Ethics & Business II: Business Ethics in a Nutshell

As mentioned in my previous post, I recently finished teaching a course on Business Ethics to students of a Master in International Management, which has forced me to review as much of the existing literature on the subject as I could, and to conclude that most of it is essentially useless or worse. Back to the title, I wanted to take the occasion to condense in a few paragraphs the summary of all the research and the thinking I have been doing since October last year. Consider it the Cliffs Notes of my latest literary production:

Ethics – how to live

There is considerable social agreement about what is “good” (although as in so many areas, agreement on the general outlook, or the wide brushstrokes, may conceal a good deal of disagreement on the fine details and nuances). A good guy is generous, has other people interests’ in his mind when acting, is just and equitable, gives everyone his due and does not shortchange others to gain a bit more himself:

We may leave aside for a moment the fact that different people may perceive exactly the same action (Action 1 in the previous schema, say) as occupying different positions in the continuum. If I give some money to charity I may judge it as being a very virtuous thing, while you may think I did it to show off (virtue signaling), or to gain a fiscal deduction, or that given how much I earn and the wretched state of the world it is still not enough. Regardless of how well trained in ethics we are, it is simply the nature of human language that the assignment of value (remember, that pesky concept that physics and chemistry cannot capture or properly measure) is both imprecise and subjective, so we are wont to disagree about the exact amount of it of each action shows. Which shouldn’t obscure the fact that, again, there is wide agreement in the relative position of different actions, so my giving money to charity is almost universally understood to be “better” (more virtuous, more praise deserving) than selling addictive drugs to teenagers out of school or mugging people at knife point.

Now, even if we accept (as I do) the fact that there is an objective truth to the amount of moral virtue of every action we freely decide to perform (as virtue, and praiseworthiness in general, requires freedom to have any meaning at all: no freedom implies no possibility of being virtuous or evil) we still need to inquire if such “socially perceived virtue” is indeed conductive to the good life, to the kind of life we should (that pesky verb again) aspire to live. This apparently simple question turns out to be fiendishly difficult to answer in a way that is universally considered valid, and indeed every single attempt at answering it, since the times of Socrates (and probably well before that) has in some sense failed, as some thinker or other has come out sooner rather than later pointing out to some formal defect in the underlying logic of the answer that purportedly rendered it moot.

This is where historical reasoning normally kicks in with full force (in philosophy books, not certainly in business ethics ones) and attempts to explain why, for the kind of creatures we humans happen to be, which include the fact we are endowed with reason and we have to live in community with our fellow beings, for which we instinctively feel empathy, it is indeed best to try to live ethically (closer to the complex of behavior causing perceptions under label “B” in my graph) than the other way round, and thus the source of the normativity of ethical theory lies either in its anchoring in human nature or in the dictates of abstract reason. I feel a lot of sympathy for historical reason, and enjoy as much as the next guy dabbling in it, but at this point I won’t consider the matter entirely settled (that narrative went more or less OK ‘til the Enlightenment, but has been seriously weakened afterwards by Nietzsche and, closer to our days, by Post-modernism, if you want the details you’ll need to wait until my book is released, as both are discussed at length in there). For the purpose of the present post (summary of how to sensibly apply ethical thinking to a business environment) I’ll just consider it settled: it is a fact of the matter that the good life, the worthy life, the life that recommends itself to any rational being, the life that should be pursued, is the virtuous life, the praiseworthy life, the life that most ethical traditions coincide in recommending (regardless of “why” it may be so).

Remember, what such virtuous life consists in is basically agreed by the aforementioned traditions (Nietzsche’s being the odd one out), and can be summarized in following two precepts:

·         Equanimity rule (directly derived from the venerable “golden rule”): don’t give your own interests more weight than those of others. Don’t treat others as you would not like to be treated yourself. Try to adopt and impersonal, impartial point of view when deciding how to act, so you don’t favor yourself just for being you

·         Perfectibility rule: develop your capabilities as much as you can, giving priority to those that can be of use to your fellow men (and thus, that by the application of the previous rule, make you a more useful member of society)

