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SOCIAL BUSINESS, 2014, Vol. 4, No. 3, pp.245-253 http://dx.doi.org/10.1362/204440814X14103454934258 ISSN2044-4087 print /ISSN2044-9860 online © Westburn Publishers Ltd.

THOUGHT PIECE

The philosophy of ethics and the corporate conscience

Jim Blythe, University of Plymouth, UK*

Abstract In recent years there has been a great deal of public concern about the ethical behaviour of large businesses. Organisations lack a natural conscience except that which is collectively held by their members. This means that the corporate conscience needs to be created artificially in the form of a mission statement, vision statement, or (in some cases) an overt ethics statement. Whilst there has been a rapid growth in corporate mission statements, most or all of which include an ethical stance, there appears to be a dichotomy between the view corporations have of themselves and the image they have with the public. Judging whether behaviour is ethical or not is at the heart of the problem, since corporations will be judged by their ethics and (apparently) expect to be rewarded for ethical behaviour by grateful stakeholders, whether they be customers, employees, suppliers or the government. However, making a decision about the ethical content of corporate behaviour is by no means straightforward, and depends entirely on the viewpoint of the observer. Three different viewpoints are provided, those of the Philosopher, the Executive and the Marketer. The nature of the relationship between the corporate conscience and the personal conscience of stakeholders is also addressed.

Keywords Ethics, Corporate conscience

*Correspondence details and a biography for the author are located at the end of the article.

INTRODUCTION

In recent years, there has been a great deal of public concern about the ethical (or unethical) behaviour of large businesses. Not unnaturally, when there is an economic downturn people will look around for someone to blame, and will often attribute blame not on the basis of incompetence or error, but on the basis of deliberate deception or skullduggery. The financial sector in particular has been accused of deliberate deception, as is evidenced by the huge rise in claims for mis-selling of financial products, from payment protection insurance through to “value-added” bank accounts.

In view of the equally rapid growth in corporate mission statements, most or all of which include an ethical stance, there appears to be a dichotomy between the view corporations have of themselves and the image they have with the public. This of course presupposes that the mission statement has any relevance to what happens within the firm on a day to day basis; in some cases one might suppose that the mission statement bears little relationship to actual behaviour, whether the behaviour itself is ethical or not.

Judging whether behaviour is ethical or not is at the heart of the problem, since corporations will be judged by their ethics and (apparently) expect to be rewarded for ethical behaviour by grateful stakeholders, whether they be customers, employees, suppliers or the government. However, making a decision about the ethical content of corporate behaviour is by no means straightforward, and depends entirely on the viewpoint of the observer.

THE PHILOSOPHER’S VIEWPOINT

Ethical thinking divides into two main schools of thought: the deontological (in which acts can be defined as ethical or unethical regardless of the outcome) and the teleological (in which acts can be defined as ethical or unethical according to the outcome). The teleological approach implies that the means justifies the ends, and that the greatest good of the greatest number will determine whether an action is ethical or not.

The deontological approach really just pushes the problem back to the questioner: how do we decide what is ethical and what is not? Kant’s Categorical Imperative (Kant, 1785/1993) offers a yardstick for judging actions. Kant suggests that actions are ethical if the actor would be happy for everybody to be bound by the same rule of behaviour, in other words one should act only if one would be prepared for others to act in exactly the same way in similar circumstances. This is not quite the same as the Golden Rule (do unto others as you would have them do unto you), since it covers a much wider spectrum of behaviour. For example, the execution of a serial killer might be regarded as perfectly ethical under the Categorical Imperative since the judge, jury and executioner would all be accepting of the idea that other serial killers should be treated in the same way. Under the Golden Rule, though, none of the three categories of actor would be willing to accept that the serial killer should do unto them what they are doing unto him, so the execution would be unethical.

Kant has been criticised on several grounds. Benjamin Constant pointed out that the Categorical Imperative would presumably make lying unethical, in which case one should be prepared to give a murderer information about the location of his

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victim. Kant was still alive at the time, and wrote an essay agreeing that it would be unethical to lie to the murderer, a stance with which most of us might tend to disagree. Another criticism came from Schopenhauer, on the basis that people are unlikely to be as rigorous in applying the Categorical Imperative to themselves as they would be to others, a practical rather than a philosophical objection. Since Adolf Eichmann invoked the Categorical Imperative as part of his defence during his trial as architect of the Holocaust, one tends to side with Schopenhauer on this one.

Kant, of course, lived in a very specific time and culture. The problem in the modern age is that ethical rules generated by his Categorical Imperative might produce one set of answers in one culture, and a different set of answers in another; given the global nature of business, the Categorical Imperative might not be quite so useful as it once was.

