Raw Thought

by Aaron Swartz

Business “Ethics”

Moral Mazes (one of my very favorite books) tells the story of a company, chosen essentially at random, and through careful investigation from top to bottom explains precisely how it operates, with the end result of explaining how so many well-intentioned people can end up committing so much evil.

This week’s scene takes place inside a textile processing plant at Weft Corporation, where the company’s poor low-paid workers are suffering from byssinosis. Byssinosis, also called Brown Lung Disease, is when your lungs fill up with cotton dust. Eventually your throat closes up and you suffocate to death. The company insists the whole thing is a stunt made up by Ralph Nader and other liberal do-gooders. But one day they change their tune:

Weft, as well as all the other large and medium-sized American textile companies, was actually addressing the cotton dust problem, but in a characteristically indirect way. As part of a larger modernization effort, the firm invested $20 million in a few plants where executives knew such an investment would make money. … The investment had the side benefit of reducing cotton dust levels … One manager who was in charge of the project … comments on whether dust control was a principal factor in the decision…:

No, definitely not. Would any sane, rational man spend $15 million for a 2 percent return? … Now it does improve the dust levels, but it was that if we don’t invest the money now, we would be in a desperate [competitive] position fifteen years from now. … It was on these bases that the decision was made.

Publicly, of course, Weft Corporation, as do many other firms, claims that the money was spent entirely to eliminate dust, evidence of its corporate good citizenship. Privately, executives admit that without the productive return, they would not have—indeed, given the constraints under which they operate—could not have spent the money. And they have not done so in several other plants and only with great reluctance, if at all, in sections of otherwise renovated plants where it is more difficult to … achieve simultaneous cost and dust reduction.

(Robert Jackall, Moral Mazes, 158f)

What does Jackall mean that the executives “could not have spent the money … given the constraints under which they operate”? Another story in the book about the chemical corporation Alchemy illustrates his point:

Consider, for instance, the case of a large coking plant of the chemical company. [Coking is a chemical process for distilling coal.] Coke making requires a giant battery to cook the coke slowly and evenly for long periods; the battery is the most significant piece of capital equipment in a coking plant. In 1975, the plant’s battery showed signs of weakening and certain managers at corporate headquarters had to decide whether to invest $6 million to restore the battery to top form. Clearly, because of the amount of money involved, this was a gut decision.

No decision was made. The CEO had sent the word out to defer all the unnecessary capital expenditures to give the corporation cash reserves for other investments. So the managers allocated small amounts of money to patch the battery up until 1979, when it collapsed entirely. This brought the company into breach of contract with a steel producer and into violation of various Environmental Protection Agency (EPA) pollution regulations. The total bill, including lawsuits and now federally mandated repairs to the battery, exceeded $100 million. I have heard figures as high as $150 million, but because of “creative accounting,” no one is sure of the exact amount.

This simple but very typical example gets to the heart of how decision making was intertwined with a company’s authority structure and advancement patterns. … Had they acted decisively in 1975—in hindsight, the only substantively rational choice—they would have salvaged the battery and saved their company millions of dollars in the long run.

In the short run, however, …. they would have been taking serious personal risks in restoring the battery. … their political networks might have unraveled, leaving them vulnerable to attack. … A manager at Weft Corporation reflects:

People are always calculating how others will see the decisions they make. … They know that they have to gauge not just the external … market consequences of a decision, but the internal political consequences. And sometimes you can make the right market decision, but it can be the wrong political decision.

(Mazes, 81-84)

Had the manager in charge of the plant with the ailing battery done the replacement, his department would be six million dollars less profitable. When it came time to compare managers for the next promotion, he would seem massively less efficient than the guy running the plant next door. He’d be passed by and his corporate ascendency would be over.

Corporate managers simply aren’t allowed to be moral, or even reasonable. And those who try are simply weeded out. Not only does the manager who replaced the battery get passed over for the job; the manager who was obedient enough not to gets promoted to a more powerful position.

You should follow me on twitter here.

