Not-So-Ethical Firms from A to Z

The Unethical Firm

This is a continuation of my exploration of the theoretical construct of the Ethical Firm.  In this article we further explore the concept of corporate ethics by looking at two companies that might be considered “unethical”.  They make the list for quite different reasons.  Amazon because of its peculiar work environment, and Zulily because of its IPO and subsequent sale to QVC.

A is for Amazon

The New York Times published an expose of Amazon on August 15th, 2015, Inside Amazon: Wrestling Big Ideas in a Bruising Workplace.  It caused quite a stir in the local Seattle community with its depiction of the behemoth company as a sweatshop, with an unhealthily competitive and hostile work environment.  From what I understand from the commotion that has ensued, the article, although highly anecdotal, was not too far off the mark.

Amazon employees are held to standards that the company boasts are “unreasonably high.”  Here is a summary of some of the main points that qualify Amazon as “unethical”.

  • Long Hours: 80-hour work-weeks are common, and expected, with workers expected to work at home, on weekends, on public holidays, and vacations.  The Ethical Firm respects the human need for leisure and work/life balance.
  • Unsustainable Pace: Employees, human resources executives and recruiters describe a steady exodus. Many leave after two years, when penalties for leaving expire.  The Ethical Firm does not exploit workers for a short time for the benefit of the few who remain to reap the rewards, but strives to create a sustainable environment.
  • Lack of Compassion & Discrimination: Health issues are a reason for dismissal.  The article mentions breast cancer, serious surgery, and a stillborn child as reasons for employees being managed out.  The ACLU threatened a class action suit.  The Ethical Firm is compassionate and supports its workers through life’s hardships.
  • Hostile Work Environment:  Employees are expected to challenge each other aggressively, sometimes driving each other to tears.  They are also encouraged to report on colleagues anonymously.  A practice which is often abused for self-promotion.  The Ethical Firm respects people by creating a supportive work environment that grows and develops strengths, not attacks weaknesses. 
  • Stack Ranking:  There is an annual Organization Level Review, where managers debate subordinates’ rankings, assigning and reassigning names to boxes in a matrix projected on the wall.  The Ethical Firm does not penalize individual variations in performance, but seeks to increase collective/system performance.
  • Reward for Success: Somewhat ethical, midlevel managers can collect the equivalent of an extra salary from grants of a stock that has increased more than tenfold since 2008.  The Ethical Firm rewards all employees with a fair share of the gains.
  • Inspiring and Motivating Work Environment:  Perversely ethical,Many employees are motivated by the highly challenging environment, and leverage the experience that they have gained in subsequent jobs. “It’s the greatest place I hate to work” .  The Ethical Firm challenges its employees to grow and develop to their maximum potential.

Z is for Zulily

At the time of its sale to QVC, Zulily co-founders Mark Vadon and Darrell Cavens owned 45% of the shares of Zulily, and so stood to gain about $1BN from the sale.  Note that this cash is not just for the current book value of Zulily, but in return for all of the future stream of growth and earnings that its current and future employees will earn for the company, that Mark and Darell will have little to do with.

This is clearly a transfer of wealth from current and future employees.  This wealth transfer actually started during the initial IPO, however.  When Zulily went public in November 2013, 55% of all the company’s future profits were soldfor about $2BN to main large institutional funds like Fidelity (13.5%), Morgan Stanley (8.6%), and T.Rowe Price Associates (6.5%).

For reasons that I will go into in a little more detail in a future post, public companies cannot be Ethical companies.  The act of raising equity financing by selling the future profits of the firm, is by definition unethical.  It is unethical because it represents an transfer of wealth from the earners of that wealth (the employees), to shareholders.  The profits generated by one person cannot be sold by another in an Ethical Firm.

Paul Osborn

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