The recent release of the Paradise Papers to hundreds of journalists has shined a light on previously unknown business practices of companies like Nike, Lyft, Walmart and Disney — and the portrait that has emerged has not been a flattering one.
Hundreds of millions of dollars from the Kremlin, it turns out, are backing Facebook and Twitter through intermediaries. After Apple chief executive Tim Cook told a U.S. Senate investigative subcommittee that the company “doesn’t stash money on some Caribbean island,” the Paradise Papers revealed that several months later Apple had not in fact established a tax haven in the Caribbean — but in the English Channel, on the island of Jersey.
It is not yet fully clear what the Paradise Papers will mean, if anything, for the way American business conducts itself. But what does it mean for the rest of us — the U.S. consumer? Americans have put considerable weight behind the idea that they can vote with their dollar, that patronizing businesses whose values they endorse exercises some kind of moral authority. But as the Paradise Papers show, the way businesses really operate remains opaque. Is it possible anymore for customers to put their money where their mouths are, given the competing interests of wanting what is cheap, cool or convenient, and what we increasingly know we don’t know about the companies we patronize?
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“There is this tension that has not existed before, that we have this need to know two things from businesses: what do you stand for, and do you live up to those standards?” says Wharton marketing professor Americus Reed.
“It is always possible to turn down what is ‘cheap, cool or convenient’ to do the right thing,” says Robert Hughes, Wharton professor of legal studies and business ethics. “The hard question is what we really are morally required to do. Must we use our purchasing power as consumers to get companies to behave better? Are some companies’ activities so seriously wrong that we must avoid doing business with them to avoid complicity?”
But it is increasingly hard to know the full extent of how corporations are behaving. The maze of shell companies that obscures sources of capital has allowed a lot of Americans to sleep better at night, not knowing that the goods and services they use are often backed with money from, say, the Saudi Arabian government, which has regressive policies regarding women. “You get to enjoy the convenience of your WeWork without having to confront its place in the Saudi government’s portfolio,” wrote New York Times columnist Farhad Manjoo recently.
And so, how much can the typical American consumer do to vote with her dollar? How much should she do?
“These kinds of things are a slippery slope,” says Reed. “If you pull back the curtain on everything, you’ll find something. If you are going to take on this purity of morality, you may end up going off into another world making your own clothes and doing your own hunting. I don’t think consumers think about that when they start shouting from the mountain top.”
“It is always possible to turn down what is ‘cheap, cool or convenient’ to do the right thing.”–Robert Hughes
Getting to the Bottom of Corporate Practices
“It’s certainly true that companies often prevent consumers from having access to information about their business practices, especially information that might lead consumers to be hesitant to patronize them,” says Brian Berkey, a Wharton professor of legal studies and business ethics. “In addition, even in cases in which information is in principle available to consumers, it would take a significant amount of time and energy to research the business practices of competing companies and use that information to make decisions about which companies to buy products or services from.”
It is not reasonable to think consumers will invest this kind of time, he says. “This is made worse because companies often engage in efforts to mislead potential consumers about the nature of their business practices through, for example, advertising and press releases.”
As vividly illustrated by the release of the Paradise Papers — leaked to the German newspaper Süddeutsche Zeitung, which in turn shared them with the International Consortium of Investigative Journalists — companies will often “simply hide from the public information that many consumers would view as providing reasons to avoid doing business with them, such as the fact that they have accepted large investments from Saudi princes or Kremlin-connected billionaires,” Berkey says.
There is other evidence that it has become harder to see how corporations are behaving. Social movement boycotts of corporations will often lead them to turn to more covert forms of political engagement, which simply creates a new problem for activists and shareholders seeking to monitor corporate political activity, according to Wharton management professor Mary-Hunter McDonnell and Timothy Werner, professor of business, government and society at the McCombs School of Business, University of Texas at Austin.
The authors have shown that companies have an incentive to hide, in a paper they co-authored: “Blacklisted Businesses: Social Activist Challenges and the Disruption of Corporate Political Activity,” Those targeted by boycotts are subsequently more likely to have their campaign contributions refunded by politicians, less likely to be awarded government procurement contracts, and are less likely to be invited to participate in congressional hearings.
In a new paper, “Into the Dark: Shifts in Corporate Political Activity after Social Movement Challenges,” they find that firms targeted by social activist challenges systematically reduce their political action committee contributions, and instead increase use of more covert tactics like lobbying and more indirect tactics that channel political activity through intermediary agents like CEOs.
“Our study suggests that one perverse effect of movement targeting is that it drives corporations into darker and less transparent avenues of political influence where activists are at a distinct disadvantage,” they write.
“These kinds of things are a slippery slope. If you pull back the curtain on everything, you’ll find something.”–Americus Reed
Consumers who care about transparency might consider affirmatively supporting those companies that provide more disclosure of their political spending, says McDonnell. How can they know which companies are forthcoming and which are not? The Center for Political Accountability, working closely with Wharton’s Zicklin Center for Business Ethics Research, awards relative ratings on political practices through the CPA-Zicklin Index of Corporate Political Disclosure and Accountability.
Its 2017 index found that the number of public companies adopting political disclosure and accountability continues to grow, and numerous companies that belong to this movement have strengthened their transparency and oversight programs. Also, McDonnell points out, “people have power through their positions as shareholders and can press the funds that manage their 401(k)s to demand transparency on political spending from portfolio firms,” she said.
