EXPERIENCE FOR ARTICLE REPRINTS CALL 800-988-0886 OR 617-783-7500, OR VISIT HER.ORG Case Study Christopher Marquis is an associate professor at Harvard Business School. Juan Almandoz is an assistant professor at lESE Business School, in Barcelona. Can an "Ethical" Bank Support Guns and Fracking? by Christopher Marquis and Juan Almandoz s the founder and president of anewethical bank focused on had founded a bank in Maryland, ex- panded it to six branches and $400 million environmental sustainability, Jay in assets, and sold it for a substantial profit. McGuane realized that he and his board While looking for his next project, he hap- needed to set guidelines about which pened to see the movie An Inconvenient loans to approve and which to reject Truth and decided, during the sleepless on "values" grounds-and fast. In his night afterward, to build something mean- eagerness to get the business started, he'd ingful out of his concern for the environ- put the issue off. But now the bank was ment, his love of his native Colorado, and facing two problematic requests: one from his knowledge of banking. The result was a company involved in fracking, the other Rocky Mountain Green Bank, a company from a gun maker. with a mission to promote environmental Without clear ethics rules, Jay worried stewardship. that his already divided directors would He established himself in Colorado fall into bitter squabbling, leading to res- Springs and assembled a board of direc- ignations, negative media attention, and a tors: Four successful entrepreneurs, a flight of investors. lawyer, an ex-mayor of the city, a former Ethical banking had seemed so benign executive in the Maryland bank, a doctor HBR's fictionalized case studies present when Jay had decided to enter the indus- who was a school friend and sometime I dilemmas faced by leaders in real try. Now it seemed like a hornet's nest. hunting partner, and an evangelical (and companies and offer solutions from experts. This ardently environmentalist) leader of a one is based on the HBS Case Study "First Green A Green Vision megachurch Jay attended occasionally. Bank: Bringing Bloom to Desert Landscapes (case no. 9-413-073). by Christopher Marquis and Jay didn't need this job. At age 50, he had To drive home its mission, the board Juan Almandoz. It is available at HBR.org years of entrepreneurship behind him. He hired a famous architect to make the April 2014 Harvard Business Reviewbank's headquarters an environmental tems used in hydraulic fracturing-frack- smoking in public areas were a perfect showcase, with prototype solar-power ing-and wanted to expand into making example, he said: Many of them went into windows, a set of wind turbines, and a the polymers, emulsions, and surfactants effect before the dangers of secondhand butterfly roof that channeled rain and the industry relies on. These materials, the smoke had been proved. meltwater into underground cisterns. executive said, would be significantly less So if it looks bad, it is bad, Jay thought Articles and TV segments about the toxic than those currently in use. Though ruefully. Hoping for a more nuanced building and about Jay, the returned ambivalent about fracking in general perspective, Jay went next to the pastor, native son and environmental crusader, Neitha had recommended that the execu- the Reverend Clyde Dahlberg, who, to helped attract local depositors and small tive approach Rocky Mountain Green Bank. Jay's surprise, advocated a completely borrowers, who'd grown disenchanted But on hearing about the opportunity, evidence-based approach: "Make two with the big national and global banks. Neitha's fellow directors were divided. One columns, one for adverse environmental Deposits grew at a healthy rate, but to suc- side touted the economic and employment | impacts, one for the positives," he said ceed financially, the bank needed to make big loans to a few strong companies. So far, In some ways, it was just the type of loan the bank that hadn't happened. Moreover, the values-based approach needed: Field Force was a solid performer, a growing was proving harder to implement than Jay source of local jobs, and a good corporate citizen. had anticipated. Rifts among the direc- tors had started to appear. The first sign of conflict came up in a discussion of what benefits of fracking, while the other in- matter-of-factly. "Figure out a way to Jay thought was a nonissue: a gym for sisted that the risks outweighed any good quantify the effects, then do the math." employees. that could come from it. The 300-million- Simple. "Oh, come on," Neitha Wellman said, year-old sedimentary rock under the Den- It was while wrapping up his meet- shaking her head. "Are you going to have a