When it comes to selling coffee, promoting “ethical beans” makes sense. Same goes for “ethical diamonds,” and not just because respecting workers is the right thing to do.

Simply put, for many businesses, highlighting ethical standards related to the supply chain and product manufacturing adds value by allowing consumers who care about environmental, social, and governance (ESG) issues to feel good about their purchase decisions.

But ethical porn?

Believe it or not, Ethical Capital Partners (ECP)—an Ottawa-based private equity firm founded last year by a collection of legal and law enforcement professionals—recently acquired MindGeek, the controversial corporate parent of various adult entertainment sites, including the infamous Pornhub.

Once a reliable cash cow, Pornhub’s growth potential took a hit in late 2020, when New York Times columnist Nicholas Kristof published “The Children of Pornhub,” which posed the question: Why does Canada allow this company to profit off videos of exploitation and assault? At the time, MindGeek had plenty of critics raising red flags about the company’s operations, but it had still managed to project a naughty-but-relatively-nice image by spreading some of its profits across various do-good organizations.

When the pandemic hit, Pornhub playfully offered free porn to help people survive COVID-19. That gesture was probably welcomed by the customers who generated what was then 3.5 billion visits a month, making Pornhub more popular than Netflix, Yahoo, or Amazon. But the community service messaging didn’t fit with Kristof’s NYT article, which accused  the company of monetizing user-uploaded content that appeared to include “child rapes, revenge pornography, spy cam videos of women showering, racist and misogynist content, and footage of women being asphyxiated in plastic bags.”

MindGeek’s previous owners denied knowingly profiting from illegal content while attempting to contain the scandal by purging operations of unverified content, which reportedly involved erasing over 10 million videos that equaled about 80 per cent of Pornhub’s library. But payment partners Visa and Mastercard bolted, which negatively impacted subscription-based revenue.

Enter the Canadian private equity firm with the woke-sounding name.

MindGeek’s new owners didn’t buy the company aiming to do the world a favour by shutting Pornhub down. In a Globe and Mail report on the acquisition, ECP co-founder Solomon Friedman—a high-profile criminal lawyer—noted his firm’s partners were “very proud” to be in the porn business, which he says they entered hoping to promote “consensual and sex-positive adult entertainment.” But another obvious reason behind ECP’s market entry is the chance to make a bundle of cash by cleaning up Pornhub’s reputation and billing it as a leading corporate citizen in a controversial industry that was estimated to be worth over $50 billion last year.

In an interview with Fortune, Friedman noted his firm believes adult entertainment is on the cusp of following cannabis into the mainstream of business. “We’re of the view that there’s real potential for adult audiences,” he said. “Adults need a place on the internet. And the opportunity for creating those spaces and ensuring those are safe and stigma-free has real potential.” And if all goes well, other Canadian investors might be offered a chance to get in on the action.

According to the Globe, some of MindGeek’s new owners had previously developed a plan to acquire MindGeek and take it public after giving Pornhub an ESG makeover. That strategy was part of an earlier bid for the company that didn’t work out, and ECP isn’t talking about whether an IPO is now forthcoming. But Friedman and his partners are clearly aiming to drive growth by promoting their stated commitment to ethical leadership while highlighting Pornhub’s adoption of tools for detecting and deterring illegal content. And so, if a public offering is still potentially on the agenda, my advice to ECP’s leadership team is simple—take a trip to the dentist before finalizing any exit strategy based on ESG-washing a porn site.

Don’t let me lose you. My point here has nothing to do with oral hygiene. My dental office has a waiting room stocked with reading material, including an old issue of Canadian Business magazine with a feature on Bay Street’s rejection of Avid Life and its controversial Ashley Madison adultery service. I wrote that CB story, which led to an Ivey Business School case study—co-authored by Professor Gerard Seijts—because it offered a cautionary tale about promoting morally questionable businesses as mainstream investments.