It is also widely agreed that such schematic formulations cannot exhaust every conceivable dilemma (ethical or otherwise) we may find in the business of conducting our daily lives. No statement of a rule to be universally and unconditionally followed, doesn’t matter how pithy or how extended, may aspire to cover the almost infinite combination of circumstances and peculiar features each of our free actions is framed in, so it may recommend (or disqualify) unambiguously each one of those actions. We will discuss towards the end of the post (hopefully) to what extent, then, are such pithy formulations of ethical directives useful or not, as some authors have deduced, from the impossibility of being applied to each possible situation we face, that ethics is simply not amenable to being formulated as a definite set of rules, ad that supposed universal “principles” are at best a distraction, and at worst an unnecessary obstacle when trying to find out how to live (a good example of such position can be found in Jonathan Dancy’s book Ethics Without Principles, although many of the objections to what we may call “understanding of Ethics as finding universally applicable rules” were already presented in the deservedly famous Ethics, Inventing Right or Wrong by J. L. Mackie). Let’s just assume for the time being that those rules do indeed apply, are useful, and are valid indications of how to lead a good life (both seen from outside, by our fellow humans, and felt from inside, as self-fulfilling, rewarding ways of living). What do they have to do with the conduct of business, and the performance of our professional activities?

Business Ethics – How to exchange commodities (including our own labor)

Before we discuss the peculiarities of how Ethics applies to business situations, a couple of reminders are in order:

1.       Regardless of what the US supreme court may say, Corporations are not people. You may grant rights to them, and you may impose duties on them, but such rights and duties are, from an ethical perspective, legal fictions. There is no such a thing as a sentient, conscious, “mind of the corporation”, able to take decisions (apart from and distinct of those of its different executives, within their respective areas), and thus morally deserving praise or blame. One of the central terms within the discipline of Business Ethics is “Corporate Social Responsibility”, and enormous amounts of ink have been spilled discussing what that responsibility consists in, and how far does it extend. Executives, which we can safely presume are (mostly) human being do indeed have a responsibility for acting in “socially acceptable” ways, for taking decisions that result in a net positive for the corporations they represent and for the societies in which they operate. But the nebulous collectives that have endowed them with such decision power have no "responsibility", social or otherwise.

2.       For a majority of their life, the activity that occupies more awake time of almost everybody is precisely work. If the average adult (between 18 and 65 years old) is awake 112 hours a week, you can expect him to devote more than half of those hours to his job (including getting there and returning from it). There is no way you can define, orient, inspire or direct a meaningful way to live (which is precisely the core of what ethics is about) that doesn’t address that time. There cannot be an ethics that doesn’t include, or that carves a separate space for, or identifies different principles to regulate, how to behave at work, or how to approach business deals, or how to treat subordinates and co-workers. Furthermore, the attempts to create such ethic, an ethic of the “private life”, to be governed by a set of principles, and different from a “work ethic”, governed by a distinct set, understood as attuned to the peculiarities and separate dynamics of a mythical realm called “the market”, are not neutral or objective or value-free. They typically constitute a naked attempt to justify quite unsavory behavior (the shameless exploitation of our fellow humans, which in turn requires denying their inherent dignity and “exchangeability” with ourselves) with a veneer of sophistry and bad empiricism, appealing to “the greatest happiness for the greatest number” and the unverifiable assumption that certain relationships of production (collectively known as free-market capitalism) automatically ensure such stupendous happiness by ensuring everybody maximizes the utility they extract from what they consume, and produces using with maximal efficiency the means at their disposal (as summarized in a passage in the textbook on Economics by Samuelson and Nordhaus that I’ve quoted several times, and which manages to be both tautological and disingenuous).

What we should conclude from both points is that business ethics, as commonly described, is highly suspect of constituting a rationalization of rapacious behavior. A rationalization facilitated by the way it is typically taught, in isolation from the rich ethical tradition from which it could benefit (expounded in my previous post). If you zoom in what are the responsibilities of corporations, and how to balance the demands of sustainability and profit maximizing, and then disguise your own lack of an adequate framework for even formulating the problem with a myriad of “cases” that can be argued one way or the other (and that end up transmitting that this ethical stuff is really complex and confusing and it doesn’t matter much what you end up deciding because for any outcome you can find someone willing to defend that it was the right thing to do). A fine way of training lawyers (again, that is where the case methodology originated), but not certainly one for developing ethical excellence in economics (or BA) students…

