In a new book, The Moral Responsibility of Firms, two Wharton professors consider recent scandals and examine contrasting viewpoints on corporate ethics.
Knowledge@Wharton: Why was it important to put together this book, The Moral Responsibility of Firms?
Eric Orts, editor; professor of legal studies and business ethics and management; director of the Initiative for Global Environmental Leadership: There’s a very long-standing philosophical debate about whether organizations like business firms have a moral responsibility as firms themselves, or whether it’s only the individuals in the firm or organization who have moral responsibility. A number of people have contributed to the debate, but it’s not really been resolved for decades. We decided it was time to revisit this question. In partnership with INSEAD and with a generous grant from the Wharton and INSEAD Alliance, we decided to pull together the leading thinkers on this issue, have a conference on it, and then write the book based on that conference.
K@W: Is there a “for” and “against” in this book?
Orts: You have some scholars who argue in favor of finding more responsibility for firms. Among them are Philip Pettit, who is a philosopher at Princeton; Michael Bratman at Stanford, although he hedges somewhat in the book; and Peter French, who has written a very influential statement that moral responsibility can be attributed to firms. They’re examples in the first part of the book. Amy is included in the second part of the book, along with John Hasnas at Georgetown, Ian Maitland, and some others arguing the other side of it. The basic argument there is that you have an individualist point of view, and it really doesn’t make sense to attribute the idea of moral responsibility to firms.
“It’s a common view in the field of business ethics that you don’t check your morals at the office door,” says professor Eric Orts.
I raised this with a friend and said, “I’ll be on the radio talking about this.” She said, “What do you mean? It seems like it’s common sense that you would think there would be moral responsibility of firms.” But once you look into this a little more deeply, you realize it’s not really necessarily true.
Just take the Volkswagen emissions cheating scandal. If I bought a Volkswagen, it was falsely represented as an environmentally friendly vehicle. There was environmental fraud. But is it true that Volkswagen as a whole is responsible for that, or is it only the individuals within Volkswagen who may have known about it and were involved in the deception?
It probably doesn’t make sense for me to say, “Well, whoever sold me that car did a moral wrong,” because they’re going to say, “I didn’t know that the other people were doing this. I was completely innocent.” The local dealer who sold me the car is probably not morally responsible. Yet many people would assume that if VW is responsible, anyone associated with VW must be responsible. That’s kind of the question we’re trying to get to the bottom of.
Amy Sepinwall, contributor; associate professor of legal studies and business ethics: The book in many instances pursues, at a fairly high level of abstraction, thinking theoretically about corporate moral responsibility. But it’s motivated by these instances of corporate wrongdoing where it looks like maybe we can identify some individual perpetrators of corporate wrong. But even were we to hold each of them responsible, it’s not clear that we would fully have expunged the indignation that the corporate wrongdoing has elicited.
If you think about the BP oil spill, for example, which is the worst environmental disaster the United States has seen, it turns out that what caused the oil spill was a number of relatively small errors for which there are individuals who are guilty. But they’re guilty just for their small contribution. If we were to hold each of them responsible, punish each of them in accordance with his contribution, we really would not end up with the kind of response that matches up with the amount of harm that BP created.
There is this felt sense, as some of the authors in the book put it, of a responsibility deficit—this idea that holding only individuals responsible fails to fully account for all of the harm that occurred, and we need to do something else if we want to respond appropriately. It often takes the form of punishing the corporation or blaming the corporation or holding the corporation responsible.
K@W: The German government is pursuing potential charges against the leaders at VW who may have known what was going on. There should be a personal responsibility, but should there be a moral responsibility as well?
Orts: Well, that’s exactly it. The legal proceedings you have with VW and these other cases show you—practically—why this philosophical issue matters. Is it enough to just have a big judgment against VW as a company and make it pay a huge penalty? What I call in the book individualists, the ethical theorists, would say, “No, that’s completely not okay, because you are essentially letting all these people who really did the bad acts off the hook and sort of pretending that by punishing a big auto company, we’re getting that.”
Another good example of this is the financial crisis and what happened after that. Very few, if any, actual human beings were convicted of crimes or punished for various allegations of financial fraud. But you had very big penalties paid by banks and other financial institutions that admitted to crimes and wrongs and paid huge amounts of damages. The question is, does that really help anything? Does it really help to deter moral bad behavior if you’re just putting [the onus] on the shareholders of the banks and you’re letting the bank as an entity take the hit and not actually going after individuals?
One footnote: There has been an actual policy change on that. [Former acting Attorney General] Sally Yates, who has become famous for other things since then, has an influential memo that changed policy within the Department of Justice, that said, “We are not as a matter of policy going to do that anymore. We’re not going to pursue or settle cases just with the corporation. We must have individuals on the hook.” For our purposes, that’s one of the reasons this practical question of moral responsibility matters—because it goes back to the moral foundation of the problem of deciding how the law should treat this issue.
K@W: Another example is the scandal at Wells Fargo. The bank paid a huge penalty for the creation of fraudulent accounts, yet there wasn’t a whole lot of punishment for senior executives who may have been involved.
Orts: There are lots of good legal reasons why there are limitations on being able to seek out the individual people who did the act. In an organization, it’s often easy to hide when you’re doing something you might know is wrong. You make sure there’s no paper record, or you tell an underling to do the act, knowing that underling will take the fall if anything goes wrong or if it’s discovered. There are lots of problems in holding individuals responsible.
But you’re absolutely right; there’s one other thing. There’s a sense that everybody wants to find someone to blame. You have a name, Wells Fargo, and then somehow if you succeed in getting them to pay a bunch of money and admit to some wrongdoing, then maybe that is enough. It might be enough for the public sentiment, but if you look at the moral consequences, you might be letting people off the hook— making it easier to deal with the problem when you’re not really providing the right incentives and deterrents going forward.
K@W: A lot of people want to place blame, but blaming the corporation may not always be the right situation.
Sepinwall: That’s exactly right. My worry is … blame is, in part, seeking to induce the experience of guilt. In the theory that I advance in the chapter, corporations don’t have a capacity for emotion, which means they can’t experience guilt. What sense is there in blaming this entity that can’t experience guilt?
I’ve argued that I think what we’re doing when we blame the corporation is very similar to what Eric just described in terms of our reaction to Wells Fargo—that Wells Fargo is a stand-in; it’s a placeholder. We know there are individuals within the corporation who deserve blame; we just don’t know who they are. So we express our blame as if it’s directed toward Wells Fargo, but what we really mean is, there are some real people here, and they deserve blame.
Orts: Even though Amy and I are co-authors, we occasionally disagree. I think she strikes a very strong argument for the individual side, and I agree with a lot of it. I think I’m persuaded that both the collectivist view, which says there can be some moral responsibility correctly attributed to firms, and the individualist view can be correct. But everyone contributing to this topic believes that ethics matter. There are some who might say financial responsibility is the only thing a firm should care about; forget about moral responsibility. None of the authors, despite the differences in the book, took that view. I think it’s a common view within the field of business ethics that you don’t check your morals at the office door when you go in. And so one way or another, morals matter.
Published as “When Business Breaks Bad” in the Fall/Winter 2017 issue of Wharton Magazine.