In 2010, a member of Avid Life’s public relations team made a mistake by suggesting I profile the company as it was making its first attempt to go public and was having trouble finding Bay Street partners because the idea of publicly supporting infidelity had most Bay Street dealmakers running for the hills. This generated an interesting debate about the social responsibilities of investment bankers, along with plenty of jokes about how nobody on the Street wanted to encourage due diligence related to Ashley Madison’s customer base. And my coverage of that debate ironically put an end to the company’s initial plan to go public.

When taking a second kick at the IPO can in 2015, Avid Life was accused of using fake accounts to look more attractive to customers and, presumably, investors. This alleged fraud was one of the stated motivations behind the infamous hacker attack that exposed all of Ashley Madison’s user records, including sexual preferences. But the company’s first failed attempt to go public had nothing to do with allegations of cheating on its own customers.

In fact, before my investigation derailed things, the Avid Life investment story appeared relatively straightforward. Profits were growing nicely despite a rough economy, and to grow them faster, Ashley Madison’s corporate parent was seeking about $60 million in expansion capital to acquire an online advertising outfit, which was also operating in the black. After creating a larger, more diversified, and profitable media play with a high-profile growth story, the plan was to provide an exit opportunity for early investors and institutional shareholders by taking Avid Media public via a reverse takeover of a listed shell company on a Canadian exchange.

Simply put, if you just looked at the numbers, Avid Life’s proposed private placement was a relatively attractive investment opportunity, especially amid the aftermath of the global financial crisis. And yet, most investment bankers couldn’t convince themselves to support an adultery service that promoted itself with ad copy like “Trapped in a sexless marriage, or just want to mix up your play list? Join AshleyMadison.com. It’s way better than an intern.”

The fear generated by Avid Life’s offering was partly fueled by concerns related to reputational risk, which was increasingly on the mind of brand managers of the day. But personal morality had also unexpectedly become a major hurdle. As fund manager Stephen Jarislowsky told me at the time, “I don’t mind investing in liquor, because without it, you’d miss something in life. I tell friends to stop smoking, and I still buy tobacco companies. But Ashley Madison shouldn’t be a public venture because it can destroy families. And there is nothing worse than the effect of divorce on children.”

Not everyone agreed with Jarislowsky’s point of view. Indeed, I talked to plenty of business professionals who rejected the idea that supporting Ashley Madison was somehow different than helping other businesses push cigarettes, liquor, gambling, or adult entertainment. Nevertheless, very few dealmakers on Bay Street wanted to complicate their life by publicly leading fundraising efforts for the controversial adultery service. And amid this lack of Street enthusiasm, Avid Life was lucky enough to find a champion in GMP Capital, which agreed to sit down with me and explain why it was willing to risk its reputation, not to mention subject itself to being the butt of Bay Street jokes, by bringing Ashley Madison forward as an investment opportunity.

Sitting in a boardroom surrounded by GMP dealmakers, the firm’s then-CEO—Kevin Sullivan—told me investment bankers were in the business of helping market participants pursue legal opportunities to increase their wealth, not serve as society’s moral compass. And in Avid Life’s case, whether or not someone should seek to make a profit by investing in a company that legally facilitates affairs was something that GMP thought was best left up to individual investors to decide. As Sullivan spoke, the other investment bankers in the room nodded in agreement, letting me know they were collectively committed to proudly taking a free market stand in their support for a potentially lucrative business opportunity rejected by their peers on moral grounds.

As a business journalist, I considered this a fair argument. And given the profitable history of traditional sin stocks, my editors at Canadian Business expected me to file a story that praised GMP for treating investors like adults. But while doing my own due diligence on Avid Life, I had come to suspect that GMP had failed to do a good job when analyzing the reputational risk involved in supporting the company.

