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Ethics of Extended Warranties

Shopping this weekend, I was twice offered the “opportunity” to buy an extended warranty on a consumer good. Both times I declined. In one case, I bit my tongue because the warranty was such a bad deal that I was tempted to chastise the salesman. But in neither case do I think it wrong for the sellers to try to sell the warranty to me.

Let me explain.

“Extended” warranty offers are of course common these days. Such warranties may cover a longer period of time, or cover a greater range of problems than does the basic warranty that comes with the product. Whether you’re buying small electronics or a laptop or major appliances, the salesperson will likely offer you the chance to pay extra to get a warranty that goes above and beyond.

But let’s focus here on the small stuff — not major appliances, but smaller items. And let’s start with the two warranties I turned down this weekend.

First, I bought a new pair of prescription reading glasses, for $500. The extra warranty I was offered was priced at $25.

Next, I bought a small, waterproof digital camera to take on a beach vacation. Cost: $189. The young salesman (he could have been one of my students) confidently explained that I “really should” buy the extended warranty, for “just $49.”

Now, whether you should buy a warranty depends on two things. First, it depends on the probability that something bad will happen to the product you’ve bought, multiplied by the cost of repair. That gives you the “expected value” of not having the warranty, which is what you must compare to the expected value — the price— of buying the warranty. In most cases, the expected value of the warranty will be lower than the value of going with out it. Not a good deal.

But one more factor must be counted, namely whether you can afford to cover the cost of loss or damage yourself. If my house burned down, I wouldn’t be able to afford to buy another one, which is why I have house insurance. But in the case of the $189 camera, I know that if it breaks I can afford simply to pull out my credit card and buy another, and so the ridiculously expensive warranty doesn’t make sense for me. But the warranty could conceivably make sense for someone who has the extra $49 to spend on the warranty, but who absolutely would not be able to afford another $189 for a new camera eighteen months from now. People in that category are presumably relatively few, but probably not zero.

What direction did my rough math point in, for the two warranties I was offered this weekend? I figured the warranty on the glasses might, barely, be worth it, but I decided to take a risk and opted not to buy. (Besides, I’m in my 40’s and my prescription might well change in the next 2 years, which would mean buying new glasses anyway.) The warranty on the camera, on the other hand, was laughable; I would have been a fool to buy it. (You can find lots of blog entries out there about why extended warranties on small electronics are generally a bad deal.)

So what about the ethics of offering such crummy warranty deals to customers?

In generally, I think it’s ethically fine to offer such warranties, even though they’re generally a bad deal.

First, the dollar value on these things is relatively low. So, although I think the $49 warranty is (for most buyers) a rip off, it’s a small rip off. No one is going to miss a mortgage payment over it.

Second, the ability to figure out whether a warranty is worth it is well within what we should expect in terms of basic financial literacy for grown-ups. That’s not to say that everyone has that bit of financial literacy. But warranties on small electronics are very simple insurance policies. Compare the question of selling indexed annuities or derivatives or other complex investments. In those cases, investment professionals are selling highly sophisticated financial instruments, and we should expect them only to sell them to sophisticated investors.

So buyer beware. There are bad warranties out there. And they’re generally not unethical products, so even an honest salesperson earnestly advise you to buy a warranty that you don’t really need.


    
 


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Frankfurt / Main, 16. September 2015 … [visit site to read more]

    
 


When is a country too corrupt for Canadians to do business there?

Does a brutal dictatorship in the Horn of Africa, featuring systematic slavery and more generally an awful record of human rights abuse sound like a place you want to do business? If so, Eritrea is the destination for you.

The tiny State of Eritrea was the subject of a recent scathing report by the UN’s Office of the High Commissioner for Human Rights. Among the report’s findings: “Eritreans are subject to systems of national service and forced labour that effectively abuse, exploit and enslave them for indefinite periods of time.” Little wonder that Eritreans currently make up a disproportionate number of the African refugees landing on European shores.

Of particular interest is the fact that Canadian mining company Nevsun Resources Ltd is implicated in these human rights abuses. Nevsun is co-owner of the Bisha copper and gold mine. According to news reports, “Nevsun said it regretted if a state-controlled subcontractor it had been required to use had employed conscripts.” (See the petition here, asking Nevsun to “Get slavery out of your mining operations in Eritrea, pay your workers or else close the Bisha mine.”)

