Jim Harper

The Comcast Kerfuffle: What About Corporate Ethics?

In the heat of the Comcast Kerfuffle last week, Steve R. made some comments that I thought were important. In response to my “Market Meme” post, for example, he said:

Regulatory intervention is the outgrowth of companies doing underhanded and unethical behavior on a consistent and long term basis. So if we don’t want regulation why are there no calls for these companies to act ethically to begin with?????

Since there are no posts suggesting that these companies act ethically, the implicit assumption is that it is OK for companies to “steal” from customers until caught. Once caught, to quickly apologize (as a demonstration of how the free market works to regulate itself) and to then initiate a new hidden scheme to defraud the consumer until caught again, and again, and again, and again.

Consumer vigilance it a vital ingredient to a free market, but so is ethical and open corporate behavior. If you don’t want regulation, behave responsibly.

and

[I]f the posters on TLF want a free market, without regulation, they must demand that corporations act ethically.

These are fair comments that deserve some consideration. Where’s the call for ethical business practices in the TLFosphere?!

Here’s my thinking:


Given their purpose to maximize profit for owners, I don’t think of businesses as things that can be innately ethical. A friend of mine who is less a fan of business and the corporate form of organization than I am would call them sociopathic. While that’s a little bit negatively connotative, I don’t think it’s wrong. You could no more expect an inherently ethical business than you could an inherently ethical shovel. But that doesn’t make shovels or businesses inherently bad. It depends on how you use ‘em.

Rather than being ethical animals, businesses are neutral/sociopathic machines that respond to the inputs given them. Getting into the mechanics of these machines, there are a lot of things that determine their success or failure. The most immediate are things like the price and quality of the goods and services they produce.

In an advanced economy, we can’t all examine each good or service as experts, so we rely on others to help us decide. There are a number of ways we make decisions without perfect information, and one of them is to use reputation. All of us rely on reputation for many decisions, from restaurants to real estate agents to ISPs.

Being ethical is a thing that can help bolster companies’ reputations, and thus get them more profits. I went looking for a book or article that I remembered reading about some years ago, which argued that markets promote trustworthy behavior. (Nevermind the press constantly raising contrary examples - that’s the job of the press and not an accurate, neutral portrayal of business behavior.) Instead of that article, I found a book called Trust or Consequences: Build Trust Today or Lose Your Market Tomorrow. It probably tells roughly the same story. It’s certainly possible to generate trust and a good reputation without being ethical, but one of the most reliable ways to generate and maintain trust over time is undoubtedly to act ethically.

So businesses can’t be inherently ethical, but ethics is one of several constituents of successful business. One might consider ethics a meta-characteristic of goods and services that consumers sometimes use, like price and quality, to decide what to buy.

Transparency is a similar meta-characteristic that helps garner and protect trust. I think the absence of a call for ethics here on TLF during the Comcast Kerfuffle is the product of the fact that Comcast’s main failing was in transparency. It’s still a matter of debate whether Comcast did anything wrong. It’s almost unanimous that Comcast did something opaque, and that hurt them.

A friend of mine who has no knowledge (or need to know) of the Kerfuffle told me last night that she would have selected Comcast as a matter of course to be her ISP at her new house, but “people always wrinkle their noses” about the cable company. She is now researching options - the classic marginal customer.

Comcast does not have the confidence of her community, whether due to lacking ethics, transparency, or some other factor. That’s cutting into Comcast’s bottom line, as it should. Her avoidance of Comcast is one of millions of tiny correctives being deployed against Comcast until it finds the mix of characteristics that more pleases consumers. Is a blunter corrective warranted, through prescriptive regulation?

Well, speaking of sociopathic machines, the legislatures and agencies who would compose and administer any regulation of broadband service are increasingly well understood to be a lot like businesses. The public choice school of economics has helped demonstrate that politicians and bureaucrats are self-interested actors first. They are almost always genuine in their claims to be promoting the “public interest,” but they are also almost always acting in ways that maximize their own power and budget, which leads to profit for those very same politicians and bureaucrats.

