Should morality and fairness imperatives be considered in business transactions?

I have been following the news on the immigration crisis at the border and have been devastated with the reports about the conditions in which immigrants, regardless of age, live and are treated in the detention centers in both sides of the border.

As with any political decision, I have heard supporters who believe that the actions are justified and many others that are against them.  Both sides have voiced their views in the media, which has been covering the problem with regularity.

In this context, I was curious last week about news covering a walkout demonstration being organized by workers of Wayfair, an on-line furniture manufacturer in the United States, for reasons related to the company’s intention to sell furniture to a contractor that supplied furniture to a migrant detention center along the U.S.-Mexico border.

It appears that Wayfair’s workers were against the sale and had addressed the issue with Wayfair’s CEO, Niraj Shah, by submitting an internal plea, which unfortunately was disregarded by Wayfair’s leadership, leading their employees to disclose this situation publicly and organize a walkout to protest against the company’s actions.

Wayfair’s decision to go ahead with the questioned sale and disregard their workers’ opinion is an example of the business theory that says that businesses solely have an obligation to increase profits for the benefit of stockholders, provided that they follow the law and do not engage in deception or fraud.

Indeed, Wayfair proceeded with the questioned sale, which generated it an alleged (and, I will add, miserable!) $89,000 profit, which arguably benefited Wayfair’s stockholders.  In addition, such sale was legal and was not consummated under deception or fraud, which makes it completely appropriate under this theory.

Wayfair’s management forgot that business decisions do not have just financial outcomes but also social and psychological outcomes that should be taken into account as well. This has given rise to another business theory, which says that companies have an obligation to create value for stockholders, but also for other parties with interconnected interests, such as customers, suppliers, employees, industries and communities, to the extent that they may be affected by our actions.

There are at least two key lessons learned from the Wayfair situation for the business community and particularly for CEOs and Boards:

  1. Analyzing business decisions only based in their profitability, evidently allows a more convenient and expedited decision-making process; however, it is difficult (almost impossible!) for most people to alienate any ethical considerations from such process.  This is why, nowadays, many companies are adding ethics components to their business conversations and considering all interconnected stakeholders who may be impacted by the decision.
  2. Disregarding and underestimating the true power of employees’ voice, who in this case decided to approach their management in the first place and demanded a reconsideration of the company’s decision as evidence of their morale courage. It was not until they were disappointed by the inaction of their company’s leadership that the workers took the determination to go public given priority to their moral beliefs over their job security.
Photo: AJ+

Had Wayfair analyzed the proposed sale of goods to be supplied to a migrant detention center with an ethical and reputational lens it would most likely have reached a different decision.  Moreover, even assuming that they had reached the same conclusion and executed the sale, they could have mitigated the negative media if they had seriously considered the workers’ arguments.  For example, there were proposals to donate the profits to RAICES, an immigration legal services NGO.

In sum, it may be tempting to take pure business decisions that seem beneficial for the company and its stockholders, at first sight, but it often brings unexpected and morally questionable results, as happened to Wayfair in this case. Thus, I am of the view that morality and fairness imperatives need to be considered when analyzing business transactions.

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