The Ethics of Window Stickers

In the court cases we considered this week where Honda was being sued by various customers who had purchased hybrid Civic models, only to find that the cars didn’t quite live up to the promised miles per gallon, one of the most surprising facts to come up was that the company had never anticipated being sued at all, let alone by classes of thousands in Superior courts and clever individuals in Small Claims. It turns out that like most auto makers, Honda has just printed the EPA estimates for its car’s average performance on the window sticker without further comment. Since those ratings are sanctioned by the U.S. government, and since there is no law requiring any further elaboration, the company had just reasoned that they had no responsibility to offer anything more…

In the event, neither court saw things that way; it remains to be seen if future court decisions or appeals will concur with Honda’s position. But in reviewing the story, I thought it brought up an interesting question in ethics. The use of EPA ratings as a basis for comparison on car window stickers is accepted as the industry standard, and complies with the relevant Federal laws; most auto makers assume that this makes them bulletproof and that anyone who is harmed by the assumption that those estimates are correct will have to sue the EPA first. But even if that is correct, and even if the company is safe from legal actions (a supposition not supported by the facts of the case), there remains the question of what the company’s ethical responsibility was in this case…

On the one hand, the fact that the hybrid Civic does not actually get 50 miles to the gallon under many common operating conditions (e.g. running the air conditioner, driving in city traffic, playing the radio) could have a serious financial impact on the owner. While it is true that EPA estimates are intended only as a basis for comparison, and all purchasers need to be aware of disclaimers like “your mileage may vary), the fact that the company knew there were major discrepancies (40% less than the window sticker under some conditions) and made no effort to disclose them sounds questionable. This is especially true in cases where the withheld information would have affected the purchasing decision. Since there were many alternative vehicles that could out-perform the hybrid Civic under those conditions (including, we should note, the regular non-hybrid Civic), the withholding of that information could be seen as fraud…

On the other hand, the EPA itself cautions users that its performance numbers are not intended to be absolute measures of any car’s gas efficiency, and should only be used for comparison. If Honda had printed lower fuel efficiency numbers on its window stickers, or even added warnings about efficiency under specific conditions, they would have been accepting a massive disadvantage in marketing their product versus the competition. The company has a responsibility to its stockholders (to make money), to its employees (to maintain their jobs) and even to its vendors and creditors (to maintain their businesses) – and there is no indication that printing such information would help the consumer anyway. All of the other auto makers could continue using the EPA estimate numbers, even if those numbers were just as bad as the ones on the Civic hybrid, and go on making money at their customers’ expense…

So the question appears to be, does the company’s ethical responsibility to provide complete and correct product information to potential buyers outweigh its responsibility to its stockholders to make a profit, or its responsibility to its other stakeholders to stay in business? Especially if doing so would bankrupt the company and damage all of the people who depend on it without giving any benefit to potential buyers, who would probably still be getting incorrect information from all of the surviving car companies? I’m sure that we all agree that honesty is the best policy, and that every company has a duty to provide the most accurate consumer information possible, but what happens when fulfilling that duty will destroy the company and all of the people associated with it and do no good whatsoever?

It’s worth thinking about…

Lawsuits per Gallon

A few weeks ago I recall reading a news story online about a Honda hybrid owner out in California who had decided to opt out of the huge class-action lawsuit against Honda and sue the company in Small Claims court instead. If you’ve been following the larger case in the news you already know that the plaintiffs were successful, and each member of the class stands to receive a $100 to $200 payment and a voucher good for up to $1,000 on their next Honda purchase – which seems absurd when you consider that the lower gas mileage (the hybrid Civic gets significantly lower gas mileage than the manufacturer claims it does) will cost each owner somewhere between $4,140 and $16,560 per year. It could even be argued that this judgment does the defendants more good than the plaintiffs, since it encourages the plaintiffs to purchase additional Honda products in the future. The company is well pleased with itself for the class-action case outcome, as well they should be – but the Small Claims case appears to have them worried…

In a Small Claims action the plaintiffs are limited in the amount of damages they can seek – in California the cap is set at $10,000 – and neither party is allowed to have legal representation, which lowers the costs involved. Most people use these actions to settle personal and small business disputes which would cost far more to litigate than the total amount they’re arguing over, but there is no reason you can’t use such a suit against a giant corporation – especially if the alternative is “winning” a week’s worth of gasoline and a discount coupon for a car from a company you’re probably going to avoid from now on anyway…

