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Paul Allen claims in his book that Bill Gates tried on more than one occasion to reduce Allen’s relative ownership interest in Microsoft. Of course, the veracity of Allen’s explanation can be questioned even if the factual changes in percentage terms are a matter of public record. In focusing on whether Allen’s explanation is credible, The Wall Street Journal overlooks more fundamental category mistake in reckoning ownership as a species of compensation. Such an error may reflect a hypertrophy involving the value of money in American society—an exaggeration to which the journal may be susceptible as the foremost mouthpiece of American business.

The Wall Street Journal reports that Paul Allen has some critical things to say about his co-founder of Microsoft, Bill Gates. In general, Allen asserts that Gates tried more than once to reduce Allen’s relative financial ownership in the company. Whereas the journal focuses on the veracity of Allen’s claims—ultimately questioning the man’s credibility—I find in the story a case study on the difference between ownership and compensation for labor and on corporate leadership. I contend that the difference may often be minimized in business as well as by society, while particular CEOs are unduly projected onto the societal stage essentially as societal leaders.

Allen also claims in his book that in the mid-1970s, when he and Bill Gates were two college dropouts were based in New Mexico, Gates asked for 60% of their partnership because of his greater contributions to the creation of software for running the BASIC programming language on an early PC, the MITS Altair 8800. Allen says he had assumed that their partnership was evenly split, but he agreed Gates' request anyway. Several years later when Gates and Allen established Microsoft as a formal partnership, Gates asked to change their respective shares in the business to a 64-36 split, a demand to which Allen again agreed. Furthermore, in the early 1980s, Gates rebuffed Allen after the latter asked for an increase in his own Microsoft shares after his work on a successful Microsoft product called SoftCard, Allen writes that he was deeply disappointed in Gates’ response; he had known Gates since they were students at a prestigious private school in Seattle. "In that moment, something died for me," Allen writes. "I'd thought that our partnership was based on fairness, but now I saw that Bill's self-interest overrode all other considerations. My partner was out to grab as much of the pie as possible and hold on to it, and that was something I could not accept." Allen recounts that he sucked it up and thought, "OK…but one day I'm out of here." 
                                       
                                    Bill Gates and Paul Allen, co-founders of Microsoft

While watching Lord of the Rings on TBS in 2010, I noticed that the network was posting not only its logo on the bottom right of the screen, but also advertising for its programming on the bottom left. Also, “more movie, less commercials” was written to accompany the logo. What really got to me during the movie was when pictures advertising a television show were shown. They took up almost an eighth of the screen and thus could not but distract the viewer from watching the movie. I decided I would not watch movies on networks that compromise or prostitute their own programing in order to sell themselves while "in progress." It is like sitting down at a restaurant and having the waitor sell me on other dishes while I am trying to enjoy the one that I'm eating. “I just want to enjoy this fine meal, thank you,” any discerning customer would be wont to say. Once at Starbucks, the customer in front of me at the register was paying $25 for a variety of products.  As I was thinking that the store had made a good sale, the clerk tried to sell the customer on a certain food item for the next visit--as if the present sale was not enough.  The same propensity wherein nothing is ever enough is evinced by the television networks that can't seem to restrain themselves from adding more and more self-promotions onto the screen during their own programming.  These networks are playing off the mitigated nature of the additions being incremental, and thus not objectionable to the average viewer. 

It is simply bad business to interfere with a customer’s enjoyment of a product by trying to promote the business or another product. The over-reaching has the bad smell of self-indulgence knowingly at others’ expense. It is impossible to enjoy a movie while animated characters run around the bottom of the screen to get the viewers' attention. The perpetrators ought to be regarded as children wherein if we give them an inch, they will indeed take a mile. Sadly, too many of us allow ourselves to be strung along the slippery slope--perhaps some viewers don't even notice the incremental intrusions. The smell of the network managers' over-reaching ought to be emetic, but perhaps the stench is so ubiquitous that we as a soceity are innoculated against even smelling it.  One can hope that one day, we shall wake up to the decadence and "smell the coffee." Perhaps only the loss of a significant viewership would mean that the sordid managers will be out of their jobs–unable to earn their high salaries for trying to manipulate us in new subterfuges. That, ladies and gentlemen, would be justice and a more salubrious society.  In the meantime, American television will increasingly come to reflect the lowest common denominator in the viewership because that is where the numbers are. In fact, perhaps it could be said that this nature of television reflects the values that are taking hold in American society.

