The Katz School, like all AACSB-accredited business schools, has an obligation to provide education in the area of ethics. The obligation is intended to ensure that students are prepared for the full range of issues and circumstances they will face in their career. Business educators hope that exposure to ethics education will aid students in making honorable decisions.

Ethics issues arise in many subtle ways. It is rare that ethics questions are crystal clear. Usually they involve making decisions that benefit the organization and possibly have negative effects on some stakeholder.  Balancing the positive and negative effects is difficult – often because managers may tangibly benefit from certain decisions.  I published a study many years ago in Across the Board magazine (October and November 1990 issues) reporting the responses of a variety of national leaders to ethics questions that had been submitted by alumni of the Columbia University Graduate School of Business. The responses illustrated that ethics decisions are often complex and can lead experts to provide conflicting advice.  Since I believe that education must provide a practice field for students – some portion of the practice must be devoted to difficult questions of business ethics. This is the first of multiple posts on business ethics. I will post Part 2 potentially after I receive some comments on the scenario presented below. 

Today is an ideal time for the Katz School to give attention to business ethics.  Western Pennsylvania is in the midst of a gold rush of sorts.  Our gold is a gas that permeates the shale comprising much of our state. The natural gas trapped in the Marcellus and Utica shale layers under our feet has generated massive investment from energy companies seeking to use new drilling technologies to release the gas. Our energy independence requires us to have confidence in the hydraulic fracturing technique (fracking) employed to release shale gas and to believe that fracking will not pollute our water or otherwise harm residents.

Before continuing, I offer a tangent to help put the issue in perspective. Recall the tobacco industry and the scrutiny its executives received in the 1990s.  On April 18, 1994, seven tobacco company CEOs testified before a Congressional Committee that nicotine was not addictive. Since then, those CEOs have been criticized – and called many names, such as the seven dwarfs – especially after revelations of internal industry research indicating nicotine’s addictive power and the industry’s awareness of it. The circumstances led the tobacco industry to enter into settlements with most states to provide money for treatment of smokers. The view expressed by the CEOs was consistent with other tobacco industry arguments that no one could prove that cigarette smoking caused cancer.  Keep this in mind:  It is indeed very difficult to prove causality.

This issue of causality is important today in Pennsylvania. With the advent and perfection of fracking, it has become possible to extract the natural gas in shale formations in an economically viable way. So far, much drilling has taken place in Pennsylvania and even more controversy has emerged regarding the safety of fracking and whether the state’s water supplies are endangered because of this drilling approach. Most famously because of the movie Gasland, which features the eastern Pennsylvania town of Dimock where some residents could light their water on fire (because of methane in the water), strong public sentiment has emerged – with many people opposing fracking and many others seeking the royalties coming with gas leases. Since there is much writing and research on these matters, I refer readers to the many other sources for relevant information. Keep in mind the strongly held viewpoints and economic implications of the competing views.

My focus is on a small area of Western Pennsylvania where a controversy has arisen. After describing the situation from press accounts and identifying some assumptions and ground rules, I seek input from readers on what they would do in the situation described.

Within the past few months a dispute has developed between Rex Energy Co. and 11 families in the Woodlands neighborhood of Connoquenessing Township in Butler County, Pennsylvania. According to reports in the local media, Rex at one time provided water to the 11 families (which include 31 people and their animals) when changes were noticed in the quality of their well water after Rex began drilling for natural gas in the area. The policy of Rex is to provide water to complaining families and then to conduct testing. In this case, tests conducted by the Pennsylvania Department of Environmental Protection and an independent testing company each indicated no difference in water chemistry before and after gas well drilling. This led the company to decide it was not obligated to provide water.  People in the affected neighborhood and many others who are concerned about fracking and water quality have protested the decision. Some residents have complained about physical problems that they have experienced since fracking began. It was noted in the media that some residents have decided to pay personally for delivered water; it was estimated in one report that it cost a family about $125 per week for the water.

Now, to put things in perspective for the purpose of this post, it is necessary to make some assumptions:  (1) Fracking is a safe and effective way to extract shale gas. Note, because fracking has been used by companies for many years with relatively few reports of problems, this assumption is appropriate. When corroborated, drilling problems appear to be due to mistakes in the process and not to fracking per se; (2) the energy companies drilling for shale gas are concerned about serving all stakeholders, obeying laws and regulations, and not fouling the water; (3) the local people affected by potential water problems are legitimately concerned and not simply trying to generate a lawsuit; and (4) for various reasons, affected people have been unwilling to trust decisions made by Pennsylvania’s Department of Environmental Protection. (This means that the local governmental referee is unable to resolve the controversy.)

In light of the assumptions and the background, here is the business ethics question to consider:  Should the company provide water to the families who claim their water was harmed by gas drilling when testing suggests that the water has the same chemistry after drilling as it had before gas drilling? What would you do and why? Please be succinct.  Provide a yes or no first and give your reasons.  I will tabulate the results and post about them later.