December 11, 2006


The idea that corporate management rewards bad behavior isn’t especialy novel. Off the top of my head, I can’t think of a single TV show set in a business that doesn’t revolve largely around that cliche. So to dig a little deeper, why doesn’t the market correct this problem?

posted by Scott Reynen on December 11, 2006 #

Nice anecdotes. A free-market capitalist could just as easily dig up examples of corporations behaving ethically.

posted by Mark on December 11, 2006 #

The Chicago futures markets are about 3 times larger than the New York stock exchange and NASDAQ combined.

I think the fact that “time” is not an essential component of stocks, and that “time” is an essential part of futures, is the major reason why stock markets are not efficient. Regardless of what the market masturbators would have you believe.

Being on the back side of “peak sweet crude” forces efficiencies that could be neglected previously.

I am confident that all capital markets will move to a “futures” model.

And, all businesses will have to move to a “futures” model of accounting. It would make stupidity like the neglected battery less likely.

Anyway, quit whining. The same time businesses will be forced to introduce “time” into their accounting will be the perfect time to also introduce “morals” and “human excellence” into business accounting (the accounting system is practically the only way to enforce “interests”). Stop whining and help me with ideas of how this new accountancy will work.

I need the answer for my own vile capitalistic purposes, so I am not acting out of pure altruism. But a workable system would have the benefit of not perversely, systematically, stupidly destroying capital and humans and human dignity.

Anyway, I command you to work on my problem, and give me an answer, or at least some ideas, data, and studies I can work with. You can write them up over the next couple of days on this blog, I realize you are busy. The general question is: why won’t people drop what they are doing and work at my command, when I comment to their blogs, clearly stating my needs? I really don’t understand these internets at all.

posted by manuelg on December 11, 2006 #

Both of these stories show how large human organizations fail. None of these failings are related to the fact that they are businesses, only to the fact that they are human organizations.

The WAY that they fail is related to the system they are working with. Police departments are rarely brought down by accounting scandals, they typically fail by abuses of power, theft, or corruption. Churches typically fail by people taking advantage of their socially powerful positions to abuse the weak, and often they have the same “close the ranks” attitude of the police. Churches that don’t have vows of poverty also tend to fall into embezzling. Social workers fail by neglecting their charges. Politicians fail through bribery.

Regarding the brown lung, I’m a bit skeptical of the story. Facemasks are cheap and easy to use. Using facemasks in a dusty environment is common. What is also common, is for workers to decide that the masks are annoying and distracting, so they don’t wear them. Facemasks, wrist guards, lifting belts, I have seen them all provided to workers before, and I have seen them all taken off by the employees because they felt they didn’t need them. Line managers aren’t that far removed from the employees, and often think the same way. “I’ve been working here for 10 years and I haven’t had any problems.”

Strong oversight, rather than morality, is what is needed. Oversight for business comes from, in the first place, proper accounting practices. Its difficult to make decisions when people are blind. Pushing managers to make quarterly numbers is a normal human failure of long-term planning. Proper accounting should highlight that. Of course, if managment chooses to ignore it, then there is not much you can do. The best way to “refresh” moral thinking, is to remind them that someone is watching.

posted by William Crim on December 11, 2006 #

I concur with William Crim regarding accountability; I think these cases are also an argument for decentralization. Similar examples may be found in governmental and non-governmental organizations and religious hierarchies, which all exhibit the same kinds of behavior.

posted by Jim Lippard on December 11, 2006 #

Scott: Because the market is an individualized group of people searching for the short-term gain. They weed out the companies that think longer-term, not encourage them.

Mark: It’s not an anecdote. The company was selected pretty randomly and studied quite thoroughly. Indeed, if there is a bias, it’s toward the company being too nice: it was one of the few that agreed to participate in the study. If this company has such serious problems, chances are they all do.

I’d like to see an anecdote of ethical behavior that isn’t similar thinly-disguised self-interest. To be fair, let’s take the 42nd company (a nice, safely random number) on the Fortune 500 list: Lowe’s Home Improvement.

