Wells Fargo, VW, Takata Air Bags, and J&J: Failing the Ethical Tests of Moral Agency
One reason businesses still struggle with ethical behavior is they are unaware of their role as a moral agent. A moral agent is a person who has the ability to distinguish between right and wrong and to be held accountable for their actions. Moral agents have a moral responsibility not to cause harm.
The idea that a business has moral agency obligation stems in part from U.S. Supreme Court decisions declaring that a corporation is a person in the eyes of the law -- at least for some purposes. For example, corporations have a right to have their contracts respected by the government. The shareholder/owners generally cannot be sued. Instead, the corporate entity could be sued if its actions are similar to those of an individual who broke the law or violates ethical norms.
In a well-known opinion piece published in the September 1970 edition of the New York Times magazine, Milton Friedman, an economist who is well-known for capitalist philosophy, offered the following quote: “There is one and only one social responsibility of business – to increase its profits.” This quote has been taken out of context because it omits the rest of the statement, which is “to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” By the latter statement, Friedman meant that businesses should not commit fraud on customers, employees, suppliers, shareholders and other stakeholders whose interests would be harmed by such actions.
Adam Smith (1723-1790) is known as the father of modern capitalism. His major work, An Inquiry Into the Nature and Causes of the Wealth of Nations (1776), outlined the basis for free-market capitalism. Capitalism laissez-faire philosophies, such as minimizing the role of government intervention and taxation in the free markets, and the idea that an “invisible hand” guides supply and demand, are key elements of his political philosophy. His famous statement that expresses that philosophy is: “It’s not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.” Smith meant that each person, by looking out for his or her self-interest, inadvertently helps to create the best outcome for all.
At first glance it may seem that Smith was a proponent of egoistic corporate behavior, and maybe he was. But, it wasn’t without limitations. Even before Smith wrote The Wealth of Nations he produced a treatise on morel philosophy. The Theory of Moral Sentiments (1759) makes the case that business should be guided by the morals of good people. Smith sets forth a theory of how we come to be moral, of how morality functions on both individual and societal levels, and what forces are likely to corrupt our sense of morality, which is derived from our capacity to sympathize directly and indirectly with other people. This occurs by feeling what others actually feel in their circumstances. He believed we could achieve this moral perspective because of our consciences, which allow us to envision our own actions just as a disinterested observer might. Thus, Smith’s philosophy was more of enlightened egoism in that the interests of others should be considered (sympathized with) in making moral decisions.
Companies have an ethical obligation to serve the best interests of society, but in reality some have focused on their own self-interests to the detriment of society. All we need do is think about recent disclosures about hiding product defects, rationalizing unethical behavior, and failing to accept responsibility for wrongful acts. Most recently, practices at Wells Fargo came to light that the bank opened accounts in customers’ names not requested by customers, sold customers insurance they didn’t need, and charged fees when a change in loan terms were triggered by the bank’s delay in processing loan terms.
We’ve also learned about VW’s so-called “defeat device” that was installed in its cars to read out lower levels of toxic emissions than actually occurred in order to satisfy U.S. Environmental Protection Agency’s carbon emission restrictions.
There’s also the unsafe Takata air bags that were installed in a lot of cars including Honda and Ford. The air bags were determined to be unsafe because of chemicals inside and the possibility of explosions, yet the car companies continued to use them because the costs of Takata air bags was relatively low.
Recently, we’ve heard about the unsafe Johnson & Johnson baby powder continuing asbestos and other harmful ingredients. This case is still pending.
Albert Einstein is quotes as saying “The definition of insanity is doing the same thing over and over and expecting different results.” This seems to fit the behavioral actions of businesses which, over time, continue to ignore the public interest, promote self-interest, ignore product defects, and basically be oblivious to their ethical obligations as a moral agent in society.