Do we as a society value mutual respect and self-restraint, or are we too tolerant of selfishness and manipulatory behavior? Do we not value strength, but instead enable weakness? Are the stars of reality shows famous for fifteen minutes because they evince our society's actual values?  In other words, have we become a self-absorbed, petty people without realizing it?  If so, the television networks may simply be us taking advantage because it is condoned.

After watching hours of the US House Government Affairs committee on Investigations’ hearing on Goldman Sachs,  I concluded--totally contrary to the disavowals by the Goldman managers who testified--that there was indeed a conflict of interest between Goldman’s proprietary and market-making functions.  By proprietary, I mean a bank trading on its own books beyond simply being the counter-party in its market-making transactions. In their testimony, Goldman managers presumed that all of the bank’s proprietary transactions are part of its market-making role. However, I contend that the bank has been both a market-maker and a player in those markets, and furthermore that the latter function has affected the former in ways that are intended to benefit the bank. That is to say, Goldman Sachs’ financial interest has been put before that of its customers. In some cases, Goldman’s employees refused clients’ requests for shorts related to the housing market so Goldman’s own profits in shorting the market  could be preserved. Sen. Susan Collins (R-ME) said, “There is something unseemly about Goldman betting against the housing market as it is selling housing-related products to its customers.” Sen. Conrad, a more conservative Republican, echoed this sentiment.  The fact that Republicans on the subcommittee joined with Democrats rather than joined in Goldman’s paradigm points to a major disconnect between Wall Street “speak” and the discourse of the general public.  In other words, the financial managers and the politicians were largely talking past each other.  Even so, the two “worlds” can be translated into a common language that nonetheless finds Goldman culpable, while acknowledging some of the managers’ points.  In what follows, I discuss a number of the points raised in the hearing to bear out my contentions here.

Broker dealers do not have a legal fiduciary obligation to their clients in the US. This, Sen. Collins argued, is the root cause of the conflict of interest at Goldman (i.e., pitching toxic investments to its clients while betting against them).  Goldman bankers view their obligation being to be market makers.  A duty to serve the clients or act in their best interest?   Goldman’s managers tended to affirm the former because where the bank is making markets, similarly to an exchange, it is not in an advising capacity. According to one of the managers, market-makers do not have an obligation to tell clients of the market-maker’s position in the market.  The manager contended that how Goldman is positioned may not affect how the instrument performs.  So long as clients understand what they are investing it, the position of the market-maker is not relevant to the client.

Paulson (of the hedge fund, Paulson & Co) had a role in picking the securities in the Abacus CDO. The rating agency said that if the rating analyst had known this, the rating would have been far different.  Torre, the manager at Goldman who oversaw the deal, claimed in testimony that he had told ACA (the major long buyer) that Paulson was going short, but in a memo from ACA afterward refers to Paulson going long. Paulson was involved in the selection of the securities, according to Torre, though ACA left off more than half of the securities that Paulson had recommended. Even so, Paulson was in the room as the securities were being selected, and he had selected the criteria of their removal. Goldman employees did not indicate in the Abacus CDO that Paulson, whose intent it was to short, had been involved in the selection of the securities (which were subprime mortgages from 2006—presumably the stated-income-only variety).

In replying to Sen. Levin’s questions regarding whether it is correct that Goldman made money on its net short position in 2007, two of the Goldman managers replied, “I didn’t write that.” A third replied, “I can only comment on what I did.” Although such non-answers could have been directed by lawyers or the answers could be due to the difference in general paradigms between Wall Street and the general public, I submit that the managers’ underlying attitude is particularly troubling because it involves some cognitive warping.  Because Chairman Levin (D-MI) was not asking  whether they wrote the Goldman document he was referring to, the reply “I didn’t write it” simply doesn’t apply.  At the very least, the managers were adding assumptions into Levin’s question that simply were not there. My question is this: what, cognitively or affectively speaking, would prompt such “value-added addendums”? After a similar answer to one of his questions, Sen. Colburn (R-OK) replied, “Mr Burnbaum, you didn’t hear what I said.”  Similarly frustrated after a question, Sen. Levin gave up with the witness, saying, “I think you’ve not answered the question as best you can.” At one point, Sen. Colburn asked Mr. Burnbaum whether he had any knowledge of whether his firm had a short position on an issue, he replied that he didn’t take the position.  “I don’t speak for the firm; I speak only for my position.” But Sen. Colburn didn’t ask him to speak for his firm; rather, he asked him whether he knew anything about something regarding the firm.  What could prompt such mistaken assumptions?  I don’t think it is entirely a subterfuge; rather, I suspect that the managers’ cognitive processes had been distorted by a particular organizational or industry culture. Such cognitive warping could be part of the reason why Goldman’s managers have blind-spots concerning the institutional conflicts of interest.