Doing business in less-developed country is always going to pose a range of challenges, from corrupt officials to bad infrastructure to non-existent environmental regulations and shoddy labour conditions. If you do business in such places, there are always going to be compromises, and in some cases those compromises — think of long hours and low wages in a Bangladesh garment factory — may be a net benefit to workers, to the local economy, and to shareholders.

And there are things companies can do to act responsibly when doing business in developing countries. They can work with local governments to make sure that existing regulations are adhered to and enforced, throughout the supply chain. They can scrupulously avoid indulging in bribery (which is both illegal everywhere and almost always seriously unethical). They can look for win-win ways to raise labour standards to make workers better off and more productive. Simply by operating with quiet integrity, a company from a developed country may be able to set a good example that helps promote reform.

But in some cases, that won’t be enough. In some cases, doing business in a particular country is just going to mean getting your hands very, very dirty. In some cases, becoming complicit in human rights violations will be either inevitable, or simply overwhelmingly tempting. We have to come to grips with the fact that there are some places where a responsible company simply cannot do business.

And that’s a tragic fact for the people who live in such countries. People in places like Eritrea desperately need trade, to help pull them up out of poverty. But sometimes — as when important human rights are on the line — helping in this way is going to have to stay out of reach.

Chris MacDonald is founding director of the Jim Pattison Ethical Leadership Program at the Ted Rogers School of Management, and founding co-editor of the ethics news aggregator, Business Ethics Highlights. Follow him at @ethicsblogger.


    
 


When is a country too corrupt for Canadians to do business there?

Does a brutal dictatorship in the Horn of Africa, featuring systematic slavery and more generally an awful record of human rights abuse sound like a place you want to do business? If so, Eritrea is the destination for you.

The tiny State of Eritrea was the subject of a recent scathing report by the UN’s Office of the High Commissioner for Human Rights. Among the report’s findings: “Eritreans are subject to systems of national service and forced labour that effectively abuse, exploit and enslave them for indefinite periods of time.” Little wonder that Eritreans currently make up a disproportionate number of the African refugees landing on European shores.

Of particular interest is the fact that Canadian mining company Nevsun Resources Ltd is implicated in these human rights abuses. Nevsun is co-owner of the Bisha copper and gold mine. According to news reports, “Nevsun said it regretted if a state-controlled subcontractor it had been required to use had employed conscripts.” (See the petition here, asking Nevsun to “Get slavery out of your mining operations in Eritrea, pay your workers or else close the Bisha mine.”)

Doing business in less-developed country is always going to pose a range of challenges, from corrupt officials to bad infrastructure to non-existent environmental regulations and shoddy labour conditions. If you do business in such places, there are always going to be compromises, and in some cases those compromises — think of long hours and low wages in a Bangladesh garment factory — may be a net benefit to workers, to the local economy, and to shareholders.

And there are things companies can do to act responsibly when doing business in developing countries. They can work with local governments to make sure that existing regulations are adhered to and enforced, throughout the supply chain. They can scrupulously avoid indulging in bribery (which is both illegal everywhere and almost always seriously unethical). They can look for win-win ways to raise labour standards to make workers better off and more productive. Simply by operating with quiet integrity, a company from a developed country may be able to set a good example that helps promote reform.

But in some cases, that won’t be enough. In some cases, doing business in a particular country is just going to mean getting your hands very, very dirty. In some cases, becoming complicit in human rights violations will be either inevitable, or simply overwhelmingly tempting. We have to come to grips with the fact that there are some places where a responsible company simply cannot do business.

And that’s a tragic fact for the people who live in such countries. People in places like Eritrea desperately need trade, to help pull them up out of poverty. But sometimes — as when important human rights are on the line — helping in this way is going to have to stay out of reach.

Chris MacDonald is founding director of the Jim Pattison Ethical Leadership Program at the Ted Rogers School of Management, and founding co-editor of the ethics news aggregator, Business Ethics Highlights. Follow him at @ethicsblogger.


    
 


Thinking Critically about Social Responsibility

I recently participated in a conference on Corporate Social Responsibility (CSR), where I gave a short presentation on the role of critical thinking in leading a company toward better social performance. Basically, I argued that in order to motivate employees to embrace some version of CSR — whatever you take that to mean — you need need to think critically about the way your CSR activities dovetail with the goals of your organization, and with the values and commitments that are already motivating your employees.

Interestingly, I received some push-back, in the form of a question from the audience, from someone who suggested that what CSR efforts really need is passion and a sense of purpose. What’s really needed, this person said, is not critical thinking at all. Indeed, for purposes of pushing the CSR agenda forward, critical thinking is actually a bad idea.