Teleology allows us to get around this by considering acts to be ethical if they lead to the greatest good for the greatest number. Almost anything can be justified this way, so it is a very practical philosophy for commercial organisations, since they can always argue that the needs of shareholders, customers, employees and so forth come ahead of (for example) a few suppliers in the developing world. For the teleological thinker, exploiting child labour or poor farmers is justified by the tremendous good created for fashionistas and food consumers. Rather like Kant’s agreement with Constant that one should not lie in order to achieve a benevolent outcome, the idea that the powerless are ripe for exploitation does not sit well with most of us.

For practical purposes, then, philosophers (however eminent) are not much help to us in deciding what we have to do on Monday morning.

THE EXECUTIVE VIEWPOINT

Most business people have separate codes of practice for their behaviour in work and their behaviour outside work (Fraedrich, 1988), so corporations develop their own internal schemes of ethics. Obviously there will be less tension in the workplace if the company’s ethical stance is close to the employee’s personal ethical stance, and equally obviously this happy agreement will not always cross international borders (or rather, cultural borders). For example, McDonald’s have expended considerable money in establishing Ronald McDonald Houses, a charitable endeavour by which accommodation is provided near children’s hospitals in order that families can stay near their sick children. These houses have been established in most countries in which McDonald’s operates, but when the company tried to establish one in Norway the action was perceived as an insidious way of raising McDonald’s profile in the country. Politicians, academics and the general public banded together to prevent McDonald’s from establishing the house, with the result that the firm backed down and abandoned the project (Brønn, 2006).

Even within the same culture, ethical behaviour can vary from one corporate environment to another. For example, Richer Sounds has a recruitment policy of hiring friends and relatives of existing employees (Richer, 1995), in order to foster a “family” working environment. If a government department or local authority were to implement the same policy, it would quickly fall foul of the equal opportunities legislation. Apart from the legal position, though, many people would feel quite happy that Richer Sounds continues with its overtly nepotistic approach to recruitment, while deploring a “jobs for the boys” policy in government.

Blythe The philosophy of ethics and the corporate conscience 247

From this we can see that carrying out good deeds does not guarantee customer approval, let alone any improvement in the company’s image, profits or sales. Customers may be suspicious of corporate motives, especially if there is a poor fit between the company’s image and the cause it promotes (Becker-Olsen & Cudmore, 2004). The situation becomes even more complex in the negative. If a company is perceived to have acted badly, this may have a negative impact on the corporate image among the general public, but have little or no impact on its image with its most important stakeholders. In some cases stakeholders, such as shareholders or corporate customers may be secretly approving of a company with a reputation for ruthlessness.

For example, Rio Tinto has frequently been criticised for its environmental record. The Norwegian Government divested itself of shares in the company and banned any further development within Norway (Norwegian Ministry of Finance, 2008) due to Rio Tinto’s activities in Indonesia. The charity War on Want also attacked Rio Tinto for its alleged human rights violations in Papua New Guinea and Indonesia, and in 2010 the company locked out workers at its plant in Boron, California (Curtis, 2007; Gorman, 2010). None of this seems to have hurt Rio Tinto’s sales, which went from $9.2 bn in 2003 to $52.1bn in 20131. Net profit rose almost exactly in line with these figures, which of course happened across a period of international financial crisis of unprecedented proportions.

However, this is not always the case. Union Carbide’s involvement in the Bhopal tragedy in India did hurt the corporate bottom line. Just to recap the main events, in 1984 a cloud of poisonous gas was released from the Union Carbide chemical plant in Bhopal, killing between 3800 and 8000 local inhabitants (estimates vary, since some deaths might have been attributable to other causes). Hundreds of thousands of locals have suffered ill health during the intervening thirty years, including birth defects and cancers. US courts have placed the blame firmly in India, and in fact seven former employees of Union Carbide (all Indians) were convicted of criminal negligence; despite this, and the fact that Union Carbide India was majority owned by the Indian Government, the parent company was vilified by environmentalists and other campaigners, often being accused of corporate racism (e.g. RT.com, 2010). Union Carbide’s stock market valuation dropped by two-thirds (presumably on fears of a major lawsuit and compensation pay-out) and the company faced financial difficulties for some years afterwards, until it merged with Dow Chemical in 2001.