To potential customers who asked how Goldman got comfortable with Anderson securities, which were put together by New Century (a mortgage servicer), the sales people at Goldman did not say that the bank was comfortable because it was betting against them by buying 51% of the shorts.  Did Goldman have an obligation to disclose the fact that the bank had bought shorts (i.e., that Goldman had an adverse interest to the client)?   Goldman’s bankers point to the potential buyers’ ability to investigate the securities themselves. The Anderson was downgraded from AAA to junk in seven months.

“Boy, that Timberwolf was one shitty deal.”  This is from an internal Goldman email from the head of a division prior to the bank selling hundreds of millions from that deal to customers. Sales people were told that that deal was their top priority. “Should Goldman be trying to sell a shitty deal?”, Sen. Levin repeatedly asked throughout the hearing.  Seventeen of the people at Graywolf’s research group were Golden alums. Was that why the sales people were told to make the deal a priority?

In general terms, some of the managers at Goldman liked the risk involved in securitizing stated-income mortgages because clients wanted to buy them.  As a market-maker, Goldman’s managers believe that there is a price for any risk, so they would sell a deal they believed to be bad because some clients would like the price. In one case, 90% of the mortgages from an originator were stated-income.  In spite of the high number of stated-income mortgages, the rating agency involved gave some of the securities the AAA rating. Did the Goldman sales people tell their clients of the extent of the stated-income mortgages in the securities? Or did the sales people assume that the clients could investigate the securities in spite of there being the AAA rating on at least some of them?  Goldman claims that it investigated the due diligence of originators, like Long Beach.   So why did the investment bank not cut off that originator?

When asked about the bonuses paid out even as the clients lost money, the Goldman managers said that the compensation incentives were or are in line with ethical behavior.  Even if Goldman lost money, its executives didn’t. So it is reasonable to ask whether the incentives are in line with “performing.”

Goldman magnified the rise and fall of the housing market. Lloyd Blankfein, Goldman’s Chairman and CEO (which is itself a conflict of interest) admitted that the bank had played a role, as did the other investment banks, in the system that included too loose lending criteria. The managers at Goldman said the bank was a market-maker for instruments that reflected those low standards. Sparks, who headed the mortgage securities unit at Goldman, said he didn’t think Goldman did anything wrong; rather, some of the deals it put together did not “perform”—meaning that they were downgraded to junk.  “Goldman made some bad business decisions.”  In a business sense, “bad” does not mean “wrong” in the sense of “ought not” (i.e., unethical).  Rather, “bad” refers to making an error in business calculations.   Similarly, David Vinair, Goldman’s executive VP, said he didn’t think there is a conflict of interest in Goldman selling a security long while shorting it on its own books.  The client buying the security long may have a different stance toward risk as well as a different time horizon than the bank.  Also, the bank may change its short to a long depending on factors that are different from those impacting a given client.  Sen. Levin countered that the conflict of interest is at the moment of sale (hence the bank’s changing preferences are irrelevant). The customer, Levin said, has a right to expect that the bank selling the security wants it to do well.  “In what sense do you mean well?”, Vinair countered.  More semantics ensued. In spite of using vague terms like “perform” (which is actually relevant to acting), Vinair wanted a definition of “doing well” from the chairman. Blankfein also said that there is no conflict of interest; he likened Goldman’s market-making function to that of a stock exchange. Investors don’t ask what positions the exchange has in given stock.  But unlike the NYSE, Goldman Sachs is not limited to its market-making function; the bank takes proprietary in the markets, or instruments, that it “creates” not only to protect its positions in the market-making transactions, but to make a profit by trading on its own books. Hence Goldman, unlike the NYSE, has financial interests other than simply making a market and such interests can warp its market-making function in ways that are not transparent to Goldman’s clients.

