American Express’s Intentions

Anthony “Tony” De Angelis
http://www.pbs.org/newshour/multimedia/finance/index8.html

Can consequentialism always be considered ethical?  In 1963 American Express faced potential bankruptcy when Anthony De Angelis, the founder of Allied Crude Vegetable Oil Refinery, swindled inspectors in an attempt to corner the olive oil market.  Many people argued that American Express made the ethical decision to absorb the debt incurred by Allied, even though the Oil Company was guilty of obtaining massive loans through falsified collateral.   However, I want to take a different approach, and argue that American Express did not act ethically if they only absorbed the debt in an effort to maintain their public image or obtain a loyal customer base long term.  Linda Treviño and Katherine Nelson provide insight in their book, Managing Business Ethics: Straight Talk About How to Do It Right, by arguing that intent is crucial in in determining what is considered right or wrong, and not the actions themselves.  In addition, Stephen Darwell, the author of Consequentialism, also discusses the distinguishing qualities of consequentialist ethics and how they differ from deontology.  In this essay, I will argue that American Express’s actions were a direct example of consequentialism, and how this way of thinking is not always entirely ethical.

Anthony De Angelis’s scam, now known as the Great Salad Oil Swindle, started and ended with American Express.  The credit card company had recently opened a new division called “Field Warehousing”, where they would grant loans to businesses based on their inventory and commodities (Frank 1).  Inspectors were required to examine Allied’s Warehouses and determine that all the inventory was in order.  Once approved, American Express would issue receipts to the manufacturer that could be exchanged for loans from banks with the inventory as collateral.  The founder of Allied allocated some of this money towards buying futures in oil, which would allow him to own soon to be expensive oil and the futures he had purchased would be worth considerably more (Frank 1-2).  Soon, the exchanges became more regular, and Allied became one of the most profitable companies for American Express in the Field Warehousing Department.

Once the relationship between the two companies was established, De Angelis devised a plan to fill his barrels with water and add only a small portion of olive oil to the container.  Since oil floats on water, the inspectors would open the barrels and see the small portion of oil and think the barrel was full.  De Angelis succeeded in deceiving American Express for only a year, until it was soon discovered that the amount of oil Allied claimed to have in inventory was more than the farmers had supplied (Frank 2).  On November 19, 1962, Allied went bankrupt, and left American Express with a debt that totaled around $174 million dollars.  Almost instantly the entire futures market crashed, which wiped out the entire value of the loans issued.  Furthermore, the brokerage houses that were behind De Angelis’s futures trades now had a poor reputation from association, and were forbidden from trading.  Suddenly, American Express had to make a choice: admit defeat and go bankrupt or absorb the million-dollar debt that had not been accounted for.

The choice American Express had to make is one that distinguishes consequentialist theories from many other theories of ethics, such as Deontology or Kantian Ethics.  When deciding what is considered right or wrong, consequentialists focus on the intentions of the decisions, not on the actions themselves (Treviño and Nelson 42-43).  Furthermore, consequentialist theorists focus on maximizing societal welfare instead of making the absolute “right” choice.  Treviño and Nelson compare the theories of deontology to consequentialism, “According to some deontological approaches, certain moral principles are binding, regardless of the consequences.  Therefore some actions would be considered wrong even if the consequences of the actions were good.  In other words, a deontologist focuses on what is “right” (based on moral principles or values such as honesty), where as a consequentialist focuses on doing what is right to maximize societal welfare” (Treviño and Nelson 42-43).  These authors explain that the intention of consequentialists is to focus on the end result, and not on the decisions themselves.

In the end, the American Express made the decision to absorb the debt from De Angelis’s scam.  However, one might ask, why would the company make this decision?  The first option, one that a deontologist would argue, is that the company wanted to make the right choice to be completely ethical.  A deontologist would argue that American Express did not want anyone else to suffer because of the swindle, and they decided to take the high road and help the innocent parties involved.  Treviño and Nelson describe deontology, “Deontologists base their decisions about what is right on a broad, abstract, ethical principles or values such as honesty, promise keeping, fairness, loyalty, rights, (to safety, privacy, etc.) justice responsibility, compassion, and respect for human beings and property” (Treviño and Nelson 42).  If American Express’s actions were purely for the sake of being ethical, then they would have been acting honestly, fairly, and loyally to those affected by the swindle and not seeking to benefit from the decision.

The other option, and the more likely option, is that American Express absorbed the debt to give the public the impression that they were trustworthy and honest.  This would mean that the company was not focusing on doing the right thing for the sake of being ethical, but instead for the benefits that they would reap by absorbing the debt.  This reasoning is a direct example of consequentialism, because it would mean that they were focusing on the positive consequences of their decision more than acting ethically for the sake of doing what is considered “right.”  Stephen Darwell, the author of Consequentialism, states, “What makes the values nonmoral, again, is that they involve evaluations of outcomes or states rather than distinctly moral evaluations of agency or character” (Darwell 1).  He is arguing that consequentialism focuses on the outcomes of one’s decisions, and not the “moral evaluations” of those involved.  Darwell would most likely interpret American Express’s choices by saying that they were thinking of future business and the image that they would create, instead of doing the right thing with no benefit to themselves.  This way of thinking would mean that American Express was not as ethical as they had made themselves to be since they intended to reap the benefits of their decisions and not acting entirely altruistic.

In 1965, Norman Miller covered story of Anthony De Angelis and the affect the swindle had on American Express in his book The Great Salad Oil Swindle.  While exposing the true events of the swindle, Miller discovered that American Express had been falsifying inventory inspections and receiving anonymous phone calls that warned the company that De Angelis could not be trusted.  However, Miller discovered that despite American Express’s suspicions, the company had turned a blind eye and continued to do business with Anthony De Angelis.   Miller writes, “Why did American Express Field Warehousing ignore the warning that Allied was cooked?  Was it because the storage firm could not afford to lose Allied’s business?…All hands at American Express Field Warehousing, then, were agreed it would be foolish to stop doing business with Allied” (Miller 83-83).  Since the relationship between the two companies was generating so much profit for American Express, they were reluctant to dig deeper into Allied’s operations and discover the truth.  When Allied’s swindle was made public, American Express declared that they would absorb all the debt in an attempt to make themselves appeal more ethical.  Until Miller’s book was released, many people believed that American Express was making the selfless choice to absorb the debt, and did not realize that they were reaping long-term benefits that make their actions more consequential then deontological.

American Express’s intentions are what distinguish the company’s decision from being purely ethical or acting ethical for their own benefit.  If American Express had absorbed the debt from Allied’s scandal purely for altruistic reasons, then they were adopting the principles of deontology.  However, if American Express’s intentions were focused on their own image and the appearance of acting ethically, then their actions would be more along the lines of consequentialism.   Unfortunately, we can’t know for sure what American Express’s true motives were after the Salad Oil Scandal was exposed.  However, the company’s shady relationship with Allied Crude Vegetable Oil Refinery and the evident benefit of portraying themselves as ethical lead me to believe that they did not act out of selfless reasons.  Therefore, these actions seem to lean more towards consequentialism, which is why I fervently believe that American Express’s actions are not ones of integrity, but instead are ones of self-interest.