While preparing for my interview with GMP, I had risked my own reputation by spending time on the Ashley Madison site, where I quickly discovered the following message posted by an economically challenged teenage girl:

To be honest, I’m really looking for a sugar daddy, so if that isn’t you I wouldn’t waste your time replying. I’m looking for a generous man that loves to take care of a younger lady, i am 18 and have just started university and my parents aren’t paying a cent for it (when i say parents I mean my mother, i have no clue where my father is these days) So if there is a nicer gentlemen on here that really gets off on helping a young women with some bills, taking stress of her shoulders while recieveing the same back both emotionaly and physically please msg me.

Sliding a printout of this post across GMP’s boardroom table, I first waited for Sullivan to digest it, then I waited for him to collect his jaw from the floor before asking him to comment.

Watching the investment banker struggle to comprehend how he ended up in a position that required him to justify running a firm willing to help students pay for their education via prostitution made me wonder if GMP knew Avid Life also ran EstablishedMen.com, which existed to connect “attractive girls” with “generous benefactors.” But instead of getting a chance to ask more questions, I was politely informed that my interview was being put on hold while GMP took another look at the Avid Life offering. I left the meeting with Sullivan’s face suggesting he had mass employee murder on his mind. This was late on a Friday, and before the opening bell on the following Monday, I was told the Avid Life fundraising campaign was now “dead” as far as GMP was concerned. The official explanation was that “market conditions” had somehow dramatically changed over the weekend, which sounded better than admitting a lowly journalist had killed a $60-million deal by doing better research than GMP’s dealmakers using nothing more than an Internet browser.

When deciding to champion an adultery service as a legitimate free-market investment, GMP failed to fully account for the role personal morality might play as a fundraising obstacle. And when I exposed that Ashley Madison’s ethical challenges went beyond what could be easily justified by free-market arguments, Avid Life lost the only Bay Street firm willing to promote it. And that, in a nutshell, is something ECP should really think about as it promotes Pornhub as a money-making opportunity fit for ethically minded individuals.

As pointed out by Michael Cook, editor of Australia’s MercatorNet, which posts blogs about issues related to human dignity, ECP’s view of MindGeek’s operations and the associated reputational risks “is so different from that of Pornhub’s critics that they might exist in parallel universes.” Where critics see a crime scene, Cook notes, MindGeek’s proud new owners see “a dynamic tech brand that is built upon a foundation of trust, safety and compliance.”

To be fair to ECP, whether you like it or not, it is not hard to understand the firm’s stated business case for buying MindGeek, which is based on the premise that Pornhub has adequately dealt with its content issues. “The challenges with respect to [questionable uploaded] content is one that faces the internet as a whole,” Friedman told CBC, adding that an extensive review by his firm showed that MindGeek had addressed the issue better than any other online content provider.

Toss in the fact that MindGeek’s operations before its payment partner troubles generated a record pre-tax profit of $186 million on revenue of $482 million and you get the key messages being deployed in what Cook calls “a charm offensive” designed to apply lipstick made of cynically bright virtue-signaling to the ugly face of Pornhub’s past transgressions.

Another key message being circulated is by MindGeek is a new-found respect for sexual content creators who have suffered from the negative publicity created by the bad apples behind porn-related sex trafficking, exploitation, and child abuse. As highlighted in the new Netflix documentary Money Shot: The Pornhub Story, the industry also has its relatively good apples who need a champion to help them fight for their civil rights and counter regulatory threats to their chosen way of earning a living, and MindGeek appears to be taking on that role, vowing, as CBC put it, “to do more to include the voices of sex workers and content creators in discussions about the industry’s future.” To help it do this, the company has put together an advisory team with member expertise in cyber security, financial compliance, sexual assault litigation, female empowerment, sexual diversity, and occupational health in porn production.

The bottom line, according to the ECP website, is that the firm’s porn platforms “feature the best selection of award-winning adult content and performers, the most extensive collection of high-quality adult videos and the most user-friendly experience for viewers. With an emphasis on supporting its community and freedom of expression, MindGeek’s platforms have risen to the forefront of Trust & Safety, employing industry-leading compliance and content moderation practices.”