Most people don’t bring product lawsuits in Small Claims court because of the low awards cap; if you drive 12,000 miles per year (normal for Los Angeles) and your gas mileage is 30 instead of 50, and gas is $3.45 a gallon, each year you own the car it will cost you $16,560 over what the sticker MPG suggested. That’s $6,560 more than the Small Claims total, just in the first year; if you own the car for 5 years the total will be more like $82,000, or $72,000 more than the total possible in Small Claims court. But while $10,000 doesn’t sound like a good compromise over $82,000 that somebody owes you, it’s only fair to note that this is 50 to 100 times better than you would do as part of the class action lawsuit, assuming that you don’t want to purchase a new Honda in the next year or so…

From the company’s point of view, the problem is that while a single $10,000 settlement is no big deal, and spending $100 to $200 per customer when there’s an excellent chance of getting them to buy another car is practically a loss-leader, a thousand customers filing $10,000 Small Claims actions quickly turns into $10,000,000 in losses – and there are considerably more than 1,000 owners of Honda Civic hybrid models who could conceivably get into the act. Even worse, if the traditional defense of just putting the EPA estimate on the window sticker and then blaming the EPA for any differential between the sticker and your actual mileage is no longer valid – and it wasn’t accepted in this case – there’s no telling how many other customers, hybrid or not, may successfully sue the company using this logic…

My father told me once that the only people who ever get anything out of a class-action lawsuit are the lawyers – and in this case, unless there are more than 50,000 plaintiffs in the class, the $8,500,000 the lawyers are getting out of the settlement is more than all of the actual plaintiffs put together stand to receive. And while the company can use lawyers to appeal the Small Claims case, assuming that they do, this could backfire on them badly in the courts, let alone in public relations terms. I don’t know much about legal strategy, and I don’t even pretend to advise people on legal issues – but unless this issue is much more complicated than it appears, I’d have to suggest that the best business strategy here would be to just change the window stickers…

Junk Food Strategy

If you’ve spent any time watching television over the past few decades you’re probably already aware of the artificially shaped and formed pork sandwich from McDonald’s called the “McRib”; if you are particularly fond of unusual junk food and have no sense of your personal safety you may even have eaten one. There’s a widely held belief that McDonald’s uses the product as a means of drawing attention to – or at least increasing interest in – some of its more obscure venues and menu items by rotating where and when the McRib is available each year. The fact that the sandwich is popular, but only available for limited periods, means that whenever it appears local aficionados will turn out in large numbers. But now it appears that the company may have a broader (and more sinister) use for the product as well…

There’s a story on the Dayton Daily News website this week that claims McDonald’s uses the McRib to prevent competing organizations from developing their own “pork-based” sandwich offerings. Since the arrival of a McRib sales window will (at least in theory) both drown out attempts to publicize a competing product and also draw the attention of pork consumers to the local McDonald’s franchise, any other pork sandwich product is likely to go unnoticed during such a period. The company need only maintain the sales window until the competitor gives up and stops offering the (presumably unnoticed) pork products, which it can do, since “limited time only” does not specify how limited a time. The larger question is whether the company would actually bother with such tactics – and if that matters in any way…

Certainly, if a national competitor (Burger King, or Quiznos) were to launch any new product that gained enough popularity to draw customers away from McDonald’s, this could negatively impact the company’s sales, and make it worthwhile for them to counter such a launch. But unless the competitor was also using a “limited time” and “selected locations” promotional strategy, McDonald’s would have to counter the new product in markets across the country, and maintain that presence indefinitely, both of which would undermine their existing McRib strategy. Such a tactic could be used with great effectiveness against a regional company, or to counter a competitor’s own limited time promotion, but as a strategic-level approach it seems unlikely. However, there’s no question that McDonald’s could do it, and no guarantee that they wouldn’t attempt it just because it seems illogical…

On the other side of the issue, it seems probable that McDonald’s will use any means that is both legal and ethical to build and maintain market share – since it’s hard to imagine why any company run by sane people wouldn’t do so. Offering menu items that have greater appeal to local customers than those available from the competition is a standard tactic, and McDonald’s already offers different menu configurations in different parts of the world (I noticed Japanese-style noodles in a franchise in Hawaii, for example, and some European McDonald’s serve alcohol). If pork sandwiches, fresh pastry or calamari become key to a specific market, it’s not unreasonable to expect that McDonald’s will find some way of using that consumer preference to their advantage. The more immediate issue is what the competition should do about it…

McDonald’s isn’t invincible; competing firms have taken them on at the local, regional and even (occasionally) national levels and won. In this case, a competitor will need to come up with a product that tastes better, sells for less, or offers greater value in some other fashion than the McRib. If you can do that, you could even counter-program the McRib; offering it in markets where a McRib sales window has just opened, and effectively beating McDonalds at their own game – assuming that they use such a strategy in the first place. The real trick will be inventing a new product with the potential to do this in the first place…

Outside Looking In

And we’re back, talking with our favorite fictional fish out of water and occasional misanthrope, Dr. S. Today we’ve going to cover some of the topics surrounding one of the most controversial of all major holidays, Valentine’s Day.