It seems to me that the major conflict of interest at Goldman manifests when Goldman managers suspect that a security won’t “perform” (hence the desire to short it) without telling the potential buyers of this belief.  The Goldman managers want to make money not only off its shorts, but also off the client, whom the Goldman sales staff have given a misconception of the security’s soundness either by omission or lying).  The conflict of interest deepens if Goldman managers actually know that a derivative has been put together to fail, and because the bank (or a favored client) will profit from its failure (having bought shorts), the relevant manager does not disclose what he or she knows to the client so the latter will purchase the security.  Goldman would profit both from trading the security (shorting it) on its own books aside from being a counter-party to clients taking long positions, and from being such a counter-party.  That is, profiting from Goldman’s books entails transactions beyond the counter-party transactions prompted by a client wanting to buy or sell. Not recognizing this as a conflict of interest, Sparks limited conflicts of interest at Goldman to picking between two customers, or between one of its customers and Goldman’s proprietary bank. The problem with such a narrow reading of the bank’s conflicts of interest is that it omits the impact of Goldman’s proprietary transactions based on profiting on its own capital. I wonder if this narrowness of perception isn’t related to the “cognitive warping” that was evinced in many of the non-answers of the managers testifying before Congress. “I didn’t write that” is irrelevant; so too are the bank’s proprietary transactions geared to profiting from the bank’s own books aside from being a counter-party to a client in the bank’s market-making function.

I believe that even Lloyd Blankfein viewed all of Goldman’s transactions as market-making.  But he was correct, then every single economic transaction by any party constitutes market-making; every business is making a market.  At Goldman, there was still the conflict of interest regarding the bank’s profiting on its own books not from being a counter-party to a client as part of serving the client versus from serving a buyer or seller client by being the counter-party if necessary.  Goldman can be understood to profit as a broker (a fee in putting a buyer and seller together), as well as from how it does as a counter-party in such a transaction. In addition, Goldman can profit from trading on its own books irrespective of being such a counter-party. I contend that if Goldman is to do the first function, then either of the latter two—and especially the third—constitutes a structural or institutional conflict of interest.  The second function would not be a conflict of interest were Goldman’s counter-party profits (and losses) passed on to the client.  Perhaps even the third function would not constitute a structural conflict of interest were the profits distributed to the bank’s clients.  However, to the extent that there could be an interest in currying favor with particular clients who would benefit differentially in either the second or third function, there could still be a conflict of interest for Goldman.

In general terms, a conflict of interest can be seen as involving lying (or duplicity) in order to benefit “both ways” from having two conflicting interests.  The solution is to reduce the number of interests that a party has such that he or she has no interests that could or do conflict.  This is a different question than asking what legislation is needed, for the field of business ethics ought not be conflated with the field of business & government (i.e., institutional political economy) or even with that of business & society.

Societal norms are not justifying regarding whether a given practice is or is not a conflict of interest.  Theoretically, a firm could deviate from the norms of a society in order to avoid structural conflicts of interest, or a society could simply be blind to such conflicts and a firm act to avoid them anyway.  In other words, business ethics need not involve “social responsibility”  (and the latter need not involve the former).   In the case of Goldman, the social norms regarding such conflicts of interest (i.e., structural) are in their infancy, at least in the US.  Hence, this discussion of business ethics is a distinct project.  Business & Society would investigate the disjointedness of the paradigms of the bankers and the general public–that is, how and why they differ. Business & Government would investigate legislative and/or regulatory matters concerning the conflicts of interest as evinced by Goldman.

While the three fields are related, so too are medical ethics, sociology and biology. You don’t find schools putting these three in one class because it would be cheaper.  So part of the problem concerning business ethics might be how it is treated by business schools; it (as well as CSR and business & goverment) is essentially relegated to one third of a course in most undergraduate and MBA curriculi.  Among the lessons that we ought to have learned from the financial crisis of 2008 is that of the value, or importance, of the fields of business ethics, business & society, and business & government in business schools.  Sadly, even in educating their respective scholars, these fields are conflated–hence the scholars are not apt to study sufficiently in the basic discipline of their particular field.  That is, they tend to skim along the surface in order to cover three rather than one field. Perhaps business schools have a conflict of interest of their own whereby they have an interest in cost-saving expediency and in covering all of the fields of business. The three fields being discussed here have been willingly mitigated (or enervated) into “one” such that business schools could appear to have it both ways.  The problem is when something happens like the financial crisis of 2008, which shows just how vital each of the three fields are–meaning worthy of courses of their own.