ver Basin in eastern Colorado contained ing with Clyde that Jay received an personal trainer on-site, too?" one of the country's largest gas deposits, e-mail from the bank's chief loan officer. "Actually, yes," Jay said. "Two after- and a number of local engineering firms "Wow-3 million dollars," he blurted out. noons a week." were working on solutions for drilling, in- 'What's this?" Clyde asked. Jay wished She rolled her eyes. "Since when does a jecting, and waste disposal. It was a growth he hadn't said anything: The e-mail was gym or a personal trainer have anything to industry, but warnings from experts about about an official application from Field do with being green?" the risks of groundwater contamination Force, a large, local firm that had been An avid fly fisher and former boulder- and seismic instability seemed to increase talking informally with Jay about a multi- ing champion, Neitha considered herself every day. million-dollar loan to expand its business. a pragmatic environmentalist, and she "Look, let's not get worked up about a In some ways, it was just the type of loan detested the idea of the "nanny state." loan application we haven't even received," the bank needed: Field Force was a solid She actively campaigned for Libertarian Jay said, trying to lower the temperature in performer, a growing source of local jobs, candidates-in fact, she had been at a rally the room. "But when we are approached and a good corporate citizen. at a mall when a shooter had gone after a by a company like this one, we have to be "A gun manufacturer?" Clyde asked in Congressional candidate and the people ready. We need to be talking about how to horror . waiting to shake his hand. A picture of her make loans that reflect our mission." "A military contractor," Jay said. giving CPR to a wounded child, who later Jay promised that he would research "A gun manufacturer," Clyde repeated. died, had been all over the internet, though the guidelines other ethical companies "In the state of Colorado? After Columbine she refused to discuss the incident. used to make values-based decisions, so- and Aurora and Arapahoe High School? Two other board members agreed with licit opinions from each director individu- You'd better not do anything on that her about the gym, so Jay had scaled back ally, and come back to the group with a without a board decision. I'd put it on those plans. proposal the agenda for next week's meeting if The next day, he visited the board I were you." Twin Debates member he knew best, Fred Keeler, a Neitha had been the one to solicit the first gastroenterologist. "I'm a believer in the Changing the Subject problematic loan application. She'd been precautionary principle," he told Jay. "It's Jay didn't share the aversion that some talking to the head of a Colorado engineer- the idea that in order to act, all you need of his directors felt toward guns, and it ing company that developed pumping sys- is partial evidence-not proof." Bans on seemed to him that weapons had nothingto do with environmentalism. But Clyde Clyde interrupted him. "With all due we become the bank for the entire liberal was right about the necessity of a board respect, Jay, we have one of those applica- agenda? Selling weapons to our military is discussion, so he notified the directors tions on the table. It's from Field Force." not only legal, it's laudable. And we need about the Field Force application and Apparently, Clyde had recruited several the business." planned his strategy for the meeting. other directors to his position, and together "There's nothing unethical about mak- "As you all know," he said to the group a they had drafted a statement categorically ing or selling arms that are purchased few days later, "I got into this business be- rejecting business from gun makers. and used properly," Jay added. "I'm a gun cause I was excited by the environmental Clyde began to read aloud: "Point owner myself, and so is Fred." mission. And I think you all felt the same." number one: The economic consider- Looking for support, Jay turned to Heads nodded. ations.." The statement compared gun Neitha. She looked at him for moment and "But," he continued, "the regulators makers with tobacco companies, arguing then said softly, "Jessica Belford was killed made it very clear that we were to be a that their stocks would quickly lose value by a lightweight cartridge from an FF286." profit-making bank first and a green bank as the public became more concerned It took Jay a few seconds to figure out second. To get our charter, we had to about violence. The statement cited what she was talking about: the girl on the demonstrate that our mission wouldn't Cerberus Capital Management's unsuc- ground