Norman: The book does give some examples of ethical behavior. Then it shows how that ethical behavior was brutally stamped out and all the people responsible fired.

William: What makes you think these are human failures? They’re institutional failures. Are you seriously suggesting that Brown Lung Disease is made up? Do you think someone modified the archives of the New York Times to complete the hoax as well?

posted by Aaron Swartz on December 12, 2006 #

You should read Chris Argyris’s Overcoming Organizational Defenses. Some of his other books are better known, this happens to be the one I read (got it for a $1).

posted by Niels Olson on December 12, 2006 #


I don’t doubt Brown Lung disease, and I never said I did. I doubt that the danger to employees is entirely due to corporate greed, which was the point of your post. Personaly safety measures that are uncormfortable and annoying tend to be circumvented by employees, just as onerous IT security policies are circumvented.

Even if the employees chose NOT to protect themselves, any illness related to Brown Lung would be the legal fault of the company. However, I can’t be morally outraged, since the dangers of Brown Lung are well known in cotton country.(Even before it had the name.)

I declare them human failure, rather than corporate failure, because they are not specific to corporations. They are failures of human organization that appear in ANY organization as it gets larger. The solution is the same in every case, increased vigilance by management and/or outside oversight. I have rarely found a criticism of corporations that didn’t apply equally well to other large organizations.

posted by William Crim on December 12, 2006 #

Hey, Aaron… I had some thoughts about this after watching the movie The Corporation.

See http://wolog.net/62097.html .


  • Corporations are specifically incentivized to become engines of externality maximization.

  • The state should be able to incarcerate corporations. … Under the threat of conviction, big companies would start breaking up into ethically manageable sizes rather than profitably manageable sizes.

What do you think?

posted by Ka-Ping Yee on December 12, 2006 #


A small random sample is really not different from an anecdote. Sure, the sample may be random in the context of a single study, but it is not random in the context of what books you’ve read. There’s a selection bias occurring, by which a book that randomly examined two or three companies and found that they behaved ethically would not make its way on to your reading list. (the fact that the sample is small means that all sorts of contradictory findings can be found by different authors with high probability.)

You are arguing a very general point (“Corporations guarantee unethical behavior”) from very shaky grounds, specifically: a) Some horrifying stories found in a very small sample of companies. b) A specious argument about how the stock market works, predicated on the easily contestable assumption that publicly traded companies never think long-term. (The easiest counter-examples come in the form of large scale engineering efforts that take as many as 10 years to produce profits. These cannot be done in a short-term fashion, yet publicly-traded companies still do them. Why?)

And yet, you expect us to agree with you based on some stories told about supposedly randomly selected companies in one book? Certainly coorporations behave very badly at times. But to claim that they are inherently and irredeemably evil is just laughably simplistic.

posted by Mark on December 12, 2006 #


The market doesn’t correct the problem because corporations insulate decision makers from the consequences of their decisions, or, in other words, because the government that grants limited liability to certain kinds of business doesn’t allow the market to work.

This is intrinsic to the idea of a limited liability entity, and limited liability is where the problem is.

posted by Randall Randall on December 14, 2006 #

I too am a little skeptical of the brown lung story, due to the ease of obtaining face masks. But still agree that there are problems, not just in corporate America, but in big Government as well. The point “Corporate managers simply aren’t allowed to be moral, or even reasonable. And those who try are simply weeded out. Not only does the manager who replaced the battery get passed over for the job; the manager who was obedient enough not to gets promoted to a more powerful position” is well taken. My own business dealing as a production manager was very frustrating. The upper manage took a bottom up approach to all problems, that is that all problems could be fixed by getting more out of the “lazy” staff. My opinion was the opposite, I believe leadership starts at the top and no manager is better than anyone else (that is not to say that managers do not have more responsibilities that deserve a higher pay). When managers treat the staff with respect and like human beings and not like children who should be seen and not heard, productivity will and does improve. Compare United Airlines (bad) to Jet Blue (good) for a good case study.

posted by Carl Strohmeyer on December 26, 2006 #

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