In mid 2010, I engaged in a spontaneous conversation in passing with a man who told me that he was the manager of the diving facilities of the Rockford Country Club in Illinois. I was stunned to learn that that country club had only two black members out of what must have been at least a thousand, if not more. He told me there were not many “people of color in positions” in the city. I stood there stunned. In 2010, people still have that mentality? He said the city was twenty years behind.  I would say more something more like forty. Yet strangely, he noted that because families had changed, he had recently changed the dress code in one of the dining areas so kids from the pool could be accommodated. So, we are to believe that the situation of blacks hasn’t changed, but families have. To be sure, the family structure and dynamics had indeed changed in the last quarter of the twentieth century as women entered the workplace en masse and the number (and proportion) of diverces increased. However, it is unclear to me how these changes translate into making a dining area “informal."

The caucasion manager’s selective view of societal change—being no doubt convenient for him—struck me as strange. I got the impression that people in that city must be averse to (or scared of) virually any kind of change. How is it, I thought to myself as he spoke, that people could find so much satisfaction in the status quo? The manager told me that status and race were still important in that city. Relatedly, he characterized the city of 150,000 as a southern town interlarded in the north. His country club was the epitome of consciousness based on status and race.  Moreover, that club evinced what both John Adams and Thomas Jefferson called the artificial aristocrisy, which is comprised of wealth and birth.  This kind of elitism is distinct from the natural sort, which the two American founders took to be based on virtue and talent. Racism, and the segregation that ensues from it, is of the artificial sort.

Lest any kind of segregation be excoriated against, it should be noted that it can be quite natural for polite people to want to segregate themselves from the vulgar. There is indeed a marked difference in how people have been raised, and in how they conduct themselves.  This is not to say, however, that manners are on the side of the country club, for arrogance and elitism are quite rude qualities.  It seems to me that politeness can be reckoned as a virtue, and thus placed in the natural aristocrisy.  Perhaps education too, or at least valuing it, is also akin to virtue. The city in which the country club is located is at least historically heavily blue-collar.  Traditionally, the people holding such jobs felt threatened by education, and thus looked down on it.  Is it not natural that a highly educated person would rightfully want some distance from being disvalued?  There is, I submit, a natural aristocrasy that legitimates the natural grouping tendency of human beings.  We tend naturally to segregate ourselves. It is difficult to generalize against this propensity.  A mother of young kids is apt to segregate her family from a known child molester (one of the Catholic churches in the city had one as a priest). Ex-smokers are apt to segregate themselves from people who impose with their addition.  Furthermore, people with common interests are apt to associate. An apologist for the country club might say that it is composed of members who have common interests and generally get along. In this respect, it seems quite natural. However, it is not clear to me that these qualities cannot pertain to people of different races. Such artificial delimiters are perhaps why artificial aristocrisy is so squalid; there is also a rather significant opportunity cost to it. Sadly, the manager seemed utterly unaware that he subscribed to it at all, yet fully sure of himself nonetheless.

A venture more useful than bashing presumption at a country club involves coming up with a criterion on which “good” from “bad” segregation can be determined. Generally speaking, segregating a virtue from its associated vices is justifiable. Immediately a problem can be detected. Namely, although there are a cluster of virtues on which most people would agree, there is no fixed number. Furthermore, people such as the dining manager at that country club can use a virtue (e.g., gaining a vocational position through talent and effort) to attempt to justify what is really just garden variety racism and elitism.  In short, segregation of virtue from vice, while in itself laudable, can involve a slippery slope that can essentially whitewash segregation that could be considered as a vice.  Can we trust in nature, such that the natural associative instinct can be distinguished from the squalid instances of segregation?  Furthermore, are there certain virtues that can be deemed as legitimate sources of segregation—such virtues being agreed to explicitly or tacitly in a social contract?  In modern society, segregation by race is explicitly excoriated against, though I’m not sure if it is implicitly agreed to by all. There might be a natural instinct to associate with similar people. Just as people include physical appearance in determining whom to date, external features could be part of the mix in how humans are hardwired to associate. Likeness might be associated in evolution with survival as like is not apt to fight with like.  However, external features are an imperfect indicator of whom a person is apt to get along with—though not irrelevant.  So modern man may well have to sometimes choose to override instinct in the knowledge that going by virtue can have more survival value.  Similar values can trump similar skin-color, even if the clubby vestiges of racism make it more difficult to trust across the artificial lines even in the twenty-first century.