The ethical environment for business is therefore complex, but susceptible to analysis. Breaking down the environment into suitable chunks is one useful thing to do; Terpstra and David (1991) did this, categorising the elements as cultural, physical, industrial, corporate, and societal. Each element brings its own problems; in a multicultural society such as the UK there are clear ethical problems in dealing across cultures, especially around religious practices and beliefs. Cultural problems are greatly increased in global trade because language also becomes an issue, as well as some major differences in business practices. In much of Africa, gifts are given at the opening of trade negotiations, but these are not necessarily considered to be bribes while in much of the Far East, gifts are exchanged at the close of negotiations. In Europe and the United States gift-giving in a business context is generally regarded as suspect at best, corrupt at worst. Any US firm offering bribes or even gifts is liable to find itself in trouble under the Foreign Corrupt Practices Act of 19772, which

1 http://www. riotinto.com/reportingcentre

2 http://www.justice.gov/criminal/fraud/fcpa/docs/fcpa-english.pdf

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provides for fines of up to $2 M for corporations and $100,000 plus a prison term of five years for officers, directors, stockholders, employees and agents who commit bribery.

Ethical behaviour in the physical environment is largely concerned with environmental issues, and most companies are at considerable pains to establish their environmentalist credentials. Much of this sterling effort is directed at appeasing pressure groups; green activists can create a great deal of adverse publicity, and of course employees prefer to feel that they are working for an ethical company. The difficulty for companies is often that environmental awareness comes at a cost, and competitors may not be quite so fastidious; maintaining competitive advantage is likely to take precedence over ensuring the continued survival of a species of water- snail.

Another aspect of the physical environment is the control of raw materials. This can have a knock-on effect on other ethical considerations. During the apartheid era in South Africa, economic sanctions applied by the rest of the world were somewhat muted in part due to the fact that South Africa was producing 78% of the world’s platinum and 100% of its chromium. This led the then South African trade minister to say that South Africa could withstand trade sanctions, but if South Africa imposed sanctions on the rest of the world, the world would be in trouble (Sun Sentinel, 1985). South Africa and Russia are also the main sources of diamonds in the world, and therefore control the prices between them by restricting supply. This pattern is repeated endlessly - OPEC countries control the supply and price of oil, Russia controls the natural gas supply of much of Eastern Europe, the United States controls the supply of helium gas, and so forth. The ethics of so doing is dubious to say the least, since neither the deontological nor the teleological schools would accept any of these uses of power as being ethical, yet countries continue to use these controls as a way of establishing empires, retaining oppressive practices within their own borders, and even rallying political support against their enemies.

Societal ethics also presents many problems, for marketers in particular. Marketing is widely supposed (by non-marketers) to be about manipulating attitudes. Marketers hotly deny this, but in fact there is a great deal of persuasion, manipulation, misdirection, and (occasionally) flat-out lying in marketing communications. Stephen Brown (2003) even suggests ignoring the customers altogether, denying them the products they so desperately crave. Brown goes on to admit that “the purpose of marketing is to sell stuff”. Naturally, this raises substantial ethical issues: encouraging people to eat more increases the obesity epidemic, encouraging people to drink alcohol is clearly bad for their health, encouraging the use of high-performance cars and motorcycles is bad for road safety, and so forth, yet, marketers are charged with the task of doing exactly that.

Despite the idea of societal marketing (Kotler, Armstrong, Saunders, & Wong, 2008), in which marketers are exhorted to consider the needs of society as a whole, most marketing practitioners are constrained by corporate imperatives to aim for sales now and goodwill later. Societal marketing considers long-term sustainability, but for a brand manager with a career to build, the long term is really not part of the day-to-day working landscape; although there is a clear link between customer approval and shareholder value (Anderson, Fornell, & Mazvancheryl, 2004), few boards of directors see the world that way.

Blythe The philosophy of ethics and the corporate conscience 249

THE MARKETER’S VIEWPOINT

Three basic views of corporate ethical stances have been identified (Goodpaster & Matthews, 1982). These are:

1 The invisible hand;

2 The hand of government;

3 The hand of management.

The invisible hand view is that companies will be punished by the market for unethical behaviour, and should therefore focus only on creating value for shareholders. Marketers may have a problem with this view, since they are (supposedly) focusing on consumers not on shareholders, but that particular conflict is easily resolved by the consideration that we are not looking after the consumers because we love them, but rather because it is the best way of getting them to give us their money. The invisible hand idea is very helpful for the “what do we do on Monday morning” question because it provides a single yardstick - will what we are doing create greater shareholder value, or will it not? This viewpoint was very ably outlined by Peter Doyle (2008). Doyle argued that marketing, and indeed all company activity, is aimed at increasing shareholder value rather than increasing profit or increasing consumer welfare. Free-market forces will take care of the rest, although how one is to know whether one’s actions will trigger a negative market response or not remains unexplained by the theory.