MPB: Good morning, Dr. S, and thanks for joining us again today.

Dr. S: Pleased to be here, I’m sure.

MPB: I understand there are aspects to the celebration of St. Valentine’s Day in America that strike you as confusing?

Dr. S: Yes, although the existence of the holiday is puzzling enough. Are you aware, for example, that there is no consensus even within the Catholic Church as to whether St. Valentine actually existed? Or, for that matter, if any of the festivals or observances associated with him existed before Chaucer included them in the Canterbury Tales?

MPB: Actually, I was. But none of that is precisely relevant to the current discussion; all of the aspects of the holiday would still exist in America even if its patron did not.

Dr. S: All right, then, can you account for the disparity of opinions regarding the event? Why do some people regard it was one of the most important days of the year, and break off otherwise meaningful relationships if their expectations are not met on that day, while others consider it a mere “Hallmark Holiday” and object to its propagation in any form?

MPB: Well, much of the disparity can be explained by the institutionalized gender roles in this country during this period. Female children are socialized to believe that the event is important in terms of social acceptance and development of relationships, whereas male children are conditioned to believe that any expression of appreciation for this holiday is inappropriate behavior, and therefore a threat to their social acceptance and peer relationships. There are numerous exceptions within the population, of course.

Dr. S: That accounts for the friction between males and females over observance of the holiday. Now, what about the disparity in gifts and other gestures acknowledging the event? If you have acceded to your partner’s wishes, or gained acceptance of your own, wouldn’t that also codify your choices?

MPB: Not as much as you’d think. Even if two people have agreed to celebrate the occasion in some mutually acceptable way, the relative importance of the holiday may remain in dispute. Thus, one partner may regard February 14^th as the single most important day on the calendar, and expect extravagant gestures and lavish gift on that day, while the other may regard the event as an unpleasant obligation accepted only because of its importance to the other partner, and seek to avoid spending any greater amount of time or money than is strictly necessary.

Dr. S: This would account for the behaviors described in your “Don’t Let This Happen” post from two years ago.

MPB: That’s right. The majority of people for whom this holiday is of major importance are women, and thus they make up the bulk of early shoppers. Men are also more likely to select something of lower retail cost or something easier to obtain, or both. This can result in the selection of gifts – or other observances of the holiday – which they feel are appropriate, but which their significant others do not.

Dr. S: Rather like the suppositories in your earlier post.

MPB: Yes, or the poor fellow who purchased reduced-calorie and sugar-free candy for his girlfriend on Valentine’s Day last year. I’m sure he only intended the gift to say: “Here is some candy you can eat without sabotaging your diet or your diabetes control medication,” but his significant other interpreted the gesture to mean: “You’re too fat, so try to eat less sugar and calories.”

Dr. S: Did he survive the experience?

MPB: So far, at least – although he may have to go into hiding.

Dr. S: But wouldn’t it make more sense for these people to try to overcome their social programming and agree upon something reasonable? Or, failing that, to reach a negotiated agreement based on their regard for their partner’s preferences?

MPB: Yes, but the question isn’t relevant. As long as people remain more focused on winning – on getting what they want out of the holiday, regardless of what their partner might need or want – than on enjoying the day, it will remain a point of contention, an unwelcome obligation, or a test that their partner continually fails. Or all of the above, of course…

The Ethics of Subsidies

This past week we read in the news about the Kentucky Legislature voting to give a $43 million tax subsidy to a business venture which is building a Noah’s Ark-themed Creationist theme park (the so-called “Ark Park”). This would have been a political hot potato anyway, given the immediate outcry from liberal advocates under a First Amendment violation of state-sponsored religion, but was made much worse in this case by the Legislature also voting to cut $50 million from the state’s Education budget. This is being seen as supporting religion over education, and Creationism over every other possible kind of education (religious or otherwise), and is drawing fire (and ridicule) from everyone inside the state or otherwise who isn’t a Creationist…