What I’m saying with this is that “business ethics” cannot aspire to be a complete ethics, detached from the question of the good life and a solid theoretical framework of what is good for us, rational animals. Now, the peculiarity of business is, as I intimated in the opening of this section, that it is an institution devoted to the exchange of commodities. What is a commodity? I’ll take Lionel Robbins definition stating that it is a piece of stuff (or of our own time) that has an economic value (that we can put a price on), which in turn assumes that such piece of stuff or time can be put to alternative uses (or to the same use by alternative persons). That means that when we exchange commodities (again, our own time included) the main question, as long as the exchange is voluntary, is not one of ultimate ends, or of how conductive to our own perfectibility the exchange is, but of its fairness, of how just it is. Thus, of the two main aspects of ethics (the two main precepts we mentioned towards the end of previous section), business ethics is mainly concerned with the first (equanimity), as the ultimate mark of a fair transaction is that we would accept it from both sides, if we exchanged places with the other party we would still consider it advantageous (if not, if we are the only ones taking advantage of it, if we are somehow fleecing the other party, it is doubtlessly unethical to engage in it).

Which is all great and good, but puts us in a bit of a bind, specially when we turn our attention to that most vaunted position (one which was identified by Alasdair McIntyre in his arch famous After Virtue as a paradigmatic figure of our times), that of the Manager, the person that corporations choose to coordinate the activities (and thus, to give instructions) to other people. A manager must maximize the output of his team, that is the only possible way to discharge the fiduciary responsibility he has been assigned. But for such maximization to happen, he must consider the members of said team as means, not as ends in themselves, again, because the end in itself can only be the profit maximization. Indeed, the whole of economic theory is built in the essential interchangeability of people, which are but one resource more among others (remember our Robbinsian definition of commodity, taken from the master’s conceptualization of the discipline: resources that by definition admit of alternative uses), and are thus to be thrown off the productive process if said process can be accomplished more efficiently (more cheaply) using machines, or using people based in countries with lower salaries. Something that managers all the world over have been doing with verve and gusto on a monumental scale for the last half century (which only shows that their economic training was impeccable, and impeccably unbalanced by any ethical concern).

So, alas! Business ethics has to deal with justice, and justice is by far the messier aspect of the whole field of practical philosophy, because it has to do with the competing claims of different people, with different histories, different arguments that can be expressed more or less convincingly, independently of their “intrinsic” merit (if there is even such a thing), and thus it very easily degrades into casuistry. We all agree in a number of ethical positions: flogging a man that robbed a crumb of bread because he was hungry? That’s bad, bad, bad. Raping a woman to satisfy your wanton lust? Superbad and inexcusable. Slavery (benefitting from it, or simply standing by if it happens in your country)? Totally bad and despicable. But when it comes to who deserves what… we haven’t progressed much since the time of the original sophists (the practitioners of their trade now are called “lawyers”, at least in the West), that boasted they could make the “weaker argument seem stronger” (and win the trial). 

Which doesn’t mean that business ethics can’t be taught, or that it necessarily has to be as poorly taught as it actually is (with the predictably mushy results we can daily admire in the press). Some of the cases can be used to illustrate the inherent tension between the different actors involved in business relationship (the workers, the capital owners, the consumers, the rest of society), and some guidelines can be provided about the basis for adjudicating between their competing claims (as I did in this series of posts: Organizational Justice I, Organizational Justice II and Organizational Justice III, in which I essentially argued for the superiority of a Kantian approach over a utilitarian one). I’m just saying that trying to cut corners, and jump in the discussion of cases without having carefully laid out the foundations of why one kind of life (the examined one, that recognizes the essential equality and dignity of all human beings, and on the other hand requires us to develop our potential abilities to perfection, prioritizing those most useful to our fellow humans) is better than other (the unexamined pursuit of social status through the hoarding of material goods as prescribed by a cancerous dominant reason that is uncritically accepted as the only way to live) can only end in causing the confusion of the students, and breeding in them the cynicism and disenchantment of which they provide such ample evidence once they leave the hallowed grounds of academia and start fending for themselves in the world of greedy corporations, all too eager to put all that cynicism and disenchantment to good use for their own ends.