at the mall, a weapon from Field add significant costs or impose significant cessful attempts to shed its investment in Force. limits on our banking operations, that we the company that made the weapon used "Sure, they sell to the military," Neitha wouldn't let the mission wag the dog. I in the 2012 Newtown elementary-school said. "But you can buy the FF286 at gun remember telling them that even if we shooting. Under pressure from investors, shows. That's what makes it one of Field wanted to lend only to businesses aligned Cerberus had finally allowed clients to sell Force's most profitable products. Our with our environmental mission, we their individual stakes. bank's mission is sustainability. How couldn't-we'd go broke in a month. Jay was irritated. "No one would ever can we have a sustainable society where "I'm not always happy with this situa- advocate that our military do without military-grade guns are being used to kill tion," he added. "I didn't get into this just weapons," he said. "And as long as there's children? How can we, in good conscience, to run another bank, but I accept it as the demand from the Pentagon, Field Force's do business with that company?" price to play." stock will be fine." "It's a no-brainer," Clyde said. "Jay was Mark Lerman, Jay's former employee Clyde put down the statement and talking about establishing guidelines for from the Maryland bank, provided a few looked at Jay. "Rocky Mountain Green decisions. I'm all in favor of weighing facts and figures to support Jay's point: Bank is supposed to be founded on ethical the pros and cons-let's do that when we "Green" loans-to green-certified builders principles," he said. "What is 'green" if discuss the shale gas loan. But when it and consultants, as well as landscapers, not an ethical principle? That's why we're comes to guns, there's only one guideline farms, nurseries, organic-food companies, part of the Global Alliance for Banking on we should follow." He turned to Fred Kee- and solar-energy firms-constituted only Values. Last time I looked, it wasn't the ler. "It's like the Hippocratic Oath, right? 7% of the bank's total; deposits from green Global Alliance for Banking on Selected Val- First, do no harm. Or how about this: Do businesses and from customers drawn by ues." What would other alliance members no evil." the bank's mission accounted for just 1.8%, think about our lending to a gun maker? It was Fred who had advocated saying the data showed. "You say that our main impact is no to a loan if there was mere indication "Probably our biggest impact on through media coverage," he continued. of harm, but now he looked conflicted. He sustainability comes not through the "What will the media say if we lend to Field loved his gun collection, from the flint- loans we make," Jay said, "but through Force? That certainly trumps our fancy locks to the Uzis, as Jay well knew. Fred media coverage of our mission. By being a LEED-certified office building. A loan to asked, of no one and everyone, "But what successful green bank-with an emphasis a gun manufacturer would announce to is 'harm? What is 'evil"?" on 'successful'-we pave the way for more the world that we really have no principles Reprint Case only R1404X capital to flow to green causes. and that the green thing is just a marketing "As I said last week, I think we need to gimmick. If that happens, I'll have to leave Should Rocky create a decision-making framework so this board." Mountain Green that we don't have to reinvent the wheel Lukas Hoenig, a board member who every time a loan application falls into was the founder of a chain of environ- Bank deny a what some of us might see as an ethically mentally friendly dry-cleaning businesses, loan to a gun gray area. I've made a little progress on that cut in. "Let's be real here," he said to front by talking to Fred and Clyde here-" Clyde. "We're a green bank, but when did manufacturer?ETHICAL IMPLICATIONS OF BUSINESS DECISIONS How does each approach to ethical decision-making affect Jay and the Board's decision on accepting 1work from Field Force in this situation? Use case facts and theory to justify your responses. Ethics by Outcome Include both case facts and themy Ethics by Process: [Dutyr or Due Process Include both case facts and them}: Ethics by Character Virtue Ethics Include both case facts and themj; What is the right thing to do in this situation? Please write your responses in the table below. Highlight your chosen statement: APPROVE THE LOAN TO FIELD FORCE THE RIGHT THING TO DO IS... DON'T APPROVE THE LOAN FROM FIELD FORCE 1. OUR TOP 3 MOST IMPORTANT DECIDING FACTORS ARE... 2. Green Bal 3 nta Discuss your answer by applying theories/concepts from the online module