Just like with businesses, there is no inherently ethical legislature or regulatory body. The difference is that you can withhold your money from businesses. The comparable punishment you can mete out to politicians - withholding your vote - is available only once every couple of years and not very effective.

So be careful what you wish for when you argue for regulation. The business “machine” and the government “machine” can interface quite well at times. You might end up with two sociopaths uniting to take their profits from a third party, the citizen/consumer.

October 29, 2007 | Comments |

Viewing 6 Comments

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    Corporate Ethics? Surly you jest! Corporations are inherently amoral. Corporate ethics are tools to establish a cost benefit ratio to determine what rules the corporation should follow and what rules and laws it can ignore based on the chance of being caught, likelyhood of being fined or prosecuted, cost of defense, cost of fines, and cost to good will. "Stealing" from your customer is merely an entry in a balance sheet.
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    Thanks, sccarper. I think you're essentially restating what I said, perhaps with a little more hyperbole to keep things agitated/confused - particularly the term "stealing," which is not at issue in the Comcast Kerfuffle.

    I imagine that corprorations in the aggregate make rational risk calculations about whether they'll be caught and how much they'll be punished for doing something wrong - criminal or not - just like you and I do when we drive faster than the speed limit, cut out of work early, etc.

    Don't be angry at your shovel. Our task is to get the most productivity out of it at the least cost.
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    Yes, I was too quick on the trigger.

    just like you and I do when we drive faster than the speed limit, cut out of work early, etc.


    Not quite. Individuals rarely go to jail or even face criminal prosecution when corporations break the law, even in the case of outright fraud *cough*Providian*cough*(IMO). Whereas, if I as an individual were to unjustly enrich myself of a mere few hundred or a few thousand dollars I would probably face criminal proceedings.

    White corporate fraud needs jail time for individuals. There must be no safety in numbers. Individuals must be accountable.
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    Thank-you.
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    Expanding on the points already made, I don't think corporations are moral agents, but they do induce their constituents to act unethically by diffusing responsibility (the actions of employees, executives, board of directors, shareholders are all seemingly insignificant until taken in aggregate; it's always someone else's fault) and by 'transference' of ethical responsibility to the abstract corporation itself. How convenient to be able to assign ethical responsibility to something with "no soul to save and no body to imprison". Unfortunately, current social norms seem to view these behaviours as acceptable, probably because ascribing moral responsibility to the agents of a corporation would mean that most people would need to accept responsibility for their actions at their own jobs.
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    When I got home, I was greeted with a Forbes Magazine (Nov. 12, 2007) editorial "Just Trust Us" by Thomas McCraw. Similar to the issues with Comcast and Verizon failing to clearly disclosing their business practices, he writes: "And now we see a real mess in the credit markets: the reckless availability of subprime mortgage lending, the just-trust-us stance of many hedge fund managers, the irresponsible rating of securitized debt, the invisible practice of universal default to raise interest rates on credit cards, the student loan fiasco. What do these messes have in common? Opacity. (emphasis added)


    He then goes on to state: "The core problem here is mainly not one for business but for government. ... So my purpose here isn't to predict apocalypse but to praise transparency. The dots of opacity are there, in abundance, for all to see. ... Investors, now a hundred million strong, must be convinced that government will resume its proper job of enforcing transparency."



    Which supports your call for transparency. "Transparency is a similar meta-characteristic that helps garner and protect trust. I think the absence of a call for ethics here on TLF during the Comcast Kerfuffle is the product of the fact that Comcast’s main failing was in transparency. It’s still a matter of debate whether Comcast did anything wrong. It’s almost unanimous that Comcast did something opaque, and that hurt them."



    I guess that I now need to put-out a call for improved transparency regulation. Again, Thank-you for this good discussion.




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