In practice, many marketing initiatives have resulted in an unexpected backlash, some of which have been extremely hard to contain. The Hoover free-flights debacle, in which Hoover offered free flights to anyone buying a Hoover product, has been well-documented. The idea was to offer free flights (at a time when airlines had serious over-capacity) as a sales promotion. The offer was heavily over-subscribed, leading to a shortage of product for sale and a huge backlog of people who could not be given their flights: apart from the PR implications, the financial effects meant that Hoover’s UK operation had to be bailed out by the US parent company (Chan, 2004). This was actually less serious than many other well-meaning attempts at pleasing people, showing that relying on the invisible hand is rather like the bird that flew backwards - it’s easy to see where you’ve been, but rather harder to navigate effectively.

The hand of government also allows the practical marketer to abdicate responsibility. Here, the company needs merely to stay within the law - the government sets up any necessary ethical barriers by passing legislation to control firms. This has the great advantage of ensuring that one’s competitors are equally constrained in what they can and cannot do - the famous level playing field - but has the downside of stifling creativity. A further downside is that every law seems to contain at least three loopholes, so the truly creative competitor can usually evade restrictions. Furthermore, governments only legislate within their own borders - in a world where instant intercontinental communications are possible by telephone and internet, governments have little power to control marketers.

Both these philosophies assume that controls have to be placed on companies from the outside, in other words that companies will not of themselves behave ethically. This may be somewhat harsh - after all, companies have no real existence, they are merely groups of people who have come together in mutual self-interest, and they

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therefore carry the ethical values of their members at least to some extent. This is where the third ethical stance - the hand of management - comes into play. In this view, companies set their own morality, in a formal structure that lays down the ethical stance of the organisation. Executives and other employees are not expected to work out their own ethical stances on particular issues, but are instead shown the way by the company’s senior management, who outline the ethical and moral rules of the firm in a specific statement.

Typically, firms will have a mission statement or a vision statement which contains the company’s ethical standpoint. This is likely to include noble statements about caring for customers, employees, the environment and all stakeholders. It may include statements about quality control, statements about fair trade, statements about honesty and transparency, and so forth but of course there is likely to be something of a gap between what is in the statement and what actually happens in practice.

In some cases, companies have been founded purely on ethical grounds. Rowntree’s was founded to espouse Quaker principles, Body Shop was started as a counter to large cosmetic companies on environmentally-sound lines, and the John Lewis Partnership was created as a response to oppressive employment practices. This is perhaps the ultimate example of the hand of management approach to ethical behavior.

In fact, companies will (in general) adopt aspects of all three ethical stances: they will be affected by the invisible hand of the market, they will have to operate within the law, and they will also develop their own internal ethical positions. Whether these positions follow a deontological or a teleological bent will depend largely on the beliefs of the members of those organisations, but it is a fairly safe bet that relatively few of those members will have heard of either deontology or teleology.

Corporate social responsibility, although heavily bound up with ethics, is actually somewhat simpler to deal with since it merely means caring for the welfare of the organisation’s stakeholders. The only real problems arise from conflicts of interest. Caring for employees might conflict with caring for customers (for example, opening a retail store on a Sunday might be wonderful for its customers, but be damaging to the family lives of its employees). Likewise, giving customers exceptionally good value for money might impact on the firm’s profitability in the short term, affecting shareholder welfare.

CONCLUSION

From the foregoing it appears that ethics is a slippery subject. Even relatively simple yardsticks such as the Golden Rule have complications attached to them, and certainly the philosophical positions of deontology and teleology create more questions than they answer. Ethical behaviour is therefore not an absolute; it relies on the views of the majority of people living within a cultural milieu, and can therefore change over time and certainly over distance.

For individuals, ethical behaviour means conforming to the diktats of conscience - the internal parent that tells us what is right and what is wrong. Organisations lacking parents also lack a natural conscience except that which is collectively held by their members. This means that the corporate conscience needs to be created artificially in the form of a mission statement, vision statement, or (in some cases) an overt ethics statement. The design of this statement is likely to be based on the consciences of the

251Blythe The philosophy of ethics and the corporate conscience

senior management of the company, and in the case of a vision statement is likely to reflect the conscience and values of the company’s founder.

Whether this results in behaviour that others would regard as ethical is another matter. Sir Alan Sugar is reputed to have said that the Amstrad mission statement could be summed up as “We want your money!”3 Refreshingly honest as this is, it may not be a statement that would endear Sir Alan to his customers.