As someone who teaches critical thinking for a living, I was naturally somewhat taken aback.

This person had a point, of course: getting something done — whether it’s opening a new division or launching a new product or strengthening your CSR profile — takes passion. It takes commitment. And sometimes critical thinking, which involves asking questions, could seem like a stumbling block. Now isn’t always the right moment for asking annoying questions and expressing doubt.

But I thought I would take the time to lay out, here, the role that critical thinking can play — indeed, must play — in launching CSR activities and bringing them to fruition.

To begin, what is critical thinking anyway? Most of us have a sense of what it is, and most people are generally in favour of it, in most contexts, but what is it? The textbook definition is that critical thinking is the systematic evaluation or formulation of beliefs or statements by rational standards. In other words, it’s about figuring out what to believe, and doing so by determining what beliefs are backed by good reasons. It means asking questions like, “Is that really true?” “How do I know that?” “How certain am I?” and “What assumptions am I making?”

So, how in particular does this apply to CSR?

First of all, a company needs to think critically in order to decide what its CSR objectives are. It doesn’t make sense for a company to dive into CSR by tackling any and every project that anyone has ever associated with that concept.

So, think critically. Will you focus on minimizing (or off-setting) the environmental impact of your operations? Will you incentivize employees to volunteer for charities? Will you build a hospital in a remote village? Will philanthropy be part of your CSR portfolio? Passion is important, but so is directing your passion. Setting objectives requires asking hard questions. It requires, in short, critical thinking. (For a more detailed take on how to think critically about your company’s CSR agenda, see Michael Porter and Mark Kramer’s article, “Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility”).

Second, a successful CSR program requires that a company think critically about methods. The need for businesses to think critically about methods is quite literally why universities have business schools. Managing is not easy. Regardless of the issue at hand, managing requires developing a strategy that makes good use of the materials at hand in order to reach your objectives.

So once you’ve decided that, for example, that you want one chunk of your CSR program to focus on literacy, then what? Do you leverage your highly-educated workforce by sending your employees out to volunteer at an adult literacy clinic? (And how do you motivate them? Simply offer them the chance to do it on company time? Offer bonuses? What else?) Do you partner with other like-minded companies to raise awareness? Do you build pro-literacy messages into your own product-oriented advertising? Or do you merely donate money to the first literacy-oriented charity you find? Is there evidence that that will have an impact? The most impact?

Finally — and this was the part I focused on in my presentation — think about engagement. It should go without saying that a successful CSR program requires the engagement of your employees. After all, a profit-oriented company that suddenly decides that it takes its social responsibilities seriously may well find itself facing a skeptical, or otherwise hesitant, workforce. If you say “we put community first,” but employees secretly believe that the unwritten rule is “profit above all,” they’re going to find all sorts of ways, passive or active, to undermine your CSR activities.

So you need to think critically about what your own argument in favour of CSR is. If you can’t express why you believe in CSR (again, whatever you take that to mean) then you’re not going to be able to convince others that they should believe in it. In other words, can you actually explain, in a credible way, what’s motivating the company (or you, the boss) to take CSR seriously? Is it that you think some version of CSR dovetails so well with the company’s mission? Or is it because you see a win-win outcome that links the good of the community to the company’s own strategic needs (e.g., the need to foster a healthy workforce)? Explain the rationale, in order to convince employees that the move is an authentic one.

A further element of critical-thinking-for-engagement is to help employees see that active support for your CSR program makes sense given what they already value and believe in, and that it’s OK for them to bring those values — their generosity, their sense of community, their passion for the environment — to work with them. In other words, give your employees a pro-CSR argument that is grounded in their own values and beliefs. Doing so requires thinking critically about the various arguments in favour of social responsibility, understanding their structure, and deciding which ones both work logically and are rooted in starting points your employees can accept.

That, in short, is the role that critical thinking must play in any company’s attempt to take corporate social responsibility seriously. This obviously isn’t anything remotely like a full and complete recipe for carrying out a CSR agenda. There are lots of people who can give you better advice about that than I can. But it’s worth giving due credit to the role that critical thinking needs to play. Because while a successful CSR program does need passion, passion that is not guided by critical thinking might well prove fruitless, or worse.

Socrates taught us that the unexamined life is not worth living. One tiny implication of that is that the unexamined CSR initiative is not worth initiating.


    
 


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