would get meat on the first and third Wednesdays of each month. In Sue’s words, “Meat is in short supply as donations to the food bank.  Walmart, . . . etc are not putting as much meat out in hopes to not have as much given away.  It cuts into their profit margins and everyone is being for frugile.”

The gap can be narrowed on both the demand and supply sides of the equation. On the supply side, one of the pantry’s volunteers, a former certified public accountant (CPA), contacted Sam’s Club for funding. The company had been instrumental in setting up an infrastructure locally for getting food from grocery stores to the food bank for further distribution to the pantries. Furthermore, each Sam’s Club store gave out gift cards to local charities, which could apply for the limited funds every other month. Charities could also apply to the corporation for grants ranging from $250 to $2,500 annually. The volunteer provided Sue with the information and she applied for both programs in the hope of being able to buy meat to supplement that which the food bank could supply. In addition, she asked the store manager about a possible discounted price. She could offer incentives such as free advertising in the church bulletin and at the pantry itself, as well as inclusion among the list of donors featured on a wall in the church lobby. From this side of the equation, business and religion look like country cousins—not marriage material but close enough to help each other out on a regular basis.

The intractable distance becomes apparent on the demand side. Sue allowed food recipients to pick up for other families too, under the assumption that some families cannot get to the pantry. Some recipients picked up for four or five families. From a CPA’s standpoint, the 430 families served figure—which the food bank uses as a basis for determining the pantry’s allocation (government funders would also use the figure)—would be a highlighted item for sampling and procedure-assessment. That is to say, the potential for cheating under such an arrangement was such that an auditor would want to test its validity rigorously. In fact, such a policy might have to go for the figure of families served to be said to be accurate enough for third-party reliance. Even with a record of the families in absentia, those families may not actually have received any of the food said to be picked up for them.

Sue’s theological basis for the policy is eons away from an auditor’s foundation. Compounding the difficulty in reconciling Sue’s perspective with that of an auditor, Sue held some non-theological assumptions regarding business that are vulnerable to criticism from a business standpoint. Even so, because her theological assumptions are beyond a business critique may have given her a misplaced confidence that her business assumptions too are beyond such a basis of critique. Her theological and business assumptions in her own words come in five points.

1.  People will scam us - that is a given and something that I can't control - if they really want to cheat they will.  Thieves are so smart and creative.

2 If they cheat they will have to explain it to God, I won't.  I hope that God is merciful.

3.  I do have a paper trail.  There have been a few times when I find out someone is cheating and when I confront them about it, I tell them they are not welcome to come back.  

4.  Occasionally I will make a phone call and spot check on the ones who pick up multiple families.  Most of them have asked me for permission to do so and I believe a lot of them do it to save on gas.  I have to trust that it is true or else God will take care of it.  God often tells me not to worry as He will take care of things and so I do just that.  

5.  Lastly this is God's work not mine.  It is never about the volume but about the one who needs us most.

Regarding Sue’s first point, just because theft cannot be completely eradicated does not mean that managers cannot do anything to reduce it. Sue’s assumption that a thief’s desire to steal necessarily means the thefts will occur is fallacious. Even if thieves are smart and creative, managers can be too. The passivity in Sue’s assumption likely comes from her theological tenets.

The theology surges in on the second point. Sue is saying that she is not obliged to provide a defense for the cheaters when God judges them.[1] Her assumption itself takes it as a given that the stealing will take place. Furthermore, her passivity or noninvolvement in the divine judgment may be a reflection (or projection) of her assumed passivity in her first point. Put another way, her assumption that the lying will take place may be based on her more foundational assumption that she has no involvement in God’s judging the cheaters.

A business practice may thus stem from a theological interpretation. Problematically, that the latter is beyond critique from a business standpoint may be used to assert that the resulting business practice is also beyond critique (and thus control) from a business basis. In cases in which the person has substantial power in the business, the business practice may go uncontrolled even though business principles have jurisdiction. Should the person’s boss have the wherewithal to stop the offending practice, the theological auspices could legitimately stand in the way if the business is part of or sponsored by a religious organization.