This is not to say activism cannot influence corporate behavior. While an individual consumer’s decision to abstain from a company’s or an industry’s products is unlikely to bring about change, a single act that is part of a larger movement can be efficacious, says Hughes. “Arguably, some practices are so seriously wrong that consumers should refuse to buy from companies engaged in these practices whether or not this refusal is likely to bring about positive change,” he says. “For example, arguably it is always wrong to buy products made by forced labor. Sadly, forced labor is not a thing of the past.”
But Hughes says one effective movement was the broad campaign to compel corporations to include non-discrimination language in their employment policies. Currently, he points out, more than 90% of Fortune 500 corporations have language regarding sexual orientation in their non-discrimination policies, and 83% have gender identity in their non-discrimination policies. Yet only 22 states and Washington, D.C. prohibit employment discrimination based on sexual orientation, and only 20 and Washington, D.C. prohibit discrimination based on gender identity.
“Boycotting and hash-tagging is one thing, but at the end of the day, it’s a big deal to say I’m going to stop buying product A and start buying product B.”–Americus Reed
Says Hughes: “Why have corporations been quicker than governments to adopt LGBT-inclusive nondiscrimination policies? This is at least partly a result of pressure from consumers who make purchasing choices in response to media reports and the Human Rights Campaign’s Corporate Equality Index. Organized pressure from informed consumers can influence corporate behavior for the better. The expansion of non-discrimination policies is a recent success story.”
But sometimes protesting a company by boycotting it can go down a rabbit-hole of competing causes and unintended consequences. When Fox News host Sean Hannity caused alarm from some viewers over comments suggesting that alleged contact between Republican Senate candidate Roy Moore and several teenage girls was “consensual,” coffee maker Keurig indicated that it would pull its advertising from Hannity’s show. Conservative fans responded to Keurig with a #BoycottKeurig campaign, posting videos of themselves smashing Keurig machines with hammers and throwing them off balconies.
Some observers relished the irony. The company has often been criticized for its one-cup coffee pod system that environmental activists say is wasteful and bad for the environment. Conservatives and liberals found themselves united behind a boycott, albeit for very different reasons.
Avoiding Complicity and Seeing a New Normal
How will this evolve? With greater awareness of the fact that we can’t be sure whether a company’s projected image aligns with its actual behavior, will people become inured to the values of the companies they patronize? Or will they care more than ever? “I think it’s a little bit of both,” says Reed. “People will pay attention more and care, and the threshold will become accelerated and amplified. However, because of that greater diligence, a new normal will happen. When there was no information, there was an assumption. When it’s all out there and not perfect, consumers will become recalibrated.”
“This approach has the added advantage of encouraging consumers to reduce their spending generally, so that they can save more — or, perhaps better, direct some of that money to morally worthy causes.”–Brian Berkey
But it is not clear that the Paradise Papers will change any decisions at the cash register. Does anyone think, for instance, that iPhone users will soon turn to other products because of Apple’s tax-dodge behavior? It does not seem likely. When brands and companies build up a bank account of trust and positive image with customers, customers allow that company a misstep, Reed says. Plus, consumer outrage tends to appear “super-amplified. A lot of the moral outrage is peacocking, because social media allows costless morality. Boycotting and hash-tagging is one thing, but at the end of the day, it’s a big deal to say I’m going to stop buying product A and start buying product B.”
Is there a compelling purely moral argument for not patronizing companies engaged in bad behavior? Berkey says that in at least some cases it is less clear than we might think, since an individual consumer’s choices may not be able to make a difference. Factory farming, for instance, he says, is deeply morally problematic, since billions of animals are made to suffer. But the market is so large that it seems plausible that it simply isn’t sensitive to any one person’s purchasing decisions.
“I think that the most promising approach to arguing against the view that patronizing companies engaged in morally troubling business practices is permissible is to try to undermine the claim that no individual’s action can make a difference,” he says. “Alternative approaches suggest, for example, that we should not do business with companies engaged in wrongdoing because we are obligated to avoid complicity in the wrongdoing of others, including corporations, even if our complicity won’t make things any worse for anyone. In the end, I find approaches of this kind mostly unpersuasive, and think that we should seek a view that explains why it is wrong to support companies engaged in wrongdoing more directly in terms of the effects of their business practices that make us worry about the ethics of patronizing them in the first place.”
Still, strictly moral arguments aside, there are actions consumers can take that will have a practical effect. Berkey says that given the apparent pervasiveness of companies engaged in bad behavior — accepting investments from troubling sources, using off-shore tax havens, and doing business with exploitative suppliers — along with the difficulty of accessing reliable information about how companies are conducting themselves, one constructive response from consumers is a lot simpler than many might think: to significantly limit consumption.
“They might, for example, continue to wear old clothes until they really need new ones, or buy primarily second-hand clothes. They might avoid upgrading their smart-phone for a longer period of time, walk or take a city bus when possible rather than using Uber or Lyft, and so on.”
Says Berkey: “This approach has the added advantage of encouraging consumers to reduce their spending generally, so that they can save more — or, perhaps better, direct some of that money to morally worthy causes.”
Article by Knowledge@Wharton