Pulling the plug: an ethical decision for businesses as well as hospitals

If you were to plot a timeline of the Covid-19 pandemic, one way of dividing up the different stages would be by reference to the resources shortage we were facing at the time. First stage: toilet paper and hand sanitiser. Second stage: masks and protective equipment. Third stage: ventilators and hospital beds. Fourth stage: money.

Fortunately, we seem to have skipped stage three in Australia, and for the most part, we’ve addressed shortages in protective equipment and at grocery stores. However, with the focus in Australia now largely on the economic fallout from the pandemic, the question of how to distribute and share limited wealth is now at the front of people’s minds.

Among a range of economic measures introduced to address the Covid-19 crisis, the government has suspended insolvent trading laws for six months. This enables organisations who would otherwise go out of business to continue trading.

Welcomed as a lifeline by many, the question we should be asking is: who is the lifeline for? Should every organisation who is eligible take advantage of the scheme? Whilst it would be tempting, and completely understandable for someone to try to take advantage of every possible support before letting their business go, doing so may well overlook other, more pressing concerns.

John Winter, the CEO of the Australian Restructuring Insolvency & Turnaround Association (ARITA), worries that the six-month safety net might have significant economic impacts later on. “All they are doing is kicking the can down the road,” he says. As a number of businesses take no-interest or low-interest loans to mitigate insolvency, they increase the risk of a more expensive insolvency later on.

“You’re going to have a tsunami of insolvency. You have to have one,” says Winter.

Ethicists use the term ‘moral temptation’ to refer to situations where personal needs and desires are strong enough to override our usual ethical decision-making. Moral temptations aren’t ambiguous ethical choices; rather, they’re situations where the potential benefits for a person are high enough that they might rationalise making a choice that doesn’t hold up to their ethical beliefs. The possibility of keeping a business afloat could generate this kind of situation.

What typically occurs in a moral dilemma is that a person puts disproportionate weight on their own needs and desires, thus overlooking or underestimating the importance of what other people need.

When it comes to the decision to continue trading whilst insolvent, this might mean failing to consider how desperately creditors need their outstanding debts paid. It might mean retaining staff and giving them false hope of ongoing employment, rather than giving them redundancies and the opportunity to seek work elsewhere, whilst unemployment payments are higher than usual. In many cases, it’s unlikely someone taking an objective view would think the benefits of keeping a struggling business afloat were justified, relative to the harms it generates for other groups of people.

“When you are insolvent as a business, you know that you’re not going to pay back the money you owe,” says Winter.

“You can’t get more broke than broke, [but] what you are doing is significantly impacting those that you owe money to,” he adds. “If you’re running a small business, it’s generally other small businesses you owe money to as well. You could actually be sending them broke.”

Here, it might be helpful to consider the kinds of questions that ventilator shortages and other health resource limitations are posing around the world – the kind we’ve managed to avoid here. In New York, where there is a real possibility of healthcare shortages, guidelines indicate that doctors “may take someone who is desperately ill and not likely to live off that ventilator and put someone else with a much better chance on.”

The logic here is simple: when faced with a choice between delaying inevitable, imminent death and restoring someone’s health to live a full life, we should choose the latter.

In many cases, families and patients will decide to remove a ventilator in such cases, knowing that in doing so, they are gifting a lifeline to someone else. For some, the choice is also one that offers considerable relief. Rather than fighting to maintain life, despite the suffering on all involved, they can finally let go.

Winter suggests a similar relief is possible for those whose businesses are in trouble. “When directors finally sit down and say, ‘yeah, I’m done, I’m handing the business over to a liquidator’, they feel a massive sense of relief. They’ve taken so much weight on their shoulders because of the ethical concerns they face around the consequences for others.”

For organisations on the brink of insolvency, the central question seems to be whether to take a lifeline or be a lifeline – resolving matters as best they can, ensuring staff and creditors are cared for – or taking a shot at reviving their business with the help provided?

Before making a choice, organisations facing insolvent trading may wish to consider:

• Do I have justifiable reasons to think that the business will be in a better financial position? Will it be able to pay its debt and meet its obligations in six months time?
• What effects would my decision to continue trading have, whether I am successful or not, on creditors and staff?
• What is the intended purpose behind the suspension? Am I exploiting a loophole or one of the intended beneficiary?
• Are there people who could be saved if I decided to cease trading now? Does the business have any obligations toward those people?
• Is my desire to see this business continue clouding my judgement? Do I need someone independent to help me make this decision?

There is no hard-and-fast rule here. Some organisations will be able to use this support to revive their business to a healthy state. Ideally, those that do have done so in the confidence that the risks they were posing to others were low: they weren’t ‘taking a punt’ with the time available, but making an informed choice about what was in the best interests of the business, creditors, staff and the economy at large.

There is an old saying in military circles: death before dishonour. The question facing some organisations now is just that: when are the social costs too high for me to continue trading? When is it the right thing to do to pull the plug?

You can contact The Ethics Centre about any of the issues discussed in this article. We offer free counselling for individuals via Ethi-call; professional fee-for-service consulting, leadership and development services; and as a non-profit charity we rely heavily on donations to continue our work, which can be made via our website. Thank you.