In her third point, Sue defends her practice of multiple-family pick-ups on the basis of business principles. She points to a paper trail, yet having the names and contact information of the families receiving the food at home is not sufficient to prevent fraud. A recipient could simply collude with a friend willing to act as a front. Asking for permission and using gas as a rationale, which Sue cites in her fourth point, can be part of the ruse even if the proactive gestures reduce the likelihood that cheating is going on in such cases.  

Sue assumes that because she has uncovered only a few cases of fraud by making a few spot calls, a small number of stealth instances remain among the 430 families being served. Of course, a colluding friend of an in-person recipient would naturally lie, though speaking with kids could uncover problems. Even so, a CPA would advise more than a few spot calls. Considering Sue’s passivity toward the matter of cheaters in general, the assumption that she has actively caught most if not all of the outstanding cases is vulnerable. In fact, the opposite assumption has more support. That her passivity is informed by her assumption of God’s agency makes her assumption of infrequent fraud particularly shaky.

In her fourth point, Sue bases her assumptions that a paper trail and a few spot calls are sufficient and that only a few cases are actually fraudulent anyway on her more fundamental (to her) theological assumption that God would take care of any problematic cases unknown to her. From a theological standpoint, this assumption is problematic, for if God would eradicate any cheating then wouldn’t God stop evil from happening? If not, then God is not omnipotent (i.e., all powerful). That injustices do in fact happen in the world is typically explained theological as an unavoidable consequence of God giving us free will.

Sue’s claim that God tells her not to worry (i.e., to passively accept that God will stop the cheating) opens the proverbial can of worms. In her fifth point, she concludes that taking care of any cheating is God’s work, presumably because God has told her this. From a religious standpoint, verifying Sue’s claim that God as “spoken” to her is fraught with intractable difficulties. However, that Sue does not question the “fact” that God has spoken to her may itself undermine her claim. Put another way, her unwillingness to question what she perceives to be the case flies in the face of the human experience, which is based in human nature itself. 

Given the conditionality inherent in Creation, Sue overplays the certainty card. Abraham struggles with God’s command that he sacrifice his only son even as God promises that his seed will populate the world. In Kierkegaard’s terminology, Abraham embraces the absurd in the realm of the finite.[2] Sue’s certainty belies her broader claim of being a person of faith. It is possible, even likely, that she had unconsciously chosen her theological assumptions to mollify her managerial challenges in formulating and implementing a system of accountability. 

Her compromised system can indeed be subjected to a business critique and correction, even if such oversight is hampered by the religious auspices of the pantry—being that it is part of a religious institution. To be sure, the business oversight can make use of the problematic elements in Sue’s theological basis, yet this presumes that managerial oversight is vigorous among religious functionaries.

Therefore, even though the gap in supply and demand occasioned by decreased supply at the local food bank could be narrowed by corporate giving and greatly reducing the instances of multiple-family pick-ups—such as by reducing the number of families a recipient can cover to one and asking volunteers to make the deliveries on their way home to cover as many cases as possible (especially the hitherto multiple-family pick-ups!)—the role of Sue’s theology on the demand side of the equation could keep the gap unnecessarily large. 

Moreover, both the pantry and the church’s administration could develop a reputation locally for ineptness in being disorganized. A boat with many leaks does not inspire much confidence. The rigidity alone with respect to plugging the leaks is easily offensive and naturally frustrating. Even though theology and business are worlds apart in their respective rationales, the flash-points need not be so intense and harmful. 

To the extent that some recipients get more meat than others, the shortfall hurts the people in need while enabling the gluttony of others; this is not exactly about the ones who need the pantry most. Hence Sue’s theological approach to caritas seu benevolentia universalis (i.e., higher-aimed human love, that is, universal benevolence) is vulnerable to her own criterion. Regarding the nexus of business and religion more generally, using the criteria of each on its own domain can work wonders in reducing otherwise inexorable difficulties from the interaction of the two domains.

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[1] Notice that Sue assumes that God will judge them. This assumption has historically given confidence to people that unjust people leading a happy life would nonetheless “get theirs” eventually. Nietzsche interprets this desire of after-life retribution as being sourced on the urge of some of the weak to dominate even the strong out of resentment and for the pleasure that can be extracted even from such wan power.

[2] See Soren Kierkegaard, Fear and Trembling (London: Penguin, 1985), pp. 65, 75.