I don’t intend to comment on the specific case because I don’t believe there is any basis for discussion; you either believe in Creationist theory (in which case any other use of funds would be madness) or you don’t (in which case this use of funds is asinine). But the larger question here, at least in a business context, is whether the state has any business providing tax incentives or other financial assistance to entrepreneurs who are attempting to build large tourist attractions. Since this could happen in any community in America, including yours, I thought it might be interesting to take a closer look at the positions involved…

On the one hand, any popular tourist attraction will draw visitors into the place where it is located, which has the potential to boost the local economy through hotel rooms, restaurant meals, souvenir stands, and other services used by tourists, and is generally considered a good thing. Unlike an athletic venue, where most of the revenue passes directly to the owners without benefit to the surrounding area (except during championship weeks), a theme park or similar facility will usually produce enough tax revenue to repay the state’s investment and enough collateral revenue to make it worthwhile to the rest of the community. In the case of the “Ark Park,” whether one believes in its religious message (or the political position of its supporters), it seems likely that the influx of tourists from other parts of the region will repay the costs involved – and Creationist dollars spend just like anyone else’s…

On the other hand, whatever the benefits to the business community, the people who live near the Park will have to deal with disadvantages such as traffic, pollution, crowds, crime, and possible shortages of food, water and other resources. At the same time, the cutting of $50 million from the state Education budget will almost certainly lower the level of education available in the state, leading to citizens who are less well educated, professionals who are less capable, businesspeople with inferior training, and so on. The long-term effects on the state’s residents could easily be catastrophic; they will at the very least put the state of Kentucky at a disadvantage versus any location where the education budget hasn’t been cut. And there is a very real possibility that the degradation of business education in the state will eliminate other entrepreneurial businesses that could ultimately have done more good than an amusement park…

All of which leaves us with a question. Does the state have an ethical responsibility to promote the creation of new businesses in order to create jobs and boost the local economy? Does that responsibility remain if doing so would have a detrimental effect on public and community services? Or does the state have a responsibility to maintain (or improve) educational levels at the cost of not supporting new businesses? What if the cost of maintaining the educational establishment prevents the development of new business, which ultimately destroys the state economy and results in even less public funds for education? For that matter, what if the diversion of funds for business development results in an education system so depleted that it can’t produce workers capable of operating the new companies/facilities, and all of the jobs end up going to people from out of state? With finite funds available, and no certainty of which expenses will lead to which outcomes, can we really say that one use of funds is unethical versus another, and how do we find the balance point between the conflicting interests?
It’s worth thinking about…

Flushing Your Brand

It has been observed that a brand identity is like any other reputation – it takes years to develop, influences all of your relationships and transactions, and requires only suspicion (not facts) to compromise. In a business context it’s almost impossible to overstate the importance of your organization; people who know absolutely nothing about your company will assume that you have any number of positive attributes (fair prices, good quality, honest personnel, responsible fiscal or environmental policy, and much more) if you have developed and maintained the reputation for having these things. This is why many organizations are as worried about their brand identity as any high school kid is about his or her reputation – and why it’s so very bizarre to see a large and prestigious agency flush theirs for no apparent reason…

If you haven’t been following the story about the de-funding of Planned Parenthood by the Susan G. Komen Foundation, you can pick up the story from the Atlantic web site here if you want to. It seems that the Komen Foundation has been giving money to Planned Parenthood for mammograms and breast cancer screenings for a number of years now, but recently decided to sever that relationship because Planned Parenthood is under investigation by a Congressional committee, and a newly-written bylaw says the Foundation can’t support agencies that are being investigated by any government agency. All of which might be reasonable – if that’s what was actually going on…

First, it’s important to remember that Congress investigates a great many things every month, and a non-zero percentage of them are nothing more than political grandstanding. In this case, the committee doing the investigating is being led by an anti-abortion politician who is hoping to prove that Planned Parenthood is using Federal funds for abortions. They don’t, of course, because that would be grounds for the exact sort of governmental sanctions that the politician in our story wants to use to destroy the agency in the first place, but harassing a political adversary while playing to your own base is an American staple, and we shouldn’t be surprised to see it. It’s the Foundation’s part that is a bit odd…