In a few days during July in 2010, the American media was obsessed with Shirley Sherrod, who in a tightly edited video clip had made apparently-racist statements about not helping a caucasion farmer because he was caucasion. She was quickly fired by Tom Vilsak, the US Secretary of Agriculture, who, like the journalists and the NAACP, had failed to look at the full video.  The day after Sherrod was fired, the NAACP looked at the full video and realized that she was actually a racial healer rather than racist.  In the fuller video, she said, “I have come to realize that we have to work together … we have to overcome the divisions we have.”  Even as she used questionable language, such as “his own kind,” it should not be forgotten that the clan killed her father.  In other words, she deserves some slack.  At any rate, it was not long after the NAACP’s about-face that the agriculture department and the media were doing also doing an about-face. According to the NYT, “the White House and Mr. Vilsack offered their profuse apologies to her for the way she had been humiliated and forced to resign after a conservative blogger put out a misleading video clip that seemed to show her admitting antipathy toward a white farmer.”

Bill O’Reilly of Fox apologized—though while suggesting that Sherrod “very well could have seen things through a racial prism” and had been “blatantly partisan” on the job possibly in violation of the Hatch Act so she should not work in government.  O’Reilly was apologizing for not having done due diligence in “reporting” the story by watching the entire video before making a judgement. Like so many other journalists, he lept at the story without adequately checking the source—the video or Sherrod herself.  Even as the journalists were apologizing for their bad work, they wanted to distinguish themselves as journalists from the “blogger” or “activist” who had posted the edited video clip in the first place. O’Reilly promised his viewers that they could still come to him for good journalism even as he had gotten the story wrong.

Beyond the momentary obsession that the media enjoyed at Sherrod’s expense—the obsession itself being a problem missed by the journalists themselves—this case allows us to glimpse how journalism changed so much in the first decade of the twenty-first century. The case put journalists in the position of distinguishing themselves from bloggers when both had engaged in bad judgment. Hence Bill O’Reilly’s statement that his viewers could come to him for good reporting (rather than have to rely on bloggers) in spite of the fact that he had just engaged in bad journalism and may have done Sherrod another injustice even in his apology. To be sure, the blogger had erred in posting such an edited video clip without providing the context.  However, given the opining of many mainstream journalists who work for media companies and the actual news provided on blogs, the line between “journalist” and blogger are blurred.  Hence the journalists working for media companies were sure to distance themselves from the blogger, who they said was not a real journalist, even though they had all made the same mistake. Were there a clear distinction to be made between the journalists and the bloggers, the former would have done better work—but they didn’t.

Back in 1984 when Daniel Schorr was working at CNN, he objected to the network’s plan to couple him with John Connally, who had been the Governor of Texas and a Secretary of the Treasury, to cover the Republican Convention. It was improper, Mr. Schorr said, to mix a politician with a journalist. In 2010, journalists were saying that it was improper to mix a journalist with a blogger. By then, many television journalists were giving opinions, and were thus closer being politicians, while many bloggers were providing news even before the networks. Lest the journalists point to their educational credentials from schools of journalism, how many American journalists in the nineteenth or even the twentieth century majored in journalism?  Is learning on the job at a newspaper so much different than the entrepreneurs who free lance at their own blogs to provide news?  If these are so different, why didn’t the “journalists” in the Sherrod case catch rather than perpetuate the blogger’s mistake? The proof is in the pudding.