The corporate conscience will also be influenced strongly by the culture within which the firm operates, in some cases within the national culture of the firm’s founders, and in some cases within the industry culture. For example, in the mining industry, a certain amount of environmental damage is expected as part of the process of extracting minerals, and most firms in the industry would therefore have a flexible attitude to the environment which would not be present in (say) a major supermarket chain.

The corporate conscience can, and will, influence the daily behaviour of employees, however. Because people can hold entirely separate ethical codes between work and home, the corporate conscience can operate independently of the personal conscience. Of course, if the two consciences are greatly in conflict, the individual might feel considerable internal dissonance and may end up leaving the company, but this will not affect the corporate conscience much. The same might be true of customers, of course - if the corporate conscience is wildly at odds with the customer’s personal view of ethical behaviour, the customer will take his or her business elsewhere. This may lead companies to have two separate consciences - the public and the private - in much the same way as individuals can have public and private attitudes on almost any topic. At the very least, it may lead companies to issue statements which consist of little more than a collection of noble words with no substance behind them.

Finally, the corporate conscience might just as easily justify itself through deontology as through teleology, but will probably require no internal justification. Like the consciences of individuals, the corporate conscience is just there, complete and whole, needing only to be fed with the warm glow of compliance. Whether having a conscience at all is a prerequisite for a ticket of admission to corporate heaven will depend, as always, upon the responses of customers.

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Anderson, E.W., Fornell, C., & Mazvancheryl, S.K. (2004). Customer satisfaction and shareholder value. Journal of Marketing, 68(4), 172-185. doi: 10.1509/jmkg.68.4.172.42723

Becker-Olsen, K., & Cudmore, B.A. (2004). When good deeds dilute your equity. Advances in Consumer Research, 31(1), 78-79.

Brønn, P.S. (2006). Building corporate brands through community involvement: Is it exportable? The case of the Ronald McDonald House in Norway. Journal of Marketing Communications, 12(4), 309-320. doi: 10.1080/13527260600950643

Brown, S. (2003). Free Gift Inside! Chichester: Capstone. Chan, A. (2004, May 13). Hoover’s free flights fiasco recalled. BBC News. Retreived from

http://news.bbc.co.uk/1/hi/business/3704669.stm Curtis, M. (2007). Fanning the Flames: The Role of British Mining Companies in Conflict

and the Violation of Human Rights. War on Want, London. Retrieved 10 April 2009 from http://www.waronwant.org/attachments/Fanning the Flames.pdf

3 http://www.nytimes.com/1987/09/26/business/amstrad-plots-a-us-invasion.html

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Doyle, P. (2008). Value-based Marketing: Marketing Strategies for Corporate Growth and Shareholder Value, 2nd edition. London: Wiley.

Fraedrich, J. (1988). Philosophy type interaction in the ethical decision making process of retailers. PhD dissertation, A&M University, Texas.

Goodpaster, K.E., & Matthews, J.B., Jr. (1982). Can a corporation have a conscience? Harvard Business Review, 60(1), 132-141.

Gorman, S. (2010, February 24). Locked-out Rio Tinto borax miners in U.S. get support. Reuters. Retrieved 3rd June 2014 from http://www.reuters.com/article/2010/02/25/us-usa- mine-lockout-idUSTRE61O0CV20100225

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Kant, I. (1785). Grounding for the Metaphysics of Morals: with, On a supposed right to lie because of philanthropic concerns, 3rd edition (J.W. Ellington, Trans., 1993). Indianapolis: Hackett.

Norwegian Ministry of Finance (2008, September 9). The Government Pension Fund divests its holdings in mining company. [Press release] Retrieved from http://www.regjeringen.no/en/ archive/Stoltenbergs-2nd-Government/Ministry-of-Finance/Nyheter-og-pressemeldinger/ pressemeldinger/2008/the-government-pension-fund-divests-its-.html?id=526030

Richer, J. (1995) The Richer Way, Revised Edition. First Published in Great Britain by Richer Publishing.

RT.com (2010, July 13). Bhopal activist accuses multinationals of racism. Retrieved from http://rt.com/news/bhopal-racism-union-carbide/

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ABOUT THE AUTHOR AND CORRESPONDENCE

Professor Jim Blythe is the author of 15 textbooks and over a hundred journal articles. He is a visiting professor at Fachhochschule Nordhausen and Ritsomeikan Asia Pacific University, Japan, and divides his time between the UK and Spain.

Jim Blythe, University of Plymouth, Faculty of Business, Drake Circus, Plymouth, PL4 8AA, UK

Blythe The philosophy of ethics and the corporate conscience 253

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