As noted in the linked story, the new bylaw at the Komen Foundation is the work of their new Vice President for Public Policy – who happens to be an anti-abortion politician herself, and once ran for governor in Georgia on an anti-abortion platform. It’s also worth noting that this Vice President has publicly stated her opposition to Planned Parenthood, and that no other recipient of Foundation funds has ever been de-funded under this bylaw. One could easily believe that the entire point of these actions was to allow the Vice President of the Komen Foundation to vent her antipathy to Planned Parenthood and make it harder for the agency to provide health services to women who could not otherwise afford such care. But even if all of this is just a coincidence, it still doesn’t explain why the Komen Foundation has decided to flush its public perception in this fashion…

As I noted in several posts last year, the non-profit sector is all about relationships, and reputation is key to attracting donors and maintaining your relationship with them. The Komen foundation has invested massive amounts of time and effort in establishing itself as not only the biggest but also the best agency in the fight against breast cancer. Defending their copyrights, trademarks and images from use by smaller charities is occasionally bad for their image, but necessary to maintaining those assets. Developing a reputation as a haven for religious fundamentalists pushing a political agenda at the expense of poor women – in direct contradiction of the Foundation’s chartered goals – would be bad enough, but the attendant perception of race and class discrimination makes this seem like a willful attempt to destroy the Foundation’s brand perception. Or, perhaps, an attempt to destroy the Foundation outright...

Now, I know that some religious fundamentalists would prefer to see women die of cancer than have them exercise their right to reproductive freedom. And I realize that it would probably be easier for the Foundation to solicit donations from people who share those beliefs if it could distance itself from agencies like Planned Parenthood. But I find it hard to believe that it would sacrifice its public reputation just to achieve that advantage, and harder to believe that no one mentioned the consequences of flushing their hard-won brand image down the drain when this policy was first introduced…

What Color Are the Skies on Your World?

From time to time we hear stories about legislators at various levels trying to pass laws preventing people from doing things that no sane person (and very few crazy ones) has ever considered doing in the first place. Most of these are allegedly intended to prevent unscrupulous individuals from taking advantage of innocent members of the public in some nefarious way, but are actually proposed in order to draw attention to a political topic or to the lawmaker in question. Once in a while, someone will actually come up with one of these measures that anticipates a new problem in safety or legality, but most of the time they’re just the political equivalent of a child yelling “look at me!” over and over again while riding their tricycle on the roof. And in the latter category, I don’t know how anyone will top the efforts of an Oklahoma State Senator to pass a law forbidding the use of aborted human fetuses in food products…

You can pick up the Associated Press story by way of the Houston Chronicle website if you want to, but the basic gist is that Freshman Senator Ralph Shortey said that his own online research has convinced him there is a need for a state law that will prevent food companies from using either the bodies or embryonic stem cells harvested from the bodies of aborted human fetuses in order to develop new artificial flavors or food products, even though he admits that he hasn’t turned up any evidence of companies in Oklahoma doing any such research. It’s possible, in fact, that no one else in the state of Oklahoma has heard of such a thing either; the AP story quotes the executive director of the state’s most conservative anti-abortion group (one of the most extreme in the world, if anyone’s counting) as saying they’ve never heard of such an idea, and the U.S. Food and Drug Administration says they don’t know anything about this either…

Now, it’s probably worth noting that Oklahoma already has some of the nation’s strictest anti-abortion laws, which would definitely make it harder for a politician who is trying to build a career on a “pro-life” platform to get any attention. It’s probably also worth noting that Senator Shortey has in the past sponsored bills to deny Oklahoma citizenship to children of illegal immigrants, to allow police to seize houses and vehicles belonging to illegal immigrants, to allow legislators (including himself) the right to carry concealed weapons anywhere they want to (including the floor of the Senate), and will probably introduce legislation forbidding trout to live in trees as soon as that becomes an emotionally-charged political issue anywhere in the United States…

What makes this story so comical, at least to me, is that the practice he’s trying to outlaw is a non-issue precisely because no one in the world would ever be sick (or stupid) enough to do it, let alone speak out in support of it. There’s a widely-held popular belief that business people are soulless monsters who would grind up live babies for food if they thought they could get away with it, and Senator Shortey is clearly trying to capitalize on that belief in order to make himself more popular with his constituents – and probably others, if he’s considering running for higher office some day. Unfortunately, it’s one of the weakest “straw man” devices I’ve ever seen, and is likely to get him mocked by millions of scruffy bloggers before this is over…

Perhaps, somewhere in the universe, cannibalism really is used to create new consumer products, but on my planet (Earth) this isn’t even a thing; it’s a joke – and a particularly sick one. Which leads me to ask the senator what planet he’s actually from – and if he’s gotten his green card yet…