The fact is that many bloggers are able to provide news because a person does not have to study journalism to have access to some information that is new. As a blogger myself, I have not found myself in this position—hence I confine myself to providing analysis based on my years of formal education and on the news provided by others—bloggers or “journalists.”  I must admit that I am more apt to trust the news from a company simply because there are institutional requirements for verifying stories, though as the Sherrod case shows, a media company’s procedures are not always sufficient. The difference between a news company and a blogger is perhaps in the checking or verification function, rather than so much in the getting of news (though the companies have more resources).  Even so, news can come from a variety of sources—not just from people who have a BA in journalism.  As a consequence, there is more of a need for verification—precisely because there are so many blogger/entrepreneurs operating. To dismiss them by saying they are not really journalists is an over-reaction and ill-founded. However, to insist on due diligence and verification on any report is even more pressing. Perhaps rather than have their journalists invoke artificial diremptions, news organizations could hire or contract per piece with many of the bloggers who are providing news so the latter could have access to the organizational wherewithal to verify stories.  These bloggers would then have the advantages of being entrepreneurs and of having the wherewithal to do due diligence.

Daniel Schorr, a protégé of Edward R. Murrow at CBS News and an aggressive reporter who got into conflict with censors, the Nixon administration and network superiors would likely see the advantages that bloggers have in terms of freedom, while being worried (as I am as well) concerning the due diligence limitations faced by the entrepreneurs. He got his first scoop, which earned him $5, when he was 12. A woman fell or jumped from the roof of the apartment house where he lived, and he called the police, interviewed them about the victim and then called The Bronx Home News, which paid for news tips.  Had there been an internet, he likely would have been a blogger. Would that have made a difference?

While good to a point, a profession’s gate-keeping can be readily subverted into simply keeping people out who are otherwise doing good work. In spite of the Sherrod blogger, other bloggers have been providing news—otherwise, the media companies would not be citing them as sources. Rather than fighting the bloggers, the “journalists” who got the Sherrod story wrong might offer a hand; they might just find that they will be helped in return. News is like water in a stream—there are many feeder streams.  Moreover, the nature of news is freedom,which is inherently broad rather than circumscribed.  This is particularly so in a high-tech world where the internet has had a democratizing effect in expanding the sources of news and analysis.  In this context, we might be wise to remember Ben Franklin and Thomas Jefferson concerning the need for an educated electorate rather than try to monopolize information-getting to those in the club.

Source on Schoor: http://www.nytimes.com/2010/07/24/business/media/24schorr.html?_r=1&hp
Source on Sherrod: http://www.nytimes.com/2010/07/22/us/politics/22sherrod.html?scp=1&sq=sherrod&st=cse

$26 billion-a-year by 2011, the internet advertising market is lucrative to venture capitalists who want to invest into companies that help target online advertising. Between 2007 and 2010, venture firms invested $4.7 billion in 356 online-ad firms. "Its a huge market and it's growing," Chris Fralic at First Round Capital says. Fralic's company has backed 33Across, which analyzes users' social networks, and Demdex, which has a "behavioral bank" of user profiles. Ethically, user on-line privacy is at issue. I contend that user privacy can be protected from dangers of concern to users while willing users can benefit as consumers from information regarding products that they want and would not otherwise know of.

According to The Wall Street Journal's "What They Know" report, the top fifty American websites installed thousands of "cookies" and other tracking technologies on people's computers in 2010. The purpose was to create sophisicated dossiers on people's personal activities and to track them in real time. At the end of 2010, the U.S. Federal Trade Commission urged the creation of a "do-not-track" system and the Obama administration backed an online "privacy bill of rights." At the same time, the EU and its states were grappling with the same issue.  One issue there was whether a user simply turning on his or her computer and going online constituted consent to "cookies."  The relative lobbying power of the industry with the vested interest could be seen to differ between states (e.g., Britain and France).  In other words, governmental restrictions can not necessarily be counted on to protect privacy and thus obviate the ethical problem. Accordingly, I now turn to an ethical analysis, putting the question of government regulation aside.

