Wednesday, April 27, 2005


I teach business ethics to undergraduates.

Stop laughing. I'm trying to maintain some sort of idealism here. Seriously, quit it.

Anyway, each semester, we discuss the case of "Texaco and the Ecuadorean Amazon." We do this in the context of the question, "Does business have an obligation to be socially responsible?" The classic position on this question, as articulated by Milton Friedman (or as my students like to call him in their papers and exams, "Nobel Prize-winning economist Milton Friedman"), is a resounding "NO." On this view, business is responsible only to its shareholders (stockholders), and this entails maximizing their wealth. Nothing more, nothing less. Well, there's the legal and moral custom restriction thing (I love to point out that since business is intimately involved in the policymaking process, this makes the "restriction" somewhat of a joke, and democracy for that matter, but that's a topic for another day). It's a circumscribed and mercenary sort of utilitarian perspective, this wealth maximization. Oh, and when in Rome, follow Rome's laws as well (as you're maximizing wealth for the shareholders), even if Rome's laws are corrupt, or weak, or nonexistent.

Texaco followed the law in Ecuador, such as it was. But they also created a helluva mess.

Fortunately, a less circumscribed approach is being developed in business ethics-- the stakeholder approach. This approach requires business managers to consider a wider pool of interested parties when making decisions. A narrow view might define that pool as persons / entities upon whom a business depends for its continued success: employees, community members, consumers, managers, suppliers, and, yes, shareholders. A broader view might include all parties affected by the operations of the business. The narrow view isn't typically extended to the environment, but it would require consideration of persons living in surrounding communities as they are affected by what insiders refer to as "externalities" (costs of production not incurred by the business, but rather by other parties). Pollution is the classic example of an externality-- a business creates it, dumps it, and forgets about it, while persons living downstream must bear the cost of contending with its effects. Clear?

Texaco left a lot of "externalities" in Ecuador. Should they be accountable for this action? Intuitively, the answer is yes, particularly when you consider the extent of the resulting environmental and biological devastation. Then, as if swallowing a bitter pill, many of my students will turn around and defend Texaco, claiming "reality" as a defense ("this is just how it's done," "they have to protect the interests of their shareholders," "they were following the law," etc.). Empathy gets shut down very quickly, and it's a disturbing thing to behold. It seems that the further away the problem is, the easier it is to rationalize-- and Ecuador's a long way from Knoxville, TN.

So, real people are suffering and dying as a direct result of the actions of a US-based company operating in their country. The question, "Should Texaco take responsibility for its actions?" seems almost laughable after you read an article like this one in the Independent (UK). It makes me sick, and it makes it really difficult to talk about in a detached, academic manner.

[Oh yeah, and we can trust the oil companies to operate responsibly in ANWR. Now I'm laughing.]

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