Monday 13 July 2009
On Not Being Evil
About ten years ago I happened to have lunch with Eric Schmidt. The CMU board of trustees was visiting the School of Computer Science and they had lunch with some of the CS grad students. Our table was just Mr Schmidt, me, and a couple of other students. At the time he was CEO of Novell. I was feeling cantankerous and took the opportunity to ask Mr Schmidt how he managed when the imperative to maximise shareholder returns required unethical (but legal) behaviour. His answer was that this never occurs. He suggested that ethical behaviour always, in the long run, maximises returns.
I thought (and still think) this was grossly wishful thinking. It would require extraordinary luck or divine providence, and even for a theist like me I think it's clear that God has not always arranged for profit and ethics to be perfectly aligned (end sarcasm). A company truly focused on shareholder returns will sometimes, probably often, be obliged take advantage of unethical opportunities. Fortunately, Mr Schmidt's wishful thinking seems very common. People want to do the right thing, and convince themselves and each other that it's going to be best for the company too. They cheat the shareholders and do the rest of humanity a favour. Bravo!
I saw a lot more of this at IBM Research and (from outside) other labs --- publishing corporate research labs depend on corporate vanity mixed with altruism, and a desperate wish to believe against all evidence that they're an acceptable return on investment. It's a relief to work for a non-profit where we can be honest about such things.
Of course back at that lunch at CMU I had no idea that Mr Schmidt would go on to become CEO of the world's newest corporate superpower. Keep the faith, Mr Schmidt, and may the scales never fall from your eyes!
Comments
Assuming
(a) you're a Christian theist
(b) you're talking about the fairly long run (i.e. >= lifespan)
(c) you include "not adding to shareholder moral debt" in "shareholder return".
Then Mr Schidmt is correct.
In a weaker sense, God blesses those that keep his commandments, but that's a multi-generational blessing, and not necessarily of physical value.
The poverty of greedy capitalism is that it considers purely the material, and even worse, tends to only consider the short-term material.
I understand what you're saying about short term pressures affecting the ethical quality of decisions. But I have to agree with Mr Schmidt that if a CEO is capable of fending off those who would pressure them down such a course and has oppertunity to stand back and look at the long term goals then this oft leads to a course devoid of unethical choices.
However that's quite a big if. Maybe I'm wrong. Still curious what made you think of this meeting :).
Note that I'm not saying it's *never* long-run profitable to act unethically, nor am I saying the converse, just that the expected value is negative in the long run and positive in the short run.
1) One might believe (though I'm unconvinced) that in the long run bad behavior will lead to poor image and ill will that will reduce stock price. It would be most implausible if image and good deeds were perfectly synchronized but one might think there was no easy way of promoting a corporate culture that lead to good image (unlike MS) without actually just trying to do good.
2) Despite the dogma to the contrary the CEOs duty is not to maximize shareholder profit. It is to look out for the shareholder's interests and that's not quite the same thing. One thing most investors want is for their money to be used for good and not for evil.
Now certainly this gets into a complex grey area when some investors may feel that their capital is being co-opted to support charities favored by the majority but this doesn't undermine the validity of the point.
When it's wrong to invest in a morally imperfect company is a really tough question.
For instance almost all large companies out there probably engage in behavior you think is immoral (even if it's just being mean to employees). However, it's quite possible that all things considered refusing to invest in such companies (thus depriving them of capital) would result in a worse world (more poverty, fewer jobs) than if you invested.
To put the point differently you might think that (despite your best efforts) if you give your brother the $1000 he asks for he will use it for some slightly immoral purpose. However, if you think that he will murder someone for the money if you don't pay up and you couldn't stop him then lending him the money might still be moral.
In short it seems wrong to assume that bad acts committed by someone you fiscally support add to your moral debt. You also have to consider the alternatives to see if you had a better choice.
Read Thou Shall Prosper by Rabbi Daniel Lapin
http://www.rabbidaniellapin.com/product.php?id=6
This is true to an extent. But reputation only counts for the company's potential customers. This can be a real problem: hitmen don't get paycheques from their victims!