We call it the Institute for Business, Technology, and Ethics. Business ethics is a hot topic, but I am frequently asked why we carry technology in our name. Why is technology a vital factor in business ethics today?
Technology As A Force For Change
I believe technology (primarily information and telecommunications technology) is the single most powerful force at work in business. Looking back ten years, the major changes in business, both good and bad, were rooted largely in technology. The technology community will continue to produce new capability at a substantial rate. So I believe business changes absorbing this new technology will continue as well.
This business change creates new business ethics issues. For example, when technology enables new ways of doing business, new ways to “beat the system” become apparent as well. Sometimes this is due to the devious nature of people in leadership. But sometimes it is very innocent — there is simply no shared experience in dealing with the new world. It is easy to confuse deviousness and ignorance, but the ethics issues are real in either case. To get more specific, let’s look at recent history to see the impact of technology on business ethics.
Earlier Technology And Ethics
Going back ten years, the key business ethics issues related to technology involved privacy, piracy, pornography, hacking, and reliability. Technology made it possible to invade people’s lives in new ways. It opened the door to a new kind of theft, one that didn’t involve breaking any physical barriers or stealing any physical items. Technology has created new ways of distributing pornography, leading to significant societal problems, wasted time in business, and requiring unwanted intrusions. Hacking, the ability to break into computer systems, has become an “art form” requiring costly response from business. Finally, unreliable technology has given rise to a whole new set of business and legal issues.
No one is suggesting these older issues have been solved. Rather, they continue to recycle with every upgrade in technology, and continue to be a challenge for every business. Further, as technology continues to make inroads into business, these problems can no longer be dealt with by simply blocking access. Technology is required in the course of daily business.
The Business Problem With “Dot Coms”
When we formed the Institute for Business, Technology, and Ethics in 1998, we were facing a whole new set of issues from the Internet. New companies were starting at an incredible rate because it didn’t take much to “catch the wave” of the Internet. It was simply a matter of recognizing that the Internet offered an incredible new connection with the customer. Ordering a product was only a click away and knowledge of the customer would be deep and wide because of the ability to track data.
There were several things wrong with this business model. In an early issue of Ethix (October 1999), I discussed one key problem, dealing with the physical goods. The Internet helps with the first half of the business model — placing and receiving the order from the customer. But it offers no benefit to the second half of the transaction, namely delivery of the product. In the old retail model, the customer picked up the product — now it has to be shipped. And since many of the startups used simplistic methods of inventory management compared to mainline retailers such as WalMart, they had greater costs here as well.
Thus the on-line businesses had added cost, the customer had a delay in getting the product, and the customer may have to pay more for the product. Further, the Internet enables price comparison as easy as ordering, leading to even tighter margins. These issues remain challenging today for on-line businesses.
To illustrate, consider the purchase of the book John Adams by David McCullough, now out in paperback. Amazon.com offers a huge discount on the book with easy ordering, but by the time shipping and taxes are added to the price, the John Adams book costs $16.73. We would expect to receive it in three days to a week. At the local Barnes and Noble with my Readers Advantage card yesterday, I found I could purchase the book for $12.98 and walk home with it the same day. The added cost and time of going to the store (but I was going there anyway for coffee) is offset by a quicker receipt of the book at a lower cost.
Other on-line businesses face a similar, sometimes tougher, challenge compared to traditional retail.
All of this does not make on-line retailing a bad business model, but it shows it is not a perfect model. That is, it isn’t always the best model for the customer. There are times it is better (when I don’t need the book quickly, when I order multiple books to get shipping costs waived, when I don’t want to go out, or when my selection is not in stock at the store, or when I want to ship the book to someone) and times when it is not. The net of this is the “dot coms” (and Amazon is one of the best) do not replace other retailing, but will grow along side of them. Thus they will grow more slowly and will have a tougher business model than first thought.
Ethical Issues With The “Dot Coms”
Two kinds of ethics issues came up in the “dot com” era, both created by the complexity of the argument over benefits. The first is simply the misrepresentation of what the market could become. One could argue whether this was deviousness or ignorance, but in either case it represents an ethical issue.
The second is the “irrational exuberance” that was exploited by many founders of such businesses. Selling founders shares quickly when stock prices rose created unbelievable wealth for some people. Another way this was exploited was through insider information, family and friends shares, etc. This behavior undermined the creation of enduring value from these companies.
At the same time the bubble burst in April 2000, Fortune magazine had a cover story on the ethics of “dot coms.” The cover featured a CEO exploiting the family and friends shares, gaining great personal riches, and leaving no value for the average shareholder. I have often wondered what effect that Fortune issue had on the drop in the NASDAQ.
The Internal Transformation Issues
During the period the “dot coms” were rising, mainline businesses were being transformed by technology in every aspect of their business.
Another set of ethical questions came from this process. In a 24-hour connected environment, what are appropriate employee policies for work hours? What about the proper care of customers when, in order to get service, they must go through many levels of voice mail screening, often never able to reach an answer or a person? What about the rising expectations for customer and employee “self service?”
This small sampling of the issues represents new ethical areas that few companies have thought about carefully.
Recent Leadership Scandals
More recently, there has been the wave of scandals in leadership starting in a big way with Enron, but now an almost daily news item with CEOs heading to jail and many investors losing much of their retirement savings. Is this also tied to technology? I believe it is in three distinct ways.
First, the speed of business made possible by the technological changes has left little time for reflection. Jeff VanDuzer discussed speed as a contributor to ethical lapses in Ethix 24.
Second, because of this speed, the laws of compliance that cover many ethical issues may be unable to speak to current practice. One of the significant issues from the recent ethical scandals is not the number of laws being broken, but the amount of damage done in the “loopholes” in the law.
Third, technology can create the possibility of highly leveraged “deals” which most people would not be able to comprehend. John Reed, the former CEO of CitiBank, said of Enron in his Ethix interview, “Frankly, I think Enron built a business that was more complex than even they understood.” Technology can make ordinary things visible to all in a rapid time frame, but can also create very obscure things. A great deal of damage can be created under the cloak of obscurity.
Technology is not the only force affecting business ethics today. But it is at the heart of many of the toughest ethical issues.
We can expect that the continued growth in power and capability of the technology will lead to new and at this point unforeseen ethical problems for some time to come.
And here’s another sobering point. Even if the decline in business fortunes of the tech sector leads to a slowdown in the rate of change coming from technology, this will have little impact on the complexity of business ethics issues coming from technology. The reason for this is the slow rate of adoption of technology by businesses today. I believe that many businesses could make significant strides in efficiency and effectiveness today by simply adopting technology from the early 1990s. So over the next ten years as businesses begin using the technology of today, we can expect both benefits and unforeseen ethical challenges to accompany these benefits.
Al Erisman is executive editor of Ethix, which he co-founded in 1998.
He spent 32 years at The Boeing Company, the last 11 as director of technology.
He was selected as a senior technical fellow of The Boeing Company in 1990,
and received his Ph.D. in applied mathematics from Iowa State University.