As of 2011, Americans spend 28% of our media time online. Also, online-ad start-ups do not require a lot of money relative to start-ups in other industries. Many of the online ad start-ups attracting funding connect website operators with advertisers who want to capitalize, according to The Wall Street Journal, "on the Web's ability to target individual users." According to Nick Sturiale at Jafco Ventures, "Advertisers want to buy individuals." We are bought, in other words, by being targeted even in our social networking. In short, in going to where people are, there is a lot of money to be made by bringing ads to the people most likely to buy from them. To be sure, consumers benefit when they are made aware of products of particular benefit to them. In business terms, connecting people with products they want is like water going downstream: money is naturally to be made, so it will.  Hence even government-constructed channels or dams are apt to be subtly worked around as money-seekers inevitably seek out sources in more efficient ways. The ethics of privacy do not translate except if there is a financial backlash from actual or potential consumers spurring the ads (i.e., voting for privacy with their wallets and purses). I suspect that few users will spur online ads, however. First of all, consumers who would like to buy a new product tailored to their interests may not all object to the loss of their privacy. Enabling users to allow or disable cookies would allow consumers to make this decision. Secondly, users may not object because the fact that they have been researched and targeted is not typically transparent to them when no one uses the information against them in particular. The loss of privacy is abstract where one has no knowledge of it happening in real time and one does not feel harmed. Indeed, where such breaches are widespread, the use of the data uncovered is routinized and contained.  For example, if a given user's search of porn sites is just one among millions, the individual user can have comfort in the relative obscurity of numbers.  However, what if a potential employer gains access to such information?

The danger with respect to privacy could be if a business shares its "behavioral bank" with organizations with an interest in a particular user.  Such use would not be necessary even in the case of users who want ads tailored to their particular interests. Someone who regularly watches porn might want to know if there is a new sex toy on the market, for example. But should a potential employer such as Walmart be able to access a "behavior bank" to gain personal information on people who have applied for employment?  What if Walmart owns the company that has the bank?  Would not the information then be the property of Walmart?  Furthermore, what if an agency of the federal government were to cite national security to gain access on particular users? Privacy concerns are really oriented to such access concerning particular individuals, typically by third parties, rather than to marketers using pooled data to further segment markets. Legislation ought to be focused accordingly.

In terms of ethical theory, "buying" and "targeting" online users so as to gain and use information that they regard as private violates Kant's "Kingdom of Ends" version of his categorical imperative.  For those of you who have lives and thus do not read Kant, the principle here is that people, being rational beings (i.e,, having the capacity to use reason), should be treated not just as means, but also as ends in themselves. This principle limits exploitation or manipulation of others because using them should not violate treating them as ends in themselves. The reason Kant says for the "ends in themselves" comes down to reason itself having absolute value because we use it to assign value to things.  Just as the sun is the source of light in our solar system, reason is the source of value, according to Kant.  As the source, reason must have absolute, or undefined, value. Incidently, when I get on a topic like this--boiling Kant down and applying his principle to a real-world topic--I think of possibly teaching in spite of my multidisciplinary background (which does not jive well with cubbyholes). Anyway, the rational beings at the online advertising firms seem to be ignoring what the rational nature of online users entitles--specifically, to be treated as an end in oneself rather than merely used.  To be sure, using others is not entirely blocked, as long as it is consistent with treating others as ends in themselves.  In the present issue, users who do not want to be tracked even though that could mean they do not get an informational benefit as consumers are not treated as ends in themselves if they are tracked anyway. We might call it a "boundry issue" on the part of business managers.

In abstract terms, selfishness and greed can prompt a rational being to treat oneself as an end in itself while treating other people as objects. I suspect that this is the root complaint against business managers: that they view humans exclusively as resources while in the role of manager. The problem is that greed is like water running downstream to find wealth below, so an ethical obligation or duty to go around ends in themselves can easily be ignored. Normative constraints do not compute in the business lexicon of greed. I find that people outside of business tend to erroneously project moral principles onto the restricted technical domain of cost/benefit analysis in business. Hence moral claims are made and perceived to be ignored, and a business climate can become toxic. Hence, legislation is typically sought by the general public, even though that route cannot mandate treating others as ends in themselves. We settle, in other words, for temporary dams tantamount to an ethical injunction. In the end, for being moral beings, we humans are remarkably immune to our own nature in the pursuit of what we perceive as our own interests.  In terms of privacy and online data on users, interests particular to a given firm do not recognize "personal boundaries" even as the latter have become salient in modern society. In other words, besides business ethics, business and society comes into play, and of course business and government tends to be the domain in which force or power swoops in to mop up the mess, albeit with thumbs and externally only.


Source: Scott Thurm, "Online Trackers Rake in Funding," The Wall Street Journal, February 25, 2011, pp. B1-2.

See my related essay on the regulation of cookies in the EU: http://thewordenreport.blogspot.com/2011/02/business-and-european-integration-case.html