According to Friedman, these reforms mean Pornhub can actually perform a public service. Indeed, as he explained in the Ottawa Citizen, the plan is to make the world’s largest porn site a force for good by running operations transparently while promoting the adoption of Pornhub’s content moderation technology as a best practice for keeping the Internet legally clean. This, he argues, is better for society than shutting Pornhub down and letting “nefarious operators take over the world of internet pornography.”

But here’s the thing—branding MindGeek’s operations as ethical and responsible will take more than respecting industry workers and getting rid of illegal content, especially in the age of virtual reality.

As things stand, MindGeek’s content moderation practices still enable adult consumers to live out morally questionable fantasies thanks to virtual reality videos that offer users the ability to imagine having everything from incestuous relationships and violent sex to sex with high-school students, cheerleaders, babysitters, and so on.

This “freedom of expression” content is widely available presumably because it is made with adult actors who only enable people to enjoy pretend criminal and antisocial behaviour. But that’s dicey logic from an ethical standpoint, and not just because you could argue that posting videos that seem to use adult performers as proxies for children still monetizes pedophilia.

Enabling individuals to do bad things in pretend environments can impact real-world behaviour. As noted in an Al Jazeera opinion piece by Laurel McBride, a rape crisis centre worker, porn frequently normalizes degrading acts that are often violently forced on unwilling partners.

Like the video game industry, pornography sites have avoided facing this issue for years. But the issue isn’t going away. In fact, it will likely get much worse.

You don’t need to be a psychic to see that the world of pretending is well on its way to becoming the new reality for many consumers. A fascinating recent article by Globe and Mail reporter Joe Castaldo looked at people who fell in love and developed sexual relationships (via sexting) with a chatbot app until a policy update limited the ability to have creepy human–chatbot interactions. As one brokenhearted user who suffered a mental health crisis as a result of the change told the Globe, “It was like texting an ex who wants to stay friends, but longing for what you once shared.”

If today’s chatbot technology can generate intimate experiences that people perceive as real, just imagine what’s coming thanks to AI, VR, and deepfake technology. As I pointed out in my Financial Post Magazine column last year, Mark Zuckerberg’s vision for the so-called metaverse is all about offering a fake “feeling of presence,” which is why the online experience will eventually be like Plato’s cave on steroids. Pornhub already offers VR videos that allow users to experience sex acts from the visual perspective of actors performing them. But in “metacave environments,” people will experience fantasy scenarios as though living them. And that’s regardless of whether they are nasty, naughty, or nice.

ECP freely admits that it plans to unlock shareholder value at MindGeek through state-of-the-art tech and intellectual property investments. This has at least some observers speculating that the Pornhub acquisition is really all about cashing in on the savings that can be achieved by investing in technology-generated porn. Despite all the talk about respect for porn workers, industry insiders reportedly told The New York Post that the real plan will likely make human porn stars “as outdated as the mustaches and perfunctory plot lines that riddled porn flicks in the 70s and 80s.”

Taking human actors out of the content-creation equation wouldn’t just reduce costs, it would eliminate any reputational risk of being associated with forced sex or child pornography. But that still leaves the issue of content designed to allow consumers to live out fantasies of criminal and antisocial sexual encounters.

Whether ECP’s messaging  is sincere or opportunistic, the firm shouldn’t expect investment bankers to line up to support a MindGeek IPO, especially if it doesn’t move moderate some of the porn industry’s most popular plot lines. As noted above, when Avid Life first attempted to go public, it tried billing Ashley Madison as a public service, arguing married people cheat all the time, so why not make some money by helping them do it discreetly and save some marriages along the way. On Bay Street, this argument largely fell on deaf ears. And that was before #Metoo and current ongoing debate over corporate purpose.

Any way you slice it, making money by enabling someone to realistically imagine having sex with minors, family members, or unwilling partners circumvents society’s ethical norms, so you could argue that even Milton Friedman would have a problem with it. Either way, as Stephen Jarislowsky said when asked about investing in Ashley Madison, there are always other investment opportunities, “so why bother with this